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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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BROADBANDNOW, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7370 75-2851160
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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1440 CORPORATE DRIVE
IRVING, TEXAS 75038
(972) 650-6900
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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JAMES R. PRICE, CHAIRMAN
MATTHEW HUTCHINS, SR., PRESIDENT & CEO
BROADBANDNOW, INC.
1440 CORPORATE DRIVE
IRVING, TEXAS 75038
(972) 650-6900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies to:
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MARK ZVONKOVIC, ESQ. L. STEVEN LESHIN, ESQ.
KING & SPALDING JENKENS & GILCHRIST, P.C.
1185 AVENUE OF THE AMERICAS 1445 ROSS AVENUE
NEW YORK, NEW YORK 10036 DALLAS, TX 75202
(212) 556-2100 (214) 855-4500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $0.001 par value.............................. $115,000,000 $30,360
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 2000
PROSPECTUS
SHARES
BroadbandNOW, INC. [LOGO]
(FORMERLY I(3)S, INC.)
COMMON STOCK
---------------------------
This is an initial public offering of shares of common stock of
BroadbandNOW, Inc. We are selling all of the shares of common stock
offered under this prospectus.
We expect the initial public offering price to be between $ and $
per share. Currently, no public market exists for our shares. We intend to file
an application for the common stock to be quoted on the Nasdaq National Market
under the symbol "BBNW."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
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PER
SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
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---------------------------
The underwriters may also purchase up to an additional shares at the public
offering price, less the underwriting discount, within 30 days from the date of
this prospectus to cover over allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 2000.
---------------------------
BEAR, STEARNS & CO. INC. CHASE H&Q
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 15
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Unaudited Pro Forma Consolidated Financial Information...... 18
Selected Historical Consolidated Financial Data............. 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 29
Management.................................................. 46
Principal Stockholders...................................... 55
Certain Relationships and Related Party Transactions........ 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 66
Underwriting................................................ 68
Experts..................................................... 71
Legal Matters............................................... 71
Where You Can Find More Information......................... 71
Glossary of Terms........................................... 72
Index to Consolidated Financial Statements.................. F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE,
AND THE UNDERWRITERS, HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION,
YOU SHOULD NOT RELY ON IT. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY,
SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS
IS ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE
CHANGED SINCE THAT DATE.
We have included definitions of technical terms important to your
understanding of our business under "Glossary of Terms" on page 72.
(ii)
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including our consolidated
financial statements and related notes, and consider the information set forth
under "Risk Factors" before making an investment decision. Unless we indicate
otherwise, the information set forth in this prospectus includes reference to
our subsidiary prior to our reincorporation in Delaware and assumes a
for one stock split effective , 2000, and the conversion of all of our
preferred stock, Class B common stock and Class C common stock into common
stock.
OUR COMPANY
We provide high-speed, high-bandwidth Internet access and customized
broadband content and applications under the BroadbandNOW(TM) tradename. We
provide these data services to our subscribers via our private, national
Internet Protocol network which we manage on an end-to-end basis to ensure peak
performance. By utilizing multiple broadband access technologies, including
cable modem, xDSL, Ethernet and wireless, we connect subscribers directly to our
network. Our mission is to provide our subscribers with the "always on, always
fast, always fun(TM)" experience of BroadbandNOW(TM) at data transmission speeds
substantially faster than typical dial-up connections.
We have established and are pursuing strategic relationships with Service
Partners to gain access more rapidly to potential subscribers and deliver our
services. Our Service Partners currently include utility companies, such as
Northern States Power through its communications subsidiary, Seren Innovations;
property managers and owners and real estate investment trusts, or REITs, such
as Archstone Communities, AvalonBay Communities, Camden Property and Forest City
Residential; and private cable operators, or PCOs, such as Direct Digital
Communications, Global Interactive and GTE Media Ventures. We also intend to
pursue Service Partner relationships with other emerging data communications
providers such as multiple system cable operators. As part of our Service
Partner agreements, we share both in the funding of capital and operating
expenditures and in the revenue generated. Our current agreements average seven
years in duration. As of December 31, 1999, we had executed master service
agreements with our Service Partners that cover approximately 600,000 potential
passings and obtained approximately 2,300 broadband subscribers for our
BroadbandNOW(TM) service from the approximately 39,000 passings constructed at
that time.
Our product offering is based upon the premise that sustainable,
high-performance, broadband Internet access requires a high-capacity, scalable,
national network architecture and server platform to alleviate public Internet
bottlenecks and enable true end-to-end network management capabilities. As such,
we have designed and deployed our own private, national Internet Protocol
network that currently has 22 points-of-presence, or POPs, serving 23 markets.
Our network is managed on an end-to-end basis, 24 hours a day, seven days a week
from our network operations center in Dallas, Texas. We utilize intelligent
routing on our network to carry our subscribers' content requests and
fulfillment across our network as far as possible. Our network is scalable to
OC-48 and we expect to have 47 POPs, serving 48 markets, covering 18,000 route
miles by the end of 2000. We work closely with a number of quality hardware
vendors to develop the key components of our network that enable us to more
rapidly deliver broadband access, applications and content to our subscribers.
Through strategic affiliations with Adaptive Broadband, Lucent Technologies and
Nortel Networks, we have developed certain customized network solutions that
ensure consistent quality and interoperability between our private, national
network infrastructure and the multiple broadband access technologies we use for
"last mile" access, which is the local portion of our network that connects
subscribers' premises to our POP. Lucent Technologies and Nortel Networks are
investors in our company with a combined equity investment of $30 million.
A key part of our strategy is to provide our subscribers with content
enhanced for broadband connectivity. Access to this enhanced content is
initiated through our integrated BroadbandNOW(TM) launch screen where we present
internally developed, as well as aggregated, broadband content. Internally
developed content is designed, created and published by us and our Service
Partners utilizing our
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proprietary broadband content publishing platform. Through our directPEER(TM)
program we aggregate sources of broadband content by connecting the servers of
other providers and aggregators of broadband content directly to our private
network. This allows our subscribers to receive content directly from such
directPEER(TM) partners via our network and without traversing the public
Internet, thereby allowing us to manage their experience on an end-to-end basis
to ensure quality performance and true broadband delivery. To date we have
established a directPEER(TM) partnership with Yahoo! and are pursuing agreements
with other broadband content providers. In addition to our directPEER(TM)
program, we also work closely with a number of quality software vendors to
develop the key components of our product offering that enable us to more
rapidly deliver broadband access, applications and content to our subscribers.
We have recently formed a strategic relationship with Microsoft through which we
plan, among other things, to jointly work to increase the rate at which
consumers and businesses adopt broadband technologies and to develop various
local online communities for our subscribers. We have also recently formed a
strategic relationship with Liberty Media through which we plan to distribute
broadband content developed by certain affiliates of Liberty Media to our
subscribers. Liberty Media and Microsoft are investors in our company with a
combined equity investment of $40 million.
People are increasingly using the Internet for work, personal
communications, commerce and leisure. According to the Yankee Group, an
estimated 30 million, or approximately 30%, of the 100 million homes in the U.S.
today currently utilize dial-up connections with data transmission speeds of
56.6 Kbps or less. The increase in the number of subscribers and Internet usage
has led to the development of e-commerce strategies by traditional "brick and
mortar" merchants and businesses, broadening the services offered and creating
more traffic over the Internet. Business-to-consumer e-commerce is projected to
increase at a 65.7% compounded annual growth rate, or CAGR, from $11.5 billion
in 1998 to $86.6 billion in 2002. Business-to-business e-commerce is projected
to increase at a 57.9% CAGR from $75.6 billion in 1998 to $470.3 billion in
2002. In addition, Internet advertising is projected to increase from $1.4
billion in 1998 to $7.0 billion in 2002. The growth in the number of
subscribers, the increase in Internet usage and the development of
bandwidth-intensive applications are imposing burdens on the current Internet
infrastructure, resulting in primarily slower transmission speeds and reduced
network availability. The increasing demand by subscribers for reasonably priced
high-speed service that can handle bandwidth-intensive applications is projected
to cause the market for broadband Internet service to grow rapidly. The number
of U.S. households with broadband access is projected to increase at a 111.5%
CAGR from approximately 450,000 in 1998 to approximately 9 million in 2002,
encompassing 16% of all online homes.
Our Strategy. We intend to become a leading provider of high-speed,
high-bandwidth Internet access and broadband content and applications. To
achieve this objective, we intend to:
- Establish strategic relationships with Service Partners nationwide;
- Provide high quality services and a full range of high-speed data
solutions for our Service Partners;
- Utilize and leverage multiple broadband access technologies for "last
mile" access;
- Continue the deployment of our private, nationwide Internet Protocol
network;
- Link directPEER(TM) content partners directly to our private, nationwide
Internet Protocol network;
- Develop, aggregate and deliver additional broadband content and
applications;
- Invest in our BroadbandNOW(TM) brand; and
- Leverage our key supplier relationships to create customized technology.
------------------------------
Our principal executive offices are located at 1440 Corporate Drive,
Irving, Texas 75038, and our telephone number is (972) 650-6900. Our websites
are located at http://www.broadbandnow.net and http://www.bbnow.com. Information
contained on our websites is not a part of this prospectus. On January 6, 2000,
the Company formed a Delaware holding company, BroadbandNOW, Inc., from the
existing capital structure of its former company, I 3S, Inc. All company
operations will continue to be conducted in the Texas corporation, which has
been renamed BroadbandNOW Texas, Inc. and which is a wholly-owned subsidiary of
BroadbandNOW, Inc.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary historical consolidated
financial and other data as of and for each of the three years ended December
31, 1997, 1998 and 1999; and consolidated balance sheet data as of December 31,
1999, pro forma for the private placement of our Series A redeemable convertible
preferred stock subsequent to December 31, 1999, and as adjusted for the
consummation of this offering.
The following summary consolidated financial data has been derived from our
audited consolidated financial statements and the notes to those statements
included in this prospectus beginning on page F-1. You should read this
information together with the information under "Selected Historical
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." You should not assume that the
summary consolidated financial data is indicative of our future performance.
Our revenue streams were largely derived from our systems integration
business through December 31, 1998. Beginning in late 1998, we strategically
de-emphasized our systems integration business and began to focus on our
Internet subscriber services. Therefore, results for these periods are not
directly comparable and are not indicative of future results.
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YEAR ENDED DECEMBER 31,
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1997 1998 1999
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(ALL DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Internet subscriber services.............................. $ -- $ 17 $ 444
All other revenues........................................ 3,801 1,338 464
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Total revenues.............................................. 3,801 1,355 908
Operating expenses.......................................... 4,615 5,073 16,797
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Operating loss.............................................. (814) (3,718) (15,889)
Net loss attributable to common stockholders................ (883) (3,775) (17,492)
Basic and diluted net loss per share........................ $(0.12) $ (0.39) $ (1.49)
====== ======== ========
Shares used to compute basic and diluted net loss per share
(in thousands)............................................ 7,347 9,582 11,718
====== ======== ========
OTHER DATA(1):
Passings.................................................... -- 127,000 613,000
Passings constructed........................................ -- 2,762 39,127
Subscribers................................................. -- 84 2,313
Penetration................................................. -- 3.0% 5.9%
</TABLE>
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AS OF DECEMBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 52,802 $ 76,388
Working capital............................................ 45,764 69,350
Total assets............................................... 76,735 100,321
Long-term debt and capital leases.......................... 14,159 14,159
Redeemable convertible preferred stock..................... 66,915 90,501
Stockholders' equity (deficit)............................. (12,431) (12,431)
</TABLE>
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(1) "Passings" include all of the doors for potential subscribers which, through
our existing agreements with our Service Partners, we have the right to be
granted access to and/or the right to construct facilities to provide our
services. We do not include passings attributable to Service Partners who do
not have the financial strength to construct the necessary infrastructure to
allow us to provide high-speed data services. "Passings constructed"
identifies the number of doors for potential subscribers where we have built
out the infrastructure necessary to provide high-speed data services within
24 hours of receiving a request to do so. "Subscribers" is the number of
customers that have subscribed to our service. "Penetration" is equal to the
number of subscribers divided by the passings constructed.
(2) The "pro forma" column reflects the issuance of 1,265,723 shares of Series A
redeemable convertible preferred stock issued after December 31, 1999, in
exchange for approximately $23.6 million in cash net of expenses.
(3) The "pro forma as adjusted" column reflects our capitalization as of
December 31, 1999, with adjustments to give effect to the conversion of all
shares of outstanding preferred stock, including those issued after December
31, 1999, into shares of common stock upon the closing of this
offering, and the receipt of the estimated proceeds from the sale of our
common stock offered hereby (after deducting the estimated offering expenses
and underwriting discounts and commissions).
4
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RISK FACTORS
Investing in our common stock involves risks. You should carefully consider
the following risks together with the other information contained in this
prospectus before deciding to buy our common stock. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also could harm our business, financial condition and operating results.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE AND FORECAST OUR
BUSINESS.
We have only a limited operating history in providing high-speed data
services over the Internet. Prior to 1999, most of our operations and our
revenues related to our systems integration operations, which we have
strategically de-emphasized. As a result, forecasting operating results for our
Internet services is difficult and our historical results are not indicative of
our future results. The profit potential of our business model is unproven. We
have difficulty predicting whether the pricing models for our Internet services
will prove to be viable, whether demand for our Internet services will
materialize at the prices we charge, or whether current or future pricing levels
will be sustainable. If such pricing levels are not achieved or sustained, or if
our services do not achieve or sustain broad market acceptance, our business
will be significantly harmed.
OUR QUARTERLY PERFORMANCE MAY BE DIFFICULT TO FORECAST AND OUR ACTUAL
PERFORMANCE MAY FLUCTUATE.
Our quarterly revenues and operating results are difficult to forecast even
in the short term. A significant portion of our expenses is fixed in advance
based in large part on future revenue forecasts. If revenue is below
expectations in any given quarter, the adverse impact of the shortfall on our
operating results may be magnified by our inability to adjust spending to
compensate for the shortfall.
In addition, our actual operating results may fluctuate significantly due
to a variety of factors, many of which are outside our control. Factors that may
affect our operating results include:
- the speed with which third parties are able to deliver local and national
telecommunications circuits;
- the condition of the "last mile" infrastructure and our ability and that
of our Service Partners to upgrade or maintain that infrastructure and
the timing thereof;
- our effectiveness and that of our Service Partners in marketing our
service;
- the rate at which customers subscribe to our Internet services and the
prices subscribers pay for these services;
- changes in the revenue splits between us and our Service Partners; and
- the overall market demand for e-commerce and broadband content and
applications in general.
WE HAVE INCURRED SIGNIFICANT NET LOSSES, EXPERIENCED NEGATIVE CASH FLOWS AND
ACCUMULATED A SIGNIFICANT DEFICIT.
We have incurred net losses in each fiscal year since our formation. As of
December 31, 1999, we had an accumulated deficit of $22.7 million. In addition,
we currently intend to increase our capital expenditures and operating expenses
in order to expand our network to support additional expected subscribers in
existing and future markets and to market and provide services to a growing
number of potential subscribers. As a result, we expect to incur additional
substantial operating and net losses and there is no assurance that we will ever
achieve favorable operating results or profitability. See "Business -- Our
Business Strategy."
OUR FAILURE TO MANAGE THE GROWTH OF OUR OPERATIONS COULD HARM OUR BUSINESS.
Our future performance depends, in part, upon the ability of senior
management, which, among other things, must manage growth effectively. We have
rapidly and significantly expanded our operations. We
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anticipate that further significant expansion will be required to grow our
subscriber base if we are to be successful in implementing our business
strategy. We may not be able to implement management information and control
systems in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may not be adequate to support our future
operations. During 1998, we increased the number of employees from 31 to 46, and
as of December 31, 1999, we had further increased our total number of employees
to 105. To manage the expected growth of our operations and personnel, we will
be required to:
- train, motivate and manage our sales and marketing, engineering,
technical and customer support employees;
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures; and
- install new management information systems.
If we are unable to manage growth effectively, our business will suffer.
WE RELY HEAVILY ON OUR SERVICE PARTNERS TO PROVIDE OUR SERVICES.
We obtain access to subscribers through agreements with utility companies,
REITs and PCOs. Key Service Partners currently include Archstone Communities,
AvalonBay Communities, Cable Plus, Camden Properties, Direct Digital
Communications, Forest City Residential, Global Interactive, GTE Media Ventures,
Northern States Power, through its communications subsidiary Seren Innovations,
and OpTel. We rely upon our Service Partners in many areas, including, but not
limited to: marketing to potential subscribers; obtaining access to on-property
plant and equipment; and subscriber billing and collection. In addition,
transmission of the BroadbandNOW(TM) service over coaxial cable is dependent on
the availability of high-speed, two-way coaxial cable infrastructure. In some
cases, our Service Partners are required to pay for and complete the upgrade and
maintenance of the cable infrastructure so that we will be able to provide
consistently high performance and reliable service.
There are many risks related to our Service Partner arrangements, including
some that we may not have foreseen. For example, certain Service Partners have
reduced and/or delayed marketing efforts to potential subscribers due to
financial duress; delayed and, in some cases, limited our access to properties
for installation and maintenance; and delayed providing subscriber billing
information and remitting payment of our revenue share to us. These delays
adversely impact the speed at which we install new properties and market to and
commence service for new subscribers, each of which could have a material
adverse effect on our financial results. Certain of our Service Partners have
limited experience with these upgrades, and these investments may place a
significant strain on their financial, managerial, operating and other
resources, especially since most of our PCO Service Partners are highly
leveraged or under financial duress. In addition, under certain circumstances
our Service Partner agreements may be terminated, with liquidated damages
payable in some cases. It is difficult to assess the likelihood of future
occurrences of these and other related risks, including the lack of success of
the overall arrangement to meet both our objectives and those of our Service
Partners. If we fail to maintain these relationships or if our Service Partners
do not perform to our expectations, our ability to continue to provide our
service to existing subscribers, deploy our service to new subscribers and
generate revenues will be materially harmed.
WE MAY BE ADVERSELY IMPACTED BY THE FINANCIAL DIFFICULTIES OF OUR PCO SERVICE
PARTNERS.
Several of our PCO Service Partners are highly leveraged or under financial
duress. OpTel, for example, recently filed for protection under the U.S.
Bankruptcy Code. As part of its reorganization, OpTel has the option to accept
or reject our contract in its entirety. OpTel subscribers accounted for 31% of
1999 Internet subscriber services revenues. In addition to potential delays in
systems and infrastructure upgrades and maintenance as noted above, the
financial difficulties of our PCO Service Partners could adversely affect our
ability to construct additional passings under the current contracts and to
collect revenues from our subscribers. The failure of our Service Partners to
provide the necessary infrastructure
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to deploy our service or the rejection of our contracts by our Service Partners
may materially adversely affect our business, operating results or financial
condition.
WE FACE SIGNIFICANT COMPETITION FROM COMPETITORS THAT MAY LIMIT OUR ABILITY TO
GAIN ADDITIONAL MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE.
The markets for consumer and business Internet services and online content
are extremely competitive. We expect that competition will intensify in the
future. Many of our competitors and potential competitors, consisting of local
exchange carriers, long-distance carriers, Internet access and service providers
and Internet content and applications providers have substantially greater
financial, technical and marketing resources, larger subscriber bases, longer
operating histories, greater name recognition and more established relationships
with our customers and potential customers, advertisers and content and
applications providers than we. These competitors, such as AT&T, SBC
Communications, Excite@Home and others have announced plans to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and devote
substantially more resources to developing Internet services or online content
and applications than we. Additionally, America Online, the dominant dial-up
Internet service provider, has recently entered into an agreement to acquire
Time Warner. Time Warner owns a large cable infrastructure and substantial
entertainment and media content assets. The merged company will have the
capacity to market broadband services with Time Warner's content under AOL's
brand name, creating increasing competition from a dominant Internet service
provider. Also, there are other companies that compete with us for strategic
relationships with potential Service Partners. Furthermore, many of our
competitors are offering, or may soon offer, technologies that will attempt to
compete with some or all of our high-speed data service offerings. We may not
compete successfully against current or future competitors and the competitive
pressures we face may materially adversely affect our business, operating
results or financial condition. See "Business -- Competition."
WE DEPEND ON THIRD PARTIES FOR FIBER OPTIC TRANSPORT AND CO-LOCATION FACILITIES.
We depend on the availability of fiber optic transmission facilities from
third parties to connect our equipment within and between metropolitan areas and
for co-location facilities. These third party fiber optic carriers and providers
of co-location facilities include long distance carriers, incumbent carriers and
other competitive carriers. Many of these entities are, or may become, our
competitors. This approach includes a number of risks. For instance, we may be
unable to obtain and renew supply agreements at acceptable rates, terms and
conditions, including timeliness. We have in the past experienced supply
problems with certain of our fiber optic transport and co-location facilities'
suppliers, and they may not be able to meet our needs on a timely basis in the
future. Moreover, the fiber optic transport providers whose networks we lease
may be unable to obtain or maintain permits and rights-of-way necessary to
develop and operate existing and future networks. An inability to obtain
adequate and timely access to co-location space or transmission facilities on
acceptable terms and conditions could have a material and adverse effect on our
business, prospects, operating results and financial condition.
WE DEPEND ON THE DEVELOPMENT AND ACCEPTANCE OF HIGH-QUALITY, HIGH-SPEED
BROADBAND INTERNET CONTENT AND APPLICATIONS.
A key component of our strategy is to provide a more compelling interactive
experience to Internet users than the experience currently available from
dial-up Internet service providers and other online service providers. We
believe that, in addition to providing high-speed, high-performance Internet
access, we must also promote the development of and aggregation of high-quality
multimedia Internet content and applications. Our success in providing and
aggregating such content and applications, and our success in charging a premium
for our service, is dependent on the ability of content and applications
providers to create and support high-quality, high-speed multimedia Internet
content and applications and our ability to aggregate content and applications
offerings in a manner that subscribers find useful and compelling. Our ability
to accomplish this will depend on our ability and that of our competitors to
develop a subscriber base sufficiently large to justify investments in the
development of such content and applications by others.
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<PAGE> 11
There is no assurance that we will be successful in these endeavors. In
addition, the market for high-quality multimedia Internet content and
applications is at an early stage of development and is rapidly evolving, and
there is significant competition among Internet service providers and online
service providers for aggregating such content and applications. If the market
fails to develop as expected or competition increases, or our content and
applications offerings do not achieve or sustain market acceptance, our
business, operating results and financial condition will be materially adversely
affected. See "Business -- Our Business Strategy" and "Business -- Our
Products."
WE ARE DEPENDENT ON THE CONTINUED GROWTH OF THE INTERNET AND ON OUR ABILITY TO
SUCCESSFULLY ANTICIPATE THE FREQUENTLY CHANGING PREFERENCES OF OUR USERS.
Our business is unlikely to be successful if the use of the Internet and
specifically high-speed, broadband Internet applications, such as ours, does not
continue to increase. Even if the popularity of the Internet and related
high-speed, broadband Internet applications does increase, the success of our
service depends on our ability to anticipate and maintain content that appeals
to the frequently changing preferences of our subscribers. Any failure on our
part to successfully anticipate, identify or react to changes in styles, trends
or preferences of our subscribers would lead to reduced interest in and use of
the BroadbandNOW(TM) service and could materially and adversely affect our
business, operating results and financial condition.
WE CANNOT PREDICT THE ACCEPTANCE AND MAINTENANCE OF THE BROADBANDNOW(TM) BRAND.
The development of the BroadbandNOW(TM) brand is important to our future
success. We believe that we must establish and maintain the BroadbandNOW(TM)
brand across our entire subscriber base to attract and expand that base. The
BroadbandNOW(TM) brand could be eroded by misjudgments in service offerings or a
failure to develop and maintain content that appeals to the evolving preferences
of our audience. The inability to establish or maintain the BroadbandNOW(TM)
brand successfully, or the incurrence of excessive expense in an attempt to
promote and maintain our brand, could materially and adversely affect our
business, operating results and financial condition and our ability to attract
subscribers. See "Business -- Our Business Strategy."
OUR SUCCESS DEPENDS ON THE SUCCESSFUL DEVELOPMENT OF NEW SERVICES AND FEATURES
BECAUSE WE ARE SUBJECT TO TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS,
WHICH MAY RENDER OUR SERVICES NONCOMPETITIVE OR OBSOLETE.
The markets for consumer and business Internet access services and online
content are characterized by rapid technological developments, frequent new
product and service introductions and evolving industry standards. The emerging
nature of these products and services and their rapid evolution will require
that we continually improve the performance, features and reliability of our
network, Internet content and consumer and business services, particularly in
response to offerings of new products or services by our competitors. In
addition, our new enhancements must meet the requirements of our current and
prospective users and must achieve significant market acceptance. We could also
incur substantial costs if we need to modify our service or infrastructure to
adapt to these changes. There can be no assurance that we will successfully
respond quickly, cost effectively and sufficiently to these developments.
WE MAY REQUIRE ADDITIONAL CAPITAL TO COMPLETE OUR NETWORK BUILD-OUT AND TO FUND
OUR INFRASTRUCTURE, PRODUCT DEVELOPMENT AND OTHER NEEDS.
As our business is still at an early stage, we must continue to make
significant investments in the development of our network infrastructure and
hire new personnel rapidly in anticipation of potential growth in our business.
We believe that the net proceeds from this offering, together with existing
cash, cash equivalents and capital lease financing, will be sufficient to fund
our aggregate capital expenditures and working capital requirements, including
operating losses, for the next 18 months. However, we may need to raise
additional funds if our estimates of working capital, capital expenditure or
lease financing requirements change or prove inaccurate, or if we are forced to
respond to unforeseen technological or
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<PAGE> 12
marketing hurdles or to take advantage of unanticipated opportunities. Over the
longer term, it is likely that we will require substantial additional funds to
continue to fund our infrastructure investment, product development, marketing,
sales and customer support needs. There can be no assurance that any such funds
will be available at the time or times needed, or on terms acceptable to us. If
adequate funds are not available, or are not available on acceptable terms, we
may not be able to continue our network implementation, develop new products and
services or otherwise respond to competitive pressures. Such inability could
have a material adverse effect on our business, operating results and financial
condition.
WE DEPEND ON THIRD PARTIES FOR KEY TECHNOLOGY AND SOFTWARE.
We currently depend on a limited number of suppliers for certain key
technologies and software used to build and manage our network and offer our
services. In particular, we depend on:
- Adaptive Broadband for on-property wireless equipment;
- Hewlett-Packard for servers;
- Lucent Technologies for asynchronous transfer mode switches, access
concentrators and on-property equipment;
- Microsoft for server and browser software;
- Nortel Networks for on-property equipment and network POP equipment; and
- Vignette for profiling and content development software.
Although we believe that there are alternative suppliers for each of these
technologies, it could take a significant period of time to establish
relationships with alternative suppliers and substitute their technologies into
our network and products. In addition, we rely on software licensed from third
parties, including applications that are integrated with internally developed
software and used in our products. Most notably, we license content publishing
software, remote management software and Windows NT. These third-party
technology licenses may not continue to be available to us on commercially
reasonable terms, or at all, and we may not be able to obtain licenses for other
existing or future technologies that we desire to integrate into our products.
The loss of any of our relationships with these suppliers could materially
adversely affect our business, operating results and financial condition.
IF WE CANNOT MAINTAIN THE SCALABILITY AND SPEED OF OUR NETWORK, POTENTIAL
CUSTOMERS WILL NOT SUBSCRIBE TO OUR SERVICES.
Due to the limited deployment of our services, the ability of our network
to connect and manage a substantial number of online subscribers at high
transmission speeds is unknown. We face uncertainties related to our network's
ability to be scaled to our expected subscriber levels while maintaining
superior performance. There is no assurance that our network will be able to
maintain such high-speed data transmission as the number of our subscribers
grows. Our failure to maintain high-speed data transmission would significantly
reduce consumer demand for our services and have a material adverse effect on
our business, operating results and financial condition.
SYSTEM FAILURES COULD CAUSE INTERRUPTIONS IN THE SERVICES WE PROVIDE.
Our operations are dependent upon our ability to support our highly complex
network infrastructure and avoid damage from fires, earthquakes, hurricanes,
floods, power losses, telecommunications failures and similar events. The
occurrence of a natural disaster or other unanticipated problems at our network
operations center or at a number of our network access points-of-presence could
cause interruptions in the services we provide. Additionally, failure of other
companies to provide the data communications capacity required by our network,
as a result of a natural disaster, operational disruption or any other reason,
could cause interruptions in the services we provide. Any damage or failure that
causes interruptions in our operations could materially and adversely affect our
business, operating results and financial condition.
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<PAGE> 13
SECURITY BREACHES AND VIRUSES COULD HURT OUR BUSINESS.
Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Internet service providers and online service
providers have in the past experienced, and may in the future experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Unauthorized access
could also potentially jeopardize the security of confidential information
stored in our computer systems or those of our subscribers, which might result
in liability to our subscribers, the loss of our current subscribers and the
possible deterrence of potential subscribers. Although we intend to continue to
implement industry-standard security measures, such measures have been
circumvented in the past, and there is no assurance that measures we implement
will not be circumvented in the future. Eliminating computer viruses and
alleviating other security problems may require interruptions, expenses, delays
or cessation of service to our subscribers, which could have a material adverse
effect on our business, operating results and financial condition.
WE DEPEND ON KEY PERSONNEL WHO MAY LEAVE US AT ANY TIME.
Our success will depend on the continued employment of our key executive
officers. The loss of the services of any of our executive officers,
particularly our President and Chief Executive Officer, Matthew Hutchins, Sr.,
could disrupt our day-to-day operations, result in delays in the deployment of
our private, national Internet Protocol network, impede our efforts to maintain
or form new relationships with Service Partners and to obtain new subscribers
and otherwise harm our business. The departure of any of our key personnel could
have a material adverse effect on our business, operating results and financial
condition. See "Management -- Employment Agreements."
IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY,
WE MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES.
Our growth will require us to hire and train additional management,
technical and marketing personnel. There is intense competition for management,
technical and marketing personnel in the areas of our activities. Recruiting
qualified personnel is an intensely competitive and time-consuming process. We
may not be able to attract and retain the necessary personnel to accomplish our
business objectives, and we may experience constraints that will adversely
affect our ability to deploy our service in a timely fashion or to support our
users and operations. We have at times experienced, and continue to experience,
difficulty in recruiting qualified personnel. The failure to attract and retain
additional key employees could have a material adverse effect on our business,
operating results and financial condition.
WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY
AND WE MAY FACE CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY.
Despite the precautions we take to protect our technology and other
proprietary information, the possibility exists for a third party to copy or
otherwise obtain and use our products, services or technology without
authorization, or to develop similar technology independently. In addition,
effective copyright, trademark and trade secret protection may be unavailable or
limited in certain foreign countries. The global nature of the Internet makes it
virtually impossible to control the ultimate destination of our content
offerings. Policing unauthorized use of our content offerings is difficult.
There is no assurance that the steps we take will prevent misappropriation or
infringement of our technology. In addition, litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade secrets
or to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition. See "Business -- Intellectual Property."
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<PAGE> 14
WE MAY BE SUBJECT TO LIABILITY FOR INFORMATION RETRIEVED AND REPLICATED OR FOR
PRODUCTS SOLD THROUGH OUR NETWORK.
Because subscribers will download and redistribute material and we may
cache or replicate material in connection with our services, the possibility
exists that claims may be made against us under both U.S. and foreign law for
defamation, or other theories based on the nature and content of such materials.
Such types of claims have been brought, and sometimes successfully litigated,
against online service providers in the past. As with other online service
providers, patent claims could be asserted against us based upon our services or
technologies. Although we carry general liability insurance, our insurance may
not cover potential claims of the foregoing types, or may not be adequate to
indemnify us for all liability that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of insurance coverage could
have a material adverse effect on our business, operating results and financial
condition. In addition, we have had a very limited experience in the sale of
products online and the development of relationships with manufacturers or
suppliers of such products. Consumers may sue us if any of the products that we
sell online are defective, fail to perform properly or injure the user.
Liability claims resulting from our sale of products could require us to spend
significant time and money in litigation or to pay significant damages.
WE MAY FACE LIABILITY FOR DEFAMATORY OR INDECENT CONTENT.
The law relating to liability of Internet service providers and online
service providers for information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made to
impose liability on Internet and online service providers under both United
States and foreign law for defamation, the carriage of indecent materials or
other theories based on the nature and content of the materials disseminated
through their networks. Several lawsuits seeking to impose such liability are
currently pending against other companies. In addition, legislation has been
proposed that imposes liability for or prohibits the transmission over the
Internet of certain types of information. The imposition upon Internet and
online service providers of potential liability for information carried on or
disseminated through their systems could require us to implement measures to
reduce our exposure to this liability. This may require that we expend
substantial resources or discontinue offering certain services or products. The
increased attention focused upon liability issues as a result of these lawsuits
and legislative proposals could impact the growth of Internet use. One or more
of these factors could significantly harm our business.
WE MAY BE SUBJECT TO GOVERNMENT REGULATION SUCH AS CABLE UNBUNDLING PROPOSALS,
THE APPLICATION OF TELECOMMUNICATION LAWS TO SERVICES PROVIDED OVER THE INTERNET
AND RULES GOVERNING THE USE OF THE MICROWAVE FREQUENCIES OVER WHICH OUR
EQUIPMENT AND WIRELESS COMMUNICATIONS SYSTEMS ARE DEPLOYED.
Although our services are not directly subject to current regulations of
the Federal Communications Commission or any other federal or state
communications regulatory agency, radio communications are subject to such
regulation and changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes that, directly or indirectly,
affect telecommunications costs, limit usage of subscriber-related information
or increase the likelihood or scope of competition from the regional bell
operating companies or other telecommunications companies, could affect the
prices at which we sell our services. See "Business -- Competition."
Radio communications are subject to regulation by United States and foreign
laws and international treaties. Among these requirements are Federal
Communications Commission rules governing the operation of Unlicensed National
Information Infrastructure, or U-NII, devices in the 5.25 GHz and 5.725 GHz to
5.825 GHz frequency bands, and governing operation of other devices in the 2.4
GHz frequency band, which has been allocated by the Federal Communications
Commission for use by Industrial, Scientific and Medical, or ISM, equipment. Our
products and wireless communications systems deployed in the U-NII and ISM bands
must conform to domestic and international requirements established to avoid
interference among users of microwave frequencies and to permit interconnection
of equipment. Each of the transceiver models which we purchase from our vendors
must be certified by the Federal Communications Commission. In addition,
domestic and international authorities regulate the
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<PAGE> 15
allocation of the radio frequency spectrum. Products to support new services can
be marketed only if permitted by suitable frequency allocations and regulations,
and the process of establishing new regulations is complex and lengthy. We may
experience difficulty obtaining allocation of spectrum and may experience
spectral interference by other radio frequency sources. A delay or failure to
obtain suitable allocations of available spectrum could have a material adverse
effect on our business. We may also face future regulation or other restrictions
on the use of the spectrum in which we operate. Any such regulation or
restrictions could have a material adverse effect on our business. See
"Business -- Government Regulation."
UNCERTAIN FEDERAL AND STATE TAX AND OTHER SURCHARGES ON OUR SERVICES MAY
INCREASE OUR PAYMENT OBLIGATIONS.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. A recently passed law places a
temporary moratorium on certain types of taxation on Internet commerce. We
cannot predict the effect of any current or future attempts to tax or regulate
commerce over the Internet. Any legislation that substantially impairs the
growth of e-commerce could harm our business.
WE HAVE NOT PAID AND DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.
We have not paid any dividends on our common stock, and we do not intend to
pay cash dividends in the foreseeable future on our common stock. We do have
dividend requirements on our preferred stock and have paid cash dividends of
approximately $38,000 through December 31, 1999, and have accrued additional
dividends of $1.8 million through December 31, 1999. All of the existing
preferred stock will convert automatically to common stock upon the consummation
of this offering.
FAILURE TO OBTAIN YEAR 2000 COMPLIANCE COULD CAUSE AN INTERRUPTION IN, OR A
FAILURE OF, OUR NORMAL BUSINESS ACTIVITIES AND OPERATIONS.
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
was reached. We have not yet experienced any system problems related to the year
2000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance" for a more detailed discussion.
CERTAIN DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS CONTROL A SIGNIFICANT
PORTION OF OUR VOTING STOCK AND MAY HAVE INTERESTS WHICH ARE ADVERSE TO YOURS.
You should be aware that James R. Price, our Chairman of the Board, his
brother, Charles W. (Bo) Price, a director and our Executive Vice President, and
Geneva Associates, one of our principal stockholders and a company whose
member-managers currently include two of our directors, and its affiliates will
control a total of approximately % of our voting stock immediately
following the completion of this offering, or approximately % if the
underwriters exercise their over-allotment option in full. Further, following
this offering, I(3)S Funding I, an affiliate of Geneva Associates, will have the
right to nominate one person to be a director and have us solicit proxies on its
behalf. As a result, the Prices and Geneva Associates and its affiliates will
have substantial influence over the outcome of actions requiring the approval of
our stockholders, including elections of our board of directors, and they may
make decisions that are adverse to your interests. See "Certain Relationships
and Related Party Transactions" and "Management -- Election of Certain
Directors."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE PROCEEDS OF THE
OFFERING.
We expect to use the net proceeds of this offering, over time, for general
corporate purposes, including working capital and capital expenditures. We may
also use a portion of the net proceeds to acquire or
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<PAGE> 16
invest in complementary businesses, technologies, product lines or products. Our
management will have the discretion to allocate the net proceeds to uses that
stockholders may not deem desirable. There can be no assurance that the net
proceeds can or will be invested to yield a return. See "Use of Proceeds."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF OUR
COMMON STOCK.
The price you pay for our common stock will be substantially higher than
the book value of the common stock. As a result, you will experience immediate
and substantial dilution in the pro forma combined net tangible book value of
your shares of $ per share, while our current stockholders will receive a
material increase in the pro forma combined net tangible book value of their
shares of common stock. See "Dilution" for a more detailed discussion.
A THIRD PARTY COULD BE PREVENTED FROM ACQUIRING YOUR SHARES OF STOCK AT A
PREMIUM TO THE MARKET PRICE BECAUSE OF OUR ANTI-TAKEOVER PROVISIONS.
There are provisions in our certificate of incorporation and by-laws that
may make it more difficult for a third party to acquire, or attempt to acquire,
control of us, even if a change in control would result in the purchase of your
shares at a premium to the market price. In addition, our rights agreement
contains rights that have potential anti-takeover effects. The rights under the
rights agreement may cause substantial dilution to an acquiror that attempts to
acquire us without obtaining the consent of our board of directors or
conditioning the offer on a substantial number of rights being acquired or
redeemed. Accordingly, these rights have the potential to deter a potential
acquiror from making takeover proposals or tender offers that are not negotiated
with our board of directors. See "Description of Capital Stock -- Certain
Anti-Takeover Provisions under Delaware Law and in our Certificate of
Incorporation and Bylaws" for a more detailed discussion. Furthermore, the
Delaware General Corporation Law may also discourage takeover attempts that have
not been approved by our board of directors.
WE DO NOT HAVE A PRIOR TRADING MARKET AND WE MAY EXPERIENCE A VOLATILE STOCK
PRICE.
A public market for our common stock has not previously existed. We cannot
predict the extent to which investor interest in us will lead to the development
of a trading market for our common stock or how our common stock will trade in
the future. The initial public offering price for the shares will be determined
by negotiations between the representatives of the underwriters and us.
Investors may not be able to resell their shares at or above the initial public
offering price.
The price at which our common stock will trade depends upon a number of
factors, particularly historical and anticipated operating results and general
market and economic conditions, some of which are beyond our ability to control.
Other factors that could cause the market price of our common stock to fluctuate
substantially include short-term changes to our operating results that are not
expected by financial analysts, adverse changes in the financial results of our
Service Partners and technological innovations by our competitors. The
occurrence of any of the other events described as risk factors in this
prospectus may also affect the market price of our common stock.
In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. Some of these fluctuations may be due
to speculative trading by individual investors, including investors commonly
referred to as "day traders." The trading prices of many technology companies'
stocks are at or near historical highs and these trading prices and multiples
are substantially above historical levels. These trading prices and multiples
may not be sustained. These broad market and industry factors may materially
adversely affect the market price of our common stock, regardless of our actual
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against such companies. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, results which would seriously harm our business.
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SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL.
Sales of a large number of shares of our common stock in the public market
after this offering or the perception that such sales could occur could cause
the market price of our common stock to drop. Upon completion of this offering,
we will have approximately shares of common stock outstanding, of which
approximately shares will be freely transferable without restriction or
registration under the Securities Act of 1933, unless such shares are held by
our affiliates, as that term is defined in Rule 144 under the Securities Act.
The officers and directors and all of our existing stockholders have agreed with
Bear, Stearns & Co. Inc. not to sell or otherwise dispose of any of their shares
for 180 days after the date of this prospectus. However, Bear, Stearns & Co.
Inc. may, in its sole discretion, at any time without notice, release all or any
portion of the shares subject to lock-up agreements. Sales of common stock by
existing stockholders in the public market, or the availability of such shares
for sale, could adversely affect the market price of the common stock.
In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the approximately shares of common stock
reserved for issuance under our 1996 Omnibus Stock Plan. On the date 180 days
after the effective date of this offering, at least shares will be subject
to immediately exercisable options based on the number of options outstanding as
of December 31, 1999, assuming an effective date of this offering of ,
2000. Sales of a large number of shares could have an adverse effect on the
market price for our common stock.
The holders of shares of common stock, all of whom have executed the
lock-up agreement described earlier, will have certain rights with respect to
registration of such shares for sale to the public beginning 180 days after the
effective date of the offering. If such holders, by exercising their
registration rights, cause a large number of securities to be registered and
sold in the public market, such sales could have an adverse effect on the market
price for our common stock. If we were to include in a company-initiated
registration shares held by such holders pursuant to the exercise of their
registration rights, such sales may have an adverse effect on our ability to
raise needed capital. See "Description of Capital Stock -- Registration Rights."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements relating to, among
other things, future results of operations, our plans and expectations regarding
our future services and operations and general industry and business conditions
applicable to us. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions about
us, including those we describe in the "Risk Factors" section of this
prospectus. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
We use market data, industry forecasts and projections throughout this
prospectus, which we have obtained from internal surveys, market research,
publicly available information and industry publications. Industry publications
generally state that the information they provide has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The forecasts and projections are based on
industry surveys and the preparers' experience in the industry and there is no
assurance that any of the projected amounts will be achieved. Similarly, we
believe that the surveys and market research we or others have performed are
reliable, but we have not independently verified this information. Neither we
nor any of the underwriters represents that any such information is accurate.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ million from this
offering, assuming an initial public offering price of $ per share, the
midpoint of the range set forth on the cover page of this prospectus. Net
proceeds are computed by deducting the underwriting discount and our estimated
offering expenses of $ from the total public offering price.
We currently intend to use the net proceeds from this offering for:
- capital and other expenditures associated with the continued build-out of
our private, national Internet Protocol network;
- working capital associated with the deployment of our BroadbandNOW(TM)
service;
- the payment of approximately $ of dividends on our preferred stock
accrued prior to the date of this offering; and
- other general corporate purposes.
Pending such uses, the net proceeds of this offering will be invested in
short-term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never paid any dividends on our common stock and do not intend to
pay any dividends on our common stock in the foreseeable future. The board of
directors currently intends to retain any earnings for use in our business. Any
future determination to pay dividends will be at the discretion of our board of
directors and will be dependent upon existing conditions such as our financial
condition, results of operations, capital requirements, business prospects and
other factors our board of directors deems relevant. Our preferred stock has
dividends at a defined rate and we pay and declare such dividends based on those
terms. All of the existing preferred stock will automatically convert to common
stock upon the consummation of this offering and dividends accrued to that date
will be paid at that time.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999,
on an actual, pro forma and pro forma as adjusted basis:
- The "Actual" column reflects our capitalization as of December 31, 1999,
without any adjustments to reflect subsequent events or anticipated
events;
- The "Pro Forma" column reflects the issuance of 1,265,723 shares of
Series A redeemable convertible preferred stock issued after December 31,
1999, in exchange for approximately $23.6 million in cash net of
expenses; and
- The "Pro Forma As Adjusted" column reflects our capitalization as of
December 31, 1999, with adjustments to give effect to the conversion of
all shares of outstanding preferred stock, including those issued after
December 31, 1999, into shares of common stock upon the closing of
this offering, and the receipt of the estimated proceeds from the sale of
our common stock offered hereby (after deducting the estimated offering
expenses and underwriting discounts and commissions).
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Long-term debt and capital leases........................... $ 14,159 $ 14,159
Series A redeemable convertible preferred stock, $0.001 par
value
Authorized shares -- 6,900,000 shares actual and pro
forma; 50,000,000 pro forma as adjusted
Issued and outstanding -- 3,581,122 shares actual;
4,846,845 shares pro forma; none pro forma as
adjusted............................................... 66,915 90,501
Stockholders' equity:
Common stock, $0.001 par value Authorized
shares -- 150,000,000 shares actual and pro forma;
300,000,000 pro forma as adjusted Issued and
outstanding(1) -- 11,738,641 shares actual and pro
forma; shares pro forma as adjusted.................. 12 12
Additional capital........................................ 10,237 10,237
Accumulated deficit....................................... (22,680) (22,680)
-------- --------
Total stockholders' equity (deficit).............. (12,431) (12,431)
-------- -------- --------
Total capitalization.............................. 68,643 92,229
======== ======== ========
</TABLE>
- ---------------
(1) Outstanding shares do not include shares of common stock reserved for
issuance under our 1996 Omnibus Stock Plan and other agreements.
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DILUTION
The pro forma net tangible book value of our common stock as of December
31, 1999, was approximately $ million, or $ per share. Pro forma net
tangible book value per share represents the amount of our total assets,
excluding goodwill, less our total liabilities, divided by the total number of
outstanding shares of common stock after giving effect to the conversion of all
outstanding shares of Class B common stock, Class C common stock and preferred
stock into common stock that will occur upon the closing of this offering.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the pro forma net tangible book value per
share of our common stock immediately after the offering. After giving effect to
the sale of the shares of common stock in this offering, at an assumed
initial public offering price of $ per share, and after deducting the
estimated underwriting discount and our estimated offering expenses, the pro
forma net tangible book value of our common stock would have been $ or
$ per share. This represents an immediate increase of pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Pro forma net tangible book value per share as of December
31, 1999................................................ $
Pro forma net tangible book value per share attributable
to this offering........................................ $
Pro forma net tangible book value per share after this
offering................................................ $
Dilution per share to new investors....................... $
=======
</TABLE>
The following table summarizes on a pro forma basis as of December 31,
1999, the number of shares of common stock purchased from us, the total price
paid and the average price per share paid by existing stockholders and by the
new investors in this offering. This information is based on an assumed initial
public offering price of $ per share, before deducting the underwriting
discount and our estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. % $ % $
New investors..........................
----- ----- ------ ------
Total........................ 100.0% $ 100.0%
===== ===== ====== ======
</TABLE>
If the underwriters exercise their over-allotment option in full, we will
provide them with those shares. The tables above exclude an aggregate of
shares available for future issuance under our 1996 Omnibus Stock Plan at a
weighted average per share exercise price of $ , and also exclude an
aggregate of 450,000 shares available for future issuance under outstanding
stock purchase warrants at a weighted average per share exercise price of
$18.80. In addition, we have issued options to acquire shares with a
weighted average per share exercise price of $ . To the extent that any of
these options are exercised, there will be further dilution to new investors.
17
<PAGE> 21
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet as of December 31, 1999
and the pro forma consolidated statement of operations for the year ended
December 31, 1999 have been prepared to give effect to the issuance of our
redeemable convertible preferred stock subsequent to December 31, 1999, and to
give effect to the public offering described in this prospectus as if they had
occurred on January 1, 1999.
The accompanying unaudited pro forma consolidated financial information
should be read in conjunction with the historical consolidated financial
statements and the notes thereto, which are included elsewhere in this
prospectus. The unaudited pro forma consolidated financial statements are
provided for informational purposes only and do not purport to represent what
our financial position or results of operations would actually have been had the
preferred stock issuance or this common stock offering occurred on such dates or
to project our results of operations or financial position for any future
period.
18
<PAGE> 22
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
------------ ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 52,802,252
Accounts receivable, net of allowance for doubtful
accounts of $296,000.................................... 198,885
Prepaid expenses and other current assets................. 854,405
------------ ----------- ------------
53,855,542
Property and equipment, net................................. 22,780,966
Other assets................................................ 98,440
------------ ----------- ------------
Total assets....................................... $ 76,734,948
============ =========== ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 2,643,919
Accrued expenses.......................................... 826,661
Current portion of note payable and capital lease
obligations............................................. 4,621,396
------------ ----------- ------------
Total current liabilities.......................... 8,091,976
Note payable and capital lease obligations, less current
portion................................................... 14,158,627
Commitments
Redeemable convertible preferred stock:
Series A convertible preferred stock, $0.001 par value:
Authorized shares -- 6,900,000 actual; 50,000,000 pro
forma
Issued and outstanding shares -- 3,581,122 actual; none
pro forma
Liquidation preference of $67,325,127 actual; none pro
forma, plus any accumulated and unpaid dividends..... 66,915,017
Stockholders' equity (deficit):
Class A common stock, $0.001 par value:
Authorized shares -- 100,000,000 actual and none pro
forma
Issued shares -- 4,684,400 actual; pro forma........ 4,684
Class B common stock, $0.001 par value:
Authorized shares -- 25,000,000 actual and none pro
forma
Issued and outstanding shares -- 4,979,777 actual; none
pro forma............................................ 4,980
Class C common stock, $0.001 par value:
Authorized shares -- 25,000,000 actual and none pro
forma
Issued and outstanding shares -- 2,074,464 actual; none
pro forma............................................ 2,074
Common stock, $0.001 par value:
Authorized shares -- none actual; 300,000,000 pro forma
Issued and outstanding shares -- none actual; pro
forma................................................ --
Additional capital........................................ 10,237,232
Accumulated deficit....................................... (22,679,642)
------------ ----------- ------------
Total stockholders' equity (deficit)............... (12,430,672)
------------ ----------- ------------
Total liabilities, redeemable convertible preferred
stock, and stockholders' equity (deficit)........ $ 76,734,948
============ =========== ============
</TABLE>
- ---------------
(1) To adjust for the issuance of 1,265,723 shares of redeemable convertible
preferred stock subsequent to December 31, 1999 at an issue price of $18.80
per share for combined proceeds, net of offering expenses, of $23,585,616.
(2) To adjust for the conversion of the preferred stock to common stock
effective January 1, 1999.
(3) To reverse the paid and accrued dividends and accretion to date on the
preferred stock as we assume that the preferred stock was converted to
common stock as of January 1, 1999.
(4) To adjust for the conversion of all Class B and Class C common stock into
common stock at the time of the initial public offering.
(5) To adjust for the impact of this offering of shares of common stock at
a price of $ per share after deducting estimated underwriting discounts
and expenses.
19
<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO
FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Internet subscriber services........................ $ 443,648
Managed network services............................ 117,459
Systems integration................................. 19,077
Equipment sales..................................... 324,381
Other revenue....................................... 3,977
------------ ---------- -----------
Total revenues.............................. 908,542
Expenses:
Operating costs..................................... 9,723,866
Cost of equipment sales............................. 312,787
Product development................................. 1,210,854
Sales and marketing................................. 1,011,876
General and administrative.......................... 4,538,068
------------ ---------- -----------
Total expenses.............................. 16,797,451
------------ ---------- -----------
Loss from Operations.................................. (15,888,909)
Interest (income)..................................... (1,141,073)
Interest expense...................................... 742,001
Other (income), net................................... (12,383)
------------ ---------- -----------
Net loss.............................................. (15,477,454)
------------ ---------- -----------
Preferred stock dividends and accretion............... 2,014,946
------------ ---------- -----------
Net loss attributed to common stockholders............ $(17,492,400)
============ ========== ===========
Basic and diluted net loss per share.................. $ (1.49)
============ ========== ===========
Weighted average shares outstanding................... 11,718,298
============ ========== ===========
</TABLE>
- ---------------
(1) To adjust weighted average shares outstanding and basic and diluted net loss
per share to reflect issuance of preferred stock, conversion of all stock to
common stock and issuance of stock related to this public offering.
(2) To reverse the effect of preferred stock dividends and accretion as the
conversion is assumed to be as of January 1, 1999.
20
<PAGE> 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements, related
notes and other financial information included elsewhere in this prospectus. The
consolidated statement of operations data set forth below for the years ended
December 31, 1997, 1998 and 1999, and the consolidated balance sheet data as of
December 31, 1998 and 1999, have been derived from our consolidated financial
statements included elsewhere in this prospectus, which have been audited by
Ernst & Young LLP, independent auditors. The consolidated balance sheet data as
of December 31, 1996 and 1997, and the consolidated statement of operations data
for the years ended December 31, 1996 are derived from audited consolidated
financial statements not included in this prospectus. The consolidated balance
sheet data as of December 31, 1995 and the consolidated statement of operations
data for the year ended December 31, 1995 are derived from unaudited
consolidated financial statements not included in this prospectus. We have
prepared this unaudited information on the same basis as the audited
consolidated financial statements and have included all adjustments, consisting
only of normal recurring adjustments, that we consider necessary for a fair
presentation of our consolidated financial position and operating results for
such periods. The historical results are not necessarily indicative of results
to be expected for any future period.
Our revenue streams were largely derived from our systems integration
business through Decem-ber 31, 1998. Beginning in late 1998, we strategically
de-emphasized our systems integration business and began to focus on our
Internet subscriber services. Therefore, results for these periods are not
directly comparable and are not indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Internet subscriber services.................... $ -- $ -- $ -- $ 17 $ 444
Managed network services........................ 14 103 159 133 117
Systems integration............................. 1,486 1,372 1,259 545 19
Equipment sales................................. 2,230 1,868 2,373 644 324
Other revenue................................... -- 7 10 16 4
-------- -------- -------- -------- --------
Total revenues........................... 3,730 3,350 3,801 1,355 908
Expenses:
Operating costs................................. 1,244 1,417 1,466 2,631 9,724
Cost of equipment sales......................... 1,649 1,301 2,062 541 312
Product development............................. -- 61 65 257 1,211
Sales and marketing............................. 340 330 341 346 1,012
General and administrative...................... 568 643 681 1,298 4,538
-------- -------- -------- -------- --------
Total expenses........................... 3,801 3,752 4,615 5,073 16,797
-------- -------- -------- -------- --------
Loss from Operations..................... (71) (402) (814) (3,718) (15,889)
Interest (income)................................. -- (32) -- (19) (1,141)
Interest expense.................................. 24 71 44 48 742
Other (income) expenses........................... (7) -- 25 28 (13)
-------- -------- -------- -------- --------
Net loss before taxes.................... (88) (441) (883) (3,775) (15,477)
Tax benefit (expense).................... (16) 16 -- -- --
-------- -------- -------- -------- --------
Net loss................................. $ (104) $ (425) $ (883) $ (3,775) $(15,477)
======== ======== ======== ======== ========
Preferred stock dividends and
accretion.............................. -- -- -- -- $ 2,015
-------- -------- -------- -------- --------
Net loss attributed to common
stockholders........................... $ (104) $ (425) $ (883) $ (3,775) $(17,492)
======== ======== ======== ======== ========
Basic and diluted net loss per share.............. $ (0.02) $ (0.09) $ (0.12) $ (0.39) $ (1.49)
======== ======== ======== ======== ========
Shares used to compute basic and diluted net loss
per share (in thousands)........................ 4,875 4,875 7,347 9,582 11,718
======== ======== ======== ======== ========
OTHER DATA(1):
Passings.......................................... -- -- -- 127,000 613,000
Passings constructed.............................. -- -- -- 2,762 39,127
Subscribers....................................... -- -- -- 84 2,313
Penetration....................................... -- -- -- 3.0% 5.9%
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 69 $ 151 $ 416 $ 3,093 $ 52,802
Working capital (deficit)...................... 220 (111) 284 2,763 45,764
Total assets................................... 1,399 831 1,378 10,967 76,735
Long-term debt and capital leases.............. -- -- -- 5,648 14,159
Redeemable convertible preferred stock......... -- -- -- -- 66,915
Stockholders' equity (deficit)................. 520 96 584 4,606 (12,431)
</TABLE>
- ---------------
(1) "Passings" include all of the doors for potential subscribers which, through
our existing agreements with our Service Partners, we have the right to be
granted access to and/or the right to construct facilities to provide our
services. We do not include passings attributable to Service Partners who do
not have the financial strength to construct the necessary infrastructure to
allow us to provide high-speed data services. "Passings constructed"
identifies the number of doors for potential subscribers where we have built
out the infrastructure necessary to provide high-speed data services within
24 hours of receiving a request to do so. "Subscribers" is the number of
customers that have subscribed to our service. "Penetration" is equal to the
number of subscribers divided by the passings constructed.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our financial statements, the
notes to our financial statements and the other financial information appearing
elsewhere in this prospectus. The following discussion includes forward-looking
statements that involve certain risks and uncertainties. See "Risk Factors."
OVERVIEW
We provide high-speed, high-bandwidth Internet access and customized
broadband content and applications under the BroadbandNOW(TM) tradename. We
began in December 1994 as a systems integrator through the acquisition of the
assets of the Computer Division of Olympia USA. We continued to provide systems
integration services through 1998 but began to shift our emphasis to providing
high-speed data services over the Internet in early 1998. Part of the vision of
our founders was to ensure high quality, high-speed access for our subscribers
and as such we have developed a private, national Internet Protocol network to
allow us to control the quality of our subscribers' experience. In July 1997, we
acquired Applied Multimedia Productions, a privately held interactive web
content developer, to form the core of our media group. Since 1997, we have
implemented an effective organizational infrastructure, developed the
BroadbandNOW(TM) line of services, secured long-term contracts with utility
companies, REITs and private cable operators and rolled out our service in 23
major metropolitan markets. As of December 31, 1999, we employed 105 people,
with divisions in sales, operations, network engineering, finance and
administration, product development and marketing.
In building our business, we have focused on capturing market share which,
in our current markets, means forming alliances and agreements with companies
that have broad access to individuals and businesses that we have identified as
target subscribers. As a result, we have contracted with utility companies,
REITs and private cable operators, all of whom serve the single residence,
business and/or multiple dwelling unit, or MDU, markets. Agreements with these
Service Partners vary in terms of the level of such partner's involvement in
installation, marketing, monthly service, billing and customer care. Each
agreement's terms are unique but all include some form of revenue sharing
between our company and our Service Partners.
Our revenue streams were largely derived from our systems integration
business through December 31, 1998. Beginning in late 1998, we began recording
our initial Internet subscriber service revenues related to our new service.
These revenues, which represent monthly subscriber fees from our customers,
became our primary source of revenue in 1999. Our capital expenditures (fixed
assets) and operating costs have increased significantly as we have begun to
deploy our network and offer our service to subscribers. Our strategy is to
continue to invest in the assets and people necessary to roll out our high-speed
data service to target subscribers, form relationships with new Service
Partners, further develop our private, national Internet Protocol network and
build the operations and infrastructure necessary to support our projected
increase in subscribers. We have issued preferred stock for proceeds aggregating
approximately $91.1 million to help finance these additional and ongoing
development costs. This preferred stock will automatically convert to common
stock upon the consummation of this offering.
RESULTS OF OPERATIONS
We derive our Internet subscriber services revenue from customers who
subscribe to our monthly Internet access service. Internet subscriber services
revenue consists of:
- A one time installation fee, which we defer and recognize over the
estimated life of the subscriber;
- Monthly access fees based on the level of service a subscriber chooses,
which we recognize as services are provided to the subscriber; and
- Monthly modem rental fee for use of a modem, which we recognize as
services are provided to the subscriber.
23
<PAGE> 27
Access revenues are recognized on a gross basis when we contractually
provide a turnkey solution to our Service Partner, including customer support
and billing and collecting from the customer. Access revenues are recorded at
the net revenue share amount when our Service Partner provides the majority of
the services required by the subscriber, including customer support and billing
and collection, and remits us our net share of the revenues. Revenues are
expected to continue to increase in conjunction with subscriber growth rates as
we continue to build out our infrastructure to accommodate both current and
future markets with our Service Partners. Managed network services revenues are
recognized as earned and include various web hosting services that we provide.
Systems integration, equipment sales and other revenue relate to revenues
generated from our business as a systems integrator and are recognized as
earned. As discussed below, we have de-emphasized the systems integration and
managed network services businesses.
Operating costs for 1998 and 1999 consist mainly of salaries and related
expenses to install and maintain our current technologies, Internet transport
costs and local loop costs associated with our Internet Protocol network,
depreciation related to the equipment used in our systems, facilities costs to
house our equipment and resources and revenue sharing fees. These costs will
increase as we continue to build out our infrastructure to serve other markets.
See "Liquidity and Capital Resources."
Product development costs consist of salaries and related expenses to
develop new technologies and content. Costs are expensed as incurred. These
expenses will increase as we expand our product offerings to include new
technologies, new lines of business and added content functionality. Cost of
equipment sales represents costs of equipment purchased for resale to customers.
Sales and marketing expenses consist of salaries and commissions of personnel
that market our products, costs to solicit subscribers and new Service Partners
and promotional and marketing costs. General and administrative expenses
primarily consist of personnel costs related to executive and administrative
officers and support personnel, legal and accounting expenses, consulting fees,
licensing fees, travel and entertainment expenses and facility costs.
Interest income consists of interest earned by our investment in short-term
securities. Interest expense relates to the note payable and capital leases to
which we have committed. Interest on these debt instruments is calculated based
on a fixed or floating rate of interest which approximates market and is payable
generally over a 24 to 36 month period.
Other income/expense consists primarily of gains and losses from disposals
of fixed assets.
YEARS ENDED DECEMBER 31, 1998 AND 1999
Revenues
Internet subscriber services revenue grew from $17,000 for the year ended
December 31, 1998, to $444,000 for the year ended December 31, 1999, and became
our major source of revenue. Revenues increased as a result of an increase in
our number of subscribers. At December 31, 1998, we had 84 subscribers. As of
December 31, 1999, that number had grown to 2,313.
Managed network services revenues decreased from $133,000 for the year
ended December 31, 1998, to $117,000 for the year ended December 31, 1999.
Systems integration revenues decreased from $545,000 for the year ended December
31, 1998, to $19,000 for the year ended December 31, 1999. These decreases are a
result of the systems integration business being de-emphasized since 1998.
Equipment sales decreased from $644,000 for the year ended December 31,
1998, to $324,000 for the year ended December 31, 1999. The decreases are a
result of the systems integration business being de-emphasized since 1998. The
sales did not decrease as much as expected because we generated $276,000 during
1999, related to a one-time sale of computer equipment which was not
representative of any ongoing systems integration business.
24
<PAGE> 28
Operating Costs
Operating costs increased from $2,631,000 for the year ended December 31,
1998, to $9,724,000 for the year ended December 31, 1999, reflecting our focus
on building our infrastructure and deploying our services. The primary increase
is due to increases in depreciation related to increases in our capital
equipment expenditures. Other sources of the increase include salaries and
related expenses of employees working directly on the network build-out.
Cost of Equipment Sales
Cost of equipment sales have decreased from $541,000 for the year ended
December 31, 1998, to $312,000 for the year ended December 31, 1999. The
decrease directly relates to the decrease in equipment sales revenues which is
consistent with our de-emphasis of the systems integration business. The costs
did not decrease as much as expected because we incurred costs of $266,000
during 1999, related to sales of computer equipment which were not
representative of any ongoing systems integration business.
Product Development Costs
Product development costs increased from $257,000 for the year ended
December 31, 1998, to $1,211,000 for the year ended December 31, 1999. This
increase reflects increased staffing and focus in our online services area
partially offset by our transfer of certain developed technologies into
operations.
Sales and Marketing
Sales and marketing expenses increased from $346,000 for the year ended
December 31, 1998, to $1,012,000 for the year ended December 31, 1999. The
primary source of the increase is due to increased staffing to cover our
existing markets, including the hiring of management level employees to run our
sales and marketing operations. Additionally, we have developed additional
marketing materials and promotions to support our service.
General and Administrative
General and administrative expenses increased from $1,298,000 for the year
ended December 31, 1998, to $4,538,000 for the year ended December 31, 1999, due
mainly to the addition of management level personnel and increased facility
expenses necessary to support our growth.
Interest Income
Interest income increased from $19,000 for the year ended December 31,
1998, to $1,141,000 for the year ended December 31, 1999, reflecting income
derived from investing the funds we received in our private placement offering
in June, October and November 1999.
Interest Expense
Interest expense increased from $48,000 for the year ended December 31,
1998, to $742,000 for the year ended December 31, 1999, due to our increased use
of capital lease financing from our vendors to support our capital purchases. At
December 31, 1998, we had approximately $6.2 million of equipment financed
through capital leases and a note payable. As of December 31, 1999, that number
had grown to approximately $13.4 million.
Other Income/Expense
Other income/expense changed from an expense of $28,000 for the year ended
December 31, 1998, to income of $13,000 for the year ended December 31, 1999, as
a result of gains on disposals of certain assets during 1999.
25
<PAGE> 29
YEARS ENDED DECEMBER 31, 1997 AND 1998
Revenues
Total revenues decreased from $3,801,000 for the year ended December 31,
1997, to $1,355,000 for the year ended December 31, 1998, primarily attributable
to our strategic de-emphasis of our systems integration business. By the end of
1998, there were no active sales and minimal maintenance personnel within this
business segment. This included decreases in equipment sales from $2,373,000 for
the year ended December 31, 1997, to $644,000 for the year ended December 31,
1998.
Operating Costs
Operating costs increased from $1,466,000 for the year ended December 31,
1997, to $2,631,000 for the year ended December 31, 1998. The increase was
primarily attributable to increases in local and national network costs related
to our high-speed Internet business, along with increased staffing to support
the new line of business.
Cost of Equipment Sales
Cost of equipment sales showed sharp decreases for the year ended December
31, 1998, declining from $2,062,000 for the year ended December 31, 1997, to
$541,000 for the year ended December 31, 1998. This decrease reflects our
de-emphasis of systems integration and equipment sales as our primary line of
business.
Product Development Costs
Product development costs increased from $65,000 for the year ended
December 31, 1997, to $257,000 for the year ended December 31, 1998, mainly due
to additional labor costs associated with developing new products for our
business.
Sales and Marketing
Sales and marketing expenses were $341,000 and $346,000 for the years ended
December 31, 1997 and 1998, respectively. These costs related primarily to our
systems integration business. The increase in sales and marketing expenses
related to our Internet access business did not occur until early 1999.
General and Administrative
General and administrative expenses increased from $681,000 for the year
ended December 31, 1997, to $1,298,000 for the year ended December 31, 1998.
This increase is primarily attributable to our hiring of additional officers and
support staff for our high-speed Internet business as well as increased facility
expenses related to our move to a new headquarters facility in order to
facilitate future growth and expansion of operations.
Interest Income
Interest income of $0 and $19,000 for the years ended December 31, 1997 and
1998, respectively, fluctuated based on our available cash balances.
Interest Expense
Interest expense remained fairly stable at $44,000 and $48,000 for the
years ended December 31, 1997 and 1998, respectively, as the increased
borrowings in 1998 did not occur until late in the year, and therefore the
interest accrued was minimal.
26
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
Our major expenditures to date consist of purchasing and leasing the
hardware and software needed to continue to expand and build our Internet
Protocol network. This includes costs of servers, national and local circuits,
routers, switches and other equipment necessary in our build-out. Capital
expenditures were approximately $20.2 million for 1999, which included $3.7
million related to the purchase of our corporate headquarters in December 1999.
We have historically financed our operations primarily through vendor financing
and through the sale of common stock and preferred stock.
During 1999, we issued a series of redeemable convertible preferred stock
as part of a private placement. Gross proceeds received from these transactions
included $20 million from Microsoft, $20 million from Nortel Networks, $10
million from Lucent Technologies, $7.3 million from Archstone Communities and
its affiliates, $5 million from GE Capital and $5 million from prior equity
investors, representing an aggregate investment of $67.3 million. Subsequent to
December 31, 1999, we issued additional preferred shares aggregating $23.8
million in gross proceeds. Gross proceeds include $20 million from Liberty
Media, $1 million from Summit Properties, $0.5 million from certain affiliates
of Archstone Communities and $2.3 million from other investors. See "Certain
Relationships and Related Party Transactions -- Transactions with Directors and
Officers."
Between December 1994 and December 31, 1999, we received approximately
$10.2 million related to the issuance of our common stock to equity investors.
In June 1998, we entered into a financing arrangement with Lucent
Technologies providing for financing of capital expenditures up to $10 million
in the form of a note payable. In August 1999, this financing agreement was
raised to $25 million. The terms of the agreement call for the repayment of
principal and interest on the borrowed amounts over 24 months with interest
accruing at the prime rate. Payments of both principal and interest are deferred
during the first year of the note. As of December 31, 1999, we have borrowed
approximately $12.1 million under this agreement.
In November 1998, we entered into a master capital lease financing
agreement with Nortel Networks. This agreement was amended effective January 1,
2000 to roll all outstanding leases into one single lease. The terms call for
monthly payments of $150,600 for 30 months with a $1 buy out provision at the
end of the lease term. As of December 31, 1999, we have $3.7 million outstanding
in capital leases with Nortel. We also have capital lease financing arrangements
with other suppliers that allow us to finance equipment purchases on an
individual basis.
In January 2000, we sold Marcus & Partners, L.P. a warrant to purchase
300,000 shares of common stock with an exercise price of $18.80 per share, for a
cash consideration of $175,000. See "Certain Relationships and Related Party
Transactions -- Transactions with Directors and Officers."
In February 2000, we sold DOTCOM Limited Partnership warrants to purchase
150,000 shares of common stock with an exercise price of $18.80 per share, for a
cash consideration of $60,000. The purchase right under the warrant for 50,000
of such shares will become exercisable one year from the date of grant at the
discretion of our President. See "Certain Relationships with Related Party
Transactions -- Transactions with Directors and Officers."
We expect to experience substantial negative cash flow from operating
activities for at least the next several years due to the continued development
and deployment of our network and services. Our future cash requirements as well
as our revenues will depend on a number of factors including: the Service
Partners that we contract with and their related locations and customer bases,
as well as the terms of our contracts with them; the location of future customer
bases; the type of technology that will be deployed at each location; the rate
at which subscribers purchase our service and the level of marketing required.
We anticipate incurring significant additional costs related to our future
build-out of network infrastructure and the continued deployment of our service
to subscribers. These costs are needed to support our infrastructure investment,
product development, marketing, sales and customer support needs. Our cash
balance as of January 27, 2000 was $73.9 million. We believe that the net
proceeds from this
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offering, together with our existing cash, cash equivalents and capital lease
financing, will be sufficient to fund our aggregate capital expenditures and
working capital requirements, including operating losses, for the next 18
months. However, there can be no assurance that any additional funds will be
available at the time or times needed, or on terms acceptable to us.
YEAR 2000 COMPLIANCE
The Year 2000 issue referred to existing computer programs' ability to
appropriately distinguish the year 2000 from the year 1900 when processing
transactions. We developed and executed a phased plan to achieve compliance with
Year 2000 initiatives that included reviewing our hardware and software that
support our operations and infrastructure, as well as our internal systems that
support our back office. For each of these areas, our plan called for us to
identify the systems, address their compliance with the Year 2000 issue, test
their compliance and make any upgrades considered necessary to ensure
compliance. As of this date, we are successfully running all of our systems and
have encountered no issues or malfunctions related to the Year 2000 issue. No
contingency plans had to be initiated; no additional costs were incurred.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal years
beginning after June 15, 2000. We do not hold any derivative instruments nor do
we participate in any hedging activities. Accordingly, this pronouncement should
have no impact on our financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." We
believe that our current revenue recognition policies comply with this bulletin.
Accordingly, this bulletin should have no impact on our financial statements.
MARKET RATE RISK
Our exposure to market risk is limited to interest rate risk. As of January
27, 2000, we had cash and cash equivalents of approximately $73.9 million which
consisted of cash and highly liquid short-term investments with original
maturities of less than 90 days. These balances largely consist of the proceeds
of our recent preferred stock financing. These investments are subject to
interest rate risk and will decrease in value if market interest rates increase.
The impact of a hypothetical increase of 10% would be immaterial to our
operations. Declines in interest rates over time will reduce our interest
income; however, we anticipate the balances in these investments to decrease as
we utilize the funds to continue building our systems. Additionally, we have a
note payable and capital lease obligations, but the impact of a hypothetical
increase in interest rates of 10% would be immaterial to our operations.
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BUSINESS
OVERVIEW
We provide high-speed, high-bandwidth, Internet access and customized
broadband content and applications under the BroadbandNOW(TM) tradename. We
provide these services to our subscribers via our private, national Internet
Protocol network which we manage on an end-to-end basis to ensure peak
performance. By utilizing multiple broadband access technologies, including
cable modem, xDSL, Ethernet and wireless, we connect subscribers directly to our
network. Our mission is to provide our subscribers with the "always on, always
fast, always fun(TM)" experience of BroadbandNOW(TM) at data transmission speeds
that are substantially faster than typical dial-up connections.
MARKET OPPORTUNITY
The growth of Internet usage and increased demand for broadband content,
coupled with the limitations of the existing Internet structure, provides us
with a significant market opportunity. We have designed our network and services
to capitalize on these trends and overcome the limitations and inefficiencies of
the existing Internet architecture.
Growth of Internet Usage and Demand for Broadband Content
People are increasingly using the Internet for work, personal
communications, commerce and leisure. According to the Yankee Group, an
estimated 30 million, or approximately 30%, of the 100 million homes in the U.S.
today currently utilize dial-up connections with data transmission speeds of
56.6 Kbps or less. The increase in the number of subscribers and Internet usage
has led to the development of e-commerce strategies by traditional "brick and
mortar" merchants and businesses, broadening the services offered and creating
more traffic over the Internet. Business-to-consumer e-commerce is projected to
increase at a 65.7% CAGR from $11.5 billion in 1998 to $86.6 billion in 2002.
Business-to-business e-commerce is projected to increase at a 57.9% CAGR from
75.6 billion in 1999 to $470.3 billion in 2002. In addition, Internet
advertising is projected to increase from $1.4 billion in 1999 to $7.0 billion
in 2002. The growth in the number of subscribers, the increase in Internet usage
and the development of bandwidth-intensive applications are imposing burdens on
the current Internet infrastructure, resulting in primarily slower transmission
speeds and reduced network availability. The increasing demand by subscribers
for reasonably priced high-speed service that can handle bandwidth-intensive
applications is projected to cause the market for broadband Internet service to
grow rapidly. The number of U.S. households with broadband access is projected
to increase at a 111.5% CAGR from approximately 450,000 in 1998 to approximately
9 million in 2002, encompassing 16% of all online homes.
Limitations and Inefficiencies of Existing Internet Architecture
The full potential of the public Internet as a medium for communication,
education, entertainment and commerce remains untapped due to current problems
with its capacity, performance and reliability. Despite ongoing upgrades by
major telecommunications companies and facilities-based Internet service
providers, the existing Internet infrastructure can experience a degradation in
network performance to unacceptable levels when used by large numbers of users.
For example, the Internet frequently becomes overloaded when transmitting the
same data streams from popular web site servers to millions of individual users.
As demand for rich, multi-media content requiring broadband access increases,
these problems may be magnified.
Large Market Opportunity to Provide Broadband Services through Service
Partners
As a result of the above trends, companies with established customer
relationships in consumer service areas such as utility services, real estate
management and ownership and cable television services recognize a current
opportunity to provide broadband data services. However, provisioning broadband
services is complicated and expensive and often outside these companies' areas
of focus and expertise.
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Accordingly, these providers remain interested in partnering with others to
provide these services in exchange for a share of the revenues generated by
these services. We enable our Service Partners to offer a high-quality broadband
solution and overcome the limitations of the current public Internet through
access to our end-to-end managed, private, national network.
The motivation for offering these services varies depending on the partner.
For example, our current and prospective utility Service Partners are motivated
to use broadband access services as an additional growth opportunity in a large
and unregulated business. Our REIT Service Partners increasingly recognize that
high-speed Internet access is becoming a valued and required amenity, especially
at Class A and Class B properties. Our PCO Service Partners are motivated by the
opportunity to offer these high-quality services to their existing customers as
part of their bundle of services.
Recognizing the above opportunity, we have been able to establish
relationships with our Service Partners based on our ability to offer
high-speed, high-capacity Internet connectivity and customized broadband content
and applications over our own private, national Internet Protocol network. Our
total market opportunity depends on the size of the markets in which each of our
Service Partners operates. Recent data from the Yankee Group suggests that:
- Electric utility providers today serve virtually all of the 100 million
residences in the U.S. Many utilities are now seeking to leverage these
existing customer relationships to begin offering bundled services
including voice, video and data. The deregulation of the electric
utility market is encouraging electric companies to market to retail
customers and to offer ancillary services in order to acquire and retain
subscribers as well as to increase revenues and margins. Current
research suggests that 30% of current utility customers are interested
in purchasing bundled services from their electricity providers, of
which approximately 48% of those customers indicated that they are
likely to purchase Internet services from their electric company.
- The total market for Internet services within the MDU sector is
approximately $1.6 billion annually out of a total $20 billion market
for voice, video and data within MDUs. There are approximately 20.6
million MDU units in the U.S. today which house approximately 48.3
million residents. Of these units, approximately 9.4 million are located
on 2% of MDU properties in the U.S., indicating a significant
concentration of potential Internet users, which currently comprise our
target MDU market.
In addition to utility, REIT and PCO Service Partners, we intend to
leverage our investments in our network and broadband access technologies by
expanding our access to additional customer doors through a variety of partners,
including multiple system cable operators.
OUR BUSINESS STRATEGY
Our Strategy. We intend to become a leading provider of high-speed,
high-bandwidth Internet access and customized broadband content and applications
to our subscribers. To achieve this objective, we intend to:
- Establish strategic relationships with Service Partners nationwide. We
establish strategic relationships with Service Partners in order to gain
access to our subscriber base more efficiently and with less cost than we
could independently and to benefit from preferential marketing access
rights to those potential subscribers. To date, we have established and
continue to pursue marketing and access partnerships with utility
companies, REITs and PCOs. We also intend to pursue relationships with
other emerging data communications providers such as multiple system
cable operators. We expect to continue emphasizing our partnership
strategy in existing and new areas in order to increase the size of our
addressable market for broadband services.
- Provide high quality services and a full range of high-speed data
solutions for our Service Partners. Our Service Partners benefit from the
extensive capital, time and effort we have invested to develop the
technical expertise, industry relationships and operational and network
infrastructure to deliver high-speed data service. We are able to offer
our Service Partners turnkey solutions through
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economically attractive, flexible contracts while permitting such
partners to retain control over all aspects of customer interface,
including billing and collections.
- Utilize and leverage multiple broadband access technologies for "last
mile" access. We utilize multiple broadband access technologies,
including cable modem, xDSL, Ethernet and wireless to connect subscribers
directly to our private, national network. Because we are able to utilize
multiple broadband access technologies for the "last mile", we are able
to provide nationwide services to our subscribers through our Service
Partners. Our proprietary Data Envelope(TM) technology allows us to be
indifferent to the available access technology and to continue to benefit
from ongoing advancements in "last mile" access technology.
- Continue the deployment of our private, nationwide Internet Protocol
network to provide a platform for the delivery of high-quality access,
applications and content services to our subscribers. As of the date of
this prospectus, our nationwide Internet Protocol network includes 22
network access POPs. We will seek to continue the expansion of our
network to reach an estimated 48 cities with 47 network access POPs by
the end of 2000. We utilize intelligent routing on our network,
efficiently carrying our subscribers' traffic as far as possible across
our network to maximize our ability to manage the quality of our
subscribers' broadband experience on an end-to-end basis. Our expanding
network reach and our intelligent routing strategy provide an ideal
platform for the delivery of high-quality access, applications and
content services to our subscribers.
- Link directPEER(TM) content partners directly to our private, nationwide
Internet Protocol network. We seek to connect our private network
directly to providers and aggregators of broadband applications and
content in order to ensure high quality broadband transmission for our
subscribers. This is done by connecting our directPEER(TM) partners'
server systems directly to our nearest backbone data center through a
DS-3 or OC-3 connection. By attaching directPEER(TM) partners' networks
and server systems directly to our network, we are better able to ensure
quality of service delivery from end-to-end. Since the content never
leaves our connected systems, it is not susceptible to the reliability
and performance problems of the public Internet. We believe this strategy
enables the delivery of a new category of broadband content that would
not be possible without directPEER(TM). To date we have established a
directPEER(TM) partnership with Yahoo!
- Develop, aggregate and deliver additional broadband content and
applications. We believe that an important part of the value of broadband
connectivity is illustrated through access to and use of compelling
broadband content and applications. Consequently, we have developed a
proprietary web publishing platform that allows us and our Service
Partners to rapidly develop and integrate text, graphics and video
content for broadband delivery. We are actively publishing content
specifically developed for broadband access and have hired a writing and
editorial staff from the traditional magazine publishing industry to
further develop this initiative. In addition to our content development
initiative, we also aggregate content through our directPEER(TM)
initiative as well as through links to our front end customer interface,
including our BroadbandNOW(TM) launch page.
- Invest in the BroadbandNOW(TM)brand. We believe that brand and quality
will be key competitive advantages as the market for broadband services
matures. Consequently, we plan to make BroadbandNOW(TM) synonymous with
high-quality, "always on, always fast, always fun(TM)" broadband
services. We are making the necessary investments in network assets,
customer service and marketing to create and defend our brand as a
recognized symbol of high quality broadband services. We also continue to
emphasize our brand by customizing the BroadbandNOW(TM) launch page.
- Leverage our key supplier relationships to create customized technology.
We work closely with our key suppliers to customize equipment and
software to enable us to more effectively offer broadband services. Our
strategic affiliations with our vendors are critical in ensuring
consistent quality and interoperability between our private, national
network infrastructure and our multiple broadband access technologies. We
have worked closely with our key suppliers, such as Adaptive Broadband,
Lucent Technologies and Nortel Networks, to select off-the-shelf
solutions, when available, and
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customize products when necessary. We believe that our in-house
engineering capabilities and close relationships with these and other
suppliers are and will continue to be a key competitive advantage for us.
We have recently signed a Memorandum of Understanding with Microsoft,
which contemplates entering into additional agreements by outlining a
number of joint initiatives we will undertake. These initiatives are
focused upon increasing the speed at which consumers adopt broadband
services and the building of online, localized communities for our
subscriber base. We have also recently formed a strategic relationship
with Liberty Media through which we plan to distribute broadband content
developed by certain affiliates of Liberty Media to our subscribers.
OUR SOLUTION
For Service Partners
The relationships we have with our Service Partners enable us to reach our
subscribers with quality, high-speed broadband service. We have established and
are pursuing strategic relationships with utility companies, REITs and private
cable operators, collectively referred to as our Service Partners, to gain
access and preferential marketing rights to potential subscribers and deliver
our services. We believe that our current and potential Service Partners have
and will form relationships with us because we offer them a variety of
advantages:
- a turnkey Internet solution;
- our own private, nationwide Internet Protocol network that is managed on
an end-to-end basis, ensuring a quality broadband experience;
- applications and content customized for broadband delivery;
- flexibility in structuring agreements to accommodate varying capital
expenditure profiles and management participation levels and leverage
existing infrastructure;
- flexibility to allow them to protect their existing customer bases by
permitting our Service Partners to retain the primary customer interface,
including billing and collection and customer service;
- the ability to offer nationwide service utilizing multiple broadband
access technologies; and
- the opportunity to build a brand with their customers through the
co-branding of the initial launch screens.
For Subscribers
We offer our subscribers several advantages over more traditional dial-up
Internet service providers, such as:
- the "always on, always fast, always fun(TM)" experience of
BroadbandNOW(TM) using their existing access technology;
- data transmission speeds substantially faster than other typical dial-up
connections;
- broadband content and other bandwidth intensive applications;
- guaranteed network service levels, achieved through our private, national
Internet Protocol network with usage monitored on a 24 hour a day, seven
day a week basis from our network operations center in Dallas, Texas; and
- affordable, competitive prices for the level of service provided.
The BroadbandNOW(TM) experience begins with a proprietary broadband launch
screen that provides subscribers an initial portal to the Internet and provides
the content foundation of the BroadbandNOW(TM) experience. This launch screen
also offers a substantial base of content specifically designed and coded for
high-speed data connections.
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OUR SERVICE PARTNERS
Our Service Partners benefit from the extensive capital, time and effort we
have invested to develop the technical expertise, industry relationships and
operational and network infrastructure to deliver high-speed data services. We
are capable of providing a complete turnkey system overseeing the entire
process, including: the evaluation and upgrade of the existing cable and
telecommunications infrastructure; the installation and maintenance of the cable
or xDSL modems; the connection of properties or local networks to the Internet;
and the operation of a private, national Internet Protocol network. Our Service
Partners also benefit from our purchasing power for local loop connections and
network equipment, and our comprehensive customer and technical service
organization which supports all of their high-speed data services on a 24 hour a
day, seven day a week basis. In addition, we offer our Service Partners the
ability to create customized Internet content on a co-branded basis.
We believe that our utility Service Partners, in particular, are interested
in partnering with us for several additional reasons. Due to regulatory changes
in the electric utility market, these companies are seeking alternative sources
of revenue to maintain or enhance profitability and growth. Many are leveraging
existing infrastructure and rights of way or licenses to develop communications
business strategies to offer additional services to existing customers. In order
to execute these business strategies, the electric utilities and their
affiliates are interested in relationships that provide them with technical
skills, technology, a reliable network and flexibility to facilitate access to
the broadband market.
Each Service Partner relationship is individually tailored to meet the
desires of our Service Partners regarding their desired level of participation
in service deployment and management, including:
- the type of "last mile" access using multiple broadband access
technologies;
- customer connection and installation;
- customer marketing;
- customer billing and collection; and
- customer service.
We attempt to obtain the most preferential access to potential subscribers
in negotiating each of our Service Partner relationships. The majority of our
master service agreements, which average seven years in duration, provide us
with the exclusive right to market, promote and sell high-speed data services in
conjunction with the Service Partner, within specific geographic areas or at
specified properties. In the case of certain PCO Service Partners, after
determining whether providing service is physically and economically feasible,
we execute a property specific addendum to the master service agreement which
governs the provision of our services to the specific property. Having the
exclusive right to market, promote and sell high-speed data services gives us a
direct link to the customers of our Service Partners, an advantage we feel is
important in establishing our company as the most logical provider of broadband
services in the minds of potential subscribers. Depending on the terms of the
contract, a subscriber may pay us directly or, alternatively, our Service
Partner may collect the individual payments and then pay us our share. Set out
below are additional details related to our primary Service Partner
relationships:
Utility Companies
In June 1999, we signed a long-term contract with Seren Innovations, the
communications subsidiary of Northern States Power, one of the top 30 electric
utilities in the U.S. This agreement provides us the exclusive right to offer
high-speed data services to single family residences which can be served by the
cable television plants currently being built by Seren in St. Cloud, Minnesota
and Contra Costa County, California. Under the contract, Seren provides access
to the homes covered by its cable plants in return for a share of the access
revenues generated from the properties. The contract also provides that in the
event Seren builds out xDSL technology in these markets, we have the exclusive
right to provide the same services to those customers under the same terms and
conditions as those served by cable modem technology.
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REITs
Since 1998, we have signed contracts to provide high-speed services to
properties owned by four of the leading multi-family REITs in the U.S.:
Archstone Communities, AvalonBay Communities, Camden Property and Forest City
Residential. Under each contract, the percentage of access revenues shared with
the REIT Service Partner is determined based on penetration levels at the MDUs
as well as the division of responsibilities for marketing our services and
providing property equipment, equipment maintenance and customer care. Our
high-speed data service is typically delivered to MDU residents through the
existing cable or telephone infrastructure at the property. Where the existing
infrastructure is owned by the REIT Service Partner, we can access properties
directly. Where the existing infrastructure is owned by a third party cable
operation, we will typically partner with a local cable provider or the private
cable operator in order to gain access to the cable plant for service
deployment, or, in the alternative, if we are not able to secure access from a
private cable operator or local cable provider, we will deploy alternative
broadband access solutions.
Private Cable Operators
Since 1998, we have signed contracts with four of the largest private cable
operators in the U.S.: CablePlus, Direct Digital Communications, Global
Interactive and OpTel. Our products and services are delivered over the existing
cable service using the coaxial cable infrastructure owned or operated by the
private cable operators. Under each contract, the percentage of access revenues
shared with the private cable operators is determined based on the penetration
level at each property as well as the amount of responsibility for property
equipment, equipment maintenance, customer billing and customer care. While
these Service Partners comprise a large percentage of our potential passings,
many of the private cable operators in the U.S. are under severe financial
duress and, as a result, we are uncertain as to how many additional properties
we will be able to activate with these Service Partners. See "Risk Factors -- We
may be adversely impacted by the financial difficulties of our PCO Service
Partners."
In November 1998, we signed a contract that provides us a right of first
refusal to offer high-speed data services to the national MDUs where GTE
provides or will provide satellite master antennae television, wireline cable
television, or direct broadcast satellite service and has elected to offer
high-speed data services. Under the agreement, we provide and manage our
high-speed data service to residents of the MDUs while GTE provides access to
its cable plant and pays for certain costs associated with providing the service
to customers in return for a share of the Internet access revenue.
OUR PRODUCTS
We currently offer the following types of broadband Internet services:
BroadbandNOW(TM) -- Personal Service
Our primary offering is the BroadbandNOW(TM) -- Personal Service, a
comprehensive Internet solution for the consumer. Personal Service subscribers
generally can achieve symmetrical data transmission speeds up to 1.5 Mbps, over
25 times faster than the typical dial-up data transmission speed of a 56.6 Kbps
modem. In addition, Personal Service customers receive "always on" instantaneous
access to the Internet. This eliminates the need for a dial-up procedure using
the telephone network. As of December 31, 1999, 97% of our current subscribers
subscribed to our Personal Service.
Pricing and service levels change on a regular basis. However, our current
levels of Personal Service are symmetrical and range from downstream and
upstream speeds of 64 Kbps to 1.5 Mbps. Pricing for our Personal Service ranges
from $29.95 per month to $79.95 per month, plus a modem rental fee for
subscribers who require a cable modem or DSL modem.
We typically charge customers an installation fee of $49.95 for desktop
computers and $139.95 for laptop computers and rent modems to customers for
$10.00 per month or sell subscribers a modem for $395.00.
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In addition to high-speed Internet access, Personal Service customers
receive three e-mail accounts, five megabytes of personal web space and the
BroadbandNOW(TM) Software Suite, which evaluates the subscriber's installed
software applications and automatically directs the subscriber to the latest
software downloads which are available and recommended by us for use with our
service, including Microsoft Internet Explorer, Netscape Communicator, Windows
Media Player, Real Player, Microsoft Outlook Express, Chat Software, QuickTime
and Shockwave. The services are supported by a 24 hour a day, seven day a week
help desk. Personal Service customers subscribe to the service on a
month-to-month basis.
BroadbandNOW(TM) -- Home Office Service
We also offer BroadbandNOW(TM) -- Home Office Service, a comprehensive
Internet solution for the home business. Home Office Service subscribers are
offered downstream data transmission speeds of up to 1.5 Mbps and tiered
upstream transmission speeds of up to 1.5 Mbps, depending on the level of
service chosen. Home Office Service subscribers receive a static Internet
Protocol address, which enables the subscriber to install and operate a web
server for their home-based business. Our high-bandwidth and "always on"
connection is critical for customers operating businesses from their home,
particularly those operating online businesses with servers running
sophisticated multimedia and e-commerce applications. As of December 31, 1999,
3% of our current subscribers subscribed to our Home Office Service.
Our market is quite competitive and pricing and service levels change on a
regular basis. However, our current levels of Home Office Service range from
upstream speeds of 64 Kbps to 1.5 Mbps, with downstream speeds held at 1.5 Mbps.
Pricing levels currently range from $129 to $699 per month.
Home Office Service subscribers also receive three e-mail accounts, five
megabytes of personal web space, help desk support 24 hours a day, seven days a
week and the BroadbandNOW(TM) Software Suite. Initially, we require each Home
Office Service subscriber to sign a contract for six months of service.
Customized Co-Branded BroadbandNOW(TM) Portals and Content
Our media group, in conjunction with our Service Partners, develops
customized broadband launch screens, directories of content and localized
content for our subscribers. Each of these customized portals is marketed on a
co-branded basis under the BroadbandNOW(TM) brand, as well as the brand of our
Service Partner. Within this space, our subscribers can receive topical
information tailored to their individual preferences with specific emphasis
placed on content that has been developed specifically for broadband. In
addition, we also provide content that is applicable to subscribers of a
particular Service Partner. In the MDU marketplace, for example, the
BroadbandNOW(TM) portal may include direct links to information such as tenant
directories or schedules of upcoming events at the specific MDU property where
the subscriber resides. In the single family marketplace, content is usually
focused on more general topics related to the community at large. In partnership
with Microsoft, we intend to significantly expand the customized connected
community information portal concept over the next 12 to 18 months.
directPEER(TM)
In addition, we seek to connect our private network directly to other
providers and aggregators of broadband applications and content in order to
ensure high quality broadband transmission for our subscribers. This is done by
connecting our directPEER(TM) partners' server systems directly to our nearest
point-of-presence via a DS-3 or OC-3 connection. By attaching directPEER(TM)
partners' networks and server systems directly to our network, we are able to
ensure quality of service delivery from end-to-end. Since the content never
leaves our connected systems, it is not susceptible to the reliability and
performance problems of the public Internet. This enables the delivery of a new
category of broadband content that would not be possible without directPEER(TM).
We currently have a directPEER(TM)agreement with Yahoo! and a DS-3 connection
from our Dallas, Texas backbone data center directly to the Yahoo! server
system. As part of this agreement, we are jointly re-encoding content for
broadband transmission
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speeds and delivering this content to our subscribers via a co-branded
BroadbandNOW(TM) / Yahoo! Broadcast website which can only be accessed by our
subscribers.
[Graphic entitled, "BROADBANDnow!(TM) directPEER(TM)" illustrating
how directPEER(TM) allows content providers to deliver content directly
to BROADBANDnow!(TM) subscribers over the BROADBANDnow!(TM) private,
national network, thereby bypassing the public internet and avoiding
inefficient "bottlenecks" which can delay content delivery to the end
subscriber.]
Other Broadband Internet Services
BroadbandNOW(TM) -- Virtual Web Hosting Service. Our
BroadbandNOW(TM) -- Virtual Web Hosting Service provides customers a shared
server web hosting service that enables customers to efficiently, reliably and
cost effectively establish a sophisticated web presence and distribute
information over the Internet without purchasing, configuring, maintaining and
administering the necessary Internet hardware and software. We offer a dedicated
server web hosting service for larger customers that require substantially more
server and network capacity than provided under the shared server web hosting
plan. This provides small business and home office customers with superior
reliability, security and customer support in comparison to hosting web sites
themselves, as well as increased performance resulting from having their servers
directly linked to our network.
e-Commerce Products and Services. We have entered into strategic agreements
with leading e-commerce partners to generate incremental revenue from our
customer base. Under a typical agreement, we embed a click-through advertisement
within the broadband content we develop, as well as a limited number of
click-through icons or advertisements on our launch screen. We receive a
percentage of the e-commerce partner's revenues generated from direct
"click-throughs." We have formed a relationship with Yahoo! in which we receive
a significant portion of revenue generated by advertisers or sponsors on our web
pages as well as revenue from our customers viewing pay per view events and
concerts produced by Yahoo! and hosted by us. In exchange, we provide Yahoo!
access to our customer base and have agreed to pay up to a specified portion of
the cost to re-encode or repurpose Yahoo!'s content for broadband access.
Planned Services. We intend to provide dial-in services for traveling
subscribers to access our network, personal e-mail and web services. Under our
current plan, subscribers do not need to maintain a separate dial-in account.
Going forward, we do not anticipate deploying a dial-up platform for this
service, but rather anticipate purchasing bulk hours of service for our
subscribers from vendors such as UUNet Technologies or GTE Internetworking. We
also plan to offer remote backup and personal firewall software to our Personal
Service and Home Office Service subscribers. We also intend to pursue Service
Partner relationships with other emerging data communications providers such as
multiple system cable operators.
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SALES AND MARKETING
Our sales and marketing process typically involves two phases: the initial
business development efforts necessary to establish Service Partner
relationships and gain access to potential subscribers and, secondly, once we
have executed an agreement with a Service Partner, the sales and marketing
process targeted directly to potential subscribers. The sales and marketing
effort targeting the subscriber will typically be done in conjunction with our
Service Partner. Our sales and marketing efforts with Service Partners and
subscribers are described below in greater detail.
Sales and Marketing to Service Partners
We have dedicated significant time and resources during the last two years
to developing and establishing Service Partner relationships with utility
companies, REITs and private cable operators in order to gain access to
potential subscribers. The sales cycle for a new Service Partner is typically
three to six months focusing primarily on the senior executives of the potential
Service Partner. Our business development personnel and senior executives are
very involved in the solicitation and development of these relationships and the
sales and promotion of our service offerings within the utility, REIT and
private cable operator sectors. The sales process ranges from an initial
introduction to our product and service offerings to the final execution of a
master service agreement governing our relationship and respective rights and
responsibilities regarding passings, capital investment in last mile
infrastructure, subscriber marketing and co-branding, customer service and
customer billing. Key components of our ongoing strategy for sales and marketing
to Service Partners include our ability to offer a customized solution for
high-speed data services and the continued dedication of business development
personnel and senior executives to this area of our business. Our investment in
the BroadbandNOW(TM) tradename as a co-branding tool for Service Partners and
further development of our private, nationwide Internet Protocol network and
proprietary content and applications will continue to be important marketing
aspects in our customized solution service offering for these partners.
Sales and Marketing to Subscribers
Our sales and marketing efforts with subscribers vary depending upon the
nature of our Service Partner relationship. In some Service Partner
relationships we are responsible for all aspects of subscriber sales and
marketing, while in others we take a more limited role. We typically provide
most sales and marketing services in our relationships with REITs, while our
private cable operator and utility Service Partners typically prefer to provide
many aspects of the sales and marketing effort themselves. In both cases,
however, we work very closely with our Service Partners in developing and
implementing a marketing plan that typically uses a combination of direct
marketing, public relations, event marketing, personal selling and
telemarketing. A key aspect of our collaborative efforts with all of our Service
Partners is the co-branding of the BroadbandNOW(TM) tradename in all areas of
the sales and marketing process.
We generally launch service in each MDU property or local market with a
promotional event at which we demonstrate our services to potential subscribers
and generate sales leads. We also use promotional materials and signage to raise
awareness of our services before an official sales launch within a property or
market, and later follow up with event marketing, personal selling and
telemarketing to further drive subscriber sales. We also work closely with our
Service Partners to educate property leasing agents, in the case of REIT Service
Partners, and customer service representatives, in the case of our PCO and
utility Service Partners, on our high-speed data services. By educating our
Service Partners' employees that have direct interaction with potential
subscribers, our high-speed data services can be bundled effectively with other
services such as voice, video and electricity.
We also use upgrade programs for existing subscribers as a means of driving
subscriptions to higher bandwidth and price point service levels. For example,
during the first month of a subscriber's service, we often provide a
complimentary 10 day service level upgrade to allow the customer to experience
higher levels of speed on a temporary basis. After experiencing the faster
service level, the customer may decide
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to permanently upgrade to the higher level of service. All such service upgrades
and downgrades can be performed remotely from our network operations center.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
We believe that customer service and technical support are extremely
important in retaining subscribers. We operate a toll free help desk 24 hours a
day, seven days a week to provide customer service and technical support.
Customer service personnel are responsible for opening accounts and provisioning
service for new subscribers and providing follow-up support and maintenance for
inquiries relating to computer and software configuration, customer billing,
network and modem performance, and other related issues. We use customer support
and workflow management systems allowing us to track, route and report on
customer service issues and log trouble tickets as service calls are received.
We also provide Service Partners with periodic reporting on customer status and
performance versus the standards required under our service level agreements,
including the average time required to answer a call, the average time required
to resolve a customer inquiry, call history for a Service Partner's subscribers
and customer billing summaries.
We categorize our customer service and technical support personnel
according to three service levels. Tier I support personnel are responsible for
configuration and basic troubleshooting relating to customer software, hardware
and modems, escalating issues to other support personnel for resolution as
needed, and relaying information about call trends to Tier II support personnel.
Tier II support personnel are responsible for intermediate and advanced
troubleshooting, monitoring trends among customer inquiries, and training of
Tier I support personnel. Tier III support personnel are responsible for
monitoring the stability of the entire network, determining and diagnosing
network issues, communicating with Tier I and Tier II support personnel on
issues not resolved by Tier I or Tier II support personnel, and acting as a
liaison between customer service and technical support and the network
operations center. Tier III technical support personnel are co-located with our
network operations center staff, who are responsible for monitoring the
performance of the network from end-to-end on a 24 hour a day, seven day a week
basis. The close proximity of the two groups facilitates collaboration to
resolve subscriber problems rapidly and anticipate potential problems before
they can affect the user experience.
NETWORK ARCHITECTURE
Private, National Network
We have designed our private, national network on the premise that
sustainable, high-performance, broadband Internet access requires a
high-capacity, scalable, national architecture to alleviate Internet bottlenecks
and enable true end-to-end network management capabilities. We developed and
implemented our network architecture using existing protocols that link a
private, national Internet Protocol network with local POPs serving our
subscribers in each market. We utilize multiple broadband access technologies,
including cable modem, xDSL, Ethernet and wireless, to connect subscribers
directly to our private, national network.
We are currently in the process of deploying a national network to serve as
a quality controlled private Intranet for BroadbandNOW(TM) subscribers in 48
cities. As of December 31, 1999, we had 22 POPs serving 23 markets and we expect
to have 47 POPs serving 48 markets by the end of 2000. Nine of our network POPs
are designated as network data centers which will house server farms to host
local e-mail, subscriber web pages, localized content and distributed content
caching. Local servers significantly enhance the user experience by reducing the
time required for round trip data transmission. Five of our network data centers
have server farms today, with the remaining server farms to be deployed as new
subscribers are added to the network in each of these areas.
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[Graphic entitled, "BROADBANDnow!(TM) National Network" depicting the
infrastructure of our private, national network on a map of the United States.
The graphic illustrates the connections of our points-of-presence with data
centers on the core span of the network to our points-of-presence connected by
regional network spans, and finally indicates regions where deployment of our
private, national network is in progress.]
The key elements of our network strategy include the following:
National Deployment of a Private Internet Protocol Network. We are
deploying our own private, national Internet Protocol network backbone which
consists of a network of leased, high-speed fiber connections to our various
POPs. We currently lease long-haul circuits from major telecommunications
carriers, including GTE and Level 3 Communications. Our network currently
operates at DS-3, or a speed of 45 Mbps, and can be upgraded to OC-48, or
approximately 2.5 gigabits per second. Our network access POPs are typically
co-located in space leased from a local competitive exchange carrier or
incumbent local exchange carrier and equipped with high-speed, fully scalable
ATM switches, routers and servers all owned by us. Vendors of equipment for our
network include Cisco Systems, Lucent Technologies, Nortel Networks, and others.
These network access POPs have five main functions:
- to aggregate local access T-1 and DS-3 circuits from properties and
Service Partners we serve;
- to connect to our backbone with a minimum of two diverse backbone
circuits, providing redundant routing to multiple Internet access sites,
to provide redundant routing capable of surviving multiple fiber outages;
- to provide a 100 Mb connection to our local server farm and content
cache;
- to provide a DS-3 or OC-3 connection into the server farms of
directPEER(TM) broadband content partners; and
- to connect the network to multiple Tier I Internet providers in multiple
cities.
We pursue a "smart build" strategy in establishing our private, national
network infrastructure. When establishing a presence in a new market, we often
lease services from major telecommunications providers on a short-term basis
until we secure enough passings to economically justify a POP. When we achieve
critical mass in a market, we then lease co-location space for our servers,
routers and switching equipment to establish a POP. We believe this multi-phased
strategy provides us with a cost-effective and high
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<PAGE> 43
quality network infrastructure without burdening us with a high level of fixed
network costs during deployment of our products and services.
End-to-End Network Management. Our network is proactively managed on an
end-to-end basis through our extensive network management systems. The network
is centrally managed from our network operations center in Dallas, Texas where
we can dynamically identify and enhance network quality, service and
performance. The network operations center monitors the network infrastructure
on a 24 hour a day, seven day a week basis, enhancing our ability to address
performance bottlenecks before they affect the user experience. From the network
operations center, we can manage our network on a real-time basis from
end-to-end, including the backbone, regional POPs, on-property facilities,
servers and other components of the network infrastructure, even down to the
modem in the subscriber's home.
[Graphic entitled, "BROADBANDnow!(TM) Nationwide Managed Network"
illustrating how we manage our private, national network on an end-to-end basis
and how our distributed servers, directPEER(TM) and multiple internet drains
ensure the quality of service and content delivery to subscribers.]
One of the key components of network management is ensuring subscriber
security and compatibility within the network. Many of the access technologies
we utilize provide "always on" access and therefore require additional security
measures in order to limit user-to-user visibility. In addition, since each
underlying access technology possesses different technological characteristics,
it is difficult for a provider to deploy all of these technologies and deliver a
consistent service offering, regardless of which underlying access technology is
used. In order to address these issues, we have worked directly with hardware
manufacturers to define the features and functionality necessary to allow
acceptably safe public deployment and compatibility. This effort allows us to
deploy on-property network solutions with a consistent set of service features,
regardless of the underlying access technology, through a proprietary method
called the Data Envelope(TM). When a BroadbandNOW(TM) subscriber requests
content, our Data Envelope(TM) instantaneously packages the broadband content
into the format most easily accepted by the access technology utilized. The Data
Envelope(TM) facilitates the most efficient routing of the content throughout
our private, national network while ensuring its quality and integrity.
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[Graphic entitled, "BROADBANDnow!(TM) Data Envelope(TM) for Multiple
Broadband Access Technologies" illustrating that our Data Envelope(TM) packages
broadband content requested by a subscriber into the format most easily accepted
by that subscriber's particular access technology, thereby facilitating
efficient routing of content through our private, national network and ensuring
its quality.]
In addition to providing subscriber security and compatibility, the Data
Envelope(TM) also allows us to limit data transmission rates in order to offer
tiered services, and going forward, to develop varied billing options such as
fixed and usage based billing.
Multiple Transit Connections. One of the stated design objectives of our
network is to avoid transiting subscriber traffic through a public network
access point. We will purchase Internet access circuits from Tier I providers in
the nine POP data centers as required by usage levels. As of December 31, 1999,
we had privately peered Internet access circuits in POP data centers located in
Dallas, Chicago, San Jose and Los Angeles purchased from Tier I providers. In
addition to these transit connections, we are using all routing tools available
to us and controlled by us to create symmetric paths to Internet locations.
LAST MILE ACCESS TECHNOLOGIES
We utilize multiple broadband access technologies, including cable modem,
xDSL, Ethernet and wireless to connect subscribers directly to our network.
Cable Modems
We utilize standards-based cable modem technology on properties where
access is secured on the coaxial distribution plant. Cable modem technology is a
faster alternative than analog modems or dial-up Internet access. Implementation
of our high-speed data service via cable modems requires access to a 6 MHz
downstream channel between 88 MHz and 860 MHz for a maximum shared downstream
data rate of 38.8 Mbps (at 256 Quadrature Amplitude Modulation); and a 3.2 MHz
upstream channel between 5 MHz and 42 MHz for a maximum shared upstream data
rate of 10.24 Mbps. Data capacity on the coaxial plant may be expanded through
either utilizing additional frequencies in the downstream or upstream direction
or physically splitting the coaxial and utilizing the same frequencies on each
separate plant. The DOCSIS cable modem technology we deploy meets the
requirements of the Data Envelope(TM) for data flow separation and deployment
for public service.
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xDSL
We utilize xDSL technology, an economical solution for high-speed Internet
access, on properties where access is secured on the copper telephone plant.
Implementation of our high-speed data service via xDSL is accomplished by
upgrading the performance of existing copper lines with the installation of
specialized equipment at both ends of the connection. We utilize a dedicated
pair of copper to deploy Symmetric DSL, or SDSL, at a data rate of up to 2.3
Mbps per line in the upstream and downstream concurrently. The DSL technology we
deploy meets the requirements of the Data Envelope(TM) for data flow separation
and deployment for public service.
Ethernet
We utilize Ethernet technology on properties where either access is secured
to or we have deployed new Category 3 or better wiring to the subscriber's
wall-jack. We will install an Ethernet switch with port based VLAN functionality
on each garden style building and provide 10 Mbps connection to each unit.
Connection of each switch to the central router on the property will be
accomplished via either a microwave or Ethernet connection. The Ethernet
technology we deploy meets the requirements of the Data Envelope(TM) for data
flow separation and deployment for public service.
Wireless
We utilize customized wireless technology that enables low power
line-of-sight transceivers to reliably transmit digital data in the Federal
Communications Commission's license-free spectrum. The transceivers have a power
output equal to or less than one watt and are designed for high-speed data
transmission in a point-to-multipoint configuration and operate in the ISM 2.4
GHz and U-NII 5.25 GHz to 5.35 GHz and 5.725 GHz to 5.825 GHz frequency bands.
Each of our transceiver models which we purchase from our vendors has been
certified by the Federal Communications Commission. To avoid harmful
interference from third parties and to prevent interference to third parties, we
rely on encryption or Direct Sequence Spread Spectrum techniques for data
security and channel allocation. Our technology provides for data transfer
speeds of up to 25 Mbps point-to-multipoint per antennae and meets the
requirements of the Data Envelope(TM) for data flow separation and deployment of
service to the public.
COMPETITION
The markets for consumer and business Internet services and online content
are extremely competitive. We compete with other Internet service providers on
two levels: in establishing relationships with Service Partners and for
subscribers. We expect that this competition will intensify in the future. Our
most direct competitors are Internet service providers partnering with multiple
system cable operators, REITs or local exchange carriers to provide high-speed
data services either over the cable television infrastructure using cable modems
or over the telephone system infrastructure using xDSL technology. Other
competitors include consumer and business Internet service providers, national
long distance carriers, wireless service providers, online service providers,
fiber-based competitive local exchange carriers, other competitive local
exchange carriers and Internet content aggregators. Many of these competitors
are offering, or will soon offer, technologies that will compete with some or
all of our high-speed data service offerings. Based upon the experiences of
Internet service providers in today's market, we believe that reliability of
service, brand recognition and customer support will be the most important
aspects of our service that will distinguish us from other companies offering
high-speed data services.
Cable-based Data Services
Companies, such as Excite@Home Corporation and Time Warner, actively seek
to utilize the cable television infrastructure to deploy high-speed, cable-based
data services. Excite@Home, controlled by AT&T, is rapidly expanding throughout
the U.S. and Canada. Additionally, Time Warner, the second largest cable company
in the U.S., along with MediaOne, Microsoft, Compaq and Advanced/Newhouse, has
established its own cable-based Internet service provider with proprietary
content, called Road
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Runner(TM), which features a variety of Time Warner publications and services
and which is marketed through Time Warner's own cable systems. Time Warner has
agreed to be acquired by America Online, a dial-up Internet service provider,
which acquisition will provide AOL its own cable-based infrastructure and
proprietary broadband content. Other companies that have publicly announced
limited-area trials for their own cable-based Internet services include Adelphia
Communications, BellSouth and Jones Intercable. Certain of these competitors are
marketing their cable-based services to unaffiliated cable system operators
using a partnering strategy similar to ours.
Incumbent Local Exchange Carriers
All of the largest incumbent local exchange carriers present in our target
markets are conducting technical and/or market trials or have entered into
commercial deployment of xDSL based services. We recognize that each incumbent
local exchange carrier has the potential to quickly overcome many of the issues
that we believe have slowed wide deployment of xDSL services by incumbent local
exchange carriers in the past, at which point they will represent strong
competition in all of our target service areas. The incumbent local exchange
carriers have an established brand name and reputation for high quality in their
service areas, possess sufficient capital to deploy xDSL equipment rapidly, have
their own copper lines and can bundle digital data services with their existing
analog voice services to achieve economies of scale in serving customers.
Certain of the incumbent local exchange carriers have aggressively priced their
consumer ADSL services as low as $39.99 per month.
Other Competitive Local Exchange Carriers
Companies such as Teleport Communications Group (acquired by AT&T), Brooks
Fiber Properties (acquired by MCI WorldCom) and MFS Communications (acquired by
MCI WorldCom) have extensive fiber networks in many metropolitan areas that
primarily provide high-speed digital and voice circuits to large corporations.
They also have interconnection agreements with the incumbent local exchange
carriers pursuant to which they have acquired co-location space in many markets
we target. These companies are modifying or could modify their current business
focus to include residential and small business customers using xDSL in
combination with their current fiber networks. In addition, other companies such
as Covad Communications, Rhythms NetConnections and NorthPoint Communications
offer high-speed digital services using xDSL technology over the existing
telephone infrastructure, either alone or on a co-branded basis.
National Long Distance Carriers
Long distance inter-exchange carriers, such as AT&T, MCI WorldCom and
Sprint have deployed large-scale Internet access networks and asynchronous
transfer mode networks and sell connectivity to business and residential
customers, and have high brand recognition. They also have interconnection
agreements with many of the incumbent local exchange carriers and a number of
co-location spaces from which they are currently offering or could begin
offering competitive xDSL services.
Wireless Service Providers
Wireless service providers, such as AT&T, are developing wireless Internet
connectivity, including multichannel and local multipoint distribution services.
In addition, companies such as Teligent and WinStar Communications hold
point-to-point microwave licenses to provide fixed wireless services such as
voice, data and videoconferencing, although currently at higher price points
than our service. We may also face competition from satellite-based systems.
Motorola Satellite Systems, Hughes Electronics and others have filed
applications with the Federal Communications Commission for global satellite
networks which can be used to provide broadband voice and data services, and
several of these applicants have received authorization to operate their
proposed networks.
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Online Service Providers
Online service providers, such as America Online and WebTV Networks,
provide a variety of proprietary online services, content and applications
ranging from news and sports to consumer video conferencing over the Internet.
In addition to developing their own content or supporting proprietary third-
party content developers, online services often establish relationships with
traditional broadcast and print media outlets to bundle their content into the
service, such as Microsoft's relationship with NBC to provide multimedia news
and information programming over both the Internet and cable television through
MSNBC. Many of these online service providers have developed their own access
networks for modem connections and if they were to extend their access networks
to xDSL or other high-speed service technologies, they could become our
competitors. In addition, America Online's pending acquisition of Time Warner
will provide it with access to substantial entertainment and media content to
aggregate and distribute to AOL's large customer base, creating competitive
advantages in providing broadband services.
Internet Service Providers
Internet service providers, such as GTE Internetworking, UUNET Technologies
(acquired by MCI WorldCom), Earthlink Network, Concentric Network, Netcom
On-Line Communication Services (acquired by ICG Communications), CAIS Internet
and PSINet provide Internet access to residential and business customers,
generally using the existing public switched telephone network. Some Internet
service providers, such as UUNET in California and New York, have begun offering
xDSL-based services.
INTELLECTUAL PROPERTY
We have filed applications for federal registration or own common law
rights in the following trademarks: BroadbandNOW(TM), Data Envelope(TM),
directPEER(TM), MBAT(TM), "always on, always fast, always fun(TM)", BBNOW(TM)
and our logo. This prospectus also includes trade dress, trade names and the
trademarks of other companies. All other brand names or trademarks appearing in
this prospectus are the property of their respective holders.
We regard our technology as proprietary and attempt to protect it with
copyrights, trademarks, trade secret laws, restrictions on disclosure and other
methods. We also generally enter into confidentiality or license agreements with
our employees and consultants, and generally control access to and distribution
of our documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our products, services or technology without authorization, or to
develop similar technology independently. In addition, effective copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries, and the global nature of the Internet makes it virtually
impossible to control the ultimate destination of our content offerings.
Policing unauthorized use of our content offerings is difficult. There can be no
assurance that the steps we take will prevent misappropriation or infringement
of our technology. In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results, and
financial condition.
From time to time, we may receive notice of claims of infringement of other
parties' proprietary rights, including claims for infringement resulting from
the downloading of materials by the online or Internet services we operate or
facilitate. There can be no assurance that infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) will not be
asserted or prosecuted against us or that any assertions or prosecutions will
not materially adversely affect our business, operating results and financial
condition. Irrespective of the validity or the successful assertion of such
claims, we would incur significant costs and diversion of resources with respect
to the defense thereof, which could have a material adverse effect on our
business, operating results and financial condition. If any claims or actions
are asserted against us, we may seek to obtain a license under a third party's
intellectual property
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rights. There can be no assurance, however, that under such circumstances a
license would be available on commercially reasonable terms, or at all.
GOVERNMENT REGULATION
Although our services are not directly subject to current regulations of
the Federal Communications Commission or any other federal or state
communications regulatory agency, radio communications are subject to such
regulation and changes in the regulatory environment relating to the Internet
connectivity market could affect the prices at which we sell our services and a
significant portion of our services may become subject to regulation at the
federal, state and/or local levels. Future federal or state regulations and
legislation may be less favorable to us than current regulations and legislation
and therefore have a material and adverse impact on our business and financial
prospects. In addition, we may expend significant financial and managerial
resources to participate in proceedings setting rules at either the federal or
state level, without achieving a favorable result.
Radio communications are subject to regulation by United States and foreign
laws and international treaties. Among these requirements are Federal
Communications Commission rules governing the operation of U-NII and ISM devices
and equipment. Our equipment and wireless communication systems deployed in the
unlicensed U-NII and ISM bands must conform to domestic and international
requirements established to avoid interference among users of microwave
frequencies and to permit interconnection of equipment.
The use of microwave signals depends upon the availability of frequencies
that permit interference-free operation. In many developed countries, the
unavailability of frequency spectrum has historically inhibited the growth of
microwave systems. However, two factors are alleviating this problem. First, the
proliferation of fiber optics for high capacity systems has reduced the demand
for microwave frequencies for such systems, thus freeing up frequency spectrum
for new types of services. Second, many government regulatory agencies are
reallocating frequencies from one type of use to another, thus providing
incentive for new communications services.
LEGAL PROCEEDINGS
We are not involved in any material litigation at this time.
EMPLOYEES
As of December 31, 1999, we had 105 employees. None of our employees is
represented by a labor union, and we consider our relations with our employees
to be good. Our ability to achieve our financial and operational objectives
depends in large part upon the continued service of our senior management and
key technical personnel and our continuing ability to attract and retain highly
qualified technical and managerial personnel.
PROPERTIES
Our headquarters are in a 40,000 square foot facility in Dallas, Texas,
which we purchased in December 1999. The Dallas facility houses our network
operations center, media group, sales and marketing staff, network engineering
staff, administrative staff and executive offices and we anticipate it will be
adequate as our headquarters for the foreseeable future. The network operations
center features tri-fiber entry from three distinct telecommunications carriers,
an uninterrupted power supply and a backup generator.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth, as of January 27, 2000, the names, ages and
positions of our executive officers, directors and other significant employees.
Their respective backgrounds are described below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
Executive Officers and Directors:
James R. Price............................ 60 Chairman of the Board
Matthew Hutchins, Sr. .................... 44 President, Chief Executive Officer and
Director
Charles W. (Bo) Price..................... 58 Executive Vice President and Director
Daniel A. Gillett......................... 38 Senior Vice President and Chief Financial
Officer
Charles R. Gregg, Jr...................... 34 Vice President of Corporate Development
and General Counsel
John J. Galgay, III....................... 32 Vice President of Network Engineering
Clay C. Scott, Jr. ....................... 71 Secretary and Director
Tracy Scott Turner........................ 39 Director
Russell R. Myers.......................... 39 Director
New Directors:
Gary S. Howard............................ 48 Director
Jeffrey A. Marcus......................... 53 Director
Jack A. Riggs............................. 41 Director
Other Significant Employees:
Paul M. Buss.............................. 36 Vice President of Marketing
Don R. Ivey............................... 59 Vice President of Sales and Operations
EXECUTIVE OFFICERS AND DIRECTORS
</TABLE>
JAMES R. PRICE co-founded BroadbandNOW in 1994 and has since served as
Chairman of the Board. From 1994 to January 2000 he also served as Chief
Executive Officer. From 1989 to 1994, he was President of RE/MAX Las Colinas
where he led a project to automate information systems designed specifically for
the real estate industry. From 1983 to 1989, Mr. Price served as President and
Chief Executive Officer of Pritronix, Inc., a private LAN systems integration
company, which he co-founded. Mr. Price and Charles W. (Bo) Price are brothers.
Mr. Price attended the University of Texas.
MATTHEW HUTCHINS, SR. has served as our President since October 1998 and a
Director since February 1999. In January 2000, Mr. Hutchins became our Chief
Executive Officer, where his responsibilities will continue to include, among
other things, primary responsibility for the management of our day-to-day
operations, as well as for overall corporate strategy. Prior to serving as
President, he was Vice President of Business Development and Corporate Affairs
since joining us in July 1997. From 1994 to 1997, Mr. Hutchins served as Chief
Executive Officer of The Tiger Group, L.L.C., a privately held international and
strategic business development consultancy specializing in the multimedia,
interactive telecommunications and information technology industries, which he
co-founded. From 1990 to 1994, he served as Vice President, International and
Chief Legal Officer of SpectraVision, Inc., a publicly-held company providing
video entertainment programming and interactive services for the lodging and
hospitality industry. Mr. Hutchins holds a B.A. degree in Political Science from
the University of Maine, an M.P.A degree from Texas Tech University, and a J.D.
degree from Texas Tech University. Mr. Hutchins is licensed to practice law in
the State of Texas.
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CHARLES W. (BO) PRICE co-founded BroadbandNOW in 1994 and has since served
as Executive Vice President and Director. From 1989 to 1994, Mr. Price was
engaged independently in the commercial real estate business in Texas. From 1983
to 1989, Mr. Price served as Chairman of the Board of Pritronix, Inc., a private
LAN systems integration company, which he co-founded. Mr. Price and James R.
Price are brothers. Mr. Price holds a B.S. degree in Business Administration
from the University of Texas.
DANIEL A. GILLETT has served as our Senior Vice President and Chief
Financial Officer since February 2000. From March 1999 to February 2000, Mr.
Gillett served as our Vice President of Corporate Development and Chief
Financial Officer. From 1995 to 1999, Mr. Gillett served as a Partner with MG
Capital, a private investment banking firm which he co-founded and which focuses
on transactions in the telecommunications and technology industries. From 1989
to 1995, he served as a Vice President in Investment Banking with CS First
Boston and from 1984 to 1986 as a Staff Accountant with Price Waterhouse. Mr.
Gillett holds a B.B.A. degree in Accounting from Harding University and an
M.B.A. degree from Harvard University.
CHARLES R. GREGG, JR. has served as our Vice President of Corporate
Development and General Counsel since January 2000. From May 1998 until January
2000, Mr. Gregg served as Vice President of Business Development and General
Counsel of National Tile + Stone Corporation, a privately held company engaged
in the consolidation of the tile distribution industry. From 1993 to 1998, he
was an associate at the law firms of King & Spalding and Andrews & Kurth L.L.P.,
specializing in mergers and acquisitions, securities and general corporate
matters. He holds an A.B. degree in History from Princeton University and a J.D.
degree from The University of Texas School of Law.
JOHN J. GALGAY, III has served as our Vice President of Network Engineering
since joining us in May 1998. From 1994 to 1998, Mr. Galgay was employed by Bay
Networks in various network design and strategic service capacities. Mr. Galgay
has served as a course lecturer at Northeastern University, lectured at industry
conferences, and authored an article on Integrated Services. He holds a B.A.
degree in Economics from the University of Texas at Austin and is currently
pursuing an M.S. degree in Information Systems from Northeastern University.
CLAY C. SCOTT, JR. has served as our Secretary and as a Director since our
incorporation in 1994. Mr. Scott is a member of the Texas State Bar and has been
a sole practitioner in Dallas, Texas for 40 years. Mr. Scott holds a B.S. degree
in Business from Texas A&M University and a J.D. degree from Southern Methodist
University.
TRACY SCOTT TURNER has served as a Director since April 1997. Mr. Turner is
also currently a principal at Geneva Associates, L.L.C., a merchant bank. Mr.
Turner is also the founding principal of Interra Ventures, L.L.C., a merchant
bank which focuses on Internet and telecommunications investments. From 1993 to
1996, Mr. Turner served as a Senior Vice President of the Private Placement
Group for ABN AMRO Bank. From 1986 to 1993, he was a Managing Director in the
Private Placement Group for Canadian Imperial Bank of Commerce. Mr. Turner also
currently sits on the board of directors of Wetland Environmental Technologies,
L.L.C., Golfport, Inc., Early Warning Corporation, Direct Digital
Communications, ParaComm, Inc. and Clean Air Research and Environmental and is a
principal of Turner Land and Cattle Company and Southern Capital Partners,
L.L.C. Prior to the consummation of this offering, the holders of the Class B
common stock had the right to elect two directors. Mr. Turner was elected by the
members of the Class B stockholders. Mr. Turner holds a B.S. degree in Economics
and Finance from Indiana University.
RUSSELL R. MYERS has served as a Director since April 1997. Upon the
consummation of this offering, Mr. Myers will resign from our board of
directors. Mr. Myers is currently a principal at Geneva Associates, L.L.C., a
merchant bank. He is also currently a principal of Blue Ridge Investors Limited
Partnership and Southern Capital Partners, L.L.C. In addition, since 1987 Mr.
Myers has served as the Vice President of Finance of Geneva Corporation, an
affiliate of Geneva Associates, L.L.C. Mr. Myers also currently sits on the
board of directors of Geneva Corporation, Blue Ridge Investors Group, Inc., SDX
Incorporated and U.S. Supply Company. Prior to the consummation of this
offering, the holders of the Class B common stock had the right to elect two
directors. Mr. Myers was elected by the members of
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<PAGE> 51
the Class B stockholders. Mr. Myers holds a B.S. degree in Accounting and Legal
Administration from Greensboro College and an M.B.A. from the University of
North Carolina.
NEW DIRECTORS
GARY S. HOWARD will become a Director upon the consummation of this
offering, replacing Russell M. Myers who will resign from the Board of Directors
at that time. Mr. Howard has served as Executive Vice President, Chief Operating
Officer and a director of Liberty Media Corporation since July 1998. Mr. Howard
has also served as Chief Executive Officer of TCI Satellite Entertainment, Inc.
since December 1996. Mr. Howard served as Executive Vice President of TCI from
December 1997 to March 1999; as Chief Executive Officer, Chairman of the Board
and a director of TV Guide, Inc. from June 1997 to March 1999; and as President
and Chief Executive Officer of TCI Ventures Group, LLC from December 1997 to
March 1999. Mr. Howard served as President of TV Guide, Inc. from June 1997 to
September 1997; as President of TCI Satellite Entertainment, Inc. from February
1995 through August 1997; as Senior Vice President of TCIC from October 1994 to
December 1996; and as Vice President of TCIC from December 1991 through October
1994. Mr. Howard is a director of TV Guide, Inc., Liberty Digital, Inc. and TCI
Satellite Entertainment, Inc. Mr. Howard holds a B.S. degree in Accounting from
Colorado State University.
JEFFREY A. MARCUS will become a Director upon the consummation of this
offering. Mr. Marcus currently is a partner of Marcus & Partners, L.P., a
private equity investment firm he co-founded in March 1999. He previously served
as President and Chief Executive Officer of AMFM Corporation (formerly
Chancellor Media Corporation) from May 1998 until March 1999. Previously, Mr.
Marcus was Chairman, President and Chief Executive Officer of Marcus Cable
Company, a company he formed in 1990 after spending more than 23 years in the
cable television industry. Until November 1988, Mr. Marcus served as Chairman
and Chief Executive Officer of WestMarc Communications, Inc., an MSO formed
through the merger in 1987 of Marcus Communications, Inc. and Western Tele-
Communications, Inc. Mr. Marcus has more than 32 years of experience in the
cable television business. Mr. Marcus is a co-owner of the Texas Rangers
Baseball Club and Dallas Stars Hockey Club and serves as a director of Brinker
International, Inc. and LIN Television Corporation and is a director or trustee
of several charitable and civic organizations. Mr. Marcus holds a B.A. degree in
Economics from the University of California at Berkeley.
JACK A. RIGGS will become a Director upon the consummation of this
offering. Mr. Riggs is currently a controlling partner of DOTCOM Limited
Partnership. Mr. Riggs served as Chief Financial Officer and Treasurer of
broadcast.com from August 1997 to December 1999 and as a Director from December
1997 to July 1999 when broadcast.com was acquired by Yahoo, Inc. From June 1996
to August 1997, Mr. Riggs served as Corporate Controller of Kitty Hawk, Inc., a
publicly traded international airfreight carrier. From 1994 to 1996 Mr. Riggs
served as Corporate Controller of DHN Enterprises, Inc., a privately held
wholesale distributor. Prior to that time, Mr. Riggs served as Regional
Controller of INACOM Corp., a computer reseller. Prior to joining INACOM, Mr.
Riggs was with Coopers & Lybrand L.L.P. Mr. Riggs became a certified public
accountant in 1990 and holds a B.S. degree in Accounting from Louisiana Tech
University.
OTHER SIGNIFICANT EMPLOYEES
PAUL M. BUSS has served as our Vice President of Marketing since April
1998. From 1996 to 1998, Mr. Buss was Vice President of Brand Strategy for Oasis
Residential, Inc., a Las Vegas-based multi-family REIT with over 15,000 units,
where he oversaw marketing, organization development, and ancillary services.
From 1986 to 1996, Mr. Buss was with The Walt Disney Company in several
capacities, including staffing and organization development. Mr. Buss holds a
B.S. degree in Marketing from Appalachian State University.
DON R. IVEY has served as our Vice President of Sales and Operations since
joining us in June 1999. From 1998 to 1999, Mr. Ivey directed major projects for
local telephone services for AT&T Local Services in Texas. Prior to the merger
of AT&T and Teleport Communications Group, from 1994 to 1998,
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<PAGE> 52
Mr. Ivey served as Vice President/General Manager of Teleport Communications
Group Texas. Mr. Ivey holds a B.A. degree in Communications from Howard Payne
College, an M.A. degree in Religious Education from Southwestern Baptist
Theological Seminary and a Ph.D. degree in Educational Psychology from
Southwestern Baptist Theological Seminary.
ELECTION OF CERTAIN DIRECTORS
We have agreed with one of our stockholders, I(3)S Funding I, L.L.C., to
nominate a director designated by I(3)S Funding I, L.L.C., so long as their
designee is reasonably qualified, and we have agreed that the board of directors
will recommend in our proxy statement that the stockholders vote for such
designee. I(3)S Funding I, L.L.C. will have this right as long as it continues
to hold at least 2,489,899 shares of common stock. I(3)S Funding I, L.L.C. is an
affiliate of Geneva Associates, L.L.C. and two of our directors are currently
member-managers of Geneva Associates, L.L.C.; however, Russell R. Myers will
resign upon consummation of this offering.
CLASSIFIED BOARD OF DIRECTORS
Our amended and restated certificate of incorporation divides our directors
into three classes serving staggered three-year terms. As a result, stockholders
will elect approximately one-third of the board of directors each year. These
provisions, together with the provisions of the amended and restated certificate
of incorporation that allow the board of directors to fill vacancies in or
increase the size of the board of directors, would prevent a stockholder from
removing incumbent directors and filling such vacancies with its nominees in
order to gain control of the board.
Our board has resolved that Russell R. Myers and Clay C. Scott, Jr. will
serve as Class I Directors, whose terms expire at the 2000 annual meeting of
stockholders, Charles W. (Bo) Price and Tracy S. Turner will serve as Class II
Directors, whose terms expire at the 2001 annual meeting of stockholders, and
James R. Price and Matthew Hutchins, Sr. will serve as Class III Directors,
whose terms expire at the 2002 annual meeting of stockholders. Upon the
consummation of the offering and Russell R. Myers' resignation from the board,
Gary S. Howard will replace Mr. Myers as a Class I Director. Upon the
consummation of the offering, Jeffrey A. Marcus will be added as a Class II
Director and Jack A. Riggs will be added as a Class III Director.
BOARD COMMITTEES
The Compensation Committee consists of Messrs. James R. Price, Tracy S.
Turner and Russell R. Myers. The Compensation Committee:
- makes recommendations to the board of directors regarding our policies
relating to, and the amounts and terms of, all compensation of our
executive officers;
- engages any professional advisors as it deems appropriate; and
- fulfills such other powers and duties as determined and delegated by the
board of directors from time to time.
The Audit Committee consists of Messrs. Russell R. Myers, Clay C. Scott,
Jr. and Tracy S. Turner. The Audit Committee:
- reviews, with our independent auditors, our financial statements and
internal accounting controls and the plans and results of the audit
engagement;
- reviews the independence of our independent auditor;
- reviews the adequacy of our internal accounting controls;
- prepares an annual report on executive compensation for inclusion in our
proxy statement for the annual meeting of stockholders; and
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<PAGE> 53
- fulfills such other powers and duties as determined and delegated by the
board of directors from time to time.
The Administrative Committee for Option Plan, or Administrative Committee,
consists of Messrs. James R. Price, Matthew Hutchins, Sr. and Tracy S. Turner.
The Administrative Committee:
- administers and discharges the employee stock plans, option plans and
such other compensation plans that are established by the board of
directors from time to time; and
- fulfills such other powers and duties as determined and delegated by the
board of directors from time to time.
The Executive Committee consists of Messrs. James R. Price, Matthew R.
Hutchins, Sr. and Tracy S. Turner. The Executive Committee fulfills such powers
and duties as determined and delegated by the board of directors from time to
time.
DIRECTOR COMPENSATION
Russell R. Myers and Tracy S. Turner were each paid $2,500 in fiscal year
1997, 1998 and 1999 for their participation on the Compensation Committee. Other
than these payments, our directors generally do not receive compensation for
services provided as a director. We reimburse our directors for expenses
incurred in attending board and committee meetings. Upon the completion of this
offering, non-employee directors will each receive options to purchase 30,000
shares of common stock which vest over the three year term of each director.
Such shares shall be granted at the initial public offering price.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of our
chief executive officer and other highly compensated executive officers whose
salary and incentive compensation exceeded $100,000 for the year ended December
31, 1999, the "named executive officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)
- --------------------------- --------- ------ ---------------------
<S> <C> <C> <C>
James R. Price......................................... $205,194 -- 170,000
Chairman of the Board and Chief Executive Officer
Matthew Hutchins, Sr. ................................. $191,878 -- 700,000
President and Director
Charles W. (Bo) Price.................................. $139,562 -- 100,000
Executive Vice President and Director
Daniel A. Gillett...................................... $143,529(1) -- 500,000
Vice President of Corporate Development and Chief
Financial Officer
John J. Galgay, III.................................... $130,345 -- --
Vice President of Network Engineering
</TABLE>
- ---------------
(1) Represents compensation for the period from March 1999 to December 1999.
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<PAGE> 54
OPTION GRANTS AND EXERCISES
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1999 to
the named executive officers. No stock appreciation rights were granted during
1999.
OPTION GRANTS AND EXERCISES
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
------------------------------------------------------ ------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR(2) ($/SHARE) DATE 5% 10%
- ---- ---------- --------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
James R. Price............ 170,000(1) 9.32% $18.80 6/25/09 $2,009,400 $ 5,093,200
Matthew Hutchins, Sr. .... 50,000 2.74% $ 3.08 2/1/09 97,000 245,500
650,000(1) 35.64% $18.80 6/25/09 7,683,000 19,474,000
Charles W. (Bo) Price..... 100,000(1) 5.48% $18.80 6/25/09 1,182,000 2,996,000
Daniel A. Gillett......... 30,000 1.64% $ 3.08 3/1/09 58,200 147,300
470,000(1) 25.71% $18.80 6/25/09 5,555,400 14,081,200
John J. Galgay, III....... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options become exercisable in the event of an initial public offering.
(2) In 1999, we granted employees options to purchase an aggregate of 1,824,000
shares of common stock.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the SEC and are based on the assumption that the exercise
price was the fair market value of the shares on the date of grant. There is
no assurance provided to any executive officer or any other holder of our
securities that the actual price appreciation over the 10-year option term
will be at the assumed 5% and 10% levels or at any other defined level.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning unexercised options
held as of December 31, 1999 by the named executive officers. They did not
exercise any options during this period.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, OPTIONS AT DECEMBER 31, ASSUMING A
1999 1999($)(1) $ PER SHARE VALUATION
--------------------------- --------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Price............. -- 170,000 -- --
Matthew Hutchins, Sr. ..... 300,000 700,000 $5,515,800 $ 786,000
Charles W. (Bo) Price...... -- 100,000 -- --
Daniel A. Gillett.......... -- 500,000 -- $ 471,600
John J. Galgay, III........ 83,333 166,667 $1,399,994 $2,800,006
</TABLE>
- ---------------
(1) The amount set forth represents the difference between the fair market value
of the underlying stock on December 31, 1999 ($18.80 per share) and the
exercise price of the option. The fair market value was determined by our
board of directors based on the per share sale price of the Class A
convertible redeemable preferred stock issued in 1999.
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<PAGE> 55
EMPLOYMENT AGREEMENTS
On June 24, 1999, we entered into employment agreements with Messrs. James
R. Price, Matthew Hutchins, Sr., Charles W. (Bo) Price and Daniel A. Gillett.
Each of the employment agreements has an initial term through June 30,
2001, but, beginning on June 30, 2000 and on June 30 each year thereafter, the
agreement is automatically extended for an additional year, unless either party
gives the other prior notice.
The employment agreements provide for each executive's base salary and a
maximum bonus of up to 50% of the base salary. The employment agreements also
provide for incentive stock options and participation in our employee benefit
plans.
In the event we terminate the executive without cause or if the executive
terminates his employment for good reason, the agreements provide: 24 equal
monthly installments equal to the sum of one-twelfth of the executive's annual
base salary plus the maximum bonus described above, the executive's outstanding
stock options and any stock subject to restricted stock purchase agreements
shall accelerate and fully vest, and to the extent permitted by law, accounts
under our deferred compensation plans or arrangements shall accelerate and fully
vest, including any amounts contributed by us for the year in which the
termination occurs.
In the event of certain changes of control, at the option of the employees:
the term of the employment will terminate, the employee's stock options and any
stock subject to restricted stock purchase agreements will accelerate and fully
vest, and we will pay the executive an amount equal to two times the annual base
salary then in effect plus 100% of the maximum bonus.
The employment agreements also provide that, during the term of the
agreement and for two years following the termination of the agreement, the
executive will not compete directly or indirectly in the U.S. or Canada in any
capacity in a business which is competitive with us. Provision has also been
made for the confidentiality of certain of our proprietary information and that
the executive, for two years after the termination of the employment agreement,
will not induce or attempt to influence any of our employees to terminate his or
her employment with us or to hire any of our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the board of directors or the
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. The Compensation Committee consists of Messrs. James R. Price, Tracy S.
Turner and Russell R. Myers. Mr. James R. Price is our Chairman of the board of
directors. Two of the current members of the Compensation Committee, Messrs.
Tracy S. Turner and Russell R. Myers, are member-managers of Geneva Associates,
L.L.C. Affiliates of Geneva Associates collectively own approximately 36.9% of
our outstanding stock. During 1999, Geneva Associates was paid $350,000 for
financial advisory services. Additionally, in June 1999, we issued 30,000 stock
options to Geneva Associates, L.L.C. in exchange for advisory services. The
options vest over three years and have an exercise price of $18.80 per share.
1996 OMNIBUS STOCK PLAN
In February 1996, we adopted our omnibus stock plan to advance the
interests of our company and to improve stockholder value by providing
additional incentives to attract, retain and reward highly motivated and
qualified employees, directors and consultants. Our omnibus stock plan was
amended and restated on October 7, 1999. The Administrative Committee of our
board of directors administers our omnibus stock plan subject to those specific
powers reserved for the board of directors in our omnibus stock plan.
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<PAGE> 56
Shares Subject to the Plan; General Terms
Under our omnibus stock plan, we can grant awards consisting of options,
reload options, restricted stock awards, stock appreciation rights, and
performance awards, totaling 5,000,000 shares of our common stock. That number
will be adjusted automatically if there shall be any increase or decrease in the
number of issued and outstanding shares through declaration of a stock dividend
or through any recapitalization resulting in a stock split-up, combination or
exchange of the shares of our common stock. Equitable adjustments to the number
of shares subject to each award and to the payment required to obtain such
shares will also be made so that the same proportion of shares will be subject
to the award and the aggregate consideration to acquire all shares subject to
the award remains as it was prior to the recapitalization. The Administrative
Committee has discretion to change the number of options and the exercise price
of the options when, in the Committee's judgment, such adjustment becomes
necessary by reason of certain corporate transactions specified in United States
Treasury Department regulations. As of December 31, 1999, we had granted options
under our omnibus stock plan to acquire 3,752,500 shares of our common stock of
which options for 7,200 shares had been exercised, 47,000 shares had been
cancelled and options for 3,698,300 shares of common stock remained outstanding.
These options vest over various periods, generally ranging from two to five
years. However, options to acquire 1,498,500 shares of common stock will
accelerate and fully vest upon the closing of this offering.
Eligibility
All of our employees, directors and consultants are eligible to receive
awards under our omnibus stock plan. For tax reasons, the availability of
incentive stock options is restricted to employees, with all other awards
available to employees, directors and consultants. The Administrative Committee,
as administrator of our omnibus stock plan, determines the prices, exercise
schedules, expiration dates and other material conditions under which recipients
may exercise their awards.
Types of Awards
Stock Options. Options granted under our omnibus stock plan may be either
options that are intended to qualify for treatment as "incentive stock options"
under Section 422 of the Internal Revenue Code or options that are not, which
are non-qualified stock options. The exercise price of incentive stock options
must be at least the fair market value of a share of the common stock on the
date of grant, and not less than 110% of the fair market value in the case of an
incentive stock option granted to an optionee owning 10% or more of the common
stock. Our omnibus stock plan limits the number of shares covered by incentive
stock options that an individual can receive, when exercisable by an optionee
for the first time in a calendar year as defined by our omnibus stock plan, to
an aggregate fair market value of $100,000 as measured on the date of the grant.
The term of an option may not exceed ten years (or five years in the case
of an incentive stock option granted to an optionee owning 10% or more of our
common stock). The Administrative Committee may condition the exercise of any
option upon any factors the Administrative Committee may determine.
Stock Reload Options. The Administrative Committee may grant stock reload
options. A stock reload option permits a participant who exercises an option by
delivering already owned stock to receive back from us a new option, at the
current market price, for the same number of shares delivered to exercise the
option. The new option may not be exercised until six months after it was
granted and expires on the date the original option would have expired had it
not been previously exercised. The Administrative Committee may also specify
additional terms, conditions and restrictions for the reload options and the
shares to be acquired upon the exercise thereof.
Restricted Stock Awards. The Administrative Committee may award shares of
restricted stock either alone or in addition to other awards granted under our
omnibus stock plan. The Administrative Committee shall determine the restricted
period during which the shares of stock may be forfeited if, for example, the
participant's employment is terminated. In order to enforce the forfeiture
provisions, our
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<PAGE> 57
omnibus stock plan requires that no shares of restricted stock may be disposed
of prior to the termination of all restrictions.
Stock Appreciation Rights. The Administrative Committee may grant stock
appreciation rights or limited stock appreciation rights in conjunction with any
or all stock options granted under our omnibus stock plan. If granted in
conjunction with non-qualified stock options, stock appreciation rights may be
granted either at or after the time of the grant of the non-qualified stock
options. If granted in conjunction with incentive stock options, stock
appreciation rights may be granted only at the time of the grant of an incentive
stock option. A stock appreciation right entitles the holder to receive an
amount (payable in cash and/or common stock, as determined by the Administrative
Committee) equal to the fair market value of one share of our common stock over
the stock appreciation price or exercise price of the related option multiplied
by the number of shares subject to the stock appreciation. Limited stock
appreciation rights are similar to stock appreciation rights, but apply in the
event of a tender offer for 30% or more of our then outstanding common stock,
other than by us, and such offeror acquires our common stock pursuant to such
offer. In such event, a holder of a limited stock appreciation right is entitled
an amount (payable in cash and/or common stock, as determined by the
Administrative Committee) equal to the highest price paid for a share of our
common stock in any tender offer within 60 days prior to the exercise of the
limited stock appreciation over the exercise price of the related option
multiplied by the number of shares subject to the limited stock appreciation.
Performance Awards. The Administrative Committee may grant performance
shares and shares of stock depending on participant performance. Performance
grants may be made either alone or in addition to or in tandem with stock
options or restricted stock. Subject to the terms of our omnibus stock plan, the
Administrative Committee has complete discretion to determine the terms and
conditions applicable to any such stock-based awards. Terms and conditions of
awards may require continued employment or the attainment of specified
performance objectives or both.
Termination of Awards
Our omnibus stock plan limits the time during which a holder of an option
or an award can exercise an option or an award to no more than ten years. In
addition, an optionee who leaves our employment will generally have no more than
30 days to exercise an option, reduced to no days after employment is terminated
for cause, and additional rules apply to cases of death and disability. The
Administrative Committee may, however, override the plan's rules, other than the
ten year limit. We cannot grant additional options under our omnibus stock plan
after February 13, 2006, the tenth anniversary of its adoption.
Amendments to our 1996 Omnibus Stock Plan
Our board of directors, or the Administrative Committee with the prior
written authorization of the board of directors, may amend or terminate our
omnibus stock plan, as long as no amendment or termination affects options or
awards previously granted. However, the plan requires stockholder approval of
any amendment that increases the number of shares available under the plan, that
permits the granting of awards beyond the ten year period, that changes the
class of who is eligible to participate in our omnibus stock plan or for which
applicable law (including the Nasdaq Stock Market rules) requires stockholder
approval.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of January 27, 2000 and as adjusted
to reflect the sale of shares of common stock offered in this offering for:
- each person who we know owns beneficially more than 5% of our common
stock;
- each of our directors and each of the persons who has agreed to become a
director following this offering;
- each of our named executive officers; and
- all of our directors and executive officers as a group.
Except as indicated in the notes to this table and under applicable
community property laws, to our knowledge, the persons named in the table have
sole voting and investment power with respect to all shares of common stock.
Options exercisable on or before March 31, 2000 or which become exercisable upon
the closing of this offering, are included as shares beneficially owned. For the
purposes of calculating percent ownership as of January 27, 2000, 16,585,486
shares were issued and outstanding, on an as converted basis, and, for any
individual who beneficially owns shares represented by options exercisable on or
before March 31, 2000 or which become exercisable upon the closing of this
offering, these shares are treated as if outstanding for that person, but not
for any other person.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER BEFORE AFTER
NAME OF BENEFICIAL OWNER OF SHARES CLOSING CLOSING
- ------------------------ ---------- ------- --------
<S> <C> <C> <C>
James R. Price(1)(2)........................................ 3,877,382 23.1%
Charles W. (Bo) Price(2)(3)................................. 4,077,354 24.4%
Clay C. Scott, Jr.(4)....................................... 250,000 1.5%
Matthew Hutchins, Sr.(5).................................... 975,000 5.6%
Daniel A. Gillett(6)........................................ 485,000 2.8%
John J. Galgay, III(7)...................................... 83,333 * *
Russell R. Myers(8)(9)(10)(11).............................. 6,123,393 36.9%
Tracy S. Turner(8)(10)...................................... 5,047,118 30.4%
Gary S. Howard(12).......................................... 1,063,829 6.4%
Jeffrey A. Marcus(13)....................................... 300,000 1.8%
Jack A. Riggs(14)........................................... 100,000 * *
I(3)S Funding I, L.L.C.(10)................................. 5,027,118 30.3%
Blue Ridge Investors Limited Partnership(11)................ 1,048,934 6.3%
Spotswood Capital, LLC(14).................................. 1,037,232 6.3%
Nortel Networks Inc.(16).................................... 1,063,829 6.4%
Microsoft Corporation(17)................................... 1,063,829 6.4%
Liberty BBandnow Holdings, LLC(12).......................... 1,063,829 6.4%
All directors and officers as a group (total of 11)(18)..... 14,424,755 76.7%
</TABLE>
- ---------------
* Less than 1%.
(1)Includes 170,000 shares of common stock issuable pursuant to an option
granted under our 1996 Omnibus Stock Plan which is immediately exercisable
upon the closing of this offering. Includes 133,332 shares of common stock
held of record by the Price Grantor Retained Annuity Trust which is
controlled by Barbara Price, James R. Price's wife, as Trustee. Mr. Price
disclaims beneficial ownership of these shares. Excludes 1,290,000 shares of
common stock held of record by Charles W. (Bo) Price, James R. Price's
brother, and the shares reflected in note (3) as to which James R. Price
disclaims beneficial ownership.
(2)Includes 684,400 shares of common stock subject to the irrevocable proxies
over which James R. Price and Charles W. (Bo) Price exercise voting power.
James R. Price and Charles W. (Bo) Price
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<PAGE> 59
disclaim beneficial ownership of such shares except as to their pecuniary
interest therein. Includes 1,226,302 shares of which James R. Price and
Charles W. (Bo) Price have voting control pursuant to voting trust
agreements, which will terminate upon the closing of this offering, James R.
Price and Charles W. Price disclaim beneficial ownership except as to any
pecuniary interest therein. The business address for James R. Price and
Charles W. (Bo) Price is 1440 Corporate Drive, Irving, Texas 75038.
(3)Includes 100,000 shares of common stock issuable pursuant to an option
granted under our 1996 Omnibus Stock Plan which is immediately exercisable
upon the closing of this offering. Includes 210,000 shares of common stock
held of record by the Bo Price Grantor Retained Annuity Trust controlled by
Charles W. (Bo) Price, as Trustee. Mr. Price disclaims beneficial ownership
of these shares except to the extent of his pecuniary interests therein.
Does not include 1,663,348 shares of common stock held of record by James R.
Price, Charles W. (Bo) Price's brother. Includes 133,332 shares of common
stock held of record by the Price Grantor Retained Annuity Trust which is
controlled by Barbara Price, James R. Price's wife, as Trustee, over which
Charles W. (Bo) Price exercises voting power pursuant to a proxy. Includes
216,660 shares of common stock held of record by the Suzanne Price Williams
1999 GST Trust controlled by Suzanne Price Williams, James R. Price's
daughter, and Smith Barney Private Trust Company, as Trustees, over which
Charles W. (Bo) Price exercises voting power pursuant to a proxy. Mr. Price
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interests therein. Includes 216,660 shares of common stock held of
record by the Cynthia Price Stalcup 1999 GST Trust which is controlled by
Cynthia Price Stalcup, James R. Price's daughter, and Smith Barney Private
Trust Company, as Trustees, over which Charles W. (Bo) Price exercises
voting power pursuant to a proxy. Mr. Price disclaims beneficial ownership
of these shares except to the extent of his pecuniary interests therein.
(4)()
Includes 100,000 shares of common stock held by Clay Scott Family Partners,
Ltd. which is controlled by Clay C. Scott, Jr. Mr. Scott disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interests therein. The business address for Mr. Scott is 1440 Corporate
Drive, Irving, Texas 75038.
(5)Includes 975,000 shares of common stock issuable pursuant to options granted
under our 1996 Omnibus Stock Plan, all of which are exercisable within sixty
days of , 2000 or upon the closing of this offering.
(6)()
Includes 485,000 shares of common stock issuable pursuant to options granted
under our 1996 Omnibus Stock Plan, all of which are exercisable within sixty
days of , 2000 or upon the closing of this offering.
(7)()
Includes 83,333 shares of common stock issuable pursuant to options granted
under our 1996 Omnibus Stock Plan, all of which are exercisable within sixty
days of , 2000.
(8)Includes all the shares held of record by I(3)S Funding I, L.L.C. Messrs.
Myers and Turner are each member-managers of Geneva Associates, L.L.C.,
which is the manager of I(3)S Funding I, L.L.C.
(9)Includes the shares held of record by Blue Ridge Investors Limited
Partnership. Mr. Myers is the Treasurer of Blue Ridge Investors Group, Inc.
which is a principal of Blue Ridge Investors Limited Partnership. Also
includes 47,341 shares of common stock held of record by Blue Ridge
Investors II Limited Partnership. Mr. Myers is a Manager of Blue Ridge
Investors Group II, L.L.C. which is a principal of Blue Ridge Investors II
Limited Partnership.
(10)Includes 546,702 shares of common stock held of record by James R. Price and
Charles W. (Bo) Price, as Trustee for I(3)S Funding I, L.L.C. which are
subject to the voting trust agreements referenced to in note (2).
(11)Includes 339,800 shares of common stock held of record by James R. Price and
Charles W. (Bo) Price, as Trustee for Blue Ridge Investors Limited
Partnership which are subject to the voting trust agreements referenced to
in note (2). The address of Blue Ridge Investors Limited Partnership is P.
O. Box 21962, Greensboro, NC 27420.
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(12)Includes the 1,063,829 shares of common stock held of record by Liberty
BBandnow Holdings, LLC, a subsidiary of Liberty Media Corporation. Mr.
Howard is an Executive Vice President and Chief Operating Officer and a
director of Liberty Media Corporation. Mr. Howard disclaims beneficial
ownership in these shares. The address for Mr. Howard and Liberty BBandnow
Holdings, LLC is 9197 S. Peoria St., Englewood, CO 80112.
(13)Includes 300,000 shares of common stock issuable under a warrant granted to
Marcus & Partners, L.P., of which Mr. Marcus is a partner. The business
address for Mr. Marcus is 300 Crescent Court, Suite 800, Dallas, Texas
75201.
(14)Includes 100,000 shares of common stock issuable under warrants granted to
DOTCOM Limited Partnership, of which Mr. Riggs is a controlling partner.
Excludes the purchase right under the warrant for 50,000 of such shares
which will become exercisable one year from the date of grant at the
discretion of our President. The business address for Mr. Riggs is 5931
Velasco Avenue, Dallas, Texas 75206.
(15)Includes 339,800 shares of common stock held of record by James R. Price and
Charles W. (Bo) Price, as Trustee for Spotswood Capital, LLC, which are
subject to the voting trust agreements referenced to in note (2). The
address of Spotswood Capital, LLC is Suite 2190, First Union Tower, 300
North Greene Street, Greensboro, NC 27401.
(16)The address of Nortel Networks Inc. is 8 Federal Street, Billerica,
Massachusetts 01821.
(17)The address for Microsoft Corporation is One Microsoft Way, 8S/2055,
Redmond, Washington 98052.
(18)Includes all shares and options identified in the footnotes above except for
those set forth in notes (16) and (17).
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Stock Sales
In March 1998, we sold I(3)S Funding I, L.L.C. 750,000 shares of Class B
common stock for $2.00 per share. Russell R. Myers and Tracy S. Turner are each
member-managers of Geneva Associates, L.L.C., which is the manager of I(3)S
Funding I, L.L.C.
In July 1998, we sold 875,000 shares of Class C common stock to Blue Ridge
Investors Limited Partnership for $2.00 per share. Mr. Myers is the Treasurer of
Blue Ridge Investors Group, Inc. which is a principal of Blue Ridge Investors
Limited Partnership. In connection with this sale and the sale of an additional
875,000 shares of Class C common stock at the same time, we paid Geneva
Associates, L.L.C. an advisory fee of $87,000.
In December 1998, we sold 648,927 shares of Class B Common Stock to I(3)S
Funding I, L.L.C. and 162,232 shares of Class C Common Stock to Blue Ridge
Investors Limited Partnership for $3.082 per share. In connection with these
transactions and the sale of an additional 162,232 shares of Class C common
stock at the same time, we paid Geneva Associates, L.L.C. an advisory fee of
$75,000.
Pursuant to the Amendment to Stock Purchase Agreements, dated June 25,
1999, we agreed that we will nominate one I(3)S Funding I, L.L.C. designee to
our board of directors, so long as such designee is reasonably qualified, and
will recommend in our proxy statement that the stockholders vote for such
designee. I(3)S Funding I, L.L.C. will have this right so long as it continues
to hold at least 2,489,889 shares of Class A common stock attributable to the
Class B common stock (subject to adjustment as set forth in our certificate of
incorporation).
Professional Services
Charles W. (Bo) Price, our Executive Vice President and a director, served
as our commercial real estate agent in the lease negotiations for our
headquarters in Dallas, Texas in July 1998. Mr. Price received a commission for
the transaction equal to $138,476. In December 1999, we purchased our corporate
headquarters. Mr. Price acted as our commercial real estate agent in this
transaction and received a commission of one percent, equal to $38,000, in
connection with this purchase.
We have retained the law firm owned by Clay C. Scott, Jr., our Secretary
and a director, to provide legal services during the last fiscal year. The total
of all fees paid to Mr. Scott's firm in the last fiscal year were less than five
percent of the firm's total revenues for its last fiscal year.
In June 1999, we paid Geneva Associates, L.L.C. a financial advisory fee of
$300,000 in connection with the sale of $35 million of Series A preferred stock.
As part of this offering, we sold 127,128 shares and 11,702 shares of preferred
stock to Blue Ridge Investors II Limited Partnership and Blue Ridge Investors
Limited Partnership, respectively, for $18.80 per share. In December 1999, we
paid Geneva Associates, L.L.C. a financial advisory fee of $50,000 in connection
with the sale of $5 million of Series A preferred stock to GE Capital. Mr. Myers
is the manager of Blue Ridge Investors Group II, L.L.C. which is a principal of
Blue Ridge Investors II Limited Partnership.
Additionally, in June 1999, we issued 30,000 stock options to Geneva
Associates, L.L.C. in exchange for advisory services. The options vest over
three years and have an exercise price of $18.80 per share.
In January 2000, we sold Marcus & Partners, L.P. a warrant to purchase
300,000 shares of common stock with an exercise price of $18.80 per share, for a
cash consideration of $175,000. Jeffrey A. Marcus, who has agreed to become one
of our directors upon the consummation of the offering, is a partner of Marcus &
Partners. On December 21, 1999, we entered into an Advisory Agreement with
Marcus & Partners L.P., pursuant to which we agreed to pay Marcus & Partners, a
percentage based finders fee and a consulting fee consisting of four equal
payments of $45,000 each to be paid during the one year term of the agreement.
In January 2000, we paid Marcus & Partners a finders fee of $200,000 in
connection with
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the sale of $20 million of Series A preferred stock to Liberty BBandnow
Holdings, LLC, a subsidiary of Liberty Media Corporation. Jeffrey A. Marcus, who
has agreed to become one of our directors upon the consummation of the offering,
is a partner of Marcus & Partners. Gary S. Howard, who has agreed to become one
of our directors upon consummation of the offering, is an Executive Vice
President and Chief Operating Officer of Liberty Media Corporation.
In February 2000, we sold DOTCOM Limited Partnership warrants to purchase
150,000 shares of common stock with an exercise price of $18.80 per share, for a
cash consideration of $60,000. The purchase right under the warrant for 50,000
of such shares will become exercisable one year from the date of grant at the
discretion of our President. Jack A. Riggs, who has agreed to become one of our
directors upon the consummation of the offering, is a controlling partner of
DOTCOM Limited Partnership.
Indemnification Agreements
We have entered into Indemnification Agreements pursuant to which we will
indemnify all our directors and certain officers against judgments, claims,
damages, losses and expenses incurred as a result of the fact that any such
director or officer, in his capacity as such, is made or threatened to be made a
party to any suit or proceeding. Such persons will be indemnified to the fullest
extent now or hereafter permitted by the Delaware General Corporation Law. The
Indemnification Agreements also provide for the advancement of certain expenses
to such directors and officers in connection with any such suit or proceeding.
Insurance
We have a directors' and officers' liability insurance policy to insure our
directors and officers against losses resulting from wrongful acts committed by
them in their capacities as directors and officers, including liabilities
arising under the Securities Act.
STRATEGIC STOCK SALES
As part of our private placement of preferred stock, we sold shares of
preferred stock to certain strategic investors, including Archstone Communities,
Liberty Media, Lucent Technologies, Microsoft and Nortel Networks for $18.80 per
share. As a result of these purchases, Liberty Media, Microsoft and Nortel
Networks each acquired more than 5% of our common stock on an as converted
basis.
NORTEL PURCHASE AGREEMENT
On July 15, 1999, we entered into a Master Purchase Agreement with Nortel
Networks through which we agreed to purchase and Nortel agreed to provide
certain products and services for a specified amount over an original period of
five years. Thereafter, the agreement shall automatically renew for one year
terms, unless either party provides written notice of its intent not to renew
the agreement.
MICROSOFT MEMORANDUM OF UNDERSTANDING
On November 29, 1999, we signed a Memorandum of Understanding with
Microsoft, which contemplates entering into additional agreements by outlining a
number of joint initiatives we will undertake. These initiatives are focused
upon increasing the speed at which consumers adopt broadband services and the
building of online, localized communities for our subscriber base.
LIBERTY MEDIA LETTER AGREEMENT
On January 25, 2000, we entered into a letter agreement with Liberty Media
where we agreed to offer Liberty Media and its affiliates a first right to offer
to provide broadband content owned or controlled by Liberty Media and/or its
affiliates for distribution by us under an agreement containing mutually
acceptable terms. We have agreed to negotiate terms of definitive agreements
with Liberty Media and/or its affiliates on terms consistent with the letter
agreement.
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DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of 300,000,000 shares of common stock, $0.001 par value, and 50,000,000
shares of preferred stock, $0.001 par value, of which our board of directors has
designated shares as Series A Junior Participating Preferred Stock
pursuant to our rights agreement. See "Certain Anti-Takeover Provisions under
Delaware Law and in our Certificate of Incorporation and Bylaws -- Rights
Agreement." On , 2000, we declared a for one stock split,
effected through a stock dividend on our common stock.
The following description is a summary of the material terms of our common
stock, preferred stock and other relevant items. Please see our amended and
restated certificate of incorporation and bylaws, filed as exhibits to the
registration statement of which this prospectus is a part, for more detailed
information.
COMMON STOCK
Upon the closing of this offering, each of the outstanding shares of Class
B common stock and Class C common stock will be converted into common stock on a
one for one basis, and our certificate of incorporation will be amended and
restated to eliminate the Class B common stock and Class C common stock
designations. If the conversion of the Class B common stock, Class C common
stock and all of our preferred stock had occurred on December 31, 1999,
shares of common stock of all classes would have been outstanding and
held of record by stockholders on such date. The holders of our common stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of stockholders. Holders of our common stock are entitled to receive,
when and if declared by the board of directors, dividends and other
distributions in cash, stock or property from our assets or funds legally
available for those purposes subject to any dividend preferences of the
preferred stock. The common stock does not have any sinking fund provisions,
redemption provisions, or preemptive rights. All outstanding shares of common
stock are fully paid and non-assessable. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled to share ratably
in the assets available for distribution.
PREFERRED STOCK
Upon the closing of this offering, all our preferred stock outstanding will
be converted into an aggregate of shares of common stock on a one for one
basis. Our board of directors has the authority, without further action by the
stockholders, to issue an aggregate of 50,000,000 shares of preferred stock in
one or more series, of which our board of directors has designated
shares as Series A Junior Participating Preferred Stock pursuant to our rights
agreement. See "Certain Anti-Takeover Provisions under Delaware Law and in our
Certificate of Incorporation and Bylaws -- Rights Agreement." Our board of
directors may, without stockholder approval, issue preferred stock with dividend
rates, voting rights and other preferences, which rights and preferences could
adversely affect the voting power of the holders of the common stock. Issuance
of preferred stock could have the effect of delaying, deferring or preventing a
change in control. Currently, we have no plans to issue any preferred stock.
REGISTRATION RIGHTS
Pursuant to the First Amended and Restated Registration Rights Agreement,
holders of our preferred stock, comprising a total of 4,846,845 shares of common
stock, are entitled to two demand registrations upon the earlier to occur of
April 4, 2002, or 180 days following this offering. For a demand registration to
occur, the holders of at least 51% of the stock subject to the First Amended and
Restated Registration Rights Agreement must propose to dispose of some or all of
their registrable stock. Any such demand is subject to an underwriter's cutback.
In addition, at any time, commencing 180 days after this offering, such
holders are also entitled to an unlimited number of piggy-back registration
rights with respect to any registration of our securities under the Securities
Act, other than a registration effected solely to implement an employee benefit
plan or transaction to which Rule 145 under the Securities Act applies. All
piggy-back registrations are subject to an underwriter's cutback. Unless
terminated earlier, these registration rights terminate on June 2, 2006.
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With respect to any holder of these registration rights, its registration rights
terminate if such holder owns less than the number of shares of registrable
stock that could be sold within a single three-month period under Rule 144 under
the Securities Act.
As of the effective date of the registration statement, I(3)S Funding I,
L.L.C. has the right at any time after April 4, 2002, to require us at our
expense, to register up to two primary or secondary offerings of our common
stock to the extent legally permissible.
I(3)S Funding I, L.L.C., Blue Ridge Investors Limited Partnership and
Spotswood Capital LLC are entitled to an unlimited number of piggy-back
registration rights with respect to any registration of our securities by us or
any of our directors or officers who are also stockholders.
Each of Marcus & Partners, L.P. and DOTCOM Limited Partnership is entitled
to one demand registration upon the earlier to occur of 18 months following this
offering or 90 days following an offering by holders of our preferred stock.
Each of Marcus & Partners, L.P. and DOTCOM Limited Partnership is also entitled
to an unlimited number of piggy-back registration rights, subject to certain
conditions and the underwriter's cutback. Unless terminated earlier, these
registration rights terminate on June 2, 2006.
PROXIES
Certain stockholders, representing a total of 25,200 shares of common
stock, have executed an irrevocable proxy appointing James R. Price as their
proxy to attend our stockholders' meetings, to vote, to execute consents and
otherwise act in the same manner and with the same effect as the stockholder.
Each such proxy is in effect until July 1, 2000. Stockholders representing
659,200 shares of common stock also executed an irrevocable proxy appointing
James R. Price as their proxy in the same manner as the other proxies, but this
proxy remains in effect until revoked by the stockholders who are signatories to
the document.
The Price Grantor Retained Annuity Trust executed a proxy appointing
Charles W. (Bo) Price as its proxy to attend our stockholders' meetings, to
vote, to execute consents and otherwise act in the same manner and with the same
effect as the stockholder. The Suzanne Price Williams 1999 GST Trust and the
Cynthia Price Stalcup 1999 GSP Trust also executed a proxy appointing Charles W.
(Bo) Price as their proxy in the same manner as the other proxies, but this
proxy terminates upon completion of this offering.
OPTIONS/WARRANTS
In February 1996, we adopted our omnibus stock plan pursuant to which our
employees may be granted incentive stock options to purchase common stock. We
reserved 5,000,000 shares of our common stock for future issuances under such
plan. As of December 31, 1999, there were options outstanding under our omnibus
stock plan to acquire 3,698,300 shares of common stock. See "Management -- 1996
Omnibus Stock Plan."
On February 5, 1997, we borrowed $400,000 pursuant to a loan agreement with
Eric Chancellor. In partial consideration of this loan, Mr. Chancellor was
granted the option to purchase 750,000 shares of our common stock at a price of
$0.20 per share which option is exercisable on or prior to February 1, 2001. Mr.
Chancellor must exercise his option to purchase 750,000 shares of common stock
upon completion of this offering or the option will terminate.
On April 4, 1997, as a finder's fee related to the sale of our Class B
common stock to I(3)S Funding I, L.L.C., we granted John T. Miller an option to
purchase 243,420 of our common stock at a price of $0.418 per share. Mr. Miller
has exercised part of his option and purchased 25,000 shares. Mr. Miller must
exercise his option to purchase the remaining 218,420 shares of common stock
within one year of the consummation of the offering or the option will
terminate.
In June 1999, we issued 30,000 stock options to Geneva Associates, L.L.C.
in exchange for advisory services. The options vest over three years and have an
exercise price of $18.80 per share.
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In January 2000, we sold Marcus & Partners, L.P. a warrant to purchase
300,000 shares of common stock with an exercise price of $18.80 per share, for a
cash consideration of $175,000.
In February 2000, we sold DOTCOM Limited Partnership warrants to purchase
150,000 shares of common stock with an exercise price of $18.80 per share, for a
cost consideration of $60,000. The purchase right under the warrant for 50,000
of such shares will become exercisable one year from the date of grant at the
discretion of our President.
CERTAIN ANTI-TAKEOVER PROVISIONS UNDER DELAWARE LAW AND IN OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
Some provisions of our amended and restated certificate of incorporation
and bylaws, which provisions are summarized in the following paragraphs, may be
deemed to have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
Classified Board of Directors
Our amended and restated certificate of incorporation divides our directors
into three classes serving staggered three-year terms. As a result, stockholders
will elect approximately one-third of the board of directors each year. These
provisions, when coupled with the provision of our amended and restated
certificate of incorporation authorizing the board of directors to fill vacant
directorships or increase the size of the board of directors and the provision
providing that directors may only be removed for cause, may deter a stockholder
from removing incumbent directors and simultaneously gaining control of the
board of directors by filling the vacancies created by such removal with its own
nominees.
Cumulative Voting
Our amended and restated certificate of incorporation expressly denies
stockholders the right to cumulate votes in the election of directors.
Stockholder Action; Special Meeting of Stockholders
Our amended and restated certificate of incorporation eliminates the
ability of stockholders to act by written consent, except for action by
unanimous written consent, which is expressly allowed. Our bylaws provide that
special meetings of stockholders may be called only by a majority of the board
of directors, the Chairman of the board or the majority of an entire committee
of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders or to nominate candidates for election as
directors at an annual meeting of stockholders must provide timely written
notice. To be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 90 days nor more than
120 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, that in the event that the annual meeting is
called for a date that is not within 30 days before or after such anniversary
date, timely notice by the stockholder must be received not later than the close
of business on the tenth day following the date on which notice of the date of
the annual meeting was mailed to stockholders or made public or 90 days before
the meeting, whichever first occurs. In the case of a special meeting of
stockholders called for the purpose of electing directors, timely notice by the
stockholder must be received not later than the close of business of the tenth
day following the day on which notice of the date of the special meeting was
mailed or public disclosure of the date of the special meeting was made or 90
days before the meeting, whichever first occurs. Our bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before
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an annual meeting of stockholders or from making nominations for directors at an
annual meeting of stockholders.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could render more difficult or discourage an attempt to
obtain control by means of a proxy contest, tender offer, merger or otherwise.
Amendments; Supermajority Vote Requirements
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our amended and restated certificate of
incorporation imposes supermajority vote requirements in connection with the
amendment provisions of our amended and restated certificate of incorporation
and bylaws, including those provisions relating to the classified board of
directors, removal of directors, action by written consent and the ability of
stockholders to call special meetings.
Rights Agreement
Under Delaware law, every corporation may create and issue rights entitling
the holders of such rights to purchase from the corporation shares of its
capital stock of any class or classes, subject to any provisions in its
certificate of incorporation. The price and terms of such shares must be stated
in the certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.
We have entered into a rights agreement. As with most stockholder rights
agreements, the terms of our rights agreement are complex and not easily
summarized, particularly as they relate to the acquisition of our common stock
and to exercisability. The summary may not contain all of the information that
is important to you. Accordingly, you should carefully read our rights
agreement, which has been filed as an exhibit to the registration statement of
which this prospectus forms a part.
Our rights agreement provides that each share of our common stock
outstanding will have one right to purchase one one-hundredth of a preferred
share attached to it. The purchase price per one one-hundredth of a preferred
share under the stockholder rights agreement is times the average daily
closing price of our common stock for the first five days of trading after the
consummation of this offering, subject to certain adjustments.
Initially, the rights under our rights agreement are attached to
outstanding certificates representing our common stock and no separate
certificates representing the rights will be distributed. The rights will
separate from our common stock and be represented by separate certificates
approximately 10 days after someone acquires or commences a tender offer for 15%
of our outstanding common stock.
After the rights separate from our common stock, certificates representing
the rights will be mailed to record holders of the common stock. Once
distributed, the rights certificates alone will represent rights.
All shares of our common stock issued before the date the rights separate
from the common stock will be issued with the rights attached. The rights are
not exercisable until the date the rights separate from the common stock. The
rights will expire on the tenth anniversary of the date of the completion of
this offering unless earlier redeemed or exchanged by us.
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If an acquiror obtains or has the rights to obtain 15% or more of our
common stock, then each right will entitle the holder to purchase a number of
shares of our common stock equal to twice the purchase price of each right.
Each right will also entitle the holder to purchase a number of shares of
common stock of the acquiror having a then current market value of twice the
purchase price if an acquiror obtains 15% or more of our common stock and any of
the following occurs:
- we merge into another entity;
- an acquiring entity merges into us; or
- we sell more than 50% of its assets or earning power.
Under our rights agreement, any rights that are or were owned by an
acquiror of more than 15% of our outstanding common stock will be null and void.
Our rights agreement contains exchange provisions which provide that after
an acquiror obtains 15% or more, but less than 50%, of our outstanding common
stock, our board of directors may, at its option, exchange all or part of the
then outstanding and exercisable rights for common shares. In such an event, the
exchange ratio is one common share per right, adjusted to reflect any stock
split, stock dividend or similar transaction.
Our board of directors may, at its option, redeem all of the outstanding
rights under our rights agreement before the earlier of (1) the time that an
acquiror obtains 15% or more of our outstanding common stock or (2) the final
expiration date of the rights agreement. The redemption price under our rights
agreement is $0.01 per right, subject to adjustment. The right to exercise the
rights will terminate upon the action of our board ordering the redemption of
the rights and the only right of the holders of the rights will be to receive
the redemption price.
Holders of rights will have no rights as our stockholders, including the
right to vote or receive dividends, simply by virtue of holding the rights.
Our rights agreement provides that the provisions of the rights agreement
may be amended by the board of directors, without the approval of the holders of
the rights within the ten-day period after someone acquires or commences a
tender offer for 15% of our outstanding common stock. After this ten-day period,
however, the rights agreement may not be amended in any manner that would
adversely affect the interests of the holders of the rights, excluding the
interests of an acquiror. In addition, our rights agreement provides that no
amendment may be made to adjust the time period governing redemption at a time
when the rights are not redeemable.
Our rights agreement contains rights that have potential anti-takeover
effects. The rights may cause substantial dilution to a person or group that
attempts to acquire us without obtaining consent of our board of directors or
conditioning the offer on a substantial number of rights being acquired or
redeemed. Accordingly, the existence of the rights has the potential to deter
potential acquirors from making takeover proposals or tender offers that are not
negotiated with the board of directors. Nevertheless, the rights are not
intended to prevent a takeover, but rather are designed to enhance the ability
of the board of directors to negotiate with an acquiror on behalf of all its
stockholders. In addition, the rights should not interfere with a proxy contest.
Delaware Business Combination Statute
Section 203 of the Delaware General Corporation Law imposes a three-year
moratorium on business combinations between a Delaware corporation and an
"interested stockholder" which is in general, a
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stockholder owning 15% or more of a corporation's outstanding voting stock, or
an affiliate or associate thereof unless:
- prior to an interested stockholder becoming an interested stockholder,
the board of directors of the corporation approved either the business
combination or the transaction resulting in the interested stockholder
becoming an interested stockholder;
- upon consummation of the transaction resulting in an interested
stockholder becoming an interested stockholder, the interested
stockholder owns 85% of the voting stock outstanding at the time the
transaction commenced, excluding, from the calculation of outstanding
shares, shares beneficially owned by directors who are also officers and
certain employee stock plans; or
- on or after an interested stockholder becomes an interested stockholder,
the business combination is approved by the board of directors and
holders of at least 66 2/3% of the outstanding shares, other than those
shares beneficially owned by the interested stockholder, at a meeting of
stockholders.
Section 203 of the Delaware General Corporation Law applies to any corporation
incorporated in Delaware unless the corporation expressly elects not to be
governed by such legislation.
Limitations on Directors' Liability
Our amended and restated certificate of incorporation provides that none of
our directors shall be liable to us or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- in respect of certain unlawful dividend payments or stock redemptions or
repurchases; or
- for any transaction from which the director derived an improper personal
benefit.
Additionally, if the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of our directors shall be limited to
the fullest extent permitted by the Delaware General Corporation Law, as
amended. The effect of these provisions is to eliminate our rights and our
stockholders' rights, through stockholders' derivative suits on our behalf, to
recover monetary damages against a director for breach of fiduciary duty as a
director, including breaches resulting from grossly negligent behavior, except
in the situations described above. These provisions do not limit the liability
of directors under federal securities laws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe.
LISTING
We intend to apply for listing of our common stock on the Nasdaq National
Market under the trading symbol "BBNW."
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<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of shares
of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option. Of the outstanding shares, the shares
being sold in this offering will be freely tradable, except that any shares held
by our "affiliates" may only be sold in compliance with the limitations
described below. The remaining shares of common stock will be
"restricted securities" that may be sold in the public market only if they are
registered under the Securities Act or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act. Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ----
<C> <S>
Upon the date of this prospectus. These shares
are eligible for resale under Rule 144(k) and
are not subject to lock-up agreements.
After 90 days from the date of this prospectus.
These additional shares are eligible for resale
under Rules 144 and 701 and are not subject to
lock-up agreements.
After 180 days from the date of this prospectus.
These additional shares are eligible for resale
under Rules 144 and 701 upon release of lock-up
agreements.
</TABLE>
RULE 144
In general, under Rule 144, a person, or persons whose shares are required
to be aggregated, including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of 1% of the then-outstanding shares of common stock which
will be approximately shares immediately after this offering, or the
average weekly trading volume of the common stock during the four calendar weeks
preceding the date on which notice of that sale is filed. Sales under Rule 144
are subject to certain manner of sale limitations, notice requirements and the
availability of current public information about us.
RULE 144(k)
Under Rule 144(k), a person who is not considered an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years is entitled to sell such shares under
Rule 144(k) without compliance with certain restrictions, including the volume
limitations, contained in Rule 144.
STOCK OPTIONS
Through December 31, 1999, we have granted options to purchase 3,698,300
shares of common stock to specified persons pursuant to our omnibus stock plan.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register approximately shares of common stock
reserved for issuance under our omnibus stock plan. See "Management -- 1996
Omnibus Stock Plan." The registration statement will become effective
automatically upon filing. Shares issued under the foregoing
66
<PAGE> 70
plan, after the filing of a registration statement on Form S-8 may be sold in
the open market, subject, in the case of some holders, to the Rule 144
limitations applicable to affiliates, the lock-up agreements and vesting
restrictions imposed by us.
LOCK-UP AGREEMENTS
Directors, officers and stockholders holding an aggregate of
shares of common stock have agreed that they will not, directly or indirectly,
sell, offer, or agree to sell, grant any option for the sale of, pledge or
otherwise dispose of any shares of common stock for a period of 180 days after
the date of this prospectus. However, Bear, Stearns & Co. Inc. may in its sole
discretion, at any time without notice, consent to the release of all or any
portion of the shares subject to lock-up agreements. We have agreed not to,
directly or indirectly, sell or otherwise dispose of any shares of common stock
during the 180-day period following the date of this prospectus, other than the
grant of options under our omnibus stock plan and the issuance of common stock
pursuant thereto, subject, in the case of some holders, to the Rule 144
limitations applicable to affiliates, the lock-up agreements and vesting
restrictions imposed by us.
In addition, following 180 days after the consummation of this offering,
the holders of shares of outstanding common stock will, under some
circumstances, have rights to require us to register their shares for future
sale. See "Description of Capital Stock -- Registration Rights."
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<PAGE> 71
UNDERWRITING
GENERAL
Subject to the terms and conditions of the underwriting agreement between
us and the underwriters named below, who are represented by Bear, Stearns & Co.
Inc. and Chase Securities Inc., the underwriters have generally agreed to
purchase from us the following respective numbers of shares of common stock at
the public offering price less the underwriting discounts and commissions set
forth on the cover of this prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Chase Securities Inc........................................
Total.............................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration statement,
the continuing correctness of our representations to them, the receipt of a
"comfort letter" from our accountants, the listing of the common stock on the
Nasdaq National Market and no occurrence of an event that would have a material
adverse effect on our business. The underwriters are obligated to purchase and
accept delivery of all the shares, other than those covered by the
over-allotment option described below, if they purchase any of the shares.
We have agreed to indemnify the underwriters against some liabilities,
including some liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share of common stock.
The underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of common stock to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
change.
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<PAGE> 72
The following table shows the per share and the total public offering
price, the underwriting discount to be paid by us to the underwriters and the
proceeds before expenses to us. This information is presented assuming either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price..................................... $ $ $
Underwriting discounts and commissions.................... $ $ $
Proceeds, before expenses, to us ......................... $ $ $
</TABLE>
The expenses of the offering, exclusive of the underwriting discount, are
estimated at $ and are payable by us.
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of
additional shares of our common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of our common stock offered hereby. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of our common
stock proportionate to such underwriter's initial amount reflected in the
foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to of the shares offered by this prospectus
to be sold to some of our employees, officers, directors and other persons who
have expressed an interest. The number of shares of our common stock available
for sale to the general public will be reduced to the extent that those persons
purchase the reserved shares. Any reserved shares which are not orally confirmed
for purchase within one day of the pricing of the offering will be offered by
the underwriters to the general public on the same terms as the other shares
offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and all of our existing
stockholders have agreed, with certain exceptions, without the prior written
consent of Bear, Stearns & Co. Inc. on behalf of the underwriters for a period
of 180 days after the date of this prospectus, not to directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file a registration statement under
the Securities Act relating to any shares of our common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect our common stock to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, under the symbol
"BBNW."
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<PAGE> 73
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among us and the representatives of the
underwriters. The material factors to be considered in determining the public
offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and valuations of generally comparable
companies; and
- estimates of our business potential.
There can be no assurance that an active trading market will develop for
our common stock or that our common stock will trade in the public market
subsequent to the offering at or above the initial public offering price.
The underwriters have advised us that they do not expect sales of the
common stock to any accounts over which they exercise discretionary authority to
exceed 5% of the number of shares being offered in this offering.
NASD REGULATIONS
The underwriters will not confirm sales of the common stock to any account
over which they exercise discretionary authority without the prior written
specific approval of the customer.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.
If the underwriters create a short position in our common stock in
connection with the offering, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing our common stock in the open market.
The representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our common stock in the open market to reduce the underwriters' short position
or to stabilize the price of our common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.
Neither our company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
our company nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
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<PAGE> 74
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1999 and for each of the three
years in the period ended December 31, 1999, as set forth in their report. We
have included our consolidated financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by King & Spalding, New York, New York. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Jenkens & Gilchrist, P.C., Dallas, Texas.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-1 that we
filed with the SEC. As allowed by SEC rules, this prospectus does not contain
all of the information included in that registration statement. Our descriptions
in this prospectus concerning the contents of any contract, agreement or
document are not necessarily complete. For those contracts, agreements or
documents that we filed as exhibits to that registration statement, you should
read the applicable exhibit for a more complete understanding of the document or
subject matter involved.
You may read and copy any document we file with the SEC, including the
registration statement, of which this prospectus is a part, at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. These
documents may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006. Please call the SEC at 1-800-SEC-0330 for
further information on the SEC's public reference room. You may also request
copies of such documents, upon payment of a duplicating fee, by writing to the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain copies of such
documents over the Internet at the SEC's website at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
audited financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
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<PAGE> 75
GLOSSARY OF TERMS
ADSL....................... Asymmetrical Digital Subscriber Line. Currently the
most common form of DSL technology.
Asynchronous Transfer Mode
or ATM..................... High-bandwidth, low-delay, connection-oriented,
switching and multi-plexing technique requiring
53-byte, fixed-sized cells.
Backbone................... An element of the network infrastructure that
provides high-speed, high-capacity connections
among the network's physical points of presence,
i.e., connection points and Network Operations
Centers. The backbone is used to transport
subscriber traffic across the metropolitan area and
across the United States.
Bandwidth.................. Refers to the maximum amount of data that can be
transferred through a computer's backbone or
communication channel in a given time. It is
usually measured in Hertz, cycles per second, for
analog communications and bits per second for
digital communications.
Central Office............. Incumbent carrier facility where subscriber lines
are joined to ILEC switching equipment.
CMTS....................... Cable Modem Termination System. Data head-end
equipment for data-over cable plants which converts
digital data conversion signals to/from analog for
transport on an HFC plant.
Co-location................ A location where a competitive carrier network
interconnects with the network of an incumbent
carrier inside an incumbent carrier's central
office.
Competitive Carrier........ Category of telephone service provider, or carrier,
that offers local exchange and other services
similar to and in competition with those of the
incumbent carrier, as allowed by recent changes in
telecommunications law and regulation. A
competitive carrier may also provide other types of
services such as long distance telephone, data
communications, Internet access and video.
Copper Line or Loop........ A pair of traditional copper telephone lines using
electric current to carry signals from the central
office to a residence or business.
Digital.................... Describes a method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital
transmission and switching technologies employ a
sequence of these pulses to convey information, as
opposed to the continuously variable analog signal.
The precise digital numbers preclude distortion,
such as graininess or "snow", in the case of video
transmission, or static or other background
distortion in the case of audio transmission.
DOCSIS..................... Data Over Cable Service Interface Specification.
Downstream................. Refers to the dataflow from the network to the
subscriber.
DS-0....................... Digital Service 0. Standard telecommunications
industry digital signal format, which is
distinguishable by bit rate -- the number of binary
digits transmitted per second. DS-0 service has a
bit rate of 64 Kilobits per second.
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<PAGE> 76
DS-1....................... Digital Service 1. In the digital hierarchy, this
signaling standard defines a transmission speed of
1.544 Mbps.
DS-3....................... Digital Service 3. In the digital hierarchy, this
signaling standard defines a transmission speed of
44.736 Mbps, equivalent to 28 T-1 channels. This
term is often interchangeable with T-3.
xDSL....................... Digital Subscriber Line. A transmission technology
enabling high-speed access in the local copper
loop, often referred to as the last mile between
the network service provider -- i.e., an incumbent
carrier, competitive carrier or an Internet service
provider -- and the subscriber.
DSLAM...................... Digital Subscriber Line Access
Multiplexer. Aggregates multiple digital subscriber
lines into a single chassis for transport into/from
the data network.
e-Commerce................. Electronic Commerce. An Internet service that
supports electronic transactions between customers
and vendors to purchase goods and services.
Firewall................... A computer device that separates a local area
network from a wide area network and prevents
unauthorized access to the local area network
through the use of electronic security mechanisms.
Frame Relay................ A form of packet switching with variable length
frames that may be used with a variety of
communications protocols.
HFC........................ Hybrid Fiber Coaxial. A transmission network for
video and data delivery composed of fiber optic and
coaxial cables.
IEEE....................... Institute of Electrical and Electronics Engineers.
Incumbent Carrier.......... A company providing local exchange services on the
date of enactment of the Telecommunications Act of
1996. These companies consist of the Regional Bell
Operating Companies, GTE and numerous independent
telephone companies.
Interconnection
Agreement.................. A contract between an incumbent carrier and a
competitive carrier for the connection of a
competitive carrier network to the public switched
telephone network, as well as competitive carrier
access to incumbent carrier unbundled network
elements, e.g., copper loops. This agreement sets
out some of the financial agreements and
operational aspects of such interconnection and
access.
Internet................... An array of interconnected networks using a common
set of protocols defining the information coding
and processing requirements that can communicate
across hardware platforms and over many links; now
operated by a consortium of telecommunications
service providers and others.
Internet Protocol or IP.... A standard for software that keeps track of the
inter-network addresses for different nodes, routes
outgoing packets and recognizes incoming packets.
ISDN....................... Integrated Services Digital Network. A transmission
method that provides circuit-switched access to the
public network at speeds of 64 or 128 Kbps for
voice, data and video transmission.
Internet Service
Provider................... A company that provides direct access to the
Internet.
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<PAGE> 77
Interexchange Carrier...... Usually referred to as a long-distance service
provider for traditional toll voice services. There
are many interexchange carriers, including AT&T,
MCI WorldCom, Sprint and Qwest.
Kbps....................... Kilobits per second. 1,000 bits per second.
Long Distance Carrier...... A long distance carrier providing services between
local access transport areas on an intrastate or
interstate basis, also referred to in the industry
as an "interexchange carrier". A long distance
carrier may also be a long distance resale company.
LAN........................ Local Area Network.
Mbps....................... Megabits per second. Millions of bits per second.
MDU........................ Multiple Dwelling Units.
Modem...................... An abbreviation of Modulator-Demodulator. An
electronic signal-conversion device used to convert
digital signals from a computer to analog form for
transmission over the telephone network. At the
transmitting end, a modem working as a modulator
converts the computer's digital signals into
analog-signals that can be transmitted over a
telephone line. At the receiving end, another modem
working as a demodulator converts analog signals
back into digital signals and sends them to the
receiving computer.
Network.................... An integrated system composed of switching
equipment and transmission facilities designed to
provide for the direction, transport and accounting
of telecommunications traffic.
OC-3....................... Optical carrier 3. Standard telecommunications
industry digital single format, which is
distinguishable by bit rate -- the number of binary
digits transmitted per second. OC-3 service has a
bit rate of 155.5 Mbps.
OC-12...................... Optical carrier 12. Standard telecommunications
industry digital single format, which is
distinguishable by bit rate -- the number of binary
digits transmitted per second. OC-12 service has a
bit rate of 622.8 Mbps.
OC-48...................... Optical carrier 48. Standard telecommunications
industry digital single format, which is
distinguishable by bit rate -- the number of binary
digits transmitted per second. OC-48 service has a
bit rate of 2.5 gigabits per second.
Packets.................... Information represented as bytes grouped together
through a communication node with a common
destination address and other attribute
information.
Passings................... Passings include all of the doors for potential
subscribers which, through our existing agreements
with our Service Partners, we have the right to be
granted access to and/or the right to construct
facilities to provide our services. We do not
include passings attributable to Service Partners
who do not have the financial strength to construct
the necessary infrastructure to allow us to provide
high-speed data services.
Passings Constructed....... Passings constructed identifies the number of doors
for potential subscribers where we have built out
the infrastructure necessary to
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<PAGE> 78
provide high-speed data services within 24 hours of
receiving a request to do so.
POP........................ Point-of-Presence.
REIT....................... Real Estate Investment Trust.
Resellers.................. Generally used to refer to a telecommunications
provider who does not own any switching or
transmission facilities. In reality, a large number
of providers furnish services through a combination
of owned and resold facilities.
Router..................... A device that accepts the Internet Protocol from a
local area network or another wide area network
device and switches/routes Internet Protocol
packets across a network backbone. Routers also
provide protocol conversion services to transfer
Internet Protocol packets over frame relay,
Asynchronous Transfer Mode, and other network
services.
T-1........................ This is a Bell System term for a digital
transmission link with a capacity of 1.544 Mbps.
Upstream................... Refers to the dataflow from the subscriber to the
network.
VLAN....................... Virtual Local Area Network.
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BROADBANDNOW, INC.
CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the three years in
the period ended
December 31, 1999......................................... F-4
Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit) for the
three years in the period ended December 31, 1999......... F-5
Consolidated Statements of Cash Flows for the three years in
the period ended December 31, 1999........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
BroadbandNOW, Inc.
We have audited the accompanying consolidated balance sheets of
BroadbandNOW, Inc., as of December 31, 1998 and 1999, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
BroadbandNOW, Inc., at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Dallas, Texas
January 21, 2000
(except for the last paragraph of
Note 5, as to which the
date is February 3, 2000)
F-2
<PAGE> 81
BROADBANDNOW, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,093,261 $ 52,802,252
Accounts receivable, net of allowance for doubtful
accounts of $61,000 in 1998 and $296,000 at December
31, 1999............................................... 156,102 198,885
Prepaid expenses and other current assets................. 198,286 854,405
----------- ------------
3,447,649 53,855,542
Property and equipment, net................................. 7,476,976 22,780,966
Other assets................................................ 42,150 98,440
----------- ------------
Total assets...................................... $10,966,775 $ 76,734,948
=========== ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 101,283 $ 2,643,919
Accrued expenses.......................................... 89,055 826,661
Current portion of note payable and capital lease
obligations............................................ 494,170 4,621,396
----------- ------------
Total current liabilities......................... 684,508 8,091,976
Note payable and capital lease obligations, less current
portion................................................... 5,647,989 14,158,627
Other long-term liabilities................................. 28,525 --
Commitments
Redeemable convertible preferred stock:
Series A convertible preferred stock, $0.001 par value:
Authorized shares -- 6,900,000
Issued and outstanding shares -- 3,581,122 at December
31, 1999
Liquidation preference of $67,325,127 plus any
accumulated and unpaid dividends...................... -- 66,915,017
Stockholders' equity (deficit):
Class A common stock, $0.001 par value:
Authorized shares -- 100,000,000
Outstanding shares -- 4,655,400 and 4,684,400 at
December 31, 1998, and December 31, 1999,
respectively.......................................... 4,655 4,684
Class B common stock, $0.001 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 4,979,777 at December
31, 1998 and December 31, 1999........................ 4,980 4,980
Class C common stock, $0.001 par value:
Authorized shares -- 25,000,000
Issued and outstanding shares -- 2,074,464 at December
31, 1998 and December 31, 1999........................ 2,074 2,074
Additional capital........................................ 9,781,286 10,237,232
Accumulated deficit....................................... (5,187,242) (22,679,642)
----------- ------------
Total stockholders' equity (deficit).............. 4,605,753 (12,430,672)
----------- ------------
Total liabilities, redeemable convertible
preferred stock, and stockholders' equity
(deficit)....................................... $10,966,775 $ 76,734,948
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 82
BROADBANDNOW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Internet subscriber services........................ $ -- $ 17,453 $ 443,648
Managed network services............................ 159,062 133,500 117,459
Systems integration................................. 1,258,555 544,868 19,077
Equipment sales..................................... 2,373,097 643,721 324,381
Other revenue....................................... 10,320 15,584 3,977
---------- ----------- ------------
Total revenues.............................. 3,801,034 1,355,126 908,542
Expenses:
Operating costs..................................... 1,465,810 2,630,700 9,723,866
Cost of equipment sales............................. 2,061,956 540,515 312,787
Product development................................. 64,803 256,975 1,210,854
Sales and marketing................................. 341,473 346,235 1,011,876
General and administrative.......................... 680,825 1,298,268 4,538,068
---------- ----------- ------------
Total expenses.............................. 4,614,867 5,072,693 16,797,451
---------- ----------- ------------
Loss from Operations.................................. (813,833) (3,717,567) (15,888,909)
Interest (income)..................................... -- (19,284) (1,141,073)
Interest expense...................................... 44,294 48,412 742,001
Other (income) expense, net........................... 25,350 28,096 (12,383)
---------- ----------- ------------
Net loss.............................................. (883,477) (3,774,791) (15,477,454)
---------- ----------- ------------
Preferred stock dividends and accretion............... -- -- 2,014,946
---------- ----------- ------------
Net loss attributed to common stockholders............ $ (883,477) $(3,774,791) $(17,492,400)
========== =========== ============
Basic and diluted net loss per share.................. $ (0.12) $ (0.39) $ (1.49)
========== =========== ============
Weighted average shares outstanding................... 7,347,357 9,581,835 11,718,298
========== =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 83
BROADBANDNOW, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES OF
SERIES A SERIES A
REDEEMABLE REDEEMABLE SHARES OF SHARES OF SHARES OF
CONVERTIBLE CONVERTIBLE CLASS A CLASS A CLASS B CLASS B CLASS C
PREFERRED PREFERRED COMMON COMMON COMMON COMMON COMMON
STOCK STOCK STOCK STOCK STOCK STOCK STOCK
----------- ----------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............. -- $ -- 4,875,000 $4,875 -- $ -- --
Issuance of common stock............... -- -- -- -- 3,580,850 3,581 --
Purchase of treasury stock (250,000
shares Class A common stock)......... -- -- (250,000) (250) -- -- --
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ------ --------- ------ ---------
Balance at December 31, 1997............. -- -- 4,625,000 4,625 3,580,850 3,581 --
Issuance of common stock, including
exercise of stock options............ -- -- 30,400 30 1,398,927 1,399 2,074,464
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ------ --------- ------ ---------
Balance at December 31, 1998............. -- -- 4,655,400 4,655 4,979,777 4,980 2,074,464
Exercise of stock options.............. -- -- 29,000 29 -- -- --
Sale of preferred stock................ 3,581,122 64,938,427 -- -- -- -- --
Dividends on preferred stock........... -- 1,764,314 -- -- -- -- --
Preferred stock dividends paid......... -- (38,356) -- -- -- -- --
Accretion of offering costs for
preferred stock...................... -- 250,632 -- -- -- -- --
Compensation expense related to stock
option grants........................ -- -- -- -- -- -- --
Net loss............................... -- -- -- -- -- -- --
--------- ----------- --------- ------ --------- ------ ---------
Balance at December 31, 1999............. 3,581,122 $66,915,017 4,684,400 $4,684 4,979,777 $4,980 2,074,464
--------- ----------- --------- ------ --------- ------ ---------
<CAPTION>
CLASS C
COMMON ADDITIONAL ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996............. $ -- $ 619,047 $ (528,974) $ 94,948
Issuance of common stock............... -- 1,381,219 -- 1,384,800
Purchase of treasury stock (250,000
shares Class A common stock)......... -- (12,250) -- (12,500)
Net loss............................... -- -- (883,477) (883,477)
------ ----------- ------------ ------------
Balance at December 31, 1997............. -- 1,988,016 (1,412,451) 583,771
Issuance of common stock, including
exercise of stock options............ 2,074 7,793,270 -- 7,796,773
Net loss............................... -- -- (3,774,791) (3,774,791)
------ ----------- ------------ ------------
Balance at December 31, 1998............. 2,074 9,781,286 (5,187,242) 4,605,753
Exercise of stock options.............. -- 11,294 -- 11,323
Sale of preferred stock................ -- -- -- --
Dividends on preferred stock........... -- -- (1,764,314) (1,764,314)
Preferred stock dividends paid......... -- -- -- --
Accretion of offering costs for
preferred stock...................... -- -- (250,632) (250,632)
Compensation expense related to stock
option grants........................ -- 444,652 -- 444,652
Net loss............................... -- -- (15,477,454) (15,477,454)
------ ----------- ------------ ------------
Balance at December 31, 1999............. $2,074 $10,237,232 $(22,679,642) $(12,430,672)
------ ----------- ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE> 84
BROADBANDNOW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
OPERATING
Net loss.............................................. $ (883,477) $(3,774,791) $(15,477,454)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................ 144,618 443,671 4,881,936
Amortization........................................ 18,324 76,855 599,892
Provision for losses on accounts receivable and
other current assets............................. 28,362 10,111 265,966
Loss (gain) on dispositions of property and
equipment........................................ -- 28,234 (11,592)
Compensation expense related to option grants....... -- -- 444,652
Changes in operating assets and liabilities:
Accounts receivable.............................. (366,728) 421,304 (308,749)
Other current assets and other assets............ 150,476 (220,153) (1,312,301)
Accounts payable and accrued expenses............ 19,213 (75,890) 3,251,717
---------- ----------- ------------
Net cash used in operating activities................. (889,212) (3,090,659) (7,665,933)
INVESTING ACTIVITIES
Purchases of property and equipment................... (238,636) (1,521,922) (6,781,705)
Proceeds from sale of property and equipment.......... -- 20,101 19,689
---------- ----------- ------------
Net cash used in investing activities................. (238,636) (1,501,821) (6,762,016)
FINANCING ACTIVITIES
Borrowings (payments) on bank line of credit.......... 20,570 (517,663) --
Payments on loans payable............................. -- -- (195,620)
Principal payments on capital lease obligations....... -- (9,677) (578,834)
Purchase of treasury stock............................ (12,500) -- --
Proceeds from issuances of preferred and common stock,
net of offering costs............................... 1,384,800 7,796,773 64,949,750
Dividends paid........................................ -- -- (38,356)
---------- ----------- ------------
Net cash provided by financing activities............. 1,392,870 7,269,433 64,136,940
---------- ----------- ------------
Net increase in cash.................................. 265,022 2,676,953 49,708,991
Cash at beginning of year............................. 151,286 416,308 3,093,261
---------- ----------- ------------
Cash at end of year................................... $ 416,308 $ 3,093,261 $ 52,802,252
========== =========== ============
SUPPLEMENTAL DISCLOSURES
Interest paid......................................... $ 44,294 $ 32,642 $ 433,872
========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 85
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
BroadbandNOW, Inc. (the Company) is a provider of high-speed,
high-bandwidth Internet connectivity, and customized broadband content and
applications under the BroadbandNOW(TM) tradename. The Texas company was founded
in 1994 through an acquisition of assets as a systems integration company.
Beginning in 1998, the Company shifted its emphasis to high-speed data services
over the Internet and began to build the national private Internet Protocol
network needed to support its systems. The Company currently has completed the
initial build-out of its infrastructure and has begun operational marketing
efforts.
On January 6, 2000, the Company formed a Delaware holding company,
BroadbandNOW, Inc., from the existing capital structure of its former company, I
3S, Inc. All company operations will continue to be conducted in the Texas
corporation, which has been renamed BroadbandNOW Texas, Inc. and which is a
wholly-owned subsidiary of BroadbandNOW, Inc. As a result of the
reincorporation, the Company changed the par value on its Series A convertible
preferred stock and its Class A, B and C common stock from no par value to
$0.001 par value and cancelled its 250,000 shares of Treasury stock. Share and
per share information for each of the three years in the period ended December
31, 1999 have been retroactively adjusted to reflect the reincorporation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents. The Company's current cash
equivalents consist of high grade commercial paper.
Property and Equipment
The Company's property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is calculated using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Software and hardware.................................. 3 years
Office equipment and furnishings....................... 3 to 7 years
Building............................................... 39 years
Building improvements.................................. 5 years
</TABLE>
F-7
<PAGE> 86
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Software and hardware....................................... $7,826,467 $24,039,515
Office equipment and furnishings............................ 342,724 374,679
Building and improvements................................... 27,475 3,753,832
Construction in progress.................................... -- 149,705
---------- -----------
8,196,666 28,317,731
Less accumulated depreciation and amortization.............. 719,690 5,536,765
---------- -----------
Net property and equipment.................................. $7,476,976 $22,780,966
========== ===========
</TABLE>
See Note 3 for property and equipment under capital leases at December 31, 1998
and 1999.
Revenue Recognition
Internet subscriber service revenue consists of (i) a one-time installation
fee which is deferred and recognized over the estimated term of the
subscription; (ii) monthly access fees based on the level of service a
subscriber chooses which is recognized as the service is provided, and (iii)
monthly modem rental fees for use of modems which is recognized as the service
is provided. Revenue for managed network services is recognized as earned over
the contract terms. Revenue for equipment sales is recognized when shipped.
Revenue for systems integration is recognized when the service is performed.
The Company has entered into agreements with third parties to offer our
Internet access services to potential subscribers. The revenue sharing
provisions of the agreements are based on the level of service the Company
performs, the number of subscribers and penetration levels at the properties.
The Company recognizes Internet subscriber services revenue on a gross basis
when the services offered are a turn key solution whereby the Company provides
all services from marketing to installation to ongoing customer service. Net
revenues remitted by third parties who link into the Company's network but
provide the bulk of marketing, installation and customer care for the
subscribers are recorded at the net amount due to the Company.
Concentration of Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are accounts receivable. The Company sold computer
equipment and services primarily to large companies in the United States, while
Internet access services are sold to residents and to businesses. Credit is
extended based on an evaluation of the customer's financial condition, and
generally collateral is not required. Credit losses are provided for in the
financial statements and have consistently been within management's expectation.
One customer comprised 10% of revenues in 1997. A second customer comprised 14%
and 11% of revenues in 1997 and 1998, respectively. A third customer comprised
32% and 18% of revenues in 1997 and 1998, respectively. A fourth and fifth
customer comprised 32% and 15% of revenues in 1999, respectively.
Fair Value of Financial Instruments
Management estimates the fair value of: (i) cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate carrying value
due to the relatively short maturity of these instruments; and (ii) the
borrowings under the note payable and capital lease obligations approximate
carrying value because these borrowings accrue interest at floating interest
rates based on market or accrue interest at fixed rates which approximate market
rates.
F-8
<PAGE> 87
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Income taxes are recorded using the liability method. Accordingly, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates expected to be in effect when the differences are expected to
reverse.
Net Loss per Share
Basic net loss per share is based on the net loss for the period adjusted
for dividend requirements and accretion on the Series A Convertible Preferred
Stock. The resulting net loss attributed to common stockholders is divided by
the weighted average number of shares of Class A, B and C common stock
outstanding during the period to arrive at basic net loss per share attributed
to common stockholders. Diluted loss per share is computed based upon adding the
weighted average number of shares of Class A, B and C common stock, the impact
of common stock options and the conversion of Series A Preferred Stock
outstanding during the periods presented. The dilutive effect of 3,698,300
shares of common stock resulting from the exercise of stock options and the
conversion of 3,581,122 shares of Series A preferred stock were not included in
the computation of diluted earnings per share because they are anti-dilutive for
all periods presented.
Advertising Costs
Advertising costs, which amounted to $2,566, $56,071 and $272,659 during
the years ended December 31, 1997, 1998 and 1999, respectively, are expensed in
the period incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, in the primary financial statements and provides
supplemental disclosures as required by Statement of Financial Accounting
Standard (SFAS) No. 123, Accounting for Stock-Based Compensation in the
accompanying notes.
2. STOCKHOLDERS' EQUITY
On May 19, 1998, the Company's board of directors declared a 5-for-1 stock
split. All share and per share information has been retroactively adjusted to
reflect the stock split.
Preferred Stock
On June 25, 1999, the Company authorized and designated 4,200,000 shares of
Series A Convertible Preferred Stock (Preferred Stock). On June 25, 1999, the
Company received net proceeds of $33,925,492 from the private placement of
1,861,702 shares of the Preferred Stock. Additionally, the Company received net
proceeds of $31,012,935 from the private placement of 1,719,420 shares of the
Preferred Stock in the fourth quarter of 1999. The Company intends to use the
proceeds to acquire capital assets necessary for future expansion and general
corporate purposes including working capital. Each share of Preferred Stock is
currently convertible into one share of Class A common stock. The Preferred
Stock carries mandatory redemption rights upon the earlier of (i) June 15, 2004,
(ii) change of control, as defined, or (iii) the sale of a majority of the
assets of the Company at a per share price equal to the then applicable
liquidation preference plus accumulated unpaid dividends. Dividends accrue
semi-annually at an annual rate of $1.504 per share payable at the Company's
option in cash or additional shares of Preferred Stock. The Company incurred
approximately $2.4 million in offering costs which are accreted to the preferred
stock as
F-9
<PAGE> 88
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a dividend over the five year life of the stock. During 1999, $250,632 of
offering costs were accreted as dividends. In the event of an Approved Offering,
redemption or liquidation of Preferred Stock or the declaration of a cash
dividend on Common Stock, any accrued and unpaid dividends on the Preferred
Stock shall be paid in cash. Any remaining offering costs not accreted will be
recorded as dividends.
Upon the occurrence of an Approved Offering, each share of Preferred Stock
shall immediately and automatically be converted into such number of fully paid
and nonassessable shares of Class A Common Stock equal to the product of (i) the
number of shares of Preferred Stock held by such shareholder, multiplied by (ii)
the number determined by dividing the then current liquidation preference by the
then current conversion price.
An "Approved Offering" means the consummation of the first underwritten
public offering of Common Stock of the Company pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act, at an initial offering price that results in gross proceeds to the Company
(before deduction of underwriting discounts and expenses of sale) of not less
than $30,000,000.
A holder of Preferred Stock may, at any time and from time to time, convert
all or any part of the shares of Preferred Stock beneficially owned by such
holder into the applicable number of fully paid nonassessable shares of Class A
Common Stock.
The holders of the Preferred Stock are entitled to two demand registrations
under a Registration Rights Agreement upon the earlier of (i) April 4, 2002 or
(ii) 180 days after an Approved Offering.
Subsequent to December 31, 1999, the Company issued 1,265,723 additional
shares of Series A preferred stock for a gross amount of $23,795,616 and a per
share price of $18.80. Of the amount, $20,000,000 was issued to Liberty BBandnow
Holdings, LLC (see Note 5 -- Related Party Transactions).
Common Stock
The Company has three classes of common shares which each have identical
rights, except that the Class B shares may elect two directors to the Board of
Directors while the Class A shares may elect three or more directors, and Class
B and Class C shares have preference over liquidation priority. In the event of
liquidation or dissolution, the holders of the Class B and Class C shares will
receive $1.0041 and $2.1692 per share, respectively, if funds are available
after all secured debts have been settled. Each share of Class B common and
Class C common stock will automatically be converted into one share of Class A
common stock upon the consummation of an Approved Offering.
On April 4, 1997, the Company sold 3,580,850 shares of its Class B common
shares at a price of $0.41 per share in a private placement.
On March 31, 1998, the Company sold 750,000 shares of its Class B common
shares at a price of $2.00 per share in a private placement.
On July 16, 1998, the Company sold 1,750,000 shares of its Class C common
shares at a price of $2.00 per share in two private placements.
On December 30, 1998, the Company sold 648,927 shares of its Class B common
shares at a price of $3.08 and 324,464 shares of its Class C common shares at a
price of $3.08 per share in three private placements.
The holders of Class B common stock have the right at any time after April
4, 2002 to require the Company to register up to two primary or secondary
offerings of common stock.
F-10
<PAGE> 89
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
In February 1996, the Company's Board of Directors and shareholders
approved a stock option plan pursuant to which the Company may grant stock
options for Class A common stock to officers and key employees for the purchase
of up to twenty percent of the Company's common stock at the most recent stock
sale price on the date the option is granted and with option terms not to exceed
ten years.
At December 31, 1999, stock options for 300,000 shares of Class A common
stock were outstanding which vest over a one-and-a-half-year period, stock
options for 235,000 shares of Class A common stock were outstanding which vest
over a two-year period, stock options for 2,046,500 shares of Class A common
stock were outstanding which vest over a three-year period, and stock options
for 1,116,800 shares of Class A common stock were outstanding which vest over a
five-year period. The weighted average exercise price of these outstanding
options at December 31, 1999 is $8.93. Of the outstanding options, 845,127
shares were exercisable at December 31, 1999.
Stock option activity was as follows:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding at January 1, 1997...................... 305,000 $ 0.10
Options granted........................................... 122,500 0.39
---------
Options outstanding at December 31, 1997.................... 427,500 0.18
Options granted........................................... 1,501,000 1.02
Options exercised......................................... (3,200) 0.12
Options canceled.......................................... (26,500) 0.25
---------
Options outstanding at December 31, 1998.................... 1,898,800 0.84
Options granted........................................... 1,824,000 17.26
Options exercised......................................... (4,000) 0.22
Options cancelled......................................... (20,500) 2.49
---------
Options outstanding at December 31, 1999.................... 3,698,300 $ 8.93
=========
</TABLE>
The following table summarizes information about stock options outstanding
at the five different exercise prices at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER OUTSTANDING AT WEIGHTED AVERAGE REMAINING
EXERCISE PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE
---------------- --------------------- --------------------------
<C> <C> <S>
$ 0.10 289,500 6.55 years
$ 0.41 1,025,000 8.20
$ 2.00 566,300 8.53
$ 3.08 173,500 9.40
$18.80 1,644,000 9.50
---------
Total 3,698,300 8.76 years
=========
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock option
plans, and, accordingly, recognized compensation expense when the exercise price
of the options was less than the fair value of the underlying stock on the date
of the grant. The Company has recognized compensation expense for the year ended
December 31, 1999, for its stock options issued during the period at an exercise
price below fair value of the Company's shares. Total compensation expense
related to these grants is $1,329,168, of which $444,652 has been recognized in
1999 and the remainder will be recognized over the remaining two to five year
vesting periods of the options.
F-11
<PAGE> 90
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had the Company determined compensation expense based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net loss
attributable to common stockholders and basic and diluted loss per share for
1997, 1998, and 1999 would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
Net Loss attributable to common
stockholders:
As reported......................... $(883,477) $(3,774,791) $(17,492,400)
Pro forma........................... (890,923) (3,808,992) (18,499,997)
Basic and diluted net loss per share:
As reported......................... $ (0.12) $ (0.39) $ (1.49)
Pro forma........................... (0.12) (0.40) (1.58)
</TABLE>
In determining the fair value of the options granted for purposes of the
preceding pro forma disclosures, the Company used the minimum value
option-pricing model with the following weighted average assumptions for 1997,
1998, and 1999, respectively: risk-free interest rate of 5.1 percent; dividend
yield of zero; and an expected option life of approximately four years.
The weighted average fair value of options granted with exercise prices
equal to the fair value on the date of grant was $0.07, $0.27 and $2.67 for
1997, 1998 and 1999, respectively. The weighted average fair value of options
granted with exercise prices below the fair value on the date of grant was $8.39
in 1999.
At December 31, 1999, there were 993,420 options outstanding related to
stock options granted to non-employees for goods and services provided to the
Company in 1997, which are fully vested, and have exercise prices per share
which range from $0.20 to $0.41.
Reserved Capital Shares
The Company has reserved the following shares of Class A common stock:
<TABLE>
<S> <C>
Conversion of Series A Preferred Stock................... 4, 893,617
Conversion of Class B and Class C shares................. 7,054,241
Stock Options -- Class A................................. 5,961,220
----------
17,909,078
==========
</TABLE>
3. NOTE PAYABLE AND CAPITAL LEASE OBLIGATIONS
During 1998 and 1999, the Company purchased computer hardware equipment
under a note payable. The note payable is collateralized by the underlying
assets. Its terms include a 24-month payment term and interest to be accrued at
prime.
The note payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
---------- -----------
<S> <C> <C>
Current maturities................................. $ 163,368 $ 1,950,682
Long-term maturities............................... 4,715,132 10,169,694
---------- -----------
$4,878,500 $12,120,376
========== ===========
</TABLE>
F-12
<PAGE> 91
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Current maturities.................................. $ 330,802 $2,670,714
Long-term maturities................................ 932,857 3,988,933
---------- ----------
$1,263,659 $6,659,647
========== ==========
</TABLE>
Future minimum commitments relating to the note payable at December 31,
1999, are as follows:
<TABLE>
<S> <C>
2000.................................................... $ 3,538,251
2001.................................................... 6,524,962
2002.................................................... 4,451,700
2003.................................................... 126,730
-----------
Total minimum note payments............................. 14,641,643
Less amounts representing interest...................... 2,521,267
-----------
Present value of minimum lease payments................. $12,120,376
===========
</TABLE>
Future minimum lease commitments relating to capitalized leases at December
31, 1999, are as follows:
<TABLE>
<S> <C>
2000..................................................... $3,379,194
2001..................................................... 3,235,449
2002..................................................... 1,120,298
----------
Total minimum lease payments............................. 7,734,941
Less amounts representing interest....................... 1,075,294
----------
Present value of minimum lease payments.................. $6,659,647
==========
</TABLE>
Property and equipment include $6,151,836 and $13,412,318 financed under
capitalized leases and note payable during 1998 and 1999, respectively.
Amortization of such amounts is included in accumulated depreciation and
amortization.
F-13
<PAGE> 92
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax liability:
Property and equipment................... $ (370,112) $ (416,171)
Deferred tax assets:
Net operating loss carryforwards......... 1,951,596 7,294,909
Accounts receivable...................... 20,740 100,640
Accrual.................................. 13,739 64,328
Inventory................................ 110,602 --
----------- -----------
1,726,565 7,043,706
Valuation allowance........................ (1,726,565) (7,043,706)
----------- -----------
Net deferred tax assets.................... $ -- $ --
=========== ===========
</TABLE>
Deferred tax assets are required to be reduced by a valuation allowance if
it is more likely than not that some portion or all the deferred tax assets will
not be realized. Realization of the future benefits related to deferred tax
assets is dependent on many factors, including the Company's ability to generate
taxable income within the near to medium term. Management has considered these
factors in determining the valuation allowance retained in fiscal year 1999.
The Company has net operating loss carryforwards of approximately $21.3
million at December 31, 1999, which begin to expire in 2010.
The following table summarizes the significant differences between the U.S.
Federal Statutory tax rate and the Company's effective tax rate for financial
statement purposes:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Federal income tax benefit at statutory rate.......... $(300,382) $(1,283,429) $(5,262,334)
Nondeductible expenses................................ -- 10,011 11,518
Net operating loss not benefited...................... 300,382 1,273,418 5,250,816
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
5. RELATED PARTY TRANSACTIONS
During 1997, 1998 and 1999, professional fees of approximately $11,306,
$16,000 and $27,503 were paid to Clay C. Scott, Jr., Secretary of the Board, for
legal services rendered to the Company.
During 1998 and 1999, advisory fees of approximately $162,000 and $350,000,
respectively, were paid to Geneva Associates, L.L.C. (Geneva) in connection with
the sales of common and preferred stock. Additionally, in June 1999, the Company
issued 30,000 stock options to Geneva in exchange for advisory services. The
options vest over three years and have an exercise price of $18.80 per share.
Certain principals of Geneva are members of the Board of Directors of the
Company.
On December 21, 1999, the Company entered into an Advisory Agreement with
Marcus & Partners, L.P. (Marcus) which agrees to pay Marcus a percentage based
finders fee and a consulting fee of four equal payments of $45,000 during the
one year term of the agreement. In January 2000, the Company sold Marcus a
warrant to purchase 300,000 shares of common stock with an exercise price of
$18.80 per share, for a cash consideration of $175,000. Additionally, the
Company paid Marcus a finders
F-14
<PAGE> 93
BROADBANDNOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fee of $200,000 in connection with the sale of $20 million of Series A preferred
stock to Liberty BBandnow Holdings, LLC, a subsidiary of Liberty Media
Corporation. Jeffrey A. Marcus, who has agreed to become a member of the Board
of Directors at the consummation of an initial public offering, is a partner of
Marcus. Gary S. Howard, who has agreed to become a member of the Board of
Directors at the consummation of an initial public offering, is an Executive
Vice President and Chief Operating Officer of Liberty Media Corporation.
In February 2000, we sold DOTCOM Limited Partnership warrants to purchase
150,000 shares of common stock with an exercise price of $18.80 per share, for a
cash consideration of $60,000. The purchase right under the warrant for 50,000
of such shares will become exercisable one year from the date of grant at the
discretion of the Company's President. Jack A. Riggs, who has agreed to become a
member of the Board of Directors at the consummation of an initial public
offering, is a controlling partner of DOTCOM Limited Partnership.
F-15
<PAGE> 94
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
SHARES
BROADBANDNOW, INC.
COMMON STOCK, $0.001 PAR VALUE
------------------------------
BEAR, STEARNS & CO. INC.
CHASE H&Q
, 2000
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the common stock being registered, all of which will be paid by the
registrant. All amounts are estimates except the registration fee, the NASD
filing fee and the Nasdaq filing fee.
<TABLE>
<S> <C>
Registration fee............................................ $30,360
NASD filing fee............................................. 8,000
Nasdaq listing fee.......................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Transfer agent fees......................................... *
Printing and engraving expenses............................. *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), permits a Delaware corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may pay expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action (upon
receipt of a written undertaking to reimburse the corporation if indemnification
is not appropriate), and must reimburse a successful defendant for expenses,
including attorneys' fees, actually and reasonably incurred, and permits a
corporation to purchase and maintain liability insurance for its directors and
officers. The DGCL provides that indemnification may be made for any claim,
issue or matter as to which a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation, unless and only to the extent a court determines that the person is
entitled to indemnity for such expenses as the court deems proper.
Section 107(b)(7) of the DGCL permits a Delaware corporation to include a
provision in its certificate of incorporation eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for a breach of the director's fiduciary duty as a director,
except for liability: (a) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions or (d) for any transaction from which the director
derived an improper personal benefit.
The Amended and Restated Certificate of Incorporation and Bylaws of the
registrant, copies of which are filed as exhibits to the Registration Statement,
provide that each person who at any time is or was a director of the registrant,
and is threatened to be or is made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (a "Proceeding"), by reason of the fact that such
person is or was a director of the registrant, or is or was serving at the
request of the registrant as a director, officer, partner, venturer, proprietor,
member, employee, trustee, agent or similar functionary of another domestic or
foreign corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other for-profit or non-profit enterprise,
II-1
<PAGE> 96
whether the basis of a Proceeding is alleged action in such person's official
capacity or in another capacity while holding such office, shall be indemnified
and held harmless by the registrant, against costs, charges, expenses (including
without limitation, court costs and attorneys' fees), judgments, fines and
amounts paid or to be paid in settlement actually and reasonably incurred or
suffered by such person in connection with a Proceeding, so long as a majority
of a quorum of disinterested directors, the stockholders or legal counsel
through a written opinion do not determine that such person did not act in good
faith or in a manner he reasonably believed to be in or not opposed to the best
interests of the registrant, and in the case of a criminal Proceeding, such
person had reasonable cause to believe his conduct was unlawful. The Amended and
Restated Certificate of Incorporation and Bylaws also contain certain provisions
designed to facilitate receipt of such benefits by any such persons, including
the prepayment of any such benefits.
The Registrant has entered into Indemnification Agreements pursuant to
which it will indemnify certain of its directors and officers against judgments,
claims, damages, losses and expenses incurred as a result of the fact that any
director or officer, in his capacity as such, is made or threatened to be made a
party to any suit or proceeding. Such persons will be indemnified to the fullest
extent now or hereafter permitted by the DGCL. The Indemnification Agreements
also provide for the advancement of certain expenses to such directors and
officers in connection with any such suit or proceeding.
The registrant has a directors' and officers' liability insurance policy to
insure its directors and officers against losses resulting from wrongful acts
committed by them in their capacities as directors and officers of the
registrant, including liabilities arising under the Securities Act.
The form of underwriting agreement filed as an exhibit to this registration
statement provides for the indemnification of our directors and officers in
certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The securities sold by the registrant during the last three years have not
been registered under the Securities Act. The holders of the securities referred
to below agreed to take their securities for investment and not with a view to
the distribution thereof. The certificates representing the securities contained
legends identifying certain restrictions on the transferability thereof. The
following information gives effect to the five for one stock split on May 22,
1998, and the for one stock split effected through a stock dividend
prior to the consummation of this offering, but does not give effect to the
conversion of the Class B common stock, the Class C common stock and the
preferred stock upon consummation of this offering.
Common Stock
The following sets forth information pertaining to sales of common stock by
the registrant during the last three years. Except as noted below, there were no
underwriting discounts or commissions on the sale of the common stock. Exemption
from registration of the shares of common stock listed below is claimed under
Section 4(2) of the Securities Act.
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
I(3)S Funding I, L.L.C.(1).... April 4, 1997 Class B common 3,580,850 $1,500,000
I(3)S Funding I, L.L.C. ...... March 31, 1998 Class B common 750,000 $1,500,000
Spotswood Capital, LLC........ July 10, 1998 Class C common 875,000 $1,750,000
Blue Ridge Investors Limited
Partnership................. July 10, 1998 Class C common 875,000 $1,750,000
I(3)S Funding I, L.L.C. ...... December 30, 1998 Class B common 648,927 $2,000,000
Spotswood Capital, LLC........ December 30, 1998 Class C common 162,232 $ 500,000
Blue Ridge Investors Limited
Partnership................. December 30, 1998 Class C common 162,232 $ 500,000
John T. Miller................ September 16, 1999 Class A common 25,000 $ 10,450
</TABLE>
II-2
<PAGE> 97
- ---------------
(1) John S. Miller received the option to purchase 243,420 shares of common
stock at a price of $0.418 per share as a finders fee for this transaction.
Exemption from registration of the shares of common stock listed below is
claimed under Section 4(2) and Rule 701.
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
David Heitman...................... August 11, 1998 Class A common 1,000 $100
Thomas L. Jones.................... August 11, 1998 Class A common 1,000 $100
Anthony Martin..................... November 11, 1998 Class A common 1,000 $100
Christopher Bedford................ December 7, 1998 Class A common 100 $ 41
Christopher Bedford................ December 22, 1998 Class A common 100 $ 41
Christopher Bedford................ January 29, 1999 Class A common 300 $123
Ossama Abourakaba.................. August 3, 1999 Class A common 1,000 $100
Thomas L. Jones.................... August 16, 1999 Class A common 500 $ 50
Helen C. Cupples................... October 11, 1999 Class A common 100 $200
David Heitman...................... October 11, 1999 Class A common 1,000 $100
Denise Looper...................... October 11, 1999 Class A common 100 $200
Ossama Abourakaba.................. October 29, 1999 Class A common 1,000 $100
</TABLE>
The following shares were issued as partial consideration for the purchase
of all of the assets of Applied Multimedia Productions, Inc. which had an
aggregate value of $33,913. Exemption from registration of the shares of common
stock listed below is claimed under Section 4(2).
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
Thon Morse......................... August 15, 1998 Class A common 6,800 (1)
Kristan V. Boggs................... August 15, 1998 Class A common 6,800 (1)
Andy Shattuck...................... August 15, 1998 Class A common 6,800 (1)
Damon M. Fiske..................... August 15, 1998 Class A common 6,800 (1)
</TABLE>
- ---------------
(1) The shares were valued at $0.414 per share.
Preferred Stock
The following sets forth information pertaining to sales of preferred stock
by the registrant in a private placement. The aggregate offering price of the
preferred stock sold in the private placement was $91,120,743. Donaldson, Lufkin
& Jenrette Securities Corporation acted as the exclusive agent of the registrant
and received a fee equal to $1,986,699. Exemption from registration of the
shares of preferred stock listed below is claimed under Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
II-3
<PAGE> 98
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
Nortel Networks Inc. .......... June 25, 1999 Series A convertible 1,063,829 $20,000,000
preferred
Ascend Communications, Inc. ... June 25, 1999 Series A convertible 531,915 $10,000,000
preferred
I(3)S Funding I, L.L.C. ....... June 25, 1999 Series A convertible 127,128 $ 2,390,000
preferred
Blue Ridge Investors II Limited
Partnership.................. June 25, 1999 Series A convertible 127,128 $ 2,390,000
preferred
Blue Ridge Investors Limited
Partnership.................. June 25, 1999 Series A convertible 11,702 $ 220,000
preferred
General Electric Capital
Corp......................... October 29, 1999 Series A convertible 265,957 $ 5,000,000
preferred
Archstone Communities Trust.... November 2, 1999 Series A convertible 372,340 $ 7,000,000
preferred
Archstone Communities
Investment LLC-I............. November 2, 1999 Series A convertible 17,294 $ 325,127
preferred
Microsoft Corporation.......... November 24, 1999 Series A convertible 1,063,829 $20,000,000
preferred
Telecommunications Investments,
LLC.......................... January 6, 2000 Series A convertible 68,916 $ 1,295,616
preferred
TeleNet Capital Group, LLC..... January 6, 2000 Series A convertible 53,191 $ 1,000,000
preferred
Summit Properties, Inc......... January 6, 2000 Series A convertible 53,191 $ 1,000,000
preferred
Liberty BBandnow Holdings,
LLC.......................... January 25, 2000 Series A convertible 1,063,829 $20,000,000
preferred
Archstone Communities
Investment LLC-I............. January 27, 2000 Series A convertible 26,596 $ 500,000
preferred
</TABLE>
Warrants
The following sets forth information pertaining to sales of warrants by the
registrant during the last three years. Except as noted below, there were no
underwriting discounts or commissions on the sale of the warrants. Exemption
from registration of the warrants listed below is claimed under Section 4(2) of
the Securities Act.
<TABLE>
<CAPTION>
PURCHASER DATE TYPE OF STOCK SHARES CONSIDERATION
- --------- ---- ------------- ------ -------------
<S> <C> <C> <C> <C>
Marcus & Partners, L.P........... January 6, 2000 Warrants 300,000 $ 175,000
DOTCOM Limited Partnership....... February 3, 2000 Warrants 150,000 $ 60,000
</TABLE>
II-4
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1+ -- Form of underwriting agreement.
3.1+ -- Form of Amended and Restated Certificate of
Incorporation.
3.2* -- Bylaws.
4.1* -- Stock Purchase Agreement dated April 4, 1997 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price and George Venner.
4.2* -- Stock Purchase Agreement dated March 31, 1998 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price and George Venner.
4.3* -- Amendment to Stock Purchase Agreement dated June 30, 1998
between I(3)S Funding I, L.L.C., the registrant, James R.
Price, Gary A. Dobbins, Clay C. Scott, Jr., Charles W.
(Bo) Price and George Venner.
4.4* -- Stock Purchase Agreement dated July 10, 1998 between
Spotswood Capital LLC, the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner and I(3)S Funding I, L.L.C.
4.5* -- Stock Purchase Agreement dated July 10, 1998 between Blue
Ridge Investors Limited Partnership, the registrant,
James R. Price, Gary A. Dobbins, Clay C. Scott, Jr.,
Charles W. (Bo) Price, George Venner and I(3)S Funding I,
L.L.C.
4.6* -- Stock Purchase Agreement dated December 30, 1998 between
Spotswood Capital LLC., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, Blue Ridge Investors Limited
Partnership and I(3)S Funding I, L.L.C.
4.7* -- Stock Purchase Agreement dated December 30, 1998 between
Blue Ridge Investors Limited Partnership, the registrant,
James R. Price, Gary A. Dobbins, Clay C. Scott, Jr.,
Charles W. (Bo) Price, George Venner, Spotswood Capital,
LLC and I(3)S Funding I, L.L.C.
4.8* -- Stock Purchase Agreement dated December 30, 1998 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, Spotswood Capital, LLC and Blue
Ridge Investors Limited Partnership.
4.9* -- Amendment to Stock Purchase Agreements dated June 25,
1999 between I(3)S Funding I, L.L.C., Blue Ridge
Investors Limited Partnership, Spotswood Capital, LLC,
the registrant, James R. Price, Gary A. Dobbins, Clay C.
Scott, Jr., Charles W. (Bo) Price and George Venner.
4.10* -- First Amended and Restated Registration Rights Agreement
dated January 25, 2000 between the registrant and Blue
Ridge Investors Limited Partnership, Blue Ridge Investors
II Limited Partnership, I(3)S Funding I, L.L.C., Nortel
Networks Inc., Ascend Communications, Inc., Archstone
Communities Trust, Archstone Communities Investment
LLC-I, Paradigm/I(3)S, L.P., Microsoft Corporation, CFE,
Inc., TeleNet Capital Group, LLC, Telecommunications
Investments, LLC, Summit Properties, Inc. and Liberty
BBandnow Holdings, LLC.
4.11* -- Addendum to the First Amended and Restated Registration
Rights Agreement dated January 27, 2000 between Archstone
Communities Investment LLC-1 and the registrant.
4.12+ -- Stock Purchase Warrant dated January 6, 2000 between
Marcus & Partners, L.P. and the registrant.
4.13+ -- Subscription Agreement dated as of January 6, 2000
between Marcus & Partners, L.P. and the registrant.
4.14+ -- Registration Rights Agreement dated as of January 6, 2000
between Marcus & Partners, L.P. and the registrant.
</TABLE>
II-5
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
4.15+ -- Stock Purchase Warrants between DOTCOM Limited
Partnership and the registrant.
4.16+ -- Subscription Agreement dated as of February 3, 2000
between DOTCOM Limited Partnership and the registrant.
4.17+ -- Registration Rights Agreement dated as of February 3,
2000 between DOTCOM Limited Partnership and the
registrant.
4.18+ -- Specimen of common stock certificate.
5.1+ -- Opinion of King & Spalding (including the consent of such
counsel) regarding the legality of the common stock.
10.1* -- Employment agreement dated June 24, 1999 between James R.
Price and the registrant.
10.2* -- Employment agreement dated June 24, 1999 between Charles
W. (Bo) Price and the registrant.
10.3* -- Employment agreement dated June 24, 1999 between Matthew
Hutchins, Sr. and the registrant.
10.4* -- Employment agreement dated June 24, 1999 between Daniel
A. Gillett and the registrant.
10.5* -- Form of Indemnification Agreement.
10.6* -- Omnibus Stock Plan of I3S, Inc., a Texas corporation,
effective February 13, 1996, and amended and restated on
October 7, 1999.
10.7* -- Form of Stock Option Agreements.
10.8+ -- Commercial Lease Agreement dated June 16, 1998 between
AmberJack, Ltd. and the registrant.
10.9+ -- Master High Speed Data Services Access and Right of Entry
Agreement dated February 23, 1999 between Archstone
Communities Trust and the registrant.
10.10+ -- High Speed Data Services Marketing Agreement dated July
9, 1999 between AvalonBay Communities, Inc. and the
registrant.
10.11+ -- Broadband Content Teaming Agreement dated February 19,
1999 between Yahoo!/Broadcast.com and the registrant.
10.12+ -- Master High Speed Data Services Access Agreement dated
August 5, 1998 between Cable Plus Holding Company and the
registrant.
10.13+ -- Master High Speed Data Services Marketing Agreement dated
March 5, 1998 between Camden Development, Inc. and the
registrant.
10.14+ -- Master High Speed Data Services Access Agreement dated
March 16, 1999 between Global Interactive Communications
Corp. and the registrant.
10.15+ -- Master High Speed Data Services Agreement dated November
12, 1998 between GTE Media Ventures Incorporated and the
registrant.
10.16+ -- Strategic Alliance Agreement dated March 10, 1998 between
TVMAX Telecommunications, Inc., d/b/a Optel and the
registrant.
10.17+ -- Master High Speed Data Services Marketing Agreement dated
February 1, 1999 between Private Cable, Inc. and the
registrant.
10.18+ -- Master High Speed Data Services Agreement dated June 22,
1999 between Seren Innovations, Inc. and the registrant.
10.19+ -- Purchase Agreement dated July 23, 1999 between Adaptive
Broadband Corporation and the registrant.
10.20+ -- Communications Services Agreement dated June 18, 1999
between Waller Creek Communications, Inc., d/b/a Pontio
Communications Company, Inc. and the registrant.
10.21+ -- Master Purchase Agreement dated July 15, 1999 between
Nortel Networks Inc. and the registrant.
10.22+ -- Advisory Agreement dated December 21, 1999 between Marcus
& Partners, L.P. and the registrant.
</TABLE>
II-6
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.23+ -- Letter Agreement dated January 25, 2000 between Liberty
Media Corporation and the registrant.
21.1* -- Subsidiaries.
23.1* -- Consent of Ernst & Young LLP.
23.2+ -- Consent of King & Spalding (included in Exhibit 5.1).
24.1* -- Power of attorney (included in the signature page of this
Registration Statement).
27.1* -- Financial data schedule.
99.1* -- Consent of Gary S. Howard.
99.2* -- Consent of Jeffrey A. Marcus.
99.3* -- Consent of Jack A. Riggs.
</TABLE>
- ---------------
* Filed herewith
+ To be filed by amendment
(b) Financial Statement Schedules.
All financial statement schedules are omitted because the information is
not required, is not material or is otherwise included in the financial
statements or related notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
2) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be a part of this registration statement as of the time it was declared
effective.
3) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
4) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-7
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas,
on January 31, 2000.
BroadbandNOW, Inc.
By: /s/ MATTHEW HUTCHINS, SR.
----------------------------------
Matthew Hutchins, Sr.
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Matthew Hutchins, Sr., President and Chief
Executive Officer of BroadbandNOW, Inc., and Daniel A. Gillett, Vice President,
Corporate Development and Chief Financial Officer of BroadbandNOW, Inc., or
either of them, and any agent for service named in this registration statement
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any registration statements filed
pursuant to Rule 462(b) under the Securities Act of 1933 and any and all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them, their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES R. PRICE Chairman of the Board January 31, 2000
- -----------------------------------------------------
James R. Price
/s/ MATTHEW HUTCHINS, SR. President, Chief Executive January 31, 2000
- ----------------------------------------------------- Officer and Director
Matthew Hutchins, Sr.
/s/ CHARLES W. (BO) PRICE Executive Vice President and January 31, 2000
- ----------------------------------------------------- Director
Charles W. (Bo) Price
/s/ DANIEL A. GILLETT Vice President, Corporate January 31, 2000
- ----------------------------------------------------- Development and Chief
Daniel A. Gillett Financial Officer
/s/ CLAY C. SCOTT Secretary and Director January 31, 2000
- -----------------------------------------------------
Clay C. Scott
/s/ TRACY SCOTT TURNER Director January 31, 2000
- -----------------------------------------------------
Tracy Scott Turner
/s/ RUSSELL R. MYERS Director January 31, 2000
- -----------------------------------------------------
Russell R. Myers
</TABLE>
II-8
<PAGE> 103
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1.1+ -- Form of underwriting agreement.
3.1+ -- Form of Amended and Restated Certificate of
Incorporation.
3.2* -- Bylaws.
4.1* -- Stock Purchase Agreement dated April 4, 1997 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price and George Venner.
4.2* -- Stock Purchase Agreement dated March 31, 1998 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price and George Venner.
4.3* -- Amendment to Stock Purchase Agreement dated June 30, 1998
between I(3)S Funding I, L.L.C., the registrant, James R.
Price, Gary A. Dobbins, Clay C. Scott, Jr., Charles W.
(Bo) Price and George Venner.
4.4* -- Stock Purchase Agreement dated July 10, 1998 between
Spotswood Capital LLC, the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, and I(3)S Funding I, L.L.C.
4.5* -- Stock Purchase Agreement dated July 10, 1998 between Blue
Ridge Investors Limited Partnership, the registrant,
James R. Price, Gary A. Dobbins, Clay C. Scott, Jr.,
Charles W. (Bo) Price, George Venner and I(3)S Funding I,
L.L.C.
4.6* -- Stock Purchase Agreement dated December 30, 1998 between
Spotswood Capital LLC., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, Blue Ridge Investors Limited
Partnership and I(3)S Funding I, L.L.C.
4.7* -- Stock Purchase Agreement dated December 30, 1998 between
Blue Ridge Investors Limited Partnership, the registrant,
James R. Price, Gary A. Dobbins, Clay C. Scott, Jr.,
Charles W. (Bo) Price, George Venner, Spotswood Capital,
LLC and I(3)S Funding I, L.L.C.
4.8* -- Stock Purchase Agreement dated December 30, 1998 between
I(3)S Funding I, L.L.C., the registrant, James R. Price,
Gary A. Dobbins, Clay C. Scott, Jr., Charles W. (Bo)
Price, George Venner, Spotswood Capital, LLC and Blue
Ridge Investors Limited Partnership.
4.9* -- Amendment to Stock Purchase Agreements dated June 25,
1999 between I(3)S Funding I, L.L.C., Blue Ridge
Investors Limited Partnership, Spotswood Capital, LLC,
the registrant, James R. Price, Gary A. Dobbins, Clay C.
Scott, Jr., Charles W. (Bo) Price and George Venner.
4.10* -- First Amended and Restated Registration Rights Agreement
dated January 25, 2000 between the registrant and Blue
Ridge Investors Limited Partnership, Blue Ridge Investors
II Limited Partnership, I(3)S Funding I, L.L.C., Nortel
Networks Inc., Ascend Communications, Inc., Archstone
Communities Trust, Archstone Communities Investment
LLC-I, Paradigm/I(3)S, L.P., Microsoft Corporation, CFE,
Inc., TeleNet Capital Group, LLC, Telecommunications
Investments, LLC, Summit Properties, Inc. and Liberty
BBandnow Holdings, LLC.
4.11* -- Addendum to the First Amended and Restated Registration
Rights Agreement dated January 27, 2000 between Archstone
Communities Investment LLC-1 and the registrant.
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
4.12+ -- Stock Purchase Warrant dated January 6, 2000 between
Marcus & Partners, L.P. and the registrant.
4.13+ -- Subscription Agreement dated as of January 6, 2000
between Marcus & Partners, L.P. and the registrant.
4.14+ -- Registration Rights Agreement dated as of January 6, 2000
between Marcus & Partners, L.P. and the registrant.
4.15+ -- Stock Purchase Warrants between DOTCOM Limited
Partnership and the registrant.
4.16+ -- Subscription Agreement dated as of February 3, 2000
between DOTCOM Limited Partnership and the registrant.
4.17+ -- Registration Rights Agreement dated as of February 3,
2000 between DOTCOM Limited Partnership and the
registrant.
4.18+ -- Specimen of common stock certificate.
5.1+ -- Opinion of King & Spalding (including the consent of such
counsel) regarding the legality of the common stock.
10.1* -- Employment agreement dated June 24, 1999 between James R.
Price and the registrant.
10.2* -- Employment agreement dated June 24, 1999 between Charles
W. (Bo) Price and the registrant.
10.3* -- Employment agreement dated June 24, 1999 between Matthew
Hutchins, Sr. and the registrant.
10.4* -- Employment agreement dated June 24, 1999 between Daniel
A. Gillett and the registrant.
10.5* -- Form of Indemnification Agreement.
10.6* -- Omnibus Stock Plan of I3S, Inc., a Texas corporation,
effective February 13, 1996, and amended and restated on
October 7, 1999.
10.7* -- Form of Stock Option Agreements.
10.8+ -- Commercial Lease Agreement dated June 16, 1998 between
AmberJack, Ltd. and the registrant.
10.9+ -- Master High Speed Data Services Access and Right of Entry
Agreement dated February 23, 1999 between Archstone
Communities Trust and the registrant.
10.10+ -- High Speed Data Services Marketing Agreement dated July
9, 1999 between AvalonBay Communities, Inc. and the
registrant.
10.11+ -- Broadband Content Teaming Agreement dated February 19,
1999 between Yahoo!/Broadcast.com and the registrant.
10.12+ -- Master High Speed Data Services Access Agreement dated
August 5, 1998 between Cable Plus Holding Company and the
registrant.
10.13+ -- Master High Speed Data Services Marketing Agreement dated
March 5, 1998 between Camden Development, Inc. and the
registrant.
10.14+ -- Master High Speed Data Services Access Agreement dated
March 16, 1999 between Global Interactive Communications
Corp. and the registrant.
10.15+ -- Master High Speed Data Services Agreement dated November
12, 1998 between GTE Media Ventures Incorporated and the
registrant.
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.16+ -- Strategic Alliance Agreement dated March 10, 1998 between
TVMAX Telecommunications, Inc., d/b/a Optel and the
registrant.
10.17+ -- Master High Speed Data Services Marketing Agreement dated
February 1, 1999 between Private Cable, Inc. and the
registrant.
10.18+ -- Master High Speed Data Services Agreement dated June 22,
1999 between Seren Innovations, Inc. and the registrant.
10.19+ -- Purchase Agreement dated July 23, 1999 between Adaptive
Broadband Corporation and the registrant.
10.20+ -- Communications Services Agreement dated June 18, 1999
between Waller Creek Communications, Inc., d/b/a Pontio
Communications Company, Inc. and the registrant.
10.21+ -- Master Purchase Agreement dated July 15, 1999 between
Nortel Networks Inc. and the registrant.
10.22+ -- Advisory Agreement dated December 21, 1999 between Marcus
& Partners, L.P. and the registrant.
10.23+ -- Letter Agreement dated January 25, 2000 between Liberty
Media Corporation and the registrant.
21.1* -- Subsidiaries.
23.1* -- Consent of Ernst & Young LLP.
23.2+ -- Consent of King & Spalding (included in Exhibit 5.1).
24.1* -- Power of attorney (included in the signature page of this
Registration Statement).
27.1* -- Financial data schedule.
99.1* -- Consent of Gary S. Howard.
99.2* -- Consent of Jeffrey A. Marcus.
99.3* -- Consent of Jack A. Riggs.
</TABLE>
- ---------------
* Filed herewith
+ To be filed by amendment
<PAGE> 1
EXHIBIT 3.2
================================================================================
BYLAWS
OF
BROADBANDNOW, INC.
Adopted December 16, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
ARTICLE 1 OFFICES 1
SECTION 1.1 REGISTERED OFFICE 1
SECTION 1.2 OTHER OFFICES 1
ARTICLE 2 MEETINGS OF STOCKHOLDERS 1
SECTION 2.1 PLACE OF MEETINGS 1
SECTION 2.2 ANNUAL MEETING 1
SECTION 2.3 SPECIAL MEETINGS 1
SECTION 2.4 NOTICE 1
SECTION 2.5 NOTICE OF STOCKHOLDER BUSINESS 2
SECTION 2.6 VOTING LIST 3
SECTION 2.7 QUORUM 3
SECTION 2.8 REQUIRED VOTE 3
SECTION 2.9 PROXIES 4
SECTION 2.10 RECORD DATE 4
SECTION 2.11 INSPECTORS OF ELECTIONS 5
ARTICLE 3 DIRECTORS 6
SECTION 3.1 MANAGEMENT 6
SECTION 3.2 NUMBER; CLASSES; ELECTION 6
SECTION 3.3 CHANGE IN NUMBER 6
SECTION 3.4 NOMINATION BYLAW 6
SECTION 3.5 REMOVAL 8
SECTION 3.6 VACANCIES AND NEWLY CREATED DIRECTORSHIPS 8
SECTION 3.7 CUMULATIVE VOTING PROHIBITED 8
SECTION 3.8 PLACE OF MEETINGS 9
SECTION 3.9 ANNUAL MEETINGS 9
SECTION 3.10 REGULAR MEETINGS 9
SECTION 3.11 SPECIAL MEETINGS 9
SECTION 3.12 QUORUM 9
SECTION 3.13 ACTION WITHOUT MEETING; TELEPHONE MEETINGS 9
SECTION 3.14 CHAIRMAN OF THE BOARD 10
SECTION 3.15 COMPENSATION 10
ARTICLE 4 COMMITTEES 10
SECTION 4.1 DESIGNATION 10
SECTION 4.2 NUMBER; TERM 10
SECTION 4.3 AUTHORITY 10
SECTION 4.4 COMMITTEE CHANGES; REMOVAL 10
SECTION 4.5 ALTERNATE MEMBERS; ACTING MEMBERS 10
SECTION 4.6 REGULAR MEETINGS 10
SECTION 4.7 SPECIAL MEETINGS 11
SECTION 4.8 QUORUM; MAJORITY VOTE 11
SECTION 4.9 MINUTES 11
SECTION 4.10 COMPENSATION 11
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
ARTICLE 5 NOTICES 12
SECTION 5.1 METHOD 12
SECTION 5.2 WAIVER 12
SECTION 5.3 EXCEPTION TO NOTICE REQUIREMENT 12
ARTICLE 6 OFFICERS 13
SECTION 6.1 OFFICERS 13
SECTION 6.2 ELECTION 13
SECTION 6.3 COMPENSATION 13
SECTION 6.4 REMOVAL AND VACANCIES 13
SECTION 6.5 CHIEF EXECUTIVE OFFICER 13
SECTION 6.6 PRESIDENT 14
SECTION 6.7 VICE PRESIDENTS 14
SECTION 6.8 SECRETARY 14
SECTION 6.9 ASSISTANT SECRETARIES 14
SECTION 6.10 TREASURER 14
SECTION 6.11 ASSISTANT TREASURERS 15
SECTION 6.12 OTHER OFFICERS 15
ARTICLE 7 CERTIFICATES REPRESENTING SHARES 15
SECTION 7.1 CERTIFICATES 15
SECTION 7.2 LEGENDS 15
SECTION 7.3 LOST CERTIFICATES 15
SECTION 7.4 TRANSFER OF SHARES 16
SECTION 7.5 REGISTERED STOCKHOLDERS 16
ARTICLE 8 INDEMNIFICATION 16
SECTION 8.1 ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
BY OR IN THE RIGHT OF THE CORPORATION 16
SECTION 8.2 ACTIONS OR SUITS BY OR IN THE RIGHT OF
THE CORPORATION 16
SECTION 8.3 INDEMNIFICATION FOR COSTS, CHARGES AND
EXPENSES OF SUCCESSFUL PARTY 17
SECTION 8.4 DETERMINATION OF RIGHT TO INDEMNIFICATION 17
SECTION 8.5 ADVANCE OF COSTS, CHARGES AND EXPENSES 17
SECTION 8.6 PROCEDURE FOR INDEMNIFICATION 18
SECTION 8.7 OTHER RIGHTS; CONTINUATION OF RIGHT TO
INDEMNIFICATION 18
SECTION 8.8 CONSTRUCTION 19
SECTION 8.9 SAVINGS CLAUSE 19
SECTION 8.10 INSURANCE 20
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
ARTICLE 9 GENERAL PROVISIONS 20
SECTION 9.1 DIVIDENDS 20
SECTION 9.2 RESERVES 20
SECTION 9.3 AUTHORITY TO SIGN INSTRUMENTS 20
SECTION 9.4 FISCAL YEAR 20
SECTION 9.5 SEAL 21
SECTION 9.6 TRANSACTIONS WITH DIRECTORS AND OFFICERS 21
SECTION 9.7 AMENDMENTS 21
</TABLE>
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<PAGE> 5
BYLAWS
OF
BROADBANDNOW, INC.
- --------------------------------------------------------------------------------
ARTICLE 1
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office and registered
agent of BroadbandNOW, Inc., a Delaware corporation (the "CORPORATION"), will be
as from time to time set forth in the Corporation's Certificate of Incorporation
or in any certificate filed with the Secretary of State of the State of Delaware
to amend such information.
SECTION 1.2 OTHER OFFICES. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.1 PLACE OF MEETINGS. Meetings of stockholders for all
purposes may be held at such time and place, either within or without the State
of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION 2.2 ANNUAL MEETING. An annual meeting of stockholders of the
Corporation shall be held each calendar year at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice of such meeting. At such meeting,
the stockholders shall elect directors and transact such other business as may
properly be brought before the meeting.
SECTION 2.3 SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute, the Certificate
of Incorporation or these Bylaws, may be called only by the Chairman of the
Board, the Board of Directors pursuant to a resolution adopted by a majority of
the Board of Directors or a majority of an entire committee of the Board of
Directors. Business transacted at all special meetings shall be confined to the
purposes stated in the notice of the meeting.
SECTION 2.4 NOTICE. Written or printed notice stating the place, date,
and hour of each meeting of the stockholders and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting, to each stockholder entitled to vote at such meeting. If such notice is
sent by mail, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at the stockholder's address as it appears
on the records of the Corporation. Notice of
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<PAGE> 6
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy and shall not, at the
beginning of such meeting, object to the transaction of any business because the
meeting is not lawfully called or convened, or who shall, either before or after
the meeting, submit a signed waiver of notice, in person or by proxy.
SECTION 2.5 NOTICE OF STOCKHOLDER BUSINESS.
(a) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
(b) For business to be properly brought before an annual meeting by a
stockholder pursuant to clause (iii) of paragraph (a) of this Bylaw, (1) the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation, (2) such business must be a proper matter for stockholder
action under the Delaware General Corporation Law, (3) if the Stockholder, or
the beneficial owner on whose behalf any such proposal is made, has provided the
Corporation with a Solicitation Notice (as that term is hereinafter defined)
such stockholder or beneficial owner must have delivered a proxy statement and
form of proxy to holders of at least the percentage of the Corporation's voting
shares required under applicable law to carry any such proposal, and have
included in such materials the Solicitation Notice and (4) if no Solicitation
Notice relating thereto has been timely provided pursuant to this Bylaw, the
stockholder or beneficial owner proposing such business must not have solicited
a number of proxies sufficient to have required the delivery of such a
Solicitation Notice under this Bylaw. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal executive offices of the
corporation not less than 90 days nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be received no
later than the close of business on the later of the tenth day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure was made or 90 days before the meeting. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (v) a brief description of the business desired to
brought before the meeting and the reasons for conducting such business at the
meeting, (w) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business, and the name and address of the
beneficial owner, if any, on whose behalf the proposal is made, (x) the class
and number of shares of the Corporation which are owned beneficially and of
record by such stockholder of record and by the beneficial owner, if any, on
whose behalf the proposal is made, (y) any material interest of such stockholder
of record and the beneficial owner, if any, on whose behalf the proposal is made
in such business, and (z) whether either such stockholder or beneficial owner
intends to deliver a proxy statement and form of proxy to holders of at least
the percentage of the Corporation's voting shares required under applicable law
to carry the proposal (an affirmative statement of such intent, a "SOLICITATION
NOTICE").
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<PAGE> 7
(c) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Bylaw. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted. Notwithstanding the foregoing provisions of this Bylaw,
a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended (or any successor act or statute),
and the rules and regulations thereunder with respect to the matters set forth
in this Bylaw.
SECTION 2.6 VOTING LIST. At least ten (10) days before each meeting of
stockholders, the Secretary or other officer of the Corporation who has charge
of the Corporation's stock ledger, either directly or through another officer
appointed by the Secretary or such other officer or through a transfer agent
appointed by the Board of Directors, shall prepare a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. Such list shall also be produced and kept at
the time and place of the meeting at all times during such meeting and may be
inspected by any stockholder who is present.
SECTION 2.7 QUORUM. A majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at any meeting of
stockholders, except as otherwise provided by statute, the Certificate of
Incorporation or these Bylaws. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum. If a quorum shall
not be present at any meeting of stockholders, the stockholders entitled to vote
thereat who are present, in person or by proxy, or any officer of the
Corporation presiding over such meeting, may adjourn the meeting from time to
time until a quorum shall be present. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place are announced at the meeting at which the adjournment is taken. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the original meeting had a quorum
been present. If the adjournment is for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
SECTION 2.8 REQUIRED VOTE. In all matters other than the election of
directors, the affirmative vote of the majority of the votes cast, affirmatively
or negatively, shall be the act of the stockholders, unless the question is one
on which, by express provision of statute, the Certificate of Incorporation or
these Bylaws, a different vote is required, in which case such express provision
shall
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<PAGE> 8
govern and control the decision of the question. Directors of the Corporation
shall be elected by a plurality.
SECTION 2.9 PROXIES. (a) Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. Each
proxy shall be filed with the Secretary of the Corporation prior to or at the
time of the meeting.
(b) Without limiting the manner in which a stockholder may authorize
another person or persons to act for such stockholder as proxy pursuant to
subsection (a) of this section, the following shall constitute a valid means by
which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another
person or persons to act for such stockholder as proxy. Execution may
be accomplished by the stockholder or by an authorized officer,
director, employee or agent of the stockholder signing such writing or
causing such stockholder's signature to be affixed to such writing by
any reasonable means including, but not limited to, by facsimile
signature.
(2) A stockholder may authorize another person or persons to
act for such stockholder as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the proxy
to receive such transmission, provided that any such telegram,
cablegram or other means of electronic transmission must either set
forth or be submitted with information from which it can be determined
that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. If it is determined that such telegrams,
cablegrams or other electronic transmissions are valid, the inspectors
or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
(c) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (b)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
(d) A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power.
SECTION 2.10 RECORD DATE. (a) In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date
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<PAGE> 9
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) days prior to
such payment, exercise, or other action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 2.11 INSPECTORS OF ELECTIONS. The Board of Directors may, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If any of the inspectors so appointed
shall fail to appear or act, the chairman of the meeting shall, or if inspectors
shall not have been appointed, the chairman of the meeting may, appoint one or
more inspectors. Each inspector, before entering upon the discharge of such
inspector's duties, shall take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality and according to the best
of such inspector's ability. The inspectors shall determine the number of shares
of capital stock of the Corporation outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, and
the validity and effect of proxies and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the results, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the chairman of the
meeting, the inspectors shall make a report in writing of any challenge,
request, or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as an inspector of an election of directors. Inspectors need not be
stockholders.
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<PAGE> 10
ARTICLE 3
DIRECTORS
SECTION 3.1 MANAGEMENT. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute, the Certificate of Incorporation or these Bylaws
directed or required to be exercised or done by the stockholders. The Board of
Directors shall keep regular minutes of its proceedings.
SECTION 3.2 NUMBER; CLASSES; ELECTION. Subject to the rights of the
holders of any series of preferred stock to elect additional directors under
specified circumstances, the number of directors which shall constitute the
whole Board of Directors of the Corporation shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by the
majority of the whole Board of Directors, provided, however, the initial number
of directors constituting the whole Board of Directors shall be six (6), and
provided further that so long as any shares of Class B Common Stock of the
Corporation remain outstanding, the number of directors constituting the whole
Board of Directors shall not be less than five (5). The directors, other than
those who may be elected by the holders of any series of preferred stock under
specified circumstances, shall be divided into three classes, Class I, Class II
and Class III. Each director shall serve for a term ending on the third annual
meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class I shall serve for a
term expiring at the annual meeting next following the end of the calendar year
1999, the directors first elected to Class II shall serve for a term expiring at
the second annual meeting next following the end of the calendar year 1999, and
the directors first elected to Class III shall serve for a term expiring at the
third annual meeting next following the end of the calendar year 1999. Each
director shall hold office until the annual meeting at which such director's
term expires and, the foregoing notwithstanding, shall serve until his successor
shall have been duly elected and qualified, unless he shall resign, become
disqualified, disabled or shall otherwise be removed.
At each annual election, the directors chosen to succeed those whose
terms then expire shall be of the same class as the directors they succeed,
unless, by reason of any intervening changes in the authorized number of
directors, the Board shall designate one or more directorships whose term then
expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes.
SECTION 3.3 DECREASE IN NUMBER. No decrease in the number of directors
constituting the whole Board of Directors shall have the effect of shortening
the term of any incumbent director.
SECTION 3.4 NOMINATION BYLAW.
(a) Subject to Section 3.6 and the rights of the holders of any class
or series of capital stock to nominate and/or elect directors that are set forth
in the Certificate of Incorporation or Certificate of Designation creating such
class or series of capital stock, only persons who are
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<PAGE> 11
nominated in accordance with the procedures set forth in these Bylaws shall be
eligible to serve as directors. Nominations of persons for election to the Board
of Directors of the corporation may be made at a meeting of stockholders (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote for the election of
directors at the meeting and who complies with the notice procedures set forth
in this Bylaw.
(b) Nominations by stockholders shall be (1) made pursuant to timely
notice in writing to the Secretary of the Corporation (2) if the stockholder, or
the beneficial owner on whose behalf any such nomination is made, has provided
the Corporation with a Nomination Notice (as that term is hereinafter defined),
such stockholder or beneficial owner must have delivered a proxy statement and a
form of proxy to holders of a percentage of the Corporation's voting shares
reasonably believed by such stockholder or beneficial owner to be sufficient to
elect the nominee or nominees proposed to be nominated by such stockholder, and
must have included in such materials the Nomination Notice, and (3) if no
Nomination Notice relating thereto has been timely provided pursuant to this
Bylaw, the stockholder or beneficial owner proposing such business or nomination
must not have solicited a number of proxies sufficient to have referenced the
delivery of such a Nomination Notice under this Bylaw. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 90 days nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is changed by more than 30 days
from such anniversary date, notice by the stockholder to be timely must be so
received not later than the close of business on the later of the tenth day
following the earlier of the day on which notice of the date of the meeting was
mailed or public disclosure was made or 90 days before such meeting. and (ii) in
the case of a special meeting at which directors are to be elected, not later
than the close of business on the later of the tenth day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure was made or 90 days before such meeting. Such stockholder's notice
shall set forth (v) as to each person whom the stockholder proposes to nominate
for election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (or any successor
provision) (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (x) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such stockholder and also
which are owned of record by such stockholder; (y) as to the beneficial owner,
if any, on whose behalf the nomination is made, (i) the name and address of such
person and (ii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (z) whether either such stockholder or
beneficial owner intends to deliver a proxy statement and form of proxy to
holders of a sufficient number of holders of the Corporation's voting shares to
elect such nominee or nominees (an affirmative statement of such intent, a
"NOMINATION NOTICE"). At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
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the Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
(c) The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also
comply with all applicable requirements of the Securities Exchange Act of 1934,
as amended (or any successor act or statute), and the rules and regulations
thereunder with respect to the matters set forth in this Bylaw.
SECTION 3.5 REMOVAL. Except with respect to the rights of the holders
of any class or series of capital stock of the Corporation to remove directors
that are set forth in the Certificate of Incorporation or Certificate of
Designation creating such class or series of capital stock, no director of the
Corporation shall be removed from his office as a director by vote or other
action of stockholders except for cause. Except as may otherwise be provided by
law, cause for removal of a director shall be deemed to exist only if: (i) the
director whose removal is proposed has been convicted, or where a director is
granted immunity to testify where another has been convicted, of a felony by a
court of competent jurisdiction and such conviction is no longer subject to
direct appeal; (ii) such director has been found by the affirmative vote of at
least a majority of the entire Board of Directors at any regular or special
meeting of the Board of Directors called for that purpose or by a court of
competent jurisdiction to have been grossly negligent or guilty of misconduct in
the performance of his duties to the Corporation in a matter of substantial
importance to the Corporation; or (iii) such director has been adjudicated by a
court of competent jurisdiction to be mentally incompetent, which mental
incompetency directly affects his ability as a director of the Corporation.
SECTION 3.6 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any series of preferred stock then outstanding,
vacancies and newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting from
death, resignation, retirement, disqualification, removal or other causes shall,
unless otherwise provided by law or by resolution of the Board of Directors, be
filled only by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum and not by the stockholders. Any
director elected in accordance with this Bylaw shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. Except as otherwise provided in
these Bylaws, when one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in these Bylaws with respect to the filling of other
vacancies.
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SECTION 3.7 CUMULATIVE VOTING PROHIBITED. Cumulative voting shall be
prohibited.
SECTION 3.8 PLACE OF MEETINGS. The directors of the Corporation may
hold their meetings, both regular and special, either within or without the
State of Delaware.
SECTION 3.9 ANNUAL MEETINGS. The annual meeting of each newly elected
Board shall be held without further notice immediately following the annual
meeting of stockholders, and at the same place, unless by unanimous consent of
the directors then elected and serving, such time or place shall be changed.
SECTION 3.10 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board of Directors.
SECTION 3.11 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the Chief Executive
Officer on twenty-four (24) hours' notice to each director, if by telecopier,
electronic facsimile, telegram or other electronic means, or hand delivery, or
on three (3) days' notice to each director, if by mail. Except as may be
otherwise expressly provided by law or the Certificate of Incorporation, neither
the business to be transacted at, nor the purpose of, any special meeting need
be specified in a notice or waiver of notice.
SECTION 3.12 QUORUM. At all meetings of the Board of Directors, a
majority of the total number of directors shall constitute a quorum for the
transaction of business, and the vote of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 3.13 ACTION WITHOUT MEETING; TELEPHONE MEETINGS. Any action
required or permitted to be taken at a meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the Board of
Directors or committee, as the case may be. Such consent shall have the same
force and effect as a unanimous vote at a meeting. Subject to applicable notice
provisions and unless otherwise restricted by the Certificate of Incorporation,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in and hold a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in such
meeting shall constitute presence in person at such meeting, except where a
person's participation is for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
SECTION 3.14 CHAIRMAN OF THE BOARD. The Board of Directors may elect a
Chairman of the Board to preside at their meetings and to perform such other
duties as the Board of Directors may from time to time assign to such person.
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SECTION 3.15 COMPENSATION. The Board of Directors may fix the
compensation of the members of the Board of Directors at any time and from time
to time. Nothing herein contained shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE 4
COMMITTEES
SECTION 4.1 DESIGNATION. The Board of Directors may designate one or
more committees.
SECTION 4.2 NUMBER; TERM. Each committee shall consist of one or more
directors. The number of committee members may be increased or decreased from
time to time by the Board of Directors. Each committee member shall serve as
such until the earliest of (i) the expiration of such committee member's term as
director, (ii) such committee member's resignation as a committee member or as a
director, or (iii) such committee member's removal as a committee member or as a
director.
SECTION 4.3 AUTHORITY. Each committee, to the extent expressly provided
in the resolution of the Board of Directors establishing such committee, shall
have and may exercise all of the authority of the Board of Directors in the
management of the business and affairs of the Corporation except to the extent
expressly restricted by statute, the Certificate of Incorporation or these
Bylaws.
SECTION 4.4 COMMITTEE CHANGES; REMOVAL. The Board of Directors shall
have the power at any time to fill vacancies in, to change the membership of,
and to discharge any committee. The Board of Directors may remove any committee
member, at any time, with or without cause.
SECTION 4.5 ALTERNATE MEMBERS; ACTING MEMBERS. The Board of Directors
may designate one or more directors as alternate members of any committee. Any
such alternate member may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members present at any meeting and not disqualified
from voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member.
SECTION 4.6 REGULAR MEETINGS. Regular meetings of any committee may be
held without notice at such time and place as may be designated from time to
time by the committee and communicated to all members thereof.
SECTION 4.7 SPECIAL MEETINGS. Special meetings of any committee may be
held whenever called by the Chairman of the committee, or, if the committee
members have not elected a Chairman, by any committee member. The Chairman of
the committee or the committee member calling any
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special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least (i) twenty-four (24) hours before such special meeting if notice is
given by telecopy, electronic facsimile, telegram or other electronic means, or
hand delivery or (ii) at least three (3) days before such special meeting if
notice is given by mail. Neither the business to be transacted at, nor the
purpose of, any special meeting of any committee need be specified in the notice
or waiver of notice of any special meeting.
SECTION 4.8 QUORUM; MAJORITY VOTE. At meetings of any committee, a
majority of the number of members designated as the committee by the Board of
Directors shall constitute a quorum for the transaction of business. Alternate
members and acting members shall be counted in determining the presence of a
quorum. If a quorum is not present at a meeting of any committee, a majority of
the members present may adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum is present. The vote
of a majority of the members, including alternate members and acting members,
present at any meeting at which a quorum is present shall be the act of a
committee, unless the act of a greater number is required by law or the
Certificate of Incorporation.
SECTION 4.9 MINUTES. Each committee shall cause minutes of its
proceedings to be prepared and shall report the same to the Board of Directors
upon the request of the Board of Directors. The minutes of the proceedings of
each committee shall be delivered to the Secretary of the Corporation for
placement in the minute books of the Corporation.
SECTION 4.10 COMPENSATION. Committee members may, by resolution of the
Board of Directors, be allowed a fixed sum and expenses of attendance, if any,
for attending any committee meetings or a stated salary.
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ARTICLE 5
NOTICES
SECTION 5.1 METHOD. Whenever by statute, the Certificate of
Incorporation, or these Bylaws, notice is required to be given to any
stockholder, director or committee member, and no provision is made as to how
such notice shall be given, personal notice shall not be required, and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at such stockholder's address as it
appears on the books or (in the case of a stockholder) the stock transfer
records of the Corporation, or (b) by any other method permitted by law
(including, but not limited to, overnight courier service, electronic facsimile
transmission, electronic mail, telegram, telex, telefax or other means of
electronic transmission). Any notice required or permitted to be given by mail
shall be deemed to be given when deposited in the United States mail as
aforesaid. Any notice required or permitted to be given by overnight courier
service shall be deemed to be given at the time delivered to such service with
all charges prepaid and addressed as aforesaid. Any notice required or permitted
to be given by electronic facsimile transmission, electronic mail, telegram,
telex, telefax or other means of electronic transmission shall be deemed to be
delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
SECTION 5.2 WAIVER. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by law, the
Certificate of Incorporation or these Bylaws, a written waiver thereof, signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be equivalent to notice. Attendance of a stockholder,
director, or committee member at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends for the express purpose of
objecting at the beginning of the meeting to the transaction of any business on
the ground that the meeting is not lawfully called or convened.
SECTION 5.3 EXCEPTION TO NOTICE REQUIREMENT. The giving of any notice
required under any provision of the General Corporation Law of Delaware, the
Certificate of Incorporation or these Bylaws shall not be required to be given
to any stockholder to whom (i) notice of two consecutive annual meetings, and
all notices of meetings or of the taking of action by written consent without a
meeting to such stockholder during the period between such two consecutive
annual meetings, or (ii) all, and at least two, payments (if sent by first class
mail) of dividends or interest on securities during a twelve-month period, have
been mailed addressed to such person at such person's address as shown on the
records of the Corporation and have been returned undeliverable. If any such
stockholder shall deliver to the Corporation a written notice setting forth such
stockholder's then current address, the requirement that notice be given to such
stockholder shall be reinstated.
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ARTICLE 6
OFFICERS
SECTION 6.1 OFFICERS. The officers of the Corporation shall be a Chief
Executive Officer, a President, one or more Vice Presidents (who shall rank in
such order and who shall have such additional titles or designations, such as
"Executive," "Senior," "First," or "Second," as may be determined from time to
time by the Board of Directors), a Secretary, and a Treasurer. The Board of
Directors may also choose a Chairman of the Board, additional Vice Presidents
and one or more Assistant Secretaries and Assistant Treasurers and such other
officers and agents, as it shall deem necessary, including without limitation, a
Chief Financial Officer and a Chief Scientist. Any two or more offices may be
held by the same person.
SECTION 6.2 ELECTION. The Board of Directors at its first meeting after
each annual meeting of stockholders shall elect the officers of the Corporation,
none of whom need be a member of the Board, a stockholder or a resident of the
State of Delaware. The Board of Directors may appoint such other officers and
agents as it shall deem necessary, who shall be appointed for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors.
SECTION 6.3 COMPENSATION. The compensation of all officers and agents
of the Corporation shall be fixed by the Board of Directors.
SECTION 6.4 REMOVAL AND VACANCIES. Each officer of the Corporation
shall hold office until such officer's successor is elected and qualified or
until such officer's earlier resignation or removal. Any officer or agent
elected or appointed by the Board of Directors may be removed either for or
without cause by a majority of the directors represented at a meeting of the
Board of Directors at which a quorum is represented, whenever in the judgment of
the Board of Directors the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors.
SECTION 6.5 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
be the senior officer of the Corporation, shall preside at all meetings of the
stockholders and the Board of Directors unless the Board of Directors shall
elect a Chairman of the Board, in which event the Chief Executive Officer shall
preside at meetings of the Board of Directors only in the absence of the
Chairman of the Board. The Chief Executive Officer shall be an ex-officio member
of the executive committee (if established), and will share the general and
active management of the business of the Corporation with the President, and
shall see, along with the President, that all orders and resolutions of the
Board of Directors are carried into effect. Under the seal of the Corporation,
he shall execute bonds, mortgages, and other contracts requiring a seal, except
where required or permitted by law to be otherwise signed and executed, except
where the signing and execution shall be especially delegated by the Board of
Directors to some other officer or agent of the Corporation.
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SECTION 6.6 PRESIDENT. The President shall have general and active
management of the business of the Corporation and shall see, along with the
Chief Executive Officer, that all orders and resolutions of the Board of
Directors are carried into effect. He shall have the authority to execute bonds,
mortgages, and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law or by these Amended and
Restated Bylaws to be otherwise signed and executed, except where the signing
and execution thereof shall be especially delegated by the Board of Directors to
some other officer or agent of the Corporation.
SECTION 6.7 VICE PRESIDENTS. In the absence of the President or in the
event of the President's inability or refusal to act, the Vice President (or in
the event there is more than one Vice President, the Vice Presidents in the
order designated by the Board, or in the absence of any designation, then in the
order of their election or appointment) shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Each Vice President shall have only such
powers and perform only such duties as the Board of Directors may from time to
time prescribe or as the Chief Executive Officer or President may from time to
time delegate.
SECTION 6.8 SECRETARY. Unless the Board of Directors requests
otherwise, the Secretary shall attend all sessions of the Board of Directors and
all meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose and shall perform like duties
for any committee when required. In the event the Board of Directors requests
the Secretary not to attend or to leave a session of the Board of Directors or a
meeting of the stockholders, or in the event the Secretary is absent from such
session or meeting, the presiding officer at such session or meeting shall
appoint another person to record the votes and minutes of said proceedings.
Except as otherwise provided herein, the Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or Chief Executive Officer or President, under whose
supervision the Secretary shall be. The Secretary shall keep in safe custody the
seal of the Corporation and, when authorized by the Board of Directors, affix
the same to any instrument requiring it, and, when so affixed, it shall be
attested by the signature of the Secretary or by the signature of the Treasurer
or an Assistant Secretary.
SECTION 6.9 ASSISTANT SECRETARIES. Each Assistant Secretary shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe or as the Chief Executive Officer may from time to time
delegate.
SECTION 6.10 TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements of the Corporation and shall deposit all monies and
other valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer, the President and directors, at the regular
meetings of the Board of Directors, or whenever they may require it, an account
of all
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the Treasurer's transactions as Treasurer and of the financial condition of the
Corporation, and shall perform such other duties as the Board of Directors may
prescribe. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such form, in such sum, and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the office of Treasurer and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money, and other property
of whatever kind in the Treasurer's possession or under the Treasurer's control
belonging to the Corporation.
SECTION 6.11 ASSISTANT TREASURERS. Each Assistant Treasurer shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe.
SECTION 6.12 OTHER OFFICERS. The Board of Directors may appoint such
other officers and agents as it shall deem necessary, including without
limitation, a Chief Financial Officer and Chief Scientist, who shall be
appointed for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board of Directors.
ARTICLE 7
CERTIFICATES REPRESENTING SHARES
SECTION 7.1 CERTIFICATES. The shares of the Corporation shall be
represented by certificates in such form as shall be determined by the Board of
Directors. Such certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued. Each certificate
shall state on the face thereof the holder's name, the number and class of
shares, and the par value of such shares or a statement that such shares are
without par value. Each certificate shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary and may be sealed with
the seal of the Corporation or a facsimile thereof. Any or all of the signatures
on a certificate may be facsimile.
SECTION 7.2 LEGENDS. The Board of Directors shall have the power and
authority to provide that certificates representing shares of stock shall bear
such legends as the Board of Directors shall authorize, including, without
limitation, such legends as the Board of Directors deems appropriate to assure
that the Corporation does not become liable for violations of federal or state
securities laws or other applicable law.
SECTION 7.3 LOST CERTIFICATES. The Corporation may issue a new
certificate representing shares in place of any certificate theretofore issued
by the Corporation, alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate to be
lost, stolen or destroyed. The Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may require the owner of such lost,
stolen or destroyed certificate, or such owner's legal representative, to
advertise the same in such manner as it shall specify and/or to give the
Corporation a bond in such form, in such sum, and with such surety or sureties
as it may direct
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as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 7.4 TRANSFER OF SHARES. Shares of stock shall be transferable
only on the books of the Corporation by the holder thereof in person or by such
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
SECTION 7.5 REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof for any and all purposes, and, accordingly, shall not be bound to
recognize any equitable or other claim or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE 8
INDEMNIFICATION
SECTION 8.1 ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The Corporation shall, to the fullest extent authorized or
permitted by law, 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 or has agreed to become a Director or officer of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a Director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, against costs, charges, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person or on such person's behalf in
connection with such action, suit or proceeding and any appeal therefrom, if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not meet the standards of conduct set forth in this Section 8.1.
SECTION 8.2 ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall, to the fullest extent authorized or permitted by law,
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 or has agreed to become a Director or officer of the
Corporation, or is or was
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serving or has agreed to serve at the request of the Corporation as a Director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against costs, charges and expenses (including attorneys' fees)
actually and reasonably incurred by such person or on such person's behalf in
connection with the defense or settlement of such action or suit and any appeal
therefrom, 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, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for gross negligence or misconduct in the performance of such person's
duty to the Corporation unless and only to the extent that the Court of Chancery
of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such costs, charges and expenses which the
Court of Chancery or such other court shall deem proper.
SECTION 8.3 INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF
SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article 8, to the
extent that a Director or officer of the Corporation has been successful on the
merits or otherwise, including, without limitation, the dismissal of an action
without prejudice, in defense of any action, suit or proceeding referred to in
Sections 8.1 and 8.2, or in the defense of any claim, issue or matter therein,
such person shall be indemnified against all costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by such person or
on such person's behalf in connection therewith.
SECTION 8.4 DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Sections 8.1 and 8.2 (unless ordered by a court) shall be
paid by the Corporation unless a determination is made (a) by the Board of
Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders, that indemnification of the Director or officer is not proper in
the circumstances because such person has not met the applicable standards of
conduct set forth in Sections 8.1 and 8.2.
SECTION 8.5 ADVANCE OF COSTS, CHARGES AND EXPENSES. Costs, charges and
expenses (including attorneys fees) incurred by a person referred to in Sections
8.1 and 8.2 in defending a civil or criminal action, suit or proceeding
(including investigations by any government agency and all costs, charges and
expenses incurred in preparing for any threatened action, suit or proceeding)
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding; provided, however, that the payment of such costs,
charges and expenses incurred by a Director or officer in such person's capacity
as a Director or officer (and not in any other capacity in which service was or
is rendered by such person while a Director or officer) in advance of the final
disposition of such action, suit or proceeding shall be made only upon receipt
of an undertaking by or on behalf of the Director or officer to repay all
amounts so advanced in the event that it shall ultimately be determined that
such Director or officer is not entitled to be indemnified by the Corporation as
authorized in this Article 8. No security shall be required for such undertaking
and
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such undertaking shall be accepted without reference to the recipient's
financial ability to make repayment. The repayment of such charges and expenses
incurred by other employees and agents of the Corporation which are paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as permitted by this Section 8.5 may be required upon such terms and
conditions, if any, as the Board of Directors deems appropriate. The Board of
Directors may, in the manner set forth above, and subject to the approval of
such Director or officer of the Corporation, authorize the Corporation's counsel
to represent such person, in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
SECTION 8.6 PROCEDURE FOR INDEMNIFICATION. Any indemnification under
Sections 8.1, 8.2 or 8.3 or advance of costs, charges and expenses under Section
8.5 shall be made promptly, and in any event within 30 days, upon the written
request of the Director or officer directed to the Secretary of the Corporation.
The right to indemnification or advances as granted by this Article 8 shall be
enforceable by the Director or officer in any court of competent jurisdiction if
the Corporation denies such request, in whole or in part, or if no disposition
thereof is made within 30 days. Such person's costs and expenses incurred in
connection with successfully establishing such person's right to indemnification
or advances, in whole or in part, in any such action shall also be indemnified
by the Corporation. It shall be a defense to any such action (other than an
action brought to enforce a claim for the advance of costs, charges and expenses
under Section 8.5 where the required undertaking, if any, has been received by
the Corporation) that the claimant has not met the standard of conduct set forth
in Sections 8.1 or 8.2, but the burden of proving that such standard of conduct
has not been met shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel,
and its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Sections 8.1 and 8.2, nor the fact that there has been an actual determination
by the Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
SECTION 8.7 OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION. The
indemnification provided by this Article 8 shall not be deemed exclusive of any
other rights to which a person seeking indemnification may be entitled under any
law (common or statutory), agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding office or while employed by or
acting as agent for the Corporation, and shall continue as to a person who has
ceased to be a Director or officer and shall inure to the benefit of the estate,
heirs, executors and administrators of such person. All rights to
indemnification under this Article 8 shall be deemed to be a contract between
the Corporation and each Director or officer of the Corporation who serves or
served in such capacity at any time while this Article 8 is in effect. No
amendment or repeal of this Article 8 or of any relevant provisions of the
Delaware General Corporation Law or any other applicable laws shall adversely
affect or deny to any Director or officer, any rights to indemnification which
such person may have, or change or release any obligations of the Corporation,
under this Article 8 with respect
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to any costs, charges, expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement which arise out of an action, suit or proceeding
based in whole or substantial part on any act or failure to act, actual or
alleged, which takes place before or while this Article 8 is in effect. The
provisions of this Section 8.7 shall apply to any such action, suit or
proceeding whenever commenced, including any such action, suit or proceeding
commenced after any amendment or repeal of this Article 8.
SECTION 8.8 CONSTRUCTION. For purposes of this Article 8:
(i) "THE CORPORATION" shall include any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its Directors,
officers, and employees or agents, so that any person who is or was a
Director or officer of such constituent corporation, or is or was
serving at the request of such constituent corporation as a Director or
officer of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions
of this Article 8 with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued;
(ii) "OTHER ENTERPRISES" shall include employee benefit plans,
including, but not limited to, any employee benefit plan of the
Corporation;
(iii) "SERVING AT THE REQUEST OF THE CORPORATION" shall
include any service which imposes duties on, or involves services by, a
Director or officer of the Corporation with respect to an employee
benefit plan, its participants, or beneficiaries, including acting as a
fiduciary thereof;
(iv) "FINES" shall include any penalties and any excise or
similar taxes assessed on a person with respect to an employee benefit
plan;
(v) A person who acted in good faith and in a manner such
person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
Corporation" as referred to in Sections 8.1 and 8.2; and
(vi) Service as a partner, trustee or member of management or
similar committee of a partnership or joint venture, or as a Director
or officer of a corporation which is a partner, trustee or joint
venturer, shall be considered service as a Director or officer of the
partnership, joint venture, trust or other enterprise.
SECTION 8.9 SAVINGS CLAUSE. If this Article 8 or any portion hereof
shall be invalidated on any ground by a court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer of the
Corporation as to costs, charges and expenses (including attorneys'
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fees), judgments, fines and amounts paid in settlement with respect to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, to the
full extent permitted by any applicable portion of this Article 8 that shall not
have been invalidated and to the full extent permitted by applicable law.
SECTION 8.10 INSURANCE. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
Director or officer of the Corporation, or is or was serving at the request of
the Corporation as a Director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
such person and incurred by such person or on such person's behalf in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Article 8, provided that such insurance is
available on acceptable terms as determined by a vote of a majority of the
entire Board of Directors.
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 DIVIDENDS. The Board of Directors, subject to any
restrictions contained in the Certificate of Incorporation, may declare
dividends upon the shares of the Corporation's capital stock. Dividends may be
paid in cash, in property, or in shares of the Corporation, subject to the
provisions of the General Corporation Law of Delaware and the Certificate of
Incorporation.
SECTION 9.2 RESERVES. By resolution of the Board of Directors, the
directors may set apart out of any of the funds of the Corporation such reserve
or reserves as the directors from time to time, in their discretion, think
proper to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other purposes as the
directors shall think beneficial to the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
SECTION 9.3 AUTHORITY TO SIGN INSTRUMENTS. Any checks, drafts, bills of
exchange, acceptances, bonds, notes or other obligations or evidences of
indebtedness of the Corporation, and all deeds, mortgages, indentures, bills of
sale, conveyances, endorsements, assignments, transfers, stock powers, or other
instruments of transfer, contracts, agreements, dividend and other orders,
powers of attorney, proxies, waivers, consents, returns, reports, certificates,
demands, notices, or documents and other instruments or writings of any nature
whatsoever may be signed, executed, verified, acknowledged, and delivered, for
and in the name and on behalf of the Corporation, by such officers, agents, or
employees of the Corporation, or any of them, and in such manner, as from time
to time may be authorized by the Board of Directors, and such authority may be
general or confined to specific instances.
SECTION 9.4 FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
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SECTION 9.5 SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation. Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
SECTION 9.6 TRANSACTIONS WITH DIRECTORS AND OFFICERS. No contract or
other transaction between the Corporation and any other corporation and no other
act of the Corporation shall, in the absence of fraud, be invalidated or in any
way affected by the fact that any of the directors of the Corporation are
peculiarly or otherwise interested in such contract, transaction or other act,
or are directors or officers of such other corporation. Any director of the
Corporation, individually, or any firm or corporation of which any such director
may be a member, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Corporation; provided,
however, that the fact that the director, individually, or the firm or
corporation is so interested shall be disclosed or shall have been known to the
Board of Directors or a majority of such members thereof as shall be present at
any annual meeting or at any special meeting, called for that purpose, of the
Board of Directors at which action upon any contract or transaction shall be
taken. Any director of the Corporation who is so interested may be counted in
determining the existence of a quorum at any such annual or special meeting of
the Board of Directors which authorizes such contract or transaction, and may
vote thereat to authorize such contract or transaction with like force and
effect as if such director were not such director or officer of such other
corporation or not so interested. Every director of the Corporation is hereby
relieved from any disability which might otherwise prevent such director from
carrying out transactions with or contracting with the Corporation for the
benefit of such director or any firm, corporation, trust or organization in
which or with which such director may be in anywise interested or connected.
SECTION 9.7 AMENDMENTS. These Bylaws may be amended or repealed, or new
Bylaws may be adopted only, (i) by the Board of Directors at any duly held
meeting or pursuant to a written consent in lieu of such meeting, or (ii) by the
affirmative vote of the holders of a majority of at least eighty (80%) percent
of the voting power entitled to vote thereon represented at any duly held
meeting of stockholders, provided that notice of such proposed action shall have
been contained in the notice of any such meeting.
SECTION 9.8 TABLE OF CONTENTS; HEADINGS. The Table of Contents and
headings used in these Bylaws have been inserted for convenience only and do not
constitute matters to be construed in interpretation.
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CERTIFICATE BY SECRETARY
The undersigned, being the secretary of the Corporation, hereby
certifies that the foregoing code of Bylaws was duly adopted by the initial
Directors of the Corporation effective on December 16, 1999.
IN WITNESS WHEREOF, I have signed this certification as of the date
first above written.
/s/ Clay C. Scott
-----------------------------------
Clay C. Scott
<PAGE> 1
EXHIBIT 4.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of April 4, 1997,
is made and entered into between I3S FUNDING I, L.L.C., a North Carolina limited
liability company (the "Purchaser"); I 3S, INC., a Texas corporation (the
"Company"); JAMES R. PRICE, GARY A. DOBBINS, CLAY C. SCOTT, JR., CHARLES BO
PRICE, and GEORGE VENNER, the sole existing holders of capital stock of the
Company (the "Shareholders") who execute this Agreement solely for the purpose
of agreeing to the provisions of Section 2 hereof and waiving any and all
preemptive rights with respect to the issuance of the Class B Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes to
sell to Purchaser, 716,170 shares of the Company's Class B Common Stock, no par
value per share (the "Class B Shares"), on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual agreements, representations
and warranties contained in this Agreement, the parties hereto agree as follows:
1. SALE AND PURCHASE OF CLASS B SHARES; THE CLOSING
a. Sale and Purchase of Class B Shares. Subject to the terms and conditions
set forth in this Agreement, at the Closing provided for in paragraph 1.d.
below, the Company shall sell to Purchaser, and Purchaser shall buy from the
Company, Seven Hundred Sixteen Thousand One Hundred Seventy (716,170) Class B
Common Shares for an aggregate purchase price of One Million Five Hundred
Thousand Dollars ($1,500,000). The Class B Shares shall represent at the time of
issuance 43% of all outstanding common stock of the Company on a fully diluted
basis, except for the option of Eric Chancellor to purchase One Hundred Fifty
Thousand (150,000) shares, options held by employees to purchase 68,500 shares
of the Company's Class A Common Stock, and the
<PAGE> 2
option of John T. Miller to purchase 24,342 shares (representing 50% of the
options held by him) of the Company's Class A Common Stock (i.e. calculated as
if all outstanding options, warrants or other rights to acquire or purchase
shares of the Company's common stock, other than the aforementioned options, had
been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver the
sum of One Million Five Hundred Thousand Dollars ($1,500,000) to the Company by
way of a wire transfer in complete payment for the Class B Shares.
c. Delivery of Stock Certificates. In consideration for Purchaser's payment
for the Class B Shares, at the Closing the Company shall deliver to Purchaser a
stock certificate representing the Class B Shares.
d. The Closing. The closing of the sale and purchase of the Class B Shares
contemplated hereby (the "Closing"), shall take place at the offices of the
Company, 1330 River Bend, Suite 600, Dallas, Texas, at 10:00 a.m. on April 4,
1997, or such other date and time as Purchaser and the Company shall mutually
agree in writing (the "Closing Date").
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS B SHARES
a. Voting. Except as provided in Section 2.i below, the Class B Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock.
b. Preemptive Rights. Until such time as a Purchaser Approved Offering (as
defined below) has been consummated or Purchaser has otherwise sold all of its
Class B Shares or other equity interests in the Company, Purchaser shall have
preemptive rights with regard to any future issuances of common stock of the
Company permitting Purchaser to purchase additional common
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shares pro rata at the same price and on the same terms and conditions of such
issuance. For purposes of this Agreement, a Purchaser Approved Offering shall
mean the consummation of an underwritten public offering of common stock of the
Company on the New York Stock Exchange, the American Stock Exchange, or The
Nasdaq Stock Market, Inc. pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of common stock of the Company to
the public at a price resulting in gross proceeds from such sale to the Company
(before deduction of underwriting discounts and expenses of sale) of not less
than $50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering , and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common stock unless such
shares shall have been offered for sale in writing first to the Company and then
to the other shareholders of the Company pro rata. In the event a shareholder
desires to transfer any common shares, the shareholder desiring to make such
transfer (the "Transferring Shareholder") shall deliver written notice (the
"Offer Notice") to the Company and to all other shareholders at least sixty (60)
days prior to the proposed transfer. The Offer Notice will disclose in
reasonable detail the proposed number of shares to be transferred, the proposed
transferee and the proposed price, terms and conditions of the transfer.
i. Upon receipt of the Offer Notice, the Company shall have the option
(the "Company's Option") for a period of thirty (30) days to purchase or
otherwise acquire all or part of the shares described in the Offer Notice for an
aggregate amount (such aggregate amount being
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hereinafter referred to as the "Option Price") equal to the bona fide purchase
price to be paid by the proposed purchaser as described in the Offer Notice
(which amount shall be zero if the proposed transfer would take the form of a
gift or other gratuitous transfer). The Company shall notify in writing all then
current shareholders as to whether it will exercise, partially exercise or not
exercise the Company's Option before the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully exercise the
Company's Option within thirty (30) days after receipt of the Offer Notice, the
remaining shareholders shall have the option (each a "Shareholder's Option") for
a period of ten (10) days from the earlier of (i) their receipt of written
notice from the Company of its decision not to exercise or to only partially
exercise the Company's Option, or (ii) the expiration of the Company's Option
(the "Other Shareholder Election Period"), to purchase or otherwise acquire all
or part of the remaining shares which the Company does not choose to purchase
pursuant to the Company's Option, in proportion to their respective ownership of
shares which, for purposes of such determination, shall include without
duplication all outstanding options, warrants or other rights owned by such
shareholders that are convertible into shares as of the date of such notice from
the Company (or the expiration of the Company's Option), for an amount equal to
the applicable portion of the Option Price. Each shareholder shall notify in
writing all then current shareholders as to whether such shareholder will
exercise, partially exercise or not exercise the shareholder's option before the
expiration of the Other Shareholder Election Period.
iii. For a period of ten (10) days from the earlier of (i) the receipt
by the other shareholders of a written notice from a shareholder that it does
not want to exercise its option or will only partially exercise its option, or
(ii) the expiration of the Other Shareholder Election Period, the
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other shareholders shall have the right to purchase or otherwise acquire such
shareholder's portion of the shares described in the Offer Notice in proportion
to their respective ownership of shares (determined as described in Section
2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold after
compliance with the procedures set forth in this Section 2.c., the Company shall
have the final option for ten (10) days to purchase or otherwise acquire all of
the remaining shares proposed to be transferred for an amount equal to the
applicable portion of the Option Price. If, however, the Company and the other
shareholders do not individually or collectively elect to purchase all of the
shares being offered, the Transferring Shareholder may, within thirty (30) days
after the expiration of the Other Shareholder Election Period (subject to the
provisions of Section 2.c.vi. below), transfer all of the shares specified in
the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the transferee shall have the
rights and obligations set forth in this Agreement hereunder with respect to
such shares. If the Transferring Shareholder fails to consummate such transfer
within the thirty-day period after the expiration of the Other Shareholder
Election Period, any transfer of the shares thereafter shall again be subject to
the provisions of this Section 2.c.
v. Unless otherwise agreed in writing, signed by the person against whom
such writing is sought to be enforced, the closing of any acquisition of common
shares hereunder pursuant to the Company's Option or a Shareholder's Option
shall take place within forty-five (45) days of an applicable option's exercise.
If any such closing does not take place within such forty-five day period, then
the shares that were to be acquired shall be offered in accordance with this
Section 2.c. as though the applicable option had not been exercised.
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vi. Notwithstanding the foregoing provisions of this Section 2.c., the
following shall apply in the event of any Involuntary Transfer of common shares.
An "Involuntary Transfer" shall mean any transfer caused by the death of a
shareholder, as well as any transfer, proceeding or action by, through, as a
consequence of, or in which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the common stock of the Company,
including, without limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant to a filing of a
voluntary or an involuntary petition under the United States Bankruptcy Code, or
any amendments, modifications, revisions or successors statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in bankruptcy or
receiver or other officer or agency, any transfer to a state or to a public
officer or agency pursuant to any statute pertaining to escheat or abandoned
property, any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
In the event of any Involuntary Transfer, the Company shall give written
notice to each shareholder upon the occurrence, or prospective occurrence, of
such Involuntary Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective occurrence of such
Involuntary Transfer. The foregoing provisions of this Section 2.c. then shall
apply, except (i) the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable to the Company, Purchaser, and the
shareholder who made, or may make, the Involuntary Transfer, multiplied by the
percentage of all equity interests in the Company that is then represented by
the shares that are the subject of the Involuntary Transfer, such independent
appraised value to take into
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<PAGE> 7
account the earnings and book value of the Company, and (ii) the appraiser shall
deliver written notice of such valuation to the Company and to all other
shareholders promptly following his completion of such valuation, and such
written notice shall be considered the Option Notice for purposes of this
Section 2.c. The cost of the appraisal shall be shared equally by the Company
and the shareholder who made, or may make, the Involuntary Transfer.
At the closing of any purchase by the Company or any shareholders
pursuant to this Section 2.c.vi., the involuntary transferee shall deliver
certificates representing the common shares being purchased, duly endorsed for
transfer and accompanied by all requisite stock transfer taxes, and such shares
shall be conveyed free and clear of any liens, claims, options, charges,
encumbrances or rights of others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall so represent and
warrant. The involuntary transferee shall further represent and warrant that he
is the beneficial owner of such shares.
In the event the provisions of this Section 2.c.vi. shall be held to be
unenforceable with respect to any particular Involuntary Transfer of common
stock, or if all of the shares subject to the Involuntary Transfer are not
purchased by the Company and/or one or more shareholders, and if the involuntary
transferee subsequently desires to transfer such common stock, the involuntary
transferee shall be deemed to be a "Transferring Shareholder" under Section 2.c.
and shall be bound by the other provisions of this Agreement.
vii. Notwithstanding anything to the contrary contained in this Section
2.c., no shareholder shall transfer any common shares at any time if such action
would constitute a violation of any federal or state securities laws or a breach
of the conditions to any exemption from registration of the shares under any
such laws or a breach of any undertaking or agreement of such shareholder
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<PAGE> 8
entered into pursuant to such laws or in connection with obtaining an exemption
thereunder. Each shareholder agrees that any shares purchased or acquired by
such shareholder shall bear appropriate legends restricting the sale or other
transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common Shares.
i. In the event that the Company registers any of its common stock or
other securities under federal and state securities laws for a primary offering
or a secondary offering by the Company or any of the officers or directors of
the Company who are also shareholders (a "Management Shareholder"), Purchaser
shall have piggy-back registration rights to include all common stock then owned
by Purchaser (collectively, the "Purchaser's Common Shares"), in any such
offering on a pro rata basis. The Company shall give Purchaser notice of such
proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written request of Purchaser delivered to the
Company within twenty (20) days after the receipt of the notice from the
Company, which request shall state the number of Purchaser's Common Shares that
Purchaser wishes to sell or distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall use its best efforts to
register Purchaser's Common Shares, and to cause such registration to become and
remain effective so long as the Company keeps such registration effective as to
any other common stock of the Company. Purchaser's Common Shares registered
pursuant to this Section 2.d.i. must be purchased and offered for sale by a bona
fide underwriter or underwriters in a public offering on a firm commitment
basis. The Company's managing underwriter shall have the right to limit in whole
or in part the total number of Purchaser's Common Shares to be sold hereunder,
so long as such limitation is applied on a pro rata basis with
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<PAGE> 9
respect to all shares proposed or requested to be registered by the Company and
all shareholders. The expenses of any such offering shall be borne by the
Company, except for Purchaser's pro rata share of any underwriter's discount or
sales agent's commission.
ii. At any time after the third anniversary of the Closing Date,
Purchaser may require the Company, at the Company's expense, to register up to
two (2) primary or secondary offerings of the Company's common stock (including
Purchaser's Common Shares) to the extent legally permissible; provided, however,
that if such demand is made prior to the fifth anniversary of the Closing Date,
the Company shall not be obligated to register any such offering unless the
gross proceeds of such offering, when added to the gross proceeds of any
previous public offering of the Company's common stock (in each case gross
proceeds shall be calculated before deduction of underwriting discounts and
expenses of sale), exceeds $50,000,000. Purchaser shall give the Company written
notice of any exercise of this right, and the Company shall have up to one (1)
year from the date of receipt of such notice to effect such registration.
iii. If, in connection with any registration under this Section 2.d, any
of the common shares of Company stock require registration or qualification
under the securities or "blue sky" laws of any state, or the approval of any
state governmental official or authority, the Company shall take all requisite
action and use its best efforts to cause such shares to be duly registered,
qualified or approved as may be required. If any shares meet the criteria for
listing on any exchange on which such stock of the Company is then listed, the
Company shall apply for and use its best efforts to obtain a listing of all such
shares on such exchange.
iv. Except as provided in Section 2.d.i. above, the Company shall pay
all of the expenses in connection with the registration of any shares of Company
stock, including, without
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limitation, the costs of preparing, printing and filing the registration
statement in compliance with the 1933 Act, the fees and expenses of counsel and
accountants for the Company, Management Shareholders and Purchaser for
qualifying the offering under the securities or "blue sky" laws and regulations
of the state in which the offering is qualified.
e. Sale of the Company.
i. At any time after the third anniversary of the Closing Date, and
before the consummation of a Purchaser Approved Offering, if a bona fide offer
is made by any person (other than Purchaser, or any person or entity related to
or affiliated with Purchaser), to purchase all or substantially all of the
assets or shares of stock of the Company, and Purchaser gives the Company
written notice that it desires such offer to be accepted, the Company and its
shareholders shall either accept the offer and consummate the sale on the terms
and conditions of the offer, or the Company shall acquire all the equity
interests owned by Purchaser in the Company on the same terms and conditions as
the offer; provided, however, that if such offer is made prior to the fifth
anniversary of the Closing Date, the Company shall have no such obligation
unless the total consideration of such offer is at least $50,000,000.
In determining the total consideration for purposes of the foregoing, any
deferred payment shall be discounted to present value at a discount rate of
eight percent (8%) per annum. If the total consideration set forth in the offer
includes anything other than cash and/or marketable securities (the "Non-Cash
Consideration") then the Company, at its option, may acquire Purchaser's equity
interests for the product of (a) either (i) the Non-Cash Consideration specified
or (ii) cash in the amount of the fair market value of the total consideration
set forth in the offer, multiplied by (b) the percentage of all outstanding
equity interests of the Company that then is owned by Purchaser. In the event
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Purchaser and the Company cannot agree on the fair market value of such Non-Cash
consideration, such fair market value shall be as agreed by the parties'
respective accountants, and if such accountants cannot agree within twenty (20)
days of the date the dispute is referred to them, the dispute shall be promptly
referred to arbitration pursuant to Section 13 below. The foregoing procedures
are hereinafter referred to as the "Accountants' Procedures."
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's equity
interests, the Company shall acquire Purchaser's equity interests for cash
within ninety (90) days from the date of Purchaser's written notice.
ii. At any time before the consummation of a Purchaser Approved
Offering, if any assets or stock of the Company is sold for any reason, or if
the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, before any distribution
to shareholders, a priority distribution equal to the product of (1) the sum of
(a) all payments made to a Management Shareholder in consideration of any
covenant not to compete or consulting agreement, plus (b) the component of any
compensation to a Management Shareholder for employment services that is in
excess of the prevailing industry average compensation, paid by companies that
are similar to the company that will be making the payments to the Management
Shareholder, for the management
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responsibilities actually to be performed by the Management Shareholder, as such
average compensation is mutually agreed between the Company, the Management
Shareholder and Purchaser, or if they cannot agree, then as determined by a
current survey of total compensation conducted by a qualified representative of
a nationally recognized investment banking or accounting firm mutually agreeable
to the Company, the Management Shareholder, and Purchaser, multiplied by (2) the
percentage of all equity interests in the Company that is then owned by
Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii. shall
be paid on the same schedule as the Management Shareholder Payments are received
by the Management Shareholder. If the Company has insufficient funds to pay the
portion of the priority distribution that is due at the time a Management
Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
f. Right of Co-Sale. In addition to the rights set forth in Section 2.c, at
any time prior to the consummation of a Purchaser Approved Offering, Purchaser
shall have the right to participate pro rata to the full extent of its equity
interest in the Company in any sale or transfer of stock, other than a gift,
charitable donation or other sale or transfer representing less than One Percent
(1%) of the Company's outstanding common stock, by the Company or any
shareholder of the Company.
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g. Rights of Class B Shares on Liquidation, Dissolution or Winding Up.
The following provisions shall apply until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding Class B Shares:
i. In the event of any liquidation, dissolution or winding up of the
Company (including without limitation a liquidation or reorganization under
Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as may
hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holder of Class
B Shares then outstanding shall be entitled to be paid out of the assets of the
Company available for distribution to its shareholders (before any payment shall
be made to the holders of any shares of any other class of stock of the Company)
an amount equal to the stated value of $1.00 (subject to appropriate adjustment
for stock dividends, stock splits, combinations, and similar recapitalizations
affecting the Class B Shares) per Class B Share (the "Stated Value"), with such
amount to be calculated as of the date of such payment.
ii. If, upon any Liquidation, the assets of the Company available for
distribution to its shareholders shall be insufficient (a "Liquidation
Insufficiency") to pay the holder of the Class B Shares the full amount to which
it shall be entitled pursuant to Section 2.g.i., the holder of the Class B
Shares shall be entitled to receive all the assets of the Company available for
distribution to its shareholders.
iii. If there is no Liquidation Insufficiency and payment shall have
been made to the holder of the Class B Shares of the full amount to which it is
entitled, the holder of the Class B Shares shall then be entitled to share in
all remaining assets and funds of the Company ratably in proportion to the
number of shares of Company common stock held by such holder.
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iv. Unless such transaction is approved by the directors elected by the
holder of the Class B Shares, the merger or consolidation of the Company into or
with another corporation in which the stockholders of the Company shall own less
than Fifty Percent (50%) of the voting securities of the surviving corporation
or the sale, transfer or lease (but not including a transfer or lease by pledge
or mortgage to a bona fide lender) of all or substantially all of the assets of
the Company shall be deemed to be a Liquidation as such term is used in this
Section 2.g. The amount deemed distributed to the holder of Class B Shares upon
any such merger or consolidation shall be the cash or the value of the property,
rights or securities distributed to such holder by the acquiring person, firm or
other entity. The value of such property, rights or other securities shall be
determined by a competent independent appraiser mutually agreed upon by the
holder of the Class B Shares and the Company. The Company shall, upon receipt of
such appraiser's valuation, give prompt written notice to the holder of Class B
Shares of the appraiser's valuation. The fees of such appraiser shall be shared
equally by the Company and the holder of the Class B Shares.
v. The Company's Articles of Incorporation shall contain provisions
consistent with this Section 2.g. until the earlier of (i) the consummation of a
Purchaser Approved Offering, or (ii) the redemption or conversion of all
outstanding Class B Shares.
i. Representation on the Board of Directors. Until a Purchaser Approved
Offering has been consummated or Purchaser no longer owns any equity interest in
the Company, there shall be, and the Company's Articles of Incorporation shall
provide for, at least five (5) members on the Company's Board of Directors, two
(2) of whom shall be elected by the holders of the Company's Class B Common
Stock voting as a class, and the remainder of whom shall be elected by the
holders of the Company's Class A Common Stock voting as a class. The holders of
the Company's Class B
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Common Stock shall have the right to remove and replace two (2) members of the
Board at any time, and the holders of the Company's Class A Common Stock shall
have the right to remove and replace the remaining members of the Board at any
time. The Company shall pay each director elected by the holders of the Class B
Common Stock a fee of Two Thousand Five Hundred Dollars ($2,500.00) for
attendance at each meeting of the Board of Directors. Board meetings will occur
at least quarterly, with the first meeting to be held on June 3, 1997.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In connection with the purchase of the Class B Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now conducted. The Company is duly qualified and
in good standing as a foreign corporation authorized to do business in each of
the jurisdictions in which the failure to be so qualified would have a material
adverse effect on the Company and has delivered to Purchaser a good standing
certificate for each such jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
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b. Capital Stock. The authorized capital stock of the Company consists of
Five Million (5,000,000) shares of Class A Common Stock, no par value per share,
of which Nine Hundred Twenty Five Thousand (925,000) shares are duly and validly
issued and outstanding, fully paid and non-assessable, and Five Million
(5,000,000) shares of Class B Common Stock, no par value per share, of which no
shares are duly and validly issued and outstanding, fully paid and
non-assessable.
All of the outstanding stock of the Company is owned by the Shareholders.
The Company does not have any other shares, classes of shares or other debt or
equity securities which are authorized, issued or outstanding. None of the stock
has been issued in violation of any preemptive rights.
The Class B Shares are duly authorized and upon issuance to the Purchaser
shall be validly issued to Purchaser, free and clear of all liens or rights of
any nature whatsoever, and without violation of any preemptive rights. Except
for the options described in Section 1.a. above, there are no outstanding
subscriptions, options, rights, warrants, calls, convertible securities or other
rights, agreements or commitments which obligate the Company to issue, call,
repurchase, redeem or transfer any of its capital stock, or that restrict the
transfer of or otherwise relate to the Company's capital stock.
c. Business. The Company is engaged primarily in the business of hardware
and service sales, Internet access, communications networking and related
consulting.
d. Investments. The Company does not own or have, directly or indirectly,
any material interest or investment (whether as equity or debt) in, or own any
of the capital stock of, any corporation, partnership, joint venture, business,
trust or other entity.
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e. Authority. The Company has all requisite power and authority to execute
and deliver this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary corporate actions
of the Board of Directors and shareholders of the Company. This Agreement is a
valid and binding obligation of the Company, enforceable against it in
accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization of,
or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby or thereby.
g. No Violation. Neither the execution and delivery of this Agreement, nor
the consummation by the Company of the transactions contemplated hereby, shall
(a) conflict with the Organizational Documents of the Company, (b) violate or
constitute a default under any contract or other agreement to which the Company
is a party or by which the Company is bound, (c) violate any law, rule or
regulation of any state or of the United States or any judgment, decree, order,
regulation or rule of any court or any governmental or regulatory authority, or
(d) result in or require the creation of any lien or other encumbrance upon or
with respect to the Class B Shares or any of the assets or other securities of
the Company.
h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1995 and December 31, 1996 (the
"Financial Statements"). To the best
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knowledge of the Company, the Financial Statements have been prepared in
conformity with GAAP, and fairly and accurately reflect the financial condition
of the Company as of the respective dates thereof in conformity with GAAP. To
the best knowledge of the Company, all interim financial statements for periods
after December 31, 1996 that have been, or pursuant to Section 5.c below will
be, delivered to Purchaser, have been and will be prepared in conformity with
GAAP, and fairly and accurately reflect the financial condition of the Company
as of the respective dates thereof in conformity with GAAP.
The Company does not have any debts, liabilities or other obligations of
any nature (whether contingent or fixed, accrued or not accrued, liquidated or
not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except as disclosed on Schedule
3.h., the Company is current on all debts, accounts payable and lease payments
as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent Financial
Statements there has been no material adverse change in the condition, financial
or otherwise, assets, liabilities or business of the Company, nor has there been
any event or condition of any character that has or may in the future materially
and adversely affect the business or prospects of the Company. Since the date of
the most recent Financial Statements there has been no dividend or other
distribution or
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payment in respect of the stock of the Company; provided, however, that the
Company has redeemed 50,000 shares of the Company's Common Stock for $0.33 per
share.
j. Taxes. The Company has paid or made adequate provision for payment of
all federal, state and local income, payroll, sales, property and other taxes,
assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may become due
with respect to any period ending on or prior to the Closing Date, and has filed
all required tax returns and reports which are required to be filed. No tax
deficiency has been asserted, proposed or threatened against the Company for
taxes for the current year or for any prior period which has not been fully
settled or paid, nor has any issue been raised by the Internal Revenue Service
or any other taxing authority which reasonably can be expected to result in a
deficiency for any period. The Company's tax returns have never been audited,
nor has the Company received any notice of a planned audit or any communication
that would lead a reasonable person to believe that an audit is currently being
considered by a tax authority.
k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially and adversely affects the Company,
and the Company is not aware of any breach by any other party to any of the
Contracts. The terms of all Contracts are in all material respects arm's length
terms.
l. Property. Except for the property leased pursuant to the leases listed
on Schedule 3.l. (copies of which have been provided to Purchaser), and the
liens described on Schedule 3.1, the Company has good and marketable title to
all real and personal property reflected on the Financial Statements, and to all
assets acquired since the date of the most recent Financial Statements, free and
clear of any material liens, claims or encumbrances, except for liens for taxes
not yet due and payable
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and inventory which has either been used or consumed or has been sold in the
ordinary course of business. To the best of the Company's knowledge, there are
no material assets used by the Company in the conduct of its business which are
not either owned by the Company or leased to the Company under one of the leases
described in Schedule 3.l.
m. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is there any basis for any such action,
before any federal, state, local, or other court or governmental authority, nor
to the best of the knowledge of the Company, has any such action been
threatened, (i) against the Company or (ii) against any of the officers or
directors of the Company. The Company has delivered to Purchaser a true and
correct copy of the pleadings in all lawsuits in which the Company is a party.
The Company does not know of any judgment, order, writ, injunction, decree or
award that has been issued by, or requested of, any court, administrative or
governmental agency, arbitrator or other authority which does or may result in
any material adverse change in the business, properties, assets or financial
condition of the Company.
n. Compliance with Laws. The Company is in substantial compliance, and at
all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to franchising; state and federal securities
laws; and laws and regulations requiring licenses or permits (including, without
limitation, permits relating to the handling or discharge of Hazardous
Materials)
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or the payments of taxes. The Company has not received any notice asserting any
noncompliance. The Company has all licenses, permits and approvals necessary for
the conduct of its business. The Company has not granted a license or other
right to use any tangible or intangible assets used in or related to the
business. From the Company's inception, none of the Company's directors or
officers have been arrested or convicted of any material crime, nor have any of
them been bankrupt or served as an officer or director of a bankrupt company.
o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company nor any
property owned or operated by the Company has been or is in violation of, nor
does the Company have any liabilities under, any Environmental Law (as defined
in Section 3.o.iii.). To the best of the Company's knowledge, there are no
actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from any Environmental Agency (as defined in Section 3.o.v.),
instituted, pending, or threatened, relating to any liability under any
Environmental Law of the Company or respecting any property owned or operated by
the Company.
ii. To the best of the Company's knowledge, no Hazardous Materials (as
defined in Section 3.o.iv.) have been generated, treated, stored or disposed of
at, or transported to or from, any properties owned or operated by the Company
at any time, except in compliance with applicable Environmental Laws. To the
best of the Company's knowledge, no friable asbestos containing material is in
use, or is or has been stored or disposed of, on or upon any properties owned or
operated by the Company. To the best of the Company's knowledge, no
polychlorinated biphenyls ("PCBs") are located on or in any properties owned or
operated by the Company in any form or
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device, including, without limitation, in the form of electrical transformers,
fluorescent light fixtures with ballasts, or cooling oils, except in compliance
with applicable Environmental Laws. To the best of the Company's knowledge, no
underground storage tanks are located on any properties owned or operated by the
Company or were located on any properties owned or operated by the Company and
subsequently removed or filled.
iii. "Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Environmental Agency relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the usage, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release, or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
iv. "Hazardous Materials" means solid waste (as that term is defined
under the Resource Conservation and Recovery Act, 42 U.S.C.A. Section 6901 et
seq. ("RCRA"), and the regulations adopted pursuant to RCRA), hazardous waste
(as that term is defined under RCRA and the regulations adopted pursuant to
RCRA), hazardous substances (as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601
et seq. ("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including,
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without limitation, any solid, liquid, gaseous or thermal irritant or
contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or chemicals.
v. "Environmental Agency" means the United States Environmental
Protection Agency, any state agency in a state where the Company owns or
operates properties which is similar in jurisdiction to the United States
Environmental Protection Agency, or any other federal, state or local agency
responsible for regulating or enforcing laws, rules, regulations and ordinances
relating to (i) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release,
or disposal of any substance presently listed, defined, designated or classified
as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, whether
by type or by quantity, including any material containing any such substance as
a component.
p. Intellectual Property. The Company is the sole and exclusive owner of,
or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service mark, trade name, trade secret,
copyright, patent, franchise or other intangible property right of another.
Except as set forth on Schedule 3.p.,
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the Company is not required to pay any royalty, license fee, commission or other
payment to any person or entity with respect to any trademark, service mark,
trade name, trade secret, copyright, patent, franchise or other intangible
property. The Company has not granted any person or entity the right to use any
of the Company's trademarks, service marks, trade names, trade secrets,
copyrights, patents, technology or other intangible property, nor is it aware of
any such use by another person or entity.
q. Insurance. Schedule 3.q. contains a true and correct list, together with
copies of certificates or cover pages, of all policies of insurance owned and/or
maintained by the Company. All physical properties and assets of the Company are
covered by fire and other insurance against casualty loss customarily covering
properties and assets of comparable businesses in this region, in amounts which
are reasonable in light of existing replacement costs. The Company maintains
general liability, workers' compensation and other usual types of insurance in
reasonable amounts. The Company is not now in default regarding the provisions
of any policy of insurance, and has not and shall not have failed to give any
notice or present any claim thereunder in due and timely fashion.
r. Books and Records. To the best of the Company's knowledge, the books and
accounts and other corporate records of the Company are complete and correct in
all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all applicable laws relating to the employment of labor,
including without limitation any provisions
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thereof relating to wages and hours, discrimination due to age, religion, sex,
national origin, disability or immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with information as to any bonus, incentive, insurance,
compensation plan, welfare, retirement, defined benefit, 401(k), pension, profit
sharing, salary reduction, deferred compensation, stock purchase, stock option,
vacation, holiday and sick pay or other similar benefit plans (said plans being
referred to as the "Plans") in which any such employees of the Company
participate. All obligations of the Company, whether arising by operation of
law, by contract or by past custom, for payment by it to trusts, retirement
plans or other funds or any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other benefits for
employees of the Company have been paid or shall be paid by the Company at the
time the Company is obligated to make such payments. All benefits payable
directly to the Company's employees have been paid or shall be paid by the
Company at the time the Company is obligated to make such payments. All
reasonably anticipated obligations of the Company, whether arising by operation
of law, by contract or by past custom, for vacation and holiday pay, bonuses and
other forms of compensation or benefits which are or may become payable to
employees or any of them have been paid, or shall be paid, in accordance with
the provisions of applicable laws, regulations, benefit plans or policies.
t. Broker Fee. All broker, finder or professional fees associated with the
transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and except as otherwise stated herein, shall be
paid by the Company as and when due.
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u. Customers and Suppliers. The Company does not know of any customer or
supplier of the Company who intends to terminate or reduce its business with the
Company, whether as a result of this Agreement or otherwise. The Company is not
bound by any concession or arrangement with any customer or supplier which is
outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents with respect to the Plans, including, but not limited to,
each of the following documents: (i) a copy of the Plan and each related trust
or other funding agreement, including insurance contracts (and all amendments
thereto) (ii) the last filed Form 5500; (iii) the most recent determination
letter received from the United States Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"); and (iv) the summary plan
descriptions and all material modifications thereto, have been delivered to
Purchaser.
All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
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The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other than for the payment of premiums) to the PBGC has been or is
expected to be incurred by the Company or any officer, director, shareholder or
employee of the Company with respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder, director,
officer, agent, employee or other person associated with or acting on the
Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the Company; or made any bribe,
rebate payoff, influence payment, kickback or other unlawful payment to any
person or entity, private or public, regardless of form, whether in money,
property, or services, to obtain favorable treatment in securing business or to
obtain special concessions or to pay for favorable treatment for business
secured or for special concessions already obtained.
x. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to
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Purchaser in this Agreement, in the light of the circumstances under which they
were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class B Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
a. Organization. Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of North Carolina.
b. Authority. Purchaser has all requisite power and authority to execute
and deliver this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary action of
Purchaser. This Agreement is a valid and binding obligation of Purchaser,
enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement, nor
the consummation by Purchaser of the transactions contemplated hereby, shall (i)
conflict with the Articles of Organization or Operating Agreement of Purchaser,
(ii) violate or constitute a default under any contract or other agreement to
which Purchaser is a party or by which Purchaser is bound, or (iii) violate any
law, rule or regulation of any state or of the United States or any judgment,
decree, order, regulation or rule of any court or any governmental or regulatory
authority, which would have a material adverse effect on the Company or the
transactions contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization of,
or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement
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<PAGE> 29
or the consummation by Purchaser of the transactions contemplated hereby or
thereby, except to the extent obtained by Purchaser prior to Closing or to the
extent that their failure to be obtained would not have a material adverse
effect on the Company or the transactions contemplated hereby.
5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in the
ordinary course and, without the prior written consent of Purchaser, except in
the ordinary course of business, shall not enter into, or permit the Company or
any assets of the Company to become bound by or subject to, any Contract, and
(b) shall continue to manage the inventories, accounts receivable, accounts
payable and payroll of the Company in accordance with past practice in the
ordinary course of business. The Company shall promptly notify Purchaser of any
actions or proceedings of the type described in Section 3.m.
b. Corporate Examination and Investigations. Purchaser, shall be entitled,
through its employees and representatives, including, without limitation,
Purchaser's counsel and accountants, on a reasonable basis, to make such
investigation of the assets, properties, business and operations of the Company
and such examination of its books, records and financial condition, as Purchaser
wishes. Any such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances and the Company shall cooperate fully
therein. No such investigation undertaken by Purchaser shall relieve the Company
of any liability hereunder. In order that Purchaser may have full opportunity to
make such business, accounting and legal review, examination or
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<PAGE> 30
investigation, the Company shall make available at its principal office to the
representatives of Purchaser during such period all such information and copies
of such documents concerning the affairs of the Company as such representatives
may reasonably request and shall cause the officers, employees, consultants,
agents, accountants and attorneys of the Company to cooperate fully with such
representatives in connection with such review and examination. The information
obtained by Purchaser shall remain confidential and shall be disclosed only to
the officers, employees managers, members, prospective members and
representatives of Purchaser.
c. Delivery of Financial Materials. The Company shall deliver to Purchaser
(i) within thirty (30) days of the end of each month, monthly year-to-date
financial statements prepared in accordance with GAAP (including profit and
loss, cash flow, and balance sheet) and certified by the Company's chief
financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an outside accounting firm
designated by the Company and reasonably acceptable to Purchaser and (b)
projections for the next year in the same format as the financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the following
documents or information as applicable: (i) within thirty (30) days after
filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the
30
<PAGE> 31
Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Purchaser. Such insurance coverage shall include,
without limitation, directors' and officers' liability insurance.
f. Use of Proceeds. The Company will use the proceeds from the issuance of
the Class B Shares hereunder to refinance existing indebtedness to Eric
Chancellor (approximately $400,000) and a portion of the Company's existing bank
indebtedness, and to provide working capital to develop existing and future
projects.
6. FOREBEARANCES OF THE COMPANY
Except with the prior written consent of Purchaser, or the affirmative vote
of the directors elected by the holder of the Class B Shares, between the date
hereof and the consummation of a Purchaser Approved Offering or sale by
Purchaser of all of its equity interests in the Company, the Company shall not:
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement , lease or commitment
not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of One
Percent (1%) of the outstanding shares of the Company (except pursuant to the
exercise of options described in
31
<PAGE> 32
Section 1.a above, or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), or create any new
class or series of securities;
d. issue, grant or authorize any options (except options described in
Section 1.a above, or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of One Percent (1%)
of the outstanding shares of the Company, or redeem any outstanding shares of
the Company representing, in the aggregate, in excess of One Percent (1%) of the
outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization or create any subsidiary; or liquidate,
sell or otherwise dispose of any assets or acquire any assets, other than in the
ordinary course of its business consistent with past practice;
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's Board of
Directors, any shareholder, or any other individual officer of the Company,
unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus to,
or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner
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<PAGE> 33
consistent with past practice and approved by the Compensation Committee of the
Company's Board of Directors;
j. change the location or nature of its business operations or invest any
funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment for
the benefit of creditors;
l. agree to do any of the foregoing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated the
Closing Date and signed by the President and the Secretary or Treasurer of the
Company, to the effect that the applicable conditions set forth in this Section
have been satisfied.
33
<PAGE> 34
d. The Company shall have delivered a certificate to Purchaser, dated the
Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
i. Purchaser shall have completed its due diligence of the Company, the
Company's management, the Company's internal controls and the Company's
industry, with satisfactory results as determined in the sole discretion of
Purchaser.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
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<PAGE> 35
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. Purchaser shall have performed in all material respects all obligations
and complied with all covenants required by this Agreement to be performed or
complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated the
Closing Date and signed by the President and the Secretary or Treasurer of the
general partner of Purchaser, to the effect that the applicable conditions set
forth in this Section have been satisfied.
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
9. EXPENSES
At Closing, the Company shall pay a closing fee of $35,000 which shall
cover all reasonable out-of-pocket costs and expenses (including, without
limitation, legal, accounting and consulting fees)
35
<PAGE> 36
incurred by Purchaser in connection with its due diligence and the negotiation,
preparation, execution and performance of this Agreement and the transactions
contemplated hereby.
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to indemnify,
defend and hold harmless Purchaser against and in respect of any and all claims,
demands, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including, without limitation, interest, penalties and reasonable
attorneys' fees ("Losses"), which directly or indirectly arise, result from or
relate to the breach by the Company of, or the failure by the Company to comply
with or perform, the Company's representations, warranties, covenants or
agreements contained in this Agreement. To compensate Purchaser for the
reduction in the capitalization of the Company as the result of any
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such that, following the indemnification
payment, Purchaser would be in the same position as if the shareholders of the
Company (other than Purchaser) had made such indemnification payment to
Purchaser directly.
b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11, as follows:
36
<PAGE> 37
i. At any time on or prior to the Closing Date, by the mutual written
consent of the Company and Purchaser;
ii. At any time on or prior to the Closing Date, by Purchaser in
writing, if the Company has, or by the Company in writing if Purchaser has, in
any material respect, breached (i) any covenant or undertaking contained herein
or (ii) any representation or warranty contained herein, and in the case of (i)
and (ii) if such breach has not been cured by the earlier of ten (10) days after
the date on which written notice of such breach is given to the party committing
such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company in writing,
if any of the conditions precedent to the obligations of such party to
consummate the transactions contemplated hereby have not been satisfied or
fulfilled; or
iv. By either Purchaser or the Company in writing, if the Closing Date
has not occurred by the close of business on April 15, 1997.
b. Effect of Termination. In the event the Company terminates this
Agreement, Purchaser was prepared to close on or before April 4, 1997, and on or
before March 11, 1998 the Company completes, with another person or entity, a
transaction similar to the transaction contemplated herein, the Company hereby
agrees to pay to Purchaser a fee in the amount of Fifty Thousand Dollars
($50,000) and will reimburse Purchaser for its actual expenses incurred in
connection with the transaction contemplated by this Agreement. In the event of
a termination of this Agreement for any other reason, each party may seek any
remedies available to it, including claims for damages, specific performance or
injunctive relief.
12. CLAIMS FOR INDEMNIFICATION
37
<PAGE> 38
Any claim for indemnification which is based upon a final judgment, decree
or award of a court of competent jurisdiction requiring the payment of money by
any party to this Agreement or any of its officers, directors or controlling
persons, shall be conclusive as to the amount of such claim, provided a
certified copy of such judgment, decree or award accompanies the notice relating
to such claim and provided further that the party seeking indemnification shall
have complied with Section 14 of this Agreement.
Any claim for indemnification shall be conclusive in all respects thirty
(30) days after receipt by the other party of notice thereof, unless within such
period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
38
<PAGE> 39
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration Association. Judgment upon the award by
the arbitrator may be entered in any court having jurisdiction thereof. As part
of such award, the arbitrator shall be promptly paid by the party that initiates
the proceeding, but the portion of each such fee and expenses which represents
the same percentage thereof as the percentage of the amount of the claim
represented by the amount awarded shall be added to the amount of the award and
shall be borne by the indemnifying party. Any award shall be a conclusive
determination of the matter and shall be binding upon Purchaser and the Company
and shall not be contested by either of them. Arbitration proceedings shall be
held in the city of Dover, Delaware unless the parties agree upon another
location. In any such action the prevailing party, in the judgment of the
arbitrator, shall be entitled to an award of its costs and attorneys' fees
incurred in the action.
14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any claim or
demand shall be asserted, by any third party in respect of which indemnity may
be sought by Purchaser or the Company pursuant to the provisions of this
Agreement, the party seeking indemnification, with reasonable promptness after
obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the
39
<PAGE> 40
prior written consent of the party seeking indemnification, which consent shall
not be unreasonably withheld, the indemnifying party shall not consent to the
entry of any judgment in or agree to any settlement of any such matters; and
provided further that the party seeking indemnification may retain counsel, at
its own expense, to represent it and participate in connection with any such
proceeding or claim or demand. Failure by the indemnifying party to notify the
party seeking indemnification of the indemnifying party's election to defend any
proceeding, claim or demand with respect to which indemnity is sought within
thirty (30) days after notice thereof shall have been given by the party seeking
indemnification shall be deemed a waiver by the indemnifying party of its right
to defend against such matter. If the indemnifying party assumes defense of any
such proceeding, claim or demand, it shall take or cause to be taken all steps
necessary in connection with such defense, and the party seeking indemnification
shall in all events be entitled to indemnity with respect to such matter, as
provided in this Agreement. In the event that the indemnifying party does not
elect to defend any proceeding, claim or demand with respect to which indemnity
is sought, the party seeking indemnification may defend against, settle or
otherwise deal with any such proceeding, claim or demand in such matter as it
may in its good faith discretion deem appropriate and the indemnifying party
shall be liable for indemnification with respect to such matter, including
without limitation the reasonable costs of such defense, as provided in this
Agreement. In the event of any proceeding, claim or demand by a third party with
respect to which a claim for indemnification is made hereunder, the parties
hereto agree that they will cooperate fully with each other in connection with
the defense or settlement of such matter.
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<PAGE> 41
15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No waiver shall be binding unless
executed in writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be assigned by
any party hereto without the written consent of the other parties hereto,
provided, however, that Purchaser may assign any or all of its rights and
obligations hereunder to any person or entity to whom Purchaser transfers any of
the Class B Shares; provided, however, that the Purchaser shall be the sole
representative of any such transferee in dealing with all matters pertaining to
this Agreement. This Agreement shall be binding on, and inure to the benefit of,
the parties to it and their respective legal representatives, successors and
permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or other
communications hereunder shall be in writing and shall be effective (a) when
personally delivered by courier or
41
<PAGE> 42
otherwise to the party to be given such notice or other communication, or (b) on
the business day following the day such notice or other communication is sent by
telex, facsimile or similar electronic device, fully prepaid, which telex,
facsimile or similar electronic communication shall promptly be confirmed by
written notice or (c) on the fifth day following the date of deposit in the
United States mail if such notice or other communication is sent by certified or
registered air mail (or its equivalent) with return receipt requested and
postage thereon fully prepaid. The addresses for such notices shall be as
follows:
If to Purchaser:
I3S Funding I, L.L.C.
c/o Geneva Associates, L.L.C.
P. O. Box 21962
Suite 2100, First Union Tower
300 N. Greene Street (27401)
Greensboro, North Carolina 27420
Attention: Tracy S. Turner and Russell R. Myers
Facsimile: (910) 274-4984
With a copy to:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Post Office Box 26000
230 N. Elm Street, Suite 2000 (27401)
Greensboro, North Carolina 27420
Attention: Marc D. Bishop
Facsimile (910) 378-1001
If to the Company:
I 3S, Inc.
1330 River Bend, Suite 600
Dallas, Texas 75247
Attention: President
Facsimile: (214) 631-5480
42
<PAGE> 43
With a copy to:
Clay C. Scott, Jr.
7501 Inwood Road
Post Office Box 7569
Dallas, Texas 75209
Facsimile: (214) 358-2851
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits and
other documents referred to herein which form a part hereof, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties,
covenants or understandings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by all of the parties hereto.
h. Headings; References. The headings appearing in this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement. All references herein to Sections, Exhibits and Schedules refer to
the Sections contained in, and the Exhibits and Schedules attached to, this
Agreement.
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<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
ATTEST: I 3S, INC.
/s/ illegible By: /s/ James R. Price
- -------------------------------- ---------------------------------------
James R. Price, President
I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Tracy Scott Turner
---------------------------------------
Tracy Scott Turner, Member-Manager
The Shareholders execute this Agreement solely for the purpose of agreeing
to the provisions of Section 2 hereof and waiving any and all preemptive rights
with respect to the issuance of the Class B Shares hereunder, which rights are
hereby waived.
/s/ James R. Price
---------------------------------------------
James R. Price
/s/ Gary A. Dobbins
---------------------------------------------
Gary A. Dobbins
/s/ Clay C. Scott, Jr.
---------------------------------------------
Clay C. Scott, Jr.
/s/ Charles Bo Price
---------------------------------------------
Charles Bo Price
/s/ George Venner
---------------------------------------------
George Venner
44
<PAGE> 1
EXHIBIT 4.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of March 31,
1998, is made and entered into between I3S FUNDING I, L.L.C., a North Carolina
limited liability company (the "Purchaser"); I 3S, INC., a Texas corporation
(the "Company"); JAMES R. PRICE, GARY A. DOBBINS, CLAY C. SCOTT, JR., CHARLES BO
PRICE, and GEORGE VENNER, the sole existing holders (other than the Purchaser)
of capital stock of the Company (the "Shareholders") who execute this Agreement
solely for the purpose of agreeing to the provisions of Section 2 hereof and
waiving any and all preemptive rights with respect to the issuance of the Class
B Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes
to sell to Purchaser, 124,461 shares of the Company's Class B Common Stock, no
par value per share (the "Class B Shares"), on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. SALE AND PURCHASE OF CLASS B SHARES; THE CLOSING
a. Sale and Purchase of Class B Shares. Subject to the terms and
conditions set forth in this Agreement, at the Closing provided for in paragraph
1.d. below, the Company shall sell to Purchaser, and Purchaser shall buy from
the Company, One Hundred Twenty-Four Thousand Sixty- One (124,461) Class B
Common Shares for an aggregate purchase price of One Million Five Hundred
Thousand Dollars ($1,500,000). The Class B Shares shall represent at the time of
issuance 6.0% of all outstanding common stock of the Company on a fully diluted
basis (i.e. calculated as if all
<PAGE> 2
outstanding options, warrants or other rights to acquire or purchase shares of
the Company's common stock, had been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver
the sum of One Million Five Hundred Thousand Dollars ($1,500,000) to the Company
by way of a wire transfer in complete payment for the Class B Shares.
c. Delivery of Stock Certificate. In consideration for Purchaser's
payment for the Class B Shares, at the Closing the Company shall deliver to
Purchaser a stock certificate representing the Class B Shares.
d. The Closing. The closing of the sale and purchase of the Class B
Shares contemplated hereby (the "Closing"), shall take place at the offices of
the Company, 1330 River Bend, Suite 600, Dallas, Texas, at 10:00 a.m. on March
31, 1998, or such other date and time as Purchaser and the Company shall
mutually agree in writing (the "Closing Date").
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS B SHARES
a. Voting. Except as provided in Section 2.i below, the Class B Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock.
b. Preemptive Rights. Until such time as a Purchaser Approved Offering
(as defined below) has been consummated or Purchaser has otherwise sold all of
its Class B Shares or other equity interests in the Company, Purchaser shall
have preemptive rights with regard to any future issuances of common stock of
the Company (other than an issuance of common stock pursuant to currently
outstanding options disclosed hereunder) permitting Purchaser to purchase
additional common shares pro rata at the same price and on the same terms and
conditions of such issuance.
2
<PAGE> 3
For purposes of this Agreement, a Purchaser Approved Offering shall mean the
consummation of an underwritten public offering of common stock of the Company
on the New York Stock Exchange, the American Stock Exchange, or The Nasdaq Stock
Market, Inc. pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of common stock of the Company to the public
at a price resulting in gross proceeds from such sale to the Company (before
deduction of underwriting discounts and expenses of sale) of not less than
$50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering , and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common stock unless such
shares shall have been offered for sale in writing first to the Company and then
to the other shareholders of the Company pro rata. In the event a shareholder
desires to transfer any common shares, the shareholder desiring to make such
transfer (the "Transferring Shareholder") shall deliver written notice (the
"Offer Notice") to the Company and to all other shareholders at least sixty (60)
days prior to the proposed transfer. The Offer Notice will disclose in
reasonable detail the proposed number of shares to be transferred, the proposed
transferee and the proposed price, terms and conditions of the transfer.
i. Upon receipt of the Offer Notice, the Company shall have
the option (the "Company's Option") for a period of thirty (30) days to purchase
or otherwise acquire all or part of the shares described in the Offer Notice for
an aggregate amount (such aggregate amount being hereinafter referred to as the
"Option Price") equal to the bona fide purchase price to be paid by the
3
<PAGE> 4
proposed purchaser as described in the Offer Notice (which amount shall be zero
if the proposed transfer would take the form of a gift or other gratuitous
transfer). The Company shall notify in writing all then current shareholders as
to whether it will exercise, partially exercise or not exercise the Company's
Option before the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully
exercise the Company's Option within thirty (30) days after receipt of the Offer
Notice, the remaining shareholders shall have the option (each a "Shareholder's
Option") for a period of ten (10) days from the earlier of (i) their receipt of
written notice from the Company of its decision not to exercise or to only
partially exercise the Company's Option, or (ii) the expiration of the Company's
Option (the "Other Shareholder Election Period"), to purchase or otherwise
acquire all or part of the remaining shares which the Company does not choose to
purchase pursuant to the Company's Option, in proportion to their respective
ownership of shares which, for purposes of such determination, shall include
without duplication all outstanding options, warrants or other rights owned by
such shareholders that are convertible into shares as of the date of such notice
from the Company (or the expiration of the Company's Option), for an amount
equal to the applicable portion of the Option Price. Each shareholder shall
notify in writing all then current shareholders as to whether such shareholder
will exercise, partially exercise or not exercise the shareholder's option
before the expiration of the Other Shareholder Election Period.
iii. For a period of ten (10) days from the earlier of (i) the
receipt by the other shareholders of a written notice from a shareholder that it
does not want to exercise its option or will only partially exercise its option,
or (ii) the expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise acquire such
shareholder's portion
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of the shares described in the Offer Notice in proportion to their respective
ownership of shares (determined as described in Section 2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold
after compliance with the procedures set forth in this Section 2.c., the Company
shall have the final option for ten (10) days to purchase or otherwise acquire
all of the remaining shares proposed to be transferred for an amount equal to
the applicable portion of the Option Price. If, however, the Company and the
other shareholders do not individually or collectively elect to purchase all of
the shares being offered, the Transferring Shareholder may, within thirty (30)
days after the expiration of the Other Shareholder Election Period (subject to
the provisions of Section 2.c.vi. below), transfer all of the shares specified
in the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the transferee shall have the
rights and obligations set forth in this Agreement hereunder with respect to
such shares. If the Transferring Shareholder fails to consummate such transfer
within the thirty-day period after the expiration of the Other Shareholder
Election Period, any transfer of the shares thereafter shall again be subject to
the provisions of this Section 2.c.
v. Unless otherwise agreed in writing, signed by the person
against whom such writing is sought to be enforced, the closing of any
acquisition of common shares hereunder pursuant to the Company's Option or a
Shareholder's Option shall take place within forty-five (45) days of an
applicable option's exercise. If any such closing does not take place within
such forty-five day period, then the shares that were to be acquired shall be
offered in accordance with this Section 2.c. as though the applicable option had
not been exercised.
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vi. Notwithstanding the foregoing provisions of this Section
2.c., the following shall apply in the event of any Involuntary Transfer of
common shares. An "Involuntary Transfer" shall mean any transfer caused by the
death of a shareholder, as well as any transfer, proceeding or action by,
through, as a consequence of, or in which a shareholder shall be deprived or
divested of any right, title or interest in or to any of the common stock of the
Company, including, without limitation, any seizure under levy, attachment or
execution, any transfer in connection with bankruptcy (whether pursuant to a
filing of a voluntary or an involuntary petition under the United States
Bankruptcy Code, or any amendments, modifications, revisions or successors
statutes thereto) or other court proceeding to a debtor-in-possession, trustee
in bankruptcy or receiver or other officer or agency, any transfer to a state or
to a public officer or agency pursuant to any statute pertaining to escheat or
abandoned property, any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
In the event of any Involuntary Transfer, the Company shall
give written notice to each shareholder upon the occurrence, or prospective
occurrence, of such Involuntary Transfer within fifteen (15) days of the date on
which the Company is notified of the occurrence or prospective occurrence of
such Involuntary Transfer. The foregoing provisions of this Section 2.c. then
shall apply, except (i) the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable to the Company, Purchaser, and the
shareholder who made, or may make, the Involuntary Transfer, multiplied by the
percentage of all equity interests in the Company that is then represented by
the shares that are the subject of the Involuntary Transfer, such independent
appraised value to take into
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account the earnings and book value of the Company, and (ii) the appraiser shall
deliver written notice of such valuation to the Company and to all other
shareholders promptly following his completion of such valuation, and such
written notice shall be considered the Option Notice for purposes of this
Section 2.c. The cost of the appraisal shall be shared equally by the Company
and the shareholder who made, or may make, the Involuntary Transfer.
At the closing of any purchase by the Company or any
shareholders pursuant to this Section 2.c.vi., the involuntary transferee shall
deliver certificates representing the common shares being purchased, duly
endorsed for transfer and accompanied by all requisite stock transfer taxes, and
such shares shall be conveyed free and clear of any liens, claims, options,
charges, encumbrances or rights of others arising through the action or inaction
of the involuntary transferee, and the involuntary transferee shall so represent
and warrant. The involuntary transferee shall further represent and warrant that
he is the beneficial owner of such shares.
In the event the provisions of this Section 2.c.vi. shall be
held to be unenforceable with respect to any particular Involuntary Transfer of
common stock, or if all of the shares subject to the Involuntary Transfer are
not purchased by the Company and/or one or more shareholders, and if the
involuntary transferee subsequently desires to transfer such common stock, the
involuntary transferee shall be deemed to be a "Transferring Shareholder" under
Section 2.c. and shall be bound by the other provisions of this Agreement.
vii. Notwithstanding anything to the contrary contained in
this Section 2.c., no shareholder shall transfer any common shares at any time
if such action would constitute a violation of any federal or state securities
laws or a breach of the conditions to any exemption from registration of the
shares under any such laws or a breach of any undertaking or agreement of such
shareholder
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<PAGE> 8
entered into pursuant to such laws or in connection with obtaining an exemption
thereunder. Each shareholder agrees that any shares purchased or acquired by
such shareholder shall bear appropriate legends restricting the sale or other
transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common
Shares.
i. In the event that the Company registers any of its common
stock or other securities under federal and state securities laws for a primary
offering or a secondary offering by the Company or any of the officers or
directors of the Company who are also shareholders (a "Management Shareholder"),
Purchaser shall have piggy-back registration rights to include all common stock
then owned by Purchaser (collectively, the "Purchaser's Common Shares"), in any
such offering on a pro rata basis. The Company shall give Purchaser notice of
such proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written request of Purchaser delivered to the
Company within twenty (20) days after the receipt of the notice from the
Company, which request shall state the number of Purchaser's Common Shares that
Purchaser wishes to sell or distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall use its best efforts to
register Purchaser's Common Shares, and to cause such registration to become and
remain effective so long as the Company keeps such registration effective as to
any other common stock of the Company. Purchaser's Common Shares registered
pursuant to this Section 2.d.i. must be purchased and offered for sale by a bona
fide underwriter or underwriters in a public offering on a firm commitment
basis. The Company's managing underwriter shall have the right to limit in whole
or in part the total number of Purchaser's Common Shares to be sold hereunder,
so long as such limitation is applied on a pro rata basis with
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respect to all shares proposed or requested to be registered by the Company and
all shareholders. The expenses of any such offering shall be borne by the
Company, except for Purchaser's pro rata share of any underwriter's discount or
sales agent's commission.
ii. At any time after April 4, 2000, Purchaser may require the
Company, at the Company's expense, to register up to two (2) primary or
secondary offerings of the Company's common stock (including Purchaser's Common
Shares) to the extent legally permissible; provided, however, that if such
demand is made prior to April 4, 2002, the Company shall not be obligated to
register any such offering unless the gross proceeds of such offering, when
added to the gross proceeds of any previous public offering of the Company's
common stock (in each case gross proceeds shall be calculated before deduction
of underwriting discounts and expenses of sale), exceeds $50,000,000. Purchaser
shall give the Company written notice of any exercise of this right, and the
Company shall have up to one (1) year from the date of receipt of such notice to
effect such registration.
iii. If, in connection with any registration under this
Section 2.d, any of the common shares of Company stock require registration or
qualification under the securities or "blue sky" laws of any state, or the
approval of any state governmental official or authority, the Company shall take
all requisite action and use its best efforts to cause such shares to be duly
registered, qualified or approved as may be required. If any shares meet the
criteria for listing on any exchange on which such stock of the Company is then
listed, the Company shall apply for and use its best efforts to obtain a listing
of all such shares on such exchange.
iv. Except as provided in Section 2.d.i. above, the Company
shall pay all of the expenses in connection with the registration of any shares
of Company stock, including, without
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limitation, the costs of preparing, printing and filing the registration
statement in compliance with the 1933 Act, the fees and expenses of counsel and
accountants for the Company, Management Shareholders and Purchaser for
qualifying the offering under the securities or "blue sky" laws and regulations
of the state in which the offering is qualified.
e. Sale of the Company.
i. At any time after April 4, 2000, and before the
consummation of a Purchaser Approved Offering, if a bona fide offer is made by
any person (other than Purchaser, or any person or entity related to or
affiliated with Purchaser), to purchase all or substantially all of the assets
or shares of stock of the Company, and Purchaser gives the Company written
notice that it desires such offer to be accepted, the Company and its
shareholders shall either accept the offer and consummate the sale on the terms
and conditions of the offer, or the Company shall acquire all the equity
interests owned by Purchaser in the Company on the same terms and conditions as
the offer; provided, however, that if such offer is made prior to April 4, 2002,
the Company shall have no such obligation unless the total consideration of such
offer is at least $50,000,000.
In determining the total consideration for purposes of the
foregoing, any deferred payment shall be discounted to present value at a
discount rate of eight percent (8%) per annum. If the total consideration set
forth in the offer includes anything other than cash and/or marketable
securities (the "Non-Cash Consideration") then the Company, at its option, may
acquire Purchaser's equity interests for the product of (a) either (i) the
Non-Cash Consideration specified or (ii) cash in the amount of the fair market
value of the total consideration set forth in the offer, multiplied by (b) the
percentage of all outstanding equity interests of the Company that then is owned
by Purchaser. In the event Purchaser and the Company cannot agree on the fair
market value of such Non-Cash consideration,
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such fair market value shall be as agreed by the parties' respective
accountants, and if such accountants cannot agree within twenty (20) days of the
date the dispute is referred to them, the dispute shall be promptly referred to
arbitration pursuant to Section 13 below. The foregoing procedures are
hereinafter referred to as the "Accountants' Procedures."
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's equity
interests, the Company shall acquire Purchaser's equity interests for cash
within ninety (90) days from the date of Purchaser's written notice.
ii. At any time before the consummation of a Purchaser
Approved Offering, if any assets or stock of the Company is sold for any reason,
or if the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, before any distribution
to shareholders, a priority distribution equal to the product of (1) the sum of
(a) all payments made to a Management Shareholder in consideration of any
covenant not to compete or consulting agreement, plus (b) the component of any
compensation to a Management Shareholder for employment services that is in
excess of the prevailing industry average compensation, paid by companies that
are similar to the company that will be making the payments to the Management
Shareholder, for the management responsibilities actually to be performed by the
Management Shareholder, as such average
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compensation is mutually agreed between the Company, the Management Shareholder
and Purchaser, or if they cannot agree, then as determined by a current survey
of total compensation conducted by a qualified representative of a nationally
recognized investment banking or accounting firm mutually agreeable to the
Company, the Management Shareholder, and Purchaser, multiplied by (2) the
percentage of all equity interests in the Company that is then owned by
Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii.
shall be paid on the same schedule as the Management Shareholder Payments are
received by the Management Shareholder. If the Company has insufficient funds to
pay the portion of the priority distribution that is due at the time a
Management Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
f. Right of Co-Sale. In addition to the rights set forth in Section
2.c, at any time prior to the consummation of a Purchaser Approved Offering,
Purchaser shall have the right to participate pro rata to the full extent of its
equity interest in the Company in any sale or transfer of stock, other than a
gift, charitable donation or other sale or transfer representing less than One
Percent (1%) of the Company's outstanding common stock, by the Company or any
shareholder of the Company.
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g. Rights of Class B Shares on Liquidation, Dissolution or Winding Up.
The following provisions shall apply until the earlier of (i)
the consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class B Common Stock:
i. In the event of any liquidation, dissolution or winding up
of the Company (including without limitation a liquidation or reorganization
under Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as
may hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holders of the
Company's Class B Common Stock then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders
(before any payment shall be made to the holders of any shares of any other
class of stock of the Company) an amount equal to the stated value of $3.57
(subject to appropriate adjustment for stock dividends, stock splits,
combinations, and similar recapitalizations affecting the Company's Class B
Common Stock) per share of the Company's Class B Common Stock (the "Stated
Value"), with such amount to be calculated as of the date of such payment.
ii. If, upon any Liquidation, the assets of the Company
available for distribution to its shareholders shall be insufficient (a
"Liquidation Insufficiency") to pay the holders of the Company's Class B Common
Stock the full amount to which they shall be entitled pursuant to Section
2.g.i., the holders of the Company's Class B Common Stock shall be entitled to
receive all the assets of the Company available for distribution to its
shareholders.
iii. If there is no Liquidation Insufficiency and payment
shall have been made to the holders of the Company's Class B Common Stock of the
full amount to which they are entitled,
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the holders of the Company's Class B Common Stock shall then be entitled to
share in all remaining assets and funds of the Company ratably in proportion to
the number of shares of Company common stock held by such holder.
iv. Unless such transaction is approved by the directors
elected by the holders of the Company's Class B Common Stock, the merger or
consolidation of the Company into or with another corporation in which the
stockholders of the Company shall own less than Fifty Percent (50%) of the
voting securities of the surviving corporation or the sale, transfer or lease
(but not including a transfer or lease by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the Company shall be deemed
to be a Liquidation as such term is used in this Section 2.g. The amount deemed
distributed to the holders of the Company's Class B Common Stock upon any such
merger or consolidation shall be the cash or the value of the property, rights
or securities distributed to such holder by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined by a competent independent appraiser mutually agreed upon by the
holders of the Company's Class B Common Stock and the Company. The Company
shall, upon receipt of such appraiser's valuation, give prompt written notice to
the holders of the Company's Class B Common Stock of the appraiser's valuation.
The fees of such appraiser shall be shared equally by the Company and the
holders of the Company's Class B Common Stock.
v. Section 2.g of the Stock Purchase Agreement among the
parties dated April 4, 1997 is hereby amended so that the term "Stated Value" as
set forth therein shall mean $3.57 (subject to appropriate adjustment for stock
dividends, stock splits, combinations, and similar recapitalizations affecting
the Company's Class B Common Stock) per share of the Company's Class B Common
Stock.
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vi. The Company's Articles of Incorporation shall contain
provisions consistent with this Section 2.g. until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class B Common Stock.
i. Representation on the Board of Directors. Until a Purchaser Approved
Offering has been consummated or Purchaser no longer owns any equity interest in
the Company, there shall be, and the Company's Articles of Incorporation shall
provide for, at least five (5) members on the Company's Board of Directors, two
(2) of whom shall be elected by the holders of the Company's Class B Common
Stock voting as a class, and the remainder of whom shall be elected by the
holders of the Company's Class A Common Stock voting as a class. The holders of
the Company's Class B Common Stock shall have the right to remove and replace
two (2) members of the Board at any time, and the holders of the Company's Class
A Common Stock shall have the right to remove and replace the remaining members
of the Board at any time. The Company shall pay each director elected by the
holders of the Company's Class B Common Stock a fee of Two Thousand Five Hundred
Dollars ($2,500.00) for attendance at each meeting of the Board of Directors.
Board meetings will occur at least quarterly.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In connection with the purchase of the Class B Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now conducted. The Company is duly qualified and
in good standing as a foreign corporation authorized to do business
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in each of the jurisdictions in which the failure to be so qualified would have
a material adverse effect on the Company and has delivered to Purchaser a good
standing certificate for each such jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
b. Capital Stock. The authorized capital stock of the Company consists
of Five Million (5,000,000) shares of Class A Common Stock, no par value per
share, of which Nine Hundred Twenty Five Thousand (925,000) shares are duly and
validly issued and outstanding, fully paid and non-assessable, and Five Million
(5,000,000) shares of Class B Common Stock, no par value per share, of which
Seven Hundred Sixteen Thousand One Hundred Seventy (716,170) shares are duly and
validly issued and outstanding, fully paid and non-assessable.
All of the outstanding Class A Common Stock of the Company is owned by
the Shareholders, and all of the outstanding Class B Common Stock of the Company
is owned by Purchaser. The Company does not have any other shares, classes of
shares or other debt or equity securities which are authorized, issued or
outstanding. None of the stock has been issued in violation of any preemptive
rights.
The Class B Shares are duly authorized and upon issuance to the
Purchaser shall be validly issued to Purchaser, free and clear of all liens or
rights of any nature whatsoever, and without
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violation of any preemptive rights. Except for the options described on Schedule
3.b., there are no outstanding subscriptions, options, rights, warrants, calls,
convertible securities or other rights, agreements or commitments which obligate
the Company to issue, call, repurchase, redeem or transfer any of its capital
stock, or that restrict the transfer of or otherwise relate to the Company's
capital stock.
c. Business. The Company is engaged primarily in the business of
hardware and service sales, Internet access, communications networking and
related consulting.
d. Investments. The Company does not own or have, directly or
indirectly, any material interest or investment (whether as equity or debt) in,
or own any of the capital stock of, any corporation, partnership, joint venture,
business, trust or other entity.
e. Authority. The Company has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
corporate actions of the Board of Directors and shareholders of the Company.
This Agreement is a valid and binding obligation of the Company, enforceable
against it in accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby.
g. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by the Company of the transactions contemplated hereby,
shall (a) conflict with the
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Organizational Documents of the Company, (b) violate or constitute a default
under any contract or other agreement to which the Company is a party or by
which the Company is bound, (c) violate any law, rule or regulation of any state
or of the United States or any judgment, decree, order, regulation or rule of
any court or any governmental or regulatory authority, or (d) result in or
require the creation of any lien or other encumbrance upon or with respect to
the Class B Shares or any of the assets or other securities of the Company.
h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1996 and December 31, 1997 (the
"Financial Statements"). To the best knowledge of the Company, the Financial
Statements have been prepared in conformity with GAAP, and fairly and accurately
reflect the financial condition of the Company as of the respective dates
thereof in conformity with GAAP. To the best knowledge of the Company, all
interim financial statements for periods after December 31, 1997 that have been,
or pursuant to Section 5.c below will be, delivered to Purchaser, have been and
will be prepared in conformity with GAAP, and fairly and accurately reflect the
financial condition of the Company as of the respective dates thereof in
conformity with GAAP.
The Company does not have any debts, liabilities or other obligations
of any nature (whether contingent or fixed, accrued or not accrued, liquidated
or not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
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aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except as disclosed on Schedule
3.h., the Company is current on all debts, accounts payable and lease payments
as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent
Financial Statements there has been no material adverse change in the condition,
financial or otherwise, assets, liabilities or business of the Company, nor has
there been any event or condition of any character that has or may in the future
materially and adversely affect the business or prospects of the Company. Since
the date of the most recent Financial Statements there has been no dividend or
other distribution or payment in respect of the stock of the Company.
j. Taxes. The Company has paid or made adequate provision for payment
of all federal, state and local income, payroll, sales, property and other
taxes, assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may become due
with respect to any period ending on or prior to the Closing Date, and has filed
all required tax returns and reports which are required to be filed. No tax
deficiency has been asserted, proposed or threatened against the Company for
taxes for the current year or for any prior period which has not been fully
settled or paid, nor has any issue been raised by the Internal Revenue Service
or any other taxing authority which reasonably can be expected to result in a
deficiency for any period. The Company's tax returns have never been audited,
nor has the Company received any notice of a planned audit or any communication
that would lead a reasonable person to believe that an audit is currently being
considered by a tax authority.
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k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially and adversely affects the Company,
and the Company is not aware of any breach by any other party to any of the
Contracts. The terms of all Contracts are in all material respects arm's length
terms.
l. Property. Except for the property leased pursuant to the leases
listed on Schedule 3.l. (copies of which have been provided to Purchaser), and
the liens described on Schedule 3.1, the Company has good and marketable title
to all real and personal property reflected on the Financial Statements, and to
all assets acquired since the date of the most recent Financial Statements, free
and clear of any material liens, claims or encumbrances, except for liens for
taxes not yet due and payable and inventory which has either been used or
consumed or has been sold in the ordinary course of business. To the best of the
Company's knowledge, there are no material assets used by the Company in the
conduct of its business which are not either owned by the Company or leased to
the Company under one of the leases described in Schedule 3.l.
m. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is there any basis for any such action,
before any federal, state, local, or other court or governmental authority, nor
to the best of the knowledge of the Company, has any such action been
threatened, (i) against the Company or (ii) against any of the officers or
directors of the Company. The Company has delivered to Purchaser a true and
correct copy of the pleadings in all lawsuits in which the Company is a party.
The Company does not know of any judgment, order, writ, injunction, decree or
award that has been issued by, or requested of, any court, administrative or
governmental agency,
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arbitrator or other authority which does or may result in any material adverse
change in the business, properties, assets or financial condition of the
Company.
n. Compliance with Laws. The Company is in substantial compliance, and
at all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to franchising; state and federal securities
laws; and laws and regulations requiring licenses or permits (including, without
limitation, permits relating to the handling or discharge of Hazardous
Materials) or the payments of taxes. The Company has not received any notice
asserting any noncompliance. The Company has all licenses, permits and approvals
necessary for the conduct of its business. The Company has not granted a license
or other right to use any tangible or intangible assets used in or related to
the business. From the Company's inception, none of the Company's directors or
officers have been arrested or convicted of any material crime, nor have any of
them been bankrupt or served as an officer or director of a bankrupt company.
o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company nor any
property owned or operated by the Company has been or is in violation of, nor
does the Company have any liabilities under, any Environmental Law (as defined
in Section 3.o.iii.). To the best of the Company's knowledge, there are no
actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from
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any Environmental Agency (as defined in Section 3.o.v.), instituted, pending, or
threatened, relating to any liability under any Environmental Law of the Company
or respecting any property owned or operated by the Company.
ii. To the best of the Company's knowledge, no Hazardous
Materials (as defined in Section 3.o.iv.) have been generated, treated, stored
or disposed of at, or transported to or from, any properties owned or operated
by the Company at any time, except in compliance with applicable Environmental
Laws. To the best of the Company's knowledge, no friable asbestos containing
material is in use, or is or has been stored or disposed of, on or upon any
properties owned or operated by the Company. To the best of the Company's
knowledge, no polychlorinated biphenyls ("PCBs") are located on or in any
properties owned or operated by the Company in any form or device, including,
without limitation, in the form of electrical transformers, fluorescent light
fixtures with ballasts, or cooling oils, except in compliance with applicable
Environmental Laws. To the best of the Company's knowledge, no underground
storage tanks are located on any properties owned or operated by the Company or
were located on any properties owned or operated by the Company and subsequently
removed or filled.
iii. "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any Environmental Agency relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the usage, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release, or disposal
of any substance presently listed,
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defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
iv. "Hazardous Materials" means solid waste (as that term is
defined under the Resource Conservation and Recovery Act, 42 U.S.C.A. Section
6901 et seq. ("RCRA"), and the regulations adopted pursuant to RCRA), hazardous
waste (as that term is defined under RCRA and the regulations adopted pursuant
to RCRA), hazardous substances (as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601
et seq. ("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including, without limitation, any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or
chemicals.
v. "Environmental Agency" means the United States
Environmental Protection Agency, any state agency in a state where the Company
owns or operates properties which is similar in jurisdiction to the United
States Environmental Protection Agency, or any other federal, state or local
agency responsible for regulating or enforcing laws, rules, regulations and
ordinances relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release, or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive, or
dangerous, or otherwise regulated, whether by type or by quantity, including any
material containing any such substance as a component.
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p. Intellectual Property. The Company is the sole and exclusive owner
of, or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service mark, trade name, trade secret,
copyright, patent, franchise or other intangible property right of another.
Except as set forth on Schedule 3.p., the Company is not required to pay any
royalty, license fee, commission or other payment to any person or entity with
respect to any trademark, service mark, trade name, trade secret, copyright,
patent, franchise or other intangible property. The Company has not granted any
person or entity the right to use any of the Company's trademarks, service
marks, trade names, trade secrets, copyrights, patents, technology or other
intangible property, nor is it aware of any such use by another person or
entity.
q. Insurance. Schedule 3.q. contains a true and correct list, together
with copies of certificates or cover pages, of all policies of insurance owned
and/or maintained by the Company. All physical properties and assets of the
Company are covered by fire and other insurance against casualty loss
customarily covering properties and assets of comparable businesses in this
region, in amounts which are reasonable in light of existing replacement costs.
The Company maintains general liability, workers' compensation and other usual
types of insurance in reasonable amounts. The
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Company is not now in default regarding the provisions of any policy of
insurance, and has not and shall not have failed to give any notice or present
any claim thereunder in due and timely fashion.
r. Books and Records. To the best of the Company's knowledge, the books
and accounts and other corporate records of the Company are complete and correct
in all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all applicable laws relating to the employment of labor,
including without limitation any provisions thereof relating to wages and hours,
discrimination due to age, religion, sex, national origin, disability or
immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with information as to any bonus, incentive, insurance,
compensation plan, welfare, retirement, defined benefit, 401(k), pension, profit
sharing, salary reduction, deferred compensation, stock purchase, stock option,
vacation, holiday and sick pay or other similar benefit plans (said plans being
referred to as the "Plans") in which any such employees of the Company
participate. All obligations of the Company, whether arising by operation of
law, by contract or by past custom, for payment by it to trusts, retirement
plans or other funds or any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other benefits for
employees of the Company have been paid or shall be paid by the Company at the
time the Company is obligated to make such payments. All benefits payable
directly to the Company's employees have been paid or shall be paid by the
Company at the time the Company is obligated to make such
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payments. All reasonably anticipated obligations of the Company, whether arising
by operation of law, by contract or by past custom, for vacation and holiday
pay, bonuses and other forms of compensation or benefits which are or may become
payable to employees or any of them have been paid, or shall be paid, in
accordance with the provisions of applicable laws, regulations, benefit plans or
policies.
t. Broker Fee. All broker, finder or professional fees associated with
the transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and except as otherwise stated herein, shall be
paid by the Company as and when due.
u. Customers and Suppliers. The Company does not know of any customer
or supplier of the Company who intends to terminate or reduce its business with
the Company, whether as a result of this Agreement or otherwise. The Company is
not bound by any concession or arrangement with any customer or supplier which
is outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents with respect to the Plans, including, but not limited to,
each of the following documents: (i) a copy of the Plan and each related trust
or other funding agreement, including insurance contracts (and all amendments
thereto) (ii) the last filed Form 5500; (iii) the most recent determination
letter received from the United States Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"); and (iv) the summary plan
descriptions and all material modifications thereto, have been delivered to
Purchaser.
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All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other than for the payment of premiums) to the PBGC has been or is
expected to be incurred by the Company or any officer, director, shareholder or
employee of the Company with respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder,
director, officer, agent, employee or other person associated with or acting on
the Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from
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corporate funds; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any false or fictitious entry on the
books or records of the Company; or made any bribe, rebate payoff, influence
payment, kickback or other unlawful payment to any person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
favorable treatment in securing business or to obtain special concessions or to
pay for favorable treatment for business secured or for special concessions
already obtained.
x. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to Purchaser in this Agreement, in the light of the
circumstances under which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class B Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
a. Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of North
Carolina.
b. Authority. Purchaser has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
action of Purchaser. This Agreement is a valid and binding obligation of
Purchaser, enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by Purchaser of the transactions contemplated hereby, shall
(i) conflict with the
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Articles of Organization or Operating Agreement of Purchaser, (ii) violate or
constitute a default under any contract or other agreement to which Purchaser is
a party or by which Purchaser is bound, or (iii) violate any law, rule or
regulation of any state or of the United States or any judgment, decree, order,
regulation or rule of any court or any governmental or regulatory authority,
which would have a material adverse effect on the Company or the transactions
contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby or thereby, except to the
extent obtained by Purchaser prior to Closing or to the extent that their
failure to be obtained would not have a material adverse effect on the Company
or the transactions contemplated hereby.
5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in
the ordinary course and, without the prior written consent of Purchaser, except
in the ordinary course of business, shall not enter into, or permit the Company
or any assets of the Company to become bound by or subject to, any Contract, and
(b) shall continue to manage the inventories, accounts receivable, accounts
payable and payroll of the Company in accordance with past practice in the
ordinary course of business. The Company shall promptly notify Purchaser of any
actions or proceedings of the type described in Section 3.m.
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b. Corporate Examination and Investigations. Purchaser, shall be
entitled, through its employees and representatives, including, without
limitation, Purchaser's counsel and accountants, on a reasonable basis, to make
such investigation of the assets, properties, business and operations of the
Company and such examination of its books, records and financial condition, as
Purchaser wishes. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances and the Company shall
cooperate fully therein. No such investigation undertaken by Purchaser shall
relieve the Company of any liability hereunder. In order that Purchaser may have
full opportunity to make such business, accounting and legal review, examination
or investigation, the Company shall make available at its principal office to
the representatives of Purchaser during such period all such information and
copies of such documents concerning the affairs of the Company as such
representatives may reasonably request and shall cause the officers, employees,
consultants, agents, accountants and attorneys of the Company to cooperate fully
with such representatives in connection with such review and examination. The
information obtained by Purchaser shall remain confidential and shall be
disclosed only to the officers, employees managers, members, prospective members
and representatives of Purchaser.
c. Delivery of Financial Materials. The Company shall deliver to
Purchaser (i) within thirty (30) days of the end of each month, monthly
year-to-date financial statements prepared in accordance with GAAP (including
profit and loss, cash flow, and balance sheet) and certified by the Company's
chief financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an
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outside accounting firm designated by the Company and reasonably acceptable to
Purchaser and (b) projections for the next year in the same format as the
financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the
following documents or information as applicable: (i) within thirty (30) days
after filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Purchaser. Such insurance coverage shall include,
without limitation, directors' and officers' liability insurance.
f. Use of Proceeds. The Company will use the proceeds from the issuance
of the Class B Shares hereunder to refinance the Company's existing bank
indebtedness, and to provide working capital to develop existing and future
projects.
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6. FOREBEARANCES OF THE COMPANY
Except with the prior written consent of Purchaser, or the affirmative
vote of the directors elected by the holder of the Class B Shares, until the
consummation of a Purchaser Approved Offering or sale by Purchaser of all of its
equity interests in the Company, the Company shall not:
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement , lease or
commitment not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of
One Percent (1%) of the outstanding shares of the Company (except pursuant to
the exercise of options described on Schedule 3.b., or options issued to
employees pursuant to the terms of the Company's Stock Option Plan as in effect
on the date hereof), or create any new class or series of securities;
d. issue, grant or authorize any options (except options described on
Schedule 3.b., or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of One Percent (1%)
of the outstanding shares of the Company, or redeem any outstanding shares of
the Company representing, in the aggregate, in excess of One Percent (1%) of the
outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization
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or create any subsidiary; or liquidate, sell or otherwise dispose of any assets
or acquire any assets, other than in the ordinary course of its business
consistent with past practice;
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's
Board of Directors, any shareholder, or any other individual officer of the
Company, unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner consistent with past practice and
approved by the Compensation Committee of the Company's Board of Directors;
j. change the location or nature of its business operations or invest
any funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment
for the benefit of creditors;
l. agree to do any of the foregoing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
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a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the Company, to the effect that the applicable conditions set forth in this
Section have been satisfied.
d. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
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h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. Purchaser shall have performed in all material respects all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the general partner of Purchaser, to the effect that the applicable conditions
set forth in this Section have been satisfied.
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory
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body or arbitral tribunal, or instituted or threatened by any governmental or
regulatory body, to restrain, modify or prevent the carrying out of the
transactions contemplated hereby or to seek damages or a discovery order in
connection with such transactions.
9. EXPENSES
At Closing, the Company shall (i) reimburse Geneva Associates, LLC for
$5,000 out of a total of $9,921.48 of unreimbursed out-of-pocket expenses
incurred by Geneva Associates, LLC to date (and reimburse Geneva Associates, LLC
for the remaining $4,921.48 within thirty (30) days after Closing), and (ii) pay
a closing fee of $35,000 which shall cover all other reasonable out-of-pocket
costs and expenses (including, without limitation, legal, accounting and
consulting fees) incurred by Purchaser in connection with its due diligence and
the negotiation, preparation, execution and performance of this Agreement and
the transactions contemplated hereby. Amounts to be paid by the Company at
Closing under this Section 9 shall be deducted from the payment of the purchase
price for the Class B Shares at Closing.
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to
indemnify, defend and hold harmless Purchaser against and in respect of any and
all claims, demands, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including, without limitation, interest, penalties
and reasonable attorneys' fees ("Losses"), which directly or indirectly arise,
result from or relate to the breach by the Company of, or the failure by the
Company to comply with or perform, the Company's representations, warranties,
covenants or agreements contained in this Agreement. To compensate Purchaser for
the reduction in the capitalization of the Company as the result of any
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such
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that, following the indemnification payment, Purchaser would be in the same
position as if the shareholders of the Company (other than Purchaser) had made
such indemnification payment to Purchaser directly.
b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11,
as follows:
i. At any time on or prior to the Closing Date, by the mutual
written consent of the Company and Purchaser;
ii. At any time on or prior to the Closing Date, by Purchaser
in writing, if the Company has, or by the Company in writing if Purchaser has,
in any material respect, breached (i) any covenant or undertaking contained
herein or (ii) any representation or warranty contained herein, and in the case
of (i) and (ii) if such breach has not been cured by the earlier of ten (10)
days after the date on which written notice of such breach is given to the party
committing such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company
in writing, if any of the conditions precedent to the obligations of such party
to consummate the transactions contemplated hereby have not been satisfied or
fulfilled; or
iv. By either Purchaser or the Company in writing, if the
Closing Date has not occurred by the close of business on April 15, 1998.
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b. Effect of Termination. In the event of a termination of this
Agreement for any reason, each party may seek any remedies available to it,
including claims for damages, specific performance or injunctive relief.
12. CLAIMS FOR INDEMNIFICATION
Any claim for indemnification which is based upon a final judgment,
decree or award of a court of competent jurisdiction requiring the payment of
money by any party to this Agreement or any of its officers, directors or
controlling persons, shall be conclusive as to the amount of such claim,
provided a certified copy of such judgment, decree or award accompanies the
notice relating to such claim and provided further that the party seeking
indemnification shall have complied with Section 14 of this Agreement.
Any claim for indemnification shall be conclusive in all respects
thirty (30) days after receipt by the other party of notice thereof, unless
within such period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration
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Association. Judgment upon the award by the arbitrator may be entered in any
court having jurisdiction thereof. As part of such award, the arbitrator shall
be promptly paid by the party that initiates the proceeding, but the portion of
each such fee and expenses which represents the same percentage thereof as the
percentage of the amount of the claim represented by the amount awarded shall be
added to the amount of the award and shall be borne by the indemnifying party.
Any award shall be a conclusive determination of the matter and shall be binding
upon Purchaser and the Company and shall not be contested by either of them.
Arbitration proceedings shall be held in the city of Dover, Delaware unless the
parties agree upon another location. In any such action the prevailing party, in
the judgment of the arbitrator, shall be entitled to an award of its costs and
attorneys' fees incurred in the action.
14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any
claim or demand shall be asserted, by any third party in respect of which
indemnity may be sought by Purchaser or the Company pursuant to the provisions
of this Agreement, the party seeking indemnification, with reasonable promptness
after obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the prior
written consent of the party seeking indemnification, which consent shall not be
unreasonably withheld, the indemnifying party shall not consent to the entry of
any judgment in or agree to any settlement of any such matters; and provided
further that the party seeking indemnification may retain
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counsel, at its own expense, to represent it and participate in connection with
any such proceeding or claim or demand. Failure by the indemnifying party to
notify the party seeking indemnification of the indemnifying party's election to
defend any proceeding, claim or demand with respect to which indemnity is sought
within thirty (30) days after notice thereof shall have been given by the party
seeking indemnification shall be deemed a waiver by the indemnifying party of
its right to defend against such matter. If the indemnifying party assumes
defense of any such proceeding, claim or demand, it shall take or cause to be
taken all steps necessary in connection with such defense, and the party seeking
indemnification shall in all events be entitled to indemnity with respect to
such matter, as provided in this Agreement. In the event that the indemnifying
party does not elect to defend any proceeding, claim or demand with respect to
which indemnity is sought, the party seeking indemnification may defend against,
settle or otherwise deal with any such proceeding, claim or demand in such
matter as it may in its good faith discretion deem appropriate and the
indemnifying party shall be liable for indemnification with respect to such
matter, including without limitation the reasonable costs of such defense, as
provided in this Agreement. In the event of any proceeding, claim or demand by a
third party with respect to which a claim for indemnification is made hereunder,
the parties hereto agree that they will cooperate fully with each other in
connection with the defense or settlement of such matter.
15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
40
<PAGE> 41
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No waiver shall be binding unless
executed in writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be
assigned by any party hereto without the written consent of the other parties
hereto, provided, however, that Purchaser may assign any or all of its rights
and obligations hereunder to any person or entity to whom Purchaser transfers
any of the Class B Shares; provided, however, that the Purchaser shall be the
sole representative of any such transferee in dealing with all matters
pertaining to this Agreement. This Agreement shall be binding on, and inure to
the benefit of, the parties to it and their respective legal representatives,
successors and permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or
other communications hereunder shall be in writing and shall be effective (a)
when personally delivered by courier or otherwise to the party to be given such
notice or other communication, or (b) on the business day following the day such
notice or other communication is sent by telex, facsimile or similar electronic
device, fully prepaid, which telex, facsimile or similar electronic
communication shall promptly be confirmed by written notice or (c) on the fifth
day following the date of deposit in the United States
41
<PAGE> 42
mail if such notice or other communication is sent by certified or registered
air mail (or its equivalent) with return receipt requested and postage thereon
fully prepaid. The addresses for such notices shall be as follows:
If to Purchaser:
I3S Funding I, L.L.C.
c/o Geneva Associates, L.L.C.
P. O. Box 21962
Suite 2100, First Union Tower
300 N. Greene Street (27401)
Greensboro, North Carolina 27420
Attention: Tracy S. Turner and Russell R. Myers
Facsimile: (336) 274-4984
With a copy to:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Post Office Box 26000
230 N. Elm Street, Suite 2000 (27401)
Greensboro, North Carolina 27420
Attention: Marc D. Bishop
Facsimile (336) 378-1001
If to the Company:
I3S, Inc.
1330 River Bend, Suite 600
Dallas, Texas 75247
Attention: President
Facsimile: (214) 631-5480
42
<PAGE> 43
With a copy to:
Clay C. Scott, Jr.
7501 Inwood Road
Post Office Box 7569
Dallas, Texas 75209
Facsimile: (214) 358-2851
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits
and other documents referred to herein which form a part hereof, embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants or understandings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by all of the parties hereto.
h. Headings; References. The headings appearing in this Agreement are
for convenience of reference only and shall not affect the interpretation of
this Agreement. All references herein to Sections, Exhibits and Schedules refer
to the Sections contained in, and the Exhibits and Schedules attached to, this
Agreement.
43
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
ATTEST: I 3S, INC.
/s/ illegible By: /s/ James R. Price
- ------------------------------ --------------------------------
James R. Price, President
I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Tracy Scott Turner
--------------------------------
Tracy Scott Turner, Member-Manager
The Shareholders execute this Agreement solely for the purpose of
agreeing to the provisions of Section 2 hereof and waiving any and all
preemptive rights with respect to the issuance of the Class B Shares hereunder,
which rights are hereby waived.
/s/ James R. Price
---------------------------------------
James R. Price
/s/ Gary A. Dobbins
---------------------------------------
Gary A. Dobbins
/s/ Clay C. Scott, Jr.
---------------------------------------
Clay C. Scott, Jr.
/s/ Charles Bo Price
---------------------------------------
Charles Bo Price
/s/ George Venner
---------------------------------------
George Venner
44
<PAGE> 1
EXHIBIT 4.3
AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT, dated June 30, 1998, is
made and entered into between I3S FUNDING I, LLC, a North Carolina limited
liability company (the "Purchaser"); I 3S, INC., a Texas corporation (the
"Company"); JAMES R. PRICE, GARY A. DOBBINS, CLAY C. SCOTT, JR., CHARLES BO
PRICE and GEORGE VENNER (the "Shareholders").
W I T N E S S E T H:
WHEREAS, the parties executed a Stock Purchase Agreement dated as of
March 31, 1998 (the "Stock Purchase Agreement") pursuant to which Purchaser
purchased 134,029 shares of the Company's Class B Common Stock, no par value per
share; and
WHEREAS, such purchase was pursuant to a plan (the "Plan") that had
been approved by the Company's Board of Directors to issue to Purchaser and
others, for the aggregate amount of $5,000,000, shares of the Company's common
stock representing twenty percent (20%) of all outstanding common stock of the
Company on a fully diluted basis (i.e. calculated as if all outstanding options,
warrants or other rights to acquire or purchase shares of the Company's common
stock, had been exercised); and
WHEREAS, in issuing 134,029 shares to Purchaser pursuant to the Stock
Purchase Agreement, the parties erroneously failed to take into account the
additional shares that would be issued for the remaining $3,500,000 that would
be paid pursuant to the Plan; and
WHEREAS, the parties also have been in dispute as to the options,
warrants or other rights to acquire or purchase shares that were to be included
in determining the number of shares that were to be considered in such 20%
calculation; and
WHEREAS, the parties desire to correct said error and resolve their
dispute so that the aggregate amount of common shares issued to Purchaser for
its $1,500,000 payment on March 31, 1998 represents thirty percent (30%) of the
shares that will have been issued to Purchaser and others in 1998 for the
aggregate amount of $5,000,000.
WHEREAS, on May 22, 1998 the Company declared a 5 for 1 split of its
outstanding stock (the "Stock Split").
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, representations and warranties contained in this Amendment and in
the Stock Purchase Agreement, and in consideration of the covenants of Purchaser
under the stock purchase agreements and the voting trust agreement to be
executed in connection with the issuance of the Company's Common Stock for the
remaining $3,500,000 that is to be paid by Spotswood Capital, LLC and Blue Ridge
Investors Limited Partnership, the parties hereto agree as follows:
<PAGE> 2
1. Replacement Stock Certificate. To correct the error and resolve the
parties' dispute as described above, the Company shall issue to Purchaser an
additional 15,971 (calculated before giving effect to the Stock Split) shares of
the Company's Class B Common Stock. To evidence such issuance, as well as the
Stock Split, Purchaser shall return to the Company its certificate for 134,029
shares of the Company's Class B Common Stock, and the Company shall issue to
Purchaser a replacement certificate representing 750,000 shares of the Company's
Class B Common Stock.
2. Amendments to Stock Purchase Agreement. To reflect the additional
15,971 shares being issued to Purchaser, as well as the Stock Split, the Stock
Purchase Agreement is hereby amended as follows:
(a) The reference to "134,029" in the recital of the Stock
Purchase Agreement, and the reference to "One Hundred Thirty Four Thousand
Twenty Nine (134,029)" in Section 1.a. of the Stock Purchase Agreement, are
hereby deleted and replaced with "750,000"; and
(b) The references to "$3.529" in Sections 2.g.i. and 2.g.v.
of the Stock Purchase Agreement are hereby deleted and replaced with
"($0.6927)".
3. Miscellaneous. Except as expressly amended by this Amendment, all
the terms and provisions of the Stock Purchase Agreement shall remain unmodified
and in full force and effect. This Amendment, together with the Stock Purchase
Agreement, represents the entire agreement of the parties with respect to the
matters addressed herein, and may not be modified or amended except by the
written agreement of all parties. This Amendment may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This Amendment
shall be governed by and construed in accordance with the laws of the State of
North Carolina.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives on the date first above
written.
ATTEST: I 3S, INC.
/s/ illegible By: /s/ James R. Price
- ------------------------------- ---------------------------------
James R. Price, President
I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Tracy Scott Turner
------------------------------------------
Tracy Scott Turner, Member-Manager
The Shareholders execute this Amendment solely for the purpose of
consenting to the terms hereof and waiving any and all preemptive rights with
respect to the issuance of the shares of the Company's Class B Common Stock as
contemplated hereunder, which rights are hereby waived.
/s/ James R. Price
------------------------------------------
James R. Price
/s/ Gary A. Dobbins
------------------------------------------
Gary A. Dobbins
/s/ Clay C. Scott, Jr.
------------------------------------------
Clay C. Scott, Jr.
/s/ Charles Bo Price
------------------------------------------
Charles Bo Price
/s/ George Venner
------------------------------------------
George Venner
3
<PAGE> 1
EXHIBIT 4.4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of July 10, 1998,
is made and entered into between SPOTSWOOD CAPITAL, LLC, a North Carolina
limited liability company (the "Purchaser"); I 3S, INC., a Texas corporation
(the "Company"); JAMES R. PRICE, GARY A. DOBBINS, CLAY C. SCOTT, JR., CHARLES BO
PRICE, GEORGE VENNER, and I3S FUNDING I, L.L.C. ("Funding") the sole existing
holders of capital stock of the Company (the "Shareholders") who execute this
Agreement solely for the purpose of agreeing to the provisions of Section 2
hereof and waiving any and all preemptive rights with respect to the issuance of
the Class C Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes to
sell to Purchaser, 183,732 shares of the Company's Class C Common Stock, no par
value per share (the "Class C Shares"), on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual agreements, representations
and warranties contained in this Agreement, the parties hereto agree as follows:
1. SALE AND PURCHASE OF CLASS C SHARES; THE CLOSING
a. Sale and Purchase of Class C Shares. Subject to the terms and conditions
set forth in this Agreement, at the Closing provided for in paragraph 1.d.
below, the Company shall sell to Purchaser, and Purchaser shall buy from the
Company, One Hundred Eighty Three Thousand Seven Hundred Thirty Two (183,732)
Class C Common Shares for an aggregate purchase price of One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000). The Class C Shares shall represent
at the time of issuance 7.0% of all outstanding common stock of the Company on a
fully diluted basis
<PAGE> 2
(i.e. calculated as if all outstanding options, warrants or other rights to
acquire or purchase shares of the Company's common stock, had been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver the
sum of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) to the
Company by way of a wire transfer in complete payment for the Class C Shares.
c. Delivery of Stock Certificate. In consideration for Purchaser's payment
for the Class C Shares, at the Closing the Company shall deliver to Purchaser a
stock certificate representing the Class C Shares.
d. The Closing. The closing of the sale and purchase of the Class C Shares
contemplated hereby (the "Closing"), shall take place at the offices of the
Company, 1330 River Bend, Suite 600, Dallas, Texas, at 10:00 a.m. on June 30,
1998, or such other date and time as Purchaser and the Company shall mutually
agree in writing (the "Closing Date"). At the Closing, the Company
simultaneously shall sell 183,732 shares of Class C Common Stock to Blue Ridge
Investors Limited Partnership ("Blue Ridge") for $1,750,000 on substantially the
same terms and conditions that are set forth herein with respect to the sale of
the Class C Shares to Purchaser.
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS C SHARES
a. Voting. Except as provided in Section 2.i below, the Class C Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock and Class B Common Stock. Purchaser acknowledges that 56,079 of the
Class C Shares shall be transferred to a voting trust pursuant to a Voting Trust
Agreement to be executed and delivered at Closing substantially in the form of
Exhibit A attached hereto.
2
<PAGE> 3
b. Preemptive Rights. Until such time as a Purchaser Approved Offering (as
defined below) has been consummated or Purchaser has otherwise sold all of its
Class C Shares or other equity interests in the Company, Purchaser shall have
preemptive rights with regard to any future issuances of common stock of the
Company (other than an issuance of common stock pursuant to currently
outstanding options disclosed hereunder) permitting Purchaser to purchase
additional common shares pro rata at the same price and on the same terms and
conditions of such issuance. For purposes of this Agreement, a Purchaser
Approved Offering shall mean the consummation of an underwritten public offering
of common stock of the Company on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, Inc. pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of common
stock of the Company to the public at a price resulting in gross proceeds from
such sale to the Company (before deduction of underwriting discounts and
expenses of sale) of not less than $50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering , and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common stock unless such
shares shall have been offered for sale in writing first to the Company and then
to the other shareholders of the Company pro rata. In the event a shareholder
desires to transfer any common shares, the shareholder desiring to make such
transfer (the "Transferring Shareholder") shall deliver written notice (the
"Offer Notice") to the Company and to all other shareholders at least sixty (60)
days prior to the proposed transfer. The Offer Notice will disclose in
reasonable detail the
3
<PAGE> 4
proposed number of shares to be transferred, the proposed transferee and the
proposed price, terms and conditions of the transfer.
i. Upon receipt of the Offer Notice, the Company shall have the option
(the "Company's Option") for a period of thirty (30) days to purchase or
otherwise acquire all or part of the shares described in the Offer Notice for an
aggregate amount (such aggregate amount being hereinafter referred to as the
"Option Price") equal to the bona fide purchase price to be paid by the proposed
purchaser as described in the Offer Notice (which amount shall be zero if the
proposed transfer would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current shareholders as to whether
it will exercise, partially exercise or not exercise the Company's Option before
the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully exercise the
Company's Option within thirty (30) days after receipt of the Offer Notice, the
remaining shareholders shall have the option (each a "Shareholder's Option") for
a period of ten (10) days from the earlier of (i) their receipt of written
notice from the Company of its decision not to exercise or to only partially
exercise the Company's Option, or (ii) the expiration of the Company's Option
(the "Other Shareholder Election Period"), to purchase or otherwise acquire all
or part of the remaining shares which the Company does not choose to purchase
pursuant to the Company's Option, in proportion to their respective ownership of
shares which, for purposes of such determination, shall include without
duplication all outstanding options, warrants or other rights owned by such
shareholders that are convertible into shares as of the date of such notice from
the Company (or the expiration of the Company's Option), for an amount equal to
the applicable portion of the Option Price. Each shareholder shall notify in
writing all then current shareholders as to whether such shareholder will
4
<PAGE> 5
exercise, partially exercise or not exercise the shareholder's option before the
expiration of the Other Shareholder Election Period.
iii. For a period of ten (10) days from the earlier of (i) the receipt
by the other shareholders of a written notice from a shareholder that it does
not want to exercise its option or will only partially exercise its option, or
(ii) the expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise acquire such
shareholder's portion of the shares described in the Offer Notice in proportion
to their respective ownership of shares (determined as described in Section
2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold after
compliance with the procedures set forth in this Section 2.c., the Company shall
have the final option for ten (10) days to purchase or otherwise acquire all of
the remaining shares proposed to be transferred for an amount equal to the
applicable portion of the Option Price. If, however, the Company and the other
shareholders do not individually or collectively elect to purchase all of the
shares being offered, the Transferring Shareholder may, within thirty (30) days
after the expiration of the Other Shareholder Election Period (subject to the
provisions of Section 2.c.vi. below), transfer all of the shares specified in
the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the transferee shall have the
rights and obligations set forth in this Agreement hereunder with respect to
such shares. If the Transferring Shareholder fails to consummate such transfer
within the thirty-day period after the expiration of the Other Shareholder
Election Period, any transfer of the shares thereafter shall again be subject to
the provisions of this Section 2.c.
5
<PAGE> 6
v. Unless otherwise agreed in writing, signed by the person against
whom such writing is sought to be enforced, the closing of any acquisition of
common shares hereunder pursuant to the Company's Option or a Shareholder's
Option shall take place within forty-five (45) days of an applicable option's
exercise. If any such closing does not take place within such forty-five day
period, then the shares that were to be acquired shall be offered in accordance
with this Section 2.c. as though the applicable option had not been exercised.
vi. Notwithstanding the foregoing provisions of this Section 2.c., the
following shall apply in the event of any Involuntary Transfer of common shares.
An "Involuntary Transfer" shall mean any transfer caused by the death of a
shareholder, as well as any transfer, proceeding or action by, through, as a
consequence of, or in which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the common stock of the Company,
including, without limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant to a filing of a
voluntary or an involuntary petition under the United States Bankruptcy Code, or
any amendments, modifications, revisions or successors statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in bankruptcy or
receiver or other officer or agency, any transfer to a state or to a public
officer or agency pursuant to any statute pertaining to escheat or abandoned
property, any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
In the event of any Involuntary Transfer, the Company shall give
written notice to each shareholder upon the occurrence, or prospective
occurrence, of such Involuntary Transfer within fifteen (15) days of the date on
which the Company is notified of the occurrence or prospective
6
<PAGE> 7
occurrence of such Involuntary Transfer. The foregoing provisions of this
Section 2.c. then shall apply, except (i) the Option Price shall be the value of
the Company as determined by a qualified representative of a nationally
recognized investment banking or accounting firm mutually agreeable to the
Company, Purchaser, and the shareholder who made, or may make, the Involuntary
Transfer, multiplied by the percentage of all equity interests in the Company
that is then represented by the shares that are the subject of the Involuntary
Transfer, such independent appraised value to take into account the earnings and
book value of the Company, and (ii) the appraiser shall deliver written notice
of such valuation to the Company and to all other shareholders promptly
following his completion of such valuation, and such written notice shall be
considered the Option Notice for purposes of this Section 2.c. The cost of the
appraisal shall be shared equally by the Company and the shareholder who made,
or may make, the Involuntary Transfer.
At the closing of any purchase by the Company or any shareholders
pursuant to this Section 2.c.vi., the involuntary transferee shall deliver
certificates representing the common shares being purchased, duly endorsed for
transfer and accompanied by all requisite stock transfer taxes, and such shares
shall be conveyed free and clear of any liens, claims, options, charges,
encumbrances or rights of others arising through the action or inaction of the
involuntary transferee, and the involuntary transferee shall so represent and
warrant. The involuntary transferee shall further represent and warrant that he
is the beneficial owner of such shares.
In the event the provisions of this Section 2.c.vi. shall be held to be
unenforceable with respect to any particular Involuntary Transfer of common
stock, or if all of the shares subject to the Involuntary Transfer are not
purchased by the Company and/or one or more shareholders, and if the involuntary
transferee subsequently desires to transfer such common stock, the involuntary
transferee
7
<PAGE> 8
shall be deemed to be a "Transferring Shareholder" under Section 2.c. and shall
be bound by the other provisions of this Agreement.
vii. Notwithstanding anything to the contrary contained in this Section
2.c., no shareholder shall transfer any common shares at any time if such action
would constitute a violation of any federal or state securities laws or a breach
of the conditions to any exemption from registration of the shares under any
such laws or a breach of any undertaking or agreement of such shareholder
entered into pursuant to such laws or in connection with obtaining an exemption
thereunder. Each shareholder agrees that any shares purchased or acquired by
such shareholder shall bear appropriate legends restricting the sale or other
transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common Shares.
i. In the event that the Company registers any of its common stock or
other securities under federal and state securities laws for a primary offering
or a secondary offering by the Company or any of the officers or directors of
the Company who are also shareholders (a "Management Shareholder"), Purchaser
shall have piggy-back registration rights to include all common stock then owned
by Purchaser (collectively, the "Purchaser's Common Shares"), in any such
offering on a pro rata basis. The Company shall give Purchaser notice of such
proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written request of Purchaser delivered to the
Company within twenty (20) days after the receipt of the notice from the
Company, which request shall state the number of Purchaser's Common Shares that
Purchaser wishes to sell or distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall use its best efforts to
register Purchaser's Common Shares, and
8
<PAGE> 9
to cause such registration to become and remain effective so long as the Company
keeps such registration effective as to any other common stock of the Company.
Purchaser's Common Shares registered pursuant to this Section 2.d.i. must be
purchased and offered for sale by a bona fide underwriter or underwriters in a
public offering on a firm commitment basis. The Company's managing underwriter
shall have the right to limit in whole or in part the total number of
Purchaser's Common Shares to be sold hereunder, so long as such limitation is
applied on a pro rata basis with respect to all shares proposed or requested to
be registered by the Company and all shareholders. The expenses of any such
offering shall be borne by the Company, except for Purchaser's pro rata share of
any underwriter's discount or sales agent's commission.
ii. If, in connection with any registration under this Section 2.d, any
of the common shares of Company stock require registration or qualification
under the securities or "blue sky" laws of any state, or the approval of any
state governmental official or authority, the Company shall take all requisite
action and use its best efforts to cause such shares to be duly registered,
qualified or approved as may be required. If any shares meet the criteria for
listing on any exchange on which such stock of the Company is then listed, the
Company shall apply for and use its best efforts to obtain a listing of all such
shares on such exchange.
iii. Except as provided in Section 2.d.i. above, the Company shall pay
all of the expenses in connection with the registration of any shares of Company
stock, including, without limitation, the costs of preparing, printing and
filing the registration statement in compliance with the 1933 Act, the fees and
expenses of counsel and accountants for the Company, Management Shareholders and
Purchaser for qualifying the offering under the securities or "blue sky" laws
and regulations of the state in which the offering is qualified.
9
<PAGE> 10
e. Sale of the Company.
i. At any time after April 4, 2000, and before the consummation of a
Purchaser Approved Offering, if a bona fide offer is made by any person (other
than Purchaser, or any person or entity related to or affiliated with
Purchaser), to purchase all or substantially all of the assets or shares of
stock of the Company, and Funding gives the Company written notice that it
desires such offer to be accepted, the Company and its shareholders shall either
accept the offer and consummate the sale on the terms and conditions of the
offer (in which case, if the transaction is a stock sale or merger, Purchaser
also shall sell all of its equity interests in the Company on those terms and
conditions), or the Company shall acquire all the equity interests owned by
Purchaser and Funding in the Company on the same terms and conditions as the
offer; provided, however, that if such offer is made prior to April 4, 2002, the
Company shall have no such obligation unless the total consideration of such
offer is at least $50,000,000.
In determining the total consideration for purposes of the foregoing, any
deferred payment shall be discounted to present value at a discount rate of
eight percent (8%) per annum. If the total consideration set forth in the offer
includes anything other than cash and/or marketable securities (the "Non-Cash
Consideration") then the Company, at its option, may acquire Purchaser's equity
interests for the product of (a) either (i) the Non-Cash Consideration specified
or (ii) cash in the amount of the fair market value of the total consideration
set forth in the offer, multiplied by (b) the percentage of all outstanding
equity interests of the Company that then is owned by Purchaser. Such fair
market value shall be determined pursuant to the terms of the Stock Purchase
Agreements dated April 4, 1997 and March 31, 1998 by and among the Company,
Funding and the other stockholders of the Company (the "Funding Purchase
Agreements").
10
<PAGE> 11
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's and
Funding's equity interests, the Company shall acquire Purchaser's and Funding's
equity interests for cash within ninety (90) days from the date of Funding's
written notice.
ii. At any time before the consummation of a Purchaser Approved
Offering, if any assets or stock of the Company is sold for any reason, or if
the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, pari passu with the
rights of holders of the Company's Class B Common Stock and all other holders of
the Company's Class C Common Stock to be paid with respect to the Management
Shareholder Payments, and before any distribution to shareholders, a priority
distribution equal to the product of (1) the sum of (a) all payments made to a
Management Shareholder in consideration of any covenant not to compete or
consulting agreement, plus (b) the component of any compensation to a Management
Shareholder for employment services that is in excess of the prevailing industry
average compensation, paid by companies that are similar to the company that
will be making the payments to the Management Shareholder, for the management
responsibilities actually to be performed by the Management Shareholder, as such
average compensation is mutually agreed between the Company, the Management
Shareholder and Funding, or if they cannot agree, then as determined by a
current survey of total compensation
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conducted by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable to the Company, the Management
Shareholder, and Funding, multiplied by (2) the percentage of all equity
interests in the Company that is then owned by Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii. shall
be paid on the same schedule as the Management Shareholder Payments are received
by the Management Shareholder. If the Company has insufficient funds to pay the
portion of the priority distribution that is due at the time a Management
Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
f. Right of Co-Sale. In addition to the rights set forth in Section 2.c, at
any time prior to the consummation of a Purchaser Approved Offering, Purchaser
shall have the right to participate pro rata to the full extent of its equity
interest in the Company in any sale or transfer of stock, other than a gift,
charitable donation or other sale or transfer representing less than One Percent
(1%) of the Company's outstanding common stock, by the Company or any
shareholder of the Company.
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g. Rights of Class C Shares on Liquidation, Dissolution or Winding Up.
The following provisions shall apply until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class C Common Stock:
i. In the event of any liquidation, dissolution or winding up of the
Company (including without limitation a liquidation or reorganization under
Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as may
hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holders of the
Company's Class C Common Stock then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders
(pari passu with the holders of the Company's Class B Common Stock, and before
any payment shall be made to the holders of any shares of the Company's Class A
Common Stock) an amount equal to the stated value of $9.525 (subject to
appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock (the "Stated Value"), with such
amount to be calculated as of the date of such payment.
ii. If, upon any Liquidation, the assets of the Company available for
distribution to its shareholders shall be insufficient (a "Liquidation
Insufficiency") to pay the holders of the Company's Class C Common Stock and
Class C Common Stock the full amount to which they shall be entitled pursuant to
Section 2.g.i., the holders of the Company's Class B Common Stock and the
holders of the Company's Class C Common Stock shall be entitled to receive, pari
passu, all the assets of the Company available for distribution to its
shareholders.
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iii. If there is no Liquidation Insufficiency and payment shall have
been made to the holders of the Company's Class B Common Stock and the holders
of the Company's Class C Common Stock of the full amount to which they are
entitled, the holders of the Company's Class B Common Stock and the holders of
the Company's Class C Common Stock shall then be entitled to share in all
remaining assets and funds of the Company ratably in proportion to the number of
shares of Company common stock held by such holder.
iv. Unless such transaction is approved by the directors elected by the
holders of the Company's Class B Common Stock, the merger or consolidation of
the Company into or with another corporation in which the stockholders of the
Company shall own less than Fifty Percent (50%) of the voting securities of the
surviving corporation or the sale, transfer or lease (but not including a
transfer or lease by pledge or mortgage to a bona fide lender) of all or
substantially all of the assets of the Company shall be deemed to be a
Liquidation as such term is used in this Section 2.g. The amount deemed
distributed to the holders of the Company's Class B Common Stock and the holders
of the Company's Class C Common Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holder by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined by a competent
independent appraiser mutually agreed upon by the holders of the Company's Class
B Common Stock and the Company. The Company shall, upon receipt of such
appraiser's valuation, give prompt written notice of the appraiser's valuation
to the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock. The fees of such appraiser shall be shared 50%
by the Company, and 50% (shared pro rata) by the holders of the Company's Class
B Common Stock and the holders of the Company's Class C Common Stock.
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<PAGE> 15
v. The Company's Articles of Incorporation shall contain provisions
consistent with this Section 2.g. until the earlier of (i) the consummation of a
Purchaser Approved Offering, or (ii) the redemption or conversion of all
outstanding shares of the Company's Class C Common Stock.
i. Representation on the Board of Directors; Visitation Rights. Until a
Purchaser Approved Offering has been consummated or Purchaser no longer owns any
equity interest in the Company, there shall be, and the Company's Articles of
Incorporation shall provide for, at least five (5) members on the Company's
Board of Directors, two (2) of whom shall be elected by the holders of the
Company's Class B Common Stock voting as a class, and the remainder of whom
shall be elected by the holders of the Company's Class A Common Stock voting as
a class. The holders of the Company's Class B Common Stock shall have the right
to remove and replace two (2) members of the Board at any time, and the holders
of the Company's Class A Common Stock shall have the right to remove and replace
the remaining members of the Board at any time. The Company shall pay each
director elected by the holders of the Company's Class B Common Stock a fee of
Two Thousand Five Hundred Dollars ($2,500.00) for attendance at each meeting of
the Board of Directors. Board meetings will occur at least quarterly. The
holders of the Company's Class C Common Stock shall have the right to appoint a
representative who shall have the right to attend meetings of the Company's
Board of Directors as a visitor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In connection with the purchase of the Class C Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power
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and authority to own or lease its properties and to carry on its business as now
conducted. The Company is duly qualified and in good standing as a foreign
corporation authorized to do business in each of the jurisdictions in which the
failure to be so qualified would have a material adverse effect on the Company
and has delivered to Purchaser a good standing certificate for each such
jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
b. Capital Stock. The authorized capital stock of the Company consists
of Five Million (5,000,000) shares of Class A Common Stock, no par value per
share, of which Nine Hundred Twenty Five Thousand (925,000) shares are duly and
validly issued and outstanding, fully paid and non-assessable, Five Million
(5,000,000) shares of Class B Common Stock, no par value per share, of which
Eight Hundred Seventy Three Thousand Six Hundred Fifty Five (873,655) shares
will be duly and validly issued and outstanding, fully paid and non-assessable
upon Closing, and (_____) shares of Class C Common Stock, no par value per
share, of which Three Hundred Sixty Seven Thousand Four Hundred Sixty Four
(367,464) shares will be duly and validly issued and outstanding, fully paid and
non-assessable upon Closing (One Hundred Eighty Three Thousand Seven Hundred
Thirty Two (183,732)shares to Purchaser, and One Hundred Eighty Three Thousand
Seven Hundred Thirty Two (183,732) shares to Blue Ridge).
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All of the outstanding Class A Common Stock of the Company is owned by the
Shareholders other than Funding, and all of the outstanding Class B Common Stock
of the Company is owned by Funding. The Company does not have any other shares,
classes of shares or other debt or equity securities which are authorized,
issued or outstanding. None of the stock has been issued in violation of any
preemptive rights.
The Class C Shares are duly authorized and upon issuance to the Purchaser
shall be validly issued to Purchaser, free and clear of all liens or rights of
any nature whatsoever, and without violation of any preemptive rights but
subject, as to 56,079 of the Class C Shares, to the Voting Trust Agreement.
Except for the options described on Schedule 3.b., there are no outstanding
subscriptions, options, rights, warrants, calls, convertible securities or other
rights, agreements or commitments which obligate the Company to issue, call,
repurchase, redeem or transfer any of its capital stock, or that restrict the
transfer of or otherwise relate to the Company's capital stock.
c. Business. The Company is engaged primarily in the business of hardware
and service sales, Internet access, communications networking and related
consulting.
d. Investments. The Company does not own or have, directly or indirectly,
any material interest or investment (whether as equity or debt) in, or own any
of the capital stock of, any corporation, partnership, joint venture, business,
trust or other entity.
e. Authority. The Company has all requisite power and authority to execute
and deliver this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary corporate actions
of the Board of Directors and shareholders of the Company. This
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<PAGE> 18
Agreement is a valid and binding obligation of the Company, enforceable against
it in accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization of,
or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby.
g. No Violation. Neither the execution and delivery of this Agreement, nor
the consummation by the Company of the transactions contemplated hereby, shall
(a) conflict with the Organizational Documents of the Company, (b) violate or
constitute a default under any contract or other agreement to which the Company
is a party or by which the Company is bound, (c) violate any law, rule or
regulation of any state or of the United States or any judgment, decree, order,
regulation or rule of any court or any governmental or regulatory authority, or
(d) result in or require the creation of any lien or other encumbrance upon or
with respect to the Class C Shares or any of the assets or other securities of
the Company.
h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1996 and December 31, 1997 (the
"Financial Statements"). To the best knowledge of the Company, the Financial
Statements have been prepared in conformity with GAAP, and fairly and accurately
reflect the financial condition of the Company as of the respective dates
thereof in conformity with GAAP. To the best knowledge of the Company, all
interim financial statements for periods after December 31, 1997 that have been,
or pursuant to Section 5.c below will be, delivered to Purchaser, have been and
will be prepared in conformity with GAAP, and fairly and
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<PAGE> 19
accurately reflect the financial condition of the Company as of the respective
dates thereof in conformity with GAAP.
The Company does not have any debts, liabilities or other obligations of
any nature (whether contingent or fixed, accrued or not accrued, liquidated or
not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except as disclosed on Schedule
3.h., the Company is current on all debts, accounts payable and lease payments
as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent Financial
Statements there has been no material adverse change in the condition, financial
or otherwise, assets, liabilities or business of the Company, nor has there been
any event or condition of any character that has or may in the future materially
and adversely affect the business or prospects of the Company. Since the date of
the most recent Financial Statements there has been no dividend or other
distribution or payment in respect of the stock of the Company.
j. Taxes. The Company has paid or made adequate provision for payment of
all federal, state and local income, payroll, sales, property and other taxes,
assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may become due
with respect to any period ending on or prior to the Closing Date, and has filed
all
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required tax returns and reports which are required to be filed. No tax
deficiency has been asserted, proposed or threatened against the Company for
taxes for the current year or for any prior period which has not been fully
settled or paid, nor has any issue been raised by the Internal Revenue Service
or any other taxing authority which reasonably can be expected to result in a
deficiency for any period. The Company's tax returns have never been audited,
nor has the Company received any notice of a planned audit or any communication
that would lead a reasonable person to believe that an audit is currently being
considered by a tax authority.
k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially and adversely affects the Company,
and the Company is not aware of any breach by any other party to any of the
Contracts. The terms of all Contracts are in all material respects arm's length
terms.
l. Property. Except for the property leased pursuant to the leases listed
on Schedule 3.l. (copies of which have been provided to Purchaser), and the
liens described on Schedule 3.1, the Company has good and marketable title to
all real and personal property reflected on the Financial Statements, and to all
assets acquired since the date of the most recent Financial Statements, free and
clear of any material liens, claims or encumbrances, except for liens for taxes
not yet due and payable and inventory which has either been used or consumed or
has been sold in the ordinary course of business. To the best of the Company's
knowledge, there are no material assets used by the Company in the conduct of
its business which are not either owned by the Company or leased to the Company
under one of the leases described in Schedule 3.l.
m. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is
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there any basis for any such action, before any federal, state, local, or other
court or governmental authority, nor to the best of the knowledge of the
Company, has any such action been threatened, (i) against the Company or (ii)
against any of the officers or directors of the Company. The Company has
delivered to Purchaser a true and correct copy of the pleadings in all lawsuits
in which the Company is a party. The Company does not know of any judgment,
order, writ, injunction, decree or award that has been issued by, or requested
of, any court, administrative or governmental agency, arbitrator or other
authority which does or may result in any material adverse change in the
business, properties, assets or financial condition of the Company.
n. Compliance with Laws. The Company is in substantial compliance, and at
all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to franchising; state and federal securities
laws; and laws and regulations requiring licenses or permits (including, without
limitation, permits relating to the handling or discharge of Hazardous
Materials) or the payments of taxes. The Company has not received any notice
asserting any noncompliance. The Company has all licenses, permits and approvals
necessary for the conduct of its business. The Company has not granted a license
or other right to use any tangible or intangible assets used in or related to
the business. From the Company's inception, none of the Company's directors or
officers have been arrested or convicted of any material crime, nor have any of
them been bankrupt or served as an officer or director of a bankrupt company.
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o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company nor any
property owned or operated by the Company has been or is in violation of, nor
does the Company have any liabilities under, any Environmental Law (as defined
in Section 3.o.iii.). To the best of the Company's knowledge, there are no
actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from any Environmental Agency (as defined in Section 3.o.v.),
instituted, pending, or threatened, relating to any liability under any
Environmental Law of the Company or respecting any property owned or operated by
the Company.
ii. To the best of the Company's knowledge, no Hazardous Materials (as
defined in Section 3.o.iv.) have been generated, treated, stored or disposed of
at, or transported to or from, any properties owned or operated by the Company
at any time, except in compliance with applicable Environmental Laws. To the
best of the Company's knowledge, no friable asbestos containing material is in
use, or is or has been stored or disposed of, on or upon any properties owned or
operated by the Company. To the best of the Company's knowledge, no
polychlorinated biphenyls ("PCBs") are located on or in any properties owned or
operated by the Company in any form or device, including, without limitation, in
the form of electrical transformers, fluorescent light fixtures with ballasts,
or cooling oils, except in compliance with applicable Environmental Laws. To the
best of the Company's knowledge, no underground storage tanks are located on any
properties owned or operated by the Company or were located on any properties
owned or operated by the Company and subsequently removed or filled.
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iii. "Environmental Law" means any federal, state, local or foreign
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Environmental Agency relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the usage, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release, or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
iv. "Hazardous Materials" means solid waste (as that term is defined
under the Resource Conservation and Recovery Act, 42 U.S.C.A. Section 6901 et
seq. ("RCRA"), and the regulations adopted pursuant to RCRA), hazardous waste
(as that term is defined under RCRA and the regulations adopted pursuant to
RCRA), hazardous substances (as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601
et seq. ("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including, without limitation, any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or
chemicals.
v. "Environmental Agency" means the United States Environmental
Protection Agency, any state agency in a state where the Company owns or
operates properties which is similar in jurisdiction to the United States
Environmental Protection Agency, or any other federal, state or local agency
responsible for regulating or enforcing laws, rules, regulations and ordinances
relating
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to (i) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release,
or disposal of any substance presently listed, defined, designated or classified
as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, whether
by type or by quantity, including any material containing any such substance as
a component.
p. Intellectual Property. The Company is the sole and exclusive owner of,
or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service mark, trade name, trade secret,
copyright, patent, franchise or other intangible property right of another.
Except as set forth on Schedule 3.p., the Company is not required to pay any
royalty, license fee, commission or other payment to any person or entity with
respect to any trademark, service mark, trade name, trade secret, copyright,
patent, franchise or other intangible property. The Company has not granted any
person or entity the right to use any of the Company's trademarks, service
marks, trade names, trade secrets, copyrights, patents, technology or other
intangible property, nor is it aware of any such use by another person or
entity.
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q. Insurance. Schedule 3.q. contains a true and correct list, together with
copies of certificates or cover pages, of all policies of insurance owned and/or
maintained by the Company. All physical properties and assets of the Company are
covered by fire and other insurance against casualty loss customarily covering
properties and assets of comparable businesses in this region, in amounts which
are reasonable in light of existing replacement costs. The Company maintains
general liability, workers' compensation and other usual types of insurance in
reasonable amounts. The Company is not now in default regarding the provisions
of any policy of insurance, and has not and shall not have failed to give any
notice or present any claim thereunder in due and timely fashion.
r. Books and Records. To the best of the Company's knowledge, the books and
accounts and other corporate records of the Company are complete and correct in
all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all applicable laws relating to the employment of labor,
including without limitation any provisions thereof relating to wages and hours,
discrimination due to age, religion, sex, national origin, disability or
immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with information as to any bonus, incentive, insurance,
compensation plan, welfare, retirement, defined benefit, 401(k), pension, profit
sharing, salary reduction, deferred compensation, stock purchase,
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stock option, vacation, holiday and sick pay or other similar benefit plans
(said plans being referred to as the "Plans") in which any such employees of the
Company participate. All obligations of the Company, whether arising by
operation of law, by contract or by past custom, for payment by it to trusts,
retirement plans or other funds or any governmental agency with respect to
unemployment compensation benefits, social security benefits or any other
benefits for employees of the Company have been paid or shall be paid by the
Company at the time the Company is obligated to make such payments. All benefits
payable directly to the Company's employees have been paid or shall be paid by
the Company at the time the Company is obligated to make such payments. All
reasonably anticipated obligations of the Company, whether arising by operation
of law, by contract or by past custom, for vacation and holiday pay, bonuses and
other forms of compensation or benefits which are or may become payable to
employees or any of them have been paid, or shall be paid, in accordance with
the provisions of applicable laws, regulations, benefit plans or policies.
t. Broker Fee. All broker, finder or professional fees associated with the
transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and shall be paid by the Company as and when due.
u. Customers and Suppliers. The Company does not know of any customer or
supplier of the Company who intends to terminate or reduce its business with the
Company, whether as a result of this Agreement or otherwise. The Company is not
bound by any concession or arrangement with any customer or supplier which is
outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents
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with respect to the Plans, including, but not limited to, each of the following
documents: (i) a copy of the Plan and each related trust or other funding
agreement, including insurance contracts (and all amendments thereto) (ii) the
last filed Form 5500; (iii) the most recent determination letter received from
the United States Internal Revenue Service with respect to each Plan that is
intended to be qualified under Section 401 of the Internal Revenue Code of 1986,
as amended (the "Code"); and (iv) the summary plan descriptions and all material
modifications thereto, have been delivered to Purchaser.
All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other than for the payment of premiums) to the PBGC has been or is
expected to be incurred by the
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Company or any officer, director, shareholder or employee of the Company with
respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder, director,
officer, agent, employee or other person associated with or acting on the
Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the Company; or made any bribe,
rebate payoff, influence payment, kickback or other unlawful payment to any
person or entity, private or public, regardless of form, whether in money,
property, or services, to obtain favorable treatment in securing business or to
obtain special concessions or to pay for favorable treatment for business
secured or for special concessions already obtained.
x. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to Purchaser in this Agreement, in the light of the
circumstances under which they were made, not misleading.
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4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class C Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
a. Organization. Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of North Carolina.
b. Authority. Purchaser has all requisite power and authority to execute
and deliver this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary action of
Purchaser. This Agreement is a valid and binding obligation of Purchaser,
enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement, nor
the consummation by Purchaser of the transactions contemplated hereby, shall (i)
conflict with the Articles of Organization or Operating Agreement of Purchaser,
(ii) violate or constitute a default under any contract or other agreement to
which Purchaser is a party or by which Purchaser is bound, or (iii) violate any
law, rule or regulation of any state or of the United States or any judgment,
decree, order, regulation or rule of any court or any governmental or regulatory
authority, which would have a material adverse effect on the Company or the
transactions contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization of,
or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby or thereby, except to the
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<PAGE> 30
extent obtained by Purchaser prior to Closing or to the extent that their
failure to be obtained would not have a material adverse effect on the Company
or the transactions contemplated hereby.
5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in the
ordinary course and, without the prior written consent of Funding, except in the
ordinary course of business, shall not enter into, or permit the Company or any
assets of the Company to become bound by or subject to, any Contract, and (b)
shall continue to manage the inventories, accounts receivable, accounts payable
and payroll of the Company in accordance with past practice in the ordinary
course of business. The Company shall promptly notify Purchaser of any actions
or proceedings of the type described in Section 3.m.
b. Corporate Examination and Investigations. Purchaser, shall be entitled,
through its employees and representatives, including, without limitation,
Purchaser's counsel and accountants, on a reasonable basis, to make such
investigation of the assets, properties, business and operations of the Company
and such examination of its books, records and financial condition, as Purchaser
wishes. Any such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances and the Company shall cooperate fully
therein. No such investigation undertaken by Purchaser shall relieve the Company
of any liability hereunder. In order that Purchaser may have full opportunity to
make such business, accounting and legal review, examination or investigation,
the Company shall make available at its principal office to the representatives
of
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<PAGE> 31
Purchaser during such period all such information and copies of such documents
concerning the affairs of the Company as such representatives may reasonably
request and shall cause the officers, employees, consultants, agents,
accountants and attorneys of the Company to cooperate fully with such
representatives in connection with such review and examination. The information
obtained by Purchaser shall remain confidential and shall be disclosed only to
the officers, employees managers, members, prospective members and
representatives of Purchaser.
c. Delivery of Financial Materials. The Company shall deliver to Purchaser
(i) within thirty (30) days of the end of each month, monthly year-to-date
financial statements prepared in accordance with GAAP (including profit and
loss, cash flow, and balance sheet) and certified by the Company's chief
financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an outside accounting firm
designated by the Company and reasonably acceptable to Funding and (b)
projections for the next year in the same format as the financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the following
documents or information as applicable: (i) within thirty (30) days after
filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the
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<PAGE> 32
Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Funding. Such insurance coverage shall include, without
limitation, directors' and officers' liability insurance.
f. Use of Proceeds. The Company will use the proceeds from the issuance of
the Class C Shares hereunder to refinance the Company's existing bank
indebtedness, and to provide working capital to develop existing and future
projects.
6. FOREBEARANCES OF THE COMPANY
Except with the prior written consent of Funding, or the affirmative vote
of the directors elected by the holder of the Class B Shares, until the
consummation of a Purchaser Approved Offering or sale by Purchaser of all of its
equity interests in the Company, the Company shall not:
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement , lease or commitment
not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of One
Percent (1%) of the outstanding shares of the Company (except pursuant to the
exercise of options described on Schedule 3.b., or options issued to employees
pursuant to the terms of the Company's Stock Option Plan as in effect on the
date hereof), or create any new class or series of securities;
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<PAGE> 33
d. issue, grant or authorize any options (except options described on
Schedule 3.b., or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of One Percent (1%)
of the outstanding shares of the Company, or redeem any outstanding shares of
the Company representing, in the aggregate, in excess of One Percent (1%) of the
outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization or create any subsidiary; or liquidate,
sell or otherwise dispose of any assets or acquire any assets, other than in the
ordinary course of its business consistent with past practice;
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's Board of
Directors, any shareholder, or any other individual officer of the Company,
unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus to,
or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner consistent with past practice and
approved by the Compensation Committee of the Company's Board of Directors;
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<PAGE> 34
j. change the location or nature of its business operations or invest any
funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment for
the benefit of creditors;
l. agree to do any of the foregoing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated the
Closing Date and signed by the President and the Secretary or Treasurer of the
Company, to the effect that the applicable conditions set forth in this Section
have been satisfied.
d. The Company shall have delivered a certificate to Purchaser, dated the
Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
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<PAGE> 35
e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
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<PAGE> 36
b. Purchaser shall have performed in all material respects all obligations
and complied with all covenants required by this Agreement to be performed or
complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated the
Closing Date and signed by the President and the Secretary or Treasurer of the
general partner of Purchaser, to the effect that the applicable conditions set
forth in this Section have been satisfied.
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
9. EXPENSES
At Closing, the Company shall (i) pay Geneva Associates, LLC an advisory
fee of $87,000 for its services in connection with the transactions contemplated
hereunder, and (ii) pay all reasonable out-of-pocket costs and expenses
(including, without limitation, legal, accounting and consulting fees) incurred
by Purchaser in connection with its due diligence and the negotiation,
preparation, execution and performance of this Agreement and the transactions
contemplated hereby. Amounts to be paid by the Company at Closing under this
Section 9 shall be paid directly out of the payment of the purchase price for
the Class C Shares at Closing.
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<PAGE> 37
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to indemnify,
defend and hold harmless Purchaser against and in respect of any and all claims,
demands, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including, without limitation, interest, penalties and reasonable
attorneys' fees ("Losses"), which directly or indirectly arise, result from or
relate to the breach by the Company of, or the failure by the Company to comply
with or perform, the Company's representations, warranties, covenants or
agreements contained in this Agreement. To compensate Purchaser for the
reduction in the capitalization of the Company as the result of any
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such that, following the indemnification
payment, Purchaser would be in the same position as if the shareholders of the
Company (other than Purchaser) had made such indemnification payment to
Purchaser directly.
b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11, as follows:
i. At any time on or prior to the Closing Date, by the mutual written
consent of the Company and Purchaser;
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<PAGE> 38
ii. At any time on or prior to the Closing Date, by Purchaser in
writing, if the Company has, or by the Company in writing if Purchaser has, in
any material respect, breached (i) any covenant or undertaking contained herein
or (ii) any representation or warranty contained herein, and in the case of (i)
and (ii) if such breach has not been cured by the earlier of ten (10) days after
the date on which written notice of such breach is given to the party committing
such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company in
writing, if any of the conditions precedent to the obligations of such party to
consummate the transactions contemplated hereby have not been satisfied or
fulfilled; or
iv. By either Purchaser or the Company in writing, if the Closing Date
has not occurred by the close of business on July 15, 1998.
b. Effect of Termination. In the event of a termination of this Agreement
for any reason, each party may seek any remedies available to it, including
claims for damages, specific performance or injunctive relief.
12. CLAIMS FOR INDEMNIFICATION
Any claim for indemnification which is based upon a final judgment, decree
or award of a court of competent jurisdiction requiring the payment of money by
any party to this Agreement or any of its officers, directors or controlling
persons, shall be conclusive as to the amount of such claim, provided a
certified copy of such judgment, decree or award accompanies the notice relating
to such claim and provided further that the party seeking indemnification shall
have complied with Section 14 of this Agreement.
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<PAGE> 39
Any claim for indemnification shall be conclusive in all respects thirty
(30) days after receipt by the other party of notice thereof, unless within such
period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration Association. Judgment upon the award by
the arbitrator may be entered in any court having jurisdiction thereof. As part
of such award, the arbitrator shall be promptly paid by the party that initiates
the proceeding, but the portion of each such fee and expenses which represents
the same percentage thereof as the percentage of the amount of the claim
represented by the amount awarded shall be added to the amount of the award and
shall be borne by the indemnifying party. Any award shall be a conclusive
determination of the matter and shall be binding upon Purchaser and the Company
and shall not be contested by either of them. Arbitration proceedings shall be
held in the city of Dover, Delaware unless the parties agree upon another
location. In any such action the prevailing party, in the judgment of the
arbitrator, shall be entitled to an award of its costs and attorneys' fees
incurred in the action.
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<PAGE> 40
14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any claim or
demand shall be asserted, by any third party in respect of which indemnity may
be sought by Purchaser or the Company pursuant to the provisions of this
Agreement, the party seeking indemnification, with reasonable promptness after
obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the prior
written consent of the party seeking indemnification, which consent shall not be
unreasonably withheld, the indemnifying party shall not consent to the entry of
any judgment in or agree to any settlement of any such matters; and provided
further that the party seeking indemnification may retain counsel, at its own
expense, to represent it and participate in connection with any such proceeding
or claim or demand. Failure by the indemnifying party to notify the party
seeking indemnification of the indemnifying party's election to defend any
proceeding, claim or demand with respect to which indemnity is sought within
thirty (30) days after notice thereof shall have been given by the party seeking
indemnification shall be deemed a waiver by the indemnifying party of its right
to defend against such matter. If the indemnifying party assumes defense of any
such proceeding, claim or demand, it shall take or cause to be taken all steps
necessary in connection with such defense, and the party seeking indemnification
shall in all events be entitled to indemnity with respect to such matter, as
provided in this Agreement. In the event that the indemnifying party does not
elect to defend any proceeding, claim or demand with respect to which indemnity
is sought, the party seeking
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<PAGE> 41
indemnification may defend against, settle or otherwise deal with any such
proceeding, claim or demand in such matter as it may in its good faith
discretion deem appropriate and the indemnifying party shall be liable for
indemnification with respect to such matter, including without limitation the
reasonable costs of such defense, as provided in this Agreement. In the event of
any proceeding, claim or demand by a third party with respect to which a claim
for indemnification is made hereunder, the parties hereto agree that they will
cooperate fully with each other in connection with the defense or settlement of
such matter.
15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No waiver shall be binding unless
executed in writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be assigned by
any party hereto without the written consent of the other parties hereto,
provided, however, that Purchaser may assign any or all of its rights and
obligations hereunder to any person or entity to whom Purchaser transfers any of
the Class C Shares; provided, however, that the Purchaser shall be the sole
representative of any such transferee in dealing with all matters pertaining to
this Agreement.
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<PAGE> 42
This Agreement shall be binding on, and inure to the benefit of, the parties to
it and their respective legal representatives, successors and permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or other
communications hereunder shall be in writing and shall be effective (a) when
personally delivered by courier or otherwise to the party to be given such
notice or other communication, or (b) on the business day following the day such
notice or other communication is sent by telex, facsimile or similar electronic
device, fully prepaid, which telex, facsimile or similar electronic
communication shall promptly be confirmed by written notice or (c) on the fifth
day following the date of deposit in the United States mail if such notice or
other communication is sent by certified or registered air mail (or its
equivalent) with return receipt requested and postage thereon fully prepaid. The
addresses for such notices shall be as follows:
If to Purchaser:
Spotswood Capital, LLC
Suite ____, First Union Tower
300 N. Greene Street
Greensboro, North Carolina 27401
Attention: William J. Armfield IV
Facsimile: (336) _________
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<PAGE> 43
If to the Company:
I 3S, Inc.
1330 River Bend, Suite 600
Dallas, Texas 75247
Attention: President
Facsimile: (214) 631-5480
With a copy to:
Clay C. Scott, Jr.
7501 Inwood Road
Post Office Box 7569
Dallas, Texas 75209
Facsimile: (214) 358-2851
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits and
other documents referred to herein which form a part hereof, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties,
covenants or understandings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by all of the parties hereto.
h. Headings; References. The headings appearing in this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement. All references herein to Sections, Exhibits and Schedules refer to
the Sections contained in, and the Exhibits and Schedules attached to, this
Agreement.
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<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
ATTEST: I 3S, INC.
/s/ [ILLEGIBLE] By: /s/ James R. Price
- ----------------------------------- -------------------------------------
James R. Price, President
(CORPORATE SEAL)
SPOTSWOOD CAPITAL, LLC
By: /s/ William J. Armfield IV
--------------------------------------
William J. Armfield IV, Member-Manager
The Shareholders execute this Agreement solely for the purpose of agreeing
to the provisions of Section 2 hereof and waiving any and all preemptive rights
with respect to the issuance of the Class C Shares hereunder, which rights are
hereby waived.
/s/ James R. Price
-----------------------------------------
James R. Price
/s/ Gary A. Dobbins
-----------------------------------------
Gary A. Dobbins
/s/ Clay C. Scott, Jr.
-----------------------------------------
Clay C. Scott, Jr.
/s/ Charles Bo Price
-----------------------------------------
Charles Bo Price
/s/ George Venner
-----------------------------------------
George Venner
44
<PAGE> 45
I(3)S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Russ R. Myers
-------------------------------------
Russ R. Myers, Member-Manager
45
<PAGE> 1
EXHIBIT 4.5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of July 10,
1998, is made and entered into between BLUE RIDGE INVESTORS LIMITED PARTNERSHIP,
a North Carolina limited partnership (the "Purchaser") which is a Federal
Licensee under the Small Business Investment Act of 1958, as amended (the "SBIC
Act"); I 3S, INC., a Texas corporation (the "Company"); JAMES R. PRICE, GARY A.
DOBBINS, CLAY C. SCOTT, JR., CHARLES BO PRICE, GEORGE VENNER, and I3S FUNDING I,
L.L.C. ("Funding") the sole existing holders of capital stock of the Company
(the "Shareholders") who execute this Agreement solely for the purpose of
agreeing to the provisions of Section 2 hereof and waiving any and all
preemptive rights with respect to the issuance of the Class C Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes
to sell to Purchaser, 875,000 shares of the Company's Class C Common Stock, no
par value per share (the "Class C Shares"), on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. SALE AND PURCHASE OF CLASS C SHARES; THE CLOSING
a. Sale and Purchase of Class C Shares. Subject to the terms and
conditions set forth in this Agreement, at the Closing provided for in paragraph
1.d. below, the Company shall sell to Purchaser, and Purchaser shall buy from
the Company, Eight Hundred Seventy Five Thousand (875,000) Class C Common Shares
for an aggregate purchase price of One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000). The Class C Shares shall represent at the time of issuance
6.5029% of all outstanding common stock of the Company on a fully diluted basis
(i.e. calculated as
<PAGE> 2
if all outstanding options, warrants or other rights to acquire or purchase
shares of the Company's common stock, had been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver
the sum of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) to the
Company by way of a wire transfer in complete payment for the Class C Shares.
c. Delivery of Stock Certificate. In consideration for Purchaser's
payment for the Class C Shares, at the Closing the Company shall deliver to
Purchaser a stock certificate representing the Class C Shares.
d. The Closing. The closing of the sale and purchase of the Class C
Shares contemplated hereby (the "Closing"), shall take place at the offices of
the Company, 1330 River Bend, Suite 600, Dallas, Texas, at 10:00 a.m. on the
date hereof, or such other date and time as Purchaser and the Company shall
mutually agree in writing (the "Closing Date"). At the Closing, the Company
simultaneously shall sell 875,000 shares of Class C Common Stock to Spotswood
Capital, LLC ("Spotswood") for $1,750,000 on substantially the same terms and
conditions that are set forth herein with respect to the sale of the Class C
Shares to Purchaser.
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS C SHARES
a. Voting. Except as provided in Section 2.i below, the Class C Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock and Class B Common Stock. Purchaser acknowledges that 258,521 of
the Class C Shares shall be transferred to a voting trust pursuant to a Voting
Trust Agreement to be executed and delivered at Closing substantially in the
form of Exhibit A attached hereto.
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<PAGE> 3
b. Preemptive Rights. Until such time as a Purchaser Approved Offering
(as defined below) has been consummated or Purchaser has otherwise sold all of
its Class C Shares or other equity interests in the Company, Purchaser shall
have preemptive rights with regard to any future issuances of common stock of
the Company (other than an issuance of common stock pursuant to options that are
approved by the holders of the Company's Class B Common Stock) permitting
Purchaser to purchase additional common shares pro rata at the same price and on
the same terms and conditions of such issuance; provided, however, that if the
holders of the Company's Class B Common Stock waive their rights with respect to
a future issuance of common stock, Purchaser shall not have preemptive rights
with respect to that issuance. For purposes of this Agreement, a Purchaser
Approved Offering shall mean the consummation of an underwritten public offering
of common stock of the Company on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, Inc. pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of common
stock of the Company to the public at a price resulting in gross proceeds from
such sale to the Company (before deduction of underwriting discounts and
expenses of sale) of not less than $50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering, and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common stock unless such
shares shall have been offered for sale in writing first to the Company and then
to the other shareholders of the Company pro rata. In the event a shareholder
desires to transfer any
3
<PAGE> 4
common shares, the shareholder desiring to make such transfer (the "Transferring
Shareholder") shall deliver written notice (the "Offer Notice") to the Company
and to all other shareholders at least sixty (60) days prior to the proposed
transfer. The Offer Notice will disclose in reasonable detail the proposed
number of shares to be transferred, the proposed transferee and the proposed
price, terms and conditions of the transfer.
i. Upon receipt of the Offer Notice, the Company shall have
the option (the "Company's Option") for a period of thirty (30) days to purchase
or otherwise acquire all or part of the shares described in the Offer Notice for
an aggregate amount (such aggregate amount being hereinafter referred to as the
"Option Price") equal to the bona fide purchase price to be paid by the proposed
purchaser as described in the Offer Notice (which amount shall be zero if the
proposed transfer would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current shareholders as to whether
it will exercise, partially exercise or not exercise the Company's Option before
the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully
exercise the Company's Option within thirty (30) days after receipt of the Offer
Notice, the remaining shareholders shall have the option (each a "Shareholder's
Option") for a period of ten (10) days from the earlier of (i) their receipt of
written notice from the Company of its decision not to exercise or to only
partially exercise the Company's Option, or (ii) the expiration of the Company's
Option (the "Other Shareholder Election Period"), to purchase or otherwise
acquire all or part of the remaining shares which the Company does not choose to
purchase pursuant to the Company's Option, in proportion to their respective
ownership of shares which, for purposes of such determination, shall include
without duplication all outstanding options, warrants or other rights owned by
such shareholders that are
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convertible into shares as of the date of such notice from the Company (or the
expiration of the Company's Option), for an amount equal to the applicable
portion of the Option Price. Each shareholder shall notify in writing all then
current shareholders as to whether such shareholder will exercise, partially
exercise or not exercise the shareholder's option before the expiration of the
Other Shareholder Election Period.
iii. For a period of ten (10) days from the earlier of (i) the
receipt by the other shareholders of a written notice from a shareholder that it
does not want to exercise its option or will only partially exercise its option,
or (ii) the expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise acquire such
shareholder's portion of the shares described in the Offer Notice in proportion
to their respective ownership of shares (determined as described in Section
2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold
after compliance with the procedures set forth in this Section 2.c., the Company
shall have the final option for ten (10) days to purchase or otherwise acquire
all of the remaining shares proposed to be transferred for an amount equal to
the applicable portion of the Option Price. If, however, the Company and the
other shareholders do not individually or collectively elect to purchase all of
the shares being offered, the Transferring Shareholder may, within thirty (30)
days after the expiration of the Other Shareholder Election Period (subject to
the provisions of Section 2.c.vi. below), transfer all of the shares specified
in the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the transferee shall have the
rights and obligations set forth in this Agreement hereunder with respect to
such shares. If the Transferring Shareholder fails to consummate such transfer
within the thirty-day
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period after the expiration of the Other Shareholder Election Period, any
transfer of the shares thereafter shall again be subject to the provisions of
this Section 2.c.
v. Unless otherwise agreed in writing, signed by the person
against whom such writing is sought to be enforced, the closing of any
acquisition of common shares hereunder pursuant to the Company's Option or a
Shareholder's Option shall take place within forty-five (45) days of an
applicable option's exercise. If any such closing does not take place within
such forty-five day period, then the shares that were to be acquired shall be
offered in accordance with this Section 2.c.
as though the applicable option had not been exercised.
vi. Notwithstanding the foregoing provisions of this Section
2.c., the following shall apply in the event of any Involuntary Transfer of
common shares. An "Involuntary Transfer" shall mean any transfer caused by the
death of a shareholder, as well as any transfer, proceeding or action by,
through, as a consequence of, or in which a shareholder shall be deprived or
divested of any right, title or interest in or to any of the common stock of the
Company, including, without limitation, any seizure under levy, attachment or
execution, any transfer in connection with bankruptcy (whether pursuant to a
filing of a voluntary or an involuntary petition under the United States
Bankruptcy Code, or any amendments, modifications, revisions or successors
statutes thereto) or other court proceeding to a debtor-in-possession, trustee
in bankruptcy or receiver or other officer or agency, any transfer to a state or
to a public officer or agency pursuant to any statute pertaining to escheat or
abandoned property, any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
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In the event of any Involuntary Transfer, the Company shall
give written notice to each shareholder upon the occurrence, or prospective
occurrence, of such Involuntary Transfer within fifteen (15) days of the date on
which the Company is notified of the occurrence or prospective occurrence of
such Involuntary Transfer. The foregoing provisions of this Section 2.c. then
shall apply, except (i) the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable to the Company, Purchaser, and the
shareholder who made, or may make, the Involuntary Transfer, multiplied by the
percentage of all equity interests in the Company that is then represented by
the shares that are the subject of the Involuntary Transfer, such independent
appraised value to take into account the earnings and book value of the Company,
and (ii) the appraiser shall deliver written notice of such valuation to the
Company and to all other shareholders promptly following his completion of such
valuation, and such written notice shall be considered the Option Notice for
purposes of this Section 2.c. The cost of the appraisal shall be shared equally
by the Company and the shareholder who made, or may make, the Involuntary
Transfer.
At the closing of any purchase by the Company or any
shareholders pursuant to this Section 2.c.vi., the involuntary transferee shall
deliver certificates representing the common shares being purchased, duly
endorsed for transfer and accompanied by all requisite stock transfer taxes, and
such shares shall be conveyed free and clear of any liens, claims, options,
charges, encumbrances or rights of others arising through the action or inaction
of the involuntary transferee, and the involuntary transferee shall so represent
and warrant. The involuntary transferee shall further represent and warrant that
he is the beneficial owner of such shares.
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<PAGE> 8
In the event the provisions of this Section 2.c.vi. shall be
held to be unenforceable with respect to any particular Involuntary Transfer of
common stock, or if all of the shares subject to the Involuntary Transfer are
not purchased by the Company and/or one or more shareholders, and if the
involuntary transferee subsequently desires to transfer such common stock, the
involuntary transferee shall be deemed to be a "Transferring Shareholder" under
Section 2.c. and shall be bound by the other provisions of this Agreement.
vii. Notwithstanding anything to the contrary contained in
this Section 2.c., no shareholder shall transfer any common shares at any time
if such action would constitute a violation of any federal or state securities
laws or a breach of the conditions to any exemption from registration of the
shares under any such laws or a breach of any undertaking or agreement of such
shareholder entered into pursuant to such laws or in connection with obtaining
an exemption thereunder. Each shareholder agrees that any shares purchased or
acquired by such shareholder shall bear appropriate legends restricting the sale
or other transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common Shares.
i. In the event that the Company registers any of its common
stock or other securities under federal and state securities laws for a primary
offering or a secondary offering by the Company or any of the officers or
directors of the Company who are also shareholders (a "Management Shareholder"),
Purchaser shall have piggy-back registration rights to include all common stock
then owned by Purchaser (collectively, the "Purchaser's Common Shares"), in any
such offering on a pro rata basis. The Company shall give Purchaser notice of
such proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written
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<PAGE> 9
request of Purchaser delivered to the Company within twenty (20) days after the
receipt of the notice from the Company, which request shall state the number of
Purchaser's Common Shares that Purchaser wishes to sell or distribute publicly
under the registration statement proposed to be filed by the Company, the
Company shall use its best efforts to register Purchaser's Common Shares, and to
cause such registration to become and remain effective so long as the Company
keeps such registration effective as to any other common stock of the Company.
Purchaser's Common Shares registered pursuant to this Section 2.d.i. must be
purchased and offered for sale by a bona fide underwriter or underwriters in a
public offering on a firm commitment basis. The Company's managing underwriter
shall have the right to limit in whole or in part the total number of
Purchaser's Common Shares to be sold hereunder, so long as such limitation is
applied on a pro rata basis with respect to all shares proposed or requested to
be registered by the Company and all shareholders. The expenses of any such
offering shall be borne by the Company, except for Purchaser's pro rata share of
any underwriter's discount or sales agent's commission.
ii. If, in connection with any registration under this Section
2.d, any of the common shares of Company stock require registration or
qualification under the securities or "blue sky" laws of any state, or the
approval of any state governmental official or authority, the Company shall take
all requisite action and use its best efforts to cause such shares to be duly
registered, qualified or approved as may be required. If any shares meet the
criteria for listing on any exchange on which such stock of the Company is then
listed, the Company shall apply for and use its best efforts to obtain a listing
of all such shares on such exchange.
iii. Except as provided in Section 2.d.i. above, the Company
shall pay all of the expenses in connection with the registration of any shares
of Company stock, including, without
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limitation, the costs of preparing, printing and filing the registration
statement in compliance with the 1933 Act, the fees and expenses of counsel and
accountants for the Company, Management Shareholders and Purchaser for
qualifying the offering under the securities or "blue sky" laws and regulations
of the state in which the offering is qualified.
e. Sale of the Company.
i. At any time after April 4, 2000, and before the
consummation of a Purchaser Approved Offering, if a bona fide offer is made by
any person (other than Purchaser, or any person or entity related to or
affiliated with Purchaser), to purchase all or substantially all of the assets
or shares of stock of the Company, and Funding gives the Company written notice
that it desires such offer to be accepted, the Company and its shareholders
shall either accept the offer and consummate the sale on the terms and
conditions of the offer (in which case, if the transaction is a stock sale or
merger, Purchaser also shall sell all of its equity interests in the Company on
those terms and conditions), or the Company shall acquire all the equity
interests owned by Purchaser and Funding in the Company on the same terms and
conditions as the offer; provided, however, that if such offer is made prior to
April 4, 2002, the Company shall have no such obligation unless the total
consideration of such offer is at least $50,000,000. If at any time Funding
approves the sale of substantially all of the assets or shares of stock of the
Company, then Purchaser shall vote its shares in favor of the transaction so
approved and, if the transaction is a stock sale or merger, shall sell all of
its equity interests in the Company on the terms and conditions so approved.
In determining the total consideration for purposes of the foregoing,
any deferred payment shall be discounted to present value at a discount rate of
eight percent (8%) per annum. If the total consideration set forth in the offer
includes anything other than cash and/or marketable securities (the
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<PAGE> 11
"Non-Cash Consideration") then the Company, at its option, may acquire
Purchaser's equity interests for the product of (a) either (i) the Non-Cash
Consideration specified or (ii) cash in the amount of the fair market value of
the total consideration set forth in the offer, multiplied by (b) the percentage
of all outstanding equity interests of the Company that then is owned by
Purchaser. Such fair market value shall be determined pursuant to the terms of
the Stock Purchase Agreements dated April 4, 1997 and March 31, 1998 by and
among the Company, Funding and the other stockholders of the Company (the
"Funding Purchase Agreements").
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's and
Funding's equity interests, the Company shall acquire Purchaser's and Funding's
equity interests for cash within ninety (90) days from the date of Funding's
written notice.
ii. At any time before the consummation of a Purchaser
Approved Offering, if any assets or stock of the Company is sold for any reason,
or if the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, pari passu with the
rights of holders of the Company's Class B Common Stock and all other holders of
the Company's Class C Common Stock to be paid with respect to the Management
Shareholder Payments, and before any distribution to shareholders, a priority
distribution equal to the product of (1) the sum of (a) all payments made to
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a Management Shareholder in consideration of any covenant not to compete or
consulting agreement, plus (b) the component of any compensation to a Management
Shareholder for employment services that is in excess of the prevailing industry
average compensation, paid by companies that are similar to the company that
will be making the payments to the Management Shareholder, for the management
responsibilities actually to be performed by the Management Shareholder, as such
average compensation is mutually agreed between the Company, the Management
Shareholder and Funding, or if they cannot agree, then as determined by a
current survey of total compensation conducted by a qualified representative of
a nationally recognized investment banking or accounting firm mutually agreeable
to the Company, the Management Shareholder, and Funding, multiplied by (2) the
percentage of all equity interests in the Company that is then owned by
Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii.
shall be paid on the same schedule as the Management Shareholder Payments are
received by the Management Shareholder. If the Company has insufficient funds to
pay the portion of the priority distribution that is due at the time a
Management Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
f. Right of Co-Sale. In addition to the rights set forth in Section
2.c, at any time prior to the consummation of a Purchaser Approved Offering,
Purchaser shall have the right to participate pro rata to the full extent of its
equity interest in the Company in any sale or transfer of stock, other
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<PAGE> 13
than a gift, charitable donation or other sale or transfer representing less
than One Percent (1%) of the Company's outstanding common stock, by the Company
or any shareholder of the Company.
g. Rights of Class C Shares on Liquidation, Dissolution or Winding Up.
The following provisions shall apply until the earlier of (i) the consummation
of a Purchaser Approved Offering, or (ii) the redemption or conversion of all
outstanding shares of the Company's Class C Common Stock:
i. In the event of any liquidation, dissolution or winding up
of the Company (including without limitation a liquidation or reorganization
under Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as
may hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holders of the
Company's Class C Common Stock then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders
(pari passu with the holders of the Company's Class B Common Stock, and before
any payment shall be made to the holders of any shares of the Company's Class A
Common Stock) an amount equal to the stated value of $2.00 (subject to
appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock (the "Stated Value"), with such
amount to be calculated as of the date of such payment.
ii. If, upon any Liquidation, the assets of the Company
available for distribution to its shareholders shall be insufficient (a
"Liquidation Insufficiency") to pay the holders of the Company's Class C Common
Stock and Class C Common Stock the full amount to which they shall be entitled
pursuant to Section 2.g.i., the
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holders of the Company's Class B Common Stock and the holders of the Company's
Class C Common Stock shall be entitled to receive, pari passu, all the assets of
the Company available for distribution to its shareholders.
iii. If there is no Liquidation Insufficiency and payment
shall have been made to the holders of the Company's Class B Common Stock and
the holders of the Company's Class C Common Stock of the full amount to which
they are entitled, the holders of the Company's Class B Common Stock and the
holders of the Company's Class C Common Stock shall then be entitled to share in
all remaining assets and funds of the Company ratably in proportion to the
number of shares of Company common stock held by such holder.
iv. Unless such transaction is approved by the directors
elected by the holders of the Company's Class B Common Stock, the merger or
consolidation of the Company into or with another corporation in which the
stockholders of the Company shall own less than Fifty Percent (50%) of the
voting securities of the surviving corporation or the sale, transfer or lease
(but not including a transfer or lease by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the Company shall be deemed
to be a Liquidation as such term is used in this Section 2.g. The amount deemed
distributed to the holders of the Company's Class B Common Stock and the holders
of the Company's Class C Common Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holder by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined by a competent
independent appraiser mutually agreed upon by the holders of the Company's Class
B Common Stock and the Company. The Company shall, upon receipt of such
appraiser's valuation, give prompt written notice of the appraiser's valuation
to the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock. The fees of such
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<PAGE> 15
appraiser shall be shared 50% by the Company, and 50% (shared pro rata) by the
holders of the Company's Class B Common Stock and the holders of the Company's
Class C Common Stock.
v. The Company's Articles of Incorporation shall contain
provisions consistent with this Section 2.g. until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class C Common Stock.
i. Representation on the Board of Directors; Visitation Rights. Until a
Purchaser Approved Offering has been consummated or Purchaser no longer owns any
equity interest in the Company, there shall be, and the Company's Articles of
Incorporation shall provide for, at least five (5) members on the Company's
Board of Directors, two (2) of whom shall be elected by the holders of the
Company's Class B Common Stock voting as a class, and the remainder of whom
shall be elected by the holders of the Company's Class A Common Stock voting as
a class. The holders of the Company's Class B Common Stock shall have the right
to remove and replace two (2) members of the Board at any time, and the holders
of the Company's Class A Common Stock shall have the right to remove and replace
the remaining members of the Board at any time. The Company shall pay each
director elected by the holders of the Company's Class B Common Stock a fee of
Two Thousand Five Hundred Dollars ($2,500.00) for attendance at each meeting of
the Board of Directors. Board meetings will occur at least quarterly. The
holders of the Company's Class C Common Stock shall have the right to appoint a
representative who shall have the right to attend meetings of the Company's
Board of Directors as a visitor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In connection with the purchase of the Class C Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
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a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now conducted. The Company is duly qualified and
in good standing as a foreign corporation authorized to do business in each of
the jurisdictions in which the failure to be so qualified would have a material
adverse effect on the Company and has delivered to Purchaser a good standing
certificate for each such jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
b. Capital Stock. The authorized capital stock of the Company consists
of Twenty-Five Million (25,000,000) shares of Class A Common Stock, no par value
per share, of which Four Million Six Hundred Twenty-Five Thousand (4,625,000)
shares are duly and validly issued and outstanding, fully paid and
non-assessable, Twenty-Five Million (25,000,000) shares of Class B Common Stock,
no par value per share, of which Four Million Three Hundred Thirty Thousand
Eight Hundred Fifty (4,330,850) shares will be duly and validly issued and
outstanding, fully paid and non-assessable upon Closing, and Twenty-Five Million
(25,000,000) shares of Class C Common Stock, no par value per share, of which
One Million Seven Hundred Fifty Thousand (1,750,000) shares will be duly and
validly issued and outstanding, fully paid and non-assessable upon Closing Eight
Hundred Seventy
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Five Thousand (875,000) shares to Purchaser, and Eight Hundred Seventy Five
Thousand (875,000) shares to Spotswood).
All of the outstanding Class A Common Stock of the Company is owned by
the Shareholders other than Funding, and all of the outstanding Class B Common
Stock of the Company is owned by Funding. The Company does not have any other
shares, classes of shares or other debt or equity securities which are
authorized, issued or outstanding. None of the stock has been issued in
violation of any preemptive rights.
The Class C Shares are duly authorized and upon issuance to the
Purchaser shall be validly issued to Purchaser, free and clear of all liens or
rights of any nature whatsoever, and without violation of any preemptive rights
but subject, as to 258,521 of the Class C Shares, to the Voting Trust Agreement.
Except for the options described on Schedule 3.b., there are no outstanding
subscriptions, options, rights, warrants, calls, convertible securities or other
rights, agreements or commitments which obligate the Company to issue, call,
repurchase, redeem or transfer any of its capital stock, or that restrict the
transfer of or otherwise relate to the Company's capital stock.
c. Business. The Company is engaged primarily in the business of
hardware and service sales, Internet access, communications networking and
related consulting.
d. Investments. The Company does not own or have, directly or
indirectly, any material interest or investment (whether as equity or debt) in,
or own any of the capital stock of, any corporation, partnership, joint venture,
business, trust or other entity.
e. Authority. The Company has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized
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by all necessary corporate actions of the Board of Directors and shareholders of
the Company. This Agreement is a valid and binding obligation of the Company,
enforceable against it in accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby.
g. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by the Company of the transactions contemplated hereby,
shall (a) conflict with the Organizational Documents of the Company, (b) violate
or constitute a default under any contract or other agreement to which the
Company is a party or by which the Company is bound, (c) violate any law, rule
or regulation of any state or of the United States or any judgment, decree,
order, regulation or rule of any court or any governmental or regulatory
authority, or (d) result in or require the creation of any lien or other
encumbrance upon or with respect to the Class C Shares or any of the assets or
other securities of the Company.
h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1996 and December 31, 1997 (the
"Financial Statements"). To the best knowledge of the Company, the Financial
Statements have been prepared in conformity with GAAP, and fairly and accurately
reflect the financial condition of the Company as of the respective dates
thereof in conformity with GAAP. To the best knowledge of the Company, all
interim financial statements for periods after December 31, 1997 that have been,
or pursuant to Section 5.c below will
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be, delivered to Purchaser, have been and will be prepared in conformity with
GAAP, and fairly and accurately reflect the financial condition of the Company
as of the respective dates thereof in conformity with GAAP.
The Company does not have any debts, liabilities or other obligations
of any nature (whether contingent or fixed, accrued or not accrued, liquidated
or not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except as disclosed on Schedule
3.h., the Company is current on all debts, accounts payable and lease payments
as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent
Financial Statements there has been no material adverse change in the condition,
financial or otherwise, assets, liabilities or business of the Company, nor has
there been any event or condition of any character that has or may in the future
materially and adversely affect the business or prospects of the Company. Since
the date of the most recent Financial Statements there has been no dividend or
other distribution or payment in respect of the stock of the Company.
j. Taxes. The Company has paid or made adequate provision for payment
of all federal, state and local income, payroll, sales, property and other
taxes, assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may
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become due with respect to any period ending on or prior to the Closing Date,
and has filed all required tax returns and reports which are required to be
filed. No tax deficiency has been asserted, proposed or threatened against the
Company for taxes for the current year or for any prior period which has not
been fully settled or paid, nor has any issue been raised by the Internal
Revenue Service or any other taxing authority which reasonably can be expected
to result in a deficiency for any period. The Company's tax returns have never
been audited, nor has the Company received any notice of a planned audit or any
communication that would lead a reasonable person to believe that an audit is
currently being considered by a tax authority.
k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially and adversely affects the Company,
and the Company is not aware of any breach by any other party to any of the
Contracts. The terms of all Contracts are in all material respects arm's length
terms.
l. Property. Except for the property leased pursuant to the leases
listed on Schedule 3.l. (copies of which have been provided to Purchaser), and
the liens described on Schedule 3.1, the Company has good and marketable title
to all real and personal property reflected on the Financial Statements, and to
all assets acquired since the date of the most recent Financial Statements, free
and clear of any material liens, claims or encumbrances, except for liens for
taxes not yet due and payable and inventory which has either been used or
consumed or has been sold in the ordinary course of business. To the best of the
Company's knowledge, there are no material assets used by the Company in the
conduct of its business which are not either owned by the Company or leased to
the Company under one of the leases described in Schedule 3.l.
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m. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is there any basis for any such action,
before any federal, state, local, or other court or governmental authority, nor
to the best of the knowledge of the Company, has any such action been
threatened, (i) against the Company or (ii) against any of the officers or
directors of the Company. The Company has delivered to Purchaser a true and
correct copy of the pleadings in all lawsuits in which the Company is a party.
The Company does not know of any judgment, order, writ, injunction, decree or
award that has been issued by, or requested of, any court, administrative or
governmental agency, arbitrator or other authority which does or may result in
any material adverse change in the business, properties, assets or financial
condition of the Company.
n. Compliance with Laws. The Company is in substantial compliance, and
at all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to franchising; state and federal securities
laws; and laws and regulations requiring licenses or permits (including, without
limitation, permits relating to the handling or discharge of Hazardous
Materials) or the payments of taxes. The Company has not received any notice
asserting any noncompliance. The Company has all licenses, permits and approvals
necessary for the conduct of its business. The Company has not granted a license
or other right to use any tangible or intangible assets used in or related to
the business. From the Company's inception, none of the Company's directors or
officers
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have been arrested or convicted of any material crime, nor have any of them been
bankrupt or served as an officer or director of a bankrupt company.
o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company
nor any property owned or operated by the Company has been or is in violation
of, nor does the Company have any liabilities under, any Environmental Law (as
defined in Section 3.o.iii.). To the best of the Company's knowledge, there are
no actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from any Environmental Agency (as defined in Section 3.o.v.),
instituted, pending, or threatened, relating to any liability under any
Environmental Law of the Company or respecting any property owned or operated by
the Company.
ii. To the best of the Company's knowledge, no Hazardous
Materials (as defined in Section 3.o.iv.) have been generated, treated, stored
or disposed of at, or transported to or from, any properties owned or operated
by the Company at any time, except in compliance with applicable Environmental
Laws. To the best of the Company's knowledge, no friable asbestos containing
material is in use, or is or has been stored or disposed of, on or upon any
properties owned or operated by the Company. To the best of the Company's
knowledge, no polychlorinated biphenyls ("PCBs") are located on or in any
properties owned or operated by the Company in any form or device, including,
without limitation, in the form of electrical transformers, fluorescent light
fixtures with ballasts, or cooling oils, except in compliance with applicable
Environmental Laws. To the best of the Company's knowledge, no underground
storage tanks are located on any properties owned or
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operated by the Company or were located on any properties owned or operated by
the Company and subsequently removed or filled.
iii. "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any Environmental Agency relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the usage, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release, or disposal
of any substance presently listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether by
type or by quantity, including any material containing any such substance as a
component.
iv. "Hazardous Materials" means solid waste (as that term is
defined under the Resource Conservation and Recovery Act, 42 U.S.C.A. Section
6901 et seq. ("RCRA"), and the regulations adopted pursuant to RCRA), hazardous
waste (as that term is defined under RCRA and the regulations adopted pursuant
to RCRA), hazardous substances (as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601
et seq. ("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including, without limitation, any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or
chemicals.
v. "Environmental Agency" means the United States
Environmental Protection Agency, any state agency in a state where the Company
owns or operates properties which is similar
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in jurisdiction to the United States Environmental Protection Agency, or any
other federal, state or local agency responsible for regulating or enforcing
laws, rules, regulations and ordinances relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release, or disposal of any
substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a component.
p. Intellectual Property. The Company is the sole and exclusive owner
of, or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service mark, trade name, trade secret,
copyright, patent, franchise or other intangible property right of another.
Except as set forth on Schedule 3.p., the Company is not required to pay any
royalty, license fee, commission or other payment to any person or entity with
respect to any trademark, service mark, trade name, trade secret, copyright,
patent, franchise or other intangible property. The Company has not granted any
person or entity the right to use any of the Company's trademarks, service
marks, trade names, trade secrets, copyrights,
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patents, technology or other intangible property, nor is it aware of any such
use by another person or entity.
q. Insurance. Schedule 3.q. contains a true and correct list, together
with copies of certificates or cover pages, of all policies of insurance owned
and/or maintained by the Company. All physical properties and assets of the
Company are covered by fire and other insurance against casualty loss
customarily covering properties and assets of comparable businesses in this
region, in amounts which are reasonable in light of existing replacement costs.
The Company maintains general liability, workers' compensation and other usual
types of insurance in reasonable amounts. The Company is not now in default
regarding the provisions of any policy of insurance, and has not and shall not
have failed to give any notice or present any claim thereunder in due and timely
fashion.
r. Books and Records. To the best of the Company's knowledge, the books
and accounts and other corporate records of the Company are complete and correct
in all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all applicable laws relating to the employment of labor,
including without limitation any provisions thereof relating to wages and hours,
discrimination due to age, religion, sex, national origin, disability or
immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with
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information as to any bonus, incentive, insurance, compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing, salary reduction,
deferred compensation, stock purchase, stock option, vacation, holiday and sick
pay or other similar benefit plans (said plans being referred to as the "Plans")
in which any such employees of the Company participate. All obligations of the
Company, whether arising by operation of law, by contract or by past custom, for
payment by it to trusts, retirement plans or other funds or any governmental
agency with respect to unemployment compensation benefits, social security
benefits or any other benefits for employees of the Company have been paid or
shall be paid by the Company at the time the Company is obligated to make such
payments. All benefits payable directly to the Company's employees have been
paid or shall be paid by the Company at the time the Company is obligated to
make such payments. All reasonably anticipated obligations of the Company,
whether arising by operation of law, by contract or by past custom, for vacation
and holiday pay, bonuses and other forms of compensation or benefits which are
or may become payable to employees or any of them have been paid, or shall be
paid, in accordance with the provisions of applicable laws, regulations, benefit
plans or policies.
t. Broker Fee. All broker, finder or professional fees associated with
the transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and shall be paid by the Company as and when due.
u. Customers and Suppliers. The Company does not know of any customer
or supplier of the Company who intends to terminate or reduce its business with
the Company, whether as a result of this Agreement or otherwise. The Company is
not bound by any concession or arrangement with any customer or supplier which
is outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
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v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents with respect to the Plans, including, but not limited to,
each of the following documents: (i) a copy of the Plan and each related trust
or other funding agreement, including insurance contracts (and all amendments
thereto) (ii) the last filed Form 5500; (iii) the most recent determination
letter received from the United States Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"); and (iv) the summary plan
descriptions and all material modifications thereto, have been delivered to
Purchaser.
All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other
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than for the payment of premiums) to the PBGC has been or is expected to be
incurred by the Company or any officer, director, shareholder or employee of the
Company with respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder,
director, officer, agent, employee or other person associated with or acting on
the Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the Company; or made any bribe,
rebate payoff, influence payment, kickback or other unlawful payment to any
person or entity, private or public, regardless of form, whether in money,
property, or services, to obtain favorable treatment in securing business or to
obtain special concessions or to pay for favorable treatment for business
secured or for special concessions already obtained.
x. Small Business Concern. The Company, taken together with its
"affiliates" (as that term is defined in Section 121.401 of Title 13 of the Code
of Federal Regulations), is a "Small Business Concern" within the meaning of
Section 103(5) of the SBIC Act, and the regulations thereunder including Title
13, Code of Federal Regulations, Section 121.3, and meets the applicable size
eligibility criteria set forth in Title 13, Code of Federal Regulations, Section
121.802(a)(2). The Company does not presently engage in any activities for which
a small business investment company is prohibited from providing funds by the
SBIC Act and the regulations thereunder, including Title 13, Code of Federal
Regulations, Section 107.
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y. Small Business Administration Documentation. The Company has
provided the Purchaser with a Small Business Administration ("SBA") Form 480
(Size Status Declaration) and SBA Form 652 (Assurance of Compliance) which have
been completed and executed by the Company, and SBA Form 1031 (portfolio Finance
Report), Part A of which has been completed by the Company.
z. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to Purchaser in this Agreement, in the light of the
circumstances under which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class C Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
a. Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of North
Carolina.
b. Authority. Purchaser has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
action of Purchaser. This Agreement is a valid and binding obligation of
Purchaser, enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by Purchaser of the transactions contemplated hereby, shall
(i) conflict with the Articles of Organization or Operating Agreement of
Purchaser, (ii) violate or constitute a default
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under any contract or other agreement to which Purchaser is a party or by which
Purchaser is bound, or (iii) violate any law, rule or regulation of any state or
of the United States or any judgment, decree, order, regulation or rule of any
court or any governmental or regulatory authority, which would have a material
adverse effect on the Company or the transactions contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby or thereby, except to the
extent obtained by Purchaser prior to Closing or to the extent that their
failure to be obtained would not have a material adverse effect on the Company
or the transactions contemplated hereby.
5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in
the ordinary course and, without the prior written consent of Funding, except in
the ordinary course of business, shall not enter into, or permit the Company or
any assets of the Company to become bound by or subject to, any Contract, and
(b) shall continue to manage the inventories, accounts receivable, accounts
payable and payroll of the Company in accordance with past practice in the
ordinary course of business. The Company shall promptly notify Purchaser of any
actions or proceedings of the type described in Section 3.m.
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b. Corporate Examination and Investigations. Purchaser, shall be
entitled, through its employees and representatives, including, without
limitation, Purchaser's counsel and accountants, on a reasonable basis, to make
such investigation of the assets, properties, business and operations of the
Company and such examination of its books, records and financial condition, as
Purchaser wishes. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances and the Company shall
cooperate fully therein. No such investigation undertaken by Purchaser shall
relieve the Company of any liability hereunder. In order that Purchaser may have
full opportunity to make such business, accounting and legal review, examination
or investigation, the Company shall make available at its principal office to
the representatives of Purchaser during such period all such information and
copies of such documents concerning the affairs of the Company as such
representatives may reasonably request and shall cause the officers, employees,
consultants, agents, accountants and attorneys of the Company to cooperate fully
with such representatives in connection with such review and examination. The
information obtained by Purchaser shall remain confidential and shall be
disclosed only to the officers, employees managers, members, prospective members
and representatives of Purchaser or the SBA.
c. Delivery of Financial Materials. The Company shall deliver to
Purchaser (i) within thirty (30) days of the end of each month, monthly
year-to-date financial statements prepared in accordance with GAAP (including
profit and loss, cash flow, and balance sheet) and certified by the Company's
chief financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an
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outside accounting firm designated by the Company and reasonably acceptable to
Funding and (b) projections for the next year in the same format as the
financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the
following documents or information as applicable: (i) within thirty (30) days
after filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Funding. Such insurance coverage shall include, without
limitation, directors' and officers' liability insurance.
f. Activities and Proceeds.
(i) Neither the Company nor any of its subsidiaries will
engage in any activities or use directly or indirectly the proceeds
from the Class C Shares for any purpose for which a small business
investment company is prohibited from providing funds by the SBIC Act
and the regulations promulgated thereunder, including Title 13, Code of
Federal Regulations, Section 107.
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ii. The Company will use the proceeds from the Class C Shares
to provide working capital to develop existing and future projects. The
Company will deliver within ninety (90) days of the Closing to
Purchaser a written report, certified as correct by the Company's chief
financial officer, verifying the purposes and the amounts for which
proceeds from the Class C Shares have been disbursed, and, if the
proceeds have not been fully disbursed within that ninety-day period,
an additional report also so certified, delivered not later than the
end of each succeeding ninety-day period, verifying the purposes and
the amounts for which proceeds have been disbursed. The Company will
supply to Purchaser such additional information and documents as
Purchaser reasonably requests with respect to use of proceeds and will
permit Purchaser to have access to any and all Company records and
information and personnel as Purchaser deems necessary to verify how
proceeds have been or are being used and to assure that the proceeds
have been used for the purposes specified. The Company agrees that any
diversion by the Company of the proceeds of the Class C Shares for any
purpose other than those set forth above, without the prior written
consent of Purchaser, will constitute a breach of the covenants of the
Company under this Agreement (a "Proceeds Event of Default").
iii. The Company will not, without obtaining the prior written
approval of Purchaser, change within one (1) year of the Closing the
Company's business activity from that described above to a business
activity which a small business investment company is prohibited from
providing funds by the SBIC Act and the regulations promulgated
thereunder. The Company agrees that any such changes in its business
activity without such prior written
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consent of Purchaser will constitute a breach of the covenants of the
Company under this Agreement (an "Activity Event of Default").
iv. If either a Proceeds Event of Default or an Activity Event
of Default occurs, Purchaser hereunder shall have the right to demand
immediate repayment of the purchase price of the Class C Shares,
together with interest at the rate of 12% per annum to the date of
repayment, and the Company will immediately make such payment within
three (3) days of receipt of a demand. The payment remedy is in
addition to any and all other rights and remedies against the Company
and others to which Purchaser may be entitled.
6. FOREBEARANCES OF THE COMPANY
Except with the prior written consent of Funding, or the affirmative
vote of the directors elected by the holder of the Class B Shares, until the
consummation of a Purchaser Approved Offering or sale by Purchaser of all of its
equity interests in the Company, the Company shall not:
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement, lease or
commitment not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of
One Percent (1%) of the outstanding shares of the Company (except pursuant to
the exercise of options described on Schedule 3.b., or options issued to
employees pursuant to the terms of the Company's Stock Option Plan as in effect
on the date hereof), or create any new class or series of securities;
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d. issue, grant or authorize any options (except options described on
Schedule 3.b., or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of One Percent (1%)
of the outstanding shares of the Company, or redeem any outstanding shares of
the Company representing, in the aggregate, in excess of One Percent (1%) of the
outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization or create any subsidiary; or liquidate,
sell or otherwise dispose of any assets or acquire any assets, other than in the
ordinary course of its business consistent with past practice;
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's
Board of Directors, any shareholder, or any other individual officer of the
Company, unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner consistent with past practice and
approved by the Compensation Committee of the Company's Board of Directors;
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j. change the location or nature of its business operations or invest
any funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment
for the benefit of creditors;
l. agree to do any of the foregoing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the Company, to the effect that the applicable conditions set forth in this
Section have been satisfied.
d. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
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e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. Purchaser shall have performed in all material respects all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the general partner of Purchaser, to the effect that the applicable conditions
set forth in this Section have been satisfied.
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
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9. EXPENSES
At Closing, the Company shall (i) pay Geneva Associates, LLC a total
advisory fee of $87,000 for its services in connection with the transactions
contemplated hereunder and under the Stock Purchase Agreement with Spotswood
dated the date hereof, and (ii) pay all reasonable out-of-pocket costs and
expenses (including, without limitation, legal, accounting and consulting fees)
incurred by Purchaser in connection with its due diligence and the negotiation,
preparation, execution and performance of this Agreement and the transactions
contemplated hereby. Amounts to be paid by the Company at Closing under Section
9(ii) shall be paid directly out of the payment of the purchase price for the
Class C Shares at Closing.
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to
indemnify, defend and hold harmless Purchaser against and in respect of any and
all claims, demands, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including, without limitation, interest, penalties
and reasonable attorneys' fees ("Losses"), which directly or indirectly arise,
result from or relate to the breach by the Company of, or the failure by the
Company to comply with or perform, the Company's representations, warranties,
covenants or agreements contained in this Agreement. To compensate Purchaser for
the reduction in the capitalization of the Company as the result of any
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such that, following the indemnification
payment, Purchaser would be in the same position as if the shareholders of the
Company (other than Purchaser) had made such indemnification payment to
Purchaser directly.
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b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11, as
follows:
i. At any time on or prior to the Closing Date, by the mutual
written consent of the Company and Purchaser;
ii. At any time on or prior to the Closing Date, by Purchaser
in writing, if the Company has, or by the Company in writing if Purchaser has,
in any material respect, breached (i) any covenant or undertaking contained
herein or (ii) any representation or warranty contained herein, and in the case
of (i) and (ii) if such breach has not been cured by the earlier of ten (10)
days after the date on which written notice of such breach is given to the party
committing such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company
in writing, if any of the conditions precedent to the obligations of such party
to consummate the transactions contemplated hereby have not been satisfied or
fulfilled; or
iv. By either Purchaser or the Company in writing, if the
Closing Date has not occurred by the close of business on July 15, 1998.
b. Effect of Termination. In the event of a termination of this
Agreement for any reason, each party may seek any remedies available to it,
including claims for damages, specific performance or injunctive relief.
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12. CLAIMS FOR INDEMNIFICATION
Any claim for indemnification which is based upon a final judgment,
decree or award of a court of competent jurisdiction requiring the payment of
money by any party to this Agreement or any of its officers, directors or
controlling persons, shall be conclusive as to the amount of such claim,
provided a certified copy of such judgment, decree or award accompanies the
notice relating to such claim and provided further that the party seeking
indemnification shall have complied with Section 14 of this Agreement.
Any claim for indemnification shall be conclusive in all respects
thirty (30) days after receipt by the other party of notice thereof, unless
within such period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration Association. Judgment upon the award by
the arbitrator may be entered in any court having jurisdiction thereof. As part
of such award, the arbitrator shall be promptly paid by the party that initiates
the proceeding, but the portion of each such fee and expenses which represents
the same
41
<PAGE> 42
percentage thereof as the percentage of the amount of the claim represented by
the amount awarded shall be added to the amount of the award and shall be borne
by the indemnifying party. Any award shall be a conclusive determination of the
matter and shall be binding upon Purchaser and the Company and shall not be
contested by either of them. Arbitration proceedings shall be held in the city
of Dover, Delaware unless the parties agree upon another location. In any such
action the prevailing party, in the judgment of the arbitrator, shall be
entitled to an award of its costs and attorneys' fees incurred in the action.
14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any
claim or demand shall be asserted, by any third party in respect of which
indemnity may be sought by Purchaser or the Company pursuant to the provisions
of this Agreement, the party seeking indemnification, with reasonable promptness
after obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the prior
written consent of the party seeking indemnification, which consent shall not be
unreasonably withheld, the indemnifying party shall not consent to the entry of
any judgment in or agree to any settlement of any such matters; and provided
further that the party seeking indemnification may retain counsel, at its own
expense, to represent it and participate in connection with any such proceeding
or claim or demand. Failure by the indemnifying party to notify the party
seeking indemnification of the indemnifying party's election to defend any
proceeding, claim or demand with respect to which
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<PAGE> 43
indemnity is sought within thirty (30) days after notice thereof shall have been
given by the party seeking indemnification shall be deemed a waiver by the
indemnifying party of its right to defend against such matter. If the
indemnifying party assumes defense of any such proceeding, claim or demand, it
shall take or cause to be taken all steps necessary in connection with such
defense, and the party seeking indemnification shall in all events be entitled
to indemnity with respect to such matter, as provided in this Agreement. In the
event that the indemnifying party does not elect to defend any proceeding, claim
or demand with respect to which indemnity is sought, the party seeking
indemnification may defend against, settle or otherwise deal with any such
proceeding, claim or demand in such matter as it may in its good faith
discretion deem appropriate and the indemnifying party shall be liable for
indemnification with respect to such matter, including without limitation the
reasonable costs of such defense, as provided in this Agreement. In the event of
any proceeding, claim or demand by a third party with respect to which a claim
for indemnification is made hereunder, the parties hereto agree that they will
cooperate fully with each other in connection with the defense or settlement of
such matter.
15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to,
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<PAGE> 44
any subsequent or other failure. No waiver shall be binding unless executed in
writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be
assigned by any party hereto without the written consent of the other parties
hereto, provided, however, that Purchaser may assign any or all of its rights
and obligations hereunder to any person or entity to whom Purchaser transfers
any of the Class C Shares; provided, however, that the Purchaser shall be the
sole representative of any such transferee in dealing with all matters
pertaining to this Agreement. This Agreement shall be binding on, and inure to
the benefit of, the parties to it and their respective legal representatives,
successors and permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or
other communications hereunder shall be in writing and shall be effective (a)
when personally delivered by courier or otherwise to the party to be given such
notice or other communication, or (b) on the business day following the day such
notice or other communication is sent by telex, facsimile or similar electronic
device, fully prepaid, which telex, facsimile or similar electronic
communication shall promptly be confirmed by written notice or (c) on the fifth
day following the date of deposit in the United States mail if such notice or
other communication is sent by certified or registered air mail (or its
equivalent) with return receipt requested and postage thereon fully prepaid. The
addresses for such notices shall be as follows:
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<PAGE> 45
If to Purchaser:
Blue Ridge Investors Limited Partnership
c/o Blue Ridge Investors Group, Inc.
First Union Tower
P. O. Box 21962
Greensboro, North Carolina 27420
Attention: Russell R. Myers and Edward C. McCarthy
Facsimile: (336) 274-4984
With a copy to:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Post Office Box 26000
Greensboro, North Carolina 27420
Attention: Marc D. Bishop
Facsimile (336) 378-1001
If to the Company:
I 3S, Inc.
1330 River Bend, Suite 600
Dallas, Texas 75247
Attention: President
Facsimile: (214) 631-5480
With a copy to:
Clay C. Scott, Jr.
7501 Inwood Road
Post Office Box 7569
Dallas, Texas 75209
Facsimile: (214) 358-2851
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits
and other documents referred to herein which form a part hereof, embodies the
entire agreement and
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<PAGE> 46
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties, covenants or
understandings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by all of the parties
hereto.
h. Headings; References. The headings appearing in this Agreement are
for convenience of reference only and shall not affect the interpretation of
this Agreement. All references herein to Sections, Exhibits and Schedules refer
to the Sections contained in, and the Exhibits and Schedules attached to, this
Agreement.
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<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
ATTEST: I 3S, INC.
/s/ illegible By: /s/ James R. Price
- ---------------------------- --------------------------
James R. Price, President
(CORPORATE SEAL)
BLUE RIDGE INVESTORS LIMITED
PARTNERSHIP
By: Blue Ridge Investors Group, Inc.
By: /s/ Russ R. Myers
---------------------------------
Russ R. Myers, President
The Shareholders execute this Agreement solely for the purpose of
agreeing to the provisions of Section 2 hereof and waiving any and all
preemptive rights with respect to the issuance of the Class C Shares hereunder,
which rights are hereby waived.
/s/ James R. Price
-------------------------------------
James R. Price
/s/ Gary A. Dobbins
-------------------------------------
Gary A. Dobbins
/s/ Clay C. Scott, Jr.
-------------------------------------
Clay C. Scott, Jr.
/s/ Charles Bo Price
-------------------------------------
Charles Bo Price
/s/ George Venner
-------------------------------------
George Venner
47
<PAGE> 48
I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Russ R. Myers
------------------------------
Russ R. Myers, Member-Manager
48
<PAGE> 1
EXHIBIT 4.6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December
30, 1998, is made and entered into between SPOTSWOOD CAPITAL, LLC, a North
Carolina limited liability company (the "Purchaser"); I 3S, INC., a Texas
corporation (the "Company"); JAMES R. PRICE, GARY A. DOBBINS, CLAY C. SCOTT,
JR., CHARLES BO PRICE, GEORGE VENNER, BLUE RIDGE INVESTORS LIMITED PARTNERSHIP
("Blue Ridge") and I3S FUNDING I, L.L.C. ("Funding") (collectively, the
"Shareholders") who execute this Agreement solely for the purpose of agreeing to
the provisions of Section 2 hereof and waiving any and all preemptive rights
with respect to the issuance of the Class C Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes
to sell to Purchaser, 162,232 shares of the Company's Class C Common Stock, no
par value per share (the "Class C Shares"), on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. SALE AND PURCHASE OF CLASS C SHARES; THE CLOSING
a. Sale and Purchase of Class C Shares. Subject to the terms and
conditions set forth in this Agreement, at the Closing provided for in paragraph
1.d. below, the Company shall sell to Purchaser, and Purchaser shall buy from
the Company, One Hundred Sixty Two Thousand Two Hundred Thirty-Two (162,232)
Class C Shares for an aggregate purchase price of Five Hundred Thousand Dollars
($500,000). The Class C Shares, together with the Class C Common Stock
previously issued to Purchaser, shall represent at the time of issuance 7.10% of
all outstanding common stock of the Company on a fully diluted basis (i.e.
calculated as if all outstanding options,
<PAGE> 2
warrants or other rights to acquire or purchase shares of the Company's common
stock, had been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver
the sum of Five Hundred Thousand Dollars ($500,000) to the Company by way of a
wire transfer in complete payment for the Class C Shares.
c. Delivery of Stock Certificate. In consideration for Purchaser's
payment for the Class C Shares, at the Closing the Company shall deliver to
Purchaser a stock certificate representing the Class C Shares.
d. The Closing. The closing of the sale and purchase of the Class C
Shares contemplated hereby (the "Closing"), shall take place at the offices of
the Company, 1330 River Bend, Suite 600, Dallas, Texas, at 10:00 a.m. on the
date hereof, or such other date and time as Purchaser and the Company shall
mutually agree in writing (the "Closing Date"). At the Closing, the Company
simultaneously shall sell (i) 162,232 shares of Class C Common Stock to Blue
Ridge for $500,000 on substantially the same terms and conditions that are set
forth herein with respect to the sale of the Class C Shares to Purchaser, and
(ii) 648,927 shares of Class B Common Stock to Funding for $2,000,000.
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS C SHARES
a. Voting. Except as provided in Section 2.i below, the Class C Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock and Class B Common Stock. Purchaser acknowledges that 81,279 of the
Class C Shares shall be transferred to a voting trust pursuant to a
2
<PAGE> 3
Voting Trust Agreement among certain of the parties hereto dated the date hereof
(the "Voting Trust Agreement").
b. Preemptive Rights. Until such time as a Purchaser Approved Offering
(as defined below) has been consummated or Purchaser has otherwise sold all of
its Class C Shares or other equity interests in the Company, Purchaser shall
have preemptive rights with regard to any future issuances of common stock of
the Company (other than an issuance of common stock pursuant to options that are
approved by the holders of the Company's Class B Common Stock) permitting
Purchaser to purchase additional common shares pro rata at the same price and on
the same terms and conditions of such issuance; provided, however, that if the
holders of the Company's Class B Common Stock waive their rights with respect to
a future issuance of common stock, Purchaser shall not have preemptive rights
with respect to that issuance. For purposes of this Agreement, a Purchaser
Approved Offering shall mean the consummation of an underwritten public offering
of common stock of the Company on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, Inc. pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of common
stock of the Company to the public at a price resulting in gross proceeds from
such sale to the Company (before deduction of underwriting discounts and
expenses of sale) of not less than $50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering , and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common
3
<PAGE> 4
stock unless such shares shall have been offered for sale in writing first to
the Company and then to the other shareholders of the Company pro rata. In the
event a shareholder desires to transfer any common shares, the shareholder
desiring to make such transfer (the "Transferring Shareholder") shall deliver
written notice (the "Offer Notice") to the Company and to all other shareholders
at least sixty (60) days prior to the proposed transfer. The Offer Notice will
disclose in reasonable detail the proposed number of shares to be transferred,
the proposed transferee and the proposed price, terms and conditions of the
transfer.
i. Upon receipt of the Offer Notice, the Company shall have
the option (the "Company's Option") for a period of thirty (30) days to purchase
or otherwise acquire all or part of the shares described in the Offer Notice for
an aggregate amount (such aggregate amount being hereinafter referred to as the
"Option Price") equal to the bona fide purchase price to be paid by the proposed
purchaser as described in the Offer Notice (which amount shall be zero if the
proposed transfer would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current shareholders as to whether
it will exercise, partially exercise or not exercise the Company's Option before
the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully
exercise the Company's Option within thirty (30) days after receipt of the Offer
Notice, the remaining shareholders shall have the option (each a "Shareholder's
Option") for a period of ten (10) days from the earlier of (i) their receipt of
written notice from the Company of its decision not to exercise or to only
partially exercise the Company's Option, or (ii) the expiration of the Company's
Option (the "Other Shareholder Election Period"), to purchase or otherwise
acquire all or part of the remaining shares which the Company does not choose to
purchase pursuant to the Company's Option, in proportion to their
4
<PAGE> 5
respective ownership of shares which, for purposes of such determination, shall
include without duplication all outstanding options, warrants or other rights
owned by such shareholders that are convertible into shares as of the date of
such notice from the Company (or the expiration of the Company's Option), for an
amount equal to the applicable portion of the Option Price. Each shareholder
shall notify in writing all then current shareholders as to whether such
shareholder will exercise, partially exercise or not exercise the shareholder's
option before the expiration of the Other Shareholder Election Period.
iii. For a period of ten (10) days from the earlier of (i) the
receipt by the other shareholders of a written notice from a shareholder that it
does not want to exercise its option or will only partially exercise its option,
or (ii) the expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise acquire such
shareholder's portion of the shares described in the Offer Notice in proportion
to their respective ownership of shares (determined as described in Section
2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold
after compliance with the procedures set forth in this Section 2.c., the Company
shall have the final option for ten (10) days to purchase or otherwise acquire
all of the remaining shares proposed to be transferred for an amount equal to
the applicable portion of the Option Price. If, however, the Company and the
other shareholders do not individually or collectively elect to purchase all of
the shares being offered, the Transferring Shareholder may, within thirty (30)
days after the expiration of the Other Shareholder Election Period (subject to
the provisions of Section 2.c.vi. below), transfer all of the shares specified
in the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the
5
<PAGE> 6
transferee shall have the rights and obligations set forth in this Agreement
hereunder with respect to such shares. If the Transferring Shareholder fails to
consummate such transfer within the thirty-day period after the expiration of
the Other Shareholder Election Period, any transfer of the shares thereafter
shall again be subject to the provisions of this Section 2.c.
v. Unless otherwise agreed in writing, signed by the person
against whom such writing is sought to be enforced, the closing of any
acquisition of common shares hereunder pursuant to the Company's Option or a
Shareholder's Option shall take place within forty-five (45) days of an
applicable option's exercise. If any such closing does not take place within
such forty-five day period, then the shares that were to be acquired shall be
offered in accordance with this Section 2.c. as though the applicable option had
not been exercised.
vi. Notwithstanding the foregoing provisions of this Section
2.c., the following shall apply in the event of any Involuntary Transfer of
common shares. An "Involuntary Transfer" shall mean any transfer caused by the
death of a shareholder, as well as any transfer, proceeding or action by,
through, as a consequence of, or in which a shareholder shall be deprived or
divested of any right, title or interest in or to any of the common stock of the
Company, including, without limitation, any seizure under levy, attachment or
execution, any transfer in connection with bankruptcy (whether pursuant to a
filing of a voluntary or an involuntary petition under the United States
Bankruptcy Code, or any amendments, modifications, revisions or successors
statutes thereto) or other court proceeding to a debtor-in-possession, trustee
in bankruptcy or receiver or other officer or agency, any transfer to a state or
to a public officer or agency pursuant to any statute pertaining to escheat or
abandoned property, any transfer pursuant to a separation agreement, equitable
6
<PAGE> 7
distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
In the event of any Involuntary Transfer, the Company shall
give written notice to each shareholder upon the occurrence, or prospective
occurrence, of such Involuntary Transfer within fifteen (15) days of the date on
which the Company is notified of the occurrence or prospective occurrence of
such Involuntary Transfer. The foregoing provisions of this Section 2.c. then
shall apply, except (i) the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable to the Company, Purchaser, and the
shareholder who made, or may make, the Involuntary Transfer, multiplied by the
percentage of all equity interests in the Company that is then represented by
the shares that are the subject of the Involuntary Transfer, such independent
appraised value to take into account the earnings and book value of the Company,
and (ii) the appraiser shall deliver written notice of such valuation to the
Company and to all other shareholders promptly following his completion of such
valuation, and such written notice shall be considered the Option Notice for
purposes of this Section 2.c. The cost of the appraisal shall be shared equally
by the Company and the shareholder who made, or may make, the Involuntary
Transfer.
At the closing of any purchase by the Company or any
shareholders pursuant to this Section 2.c.vi., the involuntary transferee shall
deliver certificates representing the common shares being purchased, duly
endorsed for transfer and accompanied by all requisite stock transfer taxes, and
such shares shall be conveyed free and clear of any liens, claims, options,
charges, encumbrances or rights of others arising through the action or inaction
of the involuntary transferee, and the
7
<PAGE> 8
involuntary transferee shall so represent and warrant. The involuntary
transferee shall further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this Section 2.c.vi. shall be
held to be unenforceable with respect to any particular Involuntary Transfer of
common stock, or if all of the shares subject to the Involuntary Transfer are
not purchased by the Company and/or one or more shareholders, and if the
involuntary transferee subsequently desires to transfer such common stock, the
involuntary transferee shall be deemed to be a "Transferring Shareholder" under
Section 2.c. and shall be bound by the other provisions of this Agreement.
vii. Notwithstanding anything to the contrary contained in
this Section 2.c., no shareholder shall transfer any common shares at any time
if such action would constitute a violation of any federal or state securities
laws or a breach of the conditions to any exemption from registration of the
shares under any such laws or a breach of any undertaking or agreement of such
shareholder entered into pursuant to such laws or in connection with obtaining
an exemption thereunder. Each shareholder agrees that any shares purchased or
acquired by such shareholder shall bear appropriate legends restricting the sale
or other transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common
Shares.
i. In the event that the Company registers any of its common
stock or other securities under federal and state securities laws for a primary
offering or a secondary offering by the Company or any of the officers or
directors of the Company who are also shareholders (a "Management Shareholder"),
Purchaser shall have piggy-back registration rights to include all common stock
then owned by Purchaser (collectively, the "Purchaser's Common Shares"), in any
8
<PAGE> 9
such offering on a pro rata basis. The Company shall give Purchaser notice of
such proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written request of Purchaser delivered to the
Company within twenty (20) days after the receipt of the notice from the
Company, which request shall state the number of Purchaser's Common Shares that
Purchaser wishes to sell or distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall use its best efforts to
register Purchaser's Common Shares, and to cause such registration to become and
remain effective so long as the Company keeps such registration effective as to
any other common stock of the Company. Purchaser's Common Shares registered
pursuant to this Section 2.d.i. must be purchased and offered for sale by a bona
fide underwriter or underwriters in a public offering on a firm commitment
basis. The Company's managing underwriter shall have the right to limit in whole
or in part the total number of Purchaser's Common Shares to be sold hereunder,
so long as such limitation is applied on a pro rata basis with respect to all
shares proposed or requested to be registered by the Company and all
shareholders. The expenses of any such offering shall be borne by the Company,
except for Purchaser's pro rata share of any underwriter's discount or sales
agent's commission.
ii. If, in connection with any registration under this Section
2.d, any of the common shares of Company stock require registration or
qualification under the securities or "blue sky" laws of any state, or the
approval of any state governmental official or authority, the Company shall take
all requisite action and use its best efforts to cause such shares to be duly
registered, qualified or approved as may be required. If any shares meet the
criteria for listing on any exchange on which such stock of the Company is then
listed, the Company shall apply for and use its best efforts to obtain a listing
of all such shares on such exchange.
9
<PAGE> 10
iii. Except as provided in Section 2.d.i. above, the Company
shall pay all of the expenses in connection with the registration of any shares
of Company stock, including, without limitation, the costs of preparing,
printing and filing the registration statement in compliance with the 1933 Act,
the fees and expenses of counsel and accountants for the Company, Management
Shareholders and Purchaser for qualifying the offering under the securities or
"blue sky" laws and regulations of the state in which the offering is qualified.
e. Sale of the Company.
i. At any time after April 4, 2000, and before the
consummation of a Purchaser Approved Offering, if a bona fide offer is made by
any person (other than Purchaser, or any person or entity related to or
affiliated with Purchaser), to purchase all or substantially all of the assets
or shares of stock of the Company, and Funding gives the Company written notice
that it desires such offer to be accepted, the Company and its shareholders
shall either accept the offer and consummate the sale on the terms and
conditions of the offer (in which case, if the transaction is a stock sale or
merger, Purchaser also shall sell all of its equity interests in the Company on
those terms and conditions), or the Company shall acquire all the equity
interests owned by Purchaser and Funding in the Company on the same terms and
conditions as the offer; provided, however, that if such offer is made prior to
April 4, 2002, the Company shall have no such obligation unless the total
consideration of such offer is at least $50,000,000. If at any time Funding
approves the sale of substantially all of the assets or shares of stock of the
Company, then Purchaser shall vote its shares in favor of the transaction so
approved and, if the transaction is a stock sale or merger, shall sell all of
its equity interests in the Company on the terms and conditions so approved.
10
<PAGE> 11
In determining the total consideration for purposes of the foregoing,
any deferred payment shall be discounted to present value at a discount rate of
eight percent (8%) per annum. If the total consideration set forth in the offer
includes anything other than cash and/or marketable securities (the "Non-Cash
Consideration") then the Company, at its option, may acquire Purchaser's equity
interests for the product of (a) either (i) the Non-Cash Consideration specified
or (ii) cash in the amount of the fair market value of the total consideration
set forth in the offer, multiplied by (b) the percentage of all outstanding
equity interests of the Company that then is owned by Purchaser. Such fair
market value shall be determined pursuant to the terms of the Stock Purchase
Agreements dated April 4, 1997, March 31, 1998 and the date hereof by and among
the Company, Funding and the other stockholders of the Company (the "Funding
Purchase Agreements").
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's and
Funding's equity interests, the Company shall acquire Purchaser's and Funding's
equity interests for cash within ninety (90) days from the date of Funding's
written notice.
ii. At any time before the consummation of a Purchaser
Approved Offering, if any assets or stock of the Company is sold for any reason,
or if the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, pari passu with the
rights of holders of the
11
<PAGE> 12
Company's Class B Common Stock and all other holders of the Company's Class C
Common Stock to be paid with respect to the Management Shareholder Payments, and
before any distribution to shareholders, a priority distribution equal to the
product of (1) the sum of (a) all payments made to a Management Shareholder in
consideration of any covenant not to compete or consulting agreement, plus (b)
the component of any compensation to a Management Shareholder for employment
services that is in excess of the prevailing industry average compensation, paid
by companies that are similar to the company that will be making the payments to
the Management Shareholder, for the management responsibilities actually to be
performed by the Management Shareholder, as such average compensation is
mutually agreed between the Company, the Management Shareholder and Funding, or
if they cannot agree, then as determined by a current survey of total
compensation conducted by a qualified representative of a nationally recognized
investment banking or accounting firm mutually agreeable to the Company, the
Management Shareholder, and Funding, multiplied by (2) the percentage of all
equity interests in the Company that is then owned by Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii.
shall be paid on the same schedule as the Management Shareholder Payments are
received by the Management Shareholder. If the Company has insufficient funds to
pay the portion of the priority distribution that is due at the time a
Management Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
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f. Right of Co-Sale. In addition to the rights set forth in Section
2.c, at any time prior to the consummation of a Purchaser Approved Offering,
Purchaser shall have the right to participate pro rata to the full extent of its
equity interest in the Company in any sale or transfer of stock, other than a
gift, charitable donation or other sale or transfer representing less than One
Percent (1%) of the Company's outstanding common stock, by the Company or any
shareholder of the Company.
g. Rights of Class C Shares on Liquidation, Dissolution or Winding Up.
The following provisions shall apply until the earlier of (i) the consummation
of a Purchaser Approved Offering, or (ii) the redemption or conversion of all
outstanding shares of the Company's Class C Common Stock:
i. In the event of any liquidation, dissolution or winding up
of the Company (including without limitation a liquidation or reorganization
under Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as
may hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holders of the
Company's Class C Common Stock then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders
(pari passu with the holders of the Company's Class B Common Stock, and before
any payment shall be made to the holders of any shares of the Company's Class A
Common Stock) an amount equal to the stated value of $2.1692 (subject to
appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock (the "Stated Value"), with such
amount to be calculated as of the date of such payment. Section 2.g. of the
Stock Purchase Agreement among the parties dated July 10, 1998 is hereby amended
so that the term "Stated Value" as set forth therein shall mean $2.1692 (subject
to
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appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock.
ii. If, upon any Liquidation, the assets of the Company
available for distribution to its shareholders shall be insufficient (a
"Liquidation Insufficiency") to pay the holders of the Company's Class C Common
Stock and Class C Common Stock the full amount to which they shall be entitled
pursuant to Section 2.g.i., the holders of the Company's Class B Common Stock
and the holders of the Company's Class C Common Stock shall be entitled to
receive, pari passu, all the assets of the Company available for distribution to
its shareholders.
iii. If there is no Liquidation Insufficiency and payment
shall have been made to the holders of the Company's Class B Common Stock and
the holders of the Company's Class C Common Stock of the full amount to which
they are entitled, the holders of the Company's Class B Common Stock and the
holders of the Company's Class C Common Stock shall then be entitled to share in
all remaining assets and funds of the Company ratably in proportion to the
number of shares of Company common stock held by such holder.
iv. Unless such transaction is approved by the directors
elected by the holders of the Company's Class B Common Stock, the merger or
consolidation of the Company into or with another corporation in which the
stockholders of the Company shall own less than Fifty Percent (50%) of the
voting securities of the surviving corporation or the sale, transfer or lease
(but not including a transfer or lease by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the Company shall be deemed
to be a Liquidation as such term is used in this Section 2.g. The amount deemed
distributed to the holders of the Company's Class B Common Stock and
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<PAGE> 15
the holders of the Company's Class C Common Stock upon any such merger or
consolidation shall be the cash or the value of the property, rights or
securities distributed to such holder by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined by a competent independent appraiser mutually agreed upon by the
holders of the Company's Class B Common Stock and the Company. The Company
shall, upon receipt of such appraiser's valuation, give prompt written notice of
the appraiser's valuation to the holders of the Company's Class B Common Stock
and the holders of the Company's Class C Common Stock. The fees of such
appraiser shall be shared 50% by the Company, and 50% (shared pro rata) by the
holders of the Company's Class B Common Stock and the holders of the Company's
Class C Common Stock.
v. The Company's Articles of Incorporation shall contain
provisions consistent with this Section 2.g. until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class C Common Stock.
i. Representation on the Board of Directors; Visitation Rights. Until a
Purchaser Approved Offering has been consummated or Purchaser no longer owns any
equity interest in the Company, there shall be, and the Company's Articles of
Incorporation shall provide for, at least five (5) members on the Company's
Board of Directors, two (2) of whom shall be elected by the holders of the
Company's Class B Common Stock voting as a class, and the remainder of whom
shall be elected by the holders of the Company's Class A Common Stock voting as
a class. The holders of the Company's Class B Common Stock shall have the right
to remove and replace two (2) members of the Board at any time, and the holders
of the Company's Class A Common Stock shall have the right to remove and replace
the remaining members of the Board at any time. The Company shall pay each
director elected by the holders of the Company's Class B Common Stock a fee of
Two
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Thousand Five Hundred Dollars ($2,500.00) for attendance at each meeting of the
Board of Directors. Board meetings will occur at least quarterly. The holders of
the Company's Class C Common Stock shall have the right to appoint a
representative who shall have the right to attend meetings of the Company's
Board of Directors as a visitor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In connection with the purchase of the Class C Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now conducted. The Company is duly qualified and
in good standing as a foreign corporation authorized to do business in each of
the jurisdictions in which the failure to be so qualified would have a material
adverse effect on the Company and has delivered to Purchaser a good standing
certificate for each such jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
b. Capital Stock. The authorized capital stock of the Company consists
of Twenty-Five Million (25,000,000) shares of Class A Common Stock, no par value
per share, of which Four Million
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Six Hundred Fifty-Five Thousand Three Hundred (4,655,300) shares are duly and
validly issued and outstanding, fully paid and non-assessable, Twenty-Five
Million (25,000,000) shares of Class B Common Stock, no par value per share, of
which Four Million Nine Hundred Seventy-Nine Thousand Seven Hundred
Seventy-Seven (4,979,777) shares will be duly and validly issued and
outstanding, fully paid and non-assessable upon Closing, and Twenty-Five Million
(25,000,000) shares of Class C Common Stock, no par value per share, of which
Two Million Seventy-Four Thousand Four Hundred Sixty-Four (2,074,464) shares
will be duly and validly issued and outstanding, fully paid and non-assessable
upon Closing (One Million Thirty-Seven Thousand Two Hundred Thirty-Two
(1,037,232) shares to Purchaser, and One Million Thirty-Seven Thousand Two
Hundred Thirty-Two (1,037,232) shares to Blue Ridge).
All of the outstanding Class A Common Stock of the Company is owned by
the Shareholders other than Funding (except for shares held by others
constituting, in the aggregate, less than 0.25% of the outstanding stock of the
Company), and all of the outstanding Class B Common Stock of the Company is
owned by Funding. The Company does not have any other shares, classes of shares
or other debt or equity securities which are authorized, issued or outstanding.
None of the stock has been issued in violation of any preemptive rights.
The Class C Shares are duly authorized and upon issuance to the
Purchaser shall be validly issued to Purchaser, free and clear of all liens or
rights of any nature whatsoever, and without violation of any preemptive rights
but subject, as to 81,279 of the Class C Shares, to the Voting Trust Agreement.
Except for the options described on Schedule 3.b., there are no outstanding
subscriptions, options, rights, warrants, calls, convertible securities or other
rights, agreements or
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commitments which obligate the Company to issue, call, repurchase, redeem or
transfer any of its capital stock, or that restrict the transfer of or otherwise
relate to the Company's capital stock.
c. Business. The Company is engaged primarily in the business of
hardware and service sales, Internet access, communications networking and
related consulting.
d. Investments. The Company does not own or have, directly or
indirectly, any material interest or investment (whether as equity or debt) in,
or own any of the capital stock of, any corporation, partnership, joint venture,
business, trust or other entity.
e. Authority. The Company has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
corporate actions of the Board of Directors and shareholders of the Company.
This Agreement is a valid and binding obligation of the Company, enforceable
against it in accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby.
g. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by the Company of the transactions contemplated hereby,
shall (a) conflict with the Organizational Documents of the Company, (b) violate
or constitute a default under any contract or other agreement to which the
Company is a party or by which the Company is bound, (c) violate any law, rule
or regulation of any state or of the United States or any judgment, decree,
order, regulation
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or rule of any court or any governmental or regulatory authority, or (d) result
in or require the creation of any lien or other encumbrance upon or with respect
to the Class C Shares or any of the assets or other securities of the Company.
h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1996 and December 31, 1997 (the
"Financial Statements"). To the best knowledge of the Company, the Financial
Statements have been prepared in conformity with GAAP, and fairly and accurately
reflect the financial condition of the Company as of the respective dates
thereof in conformity with GAAP. To the best knowledge of the Company, all
interim financial statements for periods after December 31, 1997 that have been,
or pursuant to Section 5.c below will be, delivered to Purchaser, have been and
will be prepared in conformity with GAAP, and fairly and accurately reflect the
financial condition of the Company as of the respective dates thereof in
conformity with GAAP.
The Company does not have any debts, liabilities or other obligations
of any nature (whether contingent or fixed, accrued or not accrued, liquidated
or not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except
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as disclosed on Schedule 3.h., the Company is current on all debts, accounts
payable and lease payments as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent
Financial Statements there has been no material adverse change in the condition,
financial or otherwise, assets, liabilities or business of the Company, nor has
there been any event or condition of any character that has or may in the future
materially and adversely affect the business or prospects of the Company. Since
the date of the most recent Financial Statements there has been no dividend or
other distribution or payment in respect of the stock of the Company.
j. Taxes. The Company has paid or made adequate provision for payment
of all federal, state and local income, payroll, sales, property and other
taxes, assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may become due
with respect to any period ending on or prior to the Closing Date, and has filed
all required tax returns and reports which are required to be filed. No tax
deficiency has been asserted, proposed or threatened against the Company for
taxes for the current year or for any prior period which has not been fully
settled or paid, nor has any issue been raised by the Internal Revenue Service
or any other taxing authority which reasonably can be expected to result in a
deficiency for any period. The Company's tax returns have never been audited,
nor has the Company received any notice of a planned audit or any communication
that would lead a reasonable person to believe that an audit is currently being
considered by a tax authority.
k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially
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and adversely affects the Company, and the Company is not aware of any breach by
any other party to any of the Contracts. The terms of all Contracts are in all
material respects arm's length terms.
l. Property. Except for the property leased pursuant to the leases
listed on Schedule 3.l. (copies of which have been provided to Purchaser), and
the liens described on Schedule 3.1, the Company has good and marketable title
to all real and personal property reflected on the Financial Statements, and to
all assets acquired since the date of the most recent Financial Statements, free
and clear of any material liens, claims or encumbrances, except for liens for
taxes not yet due and payable and inventory which has either been used or
consumed or has been sold in the ordinary course of business. To the best of the
Company's knowledge, there are no material assets used by the Company in the
conduct of its business which are not either owned by the Company or leased to
the Company under one of the leases described in Schedule 3.l.
m. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is there any basis for any such action,
before any federal, state, local, or other court or governmental authority, nor
to the best of the knowledge of the Company, has any such action been
threatened, (i) against the Company or (ii) against any of the officers or
directors of the Company. The Company has delivered to Purchaser a true and
correct copy of the pleadings in all lawsuits in which the Company is a party.
The Company does not know of any judgment, order, writ, injunction, decree or
award that has been issued by, or requested of, any court, administrative or
governmental agency, arbitrator or other authority which does or may result in
any material adverse change in the business, properties, assets or financial
condition of the Company.
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n. Compliance with Laws. The Company is in substantial compliance, and
at all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to franchising; state and federal securities
laws; and laws and regulations requiring licenses or permits (including, without
limitation, permits relating to the handling or discharge of Hazardous
Materials) or the payments of taxes. The Company has not received any notice
asserting any noncompliance. The Company has all licenses, permits and approvals
necessary for the conduct of its business. The Company has not granted a license
or other right to use any tangible or intangible assets used in or related to
the business. From the Company's inception, none of the Company's directors or
officers have been arrested or convicted of any material crime, nor have any of
them been bankrupt or served as an officer or director of a bankrupt company.
o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company
nor any property owned or operated by the Company has been or is in violation
of, nor does the Company have any liabilities under, any Environmental Law (as
defined in Section 3.o.iii.). To the best of the Company's knowledge, there are
no actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from any Environmental Agency (as defined in Section 3.o.v.),
instituted, pending, or threatened, relating
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to any liability under any Environmental Law of the Company or respecting any
property owned or operated by the Company.
ii. To the best of the Company's knowledge, no Hazardous
Materials (as defined in Section 3.o.iv.) have been generated, treated, stored
or disposed of at, or transported to or from, any properties owned or operated
by the Company at any time, except in compliance with applicable Environmental
Laws. To the best of the Company's knowledge, no friable asbestos containing
material is in use, or is or has been stored or disposed of, on or upon any
properties owned or operated by the Company. To the best of the Company's
knowledge, no polychlorinated biphenyls ("PCBs") are located on or in any
properties owned or operated by the Company in any form or device, including,
without limitation, in the form of electrical transformers, fluorescent light
fixtures with ballasts, or cooling oils, except in compliance with applicable
Environmental Laws. To the best of the Company's knowledge, no underground
storage tanks are located on any properties owned or operated by the Company or
were located on any properties owned or operated by the Company and subsequently
removed or filled.
iii. "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any Environmental Agency relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the usage, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release, or disposal
of any substance presently listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise
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regulated, whether by type or by quantity, including any material containing any
such substance as a component.
iv. "Hazardous Materials" means solid waste (as that term is
defined under the Resource Conservation and Recovery Act, 42 U.S.C.A. Section
6901 et seq. ("RCRA"), and the regulations adopted pursuant to RCRA), hazardous
waste (as that term is defined under RCRA and the regulations adopted pursuant
to RCRA), hazardous substances (as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601
et seq. ("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including, without limitation, any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or
chemicals.
v. "Environmental Agency" means the United States
Environmental Protection Agency, any state agency in a state where the Company
owns or operates properties which is similar in jurisdiction to the United
States Environmental Protection Agency, or any other federal, state or local
agency responsible for regulating or enforcing laws, rules, regulations and
ordinances relating to (i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release, or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive, or
dangerous, or otherwise regulated, whether by type or by quantity, including any
material containing any such substance as a component.
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p. Intellectual Property. The Company is the sole and exclusive owner
of, or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service mark, trade name, trade secret,
copyright, patent, franchise or other intangible property right of another.
Except as set forth on Schedule 3.p., the Company is not required to pay any
royalty, license fee, commission or other payment to any person or entity with
respect to any trademark, service mark, trade name, trade secret, copyright,
patent, franchise or other intangible property. The Company has not granted any
person or entity the right to use any of the Company's trademarks, service
marks, trade names, trade secrets, copyrights, patents, technology or other
intangible property, nor is it aware of any such use by another person or
entity.
q. Insurance. Schedule 3.q. contains a true and correct list, together
with copies of certificates or cover pages, of all policies of insurance owned
and/or maintained by the Company. All physical properties and assets of the
Company are covered by fire and other insurance against casualty loss
customarily covering properties and assets of comparable businesses in this
region, in amounts which are reasonable in light of existing replacement costs.
The Company maintains general liability, workers' compensation and other usual
types of insurance in reasonable amounts. The
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Company is not now in default regarding the provisions of any policy of
insurance, and has not and shall not have failed to give any notice or present
any claim thereunder in due and timely fashion.
r. Books and Records. To the best of the Company's knowledge, the books
and accounts and other corporate records of the Company are complete and correct
in all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all applicable laws relating to the employment of labor,
including without limitation any provisions thereof relating to wages and hours,
discrimination due to age, religion, sex, national origin, disability or
immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with information as to any bonus, incentive, insurance,
compensation plan, welfare, retirement, defined benefit, 401(k), pension, profit
sharing, salary reduction, deferred compensation, stock purchase, stock option,
vacation, holiday and sick pay or other similar benefit plans (said plans being
referred to as the "Plans") in which any such employees of the Company
participate. All obligations of the Company, whether arising by operation of
law, by contract or by past custom, for payment by it to trusts, retirement
plans or other funds or any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other benefits for
employees of the Company have been paid or shall be paid by the Company at the
time the Company is obligated to make such payments. All benefits payable
directly to the Company's employees have been paid or shall be paid by the
Company at the time the Company is obligated to make such
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payments. All reasonably anticipated obligations of the Company, whether arising
by operation of law, by contract or by past custom, for vacation and holiday
pay, bonuses and other forms of compensation or benefits which are or may become
payable to employees or any of them have been paid, or shall be paid, in
accordance with the provisions of applicable laws, regulations, benefit plans or
policies.
t. Broker Fee. All broker, finder or professional fees associated with
the transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and shall be paid by the Company as and when due.
u. Customers and Suppliers. The Company does not know of any customer
or supplier of the Company who intends to terminate or reduce its business with
the Company, whether as a result of this Agreement or otherwise. The Company is
not bound by any concession or arrangement with any customer or supplier which
is outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents with respect to the Plans, including, but not limited to,
each of the following documents: (i) a copy of the Plan and each related trust
or other funding agreement, including insurance contracts (and all amendments
thereto) (ii) the last filed Form 5500; (iii) the most recent determination
letter received from the United States Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"); and (iv) the summary plan
descriptions and all material modifications thereto, have been delivered to
Purchaser.
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All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other than for the payment of premiums) to the PBGC has been or is
expected to be incurred by the Company or any officer, director, shareholder or
employee of the Company with respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder,
director, officer, agent, employee or other person associated with or acting on
the Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from
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corporate funds; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any false or fictitious entry on the
books or records of the Company; or made any bribe, rebate payoff, influence
payment, kickback or other unlawful payment to any person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
favorable treatment in securing business or to obtain special concessions or to
pay for favorable treatment for business secured or for special concessions
already obtained.
x. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to Purchaser in this Agreement, in the light of the
circumstances under which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class C Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
a. Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of North
Carolina.
b. Authority. Purchaser has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
action of Purchaser. This Agreement is a valid and binding obligation of
Purchaser, enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by Purchaser of the transactions contemplated hereby, shall
(i) conflict with the
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Articles of Organization or Operating Agreement of Purchaser, (ii) violate or
constitute a default under any contract or other agreement to which Purchaser is
a party or by which Purchaser is bound, or (iii) violate any law, rule or
regulation of any state or of the United States or any judgment, decree, order,
regulation or rule of any court or any governmental or regulatory authority,
which would have a material adverse effect on the Company or the transactions
contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby or thereby, except to the
extent obtained by Purchaser prior to Closing or to the extent that their
failure to be obtained would not have a material adverse effect on the Company
or the transactions contemplated hereby.
5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in
the ordinary course and, without the prior written consent of Funding, except in
the ordinary course of business, shall not enter into, or permit the Company or
any assets of the Company to become bound by or subject to, any Contract, and
(b) shall continue to manage the inventories, accounts receivable, accounts
payable and payroll of the Company in accordance with past practice in the
ordinary course of business. The Company shall promptly notify Purchaser of any
actions or proceedings of the type described in Section 3.m.
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<PAGE> 31
b. Corporate Examination and Investigations. Purchaser, shall be
entitled, through its employees and representatives, including, without
limitation, Purchaser's counsel and accountants, on a reasonable basis, to make
such investigation of the assets, properties, business and operations of the
Company and such examination of its books, records and financial condition, as
Purchaser wishes. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances and the Company shall
cooperate fully therein. No such investigation undertaken by Purchaser shall
relieve the Company of any liability hereunder. In order that Purchaser may have
full opportunity to make such business, accounting and legal review, examination
or investigation, the Company shall make available at its principal office to
the representatives of Purchaser during such period all such information and
copies of such documents concerning the affairs of the Company as such
representatives may reasonably request and shall cause the officers, employees,
consultants, agents, accountants and attorneys of the Company to cooperate fully
with such representatives in connection with such review and examination. The
information obtained by Purchaser shall remain confidential and shall be
disclosed only to the officers, employees managers, members, prospective members
and representatives of Purchaser.
c. Delivery of Financial Materials. The Company shall deliver to
Purchaser (i) within thirty (30) days of the end of each month, monthly
year-to-date financial statements prepared in accordance with GAAP (including
profit and loss, cash flow, and balance sheet) and certified by the Company's
chief financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an
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<PAGE> 32
outside accounting firm designated by the Company and reasonably acceptable to
Funding and (b) projections for the next year in the same format as the
financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the
following documents or information as applicable: (i) within thirty (30) days
after filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Funding. Such insurance coverage shall include, without
limitation, directors' and officers' liability insurance.
f. Use of Proceeds. The Company will use the proceeds from the issuance
of the Class C Shares hereunder to provide working capital to develop existing
and future projects.
6. FOREBEARANCES OF THE COMPANY
Except with the prior written consent of Funding, or the affirmative
vote of the directors elected by the holder of the Class B Shares, until the
consummation of a Purchaser Approved Offering or sale by Purchaser of all of its
equity interests in the Company, the Company shall not:
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<PAGE> 33
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement , lease or
commitment not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of
One Percent (1%) of the outstanding shares of the Company (except pursuant to
the exercise of options described on Schedule 3.b., or options issued to
employees pursuant to the terms of the Company's Stock Option Plan as in effect
on the date hereof), or create any new class or series of securities;
d. issue, grant or authorize any options (except options described on
Schedule 3.b., or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of One Percent (1%)
of the outstanding shares of the Company, or redeem any outstanding shares of
the Company representing, in the aggregate, in excess of One Percent (1%) of the
outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization or create any subsidiary; or liquidate,
sell or otherwise dispose of any assets or acquire any assets, other than in the
ordinary course of its business consistent with past practice;
33
<PAGE> 34
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's
Board of Directors, any shareholder, or any other individual officer of the
Company, unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner consistent with past practice and
approved by the Compensation Committee of the Company's Board of Directors;
j. change the location or nature of its business operations or invest
any funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment
for the benefit of creditors;
l. agree to do any of the foregoing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
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<PAGE> 35
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the Company, to the effect that the applicable conditions set forth in this
Section have been satisfied.
d. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory
35
<PAGE> 36
body, to restrain, modify or prevent the carrying out of the transactions
contemplated hereby or to seek damages or a discovery order in connection with
such transactions.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. Purchaser shall have performed in all material respects all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the general partner of Purchaser, to the effect that the applicable conditions
set forth in this Section have been satisfied.
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
36
<PAGE> 37
9. EXPENSES
At Closing, the Company shall (i) pay Geneva Associates, LLC a total
advisory fee of $75,000 for its services in connection with the transactions
contemplated hereunder and under the Stock Purchase Agreements with Blue Ridge
and Funding each dated the date hereof, and (ii) pay all reasonable
out-of-pocket costs and expenses (including, without limitation, legal,
accounting and consulting fees) incurred by Purchaser in connection with its due
diligence and the negotiation, preparation, execution and performance of this
Agreement and the transactions contemplated hereby. Amounts to be paid by the
Company at Closing under Section 9(ii) shall be paid directly out of the payment
of the purchase price for the Class C Shares at Closing.
37
<PAGE> 38
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to
indemnify, defend and hold harmless Purchaser against and in respect of any and
all claims, demands, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including, without limitation, interest, penalties
and reasonable attorneys' fees ("Losses"), which directly or indirectly arise,
result from or relate to the breach by the Company of, or the failure by the
Company to comply with or perform, the Company's representations, warranties,
covenants or agreements contained in this Agreement. To compensate Purchaser for
the reduction in the capitalization of the Company as the result of any
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such that, following the indemnification
payment, Purchaser would be in the same position as if the shareholders of the
Company (other than Purchaser) had made such indemnification payment to
Purchaser directly.
b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11, as
follows:
i. At any time on or prior to the Closing Date, by the mutual
written consent of the Company and Purchaser;
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<PAGE> 39
ii. At any time on or prior to the Closing Date, by Purchaser in
writing, if the Company has, or by the Company in writing if Purchaser has, in
any material respect, breached (i) any covenant or undertaking contained herein
or (ii) any representation or warranty contained herein, and in the case of (i)
and (ii) if such breach has not been cured by the earlier of ten (10) days after
the date on which written notice of such breach is given to the party committing
such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company in
writing, if any of the conditions precedent to the obligations of such party to
consummate the transactions contemplated hereby have not been satisfied or
fulfilled; or
iv. By either Purchaser or the Company in writing, if the Closing
Date has not occurred by the close of business on December 31, 1998.
b. Effect of Termination. In the event of a termination of this
Agreement for any reason, each party may seek any remedies available to it,
including claims for damages, specific performance or injunctive relief.
12. CLAIMS FOR INDEMNIFICATION
Any claim for indemnification which is based upon a final judgment,
decree or award of a court of competent jurisdiction requiring the payment of
money by any party to this Agreement or any of its officers, directors or
controlling persons, shall be conclusive as to the amount of such claim,
provided a certified copy of such judgment, decree or award accompanies the
notice relating to such claim and provided further that the party seeking
indemnification shall have complied with Section 14 of this Agreement.
39
<PAGE> 40
Any claim for indemnification shall be conclusive in all respects
thirty (30) days after receipt by the other party of notice thereof, unless
within such period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration Association. Judgment upon the award by
the arbitrator may be entered in any court having jurisdiction thereof. As part
of such award, the arbitrator shall be promptly paid by the party that initiates
the proceeding, but the portion of each such fee and expenses which represents
the same percentage thereof as the percentage of the amount of the claim
represented by the amount awarded shall be added to the amount of the award and
shall be borne by the indemnifying party. Any award shall be a conclusive
determination of the matter and shall be binding upon Purchaser and the Company
and shall not be contested by either of them. Arbitration proceedings shall be
held in the city of Dover, Delaware unless the parties agree upon another
location. In any such action the prevailing party, in the judgment of the
arbitrator, shall be entitled to an award of its costs and attorneys' fees
incurred in the action.
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<PAGE> 41
14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any
claim or demand shall be asserted, by any third party in respect of which
indemnity may be sought by Purchaser or the Company pursuant to the provisions
of this Agreement, the party seeking indemnification, with reasonable promptness
after obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the prior
written consent of the party seeking indemnification, which consent shall not be
unreasonably withheld, the indemnifying party shall not consent to the entry of
any judgment in or agree to any settlement of any such matters; and provided
further that the party seeking indemnification may retain counsel, at its own
expense, to represent it and participate in connection with any such proceeding
or claim or demand. Failure by the indemnifying party to notify the party
seeking indemnification of the indemnifying party's election to defend any
proceeding, claim or demand with respect to which indemnity is sought within
thirty (30) days after notice thereof shall have been given by the party seeking
indemnification shall be deemed a waiver by the indemnifying party of its right
to defend against such matter. If the indemnifying party assumes defense of any
such proceeding, claim or demand, it shall take or cause to be taken all steps
necessary in connection with such defense, and the party seeking indemnification
shall in all events be entitled to indemnity with respect to such matter, as
provided in this Agreement. In the event that the indemnifying party does not
elect to defend any proceeding, claim or demand with respect to which indemnity
is sought, the party seeking
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<PAGE> 42
indemnification may defend against, settle or otherwise deal with any such
proceeding, claim or demand in such matter as it may in its good faith
discretion deem appropriate and the indemnifying party shall be liable for
indemnification with respect to such matter, including without limitation the
reasonable costs of such defense, as provided in this Agreement. In the event of
any proceeding, claim or demand by a third party with respect to which a claim
for indemnification is made hereunder, the parties hereto agree that they will
cooperate fully with each other in connection with the defense or settlement of
such matter.
15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No waiver shall be binding unless
executed in writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be
assigned by any party hereto without the written consent of the other parties
hereto, provided, however, that Purchaser may assign any or all of its rights
and obligations hereunder to any person or entity to whom Purchaser transfers
any of the Class C Shares; provided, however, that the Purchaser shall be the
sole representative of any such transferee in dealing with all matters
pertaining to this Agreement.
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<PAGE> 43
This Agreement shall be binding on, and inure to the benefit of, the parties to
it and their respective legal representatives, successors and permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or
other communications hereunder shall be in writing and shall be effective (a)
when personally delivered by courier or otherwise to the party to be given such
notice or other communication, or (b) on the business day following the day such
notice or other communication is sent by telex, facsimile or similar electronic
device, fully prepaid, which telex, facsimile or similar electronic
communication shall promptly be confirmed by written notice or (c) on the fifth
day following the date of deposit in the United States mail if such notice or
other communication is sent by certified or registered air mail (or its
equivalent) with return receipt requested and postage thereon fully prepaid. The
addresses for such notices shall be as follows:
If to Purchaser:
Spotswood Capital, LLC
Suite 2100, First Union Tower
300 N. Greene Street
Greensboro, North Carolina 27401
Attention: William J. Armfield IV
Facsimile: (336) ______________
With a copy to:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Post Office Box 26000
Greensboro, North Carolina 27420
Attention: Marc D. Bishop
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<PAGE> 44
Facsimile (336) 378-1001
If to the Company:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attention: President
Facsimile: (972) 650-7972
44
<PAGE> 45
With a copy to:
Clay C. Scott, Jr.
7501 Inwood Road
Post Office Box 7569
Dallas, Texas 75209
Facsimile: (214) 358-2851
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits
and other documents referred to herein which form a part hereof, embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants or understandings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by all of the parties hereto.
h. Headings; References. The headings appearing in this Agreement are
for convenience of reference only and shall not affect the interpretation of
this Agreement. All references herein to Sections, Exhibits and Schedules refer
to the Sections contained in, and the Exhibits and Schedules attached to, this
Agreement.
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<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
/s/ illegible By: /s/ James R. Price
------------------------------
James R. Price, President
(CORPORATE SEAL)
SPOTSWOOD CAPITAL, LLC
By: /s/ William J. Armfield IV
------------------------------
William J. Armfield IV, Member-
Manager
The Shareholders execute this Agreement solely for the purpose of
agreeing to the provisions of Section 2 hereof and waiving any and all
preemptive rights with respect to the issuance of the Class C Shares hereunder,
which rights are hereby waived.
/s/ James R. Price
----------------------------------
James R. Price
/s/ Gary A. Dobbins
----------------------------------
Gary A. Dobbins
/s/ Clay C. Scott, Jr.
----------------------------------
Clay C. Scott, Jr.
/s/ Charles Bo Price
----------------------------------
Charles Bo Price
/s/ George Venner
----------------------------------
George Venner
46
<PAGE> 47
I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Russ R. Myers
------------------------------------
Russ R. Myers, Member-Manager
BLUE RIDGE INVESTORS LIMITED
PARTNERSHIP
By: Blue Ridge Investors Group, Inc.
By: /s/ [ILLEGIBLE]
------------------------------------
_________ President
47
<PAGE> 1
EXHIBIT 4.7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December 30,
1998, is made and entered into between BLUE RIDGE INVESTORS LIMITED PARTNERSHIP,
a North Carolina limited partnership (the "Purchaser") which is a Federal
Licensee under the Small Business Investment Act of 1958, as amended (the "SBIC
Act"); I 3S, INC., a Texas corporation (the "Company"); JAMES R. PRICE, GARY A.
DOBBINS, CLAY C. SCOTT, JR., CHARLES BO PRICE, GEORGE VENNER, SPOTSWOOD CAPITAL,
LLC ("Spotswood") and I3S FUNDING I, L.L.C. ("Funding") (collectively, the
"Shareholders") who execute this Agreement solely for the purpose of agreeing to
the provisions of Section 2 hereof and waiving any and all preemptive rights
with respect to the issuance of the Class C Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes to
sell to Purchaser, 162,232 shares of the Company's Class C Common Stock, no par
value per share (the "Class C Shares"), on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual agreements, representations
and warranties contained in this Agreement, the parties hereto agree as follows:
1. SALE AND PURCHASE OF CLASS C SHARES; THE CLOSING
a. Sale and Purchase of Class C Shares. Subject to the terms and conditions
set forth in this Agreement, at the Closing provided for in paragraph 1.d.
below, the Company shall sell to Purchaser, and Purchaser shall buy from the
Company, One Hundred Sixty Two Thousand Two Hundred Thirty-Two (162,232) Class C
Shares for an aggregate purchase price of Five Hundred Thousand Dollars
($500,000). The Class C Shares, together with the Class C Common Stock
previously issued to Purchaser, shall represent at the time of issuance 7.10% of
all outstanding
<PAGE> 2
common stock of the Company on a fully diluted basis (i.e. calculated as if all
outstanding options, warrants or other rights to acquire or purchase shares of
the Company's common stock, had been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver the
sum of Five Hundred Thousand Dollars ($500,000) to the Company by way of a wire
transfer in complete payment for the Class C Shares.
c. Delivery of Stock Certificate. In consideration for Purchaser's payment
for the Class C Shares, at the Closing the Company shall deliver to Purchaser a
stock certificate representing the Class C Shares.
d. The Closing. The closing of the sale and purchase of the Class C Shares
contemplated hereby (the "Closing"), shall take place at the offices of the
Company, 1330 River Bend, Suite 600, Dallas, Texas, at 10:00 a.m. on the date
hereof, or such other date and time as Purchaser and the Company shall mutually
agree in writing (the "Closing Date"). At the Closing, the Company
simultaneously shall sell (i) 162,232 shares of Class C Common Stock to
Spotswood for $500,000 on substantially the same terms and conditions that are
set forth herein with respect to the sale of the Class C Shares to Purchaser,
and (ii) 648,927 shares of Class B Common Stock to Funding for $2,000,000.
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS C SHARES
a. Voting. Except as provided in Section 2.i below, the Class C Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock and Class B Common Stock. Purchaser acknowledges that 81,279 of the
Class C Shares shall be transferred to a voting trust pursuant to a
<PAGE> 3
Voting Trust Agreement among certain of the parties hereto dated the date hereof
(the "Voting Trust Agreement").
b. Preemptive Rights. Until such time as a Purchaser Approved Offering (as
defined below) has been consummated or Purchaser has otherwise sold all of its
Class C Shares or other equity interests in the Company, Purchaser shall have
preemptive rights with regard to any future issuances of common stock of the
Company (other than an issuance of common stock pursuant to options that are
approved by the holders of the Company's Class B Common Stock) permitting
Purchaser to purchase additional common shares pro rata at the same price and on
the same terms and conditions of such issuance; provided, however, that if the
holders of the Company's Class B Common Stock waive their rights with respect to
a future issuance of common stock, Purchaser shall not have preemptive rights
with respect to that issuance. For purposes of this Agreement, a Purchaser
Approved Offering shall mean the consummation of an underwritten public offering
of common stock of the Company on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, Inc. pursuant to a registration
statement filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of common
stock of the Company to the public at a price resulting in gross proceeds from
such sale to the Company (before deduction of underwriting discounts and
expenses of sale) of not less than $50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering, and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common
3
<PAGE> 4
stock unless such shares shall have been offered for sale in writing first to
the Company and then to the other shareholders of the Company pro rata. In the
event a shareholder desires to transfer any common shares, the shareholder
desiring to make such transfer (the "Transferring Shareholder") shall deliver
written notice (the "Offer Notice") to the Company and to all other shareholders
at least sixty (60) days prior to the proposed transfer. The Offer Notice will
disclose in reasonable detail the proposed number of shares to be transferred,
the proposed transferee and the proposed price, terms and conditions of the
transfer.
i. Upon receipt of the Offer Notice, the Company shall have the option (the
"Company's Option") for a period of thirty (30) days to purchase or otherwise
acquire all or part of the shares described in the Offer Notice for an aggregate
amount (such aggregate amount being hereinafter referred to as the "Option
Price") equal to the bona fide purchase price to be paid by the proposed
purchaser as described in the Offer Notice (which amount shall be zero if the
proposed transfer would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current shareholders as to whether
it will exercise, partially exercise or not exercise the Company's Option before
the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully exercise the
Company's Option within thirty (30) days after receipt of the Offer Notice, the
remaining shareholders shall have the option (each a "Shareholder's Option") for
a period of ten (10) days from the earlier of (i) their receipt of written
notice from the Company of its decision not to exercise or to only partially
exercise the Company's Option, or (ii) the expiration of the Company's Option
(the "Other Shareholder Election Period"), to purchase or otherwise acquire all
or part of the remaining shares which the Company does not choose to purchase
pursuant to the Company's Option, in proportion to their
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respective ownership of shares which, for purposes of such determination, shall
include without duplication all outstanding options, warrants or other rights
owned by such shareholders that are convertible into shares as of the date of
such notice from the Company (or the expiration of the Company's Option), for an
amount equal to the applicable portion of the Option Price. Each shareholder
shall notify in writing all then current shareholders as to whether such
shareholder will exercise, partially exercise or not exercise the shareholder's
option before the expiration of the Other Shareholder Election Period.
iii. For a period of ten (10) days from the earlier of (i) the receipt by
the other shareholders of a written notice from a shareholder that it does not
want to exercise its option or will only partially exercise its option, or (ii)
the expiration of the Other Shareholder Election Period, the other shareholders
shall have the right to purchase or otherwise acquire such shareholder's portion
of the shares described in the Offer Notice in proportion to their respective
ownership of shares (determined as described in Section 2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold after compliance
with the procedures set forth in this Section 2.c., the Company shall have the
final option for ten (10) days to purchase or otherwise acquire all of the
remaining shares proposed to be transferred for an amount equal to the
applicable portion of the Option Price. If, however, the Company and the other
shareholders do not individually or collectively elect to purchase all of the
shares being offered, the Transferring Shareholder may, within thirty (30) days
after the expiration of the Other Shareholder Election Period (subject to the
provisions of Section 2.c.vi. below), transfer all of the shares specified in
the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the
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<PAGE> 6
transferee shall have the rights and obligations set forth in this Agreement
hereunder with respect to such shares. If the Transferring Shareholder fails to
consummate such transfer within the thirty-day period after the expiration of
the Other Shareholder Election Period, any transfer of the shares thereafter
shall again be subject to the provisions of this Section 2.c.
v. Unless otherwise agreed in writing, signed by the person against whom
such writing is sought to be enforced, the closing of any acquisition of common
shares hereunder pursuant to the Company's Option or a Shareholder's Option
shall take place within forty-five (45) days of an applicable option's exercise.
If any such closing does not take place within such forty-five day period, then
the shares that were to be acquired shall be offered in accordance with this
Section 2.c. as though the applicable option had not been exercised.
vi. Notwithstanding the foregoing provisions of this Section 2.c., the
following shall apply in the event of any Involuntary Transfer of common shares.
An "Involuntary Transfer" shall mean any transfer caused by the death of a
shareholder, as well as any transfer, proceeding or action by, through, as a
consequence of, or in which a shareholder shall be deprived or divested of any
right, title or interest in or to any of the common stock of the Company,
including, without limitation, any seizure under levy, attachment or execution,
any transfer in connection with bankruptcy (whether pursuant to a filing of a
voluntary or an involuntary petition under the United States Bankruptcy Code, or
any amendments, modifications, revisions or successors statutes thereto) or
other court proceeding to a debtor-in-possession, trustee in bankruptcy or
receiver or other officer or agency, any transfer to a state or to a public
officer or agency pursuant to any statute pertaining to escheat or abandoned
property, any transfer pursuant to a separation agreement, equitable
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distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
In the event of any Involuntary Transfer, the Company shall give written
notice to each shareholder upon the occurrence, or prospective occurrence, of
such Involuntary Transfer within fifteen (15) days of the date on which the
Company is notified of the occurrence or prospective occurrence of such
Involuntary Transfer. The foregoing provisions of this Section 2.c. then shall
apply, except (i) the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable to the Company, Purchaser, and the
shareholder who made, or may make, the Involuntary Transfer, multiplied by the
percentage of all equity interests in the Company that is then represented by
the shares that are the subject of the Involuntary Transfer, such independent
appraised value to take into account the earnings and book value of the Company,
and (ii) the appraiser shall deliver written notice of such valuation to the
Company and to all other shareholders promptly following his completion of such
valuation, and such written notice shall be considered the Option Notice for
purposes of this Section 2.c. The cost of the appraisal shall be shared equally
by the Company and the shareholder who made, or may make, the Involuntary
Transfer.
At the closing of any purchase by the Company or any shareholders pursuant
to this Section 2.c.vi., the involuntary transferee shall deliver certificates
representing the common shares being purchased, duly endorsed for transfer and
accompanied by all requisite stock transfer taxes, and such shares shall be
conveyed free and clear of any liens, claims, options, charges, encumbrances or
rights of others arising through the action or inaction of the involuntary
transferee, and the
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<PAGE> 8
involuntary transferee shall so represent and warrant. The involuntary
transferee shall further represent and warrant that he is the beneficial owner
of such shares.
In the event the provisions of this Section 2.c.vi. shall be held to be
unenforceable with respect to any particular Involuntary Transfer of common
stock, or if all of the shares subject to the Involuntary Transfer are not
purchased by the Company and/or one or more shareholders, and if the involuntary
transferee subsequently desires to transfer such common stock, the involuntary
transferee shall be deemed to be a "Transferring Shareholder" under Section 2.c.
and shall be bound by the other provisions of this Agreement.
vii. Notwithstanding anything to the contrary contained in this Section
2.c., no shareholder shall transfer any common shares at any time if such action
would constitute a violation of any federal or state securities laws or a breach
of the conditions to any exemption from registration of the shares under any
such laws or a breach of any undertaking or agreement of such shareholder
entered into pursuant to such laws or in connection with obtaining an exemption
thereunder. Each shareholder agrees that any shares purchased or acquired by
such shareholder shall bear appropriate legends restricting the sale or other
transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common Shares.
i. In the event that the Company registers any of its common stock or other
securities under federal and state securities laws for a primary offering or a
secondary offering by the Company or any of the officers or directors of the
Company who are also shareholders (a "Management Shareholder"), Purchaser shall
have piggy-back registration rights to include all common stock then owned by
Purchaser (collectively, the "Purchaser's Common Shares"), in any
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<PAGE> 9
such offering on a pro rata basis. The Company shall give Purchaser notice of
such proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written request of Purchaser delivered to the
Company within twenty (20) days after the receipt of the notice from the
Company, which request shall state the number of Purchaser's Common Shares that
Purchaser wishes to sell or distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall use its best efforts to
register Purchaser's Common Shares, and to cause such registration to become and
remain effective so long as the Company keeps such registration effective as to
any other common stock of the Company. Purchaser's Common Shares registered
pursuant to this Section 2.d.i. must be purchased and offered for sale by a bona
fide underwriter or underwriters in a public offering on a firm commitment
basis. The Company's managing underwriter shall have the right to limit in whole
or in part the total number of Purchaser's Common Shares to be sold hereunder,
so long as such limitation is applied on a pro rata basis with respect to all
shares proposed or requested to be registered by the Company and all
shareholders. The expenses of any such offering shall be borne by the Company,
except for Purchaser's pro rata share of any underwriter's discount or sales
agent's commission.
ii. If, in connection with any registration under this Section 2.d, any of
the common shares of Company stock require registration or qualification under
the securities or "blue sky" laws of any state, or the approval of any state
governmental official or authority, the Company shall take all requisite action
and use its best efforts to cause such shares to be duly registered, qualified
or approved as may be required. If any shares meet the criteria for listing on
any exchange on which such stock of the Company is then listed, the Company
shall apply for and use its best efforts to obtain a listing of all such shares
on such exchange.
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iii. Except as provided in Section 2.d.i. above, the Company shall pay all
of the expenses in connection with the registration of any shares of Company
stock, including, without limitation, the costs of preparing, printing and
filing the registration statement in compliance with the 1933 Act, the fees and
expenses of counsel and accountants for the Company, Management Shareholders and
Purchaser for qualifying the offering under the securities or "blue sky" laws
and regulations of the state in which the offering is qualified.
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e. Sale of the Company.
i. At any time after April 4, 2000, and before the consummation of a
Purchaser Approved Offering, if a bona fide offer is made by any person (other
than Purchaser, or any person or entity related to or affiliated with
Purchaser), to purchase all or substantially all of the assets or shares of
stock of the Company, and Funding gives the Company written notice that it
desires such offer to be accepted, the Company and its shareholders shall either
accept the offer and consummate the sale on the terms and conditions of the
offer (in which case, if the transaction is a stock sale or merger, Purchaser
also shall sell all of its equity interests in the Company on those terms and
conditions), or the Company shall acquire all the equity interests owned by
Purchaser and Funding in the Company on the same terms and conditions as the
offer; provided, however, that if such offer is made prior to April 4, 2002, the
Company shall have no such obligation unless the total consideration of such
offer is at least $50,000,000. If at any time Funding approves the sale of
substantially all of the assets or shares of stock of the Company, then
Purchaser shall vote its shares in favor of the transaction so approved and, if
the transaction is a stock sale or merger, shall sell all of its equity
interests in the Company on the terms and conditions so approved.
In determining the total consideration for purposes of the foregoing, any
deferred payment shall be discounted to present value at a discount rate of
eight percent (8%) per annum. If the total consideration set forth in the offer
includes anything other than cash and/or marketable securities (the "Non-Cash
Consideration") then the Company, at its option, may acquire Purchaser's equity
interests for the product of (a) either (i) the Non-Cash Consideration specified
or (ii) cash in the amount of the fair market value of the total consideration
set forth in the offer, multiplied by (b) the percentage of all outstanding
equity interests of the Company that then is owned by Purchaser. Such fair
market
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value shall be determined pursuant to the terms of the Stock Purchase Agreements
dated April 4, 1997, March 31, 1998 and the date hereof by and among the
Company, Funding and the other stockholders of the Company (the "Funding
Purchase Agreements").
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's and
Funding's equity interests, the Company shall acquire Purchaser's and Funding's
equity interests for cash within ninety (90) days from the date of Funding's
written notice.
ii. At any time before the consummation of a Purchaser Approved
Offering, if any assets or stock of the Company is sold for any reason, or if
the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, pari passu with the
rights of holders of the Company's Class B Common Stock and all other holders of
the Company's Class C Common Stock to be paid with respect to the Management
Shareholder Payments, and before any distribution to shareholders, a priority
distribution equal to the product of (1) the sum of (a) all payments made to a
Management Shareholder in consideration of any covenant not to compete or
consulting agreement, plus (b) the component of any compensation to a Management
Shareholder for employment services that is in excess of the prevailing industry
average compensation, paid by companies that are similar to the company that
will be making the payments to the Management Shareholder, for the
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<PAGE> 13
management responsibilities actually to be performed by the Management
Shareholder, as such average compensation is mutually agreed between the
Company, the Management Shareholder and Funding, or if they cannot agree, then
as determined by a current survey of total compensation conducted by a qualified
representative of a nationally recognized investment banking or accounting firm
mutually agreeable to the Company, the Management Shareholder, and Funding,
multiplied by (2) the percentage of all equity interests in the Company that is
then owned by Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii. shall
be paid on the same schedule as the Management Shareholder Payments are received
by the Management Shareholder. If the Company has insufficient funds to pay the
portion of the priority distribution that is due at the time a Management
Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
f. Right of Co-Sale. In addition to the rights set forth in Section 2.c, at
any time prior to the consummation of a Purchaser Approved Offering, Purchaser
shall have the right to participate pro rata to the full extent of its equity
interest in the Company in any sale or transfer of stock, other than a gift,
charitable donation or other sale or transfer representing less than One Percent
(1%) of the Company's outstanding common stock, by the Company or any
shareholder of the Company.
g. Rights of Class C Shares on Liquidation, Dissolution or Winding Up.
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<PAGE> 14
The following provisions shall apply until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class C Common Stock:
i. In the event of any liquidation, dissolution or winding up of the
Company (including without limitation a liquidation or reorganization under
Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as may
hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holders of the
Company's Class C Common Stock then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders
(pari passu with the holders of the Company's Class B Common Stock, and before
any payment shall be made to the holders of any shares of the Company's Class A
Common Stock) an amount equal to the stated value of $2.1692 (subject to
appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock (the "Stated Value"), with such
amount to be calculated as of the date of such payment. Section 2.g. of the
Stock Purchase Agreement among the parties dated July 10, 1998 is hereby amended
so that the term "Stated Value" as set forth therein shall mean $2.1692 (subject
to appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class C Common Stock) per
share of the Company's Class C Common Stock.
ii. If, upon any Liquidation, the assets of the Company available for
distribution to its shareholders shall be insufficient (a "Liquidation
Insufficiency") to pay the holders of the Company's Class C Common Stock and
Class C Common Stock the full amount to which they shall
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<PAGE> 15
be entitled pursuant to Section 2.g.i., the holders of the Company's Class B
Common Stock and the holders of the Company's Class C Common Stock shall be
entitled to receive, pari passu, all the assets of the Company available for
distribution to its shareholders.
iii. If there is no Liquidation Insufficiency and payment shall have been
made to the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock of the full amount to which they are entitled,
the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock shall then be entitled to share in all remaining
assets and funds of the Company ratably in proportion to the number of shares of
Company common stock held by such holder.
iv. Unless such transaction is approved by the directors elected by the
holders of the Company's Class B Common Stock, the merger or consolidation of
the Company into or with another corporation in which the stockholders of the
Company shall own less than Fifty Percent (50%) of the voting securities of the
surviving corporation or the sale, transfer or lease (but not including a
transfer or lease by pledge or mortgage to a bona fide lender) of all or
substantially all of the assets of the Company shall be deemed to be a
Liquidation as such term is used in this Section 2.g. The amount deemed
distributed to the holders of the Company's Class B Common Stock and the holders
of the Company's Class C Common Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holder by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined by a competent
independent appraiser mutually agreed upon by the holders of the Company's Class
B Common Stock and the Company. The Company shall, upon receipt of such
appraiser's valuation, give prompt written notice of the appraiser's valuation
to the holders of the Company's Class B
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Common Stock and the holders of the Company's Class C Common Stock. The fees of
such appraiser shall be shared 50% by the Company, and 50% (shared pro rata) by
the holders of the Company's Class B Common Stock and the holders of the
Company's Class C Common Stock.
v. The Company's Articles of Incorporation shall contain provisions
consistent with this Section 2.g. until the earlier of (i) the consummation of a
Purchaser Approved Offering, or (ii) the redemption or conversion of all
outstanding shares of the Company's Class C Common Stock.
i. Representation on the Board of Directors; Visitation Rights. Until a
Purchaser Approved Offering has been consummated or Purchaser no longer owns any
equity interest in the Company, there shall be, and the Company's Articles of
Incorporation shall provide for, at least five (5) members on the Company's
Board of Directors, two (2) of whom shall be elected by the holders of the
Company's Class B Common Stock voting as a class, and the remainder of whom
shall be elected by the holders of the Company's Class A Common Stock voting as
a class. The holders of the Company's Class B Common Stock shall have the right
to remove and replace two (2) members of the Board at any time, and the holders
of the Company's Class A Common Stock shall have the right to remove and replace
the remaining members of the Board at any time. The Company shall pay each
director elected by the holders of the Company's Class B Common Stock a fee of
Two Thousand Five Hundred Dollars ($2,500.00) for attendance at each meeting of
the Board of Directors. Board meetings will occur at least quarterly. The
holders of the Company's Class C Common Stock shall have the right to appoint a
representative who shall have the right to attend meetings of the Company's
Board of Directors as a visitor.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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In connection with the purchase of the Class C Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now conducted. The Company is duly qualified and
in good standing as a foreign corporation authorized to do business in each of
the jurisdictions in which the failure to be so qualified would have a material
adverse effect on the Company and has delivered to Purchaser a good standing
certificate for each such jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
b. Capital Stock. The authorized capital stock of the Company consists of
Twenty-Five Million (25,000,000) shares of Class A Common Stock, no par value
per share, of which Four Million Six Hundred Fifty-Five Thousand Three Hundred
(4,655,300) shares are duly and validly issued and outstanding, fully paid and
non-assessable, Twenty-Five Million (25,000,000) shares of Class B Common Stock,
no par value per share, of which Four Million Nine Hundred Seventy-Nine Thousand
Seven Hundred Seventy-Seven (4,979,777) shares will be duly and validly issued
and outstanding, fully paid and non-assessable upon Closing, and Twenty-Five
Million (25,000,000) shares of Class
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C Common Stock, no par value per share, of which Two Million Seventy-Four
Thousand Four Hundred Sixty-Four (2,074,464) shares will be duly and validly
issued and outstanding, fully paid and non-assessable upon Closing (One Million
Thirty-Seven Thousand Two Hundred Thirty-Two (1,037,232) shares to Purchaser,
and One Million Thirty-Seven Thousand Two Hundred Thirty-Two (1,037,232) shares
to Spotswood).
All of the outstanding Class A Common Stock of the Company is owned by the
Shareholders other than Funding (except for shares held by others constituting,
in the aggregate, less than 0.25% of the outstanding capital stock of the
Company), and all of the outstanding Class B Common Stock of the Company is
owned by Funding. The Company does not have any other shares, classes of shares
or other debt or equity securities which are authorized, issued or outstanding.
None of the stock has been issued in violation of any preemptive rights.
The Class C Shares are duly authorized and upon issuance to the Purchaser
shall be validly issued to Purchaser, free and clear of all liens or rights of
any nature whatsoever, and without violation of any preemptive rights but
subject, as to 81,279 of the Class C Shares, to the Voting Trust Agreement.
Except for the options described on Schedule 3.b., there are no outstanding
subscriptions, options, rights, warrants, calls, convertible securities or other
rights, agreements or commitments which obligate the Company to issue, call,
repurchase, redeem or transfer any of its capital stock, or that restrict the
transfer of or otherwise relate to the Company's capital stock.
c. Business. The Company is engaged primarily in the business of hardware
and service sales, Internet access, communications networking and related
consulting.
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d. Investments. The Company does not own or have, directly or indirectly,
any material interest or investment (whether as equity or debt) in, or own any
of the capital stock of, any corporation, partnership, joint venture, business,
trust or other entity.
e. Authority. The Company has all requisite power and authority to execute
and deliver this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary corporate actions
of the Board of Directors and shareholders of the Company. This Agreement is a
valid and binding obligation of the Company, enforceable against it in
accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization of,
or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby.
g. No Violation. Neither the execution and delivery of this Agreement, nor
the consummation by the Company of the transactions contemplated hereby, shall
(a) conflict with the Organizational Documents of the Company, (b) violate or
constitute a default under any contract or other agreement to which the Company
is a party or by which the Company is bound, (c) violate any law, rule or
regulation of any state or of the United States or any judgment, decree, order,
regulation or rule of any court or any governmental or regulatory authority, or
(d) result in or require the creation of any lien or other encumbrance upon or
with respect to the Class C Shares or any of the assets or other securities of
the Company.
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h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1996 and December 31, 1997 (the
"Financial Statements"). To the best knowledge of the Company, the Financial
Statements have been prepared in conformity with GAAP, and fairly and accurately
reflect the financial condition of the Company as of the respective dates
thereof in conformity with GAAP. To the best knowledge of the Company, all
interim financial statements for periods after December 31, 1997 that have been,
or pursuant to Section 5.c below will be, delivered to Purchaser, have been and
will be prepared in conformity with GAAP, and fairly and accurately reflect the
financial condition of the Company as of the respective dates thereof in
conformity with GAAP.
The Company does not have any debts, liabilities or other obligations of
any nature (whether contingent or fixed, accrued or not accrued, liquidated or
not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except as disclosed on Schedule
3.h., the Company is current on all debts, accounts payable and lease payments
as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent Financial
Statements there has been no material adverse change in the condition, financial
or otherwise, assets, liabilities
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or business of the Company, nor has there been any event or condition of any
character that has or may in the future materially and adversely affect the
business or prospects of the Company. Since the date of the most recent
Financial Statements there has been no dividend or other distribution or payment
in respect of the stock of the Company.
j. Taxes. The Company has paid or made adequate provision for payment of
all federal, state and local income, payroll, sales, property and other taxes,
assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may become due
with respect to any period ending on or prior to the Closing Date, and has filed
all required tax returns and reports which are required to be filed. No tax
deficiency has been asserted, proposed or threatened against the Company for
taxes for the current year or for any prior period which has not been fully
settled or paid, nor has any issue been raised by the Internal Revenue Service
or any other taxing authority which reasonably can be expected to result in a
deficiency for any period. The Company's tax returns have never been audited,
nor has the Company received any notice of a planned audit or any communication
that would lead a reasonable person to believe that an audit is currently being
considered by a tax authority.
k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially and adversely affects the Company,
and the Company is not aware of any breach by any other party to any of the
Contracts. The terms of all Contracts are in all material respects arm's length
terms.
l. Property. Except for the property leased pursuant to the leases listed
on Schedule 3.l. (copies of which have been provided to Purchaser), and the
liens described on Schedule 3.1, the Company has good and marketable title to
all real and personal property reflected on the Financial
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Statements, and to all assets acquired since the date of the most recent
Financial Statements, free and clear of any material liens, claims or
encumbrances, except for liens for taxes not yet due and payable and inventory
which has either been used or consumed or has been sold in the ordinary course
of business. To the best of the Company's knowledge, there are no material
assets used by the Company in the conduct of its business which are not either
owned by the Company or leased to the Company under one of the leases described
in Schedule 3.l.
m. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is there any basis for any such action,
before any federal, state, local, or other court or governmental authority, nor
to the best of the knowledge of the Company, has any such action been
threatened, (i) against the Company or (ii) against any of the officers or
directors of the Company. The Company has delivered to Purchaser a true and
correct copy of the pleadings in all lawsuits in which the Company is a party.
The Company does not know of any judgment, order, writ, injunction, decree or
award that has been issued by, or requested of, any court, administrative or
governmental agency, arbitrator or other authority which does or may result in
any material adverse change in the business, properties, assets or financial
condition of the Company.
n. Compliance with Laws. The Company is in substantial compliance, and at
all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to
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franchising; state and federal securities laws; and laws and regulations
requiring licenses or permits (including, without limitation, permits relating
to the handling or discharge of Hazardous Materials) or the payments of taxes.
The Company has not received any notice asserting any noncompliance. The Company
has all licenses, permits and approvals necessary for the conduct of its
business. The Company has not granted a license or other right to use any
tangible or intangible assets used in or related to the business. From the
Company's inception, none of the Company's directors or officers have been
arrested or convicted of any material crime, nor have any of them been bankrupt
or served as an officer or director of a bankrupt company.
o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company nor any
property owned or operated by the Company has been or is in violation of, nor
does the Company have any liabilities under, any Environmental Law (as defined
in Section 3.o.iii.). To the best of the Company's knowledge, there are no
actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from any Environmental Agency (as defined in Section 3.o.v.),
instituted, pending, or threatened, relating to any liability under any
Environmental Law of the Company or respecting any property owned or operated by
the Company.
ii. To the best of the Company's knowledge, no Hazardous Materials (as
defined in Section 3.o.iv.) have been generated, treated, stored or disposed of
at, or transported to or from, any properties owned or operated by the Company
at any time, except in compliance with applicable Environmental Laws. To the
best of the Company's knowledge, no friable asbestos containing material is in
use, or is or has been stored or disposed of, on or upon any properties owned or
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operated by the Company. To the best of the Company's knowledge, no
polychlorinated biphenyls ("PCBs") are located on or in any properties owned or
operated by the Company in any form or device, including, without limitation, in
the form of electrical transformers, fluorescent light fixtures with ballasts,
or cooling oils, except in compliance with applicable Environmental Laws. To the
best of the Company's knowledge, no underground storage tanks are located on any
properties owned or operated by the Company or were located on any properties
owned or operated by the Company and subsequently removed or filled.
iii. "Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Environmental Agency relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the usage, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release, or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
iv. "Hazardous Materials" means solid waste (as that term is defined under
the Resource Conservation and Recovery Act, 42 U.S.C.A. Section 6901 et seq.
("RCRA"), and the regulations adopted pursuant to RCRA), hazardous waste (as
that term is defined under RCRA and the regulations adopted pursuant to RCRA),
hazardous substances (as that term is defined in the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601 et seq.
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("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including, without limitation, any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or
chemicals.
v. "Environmental Agency" means the United States Environmental
Protection Agency, any state agency in a state where the Company owns or
operates properties which is similar in jurisdiction to the United States
Environmental Protection Agency, or any other federal, state or local agency
responsible for regulating or enforcing laws, rules, regulations and ordinances
relating to (i) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release,
or disposal of any substance presently listed, defined, designated or classified
as hazardous, toxic, radioactive, or dangerous, or otherwise regulated, whether
by type or by quantity, including any material containing any such substance as
a component.
p. Intellectual Property. The Company is the sole and exclusive owner of,
or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service mark, trade name, trade secret,
copyright,
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patent, franchise or other intangible property right of another. Except as set
forth on Schedule 3.p., the Company is not required to pay any royalty, license
fee, commission or other payment to any person or entity with respect to any
trademark, service mark, trade name, trade secret, copyright, patent, franchise
or other intangible property. The Company has not granted any person or entity
the right to use any of the Company's trademarks, service marks, trade names,
trade secrets, copyrights, patents, technology or other intangible property, nor
is it aware of any such use by another person or entity.
q. Insurance. Schedule 3.q. contains a true and correct list, together with
copies of certificates or cover pages, of all policies of insurance owned and/or
maintained by the Company. All physical properties and assets of the Company are
covered by fire and other insurance against casualty loss customarily covering
properties and assets of comparable businesses in this region, in amounts which
are reasonable in light of existing replacement costs. The Company maintains
general liability, workers' compensation and other usual types of insurance in
reasonable amounts. The Company is not now in default regarding the provisions
of any policy of insurance, and has not and shall not have failed to give any
notice or present any claim thereunder in due and timely fashion.
r. Books and Records. To the best of the Company's knowledge, the books and
accounts and other corporate records of the Company are complete and correct in
all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all
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applicable laws relating to the employment of labor, including without
limitation any provisions thereof relating to wages and hours, discrimination
due to age, religion, sex, national origin, disability or immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with information as to any bonus, incentive, insurance,
compensation plan, welfare, retirement, defined benefit, 401(k), pension, profit
sharing, salary reduction, deferred compensation, stock purchase, stock option,
vacation, holiday and sick pay or other similar benefit plans (said plans being
referred to as the "Plans") in which any such employees of the Company
participate. All obligations of the Company, whether arising by operation of
law, by contract or by past custom, for payment by it to trusts, retirement
plans or other funds or any governmental agency with respect to unemployment
compensation benefits, social security benefits or any other benefits for
employees of the Company have been paid or shall be paid by the Company at the
time the Company is obligated to make such payments. All benefits payable
directly to the Company's employees have been paid or shall be paid by the
Company at the time the Company is obligated to make such payments. All
reasonably anticipated obligations of the Company, whether arising by operation
of law, by contract or by past custom, for vacation and holiday pay, bonuses and
other forms of compensation or benefits which are or may become payable to
employees or any of them have been paid, or shall be paid, in accordance with
the provisions of applicable laws, regulations, benefit plans or policies.
t. Broker Fee. All broker, finder or professional fees associated with the
transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and shall be paid by the Company as and when due.
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u. Customers and Suppliers. The Company does not know of any customer or
supplier of the Company who intends to terminate or reduce its business with the
Company, whether as a result of this Agreement or otherwise. The Company is not
bound by any concession or arrangement with any customer or supplier which is
outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents with respect to the Plans, including, but not limited to,
each of the following documents: (i) a copy of the Plan and each related trust
or other funding agreement, including insurance contracts (and all amendments
thereto) (ii) the last filed Form 5500; (iii) the most recent determination
letter received from the United States Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"); and (iv) the summary plan
descriptions and all material modifications thereto, have been delivered to
Purchaser.
All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
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The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other than for the payment of premiums) to the PBGC has been or is
expected to be incurred by the Company or any officer, director, shareholder or
employee of the Company with respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder, director,
officer, agent, employee or other person associated with or acting on the
Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the Company; or made any bribe,
rebate payoff, influence payment, kickback or other unlawful payment to any
person or entity, private or public, regardless of form, whether in money,
property, or services, to obtain favorable treatment in securing business or to
obtain special concessions or to pay for favorable treatment for business
secured or for special concessions already obtained.
x. Small Business Concern. The Company, taken together with its
"affiliates" (as that term is defined in Section 121.401 of Title 13 of the Code
of Federal Regulations), is a "Small Business Concern" within the meaning of
Section 103(5) of the SBIC Act, and the regulations
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thereunder including Title 13, Code of Federal Regulations, Section 121.3, and
meets the applicable size eligibility criteria set forth in Title 13, Code of
Federal Regulations, Section 121.802(a)(2). The Company does not presently
engage in any activities for which a small business investment company is
prohibited from providing funds by the SBIC Act and the regulations thereunder,
including Title 13, Code of Federal Regulations, Section 107.
y. Small Business Administration Documentation. The Company has provided
the Purchaser with a Small Business Administration ("SBA") Form 480 (Size Status
Declaration) and SBA Form 652 (Assurance of Compliance) which have been
completed and executed by the Company, and SBA Form 1031 (portfolio Finance
Report), Part A of which has been completed by the Company.
z. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to Purchaser in this Agreement, in the light of the
circumstances under which they were made, not misleading.
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4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class C Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
a. Organization. Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of North Carolina.
b. Authority. Purchaser has all requisite power and authority to execute
and deliver this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary action of
Purchaser. This Agreement is a valid and binding obligation of Purchaser,
enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement, nor
the consummation by Purchaser of the transactions contemplated hereby, shall (i)
conflict with the Articles of Organization or Operating Agreement of Purchaser,
(ii) violate or constitute a default under any contract or other agreement to
which Purchaser is a party or by which Purchaser is bound, or (iii) violate any
law, rule or regulation of any state or of the United States or any judgment,
decree, order, regulation or rule of any court or any governmental or regulatory
authority, which would have a material adverse effect on the Company or the
transactions contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization of,
or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby or thereby, except to the
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extent obtained by Purchaser prior to Closing or to the extent that their
failure to be obtained would not have a material adverse effect on the Company
or the transactions contemplated hereby.
5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in the
ordinary course and, without the prior written consent of Funding, except in the
ordinary course of business, shall not enter into, or permit the Company or any
assets of the Company to become bound by or subject to, any Contract, and (b)
shall continue to manage the inventories, accounts receivable, accounts payable
and payroll of the Company in accordance with past practice in the ordinary
course of business. The Company shall promptly notify Purchaser of any actions
or proceedings of the type described in Section 3.m.
b. Corporate Examination and Investigations. Purchaser, shall be entitled,
through its employees and representatives, including, without limitation,
Purchaser's counsel and accountants, on a reasonable basis, to make such
investigation of the assets, properties, business and operations of the Company
and such examination of its books, records and financial condition, as Purchaser
wishes. Any such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances and the Company shall cooperate fully
therein. No such investigation undertaken by Purchaser shall relieve the Company
of any liability hereunder. In order that Purchaser may have full opportunity to
make such business, accounting and legal review, examination or investigation,
the Company shall make available at its principal office to the representatives
of
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Purchaser during such period all such information and copies of such documents
concerning the affairs of the Company as such representatives may reasonably
request and shall cause the officers, employees, consultants, agents,
accountants and attorneys of the Company to cooperate fully with such
representatives in connection with such review and examination. The information
obtained by Purchaser shall remain confidential and shall be disclosed only to
the officers, employees managers, members, prospective members and
representatives of Purchaser or the SBA.
c. Delivery of Financial Materials. The Company shall deliver to Purchaser
(i) within thirty (30) days of the end of each month, monthly year-to-date
financial statements prepared in accordance with GAAP (including profit and
loss, cash flow, and balance sheet) and certified by the Company's chief
financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an outside accounting firm
designated by the Company and reasonably acceptable to Funding and (b)
projections for the next year in the same format as the financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the following
documents or information as applicable: (i) within thirty (30) days after
filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the
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Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Funding. Such insurance coverage shall include, without
limitation, directors' and officers' liability insurance.
f. Activities and Proceeds.
(i) Neither the Company nor any of its subsidiaries will engage in any
activities or use directly or indirectly the proceeds from the Class C
Shares for any purpose for which a small business investment company is
prohibited from providing funds by the SBIC Act and the regulations
promulgated thereunder, including Title 13, Code of Federal Regulations,
Section 107.
ii. The Company will use the proceeds from the Class C Shares to
provide working capital to develop existing and future projects. The
Company will deliver within ninety (90) days of the Closing to Purchaser a
written report, certified as correct by the Company's chief financial
officer, verifying the purposes and the amounts for which proceeds from the
Class C Shares have been disbursed, and, if the proceeds have not been
fully disbursed within that ninety-day period, an additional report also so
certified, delivered not later than the end of each succeeding ninety-day
period, verifying the purposes and the amounts for which proceeds have been
disbursed. The Company will supply to Purchaser such additional information
and documents as Purchaser reasonably requests with respect to use of
proceeds and will permit Purchaser to have access to any and all Company
records and
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information and personnel as Purchaser deems necessary to verify how
proceeds have been or are being used and to assure that the proceeds have
been used for the purposes specified. The Company agrees that any diversion
by the Company of the proceeds of the Class C Shares for any purpose other
than those set forth above, without the prior written consent of Purchaser,
will constitute a breach of the covenants of the Company under this
Agreement (a "Proceeds Event of Default").
iii. The Company will not, without obtaining the prior written
approval of Purchaser, change within one (1) year of the Closing the
Company's business activity from that described above to a business
activity which a small business investment company is prohibited from
providing funds by the SBIC Act and the regulations promulgated thereunder.
The Company agrees that any such changes in its business activity without
such prior written consent of Purchaser will constitute a breach of the
covenants of the Company under this Agreement (an "Activity Event of
Default").
iv. If either a Proceeds Event of Default or an Activity Event of
Default occurs, Purchaser hereunder shall have the right to demand
immediate repayment of the purchase price of the Class C Shares, together
with interest at the rate of 12% per annum to the date of repayment, and
the Company will immediately make such payment within three (3) days of
receipt of a demand. The payment remedy is in addition to any and all other
rights and remedies against the Company and others to which Purchaser may
be entitled.
6. FOREBEARANCES OF THE COMPANY
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Except with the prior written consent of Funding, or the affirmative vote
of the directors elected by the holder of the Class B Shares, until the
consummation of a Purchaser Approved Offering or sale by Purchaser of all of its
equity interests in the Company, the Company shall not:
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement, lease or commitment
not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of One
Percent (1%) of the outstanding shares of the Company (except pursuant to the
exercise of options described on Schedule 3.b., or options issued to employees
pursuant to the terms of the Company's Stock Option Plan as in effect on the
date hereof), or create any new class or series of securities;
d. issue, grant or authorize any options (except options described on
Schedule 3.b., or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of One Percent (1%)
of the outstanding shares of the Company, or redeem any outstanding shares of
the Company representing, in the aggregate, in excess of One Percent (1%) of the
outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization
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or create any subsidiary; or liquidate, sell or otherwise dispose of any assets
or acquire any assets, other than in the ordinary course of its business
consistent with past practice;
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's Board of
Directors, any shareholder, or any other individual officer of the Company,
unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus to,
or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner consistent with past practice and
approved by the Compensation Committee of the Company's Board of Directors;
j. change the location or nature of its business operations or invest any
funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment for
the benefit of creditors;
l. agree to do any of the foregoing.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
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a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated the
Closing Date and signed by the President and the Secretary or Treasurer of the
Company, to the effect that the applicable conditions set forth in this Section
have been satisfied.
d. The Company shall have delivered a certificate to Purchaser, dated the
Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
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h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. Purchaser shall have performed in all material respects all obligations
and complied with all covenants required by this Agreement to be performed or
complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated the
Closing Date and signed by the President and the Secretary or Treasurer of the
general partner of Purchaser, to the effect that the applicable conditions set
forth in this Section have been satisfied.
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory
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body, to restrain, modify or prevent the carrying out of the transactions
contemplated hereby or to seek damages or a discovery order in connection with
such transactions.
9. EXPENSES
At Closing, the Company shall (i) pay Geneva Associates, LLC a total
advisory fee of $75,000 for its services in connection with the transactions
contemplated hereunder and under the Stock Purchase Agreements with Spotswood
and Funding each dated the date hereof, and (ii) pay all reasonable
out-of-pocket costs and expenses (including, without limitation, legal,
accounting and consulting fees) incurred by Purchaser in connection with its due
diligence and the negotiation, preparation, execution and performance of this
Agreement and the transactions contemplated hereby. Amounts to be paid by the
Company at Closing under Section 9(ii) shall be paid directly out of the payment
of the purchase price for the Class C Shares at Closing.
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to indemnify,
defend and hold harmless Purchaser against and in respect of any and all claims,
demands, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including, without limitation, interest, penalties and reasonable
attorneys' fees ("Losses"), which directly or indirectly arise, result from or
relate to the breach by the Company of, or the failure by the Company to comply
with or perform, the Company's representations, warranties, covenants or
agreements contained in this Agreement. To compensate Purchaser for the
reduction in the capitalization of the Company as the result of any
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such that, following the indemnification
payment, Purchaser would be in the same position as if the
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shareholders of the Company (other than Purchaser) had made such indemnification
payment to Purchaser directly.
b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11, as follows:
i. At any time on or prior to the Closing Date, by the mutual written
consent of the Company and Purchaser;
ii. At any time on or prior to the Closing Date, by Purchaser in
writing, if the Company has, or by the Company in writing if Purchaser has,
in any material respect, breached (i) any covenant or undertaking contained
herein or (ii) any representation or warranty contained herein, and in the
case of (i) and (ii) if such breach has not been cured by the earlier of
ten (10) days after the date on which written notice of such breach is
given to the party committing such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company in
writing, if any of the conditions precedent to the obligations of such
party to consummate the transactions contemplated hereby have not been
satisfied or fulfilled; or
iv. By either Purchaser or the Company in writing, if the Closing Date
has not occurred by the close of business on December 31, 1998.
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b. Effect of Termination. In the event of a termination of this Agreement
for any reason, each party may seek any remedies available to it, including
claims for damages, specific performance or injunctive relief.
12. CLAIMS FOR INDEMNIFICATION
Any claim for indemnification which is based upon a final judgment, decree
or award of a court of competent jurisdiction requiring the payment of money by
any party to this Agreement or any of its officers, directors or controlling
persons, shall be conclusive as to the amount of such claim, provided a
certified copy of such judgment, decree or award accompanies the notice relating
to such claim and provided further that the party seeking indemnification shall
have complied with Section 14 of this Agreement.
Any claim for indemnification shall be conclusive in all respects thirty
(30) days after receipt by the other party of notice thereof, unless within such
period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration
42
<PAGE> 43
Association. Judgment upon the award by the arbitrator may be entered in any
court having jurisdiction thereof. As part of such award, the arbitrator shall
be promptly paid by the party that initiates the proceeding, but the portion of
each such fee and expenses which represents the same percentage thereof as the
percentage of the amount of the claim represented by the amount awarded shall be
added to the amount of the award and shall be borne by the indemnifying party.
Any award shall be a conclusive determination of the matter and shall be binding
upon Purchaser and the Company and shall not be contested by either of them.
Arbitration proceedings shall be held in the city of Dover, Delaware unless the
parties agree upon another location. In any such action the prevailing party, in
the judgment of the arbitrator, shall be entitled to an award of its costs and
attorneys' fees incurred in the action.
43
<PAGE> 44
14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any claim or
demand shall be asserted, by any third party in respect of which indemnity may
be sought by Purchaser or the Company pursuant to the provisions of this
Agreement, the party seeking indemnification, with reasonable promptness after
obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the prior
written consent of the party seeking indemnification, which consent shall not be
unreasonably withheld, the indemnifying party shall not consent to the entry of
any judgment in or agree to any settlement of any such matters; and provided
further that the party seeking indemnification may retain counsel, at its own
expense, to represent it and participate in connection with any such proceeding
or claim or demand. Failure by the indemnifying party to notify the party
seeking indemnification of the indemnifying party's election to defend any
proceeding, claim or demand with respect to which indemnity is sought within
thirty (30) days after notice thereof shall have been given by the party seeking
indemnification shall be deemed a waiver by the indemnifying party of its right
to defend against such matter. If the indemnifying party assumes defense of any
such proceeding, claim or demand, it shall take or cause to be taken all steps
necessary in connection with such defense, and the party seeking indemnification
shall in all events be entitled to indemnity with respect to such matter, as
provided in this Agreement. In the event that the indemnifying party does not
elect to defend any proceeding, claim or demand with respect to which indemnity
is sought, the party seeking
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<PAGE> 45
indemnification may defend against, settle or otherwise deal with any such
proceeding, claim or demand in such matter as it may in its good faith
discretion deem appropriate and the indemnifying party shall be liable for
indemnification with respect to such matter, including without limitation the
reasonable costs of such defense, as provided in this Agreement. In the event of
any proceeding, claim or demand by a third party with respect to which a claim
for indemnification is made hereunder, the parties hereto agree that they will
cooperate fully with each other in connection with the defense or settlement of
such matter.
15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No waiver shall be binding unless
executed in writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be assigned by
any party hereto without the written consent of the other parties hereto,
provided, however, that Purchaser may assign any or all of its rights and
obligations hereunder to any person or entity to whom Purchaser transfers any of
the Class C Shares; provided, however, that the Purchaser shall be the sole
representative of any such transferee in dealing with all matters pertaining to
this Agreement.
45
<PAGE> 46
This Agreement shall be binding on, and inure to the benefit of, the parties to
it and their respective legal representatives, successors and permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or other
communications hereunder shall be in writing and shall be effective (a) when
personally delivered by courier or otherwise to the party to be given such
notice or other communication, or (b) on the business day following the day such
notice or other communication is sent by telex, facsimile or similar electronic
device, fully prepaid, which telex, facsimile or similar electronic
communication shall promptly be confirmed by written notice or (c) on the fifth
day following the date of deposit in the United States mail if such notice or
other communication is sent by certified or registered air mail (or its
equivalent) with return receipt requested and postage thereon fully prepaid. The
addresses for such notices shall be as follows:
If to Purchaser:
Blue Ridge Investors Limited Partnership
c/o Blue Ridge Investors Group, Inc.
First Union Tower
P.O. Box 21962
Greensboro, North Carolina 27420
Attention: Russell R. Myers and Edward C. McCarthy
Facsimile: (336) 274-4984
With a copy to:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Post Office Box 26000
Greensboro, North Carolina 27420
Attention: Marc D. Bishop
Facsimile (336) 378-1001
46
<PAGE> 47
If to the Company:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attention: President
Facsimile: (972) 650-7972
With a copy to:
Clay C. Scott, Jr.
7501 Inwood Road
Post Office Box 7569
Dallas, Texas 75209
Facsimile: (214) 358-2851
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits and
other documents referred to herein which form a part hereof, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties,
covenants or understandings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by all of the parties hereto.
h. Headings; References. The headings appearing in this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement. All references herein to
47
<PAGE> 48
Sections, Exhibits and Schedules refer to the Sections contained in, and the
Exhibits and Schedules attached to, this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
ATTEST: I 3S, INC.
/s/ [ILLEGIBLE] By: /s/ James R. Price
- ----------------------------- ------------------------------
James R. Price, President
(CORPORATE SEAL)
BLUE RIDGE INVESTORS LIMITED
PARTNERSHIP
By: Blue Ridge Investors Group, Inc.
By: /s/ Russ R. Myers
------------------------------
Russ R. Myers, President
The Shareholders execute this Agreement solely for the purpose of agreeing
to the provisions of Section 2 hereof and waiving any and all preemptive rights
with respect to the issuance of the Class C Shares hereunder, which rights are
hereby waived.
/s/ James R. Price
-----------------------------------------------
James R. Price
/s/ Gary A. Dobbins
-----------------------------------------------
Gary A. Dobbins
/s/ Clay C. Scott, Jr.
-----------------------------------------------
Clay C. Scott, Jr.
/s/ Charles Bo Price
-----------------------------------------------
Charles Bo Price
/s/ George Venner
-----------------------------------------------
George Venner
48
<PAGE> 49
I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Russ R. Myers
--------------------------------------
Russ R. Myers, Member-Manager
SPOTSWOOD CAPITAL, LLC
By: /s/ William J. Armfield IV
--------------------------------------------
William J. Armfield IV, Member-Manager
49
<PAGE> 1
EXHIBIT 4.8
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December
30, 1998, is made and entered into between I3S FUNDING I, L.L.C., a North
Carolina limited liability company (the "Purchaser"); I 3S, INC., a Texas
corporation (the "Company"); JAMES R. PRICE, GARY A. DOBBINS, CLAY C. SCOTT,
JR., CHARLES BO PRICE, GEORGE VENNER, SPOTSWOOD CAPITAL, LLC ("Spotswood") and
BLUE RIDGE INVESTORS LIMITED PARTNERSHIP ("Blue Ridge") (collectively, the
"Shareholders") who execute this Agreement solely for the purpose of agreeing to
the provisions of Section 2 hereof and waiving any and all preemptive rights
with respect to the issuance of the Class B Shares hereunder.
Purchaser wishes to purchase from the Company, and the Company wishes
to sell to Purchaser, 648,927 shares of the Company's Class B Common Stock, no
par value per share (the "Class B Shares"), on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties contained in this Agreement, the parties hereto
agree as follows:
1. SALE AND PURCHASE OF CLASS B SHARES; THE CLOSING
a. Sale and Purchase of Class B Shares. Subject to the terms and
conditions set forth in this Agreement, at the Closing provided for in paragraph
1.d. below, the Company shall sell to Purchaser, and Purchaser shall buy from
the Company, Six Hundred Forty Eight Thousand Nine Hundred Twenty-Seven
(648,927) Class B Shares for an aggregate purchase price of Two Million Dollars
($2,000,000). The Class B Shares, together with the Class B Common Stock
previously issued to Purchaser, shall represent at the time of issuance 34.11%
of all outstanding common stock
<PAGE> 2
of the Company on a fully diluted basis (i.e. calculated as if all outstanding
options, warrants or other rights to acquire or purchase shares of the Company's
common stock, had been exercised).
b. Payment of Purchase Price. At the Closing, Purchaser shall deliver
the sum of Two Million Dollars ($2,000,000) to the Company by way of a wire
transfer in complete payment for the Class B Shares.
c. Delivery of Stock Certificate. In consideration for Purchaser's
payment for the Class B Shares, at the Closing the Company shall deliver to
Purchaser a stock certificate representing the Class B Shares.
d. The Closing. The closing of the sale and purchase of the Class B
Shares contemplated hereby (the "Closing"), shall take place at the offices of
the Company, 1330 River Bend, Suite 600, Dallas, Texas, at 10:00 a.m. on the
date hereof, or such other date and time as Purchaser and the Company shall
mutually agree in writing (the "Closing Date"). At the Closing, the Company
simultaneously shall sell 162,232 shares of Class C Common Stock to Blue Ridge,
and 162,232 shares of Class C common stock to Spotswood, for $500,000.00 each.
2. PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE CLASS B SHARES
a. Voting. Except as provided in Section 2.i below, the Class B Shares
shall be entitled to vote on all matters voted on at a shareholders' meeting,
with the same voting rights per share as are granted to the Company's Class A
Common Stock. Purchaser acknowledges that 325,113 of the Class B shares shall be
transferred to a Voting Trust pursuant to the Voting Trust Agreement among
certain of the parties hereto dated the date hereof (the "Voting Trust
Agreement").
b. Preemptive Rights. Until such time as a Purchaser Approved Offering
(as defined below) has been consummated or Purchaser has otherwise sold all of
its Class B Shares or other
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<PAGE> 3
equity interests in the Company, Purchaser shall have preemptive rights with
regard to any future issuances of common stock of the Company (other than an
issuance of common stock pursuant to currently outstanding options disclosed
hereunder) permitting Purchaser to purchase additional common shares pro rata at
the same price and on the same terms and conditions of such issuance. For
purposes of this Agreement, a Purchaser Approved Offering shall mean the
consummation of an underwritten public offering of common stock of the Company
on the New York Stock Exchange, the American Stock Exchange, or The Nasdaq Stock
Market, Inc. pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of common stock of the Company to the public
at a price resulting in gross proceeds from such sale to the Company (before
deduction of underwriting discounts and expenses of sale) of not less than
$50,000,000.
c. Right of First Refusal. Except in the event of and after the
consummation of a Purchaser Approved Offering , and except for gifts, charitable
donations or sales in each case representing less than One Percent (1%) of the
Company's outstanding common stock in the aggregate, no shareholder shall be
permitted to dispose of any shares of the Company's common stock unless such
shares shall have been offered for sale in writing first to the Company and then
to the other shareholders of the Company pro rata. In the event a shareholder
desires to transfer any common shares, the shareholder desiring to make such
transfer (the "Transferring Shareholder") shall deliver written notice (the
"Offer Notice") to the Company and to all other shareholders at least sixty (60)
days prior to the proposed transfer. The Offer Notice will disclose in
reasonable detail the proposed number of shares to be transferred, the proposed
transferee and the proposed price, terms and conditions of the transfer.
3
<PAGE> 4
i. Upon receipt of the Offer Notice, the Company shall have
the option (the "Company's Option") for a period of thirty (30) days to purchase
or otherwise acquire all or part of the shares described in the Offer Notice for
an aggregate amount (such aggregate amount being hereinafter referred to as the
"Option Price") equal to the bona fide purchase price to be paid by the proposed
purchaser as described in the Offer Notice (which amount shall be zero if the
proposed transfer would take the form of a gift or other gratuitous transfer).
The Company shall notify in writing all then current shareholders as to whether
it will exercise, partially exercise or not exercise the Company's Option before
the expiration of the Company's Option.
ii. In the event that the Company does not elect to fully
exercise the Company's Option within thirty (30) days after receipt of the Offer
Notice, the remaining shareholders shall have the option (each a "Shareholder's
Option") for a period of ten (10) days from the earlier of (i) their receipt of
written notice from the Company of its decision not to exercise or to only
partially exercise the Company's Option, or (ii) the expiration of the Company's
Option (the "Other Shareholder Election Period"), to purchase or otherwise
acquire all or part of the remaining shares which the Company does not choose to
purchase pursuant to the Company's Option, in proportion to their respective
ownership of shares which, for purposes of such determination, shall include
without duplication all outstanding options, warrants or other rights owned by
such shareholders that are convertible into shares as of the date of such notice
from the Company (or the expiration of the Company's Option), for an amount
equal to the applicable portion of the Option Price. Each shareholder shall
notify in writing all then current shareholders as to whether such shareholder
will exercise, partially exercise or not exercise the shareholder's option
before the expiration of the Other Shareholder Election Period.
4
<PAGE> 5
iii. For a period of ten (10) days from the earlier of (i) the
receipt by the other shareholders of a written notice from a shareholder that it
does not want to exercise its option or will only partially exercise its option,
or (ii) the expiration of the Other Shareholder Election Period, the other
shareholders shall have the right to purchase or otherwise acquire such
shareholder's portion of the shares described in the Offer Notice in proportion
to their respective ownership of shares (determined as described in Section
2.c.ii. above).
iv. If shares of a Transferring Shareholder remain unsold
after compliance with the procedures set forth in this Section 2.c., the Company
shall have the final option for ten (10) days to purchase or otherwise acquire
all of the remaining shares proposed to be transferred for an amount equal to
the applicable portion of the Option Price. If, however, the Company and the
other shareholders do not individually or collectively elect to purchase all of
the shares being offered, the Transferring Shareholder may, within thirty (30)
days after the expiration of the Other Shareholder Election Period (subject to
the provisions of Section 2.c.vi. below), transfer all of the shares specified
in the Offer Notice to the transferee identified in the notice at the price and
terms stated in the Offer Notice. Any shares so transferred thereupon shall
continue to be subject to this Agreement, and the transferee shall have the
rights and obligations set forth in this Agreement hereunder with respect to
such shares. If the Transferring Shareholder fails to consummate such transfer
within the thirty-day period after the expiration of the Other Shareholder
Election Period, any transfer of the shares thereafter shall again be subject to
the provisions of this Section 2.c.
v. Unless otherwise agreed in writing, signed by the person
against whom such writing is sought to be enforced, the closing of any
acquisition of common shares hereunder pursuant to the Company's Option or a
Shareholder's Option shall take place within forty-five (45) days of an
5
<PAGE> 6
applicable option's exercise. If any such closing does not take place within
such forty-five day period, then the shares that were to be acquired shall be
offered in accordance with this Section 2.c. as though the applicable option had
not been exercised.
vi. Notwithstanding the foregoing provisions of this Section
2.c., the following shall apply in the event of any Involuntary Transfer of
common shares. An "Involuntary Transfer" shall mean any transfer caused by the
death of a shareholder, as well as any transfer, proceeding or action by,
through, as a consequence of, or in which a shareholder shall be deprived or
divested of any right, title or interest in or to any of the common stock of the
Company, including, without limitation, any seizure under levy, attachment or
execution, any transfer in connection with bankruptcy (whether pursuant to a
filing of a voluntary or an involuntary petition under the United States
Bankruptcy Code, or any amendments, modifications, revisions or successors
statutes thereto) or other court proceeding to a debtor-in-possession, trustee
in bankruptcy or receiver or other officer or agency, any transfer to a state or
to a public officer or agency pursuant to any statute pertaining to escheat or
abandoned property, any transfer pursuant to a separation agreement, equitable
distribution agreement or community property distribution agreement, or the
entry of a final court order in a divorce proceeding from which there is no
further right of appeal.
In the event of any Involuntary Transfer, the Company shall
give written notice to each shareholder upon the occurrence, or prospective
occurrence, of such Involuntary Transfer within fifteen (15) days of the date on
which the Company is notified of the occurrence or prospective occurrence of
such Involuntary Transfer. The foregoing provisions of this Section 2.c. then
shall apply, except (i) the Option Price shall be the value of the Company as
determined by a qualified representative of a nationally recognized investment
banking or accounting firm mutually agreeable
6
<PAGE> 7
to the Company, Purchaser, and the shareholder who made, or may make, the
Involuntary Transfer, multiplied by the percentage of all equity interests in
the Company that is then represented by the shares that are the subject of the
Involuntary Transfer, such independent appraised value to take into account the
earnings and book value of the Company, and (ii) the appraiser shall deliver
written notice of such valuation to the Company and to all other shareholders
promptly following his completion of such valuation, and such written notice
shall be considered the Option Notice for purposes of this Section 2.c. The cost
of the appraisal shall be shared equally by the Company and the shareholder who
made, or may make, the Involuntary Transfer.
At the closing of any purchase by the Company or any
shareholders pursuant to this Section 2.c.vi., the involuntary transferee shall
deliver certificates representing the common shares being purchased, duly
endorsed for transfer and accompanied by all requisite stock transfer taxes, and
such shares shall be conveyed free and clear of any liens, claims, options,
charges, encumbrances or rights of others arising through the action or inaction
of the involuntary transferee, and the involuntary transferee shall so represent
and warrant. The involuntary transferee shall further represent and warrant that
he is the beneficial owner of such shares.
In the event the provisions of this Section 2.c.vi. shall be
held to be unenforceable with respect to any particular Involuntary Transfer of
common stock, or if all of the shares subject to the Involuntary Transfer are
not purchased by the Company and/or one or more shareholders, and if the
involuntary transferee subsequently desires to transfer such common stock, the
involuntary transferee shall be deemed to be a "Transferring Shareholder" under
Section 2.c. and shall be bound by the other provisions of this Agreement.
7
<PAGE> 8
vii. Notwithstanding anything to the contrary contained in
this Section 2.c., no shareholder shall transfer any common shares at any time
if such action would constitute a violation of any federal or state securities
laws or a breach of the conditions to any exemption from registration of the
shares under any such laws or a breach of any undertaking or agreement of such
shareholder entered into pursuant to such laws or in connection with obtaining
an exemption thereunder. Each shareholder agrees that any shares purchased or
acquired by such shareholder shall bear appropriate legends restricting the sale
or other transfer of such shares in accordance with applicable federal and state
securities laws, in addition to a legend referring to the restrictions set forth
in this Agreement.
d. Rights With Regard to Registration of Purchaser's Common
Shares.
i. In the event that the Company registers any of its common
stock or other securities under federal and state securities laws for a primary
offering or a secondary offering by the Company or any of the officers or
directors of the Company who are also shareholders (a "Management Shareholder"),
Purchaser shall have piggy-back registration rights to include all common stock
then owned by Purchaser (collectively, the "Purchaser's Common Shares"), in any
such offering on a pro rata basis. The Company shall give Purchaser notice of
such proposed registration at least thirty (30) days prior to the filing of a
registration statement. Upon the written request of Purchaser delivered to the
Company within twenty (20) days after the receipt of the notice from the
Company, which request shall state the number of Purchaser's Common Shares that
Purchaser wishes to sell or distribute publicly under the registration statement
proposed to be filed by the Company, the Company shall use its best efforts to
register Purchaser's Common Shares, and to cause such registration to become and
remain effective so long as the Company keeps such registration effective as to
any other common stock of the Company. Purchaser's Common Shares
8
<PAGE> 9
registered pursuant to this Section 2.d.i. must be purchased and offered for
sale by a bona fide underwriter or underwriters in a public offering on a firm
commitment basis. The Company's managing underwriter shall have the right to
limit in whole or in part the total number of Purchaser's Common Shares to be
sold hereunder, so long as such limitation is applied on a pro rata basis with
respect to all shares proposed or requested to be registered by the Company and
all shareholders. The expenses of any such offering shall be borne by the
Company, except for Purchaser's pro rata share of any underwriter's discount or
sales agent's commission.
ii. At any time after April 4, 2000, Purchaser may require the
Company, at the Company's expense, to register up to two (2) primary or
secondary offerings of the Company's common stock (including Purchaser's Common
Shares) to the extent legally permissible; provided, however, that if such
demand is made prior to April 4, 2002, the Company shall not be obligated to
register any such offering unless the gross proceeds of such offering, when
added to the gross proceeds of any previous public offering of the Company's
common stock (in each case gross proceeds shall be calculated before deduction
of underwriting discounts and expenses of sale), exceeds $50,000,000. Purchaser
shall give the Company written notice of any exercise of this right, and the
Company shall have up to one (1) year from the date of receipt of such notice to
effect such registration.
iii. If, in connection with any registration under this
Section 2.d, any of the common shares of Company stock require registration or
qualification under the securities or "blue sky" laws of any state, or the
approval of any state governmental official or authority, the Company shall take
all requisite action and use its best efforts to cause such shares to be duly
registered, qualified or approved as may be required. If any shares meet the
criteria for listing on any exchange
9
<PAGE> 10
on which such stock of the Company is then listed, the Company shall apply for
and use its best efforts to obtain a listing of all such shares on such
exchange.
iv. Except as provided in Section 2.d.i. above, the Company
shall pay all of the expenses in connection with the registration of any shares
of Company stock, including, without limitation, the costs of preparing,
printing and filing the registration statement in compliance with the 1933 Act,
the fees and expenses of counsel and accountants for the Company, Management
Shareholders and Purchaser for qualifying the offering under the securities or
"blue sky" laws and regulations of the state in which the offering is qualified.
e. Sale of the Company.
i. At any time after April 4, 2000, and before the
consummation of a Purchaser Approved Offering, if a bona fide offer is made by
any person (other than Purchaser, or any person or entity related to or
affiliated with Purchaser), to purchase all or substantially all of the assets
or shares of stock of the Company, and Purchaser gives the Company written
notice that it desires such offer to be accepted, the Company and its
shareholders shall either accept the offer and consummate the sale on the terms
and conditions of the offer, or the Company shall acquire all the equity
interests owned by Purchaser in the Company on the same terms and conditions as
the offer; provided, however, that if such offer is made prior to April 4, 2002,
the Company shall have no such obligation unless the total consideration of such
offer is at least $50,000,000.
In determining the total consideration for purposes of the foregoing,
any deferred payment shall be discounted to present value at a discount rate of
eight percent (8%) per annum. If the total consideration set forth in the offer
includes anything other than cash and/or marketable securities (the "Non-Cash
Consideration") then the Company, at its option, may acquire Purchaser's equity
interests
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<PAGE> 11
for the product of (a) either (i) the Non-Cash Consideration specified or (ii)
cash in the amount of the fair market value of the total consideration set forth
in the offer, multiplied by (b) the percentage of all outstanding equity
interests of the Company that then is owned by Purchaser. In the event Purchaser
and the Company cannot agree on the fair market value of such Non-Cash
consideration, such fair market value shall be as agreed by the parties'
respective accountants, and if such accountants cannot agree within twenty (20)
days of the date the dispute is referred to them, the dispute shall be promptly
referred to arbitration pursuant to Section 13 below. The foregoing procedures
are hereinafter referred to as the "Accountants' Procedures."
If the offer contemplates an asset sale, the Company may acquire
Purchaser's equity interests for cash equal to the product of (a) the after-tax
value to the Company of the consideration set forth in the offer multiplied by
(b) the percentage of all outstanding equity interests of the Company that is
then owned by Purchaser. If the Company decides to acquire Purchaser's equity
interests, the Company shall acquire Purchaser's equity interests for cash
within ninety (90) days from the date of Purchaser's written notice.
ii. At any time before the consummation of a Purchaser
Approved Offering, if any assets or stock of the Company is sold for any reason,
or if the Company is merged or consolidated, then the following payments (the
"Management Shareholder Payments") to the Management Shareholders in connection
with such sale, merger or consolidation shall be deemed, for purposes of this
Agreement, as part of the total consideration to be paid for the Company so that
Purchaser shall be entitled to receive from the Company, before any distribution
to shareholders, a priority distribution equal to the product of (1) the sum of
(a) all payments made to a Management Shareholder in consideration of any
covenant not to compete or consulting agreement, plus (b) the
11
<PAGE> 12
component of any compensation to a Management Shareholder for employment
services that is in excess of the prevailing industry average compensation, paid
by companies that are similar to the company that will be making the payments to
the Management Shareholder, for the management responsibilities actually to be
performed by the Management Shareholder, as such average compensation is
mutually agreed between the Company, the Management Shareholder and Purchaser,
or if they cannot agree, then as determined by a current survey of total
compensation conducted by a qualified representative of a nationally recognized
investment banking or accounting firm mutually agreeable to the Company, the
Management Shareholder, and Purchaser, multiplied by (2) the percentage of all
equity interests in the Company that is then owned by Purchaser.
The priority distribution due Purchaser under this Paragraph 2.e.ii.
shall be paid on the same schedule as the Management Shareholder Payments are
received by the Management Shareholder. If the Company has insufficient funds to
pay the portion of the priority distribution that is due at the time a
Management Shareholder receives a Management Shareholder Payment, the Management
Shareholders receiving Management Shareholder Payments shall pay Purchaser the
amount of such insufficiency pro rata in accordance with the proportionate
amounts of each such Management Shareholder's Payments, such amount to be paid
on the same schedule as the payments are received by the Management Shareholder.
f. Right of Co-Sale. In addition to the rights set forth in Section
2.c, at any time prior to the consummation of a Purchaser Approved Offering,
Purchaser shall have the right to participate pro rata to the full extent of its
equity interest in the Company in any sale or transfer of stock, other than a
gift, charitable donation or other sale or transfer representing less than One
Percent (1%) of the Company's outstanding common stock, by the Company or any
shareholder of the Company.
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g. Rights of Class B Shares on Liquidation, Dissolution or
Winding Up.
The following provisions shall apply until the earlier of (i)
the consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class B Common Stock:
i. In the event of any liquidation, dissolution or winding up
of the Company (including without limitation a liquidation or reorganization
under Chapter 11 of the United States Bankruptcy Code of 1978, as amended and as
may hereafter be amended), (a "Liquidation"), after payment of any priority
distributions due to Purchaser under Section 2.e.ii. above, the holders of the
Company's Class B Common Stock then outstanding shall be entitled to be paid out
of the assets of the Company available for distribution to its shareholders
(before any payment shall be made to the holders of any shares of any other
class of stock of the Company) an amount equal to the stated value of $1.0041
(subject to appropriate adjustment for stock dividends, stock splits,
combinations, and similar recapitalizations affecting the Company's Class B
Common Stock) per share of the Company's Class B Common Stock (the "Stated
Value"), with such amount to be calculated as of the date of such payment.
ii. If, upon any Liquidation, the assets of the Company
available for distribution to its shareholders shall be insufficient (a
"Liquidation Insufficiency") to pay the holders of the Company's Class B Common
Stock the full amount to which they shall be entitled pursuant to Section
2.g.i., the holders of the Company's Class B Common Stock shall be entitled to
receive all the assets of the Company available for distribution to its
shareholders.
iii. If there is no Liquidation Insufficiency and payment
shall have been made to the holders of the Company's Class B Common Stock of the
full amount to which they are entitled,
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the holders of the Company's Class B Common Stock shall then be entitled to
share in all remaining assets and funds of the Company ratably in proportion to
the number of shares of Company common stock held by such holder.
iv. Unless such transaction is approved by the directors
elected by the holders of the Company's Class B Common Stock, the merger or
consolidation of the Company into or with another corporation in which the
stockholders of the Company shall own less than Fifty Percent (50%) of the
voting securities of the surviving corporation or the sale, transfer or lease
(but not including a transfer or lease by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the Company shall be deemed
to be a Liquidation as such term is used in this Section 2.g. The amount deemed
distributed to the holders of the Company's Class B Common Stock upon any such
merger or consolidation shall be the cash or the value of the property, rights
or securities distributed to such holder by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined by a competent independent appraiser mutually agreed upon by the
holders of the Company's Class B Common Stock and the Company. The Company
shall, upon receipt of such appraiser's valuation, give prompt written notice to
the holders of the Company's Class B Common Stock of the appraiser's valuation.
The fees of such appraiser shall be shared equally by the Company and the
holders of the Company's Class B Common Stock.
v. Section 2.g of each of the Stock Purchase Agreements among
the parties dated April 4, 1997 and March 31, 1998 are hereby amended so that
the term "Stated Value" as set forth therein shall mean $1.0041 (subject to
appropriate adjustment for stock dividends, stock splits, combinations, and
similar recapitalizations affecting the Company's Class B Common Stock) per
share of the Company's Class B Common Stock.
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vi. The Company's Articles of Incorporation shall contain
provisions consistent with this Section 2.g. until the earlier of (i) the
consummation of a Purchaser Approved Offering, or (ii) the redemption or
conversion of all outstanding shares of the Company's Class B Common Stock.
i. Representation on the Board of Directors. Until a Purchaser Approved
Offering has been consummated or Purchaser no longer owns any equity interest in
the Company, there shall be, and the Company's Articles of Incorporation shall
provide for, at least five (5) members on the Company's Board of Directors, two
(2) of whom shall be elected by the holders of the Company's Class B Common
Stock voting as a class, and the remainder of whom shall be elected by the
holders of the Company's Class A Common Stock voting as a class. The holders of
the Company's Class B Common Stock shall have the right to remove and replace
two (2) members of the Board at any time, and the holders of the Company's Class
A Common Stock shall have the right to remove and replace the remaining members
of the Board at any time. The Company shall pay each director elected by the
holders of the Company's Class B Common Stock a fee of Two Thousand Five Hundred
Dollars ($2,500.00) for attendance at each meeting of the Board of Directors.
Board meetings will occur at least quarterly.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In connection with the purchase of the Class B Shares hereunder, the
Company hereby represents and warrants to Purchaser as follows:
a. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Company
has the requisite corporate power and authority to own or lease its properties
and to carry on its business as now conducted. The Company is duly qualified and
in good standing as a foreign corporation authorized to do business
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<PAGE> 16
in each of the jurisdictions in which the failure to be so qualified would have
a material adverse effect on the Company and has delivered to Purchaser a good
standing certificate for each such jurisdiction.
The Company has delivered to Purchaser true and complete copies of the
Company's Articles of Incorporation and Bylaws (the "Organizational Documents"),
in each case as amended to the date hereof, and such Organizational Documents
are in full force and effect on the date hereof. The Company has delivered to
Purchaser a true and complete list of all officers and directors of the Company.
The Company has no Affiliates (as defined in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act of 1934, as amended), except for
officers, directors and shareholders disclosed to Purchaser pursuant to this
Agreement.
b. Capital Stock. The authorized capital stock of the Company consists
of Twenty-Five Million (25,000,000) shares of Class A Common Stock, no par value
per share, of which Four Million Six Hundred Fifty-Five Thousand Three Hundred
(4,655,300) shares are duly and validly issued and outstanding, fully paid and
non-assessable, Twenty-Five Million (25,000,000) shares of Class B Common Stock,
no par value per share, of which Four Million Nine Hundred Seventy-Nine Thousand
Seven Hundred Seventy-Seven (4,979,777) shares will be duly and validly issued
and outstanding, fully paid and non-assessable upon Closing, and Twenty-Five
Million (25,000,000) shares of Class C Common Stock, no par value per share, of
which Two Million Seventy-Four Thousand Four Hundred Sixty-Four (2,074,464)
shares will be duly and validly issued and outstanding, fully paid and
non-assessable upon Closing (One Million Thirty-Seven Thousand Two Hundred
Thirty-Two (1,037,232) shares to Blue Ridge, and One Million Thirty-Seven
Thousand Two Hundred Thirty-Two (1,037,232) shares to Spotswood).
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All of the outstanding Class A Common Stock of the Company is owned by
the Shareholders (except for shares held by others constituting, in the
aggregate, less than 0.25% of the outstanding capital stock of the Company); all
of the outstanding Class B Common Stock of the Company is owned by Purchaser;
and all of the outstanding Class C Common Stock of the Company is owned by Blue
Ridge and Spotswood. The Company does not have any other shares, classes of
shares or other debt or equity securities which are authorized, issued or
outstanding. None of the stock has been issued in violation of any preemptive
rights.
The Class B Shares are duly authorized and upon issuance to the
Purchaser shall be validly issued to Purchaser, free and clear of all liens or
rights of any nature whatsoever, and without violation of any preemptive rights,
but subject, as to 325,113 of the Class B Shares, to the Voting Trust Agreement.
Except for the options described on Schedule 3.b., there are no outstanding
subscriptions, options, rights, warrants, calls, convertible securities or other
rights, agreements or commitments which obligate the Company to issue, call,
repurchase, redeem or transfer any of its capital stock, or that restrict the
transfer of or otherwise relate to the Company's capital stock.
c. Business. The Company is engaged primarily in the business of
hardware and service sales, Internet access, communications networking and
related consulting.
d. Investments. The Company does not own or have, directly or
indirectly, any material interest or investment (whether as equity or debt) in,
or own any of the capital stock of, any corporation, partnership, joint venture,
business, trust or other entity.
e. Authority. The Company has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized
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by all necessary corporate actions of the Board of Directors and shareholders of
the Company. This Agreement is a valid and binding obligation of the Company,
enforceable against it in accordance with their respective terms and conditions.
f. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of the Company is required in connection with
the execution or delivery by the Company of this Agreement, nor the consummation
by the Company of the transactions contemplated hereby.
g. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by the Company of the transactions contemplated hereby,
shall (a) conflict with the Organizational Documents of the Company, (b) violate
or constitute a default under any contract or other agreement to which the
Company is a party or by which the Company is bound, (c) violate any law, rule
or regulation of any state or of the United States or any judgment, decree,
order, regulation or rule of any court or any governmental or regulatory
authority, or (d) result in or require the creation of any lien or other
encumbrance upon or with respect to the Class B Shares or any of the assets or
other securities of the Company.
h. Financial Statements. Attached hereto as Schedule 3.h. are unaudited
financial statements, balance sheets, income statements and cash flow statements
of the Company for the years ended December 31, 1996 and December 31, 1997 (the
"Financial Statements"). To the best knowledge of the Company, the Financial
Statements have been prepared in conformity with GAAP, and fairly and accurately
reflect the financial condition of the Company as of the respective dates
thereof in conformity with GAAP. To the best knowledge of the Company, all
interim financial statements for periods after December 31, 1997 that have been,
or pursuant to Section 5.c below will
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be, delivered to Purchaser, have been and will be prepared in conformity with
GAAP, and fairly and accurately reflect the financial condition of the Company
as of the respective dates thereof in conformity with GAAP.
The Company does not have any debts, liabilities or other obligations
of any nature (whether contingent or fixed, accrued or not accrued, liquidated
or not liquidated, known or unknown, asserted or not asserted, and including
without limitation any direct or indirect obligation to provide funds in respect
of, or to guarantee, act as surety for, or assume, any debt, liability or other
obligation of any nature of any individual, corporation, joint venture,
partnership or other entity) except (i) liabilities specifically disclosed or
reserved against on the Financial Statements, (ii) liabilities which in the
aggregate are not material, (iii) ordinary business expenses incurred in the
ordinary course of business since the date of the last Financial Statements, or
(iv) liabilities disclosed on Schedule 3.h. Except as disclosed on Schedule
3.h., the Company is current on all debts, accounts payable and lease payments
as of the date hereof.
i. No Material Adverse Change. Since the date of the most recent
Financial Statements there has been no material adverse change in the condition,
financial or otherwise, assets, liabilities or business of the Company, nor has
there been any event or condition of any character that has or may in the future
materially and adversely affect the business or prospects of the Company. Since
the date of the most recent Financial Statements there has been no dividend or
other distribution or payment in respect of the stock of the Company.
j. Taxes. The Company has paid or made adequate provision for payment
of all federal, state and local income, payroll, sales, property and other
taxes, assessments, liabilities, fees and other governmental charges (including
interest and penalties) whether or not in dispute, which have or may
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become due with respect to any period ending on or prior to the Closing Date,
and has filed all required tax returns and reports which are required to be
filed. No tax deficiency has been asserted, proposed or threatened against the
Company for taxes for the current year or for any prior period which has not
been fully settled or paid, nor has any issue been raised by the Internal
Revenue Service or any other taxing authority which reasonably can be expected
to result in a deficiency for any period. The Company's tax returns have never
been audited, nor has the Company received any notice of a planned audit or any
communication that would lead a reasonable person to believe that an audit is
currently being considered by a tax authority.
k. Contracts. The Company is not in material breach of or in material
default under any contract, commitment, agreement, loan, lease or other
instrument (the "Contracts") which materially and adversely affects the Company,
and the Company is not aware of any breach by any other party to any of the
Contracts. The terms of all Contracts are in all material respects arm's length
terms.
l. Property. Except for the property leased pursuant to the leases
listed on Schedule 3.l. (copies of which have been provided to Purchaser), and
the liens described on Schedule 3.1, the Company has good and marketable title
to all real and personal property reflected on the Financial Statements, and to
all assets acquired since the date of the most recent Financial Statements, free
and clear of any material liens, claims or encumbrances, except for liens for
taxes not yet due and payable and inventory which has either been used or
consumed or has been sold in the ordinary course of business. To the best of the
Company's knowledge, there are no material assets used by the Company in the
conduct of its business which are not either owned by the Company or leased to
the Company under one of the leases described in Schedule 3.l.
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m. Lawsuits. Except as set forth in Schedule 3.m., there is no pending
claim, suit or action, or legal, administrative, arbitration or other proceeding
or governmental investigation, nor is there any basis for any such action,
before any federal, state, local, or other court or governmental authority, nor
to the best of the knowledge of the Company, has any such action been
threatened, (i) against the Company or (ii) against any of the officers or
directors of the Company. The Company has delivered to Purchaser a true and
correct copy of the pleadings in all lawsuits in which the Company is a party.
The Company does not know of any judgment, order, writ, injunction, decree or
award that has been issued by, or requested of, any court, administrative or
governmental agency, arbitrator or other authority which does or may result in
any material adverse change in the business, properties, assets or financial
condition of the Company.
n. Compliance with Laws. The Company is in substantial compliance, and
at all times the Company has conducted its business and affairs in substantial
compliance, with all federal, state and local statutes, laws, ordinances,
requirements, rules, regulations or orders applicable to its business, including
without limitation the Occupational Safety Health Act of 1970, as amended; the
Equal Employment Opportunity Act of 1972, as amended; federal, state and local
laws, rules and regulations of the Federal Trade Commission and other
governmental authorities relating to franchising; state and federal securities
laws; and laws and regulations requiring licenses or permits (including, without
limitation, permits relating to the handling or discharge of Hazardous
Materials) or the payments of taxes. The Company has not received any notice
asserting any noncompliance. The Company has all licenses, permits and approvals
necessary for the conduct of its business. The Company has not granted a license
or other right to use any tangible or intangible assets used in or related to
the business. From the Company's inception, none of the Company's directors or
officers
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have been arrested or convicted of any material crime, nor have any of them been
bankrupt or served as an officer or director of a bankrupt company.
o. Environmental Matters.
i. To the best of the Company's knowledge, neither the Company
nor any property owned or operated by the Company has been or is in violation
of, nor does the Company have any liabilities under, any Environmental Law (as
defined in Section 3.o.iii.). To the best of the Company's knowledge, there are
no actions, suits or proceedings, demands, claims, notices, or investigations
(including, without limitation, notices, demand letters or requests for
information from any Environmental Agency (as defined in Section 3.o.v.),
instituted, pending, or threatened, relating to any liability under any
Environmental Law of the Company or respecting any property owned or operated by
the Company.
ii. To the best of the Company's knowledge, no Hazardous
Materials (as defined in Section 3.o.iv.) have been generated, treated, stored
or disposed of at, or transported to or from, any properties owned or operated
by the Company at any time, except in compliance with applicable Environmental
Laws. To the best of the Company's knowledge, no friable asbestos containing
material is in use, or is or has been stored or disposed of, on or upon any
properties owned or operated by the Company. To the best of the Company's
knowledge, no polychlorinated biphenyls ("PCBs") are located on or in any
properties owned or operated by the Company in any form or device, including,
without limitation, in the form of electrical transformers, fluorescent light
fixtures with ballasts, or cooling oils, except in compliance with applicable
Environmental Laws. To the best of the Company's knowledge, no underground
storage tanks are located on any properties owned or
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operated by the Company or were located on any properties owned or operated by
the Company and subsequently removed or filled.
iii. "Environmental Law" means any federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any Environmental Agency relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the usage, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release, or disposal
of any substance presently listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether by
type or by quantity, including any material containing any such substance as a
component.
iv. "Hazardous Materials" means solid waste (as that term is
defined under the Resource Conservation and Recovery Act, 42 U.S.C.A. Section
6901 et seq. ("RCRA"), and the regulations adopted pursuant to RCRA), hazardous
waste (as that term is defined under RCRA and the regulations adopted pursuant
to RCRA), hazardous substances (as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.A. Section 9601
et seq. ("CERCLA"), and the regulations adopted pursuant to CERCLA), and other
pollutants, including, without limitation, any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes, acids, alkalis or
chemicals.
v. "Environmental Agency" means the United States
Environmental Protection Agency, any state agency in a state where the Company
owns or operates properties which is similar
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in jurisdiction to the United States Environmental Protection Agency, or any
other federal, state or local agency responsible for regulating or enforcing
laws, rules, regulations and ordinances relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release, or disposal of any
substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a component.
p. Intellectual Property. The Company is the sole and exclusive owner
of, or has the valid and continuous right to use, free and clear of all liens,
claims, and encumbrances, all trademarks, service marks, trade names, trade
secrets, copyrights, patents, franchises and applications therefor, or other
intangible property, owned by, licensed to or otherwise used by the Company. The
Company also is the sole and exclusive owner of, or has the valid and continuous
right to use, free and clear of all liens, claims and encumbrances, all
background technologies and manufacturing procedures used by it in providing
services or products to its customers. The Company has not infringed or
otherwise violated any trademark, service mark, trade name, trade secret,
copyright, patent, franchise or other intangible property right of another.
Except as set forth on Schedule 3.p., the Company is not required to pay any
royalty, license fee, commission or other payment to any person or entity with
respect to any trademark, service mark, trade name, trade secret, copyright,
patent, franchise or other intangible property. The Company has not granted any
person or entity the right to use any of the Company's trademarks, service
marks, trade names, trade secrets, copyrights,
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patents, technology or other intangible property, nor is it aware of any such
use by another person or entity.
q. Insurance. Schedule 3.q. contains a true and correct list, together
with copies of certificates or cover pages, of all policies of insurance owned
and/or maintained by the Company. All physical properties and assets of the
Company are covered by fire and other insurance against casualty loss
customarily covering properties and assets of comparable businesses in this
region, in amounts which are reasonable in light of existing replacement costs.
The Company maintains general liability, workers' compensation and other usual
types of insurance in reasonable amounts. The Company is not now in default
regarding the provisions of any policy of insurance, and has not and shall not
have failed to give any notice or present any claim thereunder in due and timely
fashion.
r. Books and Records. To the best of the Company's knowledge, the books
and accounts and other corporate records of the Company are complete and correct
in all material respects.
s. Employee Relations. Since the date of the most recent Financial
Statements, there has been no material adverse change in the relationship
between the Company and its employees nor any strike or labor disturbance by
such employees and, to the best of the Company's knowledge, such a change,
strike or labor disturbance is not likely. The Company is in substantial
compliance with all applicable laws relating to the employment of labor,
including without limitation any provisions thereof relating to wages and hours,
discrimination due to age, religion, sex, national origin, disability or
immigration status.
Schedule 3.s. contains true, complete and correct information as to the
names and rates of compensation (regardless of form) of all current employees of
the Company, together with
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information as to any bonus, incentive, insurance, compensation plan, welfare,
retirement, defined benefit, 401(k), pension, profit sharing, salary reduction,
deferred compensation, stock purchase, stock option, vacation, holiday and sick
pay or other similar benefit plans (said plans being referred to as the "Plans")
in which any such employees of the Company participate. All obligations of the
Company, whether arising by operation of law, by contract or by past custom, for
payment by it to trusts, retirement plans or other funds or any governmental
agency with respect to unemployment compensation benefits, social security
benefits or any other benefits for employees of the Company have been paid or
shall be paid by the Company at the time the Company is obligated to make such
payments. All benefits payable directly to the Company's employees have been
paid or shall be paid by the Company at the time the Company is obligated to
make such payments. All reasonably anticipated obligations of the Company,
whether arising by operation of law, by contract or by past custom, for vacation
and holiday pay, bonuses and other forms of compensation or benefits which are
or may become payable to employees or any of them have been paid, or shall be
paid, in accordance with the provisions of applicable laws, regulations, benefit
plans or policies.
t. Broker Fee. All broker, finder or professional fees associated with
the transactions contemplated by this Agreement have been disclosed in this
Agreement or on Schedule 3.t, and except as otherwise stated herein, shall be
paid by the Company as and when due.
u. Customers and Suppliers. The Company does not know of any customer
or supplier of the Company who intends to terminate or reduce its business with
the Company, whether as a result of this Agreement or otherwise. The Company is
not bound by any concession or arrangement with any customer or supplier which
is outside the ordinary course of the Company's business or not made generally
available to other customers or suppliers of the Company.
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v. Employee Benefit Plans. True, complete and correct copies of all
relevant documents with respect to the Plans, including, but not limited to,
each of the following documents: (i) a copy of the Plan and each related trust
or other funding agreement, including insurance contracts (and all amendments
thereto) (ii) the last filed Form 5500; (iii) the most recent determination
letter received from the United States Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401 of the Internal
Revenue Code of 1986, as amended (the "Code"); and (iv) the summary plan
descriptions and all material modifications thereto, have been delivered to
Purchaser.
All Plans comply in all substantial respects and the Company has
administered and operated each such Plan in substantial compliance with the
requirements of applicable law, including, without limitation, the Employee
Retirement Income Security Act of 1974 as amended ("ERISA"), and the Code, and
no such Plan that is subject to Part 3 of Subtitle B of Title I of ERISA has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code, whether or not waived.
The Company does not maintain and is not required to contribute to any
multi employer plan (as defined in Section 3(37) of ERISA) for the benefit of
employees or former employees of the Company.
The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate any of the Company's defined benefit plans and no
condition exists that presents a risk that such proceedings shall be instituted.
There has been no "reportable event" within the meaning of Section 4043(b) of
ERISA with respect to any defined benefit plan and no defined benefit plan has
been terminated within the preceding six years or is expected to be terminated.
No liability (other
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than for the payment of premiums) to the PBGC has been or is expected to be
incurred by the Company or any officer, director, shareholder or employee of the
Company with respect to any defined benefit plan.
w. Unlawful Payments. Neither the Company nor any shareholder,
director, officer, agent, employee or other person associated with or acting on
the Company's behalf has directly or indirectly, used any corporate funds for
unlawful contributions, gifts, entertainment or for other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of the Company; or made any bribe,
rebate payoff, influence payment, kickback or other unlawful payment to any
person or entity, private or public, regardless of form, whether in money,
property, or services, to obtain favorable treatment in securing business or to
obtain special concessions or to pay for favorable treatment for business
secured or for special concessions already obtained.
x. No Omission. The Company has not intentionally omitted to state to
Purchaser any material fact relating to the Company that is necessary in order
to make the statements made to Purchaser in this Agreement, in the light of the
circumstances under which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
In connection with the sale of the Class B Shares hereunder, Purchaser
hereby represents and warrants to the Company that:
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a. Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of North
Carolina.
b. Authority. Purchaser has all requisite power and authority to
execute and deliver this Agreement and to perform all of its obligations
hereunder. The execution, delivery and performance of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
action of Purchaser. This Agreement is a valid and binding obligation of
Purchaser, enforceable against it in accordance with its terms and conditions.
c. No Violation. Neither the execution and delivery of this Agreement,
nor the consummation by Purchaser of the transactions contemplated hereby, shall
(i) conflict with the Articles of Organization or Operating Agreement of
Purchaser, (ii) violate or constitute a default under any contract or other
agreement to which Purchaser is a party or by which Purchaser is bound, or (iii)
violate any law, rule or regulation of any state or of the United States or any
judgment, decree, order, regulation or rule of any court or any governmental or
regulatory authority, which would have a material adverse effect on the Company
or the transactions contemplated herein.
d. No Consents. No consent, waiver, approval, license or authorization
of, or designation, declaration or filing with, any person or governmental or
regulatory authority on the part of Purchaser is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby or thereby, except to the
extent obtained by Purchaser prior to Closing or to the extent that their
failure to be obtained would not have a material adverse effect on the Company
or the transactions contemplated hereby.
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5. AFFIRMATIVE COVENANTS AND AGREEMENTS
From the date hereof, until the consummation of a Purchaser Approved
Offering or the sale by Purchaser of all of its equity interests in the Company,
the Company shall comply with the following:
a. Conduct of Business. The Company (a) shall conduct its business in
the ordinary course and, without the prior written consent of Purchaser, except
in the ordinary course of business, shall not enter into, or permit the Company
or any assets of the Company to become bound by or subject to, any Contract, and
(b) shall continue to manage the inventories, accounts receivable, accounts
payable and payroll of the Company in accordance with past practice in the
ordinary course of business. The Company shall promptly notify Purchaser of any
actions or proceedings of the type described in Section 3.m.
b. Corporate Examination and Investigations. Purchaser, shall be
entitled, through its employees and representatives, including, without
limitation, Purchaser's counsel and accountants, on a reasonable basis, to make
such investigation of the assets, properties, business and operations of the
Company and such examination of its books, records and financial condition, as
Purchaser wishes. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances and the Company shall
cooperate fully therein. No such investigation undertaken by Purchaser shall
relieve the Company of any liability hereunder. In order that Purchaser may have
full opportunity to make such business, accounting and legal review, examination
or investigation, the Company shall make available at its principal office to
the representatives of Purchaser during such period all such information and
copies of such documents concerning the affairs of the Company as such
representatives may reasonably request and shall cause the officers,
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<PAGE> 31
employees, consultants, agents, accountants and attorneys of the Company to
cooperate fully with such representatives in connection with such review and
examination. The information obtained by Purchaser shall remain confidential and
shall be disclosed only to the officers, employees managers, members,
prospective members and representatives of Purchaser.
c. Delivery of Financial Materials. The Company shall deliver to
Purchaser (i) within thirty (30) days of the end of each month, monthly
year-to-date financial statements prepared in accordance with GAAP (including
profit and loss, cash flow, and balance sheet) and certified by the Company's
chief financial officer, a backlog report, customer contract job status report,
accounts receivable, accounts payable agings and a monthly one-page management
summary of operations; and (ii) within ninety (90) days after the fiscal year
end, (a) an annual independent certified audit from an outside accounting firm
designated by the Company and reasonably acceptable to Purchaser and (b)
projections for the next year in the same format as the financial statements.
d. Other Deliveries. The Company shall deliver to Purchaser the
following documents or information as applicable: (i) within thirty (30) days
after filing, a copy of all material documents filed with government agencies,
including without limitation, the Internal Revenue Service, the Environmental
Protection Agency and the Securities Exchange Commission; (ii) within thirty
(30) days after filing, a copy of any pleadings of any lawsuits filed by or
against the Company; (iii) within ten (10) days after receipt, a copy of any
notification received by the Company of any defaults under any Contracts to
which the Company is a party, and (iv) within ten (10) days after delivery to
the Company's senior lender, a copy of any reports, certificates or information
provided to the Company's senior lender.
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<PAGE> 32
e. Insurance. The Company shall carry and maintain in effect insurance
coverage with reputable insurers, which coverage in respective amounts, types
and risks insured is adequate for the business conducted by the Company as
reasonably determined by Purchaser. Such insurance coverage shall include,
without limitation, directors' and officers' liability insurance.
f. Use of Proceeds. The Company will use the proceeds from the issuance
of the Class B Shares hereunder to provide working capital to develop existing
and future projects.
6. FOREBEARANCES OF THE COMPANY
Except with the prior written consent of Purchaser, or the affirmative
vote of the directors elected by the holder of the Class B Shares, until the
consummation of a Purchaser Approved Offering or sale by Purchaser of all of its
equity interests in the Company, the Company shall not:
a. carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, change its
corporate structure or establish or acquire any new subsidiary or invest in any
Affiliates;
b. enter into (i) any material agreement, arrangement , lease or
commitment not made in the ordinary course of business;
c. issue or sell any shares of capital stock representing in excess of
One Percent (1%) of the outstanding shares of the Company (except pursuant to
the exercise of options described on Schedule 3.b., or options issued to
employees pursuant to the terms of the Company's Stock Option Plan as in effect
on the date hereof), or create any new class or series of securities;
d. issue, grant or authorize any options (except options described on
Schedule 3.b., or options issued to employees pursuant to the terms of the
Company's Stock Option Plan as in effect on the date hereof), convertible debt
or preferred stock representing, in the aggregate, in excess of
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<PAGE> 33
One Percent (1%) of the outstanding shares of the Company, or redeem any
outstanding shares of the Company representing, in the aggregate, in excess of
One Percent (1%) of the outstanding shares of the Company.
e. amend or repeal its Organizational Documents;
f. merge with any other corporation or permit any other corporation to
merge into it or consolidate with any other corporation; acquire control over
any other corporation or organization or create any subsidiary; or liquidate,
sell or otherwise dispose of any assets or acquire any assets, other than in the
ordinary course of its business consistent with past practice;
g. fail to maintain its corporate existence in good standing or fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business;
h. transact any business or enter any agreement with the Company's
Board of Directors, any shareholder, or any other individual officer of the
Company, unless such transaction is negotiated and consummated at arm's length;
i. increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its directors,
officers or employees, except in a manner consistent with past practice and
approved by the Compensation Committee of the Company's Board of Directors;
j. change the location or nature of its business operations or invest
any funds in any entity not strictly related to its business;
k. file any bankruptcy or receivership petition or make an assignment
for the benefit of creditors;
l. agree to do any of the foregoing.
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<PAGE> 34
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
The obligation of Purchaser to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
Purchaser, any one or more of which may be waived by Purchaser:
a. The representations and warranties of the Company contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. The Company shall have performed in all material respects all
obligations and complied with all covenants or forebearances required by this
Agreement to be performed or complied with by the Company on or prior to the
Closing Date.
c. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the Company, to the effect that the applicable conditions set forth in this
Section have been satisfied.
d. The Company shall have delivered a certificate to Purchaser, dated
the Closing Date and signed by the Secretary or an Assistant Secretary of the
Company, certifying and attaching a copy of the Company's Organizational
Documents as in effect as of the Closing Date.
e. Purchaser shall have received an opinion of counsel to the Company,
dated the Closing Date, as to such matters as Purchaser may reasonably request
with respect to the transactions contemplated hereby.
f. Purchaser shall have received all such certified resolutions,
certificates, documents or instruments with respect to the Company as Purchaser
may reasonably require to carry out the intent and purpose of this Agreement.
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<PAGE> 35
g. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, which has or may have, in the
opinion of Purchaser, a materially adverse effect on the assets, properties,
business, operations or condition (financial or otherwise) of the Company.
h. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to enter into and complete the Closing is
subject, at its option, to the fulfillment on or prior to the Closing Date of
the following conditions, the imposition of which is solely for the benefit of
the Company, any one or more of which may be waived by the Company:
a. The representations and warranties of Purchaser contained in this
Agreement shall be true, correct and complete in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date.
b. Purchaser shall have performed in all material respects all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date.
c. Purchaser shall have delivered a certificate to the Company, dated
the Closing Date and signed by the President and the Secretary or Treasurer of
the general partner of Purchaser, to the effect that the applicable conditions
set forth in this Section have been satisfied.
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<PAGE> 36
d. The Company shall have received all such certified resolutions,
certificates, documents or instruments with respect to Purchaser as the Company
may reasonably require to carry out the intent and purpose of this Agreement.
e. No action, suit or proceeding shall have been instituted before any
court, governmental or regulatory body or arbitral tribunal, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby or to seek
damages or a discovery order in connection with such transactions.
9. EXPENSES
At Closing, the Company shall (i) reimburse Geneva Associates, LLC for
any unreimbursed out-of-pocket expenses incurred by Geneva Associates, LLC to
date, and (ii) pay Geneva Associates, LLC a total advisory fee of $75,000 for
its services in connection with the transactions contemplated hereunder and
under the Stock Purchase Agreements with Blue Ridge and Spotswood dated the date
hereof. Amounts to be paid by the Company at Closing under this Section 9 shall
be deducted from the payment of the purchase price for the Class B Shares at
Closing.
10. INDEMNIFICATION
a. Obligation of the Company to Indemnify. The Company agrees to
indemnify, defend and hold harmless Purchaser against and in respect of any and
all claims, demands, costs, expenses, obligations, liabilities, damages,
recoveries and deficiencies, including, without limitation, interest, penalties
and reasonable attorneys' fees ("Losses"), which directly or indirectly arise,
result from or relate to the breach by the Company of, or the failure by the
Company to comply with or perform, the Company's representations, warranties,
covenants or agreements contained in this Agreement. To compensate Purchaser for
the reduction in the capitalization of the Company as the result of any
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<PAGE> 37
indemnification payment by the Company hereunder, the amount of any
indemnification payment hereunder shall be equal to the sum of (i) the amount of
Purchaser's Losses plus (ii) an amount such that, following the indemnification
payment, Purchaser would be in the same position as if the shareholders of the
Company (other than Purchaser) had made such indemnification payment to
Purchaser directly.
b. Obligation of Purchaser to Indemnify. Purchaser agrees to indemnify,
defend and hold harmless the Company against and in respect of any and all
Losses which directly or indirectly arise, result from or relate to the breach
by Purchaser of, or the failure by Purchaser to comply with or perform, any of
its representations, warranties, covenants or agreements contained in this
Agreement.
11. TERMINATION
a. This Agreement may be terminated subject to this Section 11,
as follows:
i. At any time on or prior to the Closing Date, by the mutual
written consent of the Company and Purchaser;
ii. At any time on or prior to the Closing Date, by Purchaser
in writing, if the Company has, or by the Company in writing if Purchaser has,
in any material respect, breached (i) any covenant or undertaking contained
herein or (ii) any representation or warranty contained herein, and in the case
of (i) and (ii) if such breach has not been cured by the earlier of ten (10)
days after the date on which written notice of such breach is given to the party
committing such breach or the Closing Date;
iii. On the Closing Date, by either Purchaser or the Company
in writing, if any of the conditions precedent to the obligations of such party
to consummate the transactions contemplated hereby have not been satisfied or
fulfilled; or
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iv. By either Purchaser or the Company in writing, if the
Closing Date has not occurred by the close of business on December 31, 1998.
b. Effect of Termination. In the event of a termination of this
Agreement for any reason, each party may seek any remedies available to it,
including claims for damages, specific performance or injunctive relief.
12. CLAIMS FOR INDEMNIFICATION
Any claim for indemnification which is based upon a final judgment,
decree or award of a court of competent jurisdiction requiring the payment of
money by any party to this Agreement or any of its officers, directors or
controlling persons, shall be conclusive as to the amount of such claim,
provided a certified copy of such judgment, decree or award accompanies the
notice relating to such claim and provided further that the party seeking
indemnification shall have complied with Section 14 of this Agreement.
Any claim for indemnification shall be conclusive in all respects
thirty (30) days after receipt by the other party of notice thereof, unless
within such period the indemnifying party shall have sent to the party seeking
indemnification, and the party seeking indemnification shall have received,
notice questioning the propriety of the claim, in which case such claim, unless
settled by agreement of the parties, shall be promptly referred to arbitration
as provided in Section 13. In the event that a party makes a claim for
indemnification, and the indemnifying party contests that claim but the claim is
not settled or referred to arbitration within sixty (60) days after receipt by
the indemnifying party of notice of the claim from the party seeking
indemnification, such claim shall be regarded as conclusive in all respects.
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<PAGE> 39
13. DISPUTE RESOLUTION
All disputes arising hereunder between the parties shall be referred to
arbitration under the Uniform Arbitration Act as adopted in Delaware, according
to the rules of the American Arbitration Association. Judgment upon the award by
the arbitrator may be entered in any court having jurisdiction thereof. As part
of such award, the arbitrator shall be promptly paid by the party that initiates
the proceeding, but the portion of each such fee and expenses which represents
the same percentage thereof as the percentage of the amount of the claim
represented by the amount awarded shall be added to the amount of the award and
shall be borne by the indemnifying party. Any award shall be a conclusive
determination of the matter and shall be binding upon Purchaser and the Company
and shall not be contested by either of them. Arbitration proceedings shall be
held in the city of Dover, Delaware unless the parties agree upon another
location. In any such action the prevailing party, in the judgment of the
arbitrator, shall be entitled to an award of its costs and attorneys' fees
incurred in the action.
14. THIRD PARTY CLAIMS
In the event that any legal proceeding shall be instituted, or any
claim or demand shall be asserted, by any third party in respect of which
indemnity may be sought by Purchaser or the Company pursuant to the provisions
of this Agreement, the party seeking indemnification, with reasonable promptness
after obtaining knowledge of such proceeding, claim or demand shall give written
notice thereof to the other party, who shall then have the right, at its option
and expense, to be represented by counsel of its choice in connection with such
matter, which counsel shall be reasonably satisfactory to the party seeking
indemnification, and to defend against, negotiate, settle or otherwise deal with
any such proceeding, claim or demand; provided, however, that without the
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<PAGE> 40
prior written consent of the party seeking indemnification, which consent shall
not be unreasonably withheld, the indemnifying party shall not consent to the
entry of any judgment in or agree to any settlement of any such matters; and
provided further that the party seeking indemnification may retain counsel, at
its own expense, to represent it and participate in connection with any such
proceeding or claim or demand. Failure by the indemnifying party to notify the
party seeking indemnification of the indemnifying party's election to defend any
proceeding, claim or demand with respect to which indemnity is sought within
thirty (30) days after notice thereof shall have been given by the party seeking
indemnification shall be deemed a waiver by the indemnifying party of its right
to defend against such matter. If the indemnifying party assumes defense of any
such proceeding, claim or demand, it shall take or cause to be taken all steps
necessary in connection with such defense, and the party seeking indemnification
shall in all events be entitled to indemnity with respect to such matter, as
provided in this Agreement. In the event that the indemnifying party does not
elect to defend any proceeding, claim or demand with respect to which indemnity
is sought, the party seeking indemnification may defend against, settle or
otherwise deal with any such proceeding, claim or demand in such matter as it
may in its good faith discretion deem appropriate and the indemnifying party
shall be liable for indemnification with respect to such matter, including
without limitation the reasonable costs of such defense, as provided in this
Agreement. In the event of any proceeding, claim or demand by a third party with
respect to which a claim for indemnification is made hereunder, the parties
hereto agree that they will cooperate fully with each other in connection with
the defense or settlement of such matter.
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15. MISCELLANEOUS.
a. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
b. Waiver of Compliance. Any failure of Purchaser or of the Company to
comply with any obligation, agreement or condition contained herein may be
expressly waived in writing by the Company or Purchaser, respectively, but such
waiver or failure to insist upon strict compliance with such obligation,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No waiver shall be binding unless
executed in writing by the party or parties making such waiver.
c. Assignment; Binding on Successors. This Agreement may not be
assigned by any party hereto without the written consent of the other parties
hereto, provided, however, that Purchaser may assign any or all of its rights
and obligations hereunder to any person or entity to whom Purchaser transfers
any of the Class B Shares; provided, however, that the Purchaser shall be the
sole representative of any such transferee in dealing with all matters
pertaining to this Agreement. This Agreement shall be binding on, and inure to
the benefit of, the parties to it and their respective legal representatives,
successors and permitted assigns.
d. Representations and Warranties. All representations, warranties and
agreements of the parties contained in this Agreement, or in any Schedule,
instrument, certificate or other writing provided for herein, shall survive the
Closing.
e. Notices. Except as provided in this Section 15.e., all notices or
other communications hereunder shall be in writing and shall be effective (a)
when personally delivered by courier or otherwise to the party to be given such
notice or other communication, or (b) on the business day
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following the day such notice or other communication is sent by telex, facsimile
or similar electronic device, fully prepaid, which telex, facsimile or similar
electronic communication shall promptly be confirmed by written notice or (c) on
the fifth day following the date of deposit in the United States mail if such
notice or other communication is sent by certified or registered air mail (or
its equivalent) with return receipt requested and postage thereon fully prepaid.
The addresses for such notices shall be as follows:
If to Purchaser:
I3S Funding I, L.L.C.
c/o Geneva Associates, L.L.C.
P. O. Box 21962
Suite 2100, First Union Tower
300 N. Greene Street (27401)
Greensboro, North Carolina 27420
Attention: Tracy S. Turner and Russell R. Myers
Facsimile: (336) 274-4984
With a copy to:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Post Office Box 26000
230 N. Elm Street, Suite 2000 (27401)
Greensboro, North Carolina 27420
Attention: Marc D. Bishop
Facsimile (336) 378-1001
If to the Company:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attention: President
Facsimile: (972) 650-7972
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<PAGE> 43
With a copy to:
Clay C. Scott, Jr.
7501 Inwood Road
Post Office Box 7569
Dallas, Texas 75209
Facsimile: (214) 358-2851
Any party hereto may, by notice to the other parties hereto, change its address
for receipt of notices hereunder.
f. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
g. Entire Agreement. This Agreement, including the Schedules, Exhibits
and other documents referred to herein which form a part hereof, embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises,
warranties, covenants or understandings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. No
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by all of the parties hereto.
h. Headings; References. The headings appearing in this Agreement are
for convenience of reference only and shall not affect the interpretation of
this Agreement. All references herein to Sections, Exhibits and Schedules refer
to the Sections contained in, and the Exhibits and Schedules attached to, this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the day and year first
above written.
ATTEST: I 3S, INC.
/s/ illegible By: /s/ James R. Price
- ------------------------ ---------------------------------
James R. Price, President
(CORPORATE SEAL)
I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C., Manager
By: /s/ Russ R. Myers
---------------------------------
Russ R. Myers, Member-Manager
The Shareholders execute this Agreement solely for the purpose of
agreeing to the provisions of Section 2 hereof and waiving any and all
preemptive rights with respect to the issuance of the Class B Shares hereunder,
which rights are hereby waived.
/s/ James R. Price
---------------------------------
James R. Price
/s/ Gary A. Dobbins
---------------------------------
Gary A. Dobbins
/s/ Clay C. Scott, Jr.
---------------------------------
Clay C. Scott, Jr.
/s/ Charles Bo Price
---------------------------------
Charles Bo Price
/s/ George Venner
---------------------------------
George Venner
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BLUE RIDGE INVESTORS LIMITED
PARTNERSHIP
By: Blue Ridge Management Group, Inc.
By: /s/ Russ R. Myers
-----------------------------------
Russ R. Myers, Member-Manager
SPOTSWOOD CAPITAL, L.L.C.
By: /s/ William J. Armfield, IV
-----------------------------------
William J. Armfield, IV, Member-Manager
45
<PAGE> 1
EXHIBIT 4.9
AMENDMENT TO STOCK PURCHASE AGREEMENTS
THIS AMENDMENT TO STOCK PURCHASE AGREEMENTS, dated as of June 25, 1999,
is made and entered into between I3S FUNDING I, LLC, a North Carolina limited
liability company ("FUNDING"), BLUE RIDGE INVESTORS LIMITED PARTNERSHIP, a North
Carolina limited partnership ("BLUE RIDGE"), SPOTSWOOD CAPITAL, LLC, a North
Carolina limited liability company ("SPOTSWOOD") (Funding, Blue Ridge and
Spotswood are collectively referred to herein as the "PURCHASERS"); I 3S, INC.,
a Texas corporation (the "COMPANY"); and JAMES R. PRICE, GARY A. DOBBINS, CLAY
C. SCOTT, JR., CHARLES BO PRICE and GEORGE VENNER (the "SHAREHOLDERS").
WITNESSETH:
WHEREAS, Funding, the Company, the Shareholders and, in certain
instances, Blue Ridge and Spotswood entered into those certain Stock Purchase
Agreements, dated as of April 4, 1997, March 31, 1998 (as amended June 30,
1998), and December 30, 1998, respectively (the "FUNDING AGREEMENTS"), whereby
Funding purchased an aggregate of 4,979,777 shares of Class B Common Stock, no
par value per share, of the Company (the "CLASS B COMMON STOCK"); and
WHEREAS, Blue Ridge, the Company, the Shareholders, and in certain
instances, Spotswood entered into those certain Stock Purchase Agreements, dated
as of July 10, 1998, and December 30, 1998, respectively (the "BLUE RIDGE
AGREEMENTS"), whereby Blue Ridge purchased an aggregate of 1,037,232 shares of
Class C Common Stock, no par value per share, of the Company (the "CLASS C
COMMON STOCK"); and
WHEREAS, Spotswood, the Company the Shareholders, and in certain
instances, Blue Ridge entered into those certain Stock Purchase Agreements,
dated as of July 10, 1998, and December 30, 1998, respectively (the "SPOTSWOOD
AGREEMENTS"), whereby Spotswood purchased an aggregate of 1,037,232 shares of
Class C Common Stock; and
WHEREAS, the Company desires to sell up to 2,925,532 shares of Series A
Convertible Preferred Stock, no par value per share, of the Company (the
"PREFERRED STOCK") in a private placement (the "PRIVATE PLACEMENT"); and
WHEREAS, the preferences, limitations and rights of the Class A Common
Stock, no par value per share, of the Company (the "CLASS A COMMON STOCK"), the
Class B Common Stock and the Class C Common Stock (the Class A Common Stock,
Class B Common Stock and Class C Common Stock are collectively referred to
herein as the "COMMON STOCK") must be amended in order to effectuate the Private
Placement; and
<PAGE> 2
WHEREAS, the Company and the Purchasers entered into that certain
letter agreement dated as of March 2, 1999, as amended April 29, 1999, whereby
they agreed to amend the documentation pertaining to the Class B and Class C
Common Stock to effectuate the Private Placement; and
WHEREAS, the Company and the Purchasers desire to document the
amendments to the preferences, limitations and rights of the Common Stock.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, representations and warranties contained in the Funding Agreements,
Blue Ridge Agreements and Spotswood Agreements (collectively referred to herein
as the "PURCHASE AGREEMENTS") and in this Amendment, the parties hereto agree as
follows:
1. Effectiveness. This Amendment shall be effective as of the date
first above written.
2. Amendments to Purchase Agreements. To reflect the amendments to the
preferences, limitations and rights of the Common Stock, the Purchase Agreements
are hereby amended as follows:
(a) Section 2.b. of the Purchase Agreements is amended
to read in its entirety as follows:
"b. Preemptive Rights/Definitions.
i. The Class B Common Stock and Class C Common Stock shall have
the preemptive rights set forth in the Company's Amended and
Restated Articles of Incorporation.
ii. For purposes of this Agreement, the "1933 Act" shall mean
the Securities Act of 1933, as amended.
iii. For purposes of this Agreement, a "Purchaser Approved
Offering" shall have the same meaning as "Approved Offering" as
defined in the Company's Amended and Restated Articles of
Incorporation."
(b) Section 2.c. of the Purchase Agreements is amended
to read in its entirety as follows:
"c. Right of First Refusal. The Class B Common Stock and Class C
Common Stock shall be entitled to the right of first refusal as set
forth in the Company's Amended and Restated Articles of
Incorporation."
(c) Section 2.d.ii of the Funding Agreements is amended
to read in its entirety as follows:
-2-
<PAGE> 3
"ii. At any time after April 4, 2002, Purchaser may require the
Company, at the Company's expense, to register up to two (2) primary
or secondary offerings of the Company's common stock (including
Purchaser's Common Shares) to the extent legally permissible.
Purchaser shall give the Company written notice of any exercise of
this right, and the Company shall have up to one (1) year from the
date of receipt of such notice to effect such registration."
(d) The first paragraph of Subsection 2.e.i. of the
Funding Agreements is amended to read in its entirety as
follows:
"i. At any time after April 4, 2001, and before the consummation
of a Purchaser Approved Offering, if a bona fide offer is made by
any person (other than Purchaser, or any person or entity related to
or affiliated with Purchaser), to purchase all or substantially all
of the assets or shares of stock of the Company, and Purchaser gives
the Company written notice that it desires such offer to be
accepted, the Company and its shareholders shall either accept the
offer and consummate the sale on the terms and conditions of the
offer, or the Company shall acquire all the equity interests owned
by Purchaser in the Company on the same terms and conditions as the
offer; provided, however, that if such offer is made prior to April
4, 2003, the Company shall have no such obligation unless the total
consideration of such offer is at least $350,000,000."
(e) The first paragraph of Subsection 2.e.i. of the Blue
Ridge Agreements and the Spotswood Agreements is amended to
read in its entirety as follows:
"i. At any time after April 4, 2001, and before the consummation
of a Purchaser Approved Offering, if a bona fide offer is made by
any person (other than Purchaser, or any person or entity related to
or affiliated with Purchaser), to purchase all or substantially all
of the assets or shares of stock of the Company, and Funding gives
the Company written notice that it desires such offer to be
accepted, the Company and its shareholders shall either accept the
offer and consummate the sale on the terms and conditions of the
offer (in which case, if the transaction is a stock sale or merger,
Purchaser also shall sell all of its equity interests in the Company
on those terms and conditions), or the Company shall acquire all the
equity interests owned by Purchaser and Funding in the Company on
the same terms and conditions as the offer; provided, however, that
if such offer is made prior to April 4, 2003, the Company shall have
no such obligation unless the total consideration of such offer is
at least $350,000,000. If at any time Funding approves the sale of
substantially all of the assets or shares of stock of the Company,
then Purchaser shall vote its shares in favor of the Transaction so
approved, or if the transaction is a stock sale or merger, then
Purchaser shall sell all of its equity interests in the Company on
the terms and conditions so approved."
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<PAGE> 4
(f) Subsection 2.e.ii. of the Purchase Agreements is
deleted in its entirety.
(g) Subsection 2.f. of the Purchase Agreements is
amended to read in its entirety as follows:
"f. Right of Co-Sale. In addition to the rights set forth in
Section 2.c., at any time prior to the consummation of a Purchaser
Approved Offering, Purchaser shall have the right to participate pro
rata to the fullest extent of its equity interest in the Company in
any sale or transfer of stock, by any holder of shares of Class A
Common Stock to any third party."
(h) Subsection 2.g.iii. of the Stock Purchase Agreements
is amended to read in its entirety as follows:
"iii. INTENTIONALLY LEFT BLANK."
Subsection 2.g.iv. of the Stock Purchase Agreements is amended
to read in its entirety as follows:
"iv. INTENTIONALLY LEFT BLANK."
(i) Section 2.i. of the Funding Agreements is amended to
add the following as the second paragraph thereof:
"Upon the consummation of a Purchaser Approved Offering and the
related conversion of the Class B Shares to Class A Common Stock,
the Board of Directors will nominate Purchaser's designee, so long
as such designee is reasonably qualified, and recommend in the
Company's proxy statement that the shareholders vote for such
designee. Purchaser shall have such right so long as Purchaser
continues to hold at least 2,489,889 shares of Class A Common Stock
attributable to the Class B Common Stock (subject to adjustment for
subdivisions, combinations, dividends, distributions,
recapitalizations, reclassifications or other changes as set forth
in the Company's Amended and Restated Articles of Incorporation)."
(j) Section 2.i. of the Blue Ridge Agreements and the
Spotswood Agreements is amended to add the following as the
second paragraph thereof:
"Upon the consummation of a Purchaser Approved Offering and the
related conversion of the Class B Common Stock to Class A Common
Stock, the Board of Directors will nominate Funding's designee, so
long as such designee is reasonably qualified, and recommend in the
Company's proxy statement that the shareholders vote for such
designee. Funding shall have such right so long as Funding continues
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<PAGE> 5
to hold at least 2,489,889 shares of Class A Common Stock
attributable to the Class B Common Stock (subject to adjustment for
subdivisions, combinations, dividends, distributions,
recapitalizations, reclassifications or other changes as set forth
in the Company's Amended and Restated Articles of Incorporation)."
(k) The following is added as new Section 2.j. of the
Funding Agreements:
"j. Conversion. Upon the occurrence of a Purchaser Approved
Offering, each share of Class B Common Stock held by Purchaser shall
immediately and automatically be converted into an equal number of
fully paid and nonassessable shares of Class A Common Stock pursuant
to the Company's Amended and Restated Articles of Incorporation."
(l) The following is added as new Section 2.j. of the
Blue Ridge Agreements and the Spotswood Agreements:
"j. Conversion. Upon the occurrence of a Purchaser Approved
Offering, each share of Class C Common Stock held by Purchaser shall
immediately and automatically be converted into an equal number of
fully paid and nonassessable shares of Class A Common Stock pursuant
to the Company's Amended and Restated Articles of Incorporation."
(l) Section 5.c. of the Purchase Agreements is amended
to read in its entirety as follows:
"c. Delivery of Financial Materials. The Company shall deliver
to Purchaser (i) within forty-five (45) days of the end of each
calendar quarter, quarterly and year-to-date balance sheet and
statements of income, changes in stockholders equity, and cash flow
prepared in accordance with GAAP and certified by the Company's
Chief Financial Officer, except such financial statements shall not
contain normal and recurring year end audit adjustments;(ii) within
one hundred twenty (120) days after the fiscal year end, an annual
independent certified audit from an outside accounting firm
reasonably designated by the Company; and (iii) as soon as
practicable, but no later than thirty (30) days after the beginning
of each fiscal year, beginning January 1, 2000, the Company shall
provide to the Purchaser a copy of the annual budget and plan for
such year which shall include, without limitation, plans for
incurrence of indebtedness for borrowed money and projections
regarding types of sources of funds, monthly projected capital and
operating expense budgets and cash flow projections."
3. Amended and Restated Articles of Incorporation. The Purchasers agree
to sign a Unanimous Written Consent in substantially the form attached hereto as
EXHIBIT "A"
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<PAGE> 6
simultaneously with the execution of this Amendment. The Unanimous Written
Consent shall approve those certain Amended and Restated Articles of
Incorporation (which further amend and provide for the preferences, limitations
and rights of the Common Stock) (the "COMPANY'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION") the form of which is attached as EXHIBIT "A" to the Unanimous
Written Consent. The Purchasers agree not to revoke or terminate such consent
unless the prior written consent of the Company has been obtained.
4. Waiver of Certain Rights. Purchasers hereby waive their right of
co-sale and any preemptive right they may have with respect to the sale of the
Preferred Stock in the Private Placement, the issuance of additional shares of
Preferred Stock as dividends thereon, and the issuance of the Class A Common
Stock on the conversion thereof.
5. Definitive Agreement. This Amendment constitutes the definitive
documentation of the Class B Common Stock and Class C Common Stock amendments
contemplated by that certain letter agreement dated March 2, 1999, as amended
April 29, 1999, by and between Funding, Blue Ridge, Spotswood and the Company
(collectively, the "LETTER AGREEMENT"). The Letter Agreement is superseded by
this Amendment and shall no longer be deemed in force or effect.
6. Miscellaneous. Except as expressly amended by this Amendment, all
the terms and provisions of the Purchase Agreements shall remain unmodified and
in full force and effect. This Amendment, together with the Purchase Agreements,
represents the entire agreement of the parties with respect to the matters
addressed herein, and may not be modified or amended except by the written
agreement of all parties. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Amendment shall be
governed by and construed in accordance with the laws of the State of North
Carolina.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives as of the date first above
written.
I 3S, INC.
By: /s/ James R. Price
-----------------------------------
Name: James R. Price
------------------------------
Its: President
-------------------------------
I3S FUNDING I, L.L.C.
By: GENEVA ASSOCIATES, L.L.C.,
Manager
By: /s/ Russ R. Myers
-----------------------------------
Name: Russ R. Myers
------------------------------
Its: Member-Manager
-------------------------------
BLUE RIDGE INVESTORS LIMITED
PARTNERSHIP
By: Blue Ridge Investors Group, Inc.,
General Partner
By: /s/ Russ R. Myers
-----------------------------------
Russ R. Myers, President
SPOTSWOOD CAPITAL, LLC
By: /s/ William J. Armfield IV
-----------------------------------
William J. Armfield IV,
Member-Manager
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<PAGE> 8
SHAREHOLDERS:
/s/ James R. Price
-------------------------------
JAMES R. PRICE
/s/ Gary A. Dobbins
-------------------------------
GARY A. DOBBINS
/s/ Clay C. Scott, Jr.
-------------------------------
CLAY C. SCOTT, JR.
/s/ Charles Bo Price
-------------------------------
CHARLES BO PRICE
/s/ George Venner
-------------------------------
GEORGE VENNER
-8-
<PAGE> 9
EXHIBIT "A"
UNANIMOUS WRITTEN CONSENT
-9-
<PAGE> 1
EXHIBIT 4.10
FIRST AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made as of this day of January 2000, by and among
BroadbandNOW, Inc., a Delaware corporation (the "Company") and each of the
purchasers listed on SCHEDULE 1, attached hereto (collectively, the "Purchasers"
and each individually a "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company assumed all of the obligations of BroadbandNOW
Texas, Inc. f/k/a I 3S, Inc., a Texas corporation ("BroadbandNOW Texas"), with
respect to a Registration Rights Agreement, dated as of June 25, 1999, between I
3S, Inc., Nortel Networks Inc., Ascend Communications, Inc., Blue Ridge
Investors II Limited Partnership, I3S Funding I, LLC and Blue Ridge Investors
Limited Partnership; a Registration Rights Agreement, dated as of October 29,
1999, between I 3S, Inc. and General Electric Capital Corp.; a Registration
Rights Agreement, dated November 2, 1999, between I 3S, Inc., Archstone
Communities Trust and Archstone Communities Investment LLC-I; a Registration
Rights Agreement, dated November 24, 1999, between I 3S, Inc. and Microsoft
Corporation; and a Registration Rights Agreement, dated January 6, 2000 between
I 3S, Inc. and Telecommunications Investments LLC, TeleNet Capital Group, LLC
and Summit Properties, Inc. (collectively, the "Previous Agreements") related to
the Company's Series A Convertible Preferred Stock, par value $0.001 per share
(the "Series A Convertible Preferred Stock");
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of August 10,
1999, Paradigm/I3S, L.P. purchased a portion of the Series A Convertible
Preferred Stock owned by I3S Funding I, LLC and Blue Ridge Investors Limited
Partnership and obtained the rights granted to I3S Funding I, LLC and Blue Ridge
Investors Limited Partnership pursuant to the Previous Agreements; and
WHEREAS, Liberty BBandnow Holdings, LLC and the Company are parties to
that certain Series A Convertible Preferred Stock Purchase Agreement, dated as
of the date hereof (the "Purchase Agreement"), whereby Liberty BBandnow
Holdings, LLC shall purchase and the Company shall issue and sell 1,063,829
shares of Series A Convertible Preferred Stock; and
WHEREAS, the obligations of Liberty BBandnow Holdings, LLC under the
Purchase Agreement are conditioned among other things, upon the execution and
delivery of this Agreement by the Purchasers and the Company; and
WHEREAS, the Purchasers and the Company desire to amend and restate the
Previous Agreements to replace them with a single agreement; and
<PAGE> 2
WHEREAS, this Agreement will become effective upon the consent of at
least 66 2/3% of the outstanding shares of Series A Convertible Preferred Stock.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned parties hereto
agree that this Agreement supersedes the Previous Agreements in their entirety
and the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) "Commission" shall mean the United States Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act.
(b) "Common Stock" shall mean the Company's Class A Common
Stock, par value $0.001 per share, as authorized on the date of this Agreement
or class of common stock issued in exchange therefor.
(c) "Conversion Shares" shall mean the shares of Common Stock
issued or issuable upon conversion of the Series A Convertible Preferred Stock.
(d) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
(e) "Forms S-1, S-2 and S-3" shall mean the forms so
designated, promulgated by the Commission for registration of securities under
the Securities Act, and any forms succeeding to the functions of such forms,
whether or not bearing the same designation.
(f) "Holder" shall mean a holder of Registrable Securities
provided that anyone who acquires any Registrable Securities in a distribution
pursuant to a registration statement filed by the Company under the Securities
Act shall not thereby be deemed to be a "Holder".
(g) "Person" shall mean an individual, a corporation, a
partnership, a limited liability company, a joint venture, a trust, an estate,
an unincorporated organization, a government or any agency or political
subdivision thereof.
(h) "Recapitalization Events" shall mean an event described
under Section 2.5 of the Certificate of Designation (as hereinafter defined).
(i) "Register," "registered" and "registration" refers to a
registration effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
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<PAGE> 3
(j) "Registrable Securities" shall mean (i) Conversion Shares
held by (x) a Purchaser, (y) a purchaser of Series A Convertible Preferred
Stock, or (z) a Person to whom registration rights have been properly
transferred, (ii) all shares of Common Stock issued by the Company in respect of
the Series A Convertible Preferred Stock, and (iii) all shares of Common Stock
which the Purchasers or a purchaser of the Company's Series A Convertible
Preferred Stock or BroadbandNOW Texas' Series A Convertible Preferred Stock may
purchase pursuant to their rights of first refusal.
(k) "Required Demand Amount" shall mean at least fifty-one
percent (51%) of the Registrable Securities then outstanding with respect to the
registration effected pursuant to Section 2 (assuming the full conversion of the
Series A Convertible Preferred Stock for this purpose).
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
2. REQUIRED REGISTRATION.
(a) Subject to the provisions of Section 4 hereof, the Holder
or Holders of an aggregate of at least the Required Demand Amount (such Holder
or Holders being herein called the "Initiating Holders") may request the Company
in writing to effect under the Securities Act a registration, stating the number
of shares of Registrable Securities to be disposed of by such Initiating Holders
and the intended method of disposition. Upon receipt of such request, the
Company will give prompt written notice thereof to all other Holders whereupon
such other Holders shall give written notice to the Company within 20 days after
the date of the Company's notice (the "Notice Period") if they propose to
dispose of any shares of Registrable Securities pursuant to such registration,
stating the number of shares of Registrable Securities to be disposed of by such
Holder or Holders and the intended method of disposition.
(b) The Company will use commercially reasonable efforts to
effect promptly after the Notice Period the registration under the Securities
Act of all shares of Registrable Securities specified in the requests of the
Initiating Holders and the requests of the other Holders, subject, however, to
the limitations set forth in Section 4 hereof.
3. REGISTRATION PROCEDURES. Whenever the Company is required by the
provisions of this Agreement to use commercially reasonable efforts to effect
promptly the registration of shares of Registrable Securities, the Company will
use commercially reasonable efforts to :
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and prepare and file with
the Commission such amendments and post-effective amendments to the registration
statement as may be necessary to keep the registration statement effective for
the period necessary to complete the proposed distribution; cause the 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 to comply fully
with the applicable provisions of Rules 424 and 430A under the Securities Act in
a timely manner; and comply with the
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<PAGE> 4
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;
(b) keep such registration statement continuously effective
for the period necessary to complete the proposed distribution but for no longer
than one hundred eighty (180) days subsequent to the effective date of such
registration; upon the occurrence of any event that would cause the registration
statement or the prospectus contained therein to contain a material misstatement
or omission, the Company shall file promptly an appropriate amendment to such
registration statement correcting any such misstatement or omission;
(c) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in writing,
(i) 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 thereto, when the same has become effective, (ii) of
any request by the Commission for amendments to the registration statement or
amendments or supplements to the prospectus or for additional information
relating thereto, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement under the Securities
Act or of the suspension by any state securities commission of the qualification
of the Registrable Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, and (iv) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the registration statement, the prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the registration statement or the prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the registration statement or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Registrable
Securities under state securities or blue sky laws, the Company shall use
commercially reasonable efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(d) furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of the
registration statement or any prospectus included therein or any amendments or
supplements to any such registration statement or prospectus, and the Company
will not file the registration statement or prospectus or any amendment or
supplement to any registration statement or prospectus to which a selling Holder
of Registrable Securities covered by such registration statement or the
underwriter(s), if any, shall reasonably object within three (3) business days
after the receipt thereof;
(e) if requested by any selling Holders or the underwriter(s),
if any, incorporate in the registration statement or prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information as such
selling Holders and underwriter(s), if any, may reasonably request to have
included therein, information with respect to the number of Registrable
Securities being sold to such underwriter(s), the purchase price being paid
therefor and any other terms of the
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<PAGE> 5
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 practicable after the Company is notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(f) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the registration
statement, as first filed with the Commission, and of each amendment thereto,
including all documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
(g) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons reasonably may request; the Company hereby consents to the use
of the prospectus and any amendment or supplement thereto by each of the selling
Holders and each of the underwriter(s), if any, in connection with the offering
and the sale of the Registrable Securities covered by the prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities,
the Company shall register or qualify the Registrable Securities under the
securities or blue sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may request and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the registration
statement; provided, however, that the Company shall not be required to register
or qualify as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the registration
statement, in any jurisdiction where it is not now so subject;
(i) cooperate with the selling Holders and the underwriter(s),
if any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any restrictive
legends; and enable such Registrable Securities to be in such denominations and
registered in such names as the selling Holders or the underwriter(s), if any,
may request prior to any sale of Registrable Securities made by such
underwriter(s);
(j) if any fact or event contemplated by clause (c)(iv) above
shall exist or have occurred, prepare a supplement or post-effective amendment
to the registration statement or related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of 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;
(k) cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc. ("NASD") and in the
performance of any due diligence investigation by any underwriter (including any
"qualified independent underwriter") that is required to be retained in
accordance with the rules and regulations of the NASD;
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<PAGE> 6
(l) otherwise comply with all applicable rules and regulations
of the Commission, and make generally available to its security holders, as soon
as practicable, a consolidated earnings statement meeting the requirements of
the Securities Act and Rule 158 thereunder (which need not be audited) for the
twelve-month period (i) 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 (ii) 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;
(m) enter into such customary agreements (including an
underwriting agreement in customary form with provisions as may be reasonably
required by the managing underwriter retained by actions of the Holders of a
majority of the Registrable Securities being sold or the managing underwriter or
underwriters retained by Holders participating in an underwritten public
offering, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities);
(n) make available for inspection by any Holder of Registrable
Securities included in such registration statement, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Inspector
in connection with such registration statement; provided that Records which the
Company determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the registration statement or (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction; provided, further, each Holder of Registrable Securities agrees
that it will, upon learning that disclosure of such Records is sought in a court
of competent jurisdiction, give notice to the Company and allow the Company, at
its expense, to undertake appropriate action and to prevent disclosure of the
Records deemed confidential;
(o) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the Holders of a
majority of the Registrable Securities being sold reasonably request; and
(p) the Company will give the Holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and one counsel or firm of counsel and one accountant or firm of
accountants representing all the Holders of Registrable Securities to be
registered under such registration statement, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary in the
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<PAGE> 7
opinion of such Holders' and such underwriters' respective counsel to conduct a
reasonable investigation within the meaning of the Securities Act.
4. LIMITATIONS ON REQUIRED REGISTRATIONS.
(a) The Company shall not be required to effect more than two
registrations pursuant to Section 2 hereof.
(b) The Company may not cause any other registration of
securities for sale for its own account (other than a registration effected
solely to implement an employee benefit plan) to be initiated after a
registration requested pursuant to Section 2 hereof and to become effective less
than ninety (90) days after the effective date of any registration requested
pursuant to Section 2 hereof.
(c) Whenever a requested registration is for an underwritten
offering, only shares which are to be included in the underwriting pursuant to
this Agreement or other agreements with the Company, or shares offered by the
Company may be included in the registration. Notwithstanding the provisions of
Sections 2(b) and 4(b) hereof, if the underwriter determines that (i) marketing
factors require a limitation of the total number of shares to be underwritten,
or (ii) the offering price per share would be reduced by the inclusion of the
shares in the underwriting, then the number of shares to be included in the
registration and underwriting shall be reduced in whole or in part by the
underwriter so long as such limitation is applied on a pro rata basis with
respect to all shares proposed or requested to be registered in the
underwriting. No stock excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
the Company disapproves of any such underwriting, the Company may elect to
withdraw its shares therefrom by written notice to the Initiating Holders and
the underwriter. The securities so withdrawn from such underwriting shall also
be withdrawn from such registration.
(d) If at the time of any request to register Registrable
Securities pursuant to Section 2 hereof, the Company is engaged, or has fixed
plans to engage within ninety (90) days of the time of the request, in a
registered public offering as to which the Holders have the right to include
such Registrable Securities pursuant to Section 5 hereof, then the Company may
at its option direct that such request be delayed for a period not in excess of
six months from the effective date of such offering.
(e) The Company shall not be required to effect a
registration pursuant to Section 2 hereof until the earlier to occur of: (i)
April 4, 2002, or (ii) one hundred eighty (180) days after an Approved Offering
(as such term is defined in the Certificate of Designations for the Series A
Convertible Preferred Stock (the "Certificate of Designation") that has been
filed with the Secretary of State of the State of Delaware).
(f) At the time of any request to register Registrable
Securities pursuant to Section 2 hereof, all prospective sellers shall select,
by a majority vote of the shares proposed to be sold in the offering, a
shareholder representative (the "Shareholder Representative") and advise the
Company at least ten (10) days in advance of the contemplated effective date of
the registration
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<PAGE> 8
statement for such offering of the identity of the Shareholder Representative.
The Shareholder Representative shall have the authority to approve on behalf of
himself, if applicable, and the other prospective sellers all material terms of
the offering, including without limitation, price and underwriter's discounts
and commissions, which terms shall be subject to reasonable approval of the
Company.
5. INCIDENTAL REGISTRATION. At any time, commencing one hundred eighty
(180) days after an Approved Offering, if the Company proposes to register any
of its securities under the Securities Act (other than a registration effected
solely to implement an "employee benefit plan" as defined by Rule 405 or a
transaction to which Rule 145 or any successor provision promulgated under the
Securities Act ("Rule 145") is applicable), it will each such time give written
notice to all Holders of its intention so to do. Upon the written request of a
Holder or Holders given within 20 days after receipt of any such notice (stating
the number of shares of Registrable Securities to be disposed of by such Holder
or Holders and the intended method of disposition), the Company will use
commercially reasonable efforts to cause all shares of Registrable Securities to
be sold to be registered under the Securities Act so as to permit the
disposition (in accordance with the methods in said request) by such Holder or
Holders of the shares so registered, subject, however, to the limitations set
forth in Section 6 hereof.
6. LIMITATIONS ON INCIDENTAL REGISTRATION. If the registration of which
the Company gives notice pursuant to Section 5 hereof is for an underwritten
offering, only securities which are to be included in the underwriting may be
included in the registration. Notwithstanding any provision of Section 5 hereof,
if the underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the underwriter may exclude or otherwise
limit the number of shares of Registrable Securities to be included in the
registration and underwriting. The Company shall so advise all Holders who have
indicated to the Company their decision to distribute any of their Registrable
Securities through such underwriting, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
reduced in whole or in part by the underwriter so long as such limitation is
applied on a pro rata basis with respect to all shares proposed or requested to
be registered in the underwriting. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any Holder disapproves of any such
underwriting, such Person may elect to withdraw therefrom by written notice to
the Company and the underwriter. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such
registration.
7. DESIGNATION OF UNDERWRITER. The Company shall have the right to
designate the managing underwriter in any underwritten offering.
-8-
<PAGE> 9
8. COOPERATION BY PROSPECTIVE SELLERS.
(a) Each prospective seller of Registrable Securities will
furnish to the Company such information as the Company may reasonably require
from such seller in connection with the registration statement (and the
prospectus included therein).
(b) Failure of a prospective seller of Registrable Securities
to furnish the information and agreements described in this Agreement shall not
affect the obligations of the Company under this Agreement to remaining sellers
who furnish such information and agreements unless, in the reasonable opinion of
counsel to the Company or the underwriters, such failure impairs or may impair
the viability of the offering or the legality of the registration statement or
the underlying offering.
(c) The Holders holding shares included in the registration
statement will not (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update a registration statement or prospectus; but the
obligations of the Company with respect to maintaining any registration
statement current and effective shall be extended by a period of days equal to
the period such suspension is in effect unless (i) such extension would result
in the Company's inability to use the financial statements in the registration
statement initially filed pursuant to the Holder or Holders' request and (ii)
such correction or update did not result from the Company's acts or failures to
act. At the end of the period during which the Company is obligated to keep the
registration statement current and effective as described in Section 3(b) hereof
(and any extensions thereof required by the preceding sentence), the Holders
holding shares included in the registration statement shall discontinue sales of
shares pursuant to such registration statement upon receipt of notice from the
Company of its intention to remove from registration the shares covered by such
registration statement which remain unsold, and such Holders shall notify the
Company of the number of shares registered which remain unsold immediately upon
receipt of such notice from the Company.
(d) Each seller of Registrable Securities pursuant to a
registration which is not underwritten agrees to provide the Company with
written assurances that all sales of Registrable Securities made in connection
with such registration were made in compliance with all applicable securities
laws, including, without limitation, the prospectus delivery requirements of
Section 5 of the Securities Act or any successor provision and the restrictions
of Rules l0b-2, l0b-6 and l0b-7 of the Exchange Act or any successor provisions.
9. EXPENSES OF REGISTRATION. All expenses incurred in effecting any
registration pursuant to this Agreement including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company and expenses of
any audits incidental to or required by any such registration, shall be borne by
the Company, except that (a) all expenses, fees and disbursements of any counsel
retained by the Holders and all underwriting discounts and commissions
attributable to Registrable Securities being sold by the Holders shall be borne
by the Holders holding the securities registered pursuant to such registration,
pro rata according to the quantity of their securities so registered and (b) the
Company shall be required to pay for any expenses of the initial registration
proceeding begun pursuant to Section 2 hereof even if such registration request
is subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered. In all subsequent registration requests
begun pursuant to
-9-
<PAGE> 10
Section 2 hereof that are subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered, participating
Holders shall bear the expenses of such registration, unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to a demand
registration pursuant to Section 2 hereof. Notwithstanding the foregoing, in the
case of the registration requests in which the Company has agreed to pay the
Initiating Holders' expenses pursuant to this Section 9, the Company will pay up
to $10,000 per registration request, for expenses, fees and disbursements for
legal counsel for the Initiating Holders.
10. INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify
each Holder requesting or joining in a registration, each agent, officer and
director of such Holders, each Person controlling (within the meaning of Section
15 of the Securities Act or any successor provision) such Holder and each
underwriter and selling broker of the securities so registered (collectively,
"Indemnitees") against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance (or in any related registration statement, notification or the like)
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances in which they were made, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Indemnitee for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage or liability is caused by any untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with written
information furnished to the Company by an instrument duly executed by such
Indemnitees and stated to be specifically for use therein and except that the
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any such untrue statement (or alleged untrue statement) or omission
(or alleged omission) made in the preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the Commission at the time the
registration statement becomes effective or in the amended prospectus filed with
the Commission pursuant to Rule 424(b) or any successor provision (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter, or any Indemnitee if there is no underwriter, if a copy of the
Final Prospectus was not furnished to the Person asserting the loss, liability,
claim or damage at or prior to the time such furnishing is required by the
Securities Act, provided further, that this indemnity shall not be deemed to
relieve any underwriter of any of its due diligence obligations; provided,
further, that the indemnity agreement contained in this Section 10(a) shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld.
-10-
<PAGE> 11
(b) To the extent permitted by law, each Holder requesting or
joining in a registration and each underwriter of the securities so registered
will indemnify the Company and its officers and directors and each Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or any successor provision and their respective successors against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement of a material fact contained in any
prospectus, offering circular or other document incident to any registration,
qualification or compliance (or in any related registration statement,
notification or the like) or any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances in which they were made and will
reimburse the Company and each other Person indemnified pursuant to this Section
10(b) for any legal and any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action; provided, however, that this Section 10(b) shall apply only if (and only
to the extent that) such statement or omission was made in reliance upon and in
conformity with written information (including, without limitation, written
negative responses to inquiries) furnished to the Company by an instrument duly
executed by such Holder or underwriter and stated to be specifically for use in
such prospectus, offering circular or other document (or related registration
statement, notification or the like) or any amendment or supplement thereto
provided that the indemnity agreement contained in this Section 10(b) shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if such settlement is effected without the consent of the Holder or
underwriter, as the case may be, which consent shall not be unreasonably
withheld.
(c) Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to the party required to provide
indemnification (the "indemnifying party") promptly after such indemnified party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the indemnifying party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom, provided that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably satisfactory to the indemnified party, and the indemnified
party may participate in such defense at such party's expense, and provided,
further, that the omission by any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 10 except to the extent that the omission results in a failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of the failure to give notice. No indemnifying party, in the defense
of any such claim or litigation, shall, except with the consent of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) The reimbursement required by this Section 10 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(e) The obligation of the Company under this Section 10 shall
survive the conversion, if any, of the Series A Convertible Preferred Stock, the
completion of any offering of Registrable Securities in a registration statement
under this Agreement, or otherwise.
-11-
<PAGE> 12
11. RIGHTS WHICH MAY BE GRANTED TO SUBSEQUENT INVESTORS.
(a) Within the limitations prescribed by this Section 11(a),
but not otherwise, the Company may grant to subsequent investors (other than
purchasers of Series A Convertible Preferred Stock pursuant to Section 1 of the
Certificate of Designation which may be granted registration rights pari passu
herewith) in the Company rights of incidental registration (such as those
provided in Section 5 hereof). Such rights may only pertain to shares of Common
Stock, including shares of Common Stock into which any other securities may be
converted. Such rights may be granted with respect to (i) registrations actually
requested by Initiating Holders pursuant to Section 2 hereof, but only in
respect of that portion of any such registration as remains after inclusion of
all Registrable Securities requested by Holders and (ii) registrations initiated
by the Company, but only in respect of that portion of such registration as is
available under the limitations set forth in Section 6 hereof (which limitations
shall apply pro rata to all Holders) and such rights shall be limited in all
cases to sharing pro rata in the available portion of the registration in
question with Holders, such sharing to be based on the number of shares of
Common Stock held by the respective Holders and held by such other investors,
plus the number of shares of Common Stock into which other securities held by
the Holders and such other investors are convertible, which are entitled to
registration rights. With respect to registrations which are for underwritten
public offerings, "available portion" means the portion of the underwritten
shares which is available as specified in clauses (i) and (ii) of the third
sentence of this Section 11(a). Shares not included in such underwriting shall
not be registered.
(b) The Company may not grant to subsequent investors in the
Company (other than purchasers of Series A Convertible Preferred Stock pursuant
to Section 1 of the Certificate of Designation which may be granted registration
rights pari passu herewith) rights of registration upon request (such as those
provided in Section 2 hereof) unless (i) such rights are limited to shares of
Common Stock issued by the Company to such investors or to shares of Common
Stock issuable by the Company upon the conversion of other securities issued by
the Company to such investors, (ii) all Holders are given enforceable
contractual rights to participate in registrations requested by such subsequent
investors, such participation to be on a pro rata basis, and subject to the
limitations, described in the final three sentences of Section 11(a) hereof,
(iii) such rights shall not become effective prior to ninety (90) days after the
effective date of the registration pursuant to Section 2 hereof and (iv) such
rights shall not be more favorable than those granted to the Holders.
12. TRANSFER OF REGISTRATION RIGHTS. The registration rights granted to
the Purchasers under this Agreement may be transferred only:
(a) if, at the time of transfer, the transferee executes a
counterpart of this Agreement and agrees to be bound by the agreements,
representations and warranties herein; and only
(b)(i) to a transferee who shall acquire not less than 250,000
shares of Series A Convertible Preferred Stock or 250,000 shares of Registrable
Securities (as adjusted for Recapitalization Events); or
-12-
<PAGE> 13
(ii) in connection with the distribution by a Purchaser of
Series A Convertible Preferred Stock or of Registrable Securities to the
beneficial owners (including, without limitation, to partners of a general or
limited partnership, stockholders of a corporation and beneficiaries of a trust)
of securities of the Purchaser.
Notwithstanding any provision of this Section 12, the registration
rights granted to the Purchasers under this Agreement may not be assigned to any
Person which, in the Company's reasonable judgment, is a competitor of the
Company.
13. "STAND-OFF" AGREEMENT. In consideration for the Company performing
its obligations under this Agreement, each Purchaser severally agrees to enter
into an agreement providing that for a period of time (not to exceed one hundred
eighty (180) days) from the effective date of any registration (other than a
registration effected solely to implement an "employee benefit plan" as defined
by Rule 405 or any successor provision or a transaction to which Rule 145 or any
successor provision applies) of Common Stock (or derivatives thereof) of the
Company (upon request of the Company or of the underwriters managing the
underwritten offering covered by such registration), such Purchaser shall not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities, other than shares of
Registrable Securities included in the registration, without the prior written
consent of the Company or such underwriters, as the case may be; provided,
however, such Purchaser shall not be obligated to enter into such agreement
unless all executive officers and directors of the Company and each holder of
more than 5% of the outstanding Common Stock (and each holder of the Company's
Class B Common Stock and Class C Common Stock that has the right to convert such
shares into more than 5% of the Company's outstanding Common Stock), shall have
entered into similar agreements.
14. DELAY OF REGISTRATION. The Purchasers shall have no right to take
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
15. TERMINATION OF REGISTRATION RIGHTS. Unless the registration rights
granted in this Agreement are terminated earlier, the registration rights shall
terminate on the earlier of:
(a) June 2, 2006; or
(b) with respect to any given Holder, or permissible
transferee or assignee of such rights, at such time when such Holder, transferee
or assignee owns less than the number of shares of Registrable Securities that
could be sold within a single three-month period pursuant to Rule 144.
16. RULE 144 REQUIREMENTS. If the Company becomes subject to the
reporting requirements of the Exchange Act, the Company will file with the
Commission such information as the Commission may require to make available Rule
144 under the Securities Act (or any successor exemptive rule).
-13-
<PAGE> 14
17. NOTICES. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this Section 17) shall be in
writing and shall be mailed by first class or certified mail, postage prepaid,
sent by a nationally recognized overnight delivery service, or personally
delivered, as follows:
(a) If to the Company:
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: Matthew Hutchins, Sr., President
with a copy which shall not constitute notice to:
Winstead Sechrest & Minick, P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
Attn: Thomas W. Hughes, Esq.
(b) If to the Purchasers at the address set forth on
SCHEDULE 1 hereto.
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties.
18. MODIFICATIONS; WAIVER. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or in writing,
except that any provision of this Agreement may be amended and the observance of
any such provision may be waived (either generally or in a particular instance
and either retroactively or prospectively) with (but only with) the written
consent of (a) the Company, and (b) holders of at least 66 2/3 % of the
outstanding shares of the Series A Convertible Preferred Stock (or the
Conversion Shares if applicable) acting together as a single class.
19. REPLACEMENT AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the registration rights contemplated hereby,
and supersedes all negotiations, agreements, representations, warranties and
commitments relating to the registration rights contemplated hereby, whether in
writing or oral, prior to the date hereof, including without limitation the
Previous Agreements.
20. SUCCESSORS AND ASSIGNS. The Company may not assign or delegate any
of its rights or duties under this Agreement. Except as otherwise provided in
this Agreement, all of the terms of this Agreement including the agreements,
representations and warranties set forth herein shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, except that the rights set forth in this Agreement may only
be transferred in accordance with Section 12 hereof.
-14-
<PAGE> 15
21. ENFORCEMENT.
(a) Remedies at Law or in Equity. If any party shall default
in any of its obligations under this Agreement or if any representation
or warranty made by or on behalf of such party in this Agreement or in
any certificate, report or other instrument delivered under or pursuant
to any term hereof shall be untrue or misleading in any material
respect as of the date of this Agreement or as of the date it was made,
furnished or delivered, any party damaged may proceed to protect and
enforce its rights by suit in equity or action at law, whether for the
specific performance of any term contained in this Agreement or the
Certificate of Incorporation of the Company (including the Certificate
of Designation) or for an injunction against the breach of any such
term or in furtherance of the exercise of any power granted in this
Agreement or such Certificate (including the Certificate of
Designation), or to enforce any other legal or equitable right of such
party or to take any one or more of such actions. The prevailing party
in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement or the Certificate of
Incorporation (including the Certificate of Designation) of the
Company, including without limitation reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all
fees, costs and expenses of appeals.
(b) Remedies Cumulative; Waiver. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available
at law or in equity. No express or implied waiver of any default shall
be a waiver of any future or subsequent default. The failure or delay
in exercising any rights granted hereunder shall not constitute a
waiver of any such right and any single or partial exercise of any
particular right shall not exhaust the same or constitute a waiver of
any other right provided herein.
22. EXECUTION AND COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the Company.
23. GOVERNING LAW AND SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS AS APPLIED TO AGREEMENTS ENTERED INTO AND TO BE
PERFORMED ENTIRELY WITHIN TEXAS. To the maximum extent practicable, this
Agreement will be deemed to call for performance in Dallas County, Texas. In the
event any provision of this Agreement or the application of any such provision
to any party 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.
24. HEADINGS. The descriptive headings of the Sections hereof and the
Schedules hereto are inserted for convenience only and do not constitute a part
of this Agreement.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the date first set forth above.
THE COMPANY
BROADBANDNOW, INC.
By: /s/ Matthew Hutchins, Sr.,
-----------------------------------------
Matthew Hutchins, Sr., President
[PURCHASERS SIGNATURES ON FOLLOWING PAGE]
<PAGE> 17
THE PURCHASERS:
TELENET CAPITAL GROUP, LLC
By: /s/ David Finley
---------------------------------------------------------
David Finley, Manager
TELECOMMUNICATIONS INVESTMENTS, LLC
By: /s/ Jeffrey W. Lubore
---------------------------------------------------------
Jeffrey W. Lubore, Manager
SUMMIT PROPERTIES, INC.
By: /s/ Michael C. Malone
---------------------------------------------------------
Michael C. Malone, Senior Vice President
MICROSOFT CORPORATION
By: /s/ Robert A. Eshelman
---------------------------------------------------------
Robert A. Eshelman, Assistant Secretary
ARCHSTONE COMMUNITIES TRUST
By: /s/ Charles E. Mueller, Jr.
---------------------------------------------------------
Charles E. Mueller, Jr., Senior Vice President & CFO
<PAGE> 18
ARCHSTONE COMMUNITIES INVESTMENT
LLC-I
By: Archstone Communities Trust, its Manager
By: /s/ Charles E. Mueller, Jr.
---------------------------------------------------------
Charles E. Mueller, Jr., Senior Vice President
CFE, INC.
By: /s/ J. Gordon Smith
---------------------------------------------------------
J. Gordon Smith, Vice President
NORTEL NETWORKS INC.
By: /s/ Jay R. Prestipino
---------------------------------------------------------
Jay R. Prestipino, Vice President
LUCENT TECHNOLOGIES INC.
By: /s/ Leslie L. Rogers
--------------------------------------------------------
Name: Leslie L. Rogers
---------------------------------------------------
Title: Managing Director
--------------------------------------------------
BLUE RIDGE INVESTORS II LIMITED PARTNERSHIP
By: Blue Ridge Investors Group II, L.L.C.,
its General Partner
By: /s/ Russell R. Myers
---------------------------------------------------------
Russell R. Myers, General Partner
<PAGE> 19
I3S FUNDING I, LLC
By: Geneva Associates, L.L.C., its Manager
By: /s/ Russell R. Myers
-----------------------------------------------
Russell R. Myers, Manager
BLUE RIDGE INVESTORS LIMITED PARTNERSHIP
By: Blue Ridge Investors Group, Inc.,
its General Partner
By: /s/ Russell R. Myers
---------------------------------------------------
Russell R. Myers, Manager
LIBERTY BBANDNOW HOLDINGS, LLC
BY: Liberty BBandnow, Inc.
its sole member
By: /s/ Gary S. Howard
---------------------------------------------------
Name: Gary S. Howard
Title: Executive Vice President and Chief Operating
Officer
PARADIGM/I3S L.P.
By: Paradigm Group, LLC,
Its General Partner
By: /s/ Sheldon Drobny
-----------------------------------------------------
Sheldon Drobny, Chairman
<PAGE> 20
SCHEDULE I
THE PURCHASERS
<TABLE>
<CAPTION>
No. of
Shares of
Series A
Convertible
Preferred Copy of Notices
Name of Purchasers Notice Address Stock Must be sent to
- ------------------------ ------------------------------------- ------------ ----------------------------------
<S> <C> <C> <C>
Liberty BBandnow 9197 S. Peoria St. 1,063,829 Sherman & Howard L.L.C.
Holdings, LLC Englewood, CO 80112 3000 First Interstate Tower, North
Attn: General Counsel 633 Seventeenth Street
Denver, Colorado 80202
Attn: Peggy Knight, Esq.
Summit Properties, Inc. 212 South Tryon Street 53,191 Goodwin Proctor and Hoar
Suite 500 Exchange Place
Charlotte, NC 28281 Boston, MA 02109
Attn: Michael G. Malone, Esq. Attn: David Watson, Esq.
General Counsel
Telecommunications 8160 Silverberry Way 68,916
Investments, LLC Vienna, VA 22182
Attn: Jeffrey W. Lubore,
Manager
TeleNet Capital Group, LLC 2651 North Harwood 53,191 Haynes and Boone, LLP
Suite 450 901 Main Street, Suite 3100
Dallas, TX 75201 Dallas, TX 75202
Attn: David Finley, Attn: John M. Ambler, Esq.
Manager
Microsoft Corporation Chief Financial Officer 1,063,829 General Counsel,
Microsoft Corporation Finance and Operations
One Microsoft Way, 8S/2055 Microsoft Corporation
Redmond, WA 98052 One Microsoft Way, 8S/2055
Redmond, WA 98052
Attn: Keith Dolliver
Archstone Communities Trust 7670 S. Chester Street 372,340 Mayer Brown & Platt
Suite 100 190 South La Salle Street
Englewood, Colorado 80112 Chicago, Illinois 60603-3441
Attn: Charles E. Mueller Attention: Edward J. Schneidman
Archstone Communities 7670 S. Chester Street 17,294 Mayer Brown & Platt
Investment LLC-I Suite 100 190 South La Salle Street
Englewood, Colorado 80112 Chicago, Illinois 60603-3441
Attn: Charles E. Mueller Attention: Edward J. Schneidman
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
No. of
Shares of
Series A
Convertible
Preferred Copy of Notices
Name of Purchasers Notice Address Stock Must be sent to
- ------------------------ ------------------------------------- ------------ ----------------------------------
<S> <C> <C> <C>
CFE, Inc. CFE, Inc. 265,957 Paul, Hastings, Janofsky & Walker
c/o GE Capital Corporation LLP
2325 Lakeview Parkway 600 Peachtree Street N.E., Suite 2400
Suite 700 Atlanta, GA 30308
Alpharetta, GA 30004 Attention: Elizabeth Noe, Esq.
Attn.: Ken Gacevich Telephone: (404) 815-2287
Telecopy: (404) 815-2424
General Electric Capital Corp.
201 High Ridge Road
Stanford, CT 06927-5700
Attention: Susan Poland, Esq.
Telephone: (203) 316-7500
Telecopy: (203) 316-7822
Nortel Networks Inc. Nortel Networks Inc. 1,063,829 Jenkens & Gilchrist, a Professional
8 Federal Street Corporation
Billerica, Massachusetts 01821 1445 Ross Avenue, Suite 3200
Attention: Vice President, Finance, Dallas, TX 75202
Carrier Packet Solutions Attention: Daryl Robertson
Telephone: (978) 916-1751 Telephone: (214) 855-4500
Telecopy: (978) 916-4755 Telecopy: (214) 855-4300
And E-Mail: [email protected]
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, TX 75082-4399
Attention: Vice President, Customer
Finance North America
Telephone: (972) 684-2271
Telecopy: (972) 684-3679
Ascend Ascend Communications, Inc. 531,915 Gray Cary Ware & Freidenrich LLP
Communications Inc. 1701 Harbor Bay Parkway 400 Hamilton Avenue
Alameda, CA 94502 Palo Alto, California 94301-1825
Attn: Maribeth Harper, General Attention: Thomas W. Furlong
Counsel Telephone: (650) 328-6561
Telephone: (510) 747-6687 Telecopy: (650) 327-3699
Telecopy: (510) 747-6621 E-Mail: [email protected]
Blue Ridge Investors II Blue Ridge Investors II 47,341 Brooks, Pierce, McLendon,
Limited Partnership Limited Partnership Humphrey & Leonard, L.L.P.
P.O. Box 21962 2000 Renaissance Tower
Greensboro, N.C. 27420 230 North Elm Street
Telephone: (336) 275-7002 Greensboro, NC 27401
Telecopy: (336) 275-9155 Attention: Marc Bishop
Telephone: (336) 373-8850
Telecopy: (336) 378-1001
E-Mail: mbishop@
brookspierce.com
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
No. of
Shares of
Series A
Convertible
Preferred Copy of Notices
Name of Purchasers Notice Address Stock Must be sent to
- ------------------------ ------------------------------------- ------------ ----------------------------------
<S> <C> <C> <C>
I3S Funding I, LLC I3S Funding I, LLC 47,341 Brooks, Pierce, McLendon,
P.O. Box 21962 Humphrey & Leonard, L.L.P.
Greensboro, N.C. 27420 2000 Renaissance Tower
Telephone: (336) 275-7002 230 North Elm Street
Telecopy: (336) 275-9155 Greensboro, NC 27401
Attention: Marc Bishop
Telephone: (336) 373-8850
Telecopy: (336) 378-1001
E-Mail: mbishop@
brookspierce.com
Blue Ridge Investors Blue Ridge Investors 11,702 Brooks, Pierce, McLendon,
Limited Partnership Limited Partnership Humphrey & Leonard, L.L.P.
P.O. Box 21962 2000 Renaissance Tower
Greensboro, N.C. 27420 230 North Elm Street
Telephone: (336) 275-7002 Greensboro, NC 27401
Telecopy: (336) 275-9155 Attention: Marc Bishop
Telephone: (336) 373-8850
Telecopy: (336) 378-1001
E-Mail: mbishop@
brookspierce.com
Paradigm/I3S L.P. Paradigm/I3S L.P. 159,574
c/o Paradigm Group LLC
3000 Dundee Road, Suite 105
Northbrook, IL 60062
Attn: Aaron J. Fischer
Telephone: (847) 562-0700
Telecopy: (847) 562-0611
</TABLE>
<PAGE> 1
EXHIBIT 4.11
ADDENDUM TO THE
FIRST AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Addendum to the First Amended and Restated Registration Rights
Agreement, effective as of the 27th day of January, 2000, is by and between
Archstone Communities Investment LLC-I ("ARCHSTONE") and BroadbandNOW, Inc., a
Delaware corporation (the "COMPANY"). All capitalized terms not defined herein
have the definition assigned in that certain First Amended and Restated
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), dated
January 25, 2000, by and among the Company and the Purchasers (as defined
below).
W I T N E S S E T H:
WHEREAS, the Company and each of Liberty BBandnow Holdings, LLC,
Archstone, Archstone Communities Trust, Microsoft Corporation, TeleNet Capital
Group, LLC, Telecommunications Investments, LLC, Summit Properties, Inc., CFE,
Inc., Nortel Networks Inc., Ascend Communications Inc., Blue Ridge Investors II
Limited Partnership, I3S Funding I, LLC, Blue Ridge Investors Limited
Partnership, and Paradigm/I3S L.P. (collectively, the "PURCHASERS") previously
entered into the Registration Rights Agreement to grant the Purchasers certain
registration rights; and
WHEREAS, Section 11 of the Registration Rights Agreement provides that
purchasers of Series A Convertible Preferred Stock pursuant to Section 1 of the
Certificate of Designation may be granted registration rights pari passu with
the registration rights granted in the Registration Rights Agreement; and
WHEREAS, Archstone has previously purchased shares of Series A
Convertible Preferred Stock; and
WHEREAS, Archstone and the Company are parties to that certain Series A
Convertible Preferred Stock Purchase Agreement, dated as of the date hereof (the
"PURCHASE AGREEMENT"), whereby Archstone shall purchase and the Company shall
issue and sell an additional 26,596 shares of Series A Convertible Preferred
Stock (the "ADDITIONAL SHARES"); and
WHEREAS, the obligations of Archstone under the Purchase Agreement are
conditioned among other things, upon the execution and delivery of this Addendum
Agreement by the Company; and
WHEREAS, the Company desires to add Archstone as a party to the
Registration Rights Agreement with respect to the Additional Shares.
NOW, THEREFORE, in consideration of the premises and mutual covenants
in the Registration Rights Agreement and herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned parties hereto agree that Archstone shall be bound by, and shall
have the rights, obligations and benefit of, all the terms and conditions set
out in the Registration Rights Agreement, which are incorporated herein by
reference, as a "Purchaser" and as a "Holder".
<PAGE> 2
This Addendum to the First Amended and Restated Registration Rights
Agreement is executed as of the date first above written.
ARCHSTONE COMMUNITIES
INVESTMENT LLC-I
By: Archstone Communities Trust,
its Manager
By: /s/ CHARLES E. MUELLER, JR.
----------------------------------------------
Name: Charles E. Mueller, Jr.
Title: Chief Financial Officer
BROADBANDNOW, INC.
By: /s/ DANIEL A. GILLETT
-------------------------------------------------
Daniel A. Gillett, Vice President of Corporate
Development and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "AGREEMENT"), dated as of the 24th day
of June, 1999, is between I 3S, Inc., a Texas corporation (the Company with
offices at 1440 Corporate Drive, Irving, Texas 75038, and James R. Price, an
individual, with an address at 7607 Sweetgum, Irving, Texas 75063 ("EXECUTIVE").
WITNESSETH:
WHEREAS, in recognition of the valuable nature of Executive's
management capabilities to the business of Company, Company desires to enter
into this Agreement with Executive to be effective as of the date above first
written (the "EFFECTIVE DATE"); and
WHEREAS, Executive desires to enter into this Agreement with Company
and to be employed by Company in the capacity, for the period, and on the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants, agreements and
conditions contained herein, the parties hereto intending to be legally bound do
hereby covenant and agree as follows:
1. Employment.
(a) Company hereby agrees to employ Executive, and Executive hereby
agrees to serve Company, as Chief Executive Officer (subject to
approval by the Board of Directors of Company from time to time
hereafter), and, subject to the direction of the Board of Directors of
Company and their designates, to perform such duties, functions and
responsibilities commensurate with and appropriate to such position,
and as the same may be from time to time set forth in the By-laws of
Company or otherwise delegated to Executive by the Board of Directors
of Company or their designates. As of the effective date of this
Agreement, said duties, responsibilities and functions of Executive are
set forth in SCHEDULE A attached hereto and incorporated herein by
reference for all purposes.
(b) Executive shall receive from Company the necessary power and
authority to carry out and discharge such duties, functions and
responsibilities.
(c) Executive shall be a full time employee of Company and shall
devote his commercially reasonable efforts to the performance,
discharge and fulfillment of all such duties, functions and
responsibilities.
(d) Executive will perform his services in Dallas County, Texas,
U.S.A., or at such other location as may be mutually agreed upon by the
Board of Directors of Company, or their designates, and Executive.
<PAGE> 2
2. Term of Employment.
(a) Subject to the provisions for termination as hereinafter
provided, the term of employment under this Agreement shall be
effective as of the date first above written and shall continue through
June 30, 2001, provided, however, that beginning on June 30, 2000 and
on June 30 each year thereafter (each such June 30 being referred to as
a "RENEWAL DATE"), the term of this Agreement shall automatically be
extended for an additional one year so that on each Renewal Date the
then remaining unexpired term of this Agreement shall be two years,
unless either party gives the other written notice of non-renewal at
least ninety (90) days prior to any such Renewal Date.
(b) This Agreement shall terminate prior to the expiration of the
initial term or any renewal term of this Agreement upon the earliest to
occur of the following:
(i) the death or permanent disability (as defined in Company's
permanent disability insurance program then in effect covering
Executive) of Executive; provided, however, that Company shall
remain responsible for and shall satisfy its obligations under its
life and permanent disability insurance programs then in effect
covering Executive as are referred to in SCHEDULE B attached hereto
and incorporated herein by reference for all purposes; and further
provided, however, that in addition to Company's obligations to
Executive under its life and permanent disability insurance
programs then in effect covering Executive, Company shall pay (a)
to any beneficiary or beneficiaries designated by the Executive in
writing or, if none, to his estate or other legal representative in
the event of Executive's death, or (b) to Company in the event of
his permanent disability a pro rata portion of the Annual Base
Salary to the last day of the month in which his death occurs and,
in lieu of the maximum bonus provided for in SUBSECTION 3(C), an
amount equal to a pro rata portion (based on the number of months
or portions thereof elapsed to the date of the Executive's death)
of the Annual Incentive Bonus, if any, paid or anticipated to be
payable to the Executive in respect of the then current year of
Executive's employment hereunder;
(ii) as permitted by SECTION 6 hereof by Executive for "Good
Reason" (as hereinafter defined) pursuant to SECTION 6;
(iii) as permitted by Section 7 hereof by Executive upon a
"Change of Control of the Company" (as hereinafter defined pursuant
to SECTION 7; or
(iv) as permitted by SECTION 7 hereof, by Company for
"Cause" (as hereinafter defined) pursuant to SECTION 7.
SECTIONS 6, 7, 8, 11 AND 12 shall survive the termination of this
Agreement.
3. Compensation.
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<PAGE> 3
(a) In consideration for all of the services to be rendered by
Executive to Company, Company shall pay Executive an annual base salary
of Two Hundred Forty Thousand Dollars ($240,000), subject to such
annual increases as approved by the Board of Directors or any
authorized committee thereof (the "COMPENSATION COMMITTEE"), but no
less than the increase in the U.S. government's Consumer Price Index,
all markets, for the prior twelve months (such annual base salary, as
it may be increased from time to time hereafter, being herein referred
to as the "ANNUAL BASE SALARY").
(b) The Annual Base Salary shall be paid to Executive in periodic
installments throughout the year in accordance with Company's normal
and customary pay policy for executive officers of Company.
(c) In addition to the Annual Base Salary to be paid pursuant to
SUBSECTION 3(A) of this Agreement, during the term of this Agreement or
any renewal or extension, the Company shall pay to the Executive as
incentive compensation annual bonuses in accordance with the incentive
bonus plan(s) adopted from time to time by the Board or the
Compensation Committee of the Board, as the case may be. Such plan,
among other things, shall establish a maximum bonus equal to 50% of the
Executive's Annual Base Salary.
(d) The amount of the Annual Base Salary and any other amounts
payable pursuant to this Agreement are gross amounts due by Company to
Executive hereunder, and Company shall have the right to deduct
therefrom all taxes and other amounts which may be required to be
deducted or withheld by law (including, but not limited to, federal
income tax withholding and social security payments), whether such law
is now in effect or becomes effective after the date of this Agreement.
(e) Company has adopted certain equity-based incentive compensation
plans (collectively, the "PLAN") providing for annual or other periodic
awards to key employees of, among other things, options to purchase the
Company's common stock. The Executive has not previously been granted
under the Plan options to purchase shares of the Company's Class A
Common Stock, no par value ("COMMON STOCK"). Upon the execution of this
Agreement, the Company shall grant Executive an option or options to
purchase 170,000 shares of Common Stock under the Plan. The exercise
price of such newly granted options shall be $18.80 per share, the
current fair market value. To the extent possible, such options shall
be "incentive stock options." Such options shall vest upon the earlier
of (i) an initial public offering; (ii) a Change of Control of the
Company (as hereinafter defined); or (iii) one-third of the options to
be granted hereunder at the end of each year of the three-year period
commencing upon the date of this Agreement.
(f) In addition to the foregoing, in the event that Company grants
stock options or similar incentives to its officers and employees from
time to time hereafter, Executive shall be allowed to participate in
any such future stock options or similar incentives on such terms as
are approved by the Board of Directors of Company or the Compensation
Committee and are offered to other executive officers of Company.
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<PAGE> 4
4. Executive Benefits and Business Expenses.
(a) During the term hereof, Executive shall be entitled to
participate in such employee benefit plans and programs maintained by
the Company for the benefit of its executive officers, and to
participate in applicable new or amended programs, including, but not
limited to, medical, dental, health, life, accident and disability
insurance programs, savings for retirement plans, bonus, stock option
plans, and any other incentive compensation plans.
(b) Executive shall be reimbursed for any necessary business
expenses reasonably incurred by Executive in carrying out Executive's
duties, functions and responsibilities hereunder except for expenses
related to local business travel (excluding taxi fares to and from the
airport and parking and toll charges).
(c) Executive shall receive a cash allowance of $650 per month to
cover all costs of local business travel, excluding taxi fares to and
from the airport and parking and toll charges.
5. Vacation and Sick Leave Time.
Executive shall be entitled to annual vacation and sick leave time
pursuant to the plan or policy currently in effect, or as hereafter may be
amended, available for other executive officers of Company. Vacation time shall
accrue monthly at a rate equal to four (4) weeks paid vacation every year
throughout the term of this Agreement.
6. Termination. In the event of (a) termination by the Company or any
successor of the Executive's employment hereunder without Cause, or (b)
Executive terminates his employment for Good Reason, then Executive shall be
entitled to receive: (i) 24 equal monthly installments beginning on the date of
such termination an amount (the "TERMINATION AMOUNT") equal to (x) the sum of
one-twelfth of the then Annual Base Salary plus (y)100% of the maximum bonus
provided in SUBSECTION 3(B); (ii) Executive's outstanding stock options and any
stock subject to restricted stock purchase agreements shall accelerate and fully
vest; and (iii) to the extent permitted by law, accounts under any Company
deferred compensation plans or arrangements shall accelerate and fully vest,
including as to any amounts contributed by the Company for the year in which the
termination occurs.
For the purpose of this Agreement, "GOOD REASON" is defined as (a) the
significant reduction of the Executive's title, duties, authority or
responsibilities, relative to the Executive's title, duties, authority or
responsibilities as in effect immediately prior to such reduction; (b) a
reduction by the Company in the Base Salary or bonus target amount of the
Executive as in effect immediately prior to such reduction; (c) the relocation
of the Executive to a facility or a location more than thirty (30) miles from
the Executive's then present location for a period in excess of 120 days,
without the Executive's express written consent; (d) any material breach of
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<PAGE> 5
this Agreement by the Company, or (e) any act or set of facts or circumstances
which would, under Texas case law or statute, constitute a constructive
termination of the Executive.
7. Change of Control. In the event of a Change of Control of the
Company, at the option of the Executive, (a) the term of employment shall
terminate, (b) Executive's outstanding stock options and any stock subject to
restricted stock purchase agreements shall accelerate and fully vest, and (c)
the Company shall pay Executive an amount equal to two times the sum of (i) the
Annual Base Salary as in effect as of the date immediately prior to such Change
of Control, plus (ii) 100% of Executive's maximum bonus provided for in
SUBSECTION 3(C).
For this purpose, "CHANGE OF CONTROL OF THE COMPANY" is defined as:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly
or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding
voting securities; or
(b) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "INCUMBENT
DIRECTORS" means directors who either (i) are directors of the Company
as of the date hereof, or (ii) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such
election or termination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company); or
(c) The consummation of a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(d) The consummation of the sale or disposition by the Company of
all or substantially all of the Company's assets.
8. Golden Parachute Gross-Up for Taxes. In the event that the benefits
provided for in this Agreement or otherwise payable to the Executive constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "CODE") or any successor provision and as a result
are subject to the excise tax imposed by Section 4999 of the Code or any
successor provision, then the Executive shall receive (a) a lump-sum cash
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<PAGE> 6
payment from the Company sufficient to pay such excise tax, and (b) an
additional lump-sum cash payment from the Company sufficient to pay the excise
tax and all federal and state income taxes arising from the payments made by the
Company to Executive pursuant to this sentence. Unless the Company and the
Executive otherwise agree in writing, the determination of Executive's tax
liability arising from such taxes, and the amount required to be paid under this
SECTION 8, shall be made in writing by the Accountants. For purposes of making
the calculations required by this SECTION 8, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code or any successor provision. The Company and the
Executive shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
SECTION 8. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this SECTION 8.
9. Breach by Company; Nonexclusive Remedy.
(a) In the event of a material breach of this Agreement by Company
which remains uncured after written notice thereof by Executive to
Company and the expiration of thirty (30) days opportunity to cure such
breach, Company shall be obligated to pay Executive as liquidated
damages, and not as a penalty, in a lump sum or on an annuity basis, at
Executive's sole option, an amount equal to the Termination Amount. It
is acknowledged and agreed to by the parties hereto that because actual
damages would be difficult to ascertain in the event that Company
materially breaches this Agreement, the amount of liquidated damages
provided for herein is reasonable and appropriate to remedy any such
breach and to compensate Executive for any damages incurred by him
hereunder.
(b) In the event that Company, or its successor or assigns, fails to
perform or breaches this Agreement in any material respect and
Executive shall file any judicial action for enforcement of this
Agreement and successfully recovers compensation or damages, Executive
shall be entitled to recover an additional amount as interest at ten
percent (10%) per annum on the amount owed from the date such amount
was due and payable, together with all actual expenses and attorneys'
fees reasonably incurred by Executive in obtaining legal advice
regarding his rights under this Agreement and in prosecuting and
disposing of such action.
(c) The provisions of this SECTION 6 shall not constitute the
exclusive remedy of Executive for Company's breach of this Agreement.
10. Breach by Executive.
(a) In the event that Executive willfully and materially breaches
this Agreement, Company may terminate this Agreement, at the option of
Company, (i) effective thirty (30) days after Company gives written
notice of such termination to Executive, or (ii) effective upon payment
of thirty (30) days' pay in lieu of notice;
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<PAGE> 7
provided, however, that Company shall pay to Executive all cash and
non-cash compensation then accrued under this Agreement to the date of
such termination.
(b) A material breach of this Agreement by Executive, in either case
that is materially detrimental to Company as determined in good faith
by the Board of Directors of the Company, shall be deemed to have
occurred upon the happening of any of the following events (for
"CAUSE"), and the continuation thereof for a period of twenty (20) days
after notice of such breach from the Company is received by Executive,
to-wit:
(i) Executive's wanton or willful misconduct in the
performance or discharge of any of Executive's duties, functions and
responsibilities hereunder; or
(ii) Executive's conviction of any felony offense during the
term of this Agreement that adversely affects his ability to perform
and discharge his duties under this Agreement; or
(iii) Executive's breach of any of Executive's material
obligations hereunder, including, without limitation, Executive's
obligations under SECTIONS 11 AND 12 hereof.
In the event Company elects to terminate Executive pursuant to this
SECTION 7, Company shall give written notice to Executive specifically stating
each fact and reason which is the basis for such termination. Following such
termination, Company shall have no further obligation to Executive under this
Agreement except for accrued and unpaid cash and non-cash compensation payments
then due and owing to Executive.
11. Covenant not to Compete.
(a) Executive covenants and agrees that Executive will not during
the term of this Agreement and for a period of two (2) years following
the termination of this Agreement, directly or indirectly in the United
States of America or Canada, as a principal, partner, agent, consultant
or otherwise of any person, partnership, corporation or other entity,
engage in or be financially interested in any business or group of
affiliated or unaffiliated businesses (other than Company) that engages
in a business which is competitive with any material line of business
in which the Company or its affiliates then currently engages or which
the Company or its affiliates are then currently developing.
(b) Company and Executive hereby agree that in the event that either
the length of, time or geographical area set forth herein is deemed too
restrictive by any court of competent jurisdiction, the court may
reduce such restriction to those which it deems reasonable under the
circumstances. This SECTION 11 shall not prohibit Executive from
investing in less than five percent (5%) of any class of equity
security of a company that has a class of equity security registered
pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934.
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<PAGE> 8
12. Confidentiality, Proprietary Information and Trade Secrets.
(a) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, Executive shall not use
for his personal benefit, or disclose, communicate or divulge to, or
use for the direct or indirect benefit of any person, firm, association
or company other than Company, any material referred to in SUBSECTIONS
12(F), (G) AND (H), or any proprietary information regarding the
business methods, business, policies, procedures, techniques, research
or development projects or results, trade secrets or other knowledge or
processes of, or developed by, Company or any names and addresses of
customers or clients or any data on or relating to past, present or
prospective customers or clients or any other confidential information
relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive
while employed by Company.
(b) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, Executive shall not,
directly or indirectly, in any geographic area served by Company or its
affiliates induce or attempt to influence any employee of Company or
its affiliates to terminate his or her employment with Company or its
affiliates or to hire any such employee of Company or its affiliates.
(c) Executive acknowledges and agrees that the restrictions
contained in SECTION 11 hereof and in SUBSECTIONS 12(a) AND (b) (the
"RESTRICTIONS"), in view of the nature of the business in which Company
is engaged, are reasonable and necessary in order to protect the
legitimate business interests of Company, and that any violation
thereof would result in irreparable harm to Company, and Executive
therefore further acknowledges and agrees that, in the event Executive
violates, or threatens to violate, any of such Restrictions, Company
shall be entitled to obtain from any court of competent jurisdiction,
without the posting of any bond or other security, preliminary and
permanent injunctive or equitable relief as well as damages and an
equitable accounting of all earnings, profits and other benefits
arising from such violation, which rights shall be cumulative and in
addition to any other rights or remedies at law or in equity to which
Company may be entitled.
(d) If any Restriction, or any part thereof, is determined in any
judicial or administrative proceeding to be invalid or unenforceable,
the remainder of the Restrictions shall not thereby be affected and
shall be given full effect, without regard to the invalid provisions.
(e) If Executive violates any of the Restrictions, the restrictive
period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation
shall be cured by Executive to the satisfaction of Company.
(f) It is recognized that Executive will have access to certain
confidential information of Company and its affiliates, and that such
information constitutes valuable,
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<PAGE> 9
special and unique property of Company and its affiliates. Executive
shall not at any time during the term of this Agreement and for a
period of two years after the termination of this Agreement disclose
any such confidential information to any party for any reason or
purpose except as may be made in the normal cause of business of
Company and for its benefit.
(g) All advertising, sales, and other materials or articles,
including, without limitation, data processing reports, customer sales
analyses, invoices, or any other materials or data of any kind
furnished to Executive by Company or developed by Executive on behalf
of Company or at Company's direction or for Company's use or otherwise
in connection with Executive's employment hereunder, are and shall
remain the sole, exclusive and confidential property of Company. In the
event that Company requests the return of such materials at any time
during, upon or after the termination of Executive's employment,
Executive shall immediately deliver the same, and any and all copies
thereof, to Company.
(h) For purposes of this Agreement, Confidential Information shall
include the Company's trade secrets and proprietary information,
techniques, sketches, drawings, know-how, processes, apparatus,
equipment, algorithms, software programs, software source documents and
formulae related to the current, future and proposed products and
services of the Company, and/or the Company's parents, subsidiaries,
customers and/or vendors, whether delivered in written (or other
tangible) form or verbally, and includes, without limitation,
information concerning research, design details and specifications,
financial data, procurement requirements, customer lists, business
forecasts and purchasing, sales, merchandising, development and
marketing plans, but shall exclude (i) confidential information that
was in the public domain at the time it was communicated to the
Executive; (ii) confidential information that enters the public domain
subsequent to the time it was communicated to Executive through no
fault of the Executive; or (iii) confidential information that was in
Executive's possession free of any obligation of confidence at the time
it was communicated to Executive.
13. Representations and Warranties of Executive. Except for
restrictions heretofore disclosed in writing by Executive to Company, Executive
represents and warrants to Company that (a) there are no restrictions,
agreements or understandings whatsoever to which Executive is a party which
would prevent or make unlawful the execution or performance of this Agreement or
his employment hereunder; (b) his execution of this Agreement and his employment
hereunder shall not constitute a breach of any contract, agreement or
understanding to which he is a party or by which he may be bound; and (c) he is
free and able to execute and perform this Agreement in all respects.
14. Successors.
(a) This Agreement shall inure to the benefit of and be binding upon
Company and Executive. This Agreement and the benefits and obligations
of Company hereunder may be assigned by Company to any person acquiring
all or substantially all of
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<PAGE> 10
the assets or all of the issued and outstanding equity securities of
Company; provided, however, that Company shall remain jointly and
severally liable to Executive with such assignee for the fulfillment of
Company's obligations under this Agreement, or to any corporation with
which Company may be merged or consolidated.
(b) This Agreement shall inure to the benefit of and be binding upon
Executive and Executive's executors, administrators, trustees, heirs
and legal representatives. Because Executive's duties, functions,
responsibilities, and services hereunder are special, personal and
unique in nature, Executive shall not transfer, sell or assign, by
operation of law or otherwise, Executive's obligations under this
Agreement.
15. Waivers. Neither the failure nor any delay on the part of either
party hereto to exercise any right, remedy, power or privilege (collectively,
"RIGHT") under this Agreement shall operate as a waiver, abandonment or release
thereof; nor shall any single or partial exercise of any Right preclude any
other or further exercise of the same or of any other Right, nor shall any
waiver of any Right with respect to any occurrence be construed as a waiver of
such Right with respect to any other occurrence.
16. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect or impair the validity or enforceability of the remaining provisions of
this Agreement, which provisions shall remain in full force and effect and the
parties hereto shall continue to be bound thereby.
17. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof and supersedes all
previous agreements and understandings between the parties, whether written or
oral, with respect to the subject matter hereof. This Agreement shall not be
modified, altered or amended except by a writing executed by both parties.
18. Notices. Any notice or other communication provided for in this
Agreement or contemplated hereby shall be sufficiently given if given in writing
and delivered personally or by certified mail, return receipt requested, and
addressed, in the case of the Company, to the Company at:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
and in the case of Executive, to the address set forth in the introductory
paragraph. Notice shall be effective when so delivered personally. Either party
may designate a different address by giving notice of change of address in the
manner provided above.
19. Construction of Agreement. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Texas.
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[Balance of page intentionally left blank]
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year above first written,
"Company"
I 3S, INC.
By: /s/ MATTHEW HUTCHINS
-----------------------------------------
Printed Name: Matthew Hutchins
---------------------------
Title: President
---------------------------------
"Executive"
/s/ JAMES R. PRICE
-----------------------------------------
James R. Price
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<PAGE> 13
SCHEDULE A
TO
EMPLOYMENT AGREEMENT BY
AND BETWEEN I 3S, INC., AS COMPANY,
AND
JAMES R. PRICE, AS EXECUTIVE
DESCRIPTION OF FUNCTIONS, DUTIES AND RESPONSIBILITIES OF EXECUTIVE
Executive shall oversee all functions and operations of the Company.
Schedule A, Description of Functions, Duties and Responsibilities of Executive -
Solo Page
<PAGE> 14
SCHEDULE B
TO
EMPLOYMENT AGREEMENT
BY AND BETWEEN
I 3S, INC., AS COMPANY
AND
JAMES R. PRICE, AS EXECUTIVE
EXECUTIVE OFFICER BENEFITS OF COMPANY
1. Life insurance
2. Medical insurance
3. Dental insurance
Schedule B, Executive Officer Benefits of Company - Solo Page
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "AGREEMENT"), dated as of the 24th day
of June, 1999, is between I 3S, Inc., a Texas corporation (the Company with
offices at 1440 Corporate Drive, Irving, Texas 75038, and Charles W. (Bo) Price,
an individual, with an address at 3701 Turtle Creek Boulevard, Unit 3BF, Dallas,
Texas 75219 ("EXECUTIVE").
WITNESSETH:
WHEREAS, in recognition of the valuable nature of Executive's
management capabilities to the business of Company, Company desires to enter
into this Agreement with Executive to be effective as of the date above first
written (the "EFFECTIVE DATE"); and
WHEREAS, Executive desires to enter into this Agreement with Company
and to be employed by Company in the capacity, for the period, and on the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants, agreements and
conditions contained herein, the parties hereto intending to be legally bound do
hereby covenant and agree as follows:
1. Employment.
(a) Company hereby agrees to employ Executive, and Executive hereby
agrees to serve Company, as Executive Vice President (subject to
approval by the Board of Directors of Company from time to time
hereafter), and, subject to the direction of the Board of Directors of
Company and their designates, to perform such duties, functions and
responsibilities commensurate with and appropriate to such position,
and as the same may be from time to time set forth in the By-laws of
Company or otherwise delegated to Executive by the Board of Directors
of Company or their designates. As of the effective date of this
Agreement, said duties, responsibilities and functions of Executive are
set forth in SCHEDULE A attached hereto and incorporated herein by
reference for all purposes.
(b) Executive shall receive from Company the necessary power and
authority to carry out and discharge such duties, functions and
responsibilities.
(c) Executive shall be a full time employee of Company and shall
devote his commercially reasonable efforts to the performance,
discharge and fulfillment of all such duties, functions and
responsibilities.
(d) Executive will perform his services in Dallas County, Texas,
U.S.A., or at such other location as may be mutually agreed upon by the
Board of Directors of Company, or their designates, and Executive.
<PAGE> 2
2. Term of Employment.
(a) Subject to the provisions for termination as hereinafter
provided, the term of employment under this Agreement shall be
effective as of the date first above written and shall continue through
June 30, 2001, provided, however, that beginning on June 30, 2000 and
on June 30 each year thereafter (each such June 30 being referred to as
a "RENEWAL DATE"), the term of this Agreement shall automatically be
extended for an additional one year so that on each Renewal Date the
then remaining unexpired term of this Agreement shall be two years,
unless either party gives the other written notice of non-renewal at
least ninety (90) days prior to any such Renewal Date.
(b) This Agreement shall terminate prior to the expiration of the
initial term or any renewal term of this Agreement upon the earliest to
occur of the following:
(i) the death or permanent disability (as defined in Company's
permanent disability insurance program then in effect covering
Executive) of Executive; provided, however, that Company shall remain
responsible for and shall satisfy its obligations under its life and
permanent disability insurance programs then in effect covering
Executive as are referred to in SCHEDULE B attached hereto and
incorporated herein by reference for all purposes; and further
provided, however, that in addition to Company's obligations to
Executive under its life and permanent disability insurance programs
then in effect covering Executive, Company shall pay (a) to any
beneficiary or beneficiaries designated by the Executive in writing or,
if none, to his estate or other legal representative in the event of
Executive's death, or (b) to Company in the event of his permanent
disability a pro rata portion of the Annual Base Salary to the last day
of the month in which his death occurs and, in lieu of the maximum
bonus provided for in SUBSECTION 3(c), an amount equal to a pro rata
portion (based on the number of months or portions thereof elapsed to
the date of the Executive's death) of the Annual Incentive Bonus, if
any, paid or anticipated to be payable to the Executive in respect of
the then current year of Executive's employment hereunder;
(ii) as permitted by SECTION 6 hereof by Executive for "Good
Reason" (as hereinafter defined) pursuant to SECTION 6;
(iii) as permitted by Section 7 hereof by Executive upon a
"Change of Control of the Company" (as hereinafter defined pursuant to
SECTION 7; or
(iv) as permitted by SECTION 7 hereof, by Company for "Cause"
(as hereinafter defined) pursuant to SECTION 7.
SECTIONS 6, 7, 8, 11 AND 12 shall survive the termination of this
Agreement.
3. Compensation.
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<PAGE> 3
(a) In consideration for all of the services to be rendered by
Executive to Company, Company shall pay Executive an annual base salary
of Two Hundred Thousand Dollars ($200,000.00), subject to such annual
increases as approved by the Board of Directors or any authorized
committee thereof (the "COMPENSATION COMMITTEE"), but no less than the
increase in the U.S. government's Consumer Price Index, all markets,
for the prior twelve months (such annual base salary, as it may be
increased from time to time hereafter, being herein referred to as the
"ANNUAL BASE SALARY").
(b) The Annual Base Salary shall be paid to Executive in periodic
installments throughout the year in accordance with Company's normal
and customary pay policy for executive officers of Company.
(c) In addition to the Annual Base Salary to be paid pursuant to
SUBSECTION 3(a) of this Agreement, during the term of this Agreement or
any renewal or extension, the Company shall pay to the Executive as
incentive compensation annual bonuses in accordance with the incentive
bonus plan(s) adopted from time to time by the Board or the
Compensation Committee of the Board, as the case may be. Such plan,
among other things, shall establish a maximum bonus equal to 50% of the
Executive's Annual Base Salary.
(d) The amount of the Annual Base Salary and any other amounts
payable pursuant to this Agreement are gross amounts due by Company to
Executive hereunder, and Company shall have the right to deduct
therefrom all taxes and other amounts which may be required to be
deducted or withheld by law (including, but not limited to, federal
income tax withholding and social security payments), whether such law
is now in effect or becomes effective after the date of this Agreement.
(e) Company has adopted certain equity-based incentive compensation
plans (collectively, the "PLAN") providing for annual or other periodic
awards to key employees of, among other things, options to purchase the
Company's common stock. The Executive has not previously been granted
under the Plan options to purchase shares of the Company's Class A
Common Stock, no par value ("COMMON STOCK"). Upon the execution of this
Agreement, the Company shall grant Executive an option or options to
purchase 100,000 shares of Common Stock under the Plan. The exercise
price of such newly granted options shall be $18.80 per share, the
current fair market value. To the extent possible, such options shall
be "incentive stock options." Such options shall vest upon the earlier
of (i) an initial public offering; (ii) a Change of Control of the
Company (as hereinafter defined); or (iii) one-third of the options to
be granted hereunder at the end of each year of the three-year period
commencing upon the date of this Agreement.
(f) In addition to the foregoing, in the event that Company grants
stock options or similar incentives to its officers and employees from
time to time hereafter, Executive shall be allowed to participate in
any such future stock options or similar
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<PAGE> 4
incentives on such terms as are approved by the Board of Directors of
Company or the Compensation Committee and are offered to other
executive officers of Company.
4. Executive Benefits and Business Expenses.
(a) During the term hereof, Executive shall be entitled to
participate in such employee benefit plans and programs maintained by
the Company for the benefit of its executive officers, and to
participate in applicable new or amended programs, including, but not
limited to, medical, dental, health, life, accident and disability
insurance programs, savings for retirement plans, bonus, stock option
plans, and any other incentive compensation plans.
(b) Executive shall be reimbursed for any necessary business
expenses reasonably incurred by Executive in carrying out Executive's
duties, functions and responsibilities hereunder except for expenses
related to local business travel (excluding taxi fares to and from the
airport and parking and toll charges).
(c) Executive shall receive a cash allowance of $650 per month to
cover all costs of local business travel, excluding taxi fares to and
from the airport and parking and toll charges.
5. Vacation and Sick Leave Time.
Executive shall be entitled to annual vacation and sick leave time
pursuant to the plan or policy currently in effect, or as hereafter may be
amended, available for other executive officers of Company. Vacation time shall
accrue monthly at a rate equal to four (4) weeks paid vacation every year
throughout the term of this Agreement.
6. Termination. In the event of (a) termination by the Company or any
successor of the Executive's employment hereunder without Cause, or (b)
Executive terminates his employment for Good Reason, then Executive shall be
entitled to receive: (i) 24 equal monthly installments beginning on the date of
such termination an amount (the "TERMINATION AMOUNT") equal to (x) the sum of
one-twelfth of the then Annual Base Salary plus (y)100% of the maximum bonus
provided in SUBSECTION 3(b); (ii) Executive's outstanding stock options and any
stock subject to restricted stock purchase agreements shall accelerate and fully
vest; and (iii) to the extent permitted by law, accounts under any Company
deferred compensation plans or arrangements shall accelerate and fully vest,
including as to any amounts contributed by the Company for the year in which the
termination occurs.
For the purpose of this Agreement, "GOOD REASON" is defined as (a) the
significant reduction of the Executive's title, duties, authority or
responsibilities, relative to the Executive's title, duties, authority or
responsibilities as in effect immediately prior to such reduction; (b) a
reduction by the Company in the Base Salary or bonus target amount of the
Executive as in effect immediately prior to such reduction; (c) the relocation
of the Executive to a facility or a location more than thirty (30) miles from
the Executive's then present location for a period in
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<PAGE> 5
excess of 120 days, without the Executive's express written consent; (d) any
material breach of this Agreement by the Company, or (e) any act or set of facts
or circumstances which would, under Texas case law or statute, constitute a
constructive termination of the Executive.
7. Change of Control. In the event of a Change of Control of the
Company, at the option of the Executive, (a) the term of employment shall
terminate, (b) Executive's outstanding stock options and any stock subject to
restricted stock purchase agreements shall accelerate and fully vest, and (c)
the Company shall pay Executive an amount equal to two times the sum of (i) the
Annual Base Salary as in effect as of the date immediately prior to such Change
of Control, plus (ii) 100% of Executive's maximum bonus provided for in
SUBSECTION 3(C).
For this purpose, "CHANGE OF CONTROL OF THE COMPANY" is defined as:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly
or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding
voting securities; or
(b) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "INCUMBENT
DIRECTORS" means directors who either (i) are directors of the Company
as of the date hereof, or (ii) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such
election or termination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company); or
(c) The consummation of a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(d) The consummation of the sale or disposition by the Company of
all or substantially all of the Company's assets.
8. Golden Parachute Gross-Up for Taxes. In the event that the
benefits provided for in this Agreement or otherwise payable to the Executive
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "CODE") or any successor
provision and as a result are subject to the excise tax imposed by Section 4999
of
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<PAGE> 6
the Code or any successor provision, then the Executive shall receive (a) a
lump-sum cash payment from the Company sufficient to pay such excise tax, and
(b) an additional lump-sum cash payment from the Company sufficient to pay the
excise tax and all federal and state income taxes arising from the payments made
by the Company to Executive pursuant to this sentence. Unless the Company and
the Executive otherwise agree in writing, the determination of Executive's tax
liability arising from such taxes, and the amount required to be paid under this
SECTION 8, shall be made in writing by the Accountants. For purposes of making
the calculations required by this SECTION 8, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code or any successor provision. The Company and the
Executive shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
SECTION 8. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this SECTION 8.
9. Breach by Company; Nonexclusive Remedy.
(a) In the event of a material breach of this Agreement by Company
which remains uncured after written notice thereof by Executive to
Company and the expiration of thirty (30) days opportunity to cure such
breach, Company shall be obligated to pay Executive as liquidated
damages, and not as a penalty, in a lump sum or on an annuity basis, at
Executive's sole option, an amount equal to the Termination Amount. It
is acknowledged and agreed to by the parties hereto that because actual
damages would be difficult to ascertain in the event that Company
materially breaches this Agreement, the amount of liquidated damages
provided for herein is reasonable and appropriate to remedy any such
breach and to compensate Executive for any damages incurred by him
hereunder.
(b) In the event that Company, or its successor or assigns, fails to
perform or breaches this Agreement in any material respect and
Executive shall file any judicial action for enforcement of this
Agreement and successfully recovers compensation or damages, Executive
shall be entitled to recover an additional amount as interest at ten
percent (10%) per annum on the amount owed from the date such amount
was due and payable, together with all actual expenses and attorneys'
fees reasonably incurred by Executive in obtaining legal advice
regarding his rights under this Agreement and in prosecuting and
disposing of such action.
(c) The provisions of this SECTION 6 shall not constitute the
exclusive remedy of Executive for Company's breach of this Agreement.
10. Breach by Executive.
(a) In the event that Executive willfully and materially breaches
this Agreement, Company may terminate this Agreement, at the option of
Company, (i) effective thirty (30) days after Company gives written
notice of such termination to
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<PAGE> 7
Executive, or (ii) effective upon payment of thirty (30) days' pay in
lieu of notice; provided, however, that Company shall pay to Executive
all cash and non-cash compensation then accrued under this Agreement to
the date of such termination.
(b) A material breach of this Agreement by Executive, in either case
that is materially detrimental to Company as determined in good faith
by the Board of Directors of the Company, shall be deemed to have
occurred upon the happening of any of the following events (for
"CAUSE"), and the continuation thereof for a period of twenty (20) days
after notice of such breach from the Company is received by Executive,
to-wit:
(i) Executive's wanton or willful misconduct in the
performance or discharge of any of Executive's duties, functions and
responsibilities hereunder; or
(ii) Executive's conviction of any felony offense during the
term of this Agreement that adversely affects his ability to perform
and discharge his duties under this Agreement; or
(iii) Executive's breach of any of Executive's material
obligations hereunder, including, without limitation, Executive's
obligations under SECTIONS 11 AND 12 hereof.
In the event Company elects to terminate Executive pursuant to this
SECTION 7, Company shall give written notice to Executive specifically stating
each fact and reason which is the basis for such termination. Following such
termination, Company shall have no further obligation to Executive under this
Agreement except for accrued and unpaid cash and non-cash compensation payments
then due and owing to Executive.
11. Covenant not to Compete.
(a) Executive covenants and agrees that Executive will not during
the term of this Agreement and for a period of two (2) years following
the termination of this Agreement, directly or indirectly in the United
States of America or Canada, as a principal, partner, agent, consultant
or otherwise of any person, partnership, corporation or other entity,
engage in or be financially interested in any business or group of
affiliated or unaffiliated businesses (other than Company) that engages
in a business which is competitive with any material line or business
in which the Company or its affiliates then currently engages or which
the Company or its affiliates are then currently developing.
(b) Company and Executive hereby agree that in the event that either
the length of, time or geographical area set forth herein is deemed too
restrictive by any court of competent jurisdiction, the court may
reduce such restriction to those which it deems reasonable under the
circumstances. This SECTION 11 shall not prohibit Executive from
investing in less than five percent (5%) of any class of equity
security of a company that
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<PAGE> 8
has a class of equity security registered pursuant to Section 12(b) or
12(g) of the Securities Exchange Act of 1934.
12. Confidentiality, Proprietary Information and Trade Secrets.
(a) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, Executive shall not use
for his personal benefit, or disclose, communicate or divulge to, or
use for the direct or indirect benefit of any person, firm, association
or company other than Company, any material referred to in SUBSECTIONS
12(f), (g) AND (h), or any proprietary information regarding the
business methods, business, policies, procedures, techniques, research
or development projects or results, trade secrets or other knowledge or
processes of, or developed by, Company or any names and addresses of
customers or clients or any data on or relating to past, present or
prospective customers or clients or any other confidential information
relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive
while employed by Company.
(b) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, Executive shall not,
directly or indirectly, in any geographic area served by Company or its
affiliates induce or attempt to influence any employee of Company or
its affiliates to terminate his or her employment with Company or its
affiliates or to hire any such employee of Company or its affiliates.
(c) Executive acknowledges and agrees that the restrictions
contained in SECTION 11 hereof and in SUBSECTIONS 12(a) AND (b) (the
"RESTRICTIONS"), in view of the nature of the business in which Company
is engaged, are reasonable and necessary in order to protect the
legitimate business interests of Company, and that any violation
thereof would result in irreparable harm to Company, and Executive
therefore further acknowledges and agrees that, in the event Executive
violates, or threatens to violate, any of such Restrictions, Company
shall be entitled to obtain from any court of competent jurisdiction,
without the posting of any bond or other security, preliminary and
permanent injunctive or equitable relief as well as damages and an
equitable accounting of all earnings, profits and other benefits
arising from such violation, which rights shall be cumulative and in
addition to any other rights or remedies at law or in equity to which
Company may be entitled.
(d) If any Restriction, or any part thereof, is determined in any
judicial or administrative proceeding to be invalid or unenforceable,
the remainder of the Restrictions shall not thereby be affected and
shall be given full effect, without regard to the invalid provisions.
(e) If Executive violates any of the Restrictions, the restrictive
period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation
shall be cured by Executive to the satisfaction of Company.
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<PAGE> 9
(f) It is recognized that Executive will have access to certain
confidential information of Company and its affiliates, and that such
information constitutes valuable, special and unique property of
Company and its affiliates. Executive shall not at any time during the
term of this Agreement and for a period of two years after the
termination of this Agreement disclose any such confidential
information to any party for any reason or purpose except as may be
made in the normal cause of business of Company and for its benefit.
(g) All advertising, sales, and other materials or articles,
including, without limitation, data processing reports, customer sales
analyses, invoices, or any other materials or data of any kind
furnished to Executive by Company or developed by Executive on behalf
of Company or at Company's direction or for Company's use or otherwise
in connection with Executive's employment hereunder, are and shall
remain the sole, exclusive and confidential property of Company. In the
event that Company requests the return of such materials at any time
during, upon or after the termination of Executive's employment,
Executive shall immediately deliver the same, and any and all copies
thereof, to Company.
(h) For purposes of this Agreement, Confidential Information shall
include the Company's trade secrets and proprietary information,
techniques, sketches, drawings, know-how, processes, apparatus,
equipment, algorithms, software programs, software source documents and
formulae related to the current, future and proposed products and
services of the Company, and/or the Company's parents, subsidiaries,
customers and/or vendors, whether delivered in written (or other
tangible) form or verbally, and includes, without limitation,
information concerning research, design details and specifications,
financial data, procurement requirements, customer lists, business
forecasts and purchasing, sales, merchandising, development and
marketing plans, but shall exclude (i) confidential information that
was in the public domain at the time it was communicated to the
Executive; (ii) confidential information that enters the public domain
subsequent to the time it was communicated to Executive through no
fault of the Executive; or (iii) confidential information that was in
Executive's possession free of any obligation of confidence at the time
it was communicated to Executive.
13. Representations and Warranties of Executive. Except for
restrictions heretofore disclosed in writing by Executive to Company,
Executive represents and warrants to Company that (a) there are no
restrictions, agreements or understandings whatsoever to which
Executive is a party which would prevent or make unlawful the execution
or performance of this Agreement or his employment hereunder; (b) his
execution of this Agreement and his employment hereunder shall not
constitute a breach of any contract, agreement or understanding to
which he is a party or by which he may be bound; and (c) he is free and
able to execute and perform this Agreement in all respects.
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<PAGE> 10
14. Successors.
(a) This Agreement shall inure to the benefit of and be binding upon
Company and Executive. This Agreement and the benefits and obligations
of Company hereunder may be assigned by Company to any person acquiring
all or substantially all of the assets or all of the issued and
outstanding equity securities of Company; provided, however, that
Company shall remain jointly and severally liable to Executive with
such assignee for the fulfillment of Company's obligations under this
Agreement, or to any corporation with which Company may be merged or
consolidated.
(b) This Agreement shall inure to the benefit of and be binding upon
Executive and Executive's executors, administrators, trustees, heirs
and legal representatives. Because Executive's duties, functions,
responsibilities, and services hereunder are special, personal and
unique in nature, Executive shall not transfer, sell or assign, by
operation of law or otherwise, Executive's obligations under this
Agreement.
15. Waivers. Neither the failure nor any delay on the part of either
party hereto to exercise any right, remedy, power or privilege (collectively,
"RIGHT") under this Agreement shall operate as a waiver, abandonment or release
thereof; nor shall any single or partial exercise of any Right preclude any
other or further exercise of the same or of any other Right, nor shall any
waiver of any Right with respect to any occurrence be construed as a waiver of
such Right with respect to any other occurrence.
16. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect or impair the validity or enforceability of the remaining provisions of
this Agreement, which provisions shall remain in full force and effect and the
parties hereto shall continue to be bound thereby.
17. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof and supersedes all
previous agreements and understandings between the parties, whether written or
oral, with respect to the subject matter hereof. This Agreement shall not be
modified, altered or amended except by a writing executed by both parties.
18. Notices. Any notice or other communication provided for in this
Agreement or contemplated hereby shall be sufficiently given if given in writing
and delivered personally or by certified mail, return receipt requested, and
addressed, in the case of the Company, to the Company at:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
and in the case of Executive, to the address set forth in the introductory
paragraph. Notice shall be effective when so delivered personally. Either party
may designate a different address by giving notice of change of address in the
manner provided above.
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<PAGE> 11
19. Construction of Agreement. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Texas.
[Balance of page intentionally left blank]
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year above first written,
"Company"
I 3S, INC.
By: /s/ JAMES R. PRICE
----------------------------------------
Printed Name: James R. Price
--------------------------
Title: Chief Executive Officer and Chairman
-------------------------------------
"Executive"
/s/ CHARLES W. (BO) PRICE
-------------------------------------
Charles W. (Bo) Price
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<PAGE> 13
SCHEDULE A
TO
EMPLOYMENT AGREEMENT BY
AND BETWEEN I 3S, INC., AS COMPANY,
AND
CHARLES W. (BO) PRICE, AS EXECUTIVE
DESCRIPTION OF FUNCTIONS, DUTIES AND RESPONSIBILITIES OF EXECUTIVE
Executive shall assist in all matters of corporate development of the Company,
including the creation of strategic alliances and the exploitation of new
business opportunities.
Schedule A, Description of Functions, Duties and Responsibilities of Executive -
Solo Page
<PAGE> 14
SCHEDULE B
TO
EMPLOYMENT AGREEMENT
BY AND BETWEEN
I 3S, INC., AS COMPANY
AND
CHARLES W. (BO) PRICE, AS EXECUTIVE
EXECUTIVE OFFICER BENEFITS OF COMPANY
1. Life insurance
2. Medical insurance
3. Dental insurance
Schedule B, Executive Officer Benefits of Company - Solo Page
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "AGREEMENT"), dated as of the 24th day
of June, 1999, is between I 3S, Inc., a Texas corporation (the Company with
offices at 1440 Corporate Drive, Irving, Texas 75038, and Matthew Hutchins, an
individual, with an address at 1641 Glen Springs Drive, Plano, Texas 75093
("EXECUTIVE").
WITNESSETH:
WHEREAS, in recognition of the valuable nature of Executive's
management capabilities to the business of Company, Company desires to enter
into this Agreement with Executive to be effective as of the date above first
written (the "EFFECTIVE DATE"); and
WHEREAS, Executive desires to enter into this Agreement with Company
and to be employed by Company in the capacity, for the period, and on the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants, agreements and
conditions contained herein, the parties hereto intending to be legally bound do
hereby covenant and agree as follows:
1. Employment.
(a) Company hereby agrees to employ Executive, and Executive
hereby agrees to serve Company, as President (subject to approval by
the Board of Directors of Company from time to time hereafter), and,
subject to the direction of the Board of Directors of Company and their
designates, to perform such duties, functions and responsibilities
commensurate with and appropriate to such position, and as the same may
be from time to time set forth in the By-laws of Company or otherwise
delegated to Executive by the Board of Directors of Company or their
designates. As of the effective date of this Agreement, said duties,
responsibilities and functions of Executive are set forth in SCHEDULE A
attached hereto and incorporated herein by reference for all purposes.
(b) Executive shall receive from Company the necessary power
and authority to carry out and discharge such duties, functions and
responsibilities.
(c) Executive shall be a full time employee of Company and
shall devote his commercially reasonable efforts to the performance,
discharge and fulfillment of all such duties, functions and
responsibilities.
(d) Executive will perform his services in Dallas County, Texas,
U.S.A., or at such other location as may be mutually agreed upon
by the Board of Directors of Company, or their designates, and
Executive.
2. Term of Employment.
<PAGE> 2
(a) Subject to the provisions for termination as hereinafter
provided, the term of employment under this Agreement shall be
effective as of the date first above written and shall continue through
June 30, 2001, provided, however, that beginning on June 30, 2000 and
on June 30 each year thereafter (each such June 30 being referred to as
a "RENEWAL DATE"), the term of this Agreement shall automatically be
extended for an additional one year so that on each Renewal Date the
then remaining unexpired term of this Agreement shall be two years,
unless either party gives the other written notice of non-renewal at
least ninety (90) days prior to any such Renewal Date.
(b) This Agreement shall terminate prior to the expiration of
the initial term or any renewal term of this Agreement upon the
earliest to occur of the following:
(i) the death or permanent disability (as defined in Company's
permanent disability insurance program then in effect covering
Executive) of Executive; provided, however, that Company shall
remain responsible for and shall satisfy its obligations under its
life and permanent disability insurance programs then in effect
covering Executive as are referred to in SCHEDULE B attached hereto
and incorporated herein by reference for all purposes; and further
provided, however, that in addition to Company's obligations to
Executive under its life and permanent disability insurance programs
then in effect covering Executive, Company shall pay (a) to any
beneficiary or beneficiaries designated by the Executive in writing
or, if none, to his estate or other legal representative in the
event of Executive's death, or (b) to Company in the event of his
permanent disability a pro rata portion of the Annual Base Salary to
the last day of the month in which his death occurs and, in lieu of
the maximum bonus provided for in SUBSECTION 3(c), an amount equal
to a pro rata portion (based on the number of months or portions
thereof elapsed to the date of the Executive's death) of the Annual
Incentive Bonus, if any, paid or anticipated to be payable to the
Executive in respect of the then current year of Executive's
employment hereunder;
(ii) as permitted by SECTION 6 hereof by Executive for "Good
Reason" (as hereinafter defined) pursuant to SECTION 6;
(iii) as permitted by Section 7 hereof by Executive upon a
"Change of Control of the Company" (as hereinafter defined pursuant
to SECTION 7; or
(iv) as permitted by SECTION 7 hereof, by Company for "Cause"
(as hereinafter defined) pursuant to SECTION 7.
SECTIONS 6, 7, 8, 11 AND 12 shall survive the termination of this
Agreement.
3. Compensation.
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(a) In consideration for all of the services to be rendered by
Executive to Company, Company shall pay Executive an annual base salary
of Two Hundred Twenty Thousand Dollars ($220,000.00), subject to such
annual increases as approved by the Board of Directors or any
authorized committee thereof (the "COMPENSATION COMMITTEE"), but no
less than the increase in the U.S. government's Consumer Price Index,
all markets, for the prior twelve months (such annual base salary, as
it may be increased from time to time hereafter, being herein referred
to as the "ANNUAL BASE SALARY").
(b) The Annual Base Salary shall be paid to Executive in periodic
installments throughout the year in accordance with Company's normal
and customary pay policy for executive officers of Company.
(c) In addition to the Annual Base Salary to be paid pursuant to
SUBSECTION 3(a) of this Agreement, during the term of this Agreement or
any renewal or extension, the Company shall pay to the Executive as
incentive compensation annual bonuses in accordance with the incentive
bonus plan(s) adopted from time to time by the Board or the
Compensation Committee of the Board, as the case may be. Such plan,
among other things, shall establish a maximum bonus equal to 50% of the
Executive's Annual Base Salary.
(d) The amount of the Annual Base Salary and any other amounts
payable pursuant to this Agreement are gross amounts due by Company to
Executive hereunder, and Company shall have the right to deduct
therefrom all taxes and other amounts which may be required to be
deducted or withheld by law (including, but not limited to, federal
income tax withholding and social security payments), whether such law
is now in effect or becomes effective after the date of this Agreement.
(e) Company has adopted certain equity-based incentive compensation
plans (collectively, the "PLAN") providing for annual or other periodic
awards to key employees of, among other things, options to purchase the
Company's common stock. The Executive has previously been granted under
the Plan options to purchase 350,000 shares of the Company's Class A
Common Stock, no par value ("COMMON STOCK"). Upon the execution of this
Agreement, the Company shall grant Executive an option or options to
purchase 650,000 shares of Common Stock under the Plan. The exercise
price of such newly granted options shall be $18.80 per share, the
current fair market value. To the extent possible, such options shall
be "incentive stock options." Such options shall vest upon the earlier
of (i) an initial public offering; (ii) a Change of Control of the
Company (as hereinafter defined); or (iii) one-third of the options to
be granted hereunder at the end of each year of the three-year period
commencing upon the date of this Agreement.
(f) In addition to the foregoing, in the event that Company grants
stock options or similar incentives to its officers and employees from
time to time hereafter, Executive shall be allowed to participate in
any such future stock options or
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<PAGE> 4
similar incentives on such terms as are approved by the Board of
Directors of Company or the Compensation Committee and are offered to
other executive officers of Company.
4. Executive Benefits and Business Expenses.
(a) During the term hereof, Executive shall be entitled to
participate in such employee benefit plans and programs maintained by
the Company for the benefit of its executive officers, and to
participate in applicable new or amended programs, including, but not
limited to, medical, dental, health, life, accident and disability
insurance programs, savings for retirement plans, bonus, stock option
plans, and any other incentive compensation plans.
(b) Executive shall be reimbursed for any necessary business
expenses reasonably incurred by Executive in carrying out Executive's
duties, functions and responsibilities hereunder except for expenses
related to local business travel (excluding taxi fares to and from the
airport and parking and toll charges).
(c) Executive shall receive a cash allowance of $650 per month to
cover all costs of local business travel, excluding taxi fares to and
from the airport and parking and toll charges.
5. Vacation and Sick Leave Time.
Executive shall be entitled to annual vacation and sick leave time
pursuant to the plan or policy currently in effect, or as hereafter may be
amended, available for other executive officers of Company. Vacation time shall
accrue monthly at a rate equal to four (4) weeks paid vacation every year
throughout the term of this Agreement.
6. Termination. In the event of (a) termination by the Company or any
successor of the Executive's employment hereunder without Cause, or (b)
Executive terminates his employment for Good Reason, then Executive shall be
entitled to receive: (i) 24 equal monthly installments beginning on the date of
such termination an amount (the "TERMINATION AMOUNT") equal to (x) the sum of
one-twelfth of the then Annual Base Salary plus (y)100% of the maximum bonus
provided in SUBSECTION 3(b); (ii) Executive's outstanding stock options and any
stock subject to restricted stock purchase agreements shall accelerate and fully
vest; and (iii) to the extent permitted by law, accounts under any Company
deferred compensation plans or arrangements shall accelerate and fully vest,
including as to any amounts contributed by the Company for the year in which the
termination occurs.
For the purpose of this Agreement, "GOOD REASON" is defined as (a) the
significant reduction of the Executive's title, duties, authority or
responsibilities, relative to the Executive's title, duties, authority or
responsibilities as in effect immediately prior to such reduction; (b) a
reduction by the Company in the Base Salary or bonus target amount of the
Executive as in effect immediately prior to such reduction; (c) the relocation
of the Executive to a facility or a location more than thirty (30) miles from
the Executive's then present location for a period in
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excess of 120 days, without the Executive's express written consent; (d) any
material breach of this Agreement by the Company, or (e) any act or set of facts
or circumstances which would, under Texas case law or statute, constitute a
constructive termination of the Executive.
7. Change of Control. In the event of a Change of Control of the
Company, at the option of the Executive, (a) the term of employment shall
terminate, (b) Executive's outstanding stock options and any stock subject to
restricted stock purchase agreements shall accelerate and fully vest, and (c)
the Company shall pay Executive an amount equal to two times the sum of (i) the
Annual Base Salary as in effect as of the date immediately prior to such Change
of Control, plus (ii) 100% of Executive's maximum bonus provided for in
SUBSECTION 3(c).
For this purpose, "CHANGE OF CONTROL OF THE COMPANY" is defined as:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly
or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding
voting securities; or
(b) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "INCUMBENT
DIRECTORS" means directors who either (i) are directors of the Company
as of the date hereof, or (ii) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such
election or termination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company); or
(c) The consummation of a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(d) The consummation of the sale or disposition by the Company of
all or substantially all of the Company's assets.
8. Golden Parachute Gross-Up for Taxes. In the event that the
benefits provided for in this Agreement or otherwise payable to the Executive
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "CODE") or any successor
provision and as a result are subject to the excise tax imposed by Section 4999
of
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<PAGE> 6
the Code or any successor provision, then the Executive shall receive (a) a
lump-sum cash payment from the Company sufficient to pay such excise tax, and
(b) an additional lump-sum cash payment from the Company sufficient to pay the
excise tax and all federal and state income taxes arising from the payments made
by the Company to Executive pursuant to this sentence. Unless the Company and
the Executive otherwise agree in writing, the determination of Executive's tax
liability arising from such taxes, and the amount required to be paid under this
SECTION 8, shall be made in writing by the Accountants. For purposes of making
the calculations required by this SECTION 8, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code or any successor provision. The Company and the
Executive shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
SECTION 8. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this SECTION 8.
9. Breach by Company; Nonexclusive Remedy.
(a) In the event of a material breach of this Agreement by Company
which remains uncured after written notice thereof by Executive to
Company and the expiration of thirty (30) days opportunity to cure such
breach, Company shall be obligated to pay Executive as liquidated
damages, and not as a penalty, in a lump sum or on an annuity basis, at
Executive's sole option, an amount equal to the Termination Amount. It
is acknowledged and agreed to by the parties hereto that because actual
damages would be difficult to ascertain in the event that Company
materially breaches this Agreement, the amount of liquidated damages
provided for herein is reasonable and appropriate to remedy any such
breach and to compensate Executive for any damages incurred by him
hereunder.
(b) In the event that Company, or its successor or assigns, fails to
perform or breaches this Agreement in any material respect and
Executive shall file any judicial action for enforcement of this
Agreement and successfully recovers compensation or damages, Executive
shall be entitled to recover an additional amount as interest at ten
percent (10%) per annum on the amount owed from the date such amount
was due and payable, together with all actual expenses and attorneys'
fees reasonably incurred by Executive in obtaining legal advice
regarding his rights under this Agreement and in prosecuting and
disposing of such action.
(c) The provisions of this SECTION 6 shall not constitute the
exclusive remedy of Executive for Company's breach of this Agreement.
10. Breach by Executive.
(a) In the event that Executive willfully and materially breaches
this Agreement, Company may terminate this Agreement, at the option of
Company, (i) effective thirty (30) days after Company gives written
notice of such termination to
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Executive, or (ii) effective upon payment of thirty (30) days' pay in
lieu of notice; provided, however, that Company shall pay to Executive
all cash and non-cash compensation then accrued under this Agreement to
the date of such termination.
(b) A material breach of this Agreement by Executive, in either case
that is materially detrimental to Company as determined in good faith
by the Board of Directors of the Company, shall be deemed to have
occurred upon the happening of any of the following events (for
"CAUSE"), and the continuation thereof for a period of twenty (20) days
after notice of such breach from the Company is received by Executive,
to-wit:
(i) Executive's wanton or willful misconduct in the
performance or discharge of any of Executive's duties, functions and
responsibilities hereunder; or
(ii) Executive's conviction of any felony offense during the
term of this Agreement that adversely affects his ability to perform
and discharge his duties under this Agreement; or
(iii) Executive's breach of any of Executive's material
obligations hereunder, including, without limitation, Executive's
obligations under SECTIONS 11 AND 12 hereof.
In the event Company elects to terminate Executive pursuant to this
SECTION 7, Company shall give written notice to Executive specifically stating
each fact and reason which is the basis for such termination. Following such
termination, Company shall have no further obligation to Executive under this
Agreement except for accrued and unpaid cash and non-cash compensation payments
then due and owing to Executive.
11. Covenant not to Compete.
(a) Executive covenants and agrees that Executive will not during
the term of this Agreement and for a period of two (2) years following
the termination of this Agreement, directly or indirectly in the United
States of America or Canada, as a principal, partner, agent, consultant
or otherwise of any person, partnership, corporation or other entity,
engage in or be financially interested in any business or group of
affiliated or unaffiliated businesses (other than Company) that engages
in a business which is competitive with any material line or business
in which the Company or its affiliates then currently engages or which
the Company or its affiliates are then currently developing.
(b) Company and Executive hereby agree that in the event that either
the length of, time or geographical area set forth herein is deemed too
restrictive by any court of competent jurisdiction, the court may
reduce such restriction to those which it deems reasonable under the
circumstances. This SECTION 11 shall not prohibit Executive from
investing in less than five percent (5%) of any class of equity
security of a company that
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<PAGE> 8
has a class of equity security registered pursuant to Section 12(b) or
12(g) of the Securities Exchange Act of 1934.
12. Confidentiality, Proprietary Information and Trade Secrets.
(a) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, Executive shall not use
for his personal benefit, or disclose, communicate or divulge to, or
use for the direct or indirect benefit of any person, firm, association
or company other than Company, any material referred to in SUBSECTIONS
12(f), (g) AND (h), or any proprietary information regarding the
business methods, business, policies, procedures, techniques, research
or development projects or results, trade secrets or other knowledge or
processes of, or developed by, Company or any names and addresses of
customers or clients or any data on or relating to past, present or
prospective customers or clients or any other confidential information
relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive
while employed by Company.
(b) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, Executive shall not,
directly or indirectly, in any geographic area served by Company or its
affiliates induce or attempt to influence any employee of Company or
its affiliates to terminate his or her employment with Company or its
affiliates or to hire any such employee of Company or its affiliates.
(c) Executive acknowledges and agrees that the restrictions
contained in SECTION 11 hereof and in SUBSECTIONS 12(a) AND (b) (the
"RESTRICTIONS"), in view of the nature of the business in which Company
is engaged, are reasonable and necessary in order to protect the
legitimate business interests of Company, and that any violation
thereof would result in irreparable harm to Company, and Executive
therefore further acknowledges and agrees that, in the event Executive
violates, or threatens to violate, any of such Restrictions, Company
shall be entitled to obtain from any court of competent jurisdiction,
without the posting of any bond or other security, preliminary and
permanent injunctive or equitable relief as well as damages and an
equitable accounting of all earnings, profits and other benefits
arising from such violation, which rights shall be cumulative and in
addition to any other rights or remedies at law or in equity to which
Company may be entitled.
(d) If any Restriction, or any part thereof, is determined in any
judicial or administrative proceeding to be invalid or unenforceable,
the remainder of the Restrictions shall not thereby be affected and
shall be given full effect, without regard to the invalid provisions.
(e) If Executive violates any of the Restrictions, the restrictive
period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation
shall be cured by Executive to the satisfaction of Company.
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<PAGE> 9
(f) It is recognized that Executive will have access to certain
confidential information of Company and its affiliates, and that such
information constitutes valuable, special and unique property of
Company and its affiliates. Executive shall not at any time during the
term of this Agreement and for a period of two years after the
termination of this Agreement disclose any such confidential
information to any party for any reason or purpose except as may be
made in the normal cause of business of Company and for its benefit.
(g) All advertising, sales, and other materials or articles,
including, without limitation, data processing reports, customer sales
analyses, invoices, or any other materials or data of any kind
furnished to Executive by Company or developed by Executive on behalf
of Company or at Company's direction or for Company's use or otherwise
in connection with Executive's employment hereunder, are and shall
remain the sole, exclusive and confidential property of Company. In the
event that Company requests the return of such materials at any time
during, upon or after the termination of Executive's employment,
Executive shall immediately deliver the same, and any and all copies
thereof, to Company.
(h) For purposes of this Agreement, Confidential Information shall
include the Company's trade secrets and proprietary information,
techniques, sketches, drawings, know-how, processes, apparatus,
equipment, algorithms, software programs, software source documents and
formulae related to the current, future and proposed products and
services of the Company, and/or the Company's parents, subsidiaries,
customers and/or vendors, whether delivered in written (or other
tangible) form or verbally, and includes, without limitation,
information concerning research, design details and specifications,
financial data, procurement requirements, customer lists, business
forecasts and purchasing, sales, merchandising, development and
marketing plans, but shall exclude (i) confidential information that
was in the public domain at the time it was communicated to the
Executive; (ii) confidential information that enters the public domain
subsequent to the time it was communicated to Executive through no
fault of the Executive; or (iii) confidential information that was in
Executive's possession free of any obligation of confidence at the time
it was communicated to Executive.
13. Representations and Warranties of Executive. Except for restrictions
heretofore disclosed in writing by Executive to Company, Executive represents
and warrants to Company that (a) there are no restrictions, agreements or
understandings whatsoever to which Executive is a party which would prevent or
make unlawful the execution or performance of this Agreement or his employment
hereunder; (b) his execution of this Agreement and his employment hereunder
shall not constitute a breach of any contract, agreement or understanding to
which he is a party or by which he may be bound; and (c) he is free and able to
execute and perform this Agreement in all respects.
14. Successors.
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(a) This Agreement shall inure to the benefit of and be binding upon
Company and Executive. This Agreement and the benefits and obligations
of Company hereunder may be assigned by Company to any person acquiring
all or substantially all of the assets or all of the issued and
outstanding equity securities of Company; provided, however, that
Company shall remain jointly and severally liable to Executive with
such assignee for the fulfillment of Company's obligations under this
Agreement, or to any corporation with which Company may be merged or
consolidated.
(b) This Agreement shall inure to the benefit of and be binding upon
Executive and Executive's executors, administrators, trustees, heirs
and legal representatives. Because Executive's duties, functions,
responsibilities, and services hereunder are special, personal and
unique in nature, Executive shall not transfer, sell or assign, by
operation of law or otherwise, Executive's obligations under this
Agreement.
15. Waivers. Neither the failure nor any delay on the part of either
party hereto to exercise any right, remedy, power or privilege (collectively,
"RIGHT") under this Agreement shall operate as a waiver, abandonment or release
thereof; nor shall any single or partial exercise of any Right preclude any
other or further exercise of the same or of any other Right, nor shall any
waiver of any Right with respect to any occurrence be construed as a waiver of
such Right with respect to any other occurrence.
16. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect or impair the validity or enforceability of the remaining provisions of
this Agreement, which provisions shall remain in full force and effect and the
parties hereto shall continue to be bound thereby.
17. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof and supersedes all
previous agreements and understandings between the parties, whether written or
oral, with respect to the subject matter hereof. This Agreement shall not be
modified, altered or amended except by a writing executed by both parties.
18. Notices. Any notice or other communication provided for in this
Agreement or contemplated hereby shall be sufficiently given if given in writing
and delivered personally or by certified mail, return receipt requested, and
addressed, in the case of the Company, to the Company at:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
and in the case of Executive, to the address set forth in the introductory
paragraph. Notice shall be effective when so delivered personally. Either party
may designate a different address by giving notice of change of address in the
manner provided above.
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19. Construction of Agreement. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Texas.
[Balance of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year above first written,
"Company"
I 3S, INC.
By: /s/ JAMES R. PRICE
----------------------------------------
Printed Name: James R. Price
-----------------------
Title: Chief Executive Officer and
Chairman
------------------------------
"Executive"
/s/ MATTHEW HUTCHINS
----------------------------------------
Matthew Hutchins
<PAGE> 13
SCHEDULE A
TO
EMPLOYMENT AGREEMENT BY
AND BETWEEN I 3S, INC., AS COMPANY,
AND
MATTHEW HUTCHINS, AS EXECUTIVE
DESCRIPTION OF FUNCTIONS, DUTIES AND RESPONSIBILITIES OF EXECUTIVE
Executive shall oversee and have the primary responsibility within the
Company for all corporate and operational matters of the Company, including
without limitation, the (i) development and management of I3S' strategic
relationships, including its high speed data services' partnerships, data
communications services, and Internet applications alliances; (ii) corporate
affairs, including corporate finance, legal, financial reporting, and strategic
planning; and (iii) corporate operations, including internal business operations
and P&L management.
Schedule A, Description of Functions, Duties and Responsibilities of Executive -
Solo Page
<PAGE> 14
SCHEDULE B
TO
EMPLOYMENT AGREEMENT
BY AND BETWEEN
I 3S, INC., AS COMPANY
AND
MATTHEW HUTCHINS, AS EXECUTIVE
EXECUTIVE OFFICER BENEFITS OF COMPANY
1. Life insurance
2. Medical insurance
3. Dental insurance
Schedule B, Executive Officer Benefits of Company - Solo Page
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "AGREEMENT"), dated as of the 24th day
of June, 1999, is between I 3S, Inc., a Texas corporation (the Company with
offices at 1440 Corporate Drive, Irving, Texas 75038, and Daniel A. Gillett, an
individual, with an address at 848 Pimernel Lane, Plano, TX 75075 ("EXECUTIVE").
WITNESSETH:
WHEREAS, in recognition of the valuable nature of Executive's
management capabilities to the business of Company, Company desires to enter
into this Agreement with Executive to be effective as of the date above first
written (the "EFFECTIVE DATE"); and
WHEREAS, Executive desires to enter into this Agreement with Company
and to be employed by Company in the capacity, for the period, and on the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants, agreements and
conditions contained herein, the parties hereto intending to be legally bound do
hereby covenant and agree as follows:
1. Employment.
(a) Company hereby agrees to employ Executive, and Executive hereby
agrees to serve Company, as Vice President of Corporate Development and
Chief Financial Officer (subject to approval by the Board of Directors
of Company from time to time hereafter), and, subject to the direction
of the Board of Directors of Company and their designates, to perform
such duties, functions and responsibilities commensurate with and
appropriate to such position, and as the same may be from time to time
set forth in the By-laws of Company or otherwise delegated to Executive
by the Board of Directors of Company or their designates. As of the
effective date of this Agreement, said duties, responsibilities and
functions of Executive are set forth in SCHEDULE A attached hereto and
incorporated herein by reference for all purposes.
(b) Executive shall receive from Company the necessary power and
authority to carry out and discharge such duties, functions and
responsibilities.
(c) Executive shall be a full time employee of Company and shall
devote his commercially reasonable efforts to the performance,
discharge and fulfillment of all such duties, functions and
responsibilities.
(d) Executive will perform his services in Dallas County, Texas,
U.S.A., or at such other location as may be mutually agreed upon by the
Board of Directors of Company, or their designates, and Executive.
2. Term of Employment.
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<PAGE> 2
(a) Subject to the provisions for termination as hereinafter
provided, the term of employment under this Agreement shall be
effective as of the date first above written and shall continue through
June 30, 2001, provided, however, that beginning on June 30, 2000 and
on June 30 each year thereafter (each such June 30 being referred to as
a "RENEWAL DATE"), the term of this Agreement shall automatically be
extended for an additional one year so that on each Renewal Date the
then remaining unexpired term of this Agreement shall be two years,
unless either party gives the other written notice of non-renewal at
least ninety (90) days prior to any such Renewal Date.
(b) This Agreement shall terminate prior to the expiration of the
initial term or any renewal term of this Agreement upon the earliest to
occur of the following:
(i) the death or permanent disability (as defined in Company's
permanent disability insurance program then in effect covering
Executive) of Executive; provided, however, that Company shall
remain responsible for and shall satisfy its obligations under its
life and permanent disability insurance programs then in effect
covering Executive as are referred to in SCHEDULE B attached hereto
and incorporated herein by reference for all purposes; and further
provided, however, that in addition to Company's obligations to
Executive under its life and permanent disability insurance programs
then in effect covering Executive, Company shall pay (a) to any
beneficiary or beneficiaries designated by the Executive in writing
or, if none, to his estate or other legal representative in the
event of Executive's death, or (b) to Company in the event of his
permanent disability a pro rata portion of the Annual Base Salary to
the last day of the month in which his death occurs and, in lieu of
the maximum bonus provided for in SUBSECTION 3(c), an amount equal
to a pro rata portion (based on the number of months or portions
thereof elapsed to the date of the Executive's death) of the Annual
Incentive Bonus, if any, paid or anticipated to be payable to the
Executive in respect of the then current year of Executive's
employment hereunder;
(ii) as permitted by SECTION 6 hereof by Executive for "Good
Reason" (as hereinafter defined) pursuant to SECTION 6;
(iii) as permitted by Section 7 hereof by Executive upon a
"Change of Control of the Company" (as hereinafter defined pursuant
to SECTION 7; or
(iv) as permitted by SECTION 7 hereof, by Company for "Cause"
(as hereinafter defined) pursuant to SECTION 7.
SECTIONS 6, 7, 8, 11 AND 12 shall survive the termination of this
Agreement.
3. Compensation.
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<PAGE> 3
(a) In consideration for all of the services to be rendered by
Executive to Company, Company shall pay Executive an annual base salary
of Two Hundred Thousand Dollars ($200,000.00), subject to such annual
increases as approved by the Board of Directors or any authorized
committee thereof (the "COMPENSATION COMMITTEE"), but no less than the
increase in the U.S. government's Consumer Price Index, all markets,
for the prior twelve months (such annual base salary, as it may be
increased from time to time hereafter, being herein referred to as the
"ANNUAL BASE SALARY").
(b) The Annual Base Salary shall be paid to Executive in periodic
installments throughout the year in accordance with Company's normal
and customary pay policy for executive officers of Company.
(c) In addition to the Annual Base Salary to be paid pursuant to
SUBSECTION 3(a) of this Agreement, during the term of this Agreement or
any renewal or extension, the Company shall pay to the Executive as
incentive compensation annual bonuses in accordance with the incentive
bonus plan(s) adopted from time to time by the Board or the
Compensation Committee of the Board, as the case may be. Such plan,
among other things, shall establish a maximum bonus equal to 50% of the
Executive's Annual Base Salary.
(d) The amount of the Annual Base Salary and any other amounts
payable pursuant to this Agreement are gross amounts due by Company to
Executive hereunder, and Company shall have the right to deduct
therefrom all taxes and other amounts which may be required to be
deducted or withheld by law (including, but not limited to, federal
income tax withholding and social security payments), whether such law
is now in effect or becomes effective after the date of this Agreement.
(e) Company has adopted certain equity-based incentive compensation
plans (collectively, the "PLAN") providing for annual or other periodic
awards to key employees of, among other things, options to purchase the
Company's common stock. The Executive has previously been granted under
the Plan options to purchase 30,000 shares of the Company's Class A
Common Stock, no par value ("COMMON STOCK"). Upon the execution of this
Agreement, the Company shall grant Executive an option or options to
purchase 470,000 shares of Common Stock under the Plan. The exercise
price of such newly granted options shall be $18.80 per share, the
current fair market value. To the extent possible, such options shall
be "incentive stock options." Such options shall vest upon the earlier
of (i) an initial public offering; (ii) a Change of Control of the
Company (as hereinafter defined); or (iii) one-third of the options to
be granted hereunder at the end of each year of the three-year period
commencing upon the date of this Agreement.
(f) In addition to the foregoing, in the event that Company grants
stock options or similar incentives to its officers and employees from
time to time hereafter, Executive shall be allowed to participate in
any such future stock options or similar
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<PAGE> 4
incentives on such terms as are approved by the Board of Directors of
Company or the Compensation Committee and are offered to other
executive officers of Company.
4. Executive Benefits and Business Expenses.
(a) During the term hereof, Executive shall be entitled to
participate in such employee benefit plans and programs maintained by
the Company for the benefit of its executive officers, and to
participate in applicable new or amended programs, including, but not
limited to, medical, dental, health, life, accident and disability
insurance programs, savings for retirement plans, bonus, stock option
plans, and any other incentive compensation plans.
(b) Executive shall be reimbursed for any necessary business
expenses reasonably incurred by Executive in carrying out Executive's
duties, functions and responsibilities hereunder except for expenses
related to local business travel (excluding taxi fares to and from the
airport and parking and toll charges).
(c) Executive shall receive a cash allowance of $650 per month to
cover all costs of local business travel, excluding taxi fares to and
from the airport and parking and toll charges.
5. Vacation and Sick Leave Time.
Executive shall be entitled to annual vacation and sick leave time
pursuant to the plan or policy currently in effect, or as hereafter may be
amended, available for other executive officers of Company. Vacation time shall
accrue monthly at a rate equal to four (4) weeks paid vacation every year
throughout the term of this Agreement.
6. Termination. In the event of (a) termination by the Company or any
successor of the Executive's employment hereunder without Cause, or (b)
Executive terminates his employment for Good Reason, then Executive shall be
entitled to receive: (i) 24 equal monthly installments beginning on the date of
such termination an amount (the "TERMINATION AMOUNT") equal to (x) the sum of
one-twelfth of the then Annual Base Salary plus (y)100% of the maximum bonus
provided in SUBSECTION 3(b); (ii) Executive's outstanding stock options and any
stock subject to restricted stock purchase agreements shall accelerate and fully
vest; and (iii) to the extent permitted by law, accounts under any Company
deferred compensation plans or arrangements shall accelerate and fully vest,
including as to any amounts contributed by the Company for the year in which the
termination occurs.
For the purpose of this Agreement, "GOOD REASON" is defined as (a) the
significant reduction of the Executive's title, duties, authority or
responsibilities, relative to the Executive's title, duties, authority or
responsibilities as in effect immediately prior to such reduction; (b) a
reduction by the Company in the Base Salary or bonus target amount of the
Executive as in effect immediately prior to such reduction; (c) the relocation
of the Executive to a facility or a location more than thirty (30) miles from
the Executive's then present location for a period in
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excess of 120 days, without the Executive's express written consent; (d) any
material breach of this Agreement by the Company, or (e) any act or set of facts
or circumstances which would, under Texas case law or statute, constitute a
constructive termination of the Executive.
7. Change of Control. In the event of a Change of Control of the
Company, at the option of the Executive, (a) the term of employment shall
terminate, (b) Executive's outstanding stock options and any stock subject to
restricted stock purchase agreements shall accelerate and fully vest, and (c)
the Company shall pay Executive an amount equal to two times the sum of (i) the
Annual Base Salary as in effect as of the date immediately prior to such Change
of Control, plus (ii) 100% of Executive's maximum bonus provided for in
SUBSECTION 3(c).
For this purpose, "CHANGE OF CONTROL OF THE COMPANY" is defined as:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly
or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding
voting securities; or
(b) A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "INCUMBENT
DIRECTORS" means directors who either (i) are directors of the Company
as of the date hereof, or (ii) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such
election or termination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened
proxy contest relating to the election of directors to the Company); or
(c) The consummation of a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(d) The consummation of the sale or disposition by the Company of
all or substantially all of the Company's assets.
8. Golden Parachute Gross-Up for Taxes. In the event that the benefits
provided for in this Agreement or otherwise payable to the Executive constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "CODE") or any successor provision and as a result
are subject to the excise tax imposed by Section 4999 of
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<PAGE> 6
the Code or any successor provision, then the Executive shall receive (a) a
lump-sum cash payment from the Company sufficient to pay such excise tax, and
(b) an additional lump-sum cash payment from the Company sufficient to pay the
excise tax and all federal and state income taxes arising from the payments made
by the Company to Executive pursuant to this sentence. Unless the Company and
the Executive otherwise agree in writing, the determination of Executive's tax
liability arising from such taxes, and the amount required to be paid under this
SECTION 8, shall be made in writing by the Accountants. For purposes of making
the calculations required by this SECTION 8, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code or any successor provision. The Company and the
Executive shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
SECTION 8. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this SECTION 8.
9. Breach by Company; Nonexclusive Remedy.
(a) In the event of a material breach of this Agreement by Company
which remains uncured after written notice thereof by Executive to
Company and the expiration of thirty (30) days opportunity to cure such
breach, Company shall be obligated to pay Executive as liquidated
damages, and not as a penalty, in a lump sum or on an annuity basis, at
Executive's sole option, an amount equal to the Termination Amount. It
is acknowledged and agreed to by the parties hereto that because actual
damages would be difficult to ascertain in the event that Company
materially breaches this Agreement, the amount of liquidated damages
provided for herein is reasonable and appropriate to remedy any such
breach and to compensate Executive for any damages incurred by him
hereunder.
(b) In the event that Company, or its successor or assigns, fails to
perform or breaches this Agreement in any material respect and
Executive shall file any judicial action for enforcement of this
Agreement and successfully recovers compensation or damages, Executive
shall be entitled to recover an additional amount as interest at ten
percent (10%) per annum on the amount owed from the date such amount
was due and payable, together with all actual expenses and attorneys'
fees reasonably incurred by Executive in obtaining legal advice
regarding his rights under this Agreement and in prosecuting and
disposing of such action.
(c) The provisions of this SECTION 6 shall not constitute the
exclusive remedy of Executive for Company's breach of this Agreement.
10. Breach by Executive.
(a) In the event that Executive willfully and materially breaches
this Agreement, Company may terminate this Agreement, at the option of
Company, (i) effective thirty (30) days after Company gives written
notice of such termination to
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Executive, or (ii) effective upon payment of thirty (30) days' pay in
lieu of notice; provided, however, that Company shall pay to Executive
all cash and non-cash compensation then accrued under this Agreement to
the date of such termination.
(b) A material breach of this Agreement by Executive, in either case
that is materially detrimental to Company as determined in good faith
by the Board of Directors of the Company, shall be deemed to have
occurred upon the happening of any of the following events (for
"CAUSE"), and the continuation thereof for a period of twenty (20) days
after notice of such breach from the Company is received by Executive,
to-wit:
(i) Executive's wanton or willful misconduct in the performance
or discharge of any of Executive's duties, functions and
responsibilities hereunder; or
(ii) Executive's conviction of any felony offense during the
term of this Agreement that adversely affects his ability to perform
and discharge his duties under this Agreement; or
(iii) Executive's breach of any of Executive's material
obligations hereunder, including, without limitation, Executive's
obligations under SECTIONS 11 AND 12 hereof.
In the event Company elects to terminate Executive pursuant to this
SECTION 7, Company shall give written notice to Executive specifically stating
each fact and reason which is the basis for such termination. Following such
termination, Company shall have no further obligation to Executive under this
Agreement except for accrued and unpaid cash and non-cash compensation payments
then due and owing to Executive.
11. Covenant not to Compete.
(a) Executive covenants and agrees that Executive will not during
the term of this Agreement and for a period of two (2) years following
the termination of this Agreement, directly or indirectly in the United
States of America or Canada, as a principal, partner, agent, consultant
or otherwise of any person, partnership, corporation or other entity,
engage in or be financially interested in any business or group of
affiliated or unaffiliated businesses (other than Company) that engages
in a business which is competitive with any material line or business
in which the Company or its affiliates then currently engages or which
the Company or its affiliates are then currently developing.
(b) Company and Executive hereby agree that in the event that either
the length of, time or geographical area set forth herein is deemed too
restrictive by any court of competent jurisdiction, the court may
reduce such restriction to those which it deems reasonable under the
circumstances. This SECTION 11 shall not prohibit Executive from
investing in less than five percent (5%) of any class of equity
security of a company that
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<PAGE> 8
has a class of equity security registered pursuant to Section 12(b) or
12(g) of the Securities Exchange Act of 1934.
12. Confidentiality, Proprietary Information and Trade Secrets.
(a) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, Executive shall not use
for his personal benefit, or disclose, communicate or divulge to, or
use for the direct or indirect benefit of any person, firm, association
or company other than Company, any material referred to in SUBSECTIONS
12(F), (G) AND (H), or any proprietary information regarding the
business methods, business, policies, procedures, techniques, research
or development projects or results, trade secrets or other knowledge or
processes of, or developed by, Company or any names and addresses of
customers or clients or any data on or relating to past, present or
prospective customers or clients or any other confidential information
relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive
while employed by Company.
(b) During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, Executive shall not,
directly or indirectly, in any geographic area served by Company or its
affiliates induce or attempt to influence any employee of Company or
its affiliates to terminate his or her employment with Company or its
affiliates or to hire any such employee of Company or its affiliates.
(c) Executive acknowledges and agrees that the restrictions
contained in SECTION 11 hereof and in SUBSECTIONS 12(A) AND (B) (the
"RESTRICTIONS"), in view of the nature of the business in which Company
is engaged, are reasonable and necessary in order to protect the
legitimate business interests of Company, and that any violation
thereof would result in irreparable harm to Company, and Executive
therefore further acknowledges and agrees that, in the event Executive
violates, or threatens to violate, any of such Restrictions, Company
shall be entitled to obtain from any court of competent jurisdiction,
without the posting of any bond or other security, preliminary and
permanent injunctive or equitable relief as well as damages and an
equitable accounting of all earnings, profits and other benefits
arising from such violation, which rights shall be cumulative and in
addition to any other rights or remedies at law or in equity to which
Company may be entitled.
(d) If any Restriction, or any part thereof, is determined in any
judicial or administrative proceeding to be invalid or unenforceable,
the remainder of the Restrictions shall not thereby be affected and
shall be given full effect, without regard to the invalid provisions.
(e) If Executive violates any of the Restrictions, the restrictive
period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation
shall be cured by Executive to the satisfaction of Company.
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<PAGE> 9
(f) It is recognized that Executive will have access to certain
confidential information of Company and its affiliates, and that such
information constitutes valuable, special and unique property of
Company and its affiliates. Executive shall not at any time during the
term of this Agreement and for a period of two years after the
termination of this Agreement disclose any such confidential
information to any party for any reason or purpose except as may be
made in the normal cause of business of Company and for its benefit.
(g) All advertising, sales, and other materials or articles,
including, without limitation, data processing reports, customer sales
analyses, invoices, or any other materials or data of any kind
furnished to Executive by Company or developed by Executive on behalf
of Company or at Company's direction or for Company's use or otherwise
in connection with Executive's employment hereunder, are and shall
remain the sole, exclusive and confidential property of Company. In the
event that Company requests the return of such materials at any time
during, upon or after the termination of Executive's employment,
Executive shall immediately deliver the same, and any and all copies
thereof, to Company.
(h) For purposes of this Agreement, Confidential Information shall
include the Company's trade secrets and proprietary information,
techniques, sketches, drawings, know-how, processes, apparatus,
equipment, algorithms, software programs, software source documents and
formulae related to the current, future and proposed products and
services of the Company, and/or the Company's parents, subsidiaries,
customers and/or vendors, whether delivered in written (or other
tangible) form or verbally, and includes, without limitation,
information concerning research, design details and specifications,
financial data, procurement requirements, customer lists, business
forecasts and purchasing, sales, merchandising, development and
marketing plans, but shall exclude (i) confidential information that
was in the public domain at the time it was communicated to the
Executive; (ii) confidential information that enters the public domain
subsequent to the time it was communicated to Executive through no
fault of the Executive; or (iii) confidential information that was in
Executive's possession free of any obligation of confidence at the time
it was communicated to Executive.
13. Representations and Warranties of Executive. Except for
restrictions heretofore disclosed in writing by Executive to Company, Executive
represents and warrants to Company that (a) there are no restrictions,
agreements or understandings whatsoever to which Executive is a party which
would prevent or make unlawful the execution or performance of this Agreement or
his employment hereunder; (b) his execution of this Agreement and his employment
hereunder shall not constitute a breach of any contract, agreement or
understanding to which he is a party or by which he may be bound; and (c) he is
free and able to execute and perform this Agreement in all respects.
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<PAGE> 10
14. Successors.
(a) This Agreement shall inure to the benefit of and be binding upon
Company and Executive. This Agreement and the benefits and obligations
of Company hereunder may be assigned by Company to any person acquiring
all or substantially all of the assets or all of the issued and
outstanding equity securities of Company; provided, however, that
Company shall remain jointly and severally liable to Executive with
such assignee for the fulfillment of Company's obligations under this
Agreement, or to any corporation with which Company may be merged or
consolidated.
(b) This Agreement shall inure to the benefit of and be binding upon
Executive and Executive's executors, administrators, trustees, heirs
and legal representatives. Because Executive's duties, functions,
responsibilities, and services hereunder are special, personal and
unique in nature, Executive shall not transfer, sell or assign, by
operation of law or otherwise, Executive's obligations under this
Agreement.
15. Waivers. Neither the failure nor any delay on the part of either
party hereto to exercise any right, remedy, power or privilege (collectively,
"RIGHT") under this Agreement shall operate as a waiver, abandonment or release
thereof; nor shall any single or partial exercise of any Right preclude any
other or further exercise of the same or of any other Right, nor shall any
waiver of any Right with respect to any occurrence be construed as a waiver of
such Right with respect to any other occurrence.
16. Severability. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect or impair the validity or enforceability of the remaining provisions of
this Agreement, which provisions shall remain in full force and effect and the
parties hereto shall continue to be bound thereby.
17. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof and supersedes all
previous agreements and understandings between the parties, whether written or
oral, with respect to the subject matter hereof. This Agreement shall not be
modified, altered or amended except by a writing executed by both parties.
18. Notices. Any notice or other communication provided for in this
Agreement or contemplated hereby shall be sufficiently given if given in writing
and delivered personally or by certified mail, return receipt requested, and
addressed, in the case of the Company, to the Company at:
I 3S, Inc.
1440 Corporate Drive
Irving, Texas 75038
and in the case of Executive, to the address set forth in the introductory
paragraph. Notice shall be effective when so delivered personally. Either party
may designate a different address by giving notice of change of address in the
manner provided above.
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19. Construction of Agreement. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Texas.
[Balance of page intentionally left blank]
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year above first written,
"Company"
I 3S, INC.
By: /s/ JAMES R. PRICE
-------------------------------------------
Printed Name: James R. Price
Title: Chief Executive Officer and Chairman
"Executive"
By: /s/ DANIEL A. GILLETT
--------------------------------------------
Daniel A. Gillett
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<PAGE> 13
SCHEDULE A
TO
EMPLOYMENT AGREEMENT BY
AND BETWEEN I 3S, INC., AS COMPANY,
AND
DANIEL A. GILLETT, AS EXECUTIVE
DESCRIPTION OF FUNCTIONS, DUTIES AND RESPONSIBILITIES OF EXECUTIVE
Executive shall oversee all financial functions and operations of the
Company, including all aspects of financing transactions, accounting, budgeting
and planning and management information systems.
Schedule A, Description of Functions, Duties and Responsibilities of Executive -
Solo Page
<PAGE> 14
SCHEDULE B
TO
EMPLOYMENT AGREEMENT
BY AND BETWEEN
I 3S, INC., AS COMPANY
AND
DANIEL A. GILLETT, AS EXECUTIVE
EXECUTIVE OFFICER BENEFITS OF COMPANY
1. Life insurance
2. Medical insurance
3. Dental insurance
Schedule B, Executive Officer Benefits of Company - Solo Page
<PAGE> 1
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "AGREEMENT") is made and entered into
as of the ____ day of _______________, 1999, by and between BroadbandNOW, Inc.,
a Delaware corporation (the "COMPANY"), and ______________________ (the
"INDEMNITEE").
W I T N E S S E T H:
WHEREAS, the interpretation of ambiguous statutes, regulations and bylaws
regarding indemnification of directors and officers may be too uncertain to
provide such directors and officers with adequate notice of the legal, financial
and other risks to which they may be exposed by virtue of their service as such;
and
WHEREAS, damages sought against directors and officers in shareholder or
similar litigation by class action plaintiffs may be substantial, and the costs
of defending such actions and of judgments in favor of plaintiffs or of
settlement therewith may be prohibitive for individual directors and officers,
without regard to the merits of a particular action and without regard to the
culpability of, or the receipt of improper personal benefit by, any named
director or officer to the detriment of the corporation; and
WHEREAS, the issues in controversy in such litigation usually relate to the
knowledge, motives and intent of the director or officer, who may be the only
person with firsthand knowledge of essential facts or exculpating circumstances
who is qualified to testify in such person's defense regarding matters of such a
subjective nature, and the long period of time which may elapse before final
disposition of such litigation may impose undue hardship and burden on a
director or officer or on such person's estate in launching and maintaining a
proper and adequate defense for a director or officer or for such person's
estate against claims for damages; and
WHEREAS, the Company is organized under the Delaware General Corporation
Law (the "DGCL") and Section 145 of the DGCL empowers corporations to indemnify
and advance expenses to a person serving as a director, officer, employee or
agent of a corporation and to persons serving at the request of the corporation
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, and further provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, said section "shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office"; and
WHEREAS, the Board of the Company have concluded that it is reasonable and
prudent for the Company contractually to obligate itself to indemnify in a
reasonable and adequate manner the Indemnitee and to assume for itself maximum
liability for expenses and damages in connection with claims lodged against the
Indemnitee for such person's decisions and actions as a director, officer,
employee or agent of the Company and its subsidiaries.
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
1
<PAGE> 2
A. "AGREEMENT" means this Indemnification Agreement, as it may be amended
from time to time.
B. "BOARD" means the Board of Directors of the Company.
C. "CERTIFICATE OF INCORPORATION" means the Certificate of Incorporation of
the Company (as it may be amended or amended and restated from time to time).
D. "CHANGE IN CONTROL" is defined as:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities; or
(b) A change in the composition of the Board occurring within a two-year
period, as a result of which fewer than a majority of the directors are
Incumbent Directors.
(c) The consummation of a merger or consolidation of the Company with
any other corporation other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) at least
fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; or
(d) The consummation of the sale or disposition by the Company of all or
substantially all of the Company's assets.
E. "COMPANY" has the meaning in the introductory paragraph of this
Agreement.
F. "CORPORATE STATUS" means the status of a person who is or was a
director, officer, employee or agent of the Company, or is or was a member of
any committee of the Board, and the status of a person who is or was serving at
the request of the Company as a director, officer, partner (including service as
a general partner of any limited partnership), member, trustee, employee, or
agent of another foreign or domestic corporation, partnership, limited liability
company, joint venture, trust, other incorporated or unincorporated entity or
enterprise or employee benefit plan. For the purposes of this Agreement, any
person serving as a director, officer, partner, member, trustee, employee, or
agent of any subsidiary of the Company or any employee benefit plan of the
Company or any of its subsidiaries shall be deemed to be so serving at the
request of the Company, and no corporate or other action shall be or be deemed
to be required to evidence any such request.
G. "DGCL" means the Delaware General Corporation Law.
H. "DISINTERESTED DIRECTOR" means a director of the Company who is not a
party to the Proceeding in respect of which indemnification is being sought by
the Indemnitee.
I. "EXCHANGE ACT" means the Securities and Exchange Act of 1934, as amended
from time to time.
J. "EXPENSES" means any and all expenses actually and reasonably incurred
directly or indirectly in connection with a Proceeding, including, without
limitation, all attorneys' fees, retainers, court costs, transcript costs, fees
of experts, investigation fees and expenses, accounting and witness fees, travel
expenses, duplicating
2
<PAGE> 3
costs, printing and binding costs, telephone charges, postage, delivery service
fees and all other disbursements or expenses of the types customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating or being or preparing to be a witness in a Proceeding.
K. "GOOD FAITH" means, when used with reference to an act or omission of
the Indemnitee, an act or omission other than (i) an act or omission committed
in bad faith and in a manner the Indemnitee believed to be opposed to the best
interests of the Company; (ii) an act or omission that was the result of
intentional misconduct involving active or deliberate dishonesty; (iii) an act
or omission from which the Indemnitee actually received an improper personal
benefit in money, property or services; or (iv) in the case of a criminal
Proceeding, an act or omission which involves a knowing violation of law.
L. "INCUMBENT DIRECTORS" means directors who either (i) are directors of
the Company as of the date hereof, or (ii) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or termination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
M. "INDEMNIFICATION ARRANGEMENT"
N. "INDEMNITEE"
O. "LIABILITIES" means liabilities of any type whatsoever, including,
without limitation, any judgments, fines, excise taxes and penalties under the
Employee Retirement Income Security Act of 1974, as amended (or any successor
statute or act), penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties or amounts paid in settlement)
actually and reasonably incurred directly or indirectly in connection with the
investigation, defense, settlement or appeal of any Proceeding or any claim,
issue or matter therein.
P. "PROCEEDING" means any threatened, pending or completed action, suit,
proceeding, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other actual, threatened or completed proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal or appeals therefrom, and any inquiry or investigation that could lead to
any of the foregoing.
Q. "UNDERTAKING"
R. "VOTING SECURITIES" means any securities of the Company that are
entitled to vote generally in the election of directors.
ARTICLE II
TERM OF AGREEMENT
This Agreement shall continue until, and terminate upon the later to occur
of (i) the death of the Indemnitee; or (ii) the final termination of all
Proceedings (including possible Proceedings) in respect of which the Indemnitee
is granted rights of indemnification or advancement of Expenses hereunder and of
any Proceeding commenced by the Indemnitee regarding the interpretation or
enforcement of this Agreement. This Agreement shall govern the indemnification
rights of the Indemnitee for all Liabilities and Expenses in connection with any
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<PAGE> 4
Proceeding instituted or commenced on or after the date hereof notwithstanding
that any alleged act or omission of the Indemnitee occurred prior to the date
hereof.
ARTICLE III
NOTICE OF PROCEEDINGS; DEFENSE OF CLAIMS
SECTION 3.1 NOTICE OF PROCEEDINGS. The Indemnitee will notify the Company
promptly in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, but the Indemnitee's failure to so notify the Company shall
not relieve the Company from any liability to the Indemnitee under this
Agreement.
SECTION 3.2 DEFENSE OF CLAIMS. The Company will be entitled to participate,
at the expense of the Company, in any Proceeding of which the Company has
notice. The Company jointly with any other indemnifying party similarly notified
of any Proceeding will be entitled to assume the defense of the Indemnitee
therein, with counsel reasonably satisfactory to the Indemnitee; provided,
however, that the Company shall not be entitled to assume the defense of the
Indemnitee in any Proceeding if there has been a Change in Control or if the
Indemnitee has reasonably concluded that there may be a conflict of interest
between the Company and the Indemnitee with respect to such Proceeding. The
Company will not be liable to the Indemnitee under this Agreement for any
Expenses incurred by the Indemnitee in connection with the defense of any
Proceeding, other than reasonable costs of investigation or as otherwise
provided below, after notice from the Company to the Indemnitee of its election
to assume the defense of the Indemnitee therein. The Indemnitee shall have the
right to employ his or her own counsel in any such Proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Company; (ii) the Indemnitee shall have reasonably concluded that counsel
employed by the Company may not adequately represent the Indemnitee and shall
have so informed the Company; or (iii) the Company shall not in fact have
employed counsel to assume the defense of the Indemnitee in such Proceeding or
such counsel shall not, in fact, have assumed such defense or such counsel shall
not be acting, in connection therewith, with reasonable diligence; and in each
such case the fees and expenses of the Indemnitee's counsel shall be advanced by
the Company.
SECTION 3.3 SETTLEMENT OF CLAIMS. The Company shall not settle any
Proceeding in any manner which would impose any Liability, penalty or limitation
on the Indemnitee, or cause the Indemnitee to become subject to or bound by any
injunction, order, judgment or decree, without the written consent of the
Indemnitee, which consent shall not be unreasonably withheld or delayed. The
Company shall not be liable to indemnify the Indemnitee under this Agreement or
otherwise for any amounts paid in settlement of any Proceeding effected by the
Indemnitee without the Company's written consent, which consent shall not be
unreasonably withheld or delayed.
ARTICLE IV
INDEMNIFICATION
SECTION 4.1 IN GENERAL. Upon the terms and subject to the conditions set
forth in this Agreement, the Company shall hold harmless and indemnify the
Indemnitee against any and all Liabilities and Expenses actually incurred by or
for the Indemnitee in connection with any Proceeding (whether the Indemnitee is
or becomes a party, a witness or otherwise is a participant in any role) to the
fullest extent required or permitted by applicable law in effect on the date
hereof and to such greater extent as applicable law may hereafter from time to
time require or permit. To the extent that the Indemnitee has at any time
heretofore served or at any time hereafter serves as a director, officer,
employee, partner, trustee or agent of, for, or on behalf of any subsidiary
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of the Company, the Company expressly agrees and acknowledges that Indemnitee
was or is serving in each such capacity at the request of the Company.
SECTION 4.2 PROCEEDING OTHER THAN A PROCEEDING BY OR IN THE RIGHT OF THE
COMPANY. Without limiting the generality of SECTION 4.1, if the Indemnitee was
or is a party or is threatened to be made a party to any Proceeding (whether the
Indemnitee is or becomes a party, a witness or otherwise is a participant in any
role) (other than a Proceeding by or in the right of the Company) by reason of
the Indemnitee's Corporate Status, or by reason of any alleged act or omission
by the Indemnitee in any such capacity, the Company shall, subject to the
limitations set forth in SECTION 4.6 below, hold harmless and indemnify the
Indemnitee against any and all Liabilities and Expenses of the Indemnitee in
connection with the Proceeding if the Indemnitee acted in Good Faith.
SECTION 4.3 PROCEEDING BY OR IN THE RIGHT OF THE COMPANY. Without limiting
the generality of SECTION 4.1, if the Indemnitee was or is a party or is
threatened to be made a party to any Proceeding (whether the Indemnitee is or
becomes a party, a witness or otherwise is a participant in any role) by or in
the right of the Company to procure a judgment in its favor by reason of the
Indemnitee's Corporate Status, or by reason of any alleged act or omission by
the Indemnitee in any such capacity, the Company shall, subject to the
limitations set forth in SECTION 4.6 below, hold harmless and indemnify the
Indemnitee against any and all Expenses of the Indemnitee in connection with the
Proceeding if the Indemnitee acted in Good Faith; except that no indemnification
under this SECTION 4.3 shall be made in respect of any claim, issue or matter as
to which the Indemnitee shall have been finally adjudged, pursuant to a judgment
or other adjudication which is final and has become nonappealable, to be liable
to the Company, unless a court of appropriate jurisdiction (including, but not
limited to, the court in which such Proceeding was brought) shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, the Indemnitee is fairly and reasonably entitled to
indemnification for such Expenses which such court shall deem proper.
SECTION 4.4 INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee is or has been successful on the merits or otherwise in defense of
any Proceeding, the Indemnitee shall be indemnified by the Company to the
maximum extent consistent with law against all Expenses of the Indemnitee in
connection therewith. If the Indemnitee is not wholly successful in such
Proceeding but is or has been successful on the merits or otherwise in defense
of one or more but less than all claims, issues or matters in such Proceeding,
the Company shall hold harmless and indemnify the Indemnitee to the maximum
extent consistent with law against all Expenses of the Indemnitee in connection
with each successfully resolved claim, issue or matter in such Proceeding.
Resolution of a claim, issue or matter by dismissal, with or without prejudice,
shall be deemed a successful result as to such claim, issue or matter.
SECTION 4.5 INDEMNIFICATION FOR EXPENSES OF WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee, by reason
of the Indemnitee's Corporate Status, has prepared to serve or has served as a
witness in any Proceeding, or has participated in discovery proceedings or other
trial preparation, the Indemnitee shall be held harmless and indemnified against
all Expenses of the Indemnitee in connection therewith.
SECTION 4.6 SPECIFIC LIMITATIONS ON INDEMNIFICATION. In addition to the
other limitations set forth in this ARTICLE IV, and notwithstanding anything in
this Agreement to the contrary, the Company shall not be obligated under this
Agreement to make any payment to the Indemnitee for indemnification of
Liabilities or Expenses, or both, in connection with any Proceeding:
1. To the extent that payment of any of the Liabilities or Expenses of
the Indemnitee is actually made to the Indemnitee under any insurance
policy or is made on behalf
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of the Indemnitee by or on behalf of the Company otherwise than pursuant to
this Agreement; or
2. For an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Company within the meaning of section 16(b)
of the Securities Exchange Act of 1934, as amended, or similar provisions
of any federal, state or local statute or regulation.
ARTICLE V
ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in ARTICLE VI hereof, the
Company shall pay or reimburse all Expenses of the Indemnitee incurred by or for
the Indemnitee in connection with any Proceeding in advance of the final
disposition of such Proceeding, provided that the Company receives an
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Company under applicable law (the "UNDERTAKING"). The Undertaking shall
reasonably evidence the Expenses incurred by or for the Indemnitee. The Company
shall pay all such Expenses within five (5) business days after the receipt by
the Company of the Undertaking. The Undertaking shall be unsecured and interest
free, and shall be made and accepted by the Company without reference to the
Indemnitee's financial ability to make repayment.
ARTICLE VI
PROCEDURE FOR PAYMENT;
DETERMINATION OF RIGHT TO INDEMNIFICATION
SECTION 6.1 PROCEDURE FOR PAYMENT. To obtain indemnification for
Liabilities under this Agreement, and to obtain indemnification for Expenses not
paid in advance of the final disposition of any Proceeding pursuant to ARTICLE
V, the Indemnitee shall submit to the Company a written request for payment,
including with such request such documentation as is reasonably available to the
Indemnitee and reasonably necessary to determine whether, and to what extent,
the Indemnitee is entitled to indemnification and payment hereunder. The
Secretary of the Company, or such other person as shall be designated by the
Board of Directors, promptly upon receipt of a request for indemnification shall
advise the Board of Directors, in writing, of such request. Any indemnification
payment due hereunder shall be paid by the Company no later than five (5)
business days following the determination, pursuant to this ARTICLE VI, that
such indemnification payment is proper hereunder.
SECTION 6.2 NO DETERMINATION NECESSARY WHEN THE INDEMNITEE WAS SUCCESSFUL.
To the extent the Indemnitee is or has been successful on the merits or
otherwise in defense of any Proceeding, or in defense of any claim, issue or
matter therein, the Company shall indemnify the Indemnitee against Expenses of
the Indemnitee in connection with any such Proceeding or any claim, issue or
matter therein as provided in SECTION 4.4.
SECTION 6.3 DETERMINATION OF GOOD FAITH ACT OR OMISSION. In the event that
SECTION 6.2 is inapplicable with respect to any Proceeding, or any claim, issue
or matter therein, the Company shall hold harmless and indemnify the Indemnitee
as provided herein unless the Company shall prove by clear and convincing
evidence to a forum listed in SECTION 6.4 that the Indemnitee did not act in
Good Faith.
SECTION 6.4 FORUM FOR DETERMINATION. If the Indemnitee is serving as a
director or officer of the Company at the time the determination is to be made,
the Indemnitee shall be entitled to select from among the
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following the forum in which the validity of the Company's claim under SECTION
6.3 that the Indemnitee is not entitled to indemnification will be heard:
1. A majority vote of the Directors who are Disinterested Directors,
even though less than a quorum;
2. By a committee of Disinterested Directors designated by a majority
vote of the Directors who are Disinterested Directors, even though less
than a quorum;
3. If there are no Disinterested Directors, or if such Directors so
direct, independent legal counsel selected by the Indemnitee, subject to
the approval of the Board, which approval shall not be unreasonably delayed
or denied, which counsel shall make such determination in a written
opinion; or
4. The stockholders of the Company, by the affirmative vote of the
majority of the Voting Securities present in person or by proxy and
entitled to vote on the subject matter.
If the Indemnitee is not serving as a director or officer at the time the
determination is to be made, the Indemnitee shall be entitled to select from
among the forums set forth above, or to select any other person or persons
having corporate authority to act on the matter, including, without limitation,
the Board or any committee thereof or those persons who are authorized by
statute to determine whether to indemnify directors and officers.
As soon as practicable, and in no event later than thirty (30) days after
written notice of the Indemnitee's choice of forum pursuant to this SECTION 6.4,
the Company shall, at the expense of the Company, submit to the selected forum,
in such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to indemnification, and
the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim. The fees and expenses of the
selected forum in connection with making the determination contemplated
hereunder shall be paid by the Company. If the Company shall fail to submit the
matter to the selected forum within thirty (30) days after the Indemnitee's
written notice, or if the forum so empowered to make the determination shall
have failed to make the requested determination within thirty (30) days after
the matter has been submitted to it by the Company, the requisite determination
that the Indemnitee has the right to indemnification hereunder shall be deemed
to have been made by a majority vote of the Directors who are Disinterested
Directors, even though less than a quorum.
SECTION 6.5 RIGHT TO APPEAL. Notwithstanding a determination by any forum
listed in SECTION 6.4 that the Indemnitee is not entitled to indemnification
with respect to a specific Proceeding, or any claim, issue or matter therein,
the Indemnitee shall have the right to apply to the court in which that
Proceeding is or was pending, or to any other court of competent jurisdiction,
for the purpose of enforcing the Indemnitee's right to indemnification pursuant
to this Agreement. Such enforcement action shall consider the Indemnitee's
entitlement to indemnification de novo, and the Indemnitee shall not be
prejudiced by reason of a prior determination that the Indemnitee is not
entitled to indemnification. The Company shall be precluded from asserting that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable. The Company further agrees to stipulate in any such judicial
proceeding that the Company is bound by all the provisions of this Agreement and
is precluded from making any assertion to the contrary.
SECTION 6.6 RIGHT TO SEEK JUDICIAL DETERMINATION. Notwithstanding any other
provision of this Agreement to the contrary, at any time after sixty (60) days
after a request for indemnification has been made to the Company (or upon
earlier receipt of written notice that a request for indemnification has been
rejected or the expiration of time within which any such payment must be made
hereunder) and before the third (3rd) anniversary of the making of such
indemnification request, the Indemnitee may petition a court of competent
jurisdiction, whether or not such court has jurisdiction over, or is the forum
in which is pending, the Proceeding, to determine whether the Indemnitee is
entitled to indemnification hereunder, and such court thereupon shall have the
exclusive
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authority to make such determination, unless and until such court dismisses or
otherwise terminates the Indemnitee's action without having made such
determination. The court, as petitioned, shall make an independent determination
of whether the Indemnitee is entitled to indemnification hereunder, without
regard to any prior determination in any other forum as provided hereby.
SECTION 6.7 EXPENSES UNDER THIS AGREEMENT. Notwithstanding any other
provision in this Agreement to the contrary, the Company shall indemnify the
Indemnitee against all Expenses incurred by the Indemnitee in connection with
any hearing, action, suit or proceeding under this ARTICLE VI involving the
Indemnitee and against all Expenses incurred by the Indemnitee in connection
with any other hearing, action, suit or proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement, even if it is finally determined that the
Indemnitee is not entitled to indemnification in whole or in part hereunder.
ARTICLE VII
PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS
SECTION 7.1 BURDEN OF PROOF. In making a determination with respect to
entitlement to indemnification hereunder, the person, persons, entity or
entities making such determination shall presume that the Indemnitee is entitled
to indemnification under this Agreement and the Company shall have the burden of
proof to overcome that presumption.
SECTION 7.2 STANDARDS FOR DETERMINING IF EXPENSES REASONABLY INCURRED. It
is a purpose of this Agreement to induce the most highly qualified individuals
to accept positions of responsibility with the Company and, in so doing, to
serve as directors, officers, employees and agents of the Company. Accordingly,
the Company desires to provide the Indemnitee with the highest quality
professional services available if the Indemnitee becomes a party to or is
otherwise involved in a Proceeding because of the Indemnitee's Corporate Status
without the Indemnitee's incurring any personal Expense in connection therewith.
The Company therefore agrees that the Indemnitee may retain attorneys,
accountants, investment bankers, and other professionals and experts anywhere
within the United States to represent the Indemnitee in any Proceeding in the
United States, that the Indemnitee may retain attorneys, accountants, investment
bankers, and other professionals without regard to location if the Proceeding is
not in the United States, and that the Company will not deny any request for
indemnification hereunder on the basis that the Expenses of any such attorneys,
accountants, investment bankers, or other professionals and experts are not or
have not been reasonably incurred because of the location of any such attorneys,
accountants, investment bankers, or other professionals and experts. The Company
further agrees that, for the purpose of determining if an Expense for
professional services, including, without limitation, fees of attorneys,
accountants, investment bankers, and other professionals and experts, is or has
been reasonably incurred, or for the purpose of determining the reasonableness
of any such Expense, the standard to be used shall be the highest rates per hour
or fees charged by attorneys specializing in the defense of individuals in
Proceedings similar to the Proceeding to which the Indemnitee is a party or
otherwise involved in the city or cities in which such attorneys are located,
and the highest rates per hour or fees charged by accountants, investment
bankers, and other professionals and experts assisting or participating in the
defense of individuals in Proceedings similar to the Proceeding to which the
Indemnitee is a party or otherwise involved in the city or cities in which such
accountants, investment bankers, and other professionals and experts are
located. In addition to the foregoing, the Company has determined that it is in
the Company's best interests that any director, officer, employee or agent of
Company who is involved in any Proceeding because of such person's Corporate
Status maintain to the greatest extent possible the confidentiality of matters
pertaining to such Proceeding, and that such person's participation in such
Proceeding be on conditions as similar as reasonably possible to conditions as
if such person were participating in the city of such person's personal
residence. Due to the continuing deterioration in commercial travel conditions,
however, it is increasingly more difficult to achieve this result, and,
accordingly, the Company desires to provide the Indemnitee with travel
arrangements that come most closely to achieving this result. The
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Company therefore agrees that, for the purpose of determining whether any
Expense hereunder for travel related items is or has been reasonably incurred,
or for the purpose of determining the reasonableness of any such Expense, the
standards to be used shall be the non-stop first class airfare between
destinations and the daily non-discounted room rates charged by the highest
rated hotel in the destination city. Any Expense actually incurred for or on
behalf of the Indemnitee by any firm providing professional services, including,
without limitation, attorneys, accountants, investment bankers, and other
professionals and experts, to the Indemnitee in any Proceeding shall be deemed
to be reasonably incurred and reasonable. In determining whether any other
Expense is or has been reasonably incurred, or whether any such other Expense is
reasonable, the standard to be used shall be commensurate with the foregoing. In
the event the Company determines not to indemnify the Indemnitee hereunder for
any Expense on the basis that any such Expense was or has not been reasonably
incurred, the Company agrees that it must prove by clear and convincing evidence
that the professional or other services rendered for and on behalf of the
Indemnitee, or the goods or services received by or provided for or on behalf of
the Indemnitee, provided (i) no value whatsoever, and (ii) bore no reasonable
relationship whatsoever, to the defense of the Indemnitee in the Proceeding. In
the event the Company determines not to indemnify the Indemnitee hereunder for
any Expense on the basis that any such Expense is or was not reasonable, the
Company agrees that it must prove by clear and convincing evidence that the
challenged Expense is so grossly in excess of the fair market value for the same
or similar Expense as to be manifestly unfair.
SECTION 7.3 EFFECT OF OTHER PROCEEDINGS. The termination of any Proceeding
or of any claim, issue or matter therein, by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Indemnitee did not act in Good Faith.
SECTION 7.4 RELIANCE AS SAFE HARBOR. For purposes of any determination of
whether any act or omission of the Indemnitee was done or made in Good Faith,
each act or omission of the Indemnitee shall be deemed to be in Good Faith if
the Indemnitee's act or omission is based on the records or books of accounts of
the Company, including financial statements, or on information supplied to the
Indemnitee by the officers of the Company in the course of their duties, or on
the advice of legal counsel for the Company, or on information or records given
or reports made to the Company by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the Company.
The provisions of this SECTION 7.4 shall not be deemed to be exclusive or to
limit in any way the other circumstances in which the Indemnitee may be deemed
to have met the applicable standard of conduct set forth in this Agreement or
under applicable law.
SECTION 7.5 ACTIONS OF OTHERS. The knowledge and/or actions, or failure to
act, of any other director, officer, agent or employee of the Company shall not
be imputed to the Indemnitee for purposes of determining the right to
indemnification under this Agreement.
ARTICLE VIII
INSURANCE; OTHER INDEMNIFICATION ARRANGEMENTS
SECTION 8.1 INSURANCE. In the event that the Company maintains officers'
and directors' or similar liability insurance to protect itself and any director
or officer of the Company against any expense, liability or loss, such insurance
shall cover the Indemnitee to at least the same degree as each other director
and/or officer of the Company.
SECTION 8.2 OTHER ARRANGEMENTS. The Certificate of Incorporation and Bylaws
of the Company and the DGCL permit the Company to purchase and maintain
insurance on behalf of the Indemnitee against any Liability asserted against or
incurred by him or any Expenses incurred by him or on his behalf in connection
with actions taken or omissions by the Indemnitee in his Corporate Status,
whether or not the Company would have the power to indemnify the Indemnitee
under this Agreement or under the DGCL, as they may be in effect from time to
time. The purchase of any such insurance shall in no way affect or limit the
rights and obligations of the
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Indemnitee and the Company hereunder, except as expressly provided herein, and
the execution and delivery of this Agreement by the Indemnitee and the Company
shall in no way affect or limit the rights and obligations of such parties under
or with respect to any other such Indemnification Arrangement.
ARTICLE IX
OBLIGATIONS OF THE COMPANY UPON A CHANGE IN CONTROL
In the event of a Change in Control, upon written request of the Indemnitee
the Company shall establish a trust for the benefit of the Indemnitee hereunder
(a "TRUST") and from time to time, upon written request from the Indemnitee,
shall fund the Trust in an amount sufficient to satisfy all amounts that may
from time to time be payable to the Indemnitee hereunder as indemnification for
Liabilities or Expenses (including those that are required to be paid in advance
hereunder). The amount or amounts to be deposited in the Trust shall be
determined by legal counsel selected by the Indemnitee and approved by the
Company, which approval shall not be unreasonably withheld. The terms of the
Trust shall provide that (i) the Trust shall not be dissolved or the principal
thereof invaded without the written consent of the Indemnitee; (ii) the trustee
of the Trust (the "TRUSTEE") shall be selected by the Indemnitee; (iii) the
Trustee shall make advances to the Indemnitee for Expenses within five (5)
business days following receipt of a written request therefor and the
Undertaking; (iv) the Company shall continue to fund the Trust from time to time
in accordance with its funding obligations hereunder; (v) the Trustee promptly
shall pay to the Indemnitee all amounts as to which indemnification is due under
this Agreement; (vi) unless the Indemnitee agrees otherwise in writing, the
Trust for the Indemnitee shall be kept separate from any other trust established
for any other person to whom indemnification might be due by the Company; and
(vii) all unexpended funds in the Trust shall revert to the Company upon final,
nonappealable determination by a court of competent jurisdiction that the
Indemnitee has been indemnified to the full extent required under this
Agreement.
ARTICLE X
NON-EXCLUSIVITY, SUBROGATION AND MISCELLANEOUS
SECTION 10.1 NON-EXCLUSIVITY. The rights of the Indemnitee hereunder shall
not be deemed exclusive of any other rights to which the Indemnitee may at any
time be entitled under any provision of law, the Certificate of Incorporation,
the Bylaws of the Company, as the same may be in effect from time to time, any
other agreement, a vote of stockholders of the Company or a resolution of
directors of the Company or otherwise (each an "INDEMNIFICATION ARRANGEMENT"),
and to the extent that during the term of this Agreement the rights of the
then-existing directors and officers of the Company are more favorable to such
directors or officers than the rights currently provided to the Indemnitee under
this Agreement, the Indemnitee shall be entitled to the full benefits of such
more favorable rights. No amendment, alteration, rescission or replacement of
this Agreement or any provision hereof which would in any way limit the benefits
and protections afforded to an Indemnitee hereby shall be effective as to such
Indemnitee with respect to any act or omission by such Indemnitee in the
Indemnitee's Corporate Status prior to such amendment, alteration, rescission or
replacement.
SECTION 10.2 SUBROGATION. In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all documents required
and take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.
SECTION 10.3 NOTICES. All notices, requests, consents and other
communications herein (except as stated in the last sentence of this SECTION
10.3) shall be in writing and shall be mailed by first class or certified mail,
postage prepaid, sent by a nationally recognized overnight delivery service, or
personally delivered, as follows:
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(a) If to the Company:
BroadbandNOW, Inc.
1440 Corporate Drive
Irving, Texas 75038
Attn: James R. Price, Chairman
with a copy which shall not constitute notice to:
Winstead Sechrest & Minick, P.C.
1201 Elm Street
5400 Renaissance Tower
Dallas, Texas 75270
Attn: Thomas W. Hughes, Esq.
(b) If to the Indemnitee at the address shown in the address shown in
the Indemnitee's signature below.
or such other addresses as each of the parties hereto may provide from time to
time in writing to the other parties. For purposes of computing the time periods
set forth herein, the date of mailing shall be deemed to be the delivery date.
SECTION 10.4 GOVERNING LAW. The parties agree that this Agreement shall be
governed by, construed and enforced in accordance with, the substantive laws of
the State of Delaware, without regard to the principles of choice of laws
thereof.
SECTION 10.5 CONSOLIDATION, MERGER OR SALE OF ASSETS. The Company shall not
consolidate with or merge into any other corporation, partnership, limited
liability company or other entity or convey or transfer its properties and
assets substantially as an entirety to any individual, corporation, partnership,
limited liability company or other entity, unless (i) the entity formed by such
consolidation or into which the Company is merged or the individual or entity
who or which acquires by conveyance or transfer the properties and assets of the
Company substantially as an entirety (in either case, a "SUCCESSOR") shall be a
citizen of or entity organized under the laws of the United States of America,
or any state thereof or the District of Columbia, and shall by written agreement
executed and delivered to the Indemnitee, in form, scope and substance
satisfactory to the Indemnitee and the Indemnitee's legal counsel, expressly
assume and agree to be bound by and to perform this Agreement in the same manner
and to the same extent as the Company would be required to perform absent such
consolidation, merger, conveyance or transfer, and (ii) the Indemnitee shall
have received an opinion, in form, scope and substance satisfactory to the
Indemnitee and the Indemnitee's legal counsel, from counsel acceptable to the
Indemnitee, that such written agreement to assume and be bound by and perform
this Agreement has been duly authorized by all requisite actions, has been duly
executed and delivered by the Successor and is enforceable against the Successor
(except to the extent enforceability may be limited by bankruptcy or similar
laws, general principles of equity or the federal securities laws).
SECTION 10.6 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their heirs, executors, administrators,
legal representatives, successors and permitted assigns. This Agreement cannot
be assigned by the Company, either directly or indirectly, by purchase, merger,
consolidation or otherwise, without the express written consent of the
Indemnitee unless the Company shall have received, prior to such assignment,
from any successor or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) a written agreement, in form, scope and substance
reasonably satisfactory to the Indemnitee, expressly to assume and agree to be
bound by and to perform this Agreement in the same
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manner and to the same extent as the Company would be required to perform absent
such succession or assignment.
SECTION 10.7 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
It is the express intention and agreement of the Company and the Indemnitee that
any court of competent jurisdiction that interprets or enforces this Agreement
have full power and authority to reform any provision of this Agreement to
modify the invalid or unenforceable provision to achieve the parties' intent to
provide the Indemnitee with indemnification for Liabilities and Expenses to the
maximum extent permitted by applicable law.
SECTION 10.8 WAIVER. No termination, cancellation, modification, amendment,
deletion, addition or other change in this Agreement, or any provision hereof,
or waiver of any right or remedy herein, shall be effective for any purpose
unless specifically set forth in a writing signed by the party or parties to be
bound thereby. The waiver of any right or remedy with respect to any occurrence
on one occasion shall not be deemed a waiver of such right or remedy with
respect to such occurrence on any other occasion.
SECTION 10.9 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding among the parties hereto in reference to the subject
matter hereof; provided, however, that the parties acknowledge and agree that
the DGCL and the Certificate of Incorporation and Bylaws of the Company and each
of its subsidiaries contain provisions on the subject matter hereof and that
this Agreement is not intended to, and does not, limit the rights or obligations
of the parties hereto pursuant to the DGCL or such instruments, or under any
other contract, agreement, insurance policy or other instrument or document
heretofore or hereafter existing which provides to the Indemnitee any right of
indemnification or reimbursement of any nature whatsoever.
SECTION 10.10 TITLES. The titles to the articles and sections of this
Agreement are inserted for convenience of reference only and should not be
deemed a part hereof or affect the construction or interpretation of any
provisions hereof.
SECTION 10.11 PRONOUNS AND PLURALS. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
SECTION 10.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one agreement binding on all the parties hereto.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
BROADBANDNOW, INC.
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
INDEMNITEE
-----------------------------------------
[Name]
[Address]
13
<PAGE> 1
EXHIBIT 10.6
1996 OMNIBUS STOCK PLAN
OF
I 3S, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Purpose..................................................................................................4
2. Definitions..............................................................................................4
(a) ................................................................................................4
(b) ................................................................................................4
(c) ................................................................................................4
(d) ................................................................................................4
(e) ................................................................................................4
(f) ................................................................................................4
(g) ................................................................................................4
(h) ................................................................................................5
(i) ................................................................................................5
(j) ................................................................................................6
(k) ................................................................................................6
(l) ................................................................................................6
(m) ................................................................................................6
(n) ................................................................................................6
(o) ................................................................................................6
(p) ................................................................................................6
(q) ................................................................................................6
(r) ................................................................................................6
(s) ................................................................................................6
(t) ................................................................................................6
(u) ................................................................................................6
(v) ................................................................................................7
(w) ................................................................................................7
(x) ................................................................................................7
(y) ................................................................................................7
(z) ................................................................................................7
(aa) ................................................................................................7
(bb) ................................................................................................7
(cc) ................................................................................................7
(dd) ................................................................................................7
(ee) ................................................................................................7
(ff) ................................................................................................8
(gg) ................................................................................................8
(hh) ................................................................................................8
(ii) ................................................................................................8
(jj) ................................................................................................8
(kk) ................................................................................................8
(ll) ................................................................................................8
(mm) ................................................................................................8
(nn) ................................................................................................8
(oo) ................................................................................................8
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
(pp) ................................................................................................8
(tt) ................................................................................................8
(qq) ................................................................................................9
(rr) ................................................................................................9
(ss) ................................................................................................9
(vv) ................................................................................................9
(ww) ................................................................................................9
(xx) ................................................................................................9
3. Award of Available Shares................................................................................9
4. Conditions for Grant of Awards...........................................................................9
5. Grant of Options........................................................................................10
6. Option Price............................................................................................11
7. Exercise of Options.....................................................................................12
8. Vesting, Exercisability and Lapse of Restrictions.......................................................12
9. Termination of Award....................................................................................12
10. Acceleration............................................................................................14
11. Adjustment of Available Shares..........................................................................14
12. Transferability of Awards...............................................................................15
13. Issuance of Shares......................................................................................15
14. Administration of the Plan..............................................................................16
15. Tax Withholding.........................................................................................17
16. Restricted Share Awards.................................................................................19
17. Performance Awards......................................................................................20
18. Stock Appreciation Rights and Limited Stock Appreciation Rights.........................................20
19. Section 83(b) Election..................................................................................22
20. Interpretation..........................................................................................23
21. Amendment and Discontinuation of the Plan...............................................................23
22. Effective Date and Termination Date.....................................................................24
</TABLE>
3
<PAGE> 4
1996 OMNIBUS STOCK PLAN
OF I 3S, INC.
1. PURPOSE. The purpose of this Plan, which has been amended and restated,
is to advance the interests of I 3S, Inc., and increase shareholder value by
providing additional incentives to attract, retain and motivate those qualified
and competent employees, Directors and Consultants upon whose efforts and
judgment its success is largely dependent.
2. DEFINITIONS. As used herein, the following terms shall have the meaning
indicated:
(a) "AFFILIATE" means any corporation, partnership or other entity in which
the Company, directly or indirectly, owns a fifty percent (50%) or greater
interest.
(b) "AGREED PRICE" shall relate to the grant of a SAR or Limited SAR under
an Award, and shall mean the value assigned to the Available Shares in the Award
which will form the basis for calculating the Spread on the date of exercise of
the SAR or Limited SAR, which assigned value may be any value determined by the
Committee, including the Fair Market Value of the Shares on the Date of Grant.
(c) "APPLICABLE LAWS" means the requirements relating to the administration
of stock option plans under U.S. state corporate laws, U.S. federal and state
securities laws, and the Code, and the similar laws of any foreign country or
jurisdiction where Options are, or will be, granted under the Plan.
(d) "AWARD" shall mean either an Option, an SAR, a Restricted Share Award,
or a Performance Award, except that where it shall be appropriate to identify
the specific type of Award, reference shall be made to the specific type of
Award.
(e) "AVAILABLE SHARES" shall mean, at each time of reference, the total
number of Shares described in SECTION 3(A) with respect to which the Committee
may grant an Award, all of which Available Shares shall be held in the Parent's
treasury or shall be made available from authorized and unissued Shares.
(f) "BOARD" shall mean the Board of Directors of the Parent.
(g) "CAUSE" shall mean (i) a final, nonappealable conviction of a holder
for commission of a felony involving moral turpitude, (ii) Holder's willful
gross misconduct that causes material economic harm to the Company or that
brings substantial discredit to the Company's reputation, or (iii) either (a) a
Holder's material failure or refusal to perform his duties if Holder has failed
to cure such failure or refusal to perform within thirty (30) days after the
Company notifies Holder in writing of such failure or refusal to perform, or (b)
that the Holder is involuntarily Separated based upon his commission of any of
the following:
4
<PAGE> 5
(i) an intentional act of fraud, embezzlement or theft in connection
with his duties or in the course of his employment with the Company;
(ii) intentional wrongful damage to property of the Company or any
other willful gross misconduct that causes material economic harm to the
Company or that brings substantial discredit to the Company's reputation;
(iii) intentional wrongful disclosure of trade secrets or confidential
information of the Company; or
(iv) willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease and desist order,
including, but not limited to, a final, nonappealable conviction of an
Optionee for commission of a felony involving moral turpitude.
For the purpose of this Plan, no act, or failure to act, on the part of the
Optionee shall be deemed "intentional" unless the Board of Directors finds, in
good faith, that the act or failure to act was done, or omitted to be done, by
the Holder in other than good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
(h) "CHANGE IN CONTROL" shall mean the occurrence of any one of the
following events: (i) the acquisition in one or more transactions of beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) by (A) any person
or entity or (B) any group of persons or entities who constitute a group (within
the meaning of Section 13(d)(3) of the 1934 Act), in either case, of any
securities of the Parent such that, as a result of such acquisition, such
person, entity or group beneficially owns (within the meaning of Rule 13d-3 of
the 1934 Act), directly or indirectly, 30% or more of the then outstanding
voting securities entitled to vote on a regular basis for a majority of the
Board; (ii) the acquisition by any person of all or substantially all of the
assets of the Parent; (iii) the determination by the Board to recommend the
acceptance of any proposal set forth in a tender offer statement filed by any
person with the Securities and Exchange Commission which indicates the intention
on the part of that person to acquire, or acceptance of which would otherwise
have the effect of that person acquiring, control of the Parent; or (iv) a
change in the Board, other than as a result of the death or disability of one
or more of the directors, such that a majority of the members of the Board for
any period of three consecutive months are not persons who have been directors
on the Board for at least the preceding 12 consecutive months.
(i) "CHANGE IN CONTROL PRICE" shall mean the highest price per share paid
in any transaction reported on the NYSE or such other exchange or market as is
the principal trading market for the Common Stock, or paid or offered in any
bona fide transaction related to a potential or actual Change in Control at any
time during the 60 day period immediately preceding such occurrence, in each
case as determined by the Committee except that, in the case of Stock
Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on transactions reported for the date on which the Holder exercises
such Stock Appreciation Rights or, where applicable, the date on which a cash
out occurs.
5
<PAGE> 6
(j) "CODE" shall mean the Internal Revenue Code of 1986, as now or
hereafter amended.
(k) "COMMITTEE" shall mean a Committee designated by the Board which shall
consist of not less than two members of the Board who shall be appointed by, and
shall serve at the pleasure of, the Board.
(l) "COMMON STOCK" shall mean the common stock of Parent.
(m) "COMPANY" shall mean the Parent, its Subsidiaries and Affiliates,
except when it shall be appropriate to refer only to I 3S, Inc., then it shall
be referred to as "Parent".
(n) "CONSULTANT" shall mean any person or entity who or which is engaged by
the Company to render consulting services and is compensated for such consulting
services and any director of the Employer whether compensated for such services
or not; provided that, in the event the Company registers any security under
Section 12 of the Securities Exchange Act of 1934, as amended, the term
Consultant shall thereafter not include Directors who are not compensated for
their services and are paid only a director's fee by the Employer.
(o) "DATE OF GRANT" shall mean the date on which the Committee takes formal
action to grant an Award, provided that it is followed, as soon as reasonably
possible, by written notice to the Eligible Person receiving the Award.
(p) "DIRECTOR" shall mean a member of the Board.
(q) "DISABILITY" shall mean a Holder's present incapacity resulting from an
injury or illness (either mental or physical) which, in the reasonable opinion
of the Committee based on such medical evidence as it deems necessary, will
result in death or can be expected to continue for a period of at least twelve
(12) months and will prevent the Holder from performing the normal services
required of the Holder by the Company, provided, however, that such disability
did not result, in whole or in part: (i) from chronic alcoholism; (ii) from
addiction to narcotics; (ii) from a felonious undertaking; or (iv) from an
intentional self-inflicted wound.
(r) "EFFECTIVE DATE" shall mean February 13, 1996.
(s) "ELIGIBLE PERSON" shall mean persons selected from amongst the class of
all Employees, all Consultants, and all Directors who the Committee determines
have the capacity to substantially contribute to the success of the Company.
(t) "EMPLOYEES" shall mean persons employed by the Company.
(u) "FAIR MARKET VALUE" shall mean, as of a particular date, such amount as
the Committee, in its sole discretion shall determine; provided, however, that
where there is a public market for the Common Stock, the Fair Market Value per
Share shall be determined as follows: (i) if Common Stock is listed or admitted
for trading on any United States national securities exchange or included in the
National Market System of the National Association of Securities
6
<PAGE> 7
Dealers Automated Quotation System ("NASDAQ/NMS") or the NASDAQ Small Cap
Market, the mean of the highest and lowest sales prices of the Common Stock on
such exchange or system, on the Date of Grant, as reported by The Wall Street
Journal, or (ii) if the securities are quoted on the National Association of
Securities Dealers Automated Quotation System (but not NASDAQ/NMS or NASDAQ
Small Cap Market) or similar system of automated dissemination of quotations of
securities prices in common use, the mean between the closing high bid and low
asked quotations, of the securities on such system on the Date of Grant, as
reported in such system. If neither clause (i) nor clause (ii) is applicable,
the fair market value shall be determined by the Committee by any fair and
reasonable means as determined in its sole discretion.
(v) "HOLDER" shall mean, at each time of reference, each person with
respect to whom an Award is in effect and provided further that to the extent
provided under, and subject to the conditions of, the Award, it shall refer to
the person who succeeds to the rights of the Holder upon the death of the
Holder.
(w) "IPO" shall mean the initial public offering of Shares, pursuant to an
effective registration statement under the 1933 Act.
(x) "INCENTIVE STOCK OPTION" shall mean an Option that is an incentive
stock option as defined in Section 422 of the Code.
(y) "LIMITED SAR" shall mean a limited stock appreciation right as defined
in SECTION 18 hereof.
(z) "NON-EMPLOYEE DIRECTOR" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated under
the 1934 Act.
(aa) "NON-QUALIFIED STOCK OPTION" shall mean an Option that is not an
Incentive Stock Option.
(bb) "OPTION" (when capitalized) shall mean, individually and collectively,
each Incentive Stock Option and each Non-qualified Stock Option granted under
this Plan, except that, where it shall be appropriate to identify a specific
type of Option, reference shall be made to the specific type of Option;
provided, further, without limitation, that a single Option may include both
Incentive Stock Option and Non-qualified Stock Option provisions.
(cc) "OPTION PRICE" shall mean the price per Share which is required to be
paid by the Holder in order to exercise his right to acquire the Share under the
terms of the Option.
(dd) "OUTSIDE DIRECTOR" means a member of the Board who is not an officer
or Employee of the Company.
(ee) "PARENT" shall mean I 3S, Inc., a Texas corporation.
7
<PAGE> 8
(ff) "PERFORMANCE AWARD" shall mean the award which is granted contingent
upon the attainment of the performance objectives during the Performance Period,
all as described more fully in SECTION 17.
(gg) "PERFORMANCE PERIOD" shall mean the period described in SECTION 17
with respect to which the performance objectives relate.
(hh) "PLAN" shall mean this 1996 Omnibus Stock Plan Of I 3S, Inc., which
has been amended and restated as of the Effective Date as set forth herein.
(ii) "PLAN YEAR" shall mean the Parent's fiscal year.
(jj) "RESTRICTION(S)" "RESTRICTED" and similar shall mean the restrictions
applicable to Available Shares subject to an Award which prohibit the "transfer"
of such Available Shares, and which constitute "a substantial risk of
forfeiture" of such Available Shares, as those terms are defined under Section
83(a)(1) of the Code.
(kk) "RESTRICTED PERIOD" shall mean the period during which Restricted
Shares shall be subject to Restrictions.
(ll) "RESTRICTED SHARES" shall mean the Available Shares granted to an
Eligible Person which are subject to Restrictions.
(mm) "RESTRICTED SHARE AWARD" shall mean the award of Restricted Shares.
(nn) "RESTRICTED SHARE DISTRIBUTIONS" shall mean any amounts, whether
Shares, cash or other property (other than regular cash dividends) paid or
distributed by the Parent with respect to Restricted Shares during a Restricted
Period.
(oo) "SALE" shall mean the first day, as reasonably determined by the
Committee in its sole discretion, of any transaction (which shall include a
series of transactions occurring within 60 days or occurring pursuant to a plan)
which results in a sale, lease exchange or other disposition of not less than
80% in value of the property and assets of the Company as measured at the date
of such event.
(pp) "SAR" shall mean a stock appreciation right as defined in SECTION 18
hereof.
(qq) "SEPARATION" shall mean the date on which an Holder (i) ceases to have
an employment relationship, or (ii) is advised in writing that he no longer has
a consulting relationship, or (iii) ceases to have the status of a Director, as
the case may be, with respect to the Company for any reason, including death or
Disability; provided, however, a Separation will not be considered to have
occurred, in the case of an Employee, while he is on sick leave, military leave,
or any other leave of absence approved by the Employer, if the period of such
leave does not exceed 360 days, or, if longer, so long as the Employee's right
to reemployment with the Employer is guaranteed either by statute or by
contract.
8
<PAGE> 9
(rr) "SHARE(S)" shall mean a share or shares of Common Stock.
(ss) "SPREAD" shall mean the difference between the Option Price of the
Share(s) and the Fair Market Value of such Share(s), on the date of reference.
(tt) "SUBSIDIARY" shall mean any corporation (other than the Parent) in any
unbroken chain of corporations beginning with the Parent if, at the time of the
granting of the Award, each of the corporations, other than the last corporation
in the unbroken chain, owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
unbroken chain.
(uu) "VESTED" shall mean, in reference to Shares, the number of Shares,
which have Vested in accordance with the terms of the Award at the time of
reference.
(vv) "1933 ACT" shall mean the Securities Act of 1933, as amended.
(ww) "1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
3. AWARD OF AVAILABLE SHARES. As of the Effective Date, 5,000,000 Shares
shall automatically, and without further action, become Available Shares. To the
extent any Award shall terminate, expire or be canceled, or the Award shall be
paid in cash, the Available Shares subject to such Award (or with respect to
which the Award is measured), shall remain Available Shares.
4. CONDITIONS FOR GRANT OF AWARDS.
(a) Without limiting the generality of the provisions hereof which deal
specifically with each form of Award, Awards shall only be granted to such one
or more Eligible Persons as shall be selected by the Committee.
(b) In granting Awards, the Committee shall take into consideration the
contribution the Eligible Person has made or may be reasonably expected to make
to the success of the Company and such other factors as the Committee shall
determine. The Committee shall also have the authority to consult with and
receive recommendations from officers and other personnel of the Company with
regard to these matters. The Committee may from time to time in granting Awards
under the Plan prescribe such other terms and conditions concerning such Awards
as it deems appropriate, including, without limitation, relating an Award to
achievement of specific goals established by the Committee or to the continued
employment of the Eligible Person for a specified period of time, provided that
such terms and conditions are not inconsistent with the provisions of this Plan.
(c) Incentive Stock Options may be granted only to Employees, and all other
Awards may be granted to either Employees, Consultants or Non-Employee
Directors.
(d) The Plan shall not confer upon any Holder any right with respect to
continuation of employment by, continuance of a consulting relationship with, or
continuance on the Board
9
<PAGE> 10
of, the Company, nor shall it interfere in any way with his right or the
Company's right to terminate his employment, consulting relationship or
directorship at any time; nor shall a grant hereunder confer an employment
relationship on a Consultant.
(e) The Awards granted to Eligible Persons shall be in addition to regular
salaries, pension, life insurance or other benefits related to their service to
the Company.
(f) Notwithstanding any provision hereof to the contrary, each Award which
in whole or in part involves the issuance of Available Shares may provide for
the issuance of such Available Shares for such consideration as the Committee
may determine, including (without limitation) as compensation for past services
rendered.
5. GRANT OF OPTIONS.
(a) The Committee may grant Options to Optionees from time to time alone,
in addition to, or in tandem with, other Awards granted under the Plan and/or
cash Awards made outside of the Plan, to purchase some or all of the Available
Shares. An Option granted hereunder shall be either an Incentive Stock Option or
a Non-qualified Stock Option, shall be evidenced by a written agreement that
shall contain such provisions as shall be selected by the Committee, and which
shall incorporate the terms of this Plan by reference, and which clearly shall
state whether it is (in whole or in part) an Incentive Stock Option or a
Non-qualified Stock Option.
(b) Non-qualified Stock Options may be granted hereunder and shall contain
such terms and provisions as shall be determined by the Committee, except that
each such Non-qualified Stock Option (i) must be clearly designated as a
Non-qualified Stock Option; (ii) may be granted for Available Shares which
become exercisable in excess of the limits contained in SUBSECTION 3; and (iii)
shall not be subject to SECTION 6 hereof. If both Incentive Stock Options and
Non-qualified Stock Options are granted to an Optionee, the right to exercise,
to the full extent thereof, Options of either type shall not be contingent in
whole or in part upon the exercise of, or failure to exercise, Options of the
other type.
(c) The aggregate Fair Market Value (determined as of the Date of Grant) of
the Available Shares with respect to which any Incentive Stock Option is
exercisable for the first time by an Optionee during any calendar year under the
Plan and all such plans of the Company (as defined in Section 425 of the Code)
shall not exceed $100,000.
(d) In the case of an a Non-qualified Stock Option or a Holder who elects
to make a disqualifying disposition (as defined in Section 422(a)(1) of the
Code) of Shares acquired pursuant to the exercise of an Incentive Stock Option,
the Committee in its sole discretion may award at the time of grant or
thereafter the right to receive upon exercise of such Option a cash bonus
calculated to pay part or all of the federal and state, if any, income tax
incurred by the Holder upon such exercise.
10
<PAGE> 11
(e) Without limitation, the Committee may at any time offer to purchase,
for cash, an Option previously granted, based on such terms and conditions as
the Committee shall establish and communicate to the Holder at the time such
offer is made.
(f) Without limitation, the Committee may condition the exercise of any
Option upon the attainment of specified performance goals (excluding, without
limitation, continued employment) or other factors as the Committee may
determine. Unless specifically provided to the contrary in the Option agreement,
any such conditional performance related Option shall vest not less than six (6)
months prior to the date on which it otherwise would expire solely from the
passage of time, if the conditions to exercise such Option have not theretofore
been satisfied.
(g) If an Optionee delivers Shares already owned by him or her in full or
partial payment of the Option Price, the Committee may authorize the automatic
grant of a new option (a "Reload Option") for that number of Shares as shall
equal the number of already owned Shares surrendered in payment of the Option
Price. The grant of a Reload Option will become effective upon the exercise of
underlying Option. The Option Price of the Reload Option shall be the Fair
Market Value of a Share on the Date of Grant of the Reload Option. Each Reload
Option shall be exercisable no earlier than six (6) months from the date of its
Date of Grant and no later than the time when the underlying Option being
exercised could be last exercised. The Committee may also specify additional
terms, conditions and restrictions for the Reload Option and the Shares to be
acquired upon the exercise thereof.
6. OPTION PRICE.
(a) The Option Price shall be any price determined by the Committee which
is not less than the par value of Common Stock; provided, however, that in the
case of an Incentive Stock Option, the Option Price shall not be less than one
hundred percent (100%) of the Fair Market Value per Share (as reasonably
determined in the sole discretion of the Committee) on the Date of Grant.
(b) Unless further limited by the Committee in any Option, the Option Price
shall be paid solely in cash, by certified or cashier's check, by wire transfer,
by money order, with Common Stock, or by a combination of the above; provided,
however, that the Committee may accept, at its sole discretion, a personal check
in full or partial payment. If the Option Price is permitted to be, and is, paid
in whole or in part with Common Stock, the value of the Shares surrendered shall
be its Fair Market Value on the date surrendered.
(c) Notwithstanding any other provisions of the Plan to the contrary, an
Incentive Stock Option shall not be granted to any person owning directly (or
indirectly through attribution under Section 425(d) of the Code) at the Date of
Grant, stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company (as defined in Section 425 of the Code) at the
Date of Grant, unless the Option Price of such Incentive Stock Option is at
least 110% of the Fair Market Value on the Date of Grant of the Available Shares
subject to such Incentive Stock Option, and the period during which the
Incentive Stock Option may be exercised does not exceed five (5) years from the
Date of Grant.
11
<PAGE> 12
7. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i) the
Committee has received written notice of such exercise in accordance with the
terms of the Option, and (ii) full payment of the aggregate Option Price of the
Available Shares as to which the Option is exercised has been made. Separate
stock certificates shall be issued by the Parent for any Available Shares
acquired as a result of exercising an Incentive Stock Option and a Non-qualified
Stock Option.
8. VESTING, EXERCISABILITY AND LAPSE OF RESTRICTIONS.
(a) Each Option shall become Vested, and exercisable, in whole or in part
and cumulatively, and shall expire, according to the terms of the Option to the
extent not inconsistent with the express provisions of this Plan; and provided,
further, and without limitation, that in the case of the grant of an Option to
an officer (as that term is used in Rule 16a-1 promulgated under the 1934 Act)
or any similar rule which may subsequently be in effect, the Committee may
provide that no Available Shares acquired on the exercise of such Option shall
be transferable during such 6 month period following the Date of Grant.
(b) The Committee, in its sole discretion, may accelerate the date on which
all or any portion of an otherwise unVested or unexercisable Option may be
Vested or exercisable or on which a Restriction shall lapse or any condition
precluding the realization of the value of any Award may be deemed satisfied.
9. TERMINATION OF AWARD.
(a) Unless the terms of an Award expressly provide for a different date of
termination, the unexercised portion of an Option, and the non-Vested portion of
an Award, shall automatically and without notice terminate and become null and
void at the time of the earliest to occur of the following:
(i) the 30th day following Optionee's Separation for any
reason except Death, Disability or Cause; or
(ii) immediately upon Optionee's Separation as a result of a
discharge for Cause; or
(iii) on the 360th day following Optionee's Separation by
reason of death or Disability; or
(iv) the tenth (10th) anniversary of the Effective Date.
(b) Notwithstanding any provision hereof to the contrary, the Committee
may, by giving written notice ("CANCELLATION NOTICE"), and by taking such action
as shall be required to make such Option fully Vested and exercisable, cancel,
effective upon the date of the consummation of any of the transactions described
in SUBSECTION 11(d), all or any portion of such Option which remains unexercised
on the effective date of such corporate transaction. Such Cancellation Notice
shall be given a reasonable period of time (but not less than 15 days) prior to
the proposed date of such cancellation, and may be given either before or after
shareholder approval of such corporate transaction.
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<PAGE> 13
10. ACCELERATION
(a) Without limitation, unless otherwise provided in the Award document, in
the event the Holder's Separation is by reason of the Holder's death or
Disability, all Awards, other than Performance Awards, granted to the Holder
shall become fully exercisable, nonforfeitable, or the Restricted Period shall
terminate, as the case may be (hereafter, in this SECTION 10, such Award shall
be "accelerated").
(b) Notwithstanding any provisions hereof to the contrary, unless this
condition is waived, in writing, by the Committee, if an Award is accelerated
under SUBSECTIONS 9(b) and 10(a), the portion of the Award which is accelerated
is limited to that portion which can be accelerated without causing the Holder
to have an "excess parachute payment" as determined under Section 280G of the
Code, determined by taking into account all of the Holder's "parachute payments"
determined under Section 280G of the Code, all as reasonably determined by the
Committee.
11. ADJUSTMENT OF AVAILABLE SHARES.
(a) If at any time while the Plan is in effect or Awards with respect to
Available Shares are outstanding, there shall be any increase or decrease in the
number of issued and outstanding Shares through the declaration of a stock
dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of the shares of Common Stock, then and in such event:
(i) appropriate adjustment shall be made in the maximum number of
Available Shares which may be granted under SECTION 3, and equitably in the
Available Shares which are then subject to each Award, so that the same
proportion of the Parent's issued and outstanding Common Stock shall
continue to be subject to grant under SECTION 3, and to such Award, and
(ii) in addition, and without limitation, in the case of each Award
(including, without limitation, Options) which requires the payment of
consideration by the Holder in order to acquire Shares, an appropriate
equitable adjustment shall be made in the consideration (including, without
limitation the Option Price) required to be paid to acquire the each Share,
so that the aggregate consideration to acquire all of the Shares subject to
the Award remains the same.
(b) The Committee may change the terms of Options outstanding under this
Plan, with respect to the Option Price or the number of Available Shares subject
to the Options, or both, when, in the Committee's judgment, such adjustments
become appropriate by reason of a corporate transaction (as defined in Treasury
Regulation Section 1.425-1(a)(1)(ii)); provided, however, that if by reason of
such corporate transaction an Incentive Stock Option is assumed or a new option
is substituted therefore, the Committee may only change the terms of such
Incentive Stock Option such that (i) the excess of the aggregate Fair Market
Value of the Shares subject to option immediately after the substitution or
assumption, over the aggregate option price of such Shares, is not more than the
excess of the aggregate Fair Market Value of all
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<PAGE> 14
Available Shares subject to the Option immediately before such substitution or
assumption over the aggregate Option Price of such Available Shares, and (ii)
the new option, or the assumption of the old Incentive Stock Option does not
give the Optionee additional benefits which he did not have under the old
Incentive Stock Option.
(c) Except as otherwise expressly provided herein, the issuance by the
Parent of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct sale
for adequate consideration, or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Parent
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to Available Shares
subject to Awards granted under the Plan.
(d) Without limiting the generality of the foregoing, the existence of
outstanding Awards with respect to Available Shares granted under the Plan shall
not affect in any manner the right or power of the Parent to make, authorize or
consummate (1) any or all adjustments, recapitalizations, reorganizations or
other changes in the Parent's capital structure or its business; (2) any merger
or consolidation of the Parent in which the Parent is not the surviving
corporation or there is a Change in Control; (3) any issue by the Parent of debt
securities, or preferred or preference stock which would rank above the
Available Shares subject to outstanding Awards; (4) the dissolution or
liquidation of the Parent; (5) any sale, transfer or assignment of all, or
substantially all, of the assets of the Company; or (6) any other corporate act
or proceeding, whether of a similar character or otherwise.
12. TRANSFERABILITY OF AWARDS. Unless otherwise expressly provided in the
terms of the Award, each Award shall not be transferable by the Holder otherwise
than by will or the laws of descent and distribution.
13. ISSUANCE OF SHARES. No Holder or other person shall be, or have any of
the rights or privileges of, the owner of Shares subject to an Award unless and
until certificates representing such Shares shall have been issued and delivered
to such Holder or other person. As a condition of any issuance of Shares, the
Committee may obtain such agreements or undertakings, if any, as the Committee
may deem necessary or advisable to assure compliance with Applicable Laws, or
any shareholder agreement including, but not limited to, the following:
(a) a representation, warranty or agreement by the Holder to the Parent, at
the time any Shares are transferred, that he is acquiring the Shares to be
issued to him for investment and not with a view to, or for sale in connection
with, the distribution of any such Shares; and
(b) a representation, warranty or agreement to be bound by any legends that
are, in the opinion of the Committee, necessary or appropriate to comply with
the provisions of any securities law deemed by the Committee to be applicable to
the issuance of the Shares and are endorsed upon the Share certificates.
Share certificates issued to a Holder who is a party to any shareholders
agreement or any similar agreement shall bear the legends contained in such
agreements. Notwithstanding any provision hereof to the contrary, no Shares
shall be required to be issued with respect to an
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<PAGE> 15
Award unless counsel for the Parent shall be reasonably satisfied that such
issuance will be in compliance with Applicable Laws.
14. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee and, except for the
powers reserved to the Board in SECTION 21 hereof, the Committee shall have all
of the administrative powers under Plan. If a Committee is not appointed by the
Board at the time of reference, the Plan shall be administered by the Board and
all references herein to the Committee shall refer to the Board.
(b) Without limitation, the Committee shall have the authority to adopt,
alter, and repeal such rules, guidelines, and practices governing the Plan as it
shall, from time to time, deem advisable; to conclusively interpret any and all
of the terms and provisions of the Plan and any and all Awards issued under the
Plan (and any agreements relating thereto), which decisions shall not be subject
to review. Without limitation, all questions of interpretation and application
of the Plan or pertaining to any question of fact or Award granted hereunder
shall be decided by the Committee, whose decision shall be final, conclusive and
binding upon the Company and each other affected party.
(c) Any and all determinations and interpretations of the Committee shall
be made either (i) by a majority vote of the members of the Committee at a
meeting duly called, with at least 3 days prior notice and a general explanation
of the subject matter given to each member, or (ii) without a meeting, by the
written approval of all members of the Committee.
(d) No member of the Committee shall be liable for any action taken or
omitted to be taken by him or by any other member of the Committee with respect
to the Plan, and to the extent of liabilities not otherwise insured under a
policy purchased by the Company, the Company does hereby indemnify and agree to
defend and save harmless any member of the Committee with respect to any
liabilities asserted or incurred in connection with the exercise and performance
of their powers and duties hereunder, unless such liabilities are judicially
determined to have arisen out of such member's gross negligence, fraud or bad
faith. Such indemnification shall include attorney's fees and all other costs
and expenses reasonably incurred in defense of any action arising from such act
of commission or omission. Nothing herein shall be deemed to limit the Company's
ability to insure itself with respect to its obligations hereunder.
(e) Without limitation, the Committee shall have the authority, to the
extent not inconsistent with the terms of the Plan:
(i) to select the officers, key Employees of and consultants to the
Company to whom Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Awards are to be granted
hereunder to one or more eligible persons;
15
<PAGE> 16
(iii) to determine the number of Shares to be covered by each such
Award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Award granted hereunder (including, but not
limited to, the Agreed Value and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions, based in each
case on such factors as the Committee shall determine, in its sole
discretion); and to amend or waive any such terms and conditions to the
extent permitted by the Plan;
(v) to determine whether, to what extent, and under what circumstances
Awards under the Plan are to be made, and operate, on a tandem basis
vis-a-vis other Awards under the Plan and/or cash awards made outside of
the Plan;
(vi) to determine whether to require payment of tax withholding
requirements in Shares.
(f) Without limitation, the Committee shall have the authority to adopt,
alter, and repeal such rules, guidelines, and practices governing the Plan as it
shall, from time to time, deem advisable; to conclusively interpret any and all
of the terms and provisions of the Plan and any and all Awards issued under the
Plan (and any agreements relating thereto), which decisions shall not be subject
to review. Without limitation, all questions of interpretation and application
of the Plan or pertaining to any question of fact or Award granted hereunder
shall be decided by the Committee, whose decision shall be final, conclusive and
binding upon the Company and each other affected party.
(i) conclusively interpret the Plan provisions;
(ii) prescribe, amend and rescind rules and regulations relating to
the Plan or make individual decisions as questions arise, or both;
(iii) rely upon employees of the Company for such clerical and
record-keeping duties as may be necessary in connection with the
administration of the Plan; and
(iv) make all other determinations and take all other actions
necessary or advisable for the administration of the Plan.
15. TAX WITHHOLDING. On or immediately prior to the date on which a payment
is made to a Holder hereunder or, if earlier, the date on which an amount is
required to be included in the income of the Holder as a result of an Award, the
Holder shall be required to pay to the Company, in cash or in Shares (including,
but not limited to, the reservation to the Company of the requisite number of
Available Shares otherwise payable to such Holder with respect to such Award),
but in Shares, only if expressly provided in the Award, or upon approval by the
Committee, the amount which the Company reasonably determines to be necessary in
order for the Company to comply with applicable federal or state tax withholding
requirements, and the collection of employment taxes, if applicable; provided,
further, without limitation, the Committee may require that such payment be made
in cash.
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<PAGE> 17
16. RESTRICTED SHARE AWARDS.
(a) The Committee may grant Awards of Restricted Shares to any Eligible
Person, for no cash consideration, for such minimum consideration as may be
required by Applicable Laws, or for such other consideration as may be specified
in the grant. The terms and conditions of Restricted Shares shall be specified
by the grant. The Committee, in its sole discretion, shall determine what
rights, if any, the person to whom an Award of Restricted Shares is made shall
have in the Restricted Shares during the Restriction Period and the Restrictions
applicable to the particular Award, including whether the Holder of the
Restricted Shares shall have the right to vote the Shares and receive all
dividends and other distributions applicable to the Shares. The Committee shall
determine when the Restrictions shall lapse or expire and the conditions, if
any, under which the Restricted Shares will be forfeited or sold back to the
Company. Without limitation, the Committee, in its discretion, may prospectively
change the Restriction Period and the Restrictions applicable to any particular
Award of Restricted Shares. Restricted Shares may not be disposed of by the
recipient until the Restrictions lapse.
(b) Each Restricted Share Award shall be evidenced by an agreement that may
contain any provisions selected by the Committee, including, without limitation,
a provision allowing the Holder, prior to the date on which the Restrictions
lapse with respect to the Restricted Shares of reference, or within a period of
10 days after such lapse where such lapse is accelerated, to elect to receive
cash in an amount equal to the Fair Market Value of some or all of the
Restricted Shares on the date the Restrictions with respect to such Restricted
Shares lapse, in lieu of retaining the corresponding formerly Restricted Shares.
(c) The Restrictions on Restricted Shares shall lapse in whole, or in
installments, over whatever Restricted Period shall be selected by the
Committee.
(d) During the Restricted Period, the certificates representing the
Restricted Shares, and any Restricted Share Distributions, shall be registered
in the Holder's name and bear a restrictive legend disclosing the Restrictions,
the existence of the Plan, and the existence of the applicable agreement
granting such Restricted Share Award. At the request of the Committee, the
Holder will be required to deposit certificates with the Company, together with
stock powers or other instruments of assignment, each endorsed in blank, which
will permit the transfer to the Company of all or any portion of the Restricted
Shares, and any assets constituting Restricted Share Distributions, which shall
be forfeited in accordance with the terms of such Restricted Share Award.
Restricted Shares shall constitute issued and outstanding Common Stock for all
corporate purposes and the Holder shall have all rights, powers and privileges
of a Holder of unrestricted Shares except that the Holder will not be entitled
to delivery of the stock certificates until all Restrictions shall have
terminated, and the Company shall have the right to retain custody of all
related Restricted Share Distributions (which will be subject to the same
Restrictions, terms, and conditions as the related Restricted Shares) until the
conclusion of the Restricted Period with respect to the related Restricted
Shares; and provided, further, that any Restricted Share Distributions shall not
bear interest or be segregated into a separate account but shall remain a
general asset of the Company, subject to the claims of the Company's creditors,
until the conclusion of the applicable Restricted Period.
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<PAGE> 18
17. PERFORMANCE AWARDS.
(a) The Committee may grant Performance Awards, which may, in the sole
discretion of the Committee, represent a Share or be related to the increase in
value of a Share, or be contingent on the Company's achievement of the specified
performance measures during the Performance Period, including, without
limitation, performance shares, convertible preferred stock, convertible
debentures, exchangeable securities and Restricted Share Awards or Options
valued by reference to earnings per Share, or by Subsidiary performance, may be
granted either alone, in addition to, or in tandem with, other Awards and
special payments made outside of the Plan. The Committee shall establish the
performance measures for each Performance Period, and such performance measures,
and the duration of any Performance Period, may differ with respect to each
Eligible Person who receives a Performance Award, or with respect to separate
Performance Awards issued to the same Eligible Person. The performance measures,
the medium of payment, the Performance Period(s) and any other conditions to the
Company's obligation to pay such Performance Award in full or in part, shall be
set forth in the written agreement evidencing each Performance Award.
(b) Without limitation, the Committee shall determine the manner and medium
of payment of each Performance Award.
(c) Unless otherwise expressly provided in the agreement evidencing the
Performance Award, the Holder of the Performance Award must remain employed by
the Company until the end of the Performance Period in order to be entitled to
any payment under such Performance Award; provided, however, that the Committee
expressly may provide in the agreement granting such Performance Award that such
Holder may become entitled to a specified portion of the amount earned
(determined by the Committee in its sole discretion based on the performance
through the date of measurement) under such Performance Award (i.e., may become
Vested) based on one or more specified period(s) of time between the Date of
Grant of such Performance Award and such Holder's Separation prior to the end of
the Performance Period.
18. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
(a) The Committee shall have authority to grant a SAR, or to grant a
Limited SAR with respect to all or some of the Available Shares covered by any
Option ("Related Option"), or with respect to, or as some or all of, a
Performance Award ("Related Performance Award"). A SAR or Limited SAR granted
with respect to an Incentive Stock Option must be granted on the Date of Grant
of such related Option. A SAR or Limited SAR granted with respect to a Related
Non-qualified Stock Option or a Performance Award, may be granted on or after
the Date of Grant of such Related Option or Related Performance Award.
(b) For the purposes of this SECTION 18, the following definitions shall
apply:
(i) The term "Offer" shall mean any tender offer or exchange offer for
thirty percent (30%) or more of the outstanding Common Stock of the Parent,
other than one
18
<PAGE> 19
made by the Parent; provided that the corporation, person or other entity
making the Offer acquires Common Stock pursuant to such Offer.
(ii) The term "Offer Price Per Share" shall mean the highest price per
Share paid in any Offer which is in effect at any time during the period
beginning on the sixtieth (60th) day prior to the date on which a Limited
SAR is exercised and ending on the date on which the Limited SAR is
exercised. Any securities or properties which are a part or all of the
consideration paid or to be paid for Common Stock in the Offer shall be
valued in determining the Offer Price Per Share at the higher of (1) the
valuation placed on such securities or properties by the person making such
Offer, or (2) the valuation placed on such securities or properties by the
Committee.
(iii) The term "Limited SAR" shall mean a right granted under this
Plan with respect to a Related Option or Related Performance Award, that
shall entitle the Holder to an amount in cash equal to the Offer Spread in
the event an Offer is made.
(iv) The term "Offer Spread" shall mean, with respect to each Limited
SAR, an amount equal to the product of (1) the excess of (A) the Offer
Price Per Share immediately preceding the date of exercise over (B) (x) if
the Limited SAR is granted in tandem with an Option, then the Option Price
per Share of the Related Option, or (y) if the Limited SAR is issued with
respect to a Performance Award, the Agreed Price under the Related
Performance Award, multiplied by (2) the number of Available Shares with
respect to which such Limited SAR is being exercised; provided, however
that with respect to any Limited SAR granted in tandem with an Incentive
Stock Option, in no event shall the Offer Spread exceed the amount
permitted to be treated as the Offer Spread under applicable Treasury
Regulations or other legal authority without disqualifying the Option as an
Incentive Stock Option.
(v) The term "SAR" shall mean a right granted under this Plan,
including, without limitation, a right granted in tandem with an Award,
that shall entitle the Holder thereof to an amount in cash equal to all, or
a percentage, of the Spread at the date the SAR is exercised.
(vi) The term "SAR Spread" shall mean with respect to each SAR an
amount equal to the product of (1) the excess of (A) the Fair Market Value
per Share on the date of exercise over (B) (x) if the SAR is granted in
tandem with an Option, then the Option Price per Share of the Related
Option, (y) if the SAR is granted in tandem with a Performance Award, the
Agreed Price under the Related Performance Award, or (z) if the SAR is
granted by itself with respect to a designated number of Available Shares,
then whichever of the FMV of the Available Shares on the Date of Grant, or
the Agreed Price, shall be designated in the SAR agreement, in each case
multiplied by (2) the number of Available Shares with respect to which such
SAR is being exercised; provided, however, that with respect to any SAR
granted in tandem with an Incentive Stock Option, in no event shall the SAR
Spread exceed the amount permitted to be treated as the SAR Spread under
applicable Treasury Regulations or other legal authority without
disqualifying the Option as an Incentive Stock Option.
19
<PAGE> 20
(c) To exercise the SAR or Limited SAR, unless otherwise provided in the
SAR agreement, the Holder shall:
(i) Give written notice thereof to the Company, specifying the SAR or
Limited SAR being exercised and the number or Available Shares with respect
to which such SAR or Limited SAR is being exercised, and
(ii) If requested by the Company, deliver within a reasonable time the
agreement evidencing the SAR or Limited SAR being exercised, and the
Related Option agreement, or Related Performance Award agreement, to the
Secretary of the Company who shall endorse or cause to be endorsed thereon
a notation of such exercise and return all agreements to the Holder.
(d) As soon as practicable after the exercise of a SAR or Limited SAR, the
Company shall pay to the Holder (i) cash, (ii) at the request of the Holder and
the approval of the Committee, or in accordance with the terms of the Award,
Shares, or (iii) a combination of cash and Shares, having a Fair Market Value
equal to either the SAR Spread, or to the Offer Spread, as the case may be;
provided, however, that the Company may, in its sole discretion, withhold from
such payment any amount necessary to satisfy the Company's obligation for
federal and state withholding taxes with respect to such exercise.
(e) A SAR or Limited SAR may be exercised only if and to the extent that it
is permitted under the terms of the Award which, in the case of a Related
Option, shall be only when such Related Option is eligible to be exercised;
provided, however, a Limited SAR may be exercised only during the period
beginning on the first day following the date of expiration of the Offer and
ending on the thirtieth (30th) day following such date.
(f) Upon the exercise or termination of a Related Option, or the payment or
termination of a Related Performance Award, the SAR or Limited SAR with respect
to such Related Option or Related Performance Award likewise shall terminate.
(g) A SAR or Limited SAR shall be transferable only to the extent, if any,
that the Related Award is transferable, and under the same conditions.
(h) A SAR or Limited SAR granted with respect to an Incentive Stock Option
may be exercised only when the Fair Market Value of the Available Shares exceeds
the Option Price.
(i) Each SAR or Limited SAR shall be evidenced by a written agreement.
(j) The Holder shall have no rights as a stockholder with respect to the
related Available Shares as a result of the grant of a SAR or Limited SAR.
19. SECTION 83(b) ELECTION. If as a result of receiving an Award, a Holder
receives property subject to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code, then such Holder may elect under Section
83(b) of the Code to include in his gross
20
<PAGE> 21
income, for his taxable year in which the property is transferred to him, the
excess of the Fair Market Value (determined without regard to any Restriction
other than one which by its terms will never lapse) of such property at the Date
of Grant, over the amount paid for the property. If the Holder makes the Section
83(b) election described above, the Holder shall (i) make such election in a
manner that is satisfactory to the Committee, (ii) provide the Committee with a
copy of such election, (iii) agree to promptly notify the Company if any
Internal Revenue Service or state tax agent, on audit or otherwise, questions
the validity or correctness of such election or of the amount of income
reportable on account of such election, and (iv) agree to such federal and state
income withholding as the Committee may reasonably require in its sole and
absolute discretion.
20. INTERPRETATION.
(a) If any provision of the Plan is held invalid for any reason, such
holding shall not affect the remaining provisions hereof, but instead the Plan
shall be construed and enforced as if such provision had never been included in
the Plan.
(b) THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
(c) Headings contained in this Agreement are for convenience only and shall
in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender shall be a
reference to such other gender as is appropriate.
(e) The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a Holder,
nothing contained herein shall give any such Holder any rights that are greater
than those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Shares or payments in lieu of or
with respect to Awards hereunder; provided, however, that, unless the Committee
otherwise determines with the consent of the affected Holder, the existence of
such trusts or other arrangements is consistent with the "unfunded" status of
the Plan.
(f) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
21. AMENDMENT AND DISCONTINUATION OF THE PLAN. The Board, or the Committee
(subject to the prior written authorization of the Board), may from time to time
amend the Plan or any Award; provided, however that, except as expressly
permitted or required in this Plan, no such amendment may, without approval by
the shareholders of the Parent, (a) increase the number of Available Shares or
change the class of Eligible Persons, (b) permit the granting of Awards which
expire beyond the maximum 10-year period described in SUBSECTION 9(a)(iv), (c)
21
<PAGE> 22
make any change for which Applicable Laws or regulatory authority (including the
regulatory authority of the NYSE or any other market or exchange on which the
Common Stock is traded) would require shareholder approval; and provided,
further, that no amendment or suspension of the Plan or any Award issued
hereunder shall, except as specifically permitted in this Plan or under the
terms of such Award, substantially impair any Award previously granted to any
Holder without the consent of such Holder.
22. EFFECTIVE DATE AND TERMINATION DATE. The Plan shall be effective as of
its Effective Date, and shall terminate on the tenth anniversary of such
Effective Date.
I 3S, INC.
22
<PAGE> 1
EXHIBIT 10.7
NO. SHARES DATE OF GRANT -
-----
- ----------------
INCENTIVE STOCK OPTION AGREEMENT
An Incentive Stock Option (the "Option") for a total of __________
Shares (collectively, "Option Shares") of I 3S, Inc. (the "Company"), is hereby
granted to ______________________ (the "Optionee") at the price determined in
this Option and in all respects subject to the terms, definitions and
provisions, of the 1996 Omnibus Stock Plan of I 3S, Inc. (the "Plan"), which is
incorporated herein by reference, except to the extent otherwise expressly
provided in this Option.
1. OPTION PRICE. The Option Price is $ __ , for each Share, which Option Price
is equal to the Fair Market Value of a Share on the Date of Grant.
2. VESTING OF OPTION SHARES. The Option Shares shall vest ("Vest" and
derivations) and become "Vested Option Shares" on the dates ("Vesting Dates")
set forth in the following Vesting Schedule:
(i) 33.33% of the Shares on the 1st anniversary of Date of
Grant.
(ii) 33.33% of the Shares on the 2nd anniversary of Date of
Grant.
(iii) 33.34% of the Shares on the 3rd anniversary of Date of
Grant.
Without limitation, Shares which have not become Vested Option Shares prior to
the Target Date, shall vest on the Target Date. For purposes all purposes of
this Option, "Target Date" shall mean the first to occur of (i) an IPO, or (ii)
a Change of Control.
3. EXERCISABILITY OF OPTION.
(a) DATE ON WHICH OPTION BECOMES EXERCISABLE. This Option shall not be
exercisable prior to the earlier of the (i) first Vesting Date or (ii) the
Target Date. On or after the occurrence of the first Vesting Date (and prior to
the termination of this Option) or the Target Date, this Option shall be
exercisable, in whole or in part, with respect to Vested Option Shares.
(b) METHOD OF EXERCISE. Without limitation, this Option shall be
exercised by a written notice delivered to the Committee which shall:
(i) state the election to exercise the Option and the number
of Vested Option Shares in respect of which it is being exercised; and
(ii) be signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the Committee, of
the right of such person or persons to exercise the Option.
<PAGE> 2
(c) PAYMENT. The Option Price of any Vested Option Shares purchased
shall be paid by the Optionee to the Committee in cash or in Vested Option
Shares, such Vested Option Shares to be valued at the difference between the
Fair Market Value and the Option Price.
(d) ISSUANCE OF SHARES. No person shall be, or have any of the rights
or privileges of, a holder of Shares subject to this Option unless and until
certificates representing such Shares shall have been issued and delivered to
such person, such issuance, without limitation, being subject to the terms of
the Plan. The Optionee agrees that he will (and is under an obligation to)
notify the Company if he disposes of any Shares within one year of acquiring the
Shares, or within two years of the Date of Grant.
(e) SURRENDER OF OPTION. Upon exercise of this Option in part, if
requested by the Committee, the Optionee shall deliver this Option and any other
written agreements executed by the Company and the Optionee with respect to this
Option to the Committee who shall endorse or cause to be endorsed thereon a
notation of such exercise and return all agreements to the Optionee.
4. TERM OF OPTION. Without limitation, the unexercised portion of this Option
shall automatically terminate in accordance with the terms of the Plan.
5. ADMINISTRATION. Without limitation, the Plan and this Option shall be
administered by the Committee provided for and described in Section 14 of the
Plan.
6. LAW GOVERNING. WITHOUT LIMITATION, THIS OPTION SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS.
I 3S, INC.
By:
-----------------------------------
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of this Option and the
opportunity to review the Plan. Furthermore, I hereby acknowledge that I have
had an opportunity to discuss this Option with a representative of the Company
and my personal advisors to the extent I deem necessary or appropriate and I
understand the terms and provisions of the Option and the Plan, and further I
expressly hereby understand and agree that by my signature below I am agreeing
to be bound by all such terms and provisions (including, without limitation,
those of the Plan incorporated by the terms of the Plan and by reference) of the
Option and the Plan.
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Committee (as defined in the Plan) upon any
questions arising under the Plan.
<PAGE> 3
Dated as of this day of , 199 . .
--- ---------------- ----
Optionee
<PAGE> 4
NO. SHARES DATE OF GRANT -
------------ -------------
INCENTIVE STOCK OPTION AGREEMENT
An Incentive Stock Option (the "Option") for a total of __________ Shares
(collectively, "Option Shares") of I 3S, Inc. (the "Company"), is hereby granted
to ______________________ (the "Optionee") at the price determined in this
Option and in all respects subject to the terms, definitions and provisions, of
the 1996 Omnibus Stock Plan of I 3S, Inc. (the "Plan"), which is incorporated
herein by reference, except to the extent otherwise expressly provided in this
Option.
1. OPTION PRICE. The Option Price is $ __ , for each Share, which Option Price
is equal to the Fair Market Value of a Share on the Date of Grant.
2. VESTING OF OPTION SHARES. The Option Shares shall vest ("Vest" and
derivations) and become "Vested Option Shares" on the dates ("Vesting Dates")
set forth in the following Vesting Schedule:
(i) 33.33% of the Shares on the 1st anniversary of Date of Grant.
(ii) 33.33% of the Shares on the 2nd anniversary of Date of Grant.
(iii) 33.34% of the Shares on the 3rd anniversary of Date of Grant.
3. EXERCISABILITY OF OPTION.
(a) DATE ON WHICH OPTION BECOMES EXERCISABLE. This Option shall not be
exercisable prior to the first Vesting Date. On or after the occurrence of the
first Vesting Date (and prior to the termination of this Option), this Option
shall be exercisable, in whole or in part, with respect to Vested Option Shares.
(b) METHOD OF EXERCISE. Without limitation, this Option shall be exercised
by a written notice delivered to the Committee which shall:
(i) state the election to exercise the Option and the number of Vested
Option Shares in respect of which it is being exercised; and
(ii) be signed by the person or persons entitled to exercise the Option
and, if the Option is being exercised by any person or persons other than the
Optionee, be accompanied by proof, satisfactory to the Committee, of the right
of such person or persons to exercise the Option.
(c) PAYMENT. The Option Price of any Vested Option Shares purchased shall
be paid by the Optionee to the Committee in cash.
<PAGE> 5
(d) ISSUANCE OF SHARES. No person shall be, or have any of the rights or
privileges of, a holder of Shares subject to this Option unless and until
certificates representing such Shares shall have been issued and delivered to
such person, such issuance, without limitation, being subject to the terms of
the Plan. The Optionee agrees that he will (and is under an obligation to)
notify the Company if he disposes of any Shares within one year of acquiring the
Shares, or within two years of the Date of Grant.
(e) SURRENDER OF OPTION. Upon exercise of this Option in part, if requested
by the Committee, the Optionee shall deliver this Option and any other written
agreements executed by the Company and the Optionee with respect to this Option
to the Committee who shall endorse or cause to be endorsed thereon a notation of
such exercise and return all agreements to the Optionee.
4. TERM OF OPTION. Without limitation, the unexercised portion of this Option
shall automatically terminate in accordance with the terms of the Plan.
5. ADMINISTRATION. Without limitation, the Plan and this Option shall be
administered by the Committee provided for and described in Section 14 of the
Plan.
6. LAW GOVERNING. WITHOUT LIMITATION, THIS OPTION SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS.
I 3S, INC.
By:
-------------------------------------
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of this Option and the
opportunity to review the Plan. Furthermore, I hereby acknowledge that I have
had an opportunity to discuss this Option with a representative of the Company
and my personal advisors to the extent I deem necessary or appropriate and that
I understand the terms and provisions of the Option and the Plan, and further I
expressly hereby understand and agree that by my signature below I am agreeing
to be bound by all such terms and provisions (including, without limitation,
those of the Plan incorporated by the terms of the Plan and by reference) of the
Option and the Plan.
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Committee (as defined in the Plan) upon any
questions arising under the Plan.
Dated as of this day of , 199 .
---- ------------- ----
Optionee
<PAGE> 6
NO. SHARES ______ DATE OF GRANT - JUNE 25, 1999
NON-QUALIFIED STOCK OPTION AGREEMENT
A Non-Qualified Stock Option (the "Option") for a total of __________
Shares (collectively, "Option Shares") of I 3S, Inc. (the "Company"), is hereby
granted to James R. Price (the "Optionee") at the price determined in this
Option and in all respects subject to the terms, definitions and provisions, of
the 1996 Omnibus Stock Plan of I 3S, Inc. (the "Plan"), which is incorporated
herein by reference, except to the extent otherwise expressly provided in this
Option.
1. OPTION PRICE. The Option Price is $________ for each Share.
2. VESTING OF OPTION SHARES. The Option Shares shall vest ("Vest" and
derivations) and become "Vested Option Shares" on the dates ("Vesting Dates")
set forth in the following Vesting Schedule:
(i) 33.33% of the Shares on the 1st anniversary of Date of
Grant.
(ii) 33.33% of the Shares on the 2nd anniversary of Date of
Grant.
(iii) 33.34% of the Shares on the 3rd anniversary of Date of
Grant.
Without limitation, Shares which have not become Vested Option Shares prior to
the Target Date shall vest on the Target Date. For purposes all purposes of this
Option, "Target Date" shall mean the first to occur of (i) an IPO, or (ii) a
Change of Control.
3. EXERCISABILITY OF OPTION.
(a) DATE ON WHICH OPTION BECOMES EXERCISABLE. This Option shall not be
exercisable prior to the earlier of the (i) first Vesting Date or (ii) the
Target Date. On or after the occurrence of the first Vesting Date (and prior to
the termination of this Option) or the Target Date, this Option shall be
exercisable, in whole or in part, with respect to Vested Option Shares.
(b) METHOD OF EXERCISE. Without limitation, this Option shall be
exercised by a written notice delivered to the Committee which shall:
(i) state the election to exercise the Option and the number
of Vested Option Shares in respect of which it is being exercised; and
(ii) be signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the Committee, of
the right of such person or persons to exercise the Option.
<PAGE> 7
(c) PAYMENT. The Option Price of any Vested Option Shares purchased
shall be paid by the Optionee to the Committee in cash or in Vested Option
Shares, such Vested Option Shares to be valued at the difference between the
Fair Market Value and the Option Price.
(d) ISSUANCE OF SHARES. No person shall be, or have any of the rights
or privileges of, a holder of Shares subject to this Option unless and until
certificates representing such Shares shall have been issued and delivered to
such person, such issuance, without limitation, being subject to the terms of
the Plan. The Optionee agrees that he will (and is under an obligation to)
notify the Company if he disposes of any Shares within one year of acquiring the
Shares, or within two years of the Date of Grant.
(e) SURRENDER OF OPTION. Upon exercise of this Option in part, if
requested by the Committee, the Optionee shall deliver this Option and any other
written agreements executed by the Company and the Optionee with respect to this
Option to the Committee who shall endorse or cause to be endorsed thereon a
notation of such exercise and return all agreements to the Optionee.
4. TERM OF OPTION. Without limitation, the unexercised portion of this
Option shall automatically terminate in accordance with the terms of the Plan.
5. ADMINISTRATION. Without limitation, the Plan and this Option shall be
administered by the Committee provided for and described in Section 14 of the
Plan.
6. LAW GOVERNING. WITHOUT LIMITATION, THIS OPTION SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS.
I 3S, INC.
By:
-----------------------------
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of this Option and the
opportunity to review the Plan. Furthermore, I hereby acknowledge that I have
had an opportunity to discuss this Option with a representative of the Company
and my personal advisors to the extent I deem necessary or appropriate and that
I understand the terms and provisions of the Option and the Plan, and further I
expressly hereby understand and agree that by my signature below I am agreeing
to be bound by all such terms and provisions (including, without limitation,
those of the Plan incorporated by the terms of the Plan and by reference) of the
Option and the Plan.
Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Committee (as defined in the Plan) upon any
questions arising under the Plan.
<PAGE> 8
Dated as of this day of , 199 .
--------- ------------------ ----
Optionee
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
BroadbandNOW Texas, Inc., a Texas corporation.
<PAGE> 1
EXHIBIT 23.1
We consent to the reference to our firm under the captions "Selected Historical
Consolidated Financial Data" and "Experts" and to the use of our report dated
January 21, 2000 (except for the last paragraph of Note 5, as to which the date
is February 3, 2000), in the Registration Statement (Form S-1 No. 333- )
and related Prospectus of BroadbandNOW, Inc. for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
Dallas, Texas
February 3, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 52,802
<SECURITIES> 0
<RECEIVABLES> 495
<ALLOWANCES> (296)
<INVENTORY> 0
<CURRENT-ASSETS> 53,856
<PP&E> 28,318
<DEPRECIATION> (5,537)
<TOTAL-ASSETS> 76,735
<CURRENT-LIABILITIES> 8,092
<BONDS> 14,159
0
66,915
<COMMON> 10,249
<OTHER-SE> (22,680)
<TOTAL-LIABILITY-AND-EQUITY> 76,735
<SALES> 909
<TOTAL-REVENUES> 909
<CGS> 0
<TOTAL-COSTS> 16,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,153)
<INTEREST-EXPENSE> 742
<INCOME-PRETAX> (15,477)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,015
<NET-INCOME> (17,492)
<EPS-BASIC> (1.49)
<EPS-DILUTED> (1.49)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT
The undersigned hereby acknowledges that he has agreed with
BroadbandNOW, Inc., a Delaware corporation (the "Company"), to serve as a
Director of the Company, upon his due appointment or election, and consents to
all references to him that may be included in the prospectus or made a part of
the Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission, and any amendment thereto, and any related documents, on
the condition that he will be provided a reasonable opportunity to review any
such reference to confirm the accuracy thereof.
Dated as of January 26, 2000
By: /s/ GARY S. HOWARD
------------------------
Gary S. Howard
<PAGE> 1
EXHIBIT 99.2
CONSENT
The undersigned hereby acknowledges that he agreed with BroadbandNOW, Inc.,
a Delaware corporation (the "Company"), to serve as a Director of the Company,
upon his due appointment or election, and consents to all references to him
that may be included in the prospectus or made a part of the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission, and any amendment thereto, and any related documents.
Dated as of January 26, 2000
By: /s/ JEFFREY A. MARCUS
--------------------------------
Jeffrey A. Marcus
<PAGE> 1
EXHIBIT 99.3
CONSENT
The undersigned hereby acknowledges that he agreed with BroadbandNow, Inc.,
a Delaware corporation (the "Company"), to serve as a Director of the Company,
upon his due appointment or election, and consents to all references to him that
may be included in the prospectus or made a part of the Company's Registration
Statement on Form S-1 filed with the Securities and Exchange Commission, and any
amendment thereto, and any related documents.
Dated as of February 3, 2000
By: /s/ JACK A. RIGGS
-----------------------
Jack A. Riggs
