<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
INTERPACKET NETWORKS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4899 95-4542908
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
1901 MAIN STREET, 2ND FLOOR
SANTA MONICA, CALIFORNIA 90405
(310) 382-3300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JONATHAN GANS
INTERPACKET NETWORKS, INC.
CHIEF EXECUTIVE OFFICER AND PRESIDENT
1901 MAIN STREET, 2ND FLOOR
SANTA MONICA, CALIFORNIA 90405
(310) 382-3300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
CYNTHIA M. DUNNETT, ESQ. KENNETH R. LAMB, ESQ.
Riordan & McKinzie LISA A. FONTENOT, ESQ.
300 South Grand Avenue, Suite 2900 MEG L. FITZPATRICK, ESQ.
Los Angeles, California 90071 Gibson, Dunn & Crutcher LLP
(213) 629-4824 1 Montgomery Street, 26th Floor
San Francisco, California 94104
(415) 393-8200
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
Common Stock, $.001 par value............................... $86,250,000 $22,770
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Calculated pursuant to Rule 457(o).
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION. DATED FEBRUARY 18, 2000.
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of shares of common stock of InterPacket
Networks, Inc. All of the shares of common stock are being sold by us.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price per share is estimated to be between $ and
$ . We intend to list the common stock on the Nasdaq National Market under
the symbol IPKT.
-------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to InterPacket Networks, Inc., before expenses..... $ $
</TABLE>
InterPacket has granted the underwriters a 30-day option to purchase up to
an additional shares of common stock to cover over-allotments.
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
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.
JOINT LEAD MANAGERS AND BOOKRUNNERS
CHASE H&Q LEHMAN BROTHERS
CIBC WORLD MARKETS
, 2000
<PAGE>
[INSIDE FRONT COVER]
[POWERED BY ESPRESSO-REGISTERED TRADEMARK-
GRAPHIC AND DESIGN]
<PAGE>
[INSIDE COVER GATEFOLD]
[MAP OF THE WORLD WITH SATELLITE COVERAGE AND
COUNTRIES WHERE WE HAVE CUSTOMERS]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Information................. 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 28
Management.................................................. 42
Certain Transactions........................................ 51
Principal Stockholders...................................... 54
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 57
Underwriting................................................ 59
Legal Matters............................................... 61
Experts..................................................... 61
Additional Information...................................... 61
Index to Consolidated Financial Statements.................. F-1
</TABLE>
-------------------
ESPRESSO-REGISTERED TRADEMARK-, POWERED BY ESPRESSO-REGISTERED TRADEMARK-
and INTERPACKET-REGISTERED TRADEMARK- are registered trademarks of InterPacket
Networks, Inc. We have a trademark application pending for ESPRESSO BIZKIT-TM-.
This prospectus contains other trade names, trademarks and service marks of
InterPacket and of other companies.
-------------------
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE
FINANCIAL STATEMENTS, CAREFULLY BEFORE MAKING AN INVESTMENT DECISION. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS REFLECTS OUR FOR STOCK
SPLIT WHICH WILL OCCUR PRIOR TO THE COMPLETION OF THIS OFFERING AND THE
CONVERSION OF OUR PREFERRED STOCK INTO COMMON STOCK UPON COMPLETION OF THE
OFFERING AND ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED.
INTERPACKET NETWORKS, INC.
OVERVIEW
We operate a satellite-based broadband Internet network that delivers
high-speed Internet services to international Internet service providers and
other businesses in more than 80 countries. Our proprietary network design
integrates the broadcast capabilities of satellites with Internet networking
technologies to offer our international customers a scalable solution to the
constraints of the public Internet infrastructure. Our global network's open
technical architecture enables us to provide three categories of Internet
services: global high-speed broadband connectivity to the Internet backbone,
enhanced Internet services, such as Internet telephony, and Internet content
distribution, such as newsfeeds and streaming media. From December 31, 1998 to
December 31, 1999, we increased the number of our customers from 69 to 343 and
as of February 15, 2000 we had 468 customers worldwide.
Strain on the worldwide Internet infrastructure is increasing, especially
outside the U.S., as the number of Internet users grows and as their bandwidth
needs expand. eStats, a tracking service for the global Internet marketplace,
estimates that the number of active Internet users worldwide will grow from
approximately 95 million in 1998, of which approximately 50% resided outside of
the U.S., to approximately 282 million by the end of 2002, of which
approximately 69% will reside outside of the U.S. Despite an anticipated
expansion in the number of Internet users worldwide, advances in the global
telecommunications infrastructure and the public Internet have failed to keep
pace with user demand. When connecting to and navigating the Internet,
international Internet service providers, or ISPs, and their subscribers suffer
numerous problems caused by limited access to the Internet backbone, poor
telecommunications infrastructure and low bandwidth availability. These
difficulties are likely to increase as demand grows for rich Internet content,
such as streaming audio and video.
THE INTERPACKET SOLUTION
Our broadband satellite-based Internet network overlays the public Internet
around the world and offers solutions to many of the current global Internet
infrastructure limitations. Our network currently incorporates nine
geostationary satellites, uplinked from six strategically located teleports, or
earth-based satellite transmission stations, and allows for the rapid delivery
of broadband Internet connectivity worldwide. ESPRESSO and ESPRESSO BIZKIT, our
branded satellite-based Internet connectivity services, supplement or bypass
local and international telecommunications connections, enabling our ISP
customers to deliver a more reliable, higher quality of Internet service to
their subscribers. Our enhanced Internet services, including ESPRESSO VOICE, our
Internet telephony service, are complementary to the broadband access we provide
to our international ISP customers and create additional revenue opportunities.
The broadcast capabilities of our satellite network create an efficient,
reliable means for Internet content aggregators to multicast, or transmit,
bandwidth-intensive forms of rich, Web-based content simultaneously to multiple
locations around the world. We currently broadcast ESPRESSO NEWS, our aggregated
newsfeed, and we recently entered into an agreement with iBEAM Broadcasting
Corporation, a leading Internet broadcast network, to deliver streaming content
around the world.
1
<PAGE>
Our satellite-based Internet network and services feature:
- Scalable, proprietary and global network design
- High quality, branded service
- Rapid provisioning
- Enhanced Internet services
- Multicasting content delivery
- Customer-focused network management and support
OUR STRATEGY
Our goal is to become the leading provider of global satellite Internet
connectivity and services by building the world's largest, premier quality and
cost-efficient satellite network. We also intend to capitalize on our
proprietary network design, our network's broadband capabilities and the global
reach of our satellite coverage to offer content delivery to Internet content
aggregators. To achieve this goal we intend to:
- Increase our global customer base
- Capitalize on our early entrant status
- Broaden our Internet service offerings
- Provide turnkey solutions to the emerging Internet content industry
- Expand our network infrastructure
- Develop our strategic and business relationships
-------------------
Our headquarters are located at 1901 Main Street, 2nd Floor, Santa Monica, CA
90405, and our telephone number is (310) 382-3300.
-------------------
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by InterPacket Networks,
Inc........................................ shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. Primarily to acquire satellite and fiber
optic capacity, increase sales and marketing
personnel and activities, increase working
capital and for other general corporate
purposes.
Proposed Nasdaq National Market symbol....... IPKT
</TABLE>
The number of shares outstanding is based on shares outstanding as of
February 15, 2000. This number reflects the conversion of our 3,000,000 shares
of preferred stock into common stock upon completion of the offering and takes
into account our for stock split but excludes 2,817,584 shares of
common stock issuable upon exercise of options outstanding, at a weighted
average exercise price of $3.52, and 3,022,666 shares of common stock reserved
for future option grants under our stock option plans.
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Please see Note 2 of notes to our consolidated financial statements
appearing at the end of this prospectus for an explanation of the determination
of the number of shares used in computing per share data. The Actual column
reflects balance sheet data on a historical basis, without any adjustments to
reflect subsequent events or anticipated events and gives effect to our for
stock split. The Pro Forma column reflects the issuance of 3,000,000 shares
of common stock upon conversion of our outstanding preferred stock on completion
of the offering. The Pro Forma As Adjusted column reflects the issuance of
3,000,000 shares upon this conversion and the receipt of the estimated proceeds
from our sale of shares of common stock at an assumed initial public
offering price of $ per share, after deducting the underwriting discounts
and commissions and estimated offering expenses payable by us. From inception
until December 31, 1996, we generated an insignificant amount of revenues, as
operations were limited and consisted primarily of start-up activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Network services.......................................... $ 583 $ 4,115 $ 10,789
Traditional telecom services.............................. 1,176 7,295 2,685
------ ------- --------
Total revenue........................................... 1,759 11,410 13,474
Income (loss) from operations............................... 158 (1,416) (10,057)
------ ------- --------
Net income (loss)........................................... $ 89 $(1,328) $(10,890)
====== ======= ========
Basic and diluted income (loss) per common share............ $ 0.01 $ (0.16) $ (1.05)
====== ======= ========
Weighted average number of common shares (basic and
diluted).................................................. 7,250 8,412 10,392
====== ======= ========
Pro forma basic and diluted loss per common share
(unaudited)............................................... $ (1.01)
========
Weighted average number of common shares used to compute pro
forma loss per common share (unaudited)................... 10,803
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $15,948 $15,948 $
Total assets................................................ 64,291 64,291
Capital leases, net of current portion...................... 38,669 38,669
Mandatorily redeemable preferred stock...................... 14,824 --
Deficit..................................................... (12,126) (12,126)
Stockholders' equity........................................ 2,392 17,216
</TABLE>
3
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW MAY NOT BE THE ONLY ONES WE FACE. IF ANY
OF THE FOLLOWING RISKS AND UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE HARMED. IN THIS EVENT, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE SOME OR ALL OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, OUR BUSINESS IS DIFFICULT TO
EVALUATE AND YOU MAY INACCURATELY ASSESS OUR PROSPECTS FOR SUCCESS.
In January 1997 we began revenue-generating operations. Due to our limited
operating history, our past results may not be meaningful and you should not
rely on them as indicators of our future performance. We confront all of the
challenges and uncertainties encountered by growing, early-stage companies,
particularly companies in the new and rapidly evolving international market for
Internet connectivity and services. These challenges and uncertainties include
our ability to:
- expand our international ISP customer base;
- increase the services purchased from us by our customers and the amount of
revenue we receive from each of our customers;
- satisfy the changing needs of our existing and future international ISP
customers;
- acquire, develop and market new Internet services;
- respond to the changing needs of the Internet content delivery market;
- upgrade and expand our network infrastructure;
- develop our strategic and business relationships;
- capitalize on our early entrant status; and
- recruit and retain key personnel.
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUING LOSSES FOR THE
FORESEEABLE FUTURE.
Since our inception we have incurred substantial losses. We expect our
losses to increase as we expand our operations. While we had net income of
approximately $89,000 in 1997, we experienced net losses of approximately
$1.3 million in 1998 and $10.9 million in 1999. We experienced negative cash
flows from operations of approximately $13,000 in 1997 and $6.9 million in 1999,
though, in 1998 cash flow provided by operations was approximately
$0.4 million. As of December 31, 1999, we had a deficit of $12.1 million. Based
on our current plan of operations, we do not believe that we will achieve
profitability in the foreseeable future. We expect our losses and negative cash
flow to continue and to increase as we intend to:
- expand our global network through leases and purchases of additional
rights to use capacity on geostationary satellites and fiber optic cable
systems;
- build out our points of presence;
- substantially increase our staff, especially in the areas of operations,
sales and marketing;
- develop and maintain relationships with Internet content aggregators,
Internet backbone operators and regional satellite owners;
- expand sales of ESPRESSO VOICE, which increases our collection risk;
4
<PAGE>
- expand into other countries in which we are not currently conducting
business;
- develop or acquire, introduce and market new Internet services;
- market our ESPRESSO brand name; and
- respond to competitive and technological developments.
We expect that our expenses, particularly costs relating to acquiring
additional satellite transponder space and our selling, general and
administrative expenses, will increase both in absolute dollars and as a
percentage of our revenues as we grow. If our revenue fails to grow at
anticipated rates or if our operating expenses increase without a commensurate
increase in our revenue, our losses will significantly increase and our business
and financial results could be harmed. Additionally, if we are not successful in
raising funds in this offering, we will have to take certain steps, such as
delaying the acceptance of services under our fixed fee contracts or renegotiate
certain long-term contracted obligations, to reduce our regular capital needs.
OUR BUSINESS WILL SUFFER AND OUR FINANCIAL RESULTS WILL DETERIORATE IF WE DO NOT
CONTINUE TO EXPAND OUR CUSTOMER BASE.
Our success depends primarily on the continued growth of our customer base,
the retention of our current customers and our ability to expand the number of
Internet services we offer to our customers so that revenue per customer and
overall revenue increase. Our customer contracts may be terminated without
penalty at any time. If we are unable to maintain and expand our customer base
our business and financial results will suffer. Our ability to attract new
customers and, to a lesser degree, maintain current customers, as well as our
ability to increase the amount of revenue we receive from each customer, depends
on a variety of factors, including:
- continued growth in demand by international ISPs for Internet backbone
connectivity;
- our ability to provide adequate bandwidth to all of our customers;
- our ability to provide additional services across our network;
- our ability to broadcast content around the world;
- the success in our development of our strategic and business
relationships;
- our success in establishing and maintaining business relationships with
content aggregators, Internet backbone operators and regional satellite
owners; and
- the reliability and cost-effectiveness of our services.
IF WE ARE UNABLE TO MAINTAIN, EXPAND AND ADAPT OUR NETWORK INFRASTRUCTURE, THE
DEMAND FOR OUR SERVICES MAY DECREASE.
We must continue to expand and adapt our network as the number of our
international ISP customers grows, as users place increasing demands on our
network, and as other requirements change. As we grow our customer base, we may
not be able to provide our customers with the increasing levels of data
transmission capacity that they may require for a number of reasons, such as our
possible inability to raise the funds needed to develop the network
infrastructure to maintain adequate transmission speeds and the lack of
additional network availability from third-party suppliers of satellite and
fiber optic cable transmission capacity. Our failure to achieve or maintain high
capacity transmissions could significantly reduce demand for our services,
decreasing our revenue and harming our business and financial results.
5
<PAGE>
IF WE FAIL TO ACCURATELY PREDICT OUR SATELLITE BANDWIDTH REQUIREMENTS AND
EFFECTIVELY MANAGE OUR FIXED COSTS, OUR OPERATING RESULTS WILL SUFFER.
If we do not obtain adequate satellite bandwidth capacity on acceptable
terms and realize corresponding customer volume for this bandwidth, it is
unlikely that we will achieve positive gross profit. We purchase this bandwidth
capacity based on our projected future needs on a fixed-price basis far in
advance of the sale of our services that utilize the bandwidth. Substantially
all of this bandwidth capacity can be purchased only on a long-term basis. We
sell our services on the basis of actual usage and total bandwidth capacity used
by our customers changes from month to month and is difficult to predict. If our
sales fail to match our projections, we could be subject to periods of excess
satellite capacity, which could seriously harm our business. As a result, we
must obtain enough bandwidth to meet our projected customer needs, and we must
realize adequate volume from our customers to support and justify the bandwidth
capacity and expense. If demand from existing or potential customers exceeds our
capacity, the quality of our service may suffer or we may be unable to
capitalize on potential business opportunities. If that happens, we may lose
existing or potential customers and our operating results would suffer.
THE QUALITY OF OUR SERVICES AND OUR ABILITY TO PROVIDE THEM DEPENDS LARGELY ON
THIRD PARTIES, INCLUDING SATELLITE OPERATORS, AND IF THEY DO NOT PERFORM AS
EXPECTED THE QUALITY OF OUR SERVICES AND OUR BUSINESS WILL SUFFER.
We depend on third parties to provide us satellite transmission capabilities
that are essential to our network infrastructure. Our business will suffer if
our satellite availability or security is materially interrupted, the cost of
transponder space increases materially, one of our key satellite providers
terminates its contract with us or additional transponder space is not available
on acceptable terms or at all. For example, we rely heavily on Satmex 5 for
satellite coverage of Latin America. Any temporary or permanent loss of capacity
on this satellite could negatively affect our operations. We are subject to
similar challenges for our terrestrial fiber optic cable services and major
Internet access providers that we use to access the Internet backbone. Our
customers depend on our ability to provide continuous service. As a result, if
our service is interrupted, our reputation will be harmed and our customers will
cease purchasing services from us. Our satellite and fiber optic cable network
is subject to interruption from numerous forces, including:
- satellite or other telecommunications failure;
- human error;
- natural disasters, such as fire, earthquakes and floods;
- power loss; or
- sabotage or vandalism.
FAILURE TO MANAGE OUR EXPANSION AND EXPECTED GROWTH EFFICIENTLY WILL STRAIN OUR
RESOURCES AND COULD IMPAIR THE EXPANSION OF OUR BUSINESS.
We intend to grow and increase our business by expanding our global network
through, among other things, additional leases of satellite and fiber optic
cable capacity and related equipment. If we are unable to manage growth
effectively, we may lose customers or fail to attract new customers and our
business and financial results will suffer. The successful implementation of our
expansion plans will involve significant planning and resources. We may face
problems with our expansion plans and, as a result, these plans may be delayed
or never completed. To successfully carry out our expansion plans, we must:
- enter into additional leases with favorable terms for capacity on
satellite systems and fiber optic cables;
6
<PAGE>
- successfully implement, market and sell connectivity, enhanced Internet
services and content distribution and other services that we develop;
- negotiate competitive arrangements with Internet backbone providers; and
- develop relationships with strategic and other business partners.
Problems associated with our expansion plans could severely harm us, such
as:
- shortage of transponder space on geostationary satellites;
- disruptions to operations arising from relocation of our facilities;
- failure to retain or to timely hire necessary employees, including sales
and technical personnel; and
- failure to accurately predict customer demand for existing and future
services and applications.
In addition, our costs will increase as we expand. These increased costs
include:
- implementing multiple and redundant satellite and telecommunications
connections;
- expenses associated with hiring, training and managing new employees;
- increasing marketing and sales efforts; and
- purchasing new equipment.
Many of these costs are fixed in the long-term and if our expansion plans
are not successful, our future operating results could be seriously harmed. We
may not be able to keep pace with any growth, successfully implement and
maintain our operational and financial systems, or successfully obtain,
integrate and utilize the employees, facilities, third-party vendors and
equipment, or management, operational and financial resources necessary to
manage a developing and expanding business in our rapidly evolving and
increasingly competitive industry.
OUR SERVICES MAY BE SUBJECT TO DOWNWARD PRICING PRESSURES AND THIS WOULD
NEGATIVELY IMPACT OUR FINANCIAL RESULTS.
The market for Internet access in the U.S. is subject to downward pricing
pressure caused by a number of factors, including increased competition and
technological advances. Pricing pressures outside of the U.S. in the markets we
serve may develop as international Internet access and services becomes more
available. Our Internet access service, ESPRESSO, is our primary Internet-based
service. To operate ESPRESSO, we must lease substantial satellite transmission
capacity, which is relatively fixed in cost and is generally not susceptible to
downward pricing pressure. As a result, we have little flexibility in lowering
the price for our ESPRESSO service. If we are affected by downward pricing
pressure, we cannot assure you that we will be able to offer our ESPRESSO
service at prices that are competitive or profitable.
Our other Internet-based services and applications may also be subject to
varying degrees of downward pricing pressure. This problem is particularly acute
with our ESPRESSO VOICE service. For example, due to increased competition and
global deregulation of telecommunications services, prices for international
long distance calls have been decreasing. If this downward pricing pressure
continues, we cannot assure you that we will be able to offer ESPRESSO VOICE
services at costs lower than, or competitive with, the traditional voice network
services that compete with our telephony services. To lower our prices for
ESPRESSO VOICE, we may have to renegotiate rates with our local service
providers who complete calls for us. We may not be able to renegotiate these
terms favorably enough, or fast enough, to allow us to profitably offer Internet
telephony services.
OUR OPERATING RESULTS MAY FLUCTUATE AND THIS MAY NEGATIVELY IMPACT OUR STOCK
PRICE.
As we have grown, we have experienced significant fluctuations in our
operating results. Thus, a period to period comparison of our operating results
is not necessarily meaningful and should not be relied
7
<PAGE>
upon as an indicator of future performance. Our future operating results may
continue to fluctuate. Factors that are likely to cause these fluctuations
include:
- the rate of growth of the Internet, especially outside of the U.S.;
- demand for and market acceptance of our services;
- the level of utilization of our network and our Internet services;
- fluctuations in satellite transponder and telecommunications costs and
availability;
- costs relating to the expansion of operations;
- fluctuations in bandwidth and the amount of our services used by
customers;
- introductions of new Internet services by us and our competitors;
- changes in our pricing policies and those of our competitors;
- changes in regulatory laws and policies;
- economic conditions, particularly those related to the Internet industry;
and
- the length and variability of our sales cycle.
In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly with respect to satellite transponder capacity and
personnel. Our future operating results will be particularly sensitive to
fluctuations in revenue because of these and other short-term fixed costs.
Our operating results in the future may fall below the expectations of
securities analysts and investors. In this event, the trading price of our
common stock will likely decrease significantly.
PROBLEMS ASSOCIATED WITH OPERATING IN INTERNATIONAL MARKETS COULD PREVENT US
FROM ACHIEVING OR SUSTAINING OUR INTENDED GROWTH.
The majority of our business is derived from ISPs and other businesses
located in foreign countries. Our failure to manage our international operations
effectively would limit the future growth of our business. We face certain
inherent challenges in conducting international operations, such as:
- changes in telecommunications regulatory requirements or trade barriers
restricting our ability to deliver Internet services to our customers;
- the imposition of unanticipated fees, taxes and costs by foreign
governments, which could significantly increase our costs;
- political and economic instability disrupting the operations of our ISP
customers;
- protectionist laws and business practices favoring local competition
potentially giving unequal bargaining leverage to competitors; and
- currency fluctuations increasing the cost of our services to our
international customers.
Our failure to adequately respond to any of these challenges could seriously
harm our operations.
OUR OPERATIONS ARE VULNERABLE TO SECURITY BREACHES THAT COULD HARM THE QUALITY
OF OUR PRODUCTS AND SERVICES.
Despite our design and implementation of a variety of network security
measures, unauthorized access, computer viruses, accidental or intentional
action and other disruptions to our network and those of our providers could
occur. In addition, we may incur significant costs to prevent breaches in
security or to alleviate problems caused by such breaches. Any breaches that may
occur could adversely affect the quality of our products and services and could
result in liability to us or the loss of existing customers. This could harm our
ability to attract future customers.
8
<PAGE>
WE MAY NOT BE ABLE TO HIRE OR RETAIN KEY EMPLOYEES, WHICH COULD PREVENT US FROM
EFFICIENTLY GROWING AND OPERATING OUR BUSINESS.
The market for highly qualified personnel is intensely competitive. We are
particularly dependent on our ability to increase significantly the size of our
technical staff and sales and marketing organization with qualified candidates
who speak at least one foreign language. If we are unable to hire and retain the
key personnel we need, we may provide poor service and have difficulty signing
up new customers and maintaining current customers, which would cause our
business to suffer. We are dependent on the continued efforts of our senior
management team. If, for any reason, our senior executives do not continue to be
active in management, our operations would suffer. We may lose some of our key
personnel and any loss may seriously harm our business. We do not carry key
person life insurance on any of our personnel.
CERTAIN MEMBERS OF OUR MANAGEMENT TEAM HAVE ONLY WORKED WITH US FOR A SHORT TIME
AND FAILURE TO EFFECTIVELY INTEGRATE THEM COULD IMPAIR OUR ABILITY TO IMPLEMENT
OUR STRATEGIES.
We depend on the ability of our management team to effectively execute our
strategies. We recently hired several of our key employees. In July 1999 we
hired our Chief Financial Officer and Senior Vice President--Operations, in
November 1999 we hired our Chairman of the Board, in December 1999 we hired our
Vice President--Marketing, and in February 2000 we hired our Executive Vice
President--Business and Legal Affairs. Because certain members of our management
team have worked together only for a short period of time, we need to integrate
these officers into our operations. To integrate into our operations, these
individuals must spend a significant amount of time learning our business model
and management system, in addition to performing their regular duties.
Accordingly, the integration of new personnel has resulted and will continue to
result in some disruption to our ongoing operations. If we fail to complete this
integration in an efficient manner, our business and financial results will
suffer.
FAILURE TO OBTAIN ADDITIONAL FUNDING COULD IMPAIR OUR GROWTH.
Our business may suffer if we require additional funding and we are not able
to obtain it. We expect to incur significant expenditures as part of our
expansion plans. We intend to enter into arrangements to secure additional
satellite transponder space and substantial fiber optic capacity. These
arrangements may require us to make substantial initial payments for long-term
capacity that could require us to seek debt or additional equity financing. We
believe that, following this offering, our cash reserves, available borrowings
and funds generated by operations will be adequate to fund our operations for at
least the next 12 months. However, we may require additional funds either during
or after such 12 month period. Future financing may not be available to us or
may only be available on terms that are not favorable to us. Our failure to
generate sufficient cash flows from sales of Internet connectivity and services
or to raise sufficient funds may require us to delay or abandon some or all of
our expansion plans or otherwise forego market opportunities. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders could be significantly diluted.
IF WE DO NOT SUCCESSFULLY INTEGRATE FUTURE ACQUISITIONS INTO OUR OPERATIONS, OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE HARMED.
The costs and challenges of our potential future acquisitions of key
technologies, applications, operations or companies may harm us. An acquisition
may result in the use of significant amounts of cash, potentially dilutive
issuances of equity securities, incurrence of debt or amortization expenses
related to goodwill and other intangible assets. We face a number of challenges
that could harm us in any acquisition including:
- difficulties and unanticipated costs arising from the assimilation of the
acquired operations, technologies, products, policies and personnel;
- the diversion of management's attention from other business concerns;
9
<PAGE>
- risks related to entering markets or managing operations in which we have
no or limited direct prior experience;
- our inability to maintain uniform standards and controls; and
- the potential loss of key employees of the acquired company.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, OR MAY HAVE TO DEFEND CLAIMS
OF THIRD PARTIES RELATING TO THEIR PROPRIETARY RIGHTS, WHICH COULD PREVENT US
FROM COMPETING EFFECTIVELY.
While the design and configuration of our Internet network is proprietary to
us, we have not patented any of our intellectual property rights and generally
rely on the protections offered by trade secret law. We generally enter into
confidentiality or licensing agreements with our employees, consultants and
corporate partners, and generally control access to and distribution of our
software, documentation and other proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our technology or proprietary information. Policing
unauthorized use is difficult, and we cannot be sure that the steps we have
taken will prevent misappropriation of our technology or proprietary
information, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as in the U.S.
In addition, third parties may claim in the future that we violate their
proprietary rights. Any successful claim by others that we violate their
intellectual property rights could seriously harm our business by forcing us to
cease using important intellectual property or requiring us to pay monetary
damages. Even if unsuccessful, these claims could harm our business by damaging
our reputation, requiring us to incur legal costs and diverting the attention of
our management personnel away from their normal business activities.
WE MAY FACE LIABILITY AND OTHER RISKS AS A RESULT OF INFORMATION DISSEMINATED
THROUGH OUR NETWORK, WHICH COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION.
The liability we may face as a result of information disseminated through
our network could have a negative impact on our financial condition. The law
relating to the liability of online services companies and Internet access and
content providers for information carried on or disseminated through their
networks is currently unsettled. It is possible that claims could be made
against online services companies, co-location companies and Internet access
providers under both U.S. and foreign law for defamation, negligence, copyright
or trademark infringement or under other legal theories. Content distributed by
us and by our future customers may be regulated or banned. Several private
lawsuits seeking to impose liability on online services companies and Internet
access providers are currently pending. In addition, legislation has been
recently passed and continues to be proposed that imposes liability for or
prohibits the transmission over the Internet of certain types of information. We
carry general liability insurance, but it may not be adequate to compensate or
may not cover us in the event we become liable for information carried on or
disseminated through our network.
RISKS RELATED TO OUR INDUSTRY
WE FACE INTENSE COMPETITION FROM MANY OTHER COMPANIES AND IF WE DO NOT RESPOND
TO THIS COMPETITION EFFECTIVELY, OUR FINANCIAL RESULTS MAY SUFFER.
Our business of delivering Internet access to international ISPs via our
network of leased satellite transponder space and fiber optic cable systems is
intensely competitive. If we do not respond to this competition effectively, our
financial results may suffer. We expect to face additional competition from
existing and new competitors. Our most common competitor is the Post, Telephone
and Telegraph, or PTT, of the country where each of our customers is located. We
also face competition from our satellite providers, Loral SpaceCom Corporation
and PanAmSat International Systems, Inc., which offer some services to the
international ISP community that are similar to our service offerings. We must
distinguish ourselves in the international ISP marketplace through our pricing
policies, the quality and distinctiveness
10
<PAGE>
of our service and the other Internet applications that we offer. As we sell our
ESPRESSO VOICE services we will compete with the PTTs of the countries where we
offer such services. As a result of our recent acquisition of certain assets and
technology in the United Kingdom and our agreement with iBEAM, we will be
delivering streaming content through our network. Although we intend to partner
with content aggregators, the services we provide may also make us a competitor
in this industry. We may be unsuccessful in doing this. Some of our competitors
have certain advantages over us, including:
- substantially greater financial, technical and marketing resources;
- lower cost basis arising from satellite, cable or other facility
ownership;
- longer operating histories;
- larger, more established customer bases;
- greater name recognition; and
- more established customer and vendor relationships.
We cannot be certain that we will have the resources or expertise to compete
successfully in the Internet-based services market.
THE MARKETS FOR INTERNET CONNECTIVITY AND CONTENT DISTRIBUTION, ESPECIALLY
OUTSIDE OF THE U.S., ARE NEW AND MAY NOT GROW AS WE BELIEVE, WHICH COULD LIMIT
OUR POTENTIAL GROWTH.
Our success is largely a function of the growth in the use of the Internet,
particularly outside of the U.S., and that growth is uncertain and depends on a
variety of factors. The market for Internet connectivity, especially outside of
the U.S., is new and evolving. As a result, our financial condition may be
harmed if the market fails to develop, or develops more slowly than we expect.
The growth of the market depends on several uncertain events or occurrences,
including:
- the growth of the Internet as a global communications and commerce medium;
- the availability of personal computers in remote locations;
- the use by international ISPs and businesses of the Internet connectivity
solutions we offer; and
- general worldwide economic conditions.
The Internet content delivery market is new and our business will suffer if
these markets do not continue to develop. We cannot be certain that a
sustainable market for content will emerge around the world. If it does not, an
essential aspect of our business strategy, to expand the delivery of Internet
content around the world, may fail.
WE MAY BE UNABLE TO MAINTAIN THE QUALITY OF OUR SERVICES AND MAY LOSE CUSTOMERS
IF THE INTERNET INFRASTRUCTURE PROVES UNRELIABLE.
Our future success depends, in part, upon the reliability of the Internet
infrastructure. To the extent that the number of Internet users increases, the
Internet may be unable to support the demands placed on it, which may cause its
performance or reliability may decline. The Internet has experienced a variety
of outages and other delays as a result of portions of its infrastructure. Any
future outages or delays could harm our ability to provide connectivity to our
customers. Moreover, critical issues concerning the commercial use of the
Internet, including security, cost, ease of use and access, intellectual
property ownership and other legal liability issues, remain unresolved and could
inhibit the growth of Internet usage and harm our business.
THE LEGAL ENVIRONMENT IN WHICH WE OPERATE IS UNCERTAIN AND CLAIMS AGAINST US AND
OTHER LEGAL UNCERTAINTIES COULD CAUSE OUR BUSINESS TO SUFFER.
Because almost all of our business is conducted outside the U.S., we are
susceptible to the governmental regulations and legal uncertainties of foreign
countries. We currently sell our services in over
11
<PAGE>
80 countries, each of which has a unique legal environment. In general, the laws
of countries outside the U.S. governing the Internet and Internet services, to
the extent they exist at all, vary widely, are unclear and in flux and have
failed to keep pace with the rapid advancements in Internet technology and the
expanding range of Internet-based services being offered. Partly because of
these problems, and our view that local regulatory compliance is a greater issue
of concern for our ISP customers, we have not, and currently do not intend to,
determine conclusively whether we comply with the requirements of any particular
foreign country. Any one or more of the countries where we conduct business may
require us to qualify to do business in that particular country, that we are
liable for certain taxes or tariffs, that we are otherwise subject to regulation
or that we are prohibited from conducting our business in that foreign country.
Thus, we cannot assure you that we are currently in compliance with the legal
requirements of any particular country or all of the countries outside the U.S.
in which we conduct business, that we will be able to comply with any such
requirements or that the requirements will not change in a way that would render
the receipt of our services in a particular country illegal. Our failure to
comply with foreign laws and regulations could cause us to lose customers,
restrict us from entering profitable markets and seriously harm our business.
Our customers also face many of the governmental and legal uncertainties
that we face and currently are, or in the future may become, subject to many of
the same requirements to which we may be subject. We make no effort to determine
whether our customers comply with applicable regulations. For example, a PTT in
one country threatened several of our ISP customers with the claim that the
receipt of our ESPRESSO satellite broadcast was illegal. While these threats
have not seriously harmed our business to date, they may in the future. The
failure of our customers to comply with applicable laws and regulations could
cause us to lose customers or otherwise seriously harm our business.
THE INTERNET INDUSTRY OPERATES IN AN UNCERTAIN LEGAL LANDSCAPE AND THE ADOPTION
OR INTERPRETATION OF FUTURE OR EXISTING REGULATIONS COULD HARM OUR BUSINESS.
The Internet and the markets in which we offer our Internet services are
relatively new. Many of the laws and regulations that govern us and the Internet
have yet to be interpreted or enforced. It is likely that in the future many new
laws will take effect that will regulate the Internet and the markets in which
we operate. The applicability to the Internet of existing laws governing issues
such as property ownership, copyrights and other intellectual property issues,
taxation and tariffs, libel, consumer protection, obscenity, pricing and
personal privacy is uncertain. Current and future laws and regulations may:
- decrease the growth of the Internet;
- regulate our customers in ways that harm our ability to sell our services
to them;
- decrease demand for our services; and
- impose taxes or other costly requirements or otherwise increase the cost
of doing business.
Thus, the adoption and interpretation of any future or existing regulations
could seriously harm our business.
WE MAY NOT BE ABLE TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES OR EMERGING
INDUSTRY STANDARDS WHICH COULD MAKE OUR SERVICES OBSOLETE AND UNMARKETABLE.
Our services may become less useful to our customers if we are unable to
respond to technological advances that shape the Internet or alternative
technologies or services become available to them. Keeping pace with
technological advances in our industry may require substantial expenditures and
lead time. In addition, future advances in technology or fundamental changes in
the way Internet access or other Internet services can be delivered may render
our services obsolete or less cost competitive. We may not be able to adequately
respond to or incorporate technological advances on a cost-effective or timely
basis into our business.
12
<PAGE>
RISKS RELATED TO OUR OFFERING
OUR COMMON STOCK PRICE MAY BE VOLATILE AND CAUSE US TO BECOME SUBJECT TO
SECURITIES LITIGATION.
The market price of our common stock may experience fluctuations in response
to a number of factors, including:
- actual or anticipated variations in our results of operations;
- new services introduced by us or our competitors;
- the entry of new competitors into one or more of our lines of business;
- changes in financial estimates by security analysts;
- conditions and trends in the Internet industry;
- potential acquisitions;
- general market conditions; and
- potential volatility due to the increase in the number of publicly traded
shares in connection with this offering.
The Nasdaq National Market has experienced extreme price and volume
fluctuations, as have other stock markets. Similar market fluctuations have
affected the market prices of equity securities of many Internet and technology
companies. The effects on the stock prices of these companies have often been
unrelated or disproportionate to their operating performance. These broader
market movements may adversely affect the market price of our common stock. Our
stock price may also be adversely affected by general economic, political and
market conditions such as recession, interest rate changes or international
currency fluctuations. Class action litigation has often been instituted
following periods of volatility in the market price of a company's securities.
If such litigation were brought against us, it could distract our management and
may require us to incur significant expenses and possibly pay substantial
damages.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF THE STOCK YOU PURCHASE.
The initial public offering price of our common stock is substantially
higher than the net tangible book value per outstanding share of common stock.
Purchasers of our common stock will incur immediate and substantial dilution of
$ per share in the net tangible book value of our common stock from the
initial public offering price of $ . Additional dilution will occur upon the
exercise of outstanding options.
THE LIQUIDITY OF OUR COMMON STOCK IS UNCERTAIN BECAUSE IT HAS NOT BEEN PUBLICLY
TRADED AND MAY HAVE A LIMITED MARKET WHICH COULD DEPRESS OUR STOCK PRICE.
There has been no public market for our common stock. We cannot predict the
extent to which investor interest in our company will lead to the development of
an active, liquid trading market. In this offering, we intend to sell our common
stock primarily to a limited number of institutional investors, which could
limit the development of an active trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The initial public offering price will be
determined by negotiations between InterPacket and the representatives of the
underwriters and may bear no relationship to the price at which our common stock
will trade upon completion of this offering.
13
<PAGE>
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK AFTER THIS
OFFERING MAY HARM OUR STOCK PRICE.
Sales of a large number of shares of our common stock in the market after
the offering or the perception that sales may occur could cause the market price
of our common stock to drop. A substantial number of shares of common stock will
be available for sale in the public market following this offering, which could
harm the market price for our common stock. See "Shares Eligible for Future
Sale" for a more detailed description of the eligibility of shares of our common
stock for future sale.
WE HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THIS OFFERING, AND WE MAY NOT
EFFECTIVELY UTILIZE THE PROCEEDS.
Our management will have considerable discretion in the application of the
net proceeds of this offering. The net proceeds may be used for corporate
purposes that do not increase our profitability or market value.
AFTER THE OFFERING, OUR SIGNIFICANT STOCKHOLDERS WILL RETAIN SUBSTANTIAL VOTING
CONTROL WHICH WILL ALLOW THEM TO INFLUENCE THE OUTCOME OF MATTERS SUBMITTED TO
STOCKHOLDERS FOR APPROVAL IN A MANNER THAT MAY BE ADVERSE TO YOUR INTERESTS.
Some of our stockholders own a large enough stake in us to have an influence
on matters presented to the stockholders. Our executive officers, directors and
greater than 5% stockholders, and their affiliates, will, in the aggregate, own
approximately % of our outstanding common stock after this offering. If these
parties acted in concert, they could influence, among other things, the election
and removal of directors and any merger, consolidation or sale of all or
substantially all of our assets. This concentration of ownership may delay or
prevent a change in control which could discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, or
control the outcome of any other matter submitted to the stockholders for a
vote. As a result, this concentration of ownership may have a negative effect on
our value and the price of our common stock.
ANTITAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT
OR DELAY A CHANGE IN CONTROL OF OUR COMPANY, WHICH COULD HARM OUR STOCK PRICE.
Delaware corporate law and our certificate of incorporation contain
provisions that could delay, defer or prevent a change in control of our company
or our management. These provisions could also discourage proxy contests and
make it more difficult for you and other stockholders to elect directors and
take other corporate actions. As a result, these provisions could limit the
price that investors are willing to pay in the future for shares of our common
stock. Our certificate of incorporation authorizes the board of directors to
issue preferred stock with rights senior to the common stock without obtaining
prior stockholder approval.
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<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology, including "may," "will," "should," "expect," "plan,"
"anticipate," "intend," "believe," "estimate," "predict," "potential" or
"continue" or the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined under "Risk Factors." Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus to conform these statements to actual results.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares being offered at an
assumed initial public offering price of $ per share are estimated to be
$ million, after deducting the underwriting discount and estimated offering
expenses payable by us, or $ million if the underwriters' over-allotment
option is exercised in full.
We primarily intend to use the net proceeds of this offering to increase the
capacity of our existing network through leases for additional satellite
transponder space and fiber optic capacity, increase our sales and marketing
personnel and activities, increase our working capital and for other general
corporate purposes.
We may use a portion of the net proceeds of this offering to acquire or
invest in businesses, products, services or technologies complementary to our
current business, through mergers, acquisitions, joint ventures or otherwise.
However, we have no specific agreements or commitments with respect to these
transactions. Accordingly, our management will retain broad discretion as to the
allocation of the net proceeds of this offering. We intend to invest the net
proceeds of this offering in short-term, interest-bearing investment grade
securities pending the above uses.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999 on
an actual, pro forma and pro forma as adjusted basis. All share numbers give
effect to our for stock split which will occur prior to completion of
the offering.
The Actual column reflects our capitalization as of December 31, 1999 on a
historical basis, without any adjustments to reflect subsequent events or
anticipated events.
The Pro Forma column reflects conversion of our outstanding shares of
preferred stock into 3,000,000 shares of our common stock upon completion of the
offering.
The Pro Forma As Adjusted column reflects our capitalization as of
December 31, 1999 with the receipt of the estimated net proceeds from our sale
of shares of common stock at an assumed initial public offering price of
$ per share and the conversion of our outstanding shares of preferred stock
into 3,000,000 shares of our common stock upon completion of the offering.
None of the columns set forth below reflects the 3,022,666 shares reserved
for issuance under our stock option plans, of which 2,817,584 shares were
subject to outstanding options as of December 31, 1999.
The table below should be read in conjunction with our balance sheet as of
December 31, 1999 and the related notes, which are included at the end of this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
ACTUAL (UNAUDITED) (UNAUDITED)
--------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Capital leases(1)........................... $40,807 $40,807 $40,807
Mandatorily redeemable preferred stock,
$.001 par value:
Authorized--3,000,000 shares
Issued and outstanding
3,000,000 shares, actual
no shares, as adjusted................ 14,824 -- --
Stockholders' equity (deficit):
Common stock, $.001 par value:
Authorized--50,000,000 shares
Issued and outstanding
12,193,897 shares, actual
15,193,897 shares, pro forma.......... 12 15
shares, pro forma as adjusted
Additional paid-in capital................ 45,124 59,945
Stockholder receivables................... (35) (35)
Deferred compensation..................... (30,585) (30,585)
Other comprehensive income................ 2 2
Deficit................................... (12,126) (12,126)
------- ------- -------
Stockholders' equity.................... 2,392 17,216
------- ------- -------
Total capitalization.................. $58,023 $58,023
======= ======= =======
</TABLE>
- -------------------
(1) Includes current maturities.
17
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $16.8 million or $1.11 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities and divided by the total number of shares of
common stock outstanding, assuming conversion of our outstanding preferred
stock. Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of common stock in
this offering and the pro forma net tangible book value per share of common
stock immediately after the completion of this offering. After giving effect to
the sale of shares of common stock offered by us at an assumed
initial public offering price of $ per share, and after deducting the
underwriting discount and estimated offering expenses payable by us, our pro
forma net tangible book value at December 31, 1999 would have been approximately
$ million or $ per share of common stock. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing common stock in this offering. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering.................................................. $ 1.11
Increase per share attributable to new investors............
--------
Pro forma net tangible book value per share after the
offering..................................................
--------
Pro forma net tangible book value dilution per share to new
investors................................................. $
========
</TABLE>
The following table summarizes on a pro forma basis, after giving effect to
this offering, as of December 31, 1999, the differences between the existing
stockholders and new investors with respect to the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid (based upon an assumed initial public offering price of
$ per share and before deducting the underwriting discounts and commissions
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................... 15,193,897 % $27,062,946 % $ 1.78
New investors...........................
---------- -----------
Totals.................................. % $ %
========== ====== =========== ======
</TABLE>
The preceding tables assume conversion of the preferred stock and no
exercise of the underwriters' over-allotment option and exclude 3,022,666 shares
of common stock reserved for issuance under our stock option plans, of which
2,817,584 were subject to outstanding options as of December 31, 1999 at a
weighted average exercise price of $3.52 per share. To the extent these options
are exercised, there will be further dilution to new investors. See
"Management--Option Plans" and Notes 7 and 12 of the Notes to Consolidated
Financial Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read the selected consolidated financial information set forth
below in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes appearing at the end of this prospectus. The consolidated
statement of operations data set forth below for the fiscal years ended
December 31, 1997, 1998 and 1999 and the selected consolidated balance sheet
data as of December 31, 1999 have been derived from our audited consolidated
financial statements appearing at the end of this prospectus. From inception
until December 31, 1996, we generated an insignificant amount of revenue, as
operations were limited and consisted primarily of start-up activities. The
historical results are not necessarily indicative of results to be expected for
any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Network services................................. $ 583 $ 4,115 $ 10,789
Traditional telecom services..................... 1,176 7,295 2,685
------------ ------------ ------------
Total revenue.................................. 1,759 11,410 13,474
------------ ------------ ------------
Operating expenses:
Cost of network services......................... 458 5,789 11,285
Cost of traditional telecom services............. 548 5,023 1,329
Selling and marketing expenses................... 132 828 2,397
General and administrative expenses.............. 454 1,098 4,686
Non-cash compensation charges.................... -- -- 2,488
Depreciation and amortization.................... 9 88 1,346
------------ ------------ ------------
Total operating expenses....................... 1,601 12,826 23,531
------------ ------------ ------------
Income (loss) from operations...................... 158 (1,416) (10,057)
Other income (expense)............................. 1 20 (832)
------------ ------------ ------------
Income (loss) before provision for income taxes.... 159 (1,396) (10,889)
Provision (benefit) for income taxes............... 70 (68) 1
------------ ------------ ------------
Net income (loss).................................. 89 (1,328) (10,890)
============ ============ ============
Basic and diluted income (loss) per common share... $ 0.01 $ (0.16) $ (1.05)
============ ============ ============
Weighted average number of common shares........... 7,250 8,412 10,392
============ ============ ============
Pro forma basic and diluted loss per common share
(unaudited)...................................... $ (1.01)
============
Weighted average number of common shares used to
compute pro forma loss per common share
(unaudited)...................................... 10,803
============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1999
-------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash........................................................ $ 15,948
Total assets................................................ 64,291
Capital leases, net of current portion...................... 38,669
Mandatorily redeemable preferred stock...................... 14,824
Deficit..................................................... (12,126)
Stockholders' equity........................................ 2,392
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES APPEARING AT THE END OF THIS PROSPECTUS. OUR
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS
THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. ACTUAL RESULTS AND THE TIMING OF EVENTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS
A RESULT OF A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS,"
"BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We operate a satellite-based broadband Internet network that delivers
high-speed Internet services to international ISPs and other businesses in more
than 80 countries. Our proprietary network design integrates the broadcast
capabilities of satellites with Internet networking technologies to offer our
international customers a scalable solution to the constraints of the public
Internet infrastructure. Our global network's open technical architecture
enables us to provide three categories of Internet services: global high-speed
broadband connectivity to the Internet backbone, enhanced Internet services,
such as Internet telephony, and Internet content distribution, such as newsfeeds
and streaming media. From December 31, 1998 to December 31, 1999, we increased
the number of our customers from 69 to 343 and as of February 15, 2000 we had
468 customers worldwide.
We were incorporated in California in August 1995 under the name
"Territorial Media, Inc." and we changed our name to "InterPacket Group, Inc."
in June 1996. In November 1999, we reincorporated in the State of Delaware under
the name "InterPacket Group, Inc." and changed our name to "InterPacket
Networks, Inc." in February 2000. In 1997 and most of 1998, we generated most of
our revenues through the sale of traditional telecom services, consisting of
traditional switch-based telephony. At that time our primary customer was STAR
Telecommunications, Inc., an international long distance company. In the third
quarter of 1998, we began to focus our sales and marketing efforts on the
delivery of broadband Internet services and began to offer our ESPRESSO
connectivity product worldwide. While we continued to provide traditional
telecom services in 1999, we have stopped actively soliciting customers for this
area of our business and, over time, we have allowed that particular customer
base to gradually decline. For the year ending December 31, 2000 and beyond, we
do not anticipate generating any meaningful revenue from traditional telecom
services.
REVENUE
We have derived revenue from two sources, the sale of high performance
Internet-based network services, including connectivity and multi-point
newsfeeds, and the sale of traditional telecom services. Revenue from network
services is derived from monthly fees payable by international ISPs for the
delivery of services. The amount of these fees varies, depending on the level of
bandwidth contracted for our customers and the nature of the other Internet
services that we deliver to them. Our international ISP customers are billed for
connectivity services and those fees are generally collected on a monthly basis,
in advance. Revenue is recognized in the month that our network services are
provided. Our ESPRESSO VOICE services will be billed to the customer monthly,
based on minutes of use, after the month of usage with revenue recognized at the
time of usage. To date, we have not been subject to any material currency or
collection risk from our network services business, as most of our customers are
billed in U.S. dollars prior to the delivery of services. Our risk of collection
will increase in future periods to the extent we increase revenue from
international telephony services, as these services are billed after delivery
based on minutes of use. We also believe that our currency risk will increase if
we begin to accept payment for our network services in foreign currencies. In
1999, we derived a significant majority of our revenue through the sale of
20
<PAGE>
network services and in 2000, we anticipate that substantially all of our
revenue will be derived from this business area.
In 1997 and 1998, we derived a majority of our revenue from the sale of
traditional telecom services transmitted over a traditional switched-based
network. Traditional telecom services are billed on a monthly basis after the
month of usage based on minutes carried over our network. Revenue is recognized
at the time of customer usage. In current periods, we have greatly reduced the
delivery of traditional telecom services and expect revenue from such services
to decline significantly in future periods. We also intend to provide all of our
future telephony services over our network and the Internet, via our ESPRESSO
VOICE service.
COST OF NETWORK SERVICES
Our cost of network services consists primarily of leasing costs
attributable to satellite transponder space, teleports, equipment, expenses
attributable to leased fiber optic cable lines and Internet backbone
interconnection costs. The life of our satellite transponder space leases
accounted for in cost of network services ranges from one to five years and is
typically less than one year for our fiber optic cable lines. We anticipate an
increase in network services expenses in future periods as we expand our
Internet services.
COST OF TRADITIONAL TELECOM SERVICES
Cost of traditional telecom services consists primarily of the
rate-per-minute charges of the telecommunications vendors that terminate our
switch-based telephone traffic for us. We do not anticipate incurring any
meaningful traditional telecom services expenses for the year ending
December 31, 2000 and beyond, as we convert our remaining switch-based telecom
business to ESPRESSO VOICE.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses consist of salaries, commissions and related
expenses for personnel engaged primarily in sales, marketing, customer service,
professional service expenses and travel and trade show expenses. We anticipate
that selling and marketing expenses will increase in future periods, both in
absolute dollars and as a percentage of revenues, as we add sales staff and
increase our presence internationally through, among other things, the
establishment of sales offices abroad.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist of salaries and related expenses
for executive, administrative and operational personnel and other general
corporate expenses. We expect general and administrative expenses to increase,
both in absolute dollars and as a percentage of revenues, in future periods as
we expand our executive and support staff and incur additional costs relative to
the growth of our business.
NON-CASH COMPENSATION CHARGES
Non-cash compensation charges consist of the amortization of deferred stock
compensation resulting from the grant of stock options or purchase of shares of
stock at exercise or sale prices subsequently deemed to be less than the fair
value of the common stock on the grant date as well as charges relating to the
accelerated vesting of stock options. This amount is included as a reduction of
stockholders' equity and is amortized ratably over the vesting period of the
individual options, generally three years. In 1999, the non-cash compensation
charge was $2.5 million and we expect it to be $10.4 million in each of 2000 and
2001 and $9.8 million in 2002, based on options issued prior to December 31,
1999.
21
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization is generated primarily from our leased
satellite transponders, high speed routers and other equipment and peripherals
necessary to provide our customers with our network services. With a portion of
the proceeds of this offering we intend to purchase indefeasible rights of use
on transoceanic fiber optic cable systems. We also intend to enter into
additional long-term leases for satellite transponder space and we will account
for these leases as capital items. Thus, we expect depreciation to increase
significantly, both in absolute dollars and as a percentage of revenue, in
future periods.
OTHER INCOME (EXPENSE)
Other income consists of earnings on our cash and cash equivalents. Other
expense consists primarily of interest expense on our capitalized satellite
transponder space leases. We anticipate that our interest expense will continue
to increase as we lease additional satellite transponder space.
We intend to continue investment in our network and personnel to support the
growth and expansion of our business, and we do not expect to be profitable in
the foreseeable future.
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data as a
percentage of revenue for the periods indicated. This information should be read
in conjunction with the consolidated financial statements and notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Network services.................................... 33% 36% 80%
Traditional telecom services........................ 67 64 20
---- ----- -----
Total revenue..................................... 100% 100% 100%
Operating expenses:
Cost of network services............................ 26 51 84
Cost of traditional telecom services................ 31 44 10
Selling and marketing expenses...................... 8 7 18
General and administrative expenses................. 26 10 35
Non-cash compensation charges....................... -- -- 18
Depreciation and amortization....................... 1 1 10
Total operating expenses.......................... 91 112 175
Income (loss) from operations....................... 9 (12) (75)
Other income (expense)................................ -- -- (6)
Income (loss) before provision for income taxes....... 9 (12) (81)
Provision (benefit) for income taxes.................. 4 1 --
Net income (loss)..................................... 5% (12)% (81)%
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE
Network services revenue increased 162% from $4.1 million in 1998 to
$10.8 million in 1999. Revenue from traditional telecom services decreased 63%
from $7.3 million in 1998 to $2.7 million in 1999. Our network services revenue
increased due to growth in the number of new ISP customers, as well as an
increase in sales to existing ISP customers as a result of bandwith upgrades.
Revenue from the sale of traditional telecom services declined as we began to
de-emphasize traditional switch-based telephone
22
<PAGE>
services and focus our sales efforts almost entirely on network services. In
2000 and beyond, we do not anticipate the generation of meaningful revenue from
traditional telecom services.
OPERATING EXPENSES
COST OF NETWORK SERVICES. Cost of network services increased 95% from
$5.8 million in 1998 to $11.3 million in 1999 but decreased as a percentage
network services revenue from 141% in 1998 to 105% in 1999. This absolute
increase was due to investments in our network infrastructure, particularly
increased satellite transponder space and fiber optic capacity, to support
current and anticipated future growth in revenue. We expect our cost of network
services to continue to grow, as we plan to aggressively pursue the expansion of
our Internet services to new customers and markets.
COST OF TRADITIONAL TELECOM SERVICES. Cost of traditional telecom services
decreased 74% from $5.0 million in 1998 to $1.3 million in 1999 and decreased as
a percentage of traditional telecom services revenue from 69% in 1998 to 49% in
1999. The absolute reduction in expenses was a result of deemphasizing
traditional telecom services.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
189% from $828,000 in 1998 to $2.4 million in 1999. As a percentage of revenues,
selling and marketing expenses increased from 7% to 18% period to period. These
expenses increased primarily as a result of increased staffing levels in all
areas of the company, and increased sales and marketing efforts to grow our
network services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 327% from $1.1 million in 1998 to $4.7 million in 1999. As a
percentage of revenues, general and administrative expenses increased from 10%
to 35% period to period, primarily due to our increase in staff and additional
facility costs.
NON-CASH COMPENSATION CHARGE. Non-cash compensation charge was
$2.5 million in 1999. We did not have a non-cash compensation charge in 1998.
The remaining deferred compensation of $30.6 million will be amortized ratably
over the vesting period of the individual options generally three years.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
1,438% from $88,000 in 1998 to $1.3 million in 1999. This increase was primarily
due to the depreciation of equipment needed to accommodate our growing customer
base including capital leases for satellite transponder space. We expect
depreciation to increase in absolute dollars and as a percentage of revenues as
we further develop and expand our network by acquiring transoceanic fiber optic
cable lines and enter into long term leases for satellite transponder space that
we intend to account for as capital items.
OTHER INCOME (EXPENSE). Other income (expense) decreased from net other
income of $20,000 in 1998 to a net other expense of $832,000 in 1999. This
increase in net expense was primarily due to an increase in interest expense of
$943,000 relating to increased acquisitions of capital assets, partially offset
by an increase in interest income of $183,000.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE
Revenue from network services increased 606% from $583,000 in 1997 to
$4.1 million in 1998. Revenue from traditional telecom services increased 520%
from $1.2 million in 1997 to $7.3 million in 1998. Revenue from network services
increased primarily due to growth in the number of new international ISP
customers. Revenue from traditional telecom services grew due to the addition of
new international destinations during the latter part of 1997 and throughout
1998.
23
<PAGE>
OPERATING EXPENSES
COST OF NETWORK SERVICES. Cost of network services increased 1,164% from
$458,000 in 1997, to $5.8 million in 1998. This increase was due to investments
in our network infrastructure to support current and anticipated future growth
in network services revenue.
COST OF TRADITIONAL TELECOM SERVICES. Cost of traditional telecom services
increased 817% from $548,000 in 1997 to $5.0 million in 1998. This increase was
due primarily to our purchasing telecom services from third parties to enable us
to offer telecom services to specific high volume international destinations
through the latter part of 1997 and through the first three quarters of 1998.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
529% from $132,000 in 1997 to $828,000 in 1998. As a percentage of revenue,
selling and marketing expenses remained relatively constant at approximately 7%
of revenue from period to period. These expenses increased primarily as a result
of increased staffing levels in all areas and increased sales and marketing
efforts coinciding with the growth of our network services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 142% from $454,000 in 1997 to $1.1 million in 1998, primarily as a
result of increased staffing levels in all areas of the company coinciding with
the growth in revenues. As a percentage of revenue, general and administrative
expenses decreased from 26% in 1997 to 10% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 833%
from $9,000 in 1997 to $88,000 in 1998. This increase is primarily due to the
depreciation of equipment needed to accommodate the increase in our growing
customer base for network services.
OTHER INCOME (EXPENSE). Net other income increased $19,000 from a net other
income of approximately $1,000 in 1997 to $20,000 in 1998. The increase is
primarily due to a $22,000 increase in interest income from investing funds
raised from private placements of common stock.
24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statement of operations
data for the eight quarters ended December 31, 1999. This unaudited quarterly
information has been derived from our unaudited financial statements and, in the
opinion of our management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the periods covered. The quarterly data should be read in conjunction with our
consolidated financial statements and related notes. The operating results for
any quarter are not necessarily indicative of the operating results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Network services................. $ 508 $ 690 $1,404 $ 1,513 $ 1,916 $ 2,149 $ 2,997 $ 3,727
Traditional telecom services..... 484 1,288 3,479 2,044 1,160 752 513 260
------ ------ ------ ------- ------- ------- ------- -------
Total revenue.................. 992 1,978 4,883 3,557 3,076 2,901 3,510 3,987
------ ------ ------ ------- ------- ------- ------- -------
Operating expenses:
Cost of network services......... 564 1,005 1,803 2,417 2,456 2,800 2,792 3,237
Cost of traditional telecom
services....................... 341 833 2,138 1,711 900 204 72 153
Selling and marketing expenses... 93 149 305 281 357 486 606 948
General and administrative
expenses....................... 143 235 255 465 511 641 1,535 1,999
Non-cash compensation charges.... -- -- -- -- -- 145 171 2,172
Depreciation and amortization.... 6 16 27 39 44 68 351 883
------ ------ ------ ------- ------- ------- ------- -------
Total operating expenses....... 1,147 2,238 4,528 4,913 4,268 4,344 5,527 9,392
------ ------ ------ ------- ------- ------- ------- -------
Income (loss) from operations...... (155) (260) 355 (1,356) (1,192) (1,443) (2,017) (5,405)
Other income (expense)............. 5 5 3 7 8 26 (250) (617)
Provision (benefit) for income
taxes............................ (60) (8) 51 (51) -- -- -- --
------ ------ ------ ------- ------- ------- ------- -------
Net income (loss).................. $ (90) $ (247) $ 307 $(1,298) $(1,184) $(1,417) $(2,267) $(6,022)
====== ====== ====== ======= ======= ======= ======= =======
</TABLE>
25
<PAGE>
The following table sets forth certain selected items from our unaudited
quarterly statements of operations as a percentage of revenue for the quarters
indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Network services.................. 51% 35% 29% 43% 62% 74% 85% 93%
Traditional telecom services...... 49 65 71 57 38 26 15 7
--- --- --- --- ---- ---- ---- ----
Total revenue................... 100% 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Cost of network services.......... 57 51 37 68 80 97 80 81
Cost of traditional telecom
services........................ 34 42 44 48 29 7 2 4
Selling and marketing expenses.... 9 8 6 8 12 17 17 24
General and administrative
expenses........................ 14 12 5 13 17 22 44 50
Non-cash compensation charge...... -- -- -- -- -- 5 5 54
Depreciation and amortization..... 1 1 1 1 1 2 10 22
Total operating expenses........ 116 113 93 138 139 150 157 236
Income (loss) from operations....... (16) (13) 7 (38) (39) (50) (57) (136)
Other income (expense).............. 1 0 0 0 0 1 (7) (15)
Provision (benefit) for income
taxes............................. (6) 0 1 (1) 0 0 0 0
Net income (loss)................... (9)% (12)% 6% (36)% (38)% (49)% (65)% (151)%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of common stock and preferred stock, which through December 31, 1999,
totaled approximately $26.8 million. Net cash provided by financing activities
was $25.4 million in 1999, and $255,000 in 1998. Net cash provided by financing
activities in 1999 resulted primarily from the sale of $4.5 million of our
common stock through our private placements in April and $6.7 million in
September and from the sale of $14.8 million of our preferred stock through our
private placement in November. Net cash provided by financing activities in 1998
consisted primarily of proceeds from the sale of common stock to individual
investors of $250,000.
Net cash used in operating activities was approximately $6.9 million in
1999, compared to cash provided by operations of $438,000 in 1998. Net cash used
in operating activities in 1999 resulted primarily from the net operating loss.
Net cash used in investing activities was $2.6 million in 1999, and $691,000
in 1998. Net cash used in investing activities for each of these periods
resulted primarily from purchases of property and equipment.
As of December 31, 1999 we had $15.9 million of cash. As of that date, our
principal commitments consisted of obligations outstanding under capital and
operating leases for satellite transponder space and related facilities, for
which we have contractual commitments of $18.0 million for the next 12 months.
We anticipate a substantial increase in our lease commitments and our cash
needs, consistent with the anticipated growth in operations and infrastructure,
including additional satellite transponder space and the acquisition of fiber
optic cable capacity.
We also entered into additional capital leases, consistent with the planned
expansion of our network infrastructure requiring $569,000 over the next year
and approximately $56.5 million through 2013. We anticipate that we will
continue to experience significant growth in our operating expenses for the
foreseeable future and that our operating expenses will be a material use of our
cash resources. Also, we
26
<PAGE>
anticipate substantial expenditures and use of cash resources in our efforts to
expand our international ISP customer base.
We currently anticipate that the net proceeds of this offering, together
with funds on hand, will be sufficient to meet our anticipated needs for working
capital and capital expenditures through at least the next 12 months.
Alternatively, if we are delayed or are not successful in raising funds in the
offering, we may have to take certain steps, such as delaying the acceptance of
services under our fixed fee contracts or renegotiating certain long-term
contracted obligations, to reduce our regular capital needs. We will also have
to seek capital in the private marketplace, which, if available at all, may be
at lower valuations than would be available in the public market. We may also
need to raise additional funds prior to the expiration of such period if, for
example, we pursue acquisitions or experience operating losses that exceed our
current expectations. In any event, we cannot be certain that additional
financing will be available to use on favorable terms when required, or at all.
YEAR 2000 READINESS DISCLOSURE
We have designed our network and our services for use in the year 2000 and
beyond. As of February 15, 2000, we had not experienced any significant issues
as a result of year 2000 problems and do not anticipate incurring material
incremental costs in future periods due to such issues. Many of our customers
are relatively small and located in lesser-developed countries, rely on aging
telecommunications infrastructures for a link to the Internet backbone and may
not have conducted a year 2000 compliance review. Although most year 2000
problems should have become evident on January 1, 2000, additional
year 2000-related problems may become evident only after that date. For example,
some software programs may have difficulty resolving the so-called "century leap
year" algorithm which will also occur during the year 2000. We do not have any
specific contingency plans for any year 2000 problems that may arise in the
future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We provide services primarily to customers located outside of the U.S. Thus,
our financial results could be impacted by foreign currency exchange rates and
market conditions abroad. As all of our services are paid for in U.S. dollars, a
strong dollar could make the cost of our services more expensive than the
services of non-U.S. based providers in foreign markets. We have not used
derivative instruments to hedge our foreign exchange risks though we may choose
to do so in the future. Our interest income is sensitive to changes in U.S.
interest rates but we do not believe that we are subject to any material market
risk exposure.
27
<PAGE>
BUSINESS
OVERVIEW
We operate a satellite-based broadband Internet network that delivers
high-speed Internet services to international ISPs and other businesses in more
than 80 countries. Our proprietary network design integrates the broadcast
capabilities of satellites with Internet networking technologies to offer our
international customers a scalable solution to the constraints of the public
Internet infrastructure. Our global network's open technical architecture
enables us to provide three categories of Internet services: global high-speed
broadband connectivity to the Internet backbone, enhanced Internet services,
such as Internet telephony, and Internet content distribution, such as newsfeeds
and streaming media. From December 31, 1998 to December 31, 1999, we increased
the number of our customers from 69 to 343 and as of February 15, 2000 we had
468 customers worldwide.
INDUSTRY BACKGROUND
THE EXPANSION OF THE INTERNET
Strain on the worldwide Internet infrastructure is increasing, especially
outside the U.S., as the number of Internet users grows and as their bandwidth
needs expand. Connectivity provides access to the Internet and, once
established, avails Internet users of a variety of services, including Web site
browsing, content downloading, personal and business messaging, e-commerce, VoIP
and streaming audio and video broadcasting. eStats estimates that the number of
active Internet users worldwide will grow from approximately 95 million in 1998,
of which approximately 50% resided outside of the U.S., to approximately
282 million by the end of 2002, of which approximately 69% will reside outside
of the U.S. Once online, users quickly become more selective, demanding faster,
more reliable access, a broad choice of Internet-based services from their ISPs
and richer, more interactive Web sites. Despite an anticipated expansion in the
number of Internet users worldwide, advances in the global telecommunications
infrastructure and the public Internet have failed to keep pace with user
demand. When connecting to and navigating the Internet, international ISPs and
their subscribers suffer numerous problems caused by limited access to the
Internet backbone, poor telecommunications infrastructure and low bandwidth
availability. These difficulties are likely to increase as demand grows for rich
Internet content, such as streaming audio and video.
The table below sets forth the estimated worldwide growth in active Internet
users from 1998 to 2002 on a region-by-region basis based on eStats estimates:
ESTIMATED WORLDWIDE GROWTH OF ACTIVE INTERNET USERS
1998 - 2002
(IN MILLIONS OF USERS)
<TABLE>
<CAPTION>
1998 2002
------------------- -------------------
REGION TOTAL % TOTAL % CAGR (1)
- ------ -------- -------- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Europe................................................. 24.6 25.8% 84.3 29.9% 36.1%
Asia and Pacific Rim................................... 14.1 14.8 60.7 21.5 44.0
Latin America (includes Mexico)........................ 1.6 1.7 26.6 9.4 101.9
Africa and Middle East................................. 1.2 1.2 12.3 4.4 78.9
North America (U.S. and Canada only)................... 53.9 56.5 98.1 34.8 16.2
----- ----- ----- ----- -----
Total................................................ 95.4 100.0% 282.0 100.0% 31.1%
</TABLE>
- -------------------
(1) Compounded Annual Growth Rate from 1998-2002
28
<PAGE>
GLOBAL INFRASTRUCTURE CHALLENGES
The Internet relies on the global telecommunications infrastructure to
deliver an increasing variety of business applications and media. At the same
time, the swift growth of the Internet outside the U.S. and Europe is
constrained by the inadequacy of that infrastructure. In many parts of the
world, fiber-based Internet service is unavailable and other terrestrial
connections may be unreliable or in short supply due to the quality and
availability of local PTT facilities. For many of our customers, PTTs are their
sole source of telecommunications services. ISPs in many international markets
must overcome bottlenecks such as limited access to the Internet backbone, poor
network architecture and telecommunications infrastructure and a relative lack
of bandwidth provisioning from the local telecommunications provider. Network
performance may also be adversely affected by the inherent asymmetry of Web
traffic, where most of the bandwidth required is for the receipt of Web pages
from the Internet by the user. Network performance may be further diminished by
the necessity of routing data across multiple hops, or links, through multiple
networks. These shortcomings can severely impact the network performance of an
ISP and the quality of service that it provides to its subscribers.
Even in the U.S. and Europe, where broadband connectivity is more widely
available than in the rest of the world, the public Internet infrastructure
nevertheless requires multiple hops between routers to get from one point to
another reducing the quality and efficiency of the network. The Internet's
current infrastructure is poorly designed to efficiently transmit to other
countries increasingly bandwidth-intensive Internet content, such as
broadcast-style programming, streaming media, large graphics and animation. Web
site owners, traditional entertainment and media companies, Internet media
companies and creators of new online applications are making greater demands on
the public Internet infrastructure with the transmission of graphics,
high-definition images, video and audio streaming, animation and software
downloads.
Companies that aggregate Internet content and store it in servers close to
end users, or edge servers, provide only part of the solution to the public
Internet limitations. Content distributors and aggregators need a means to
deliver data to their servers in an efficient manner. Repeatedly sending
individual point-to-point transmissions to thousands of servers around the world
is a costly and inefficient use of bandwidth and has the potential to
significantly increase Internet infrastructure congestion.
FACILITATING THE CONTINUED GROWTH OF THE INTERNET
A number of Internet companies have attempted to address the international
architectural limitations of the Internet and the demand for bandwidth-intensive
Internet content. Caching, or the frequent storage of commonly accessed Internet
data and images in a server closer to the end user, offers a hardware and
software solution to reduce transmission costs and delays. Outsourced Web server
management by content hosting companies enables Web sites to increase server
reliability by establishing servers on multiple points on the Internet.
Terrestrial broadband services are being advanced by traditional
telecommunications companies and Internet backbone providers in an effort to
address the last mile limitation for Internet users.
Ultimately, none of these solutions sufficiently address the inherent
infrastructure limitations abroad. Caching requires expensive hardware and
software and does not address the need of Web site owners to continually deliver
their high performance Internet content reliably across the many interconnecting
networks that comprise the Internet. Web hosting is not designed to avoid
transmission disruption difficulties encountered as data and content traverse
the public Internet to the end user. Last mile solutions must rely on
terrestrial network connections and do not avoid congestion or degradation of
quality that arise as transmissions pass through various infrastructure
intersections across the Internet.
Conversely, satellites deliver Internet services and broadcast content in a
simultaneous point-to-multipoint manner to locations throughout the world.
Satellite-based networks overlay the public Internet around the world, reducing
hops, which avoids bottlenecks, improves broadcast quality, lowers
29
<PAGE>
distribution costs and expands the availability of content to Internet users
worldwide. When comprehensively managed in a network that intelligently
integrates satellite and Internet protocol technologies, satellites are able to
reach remote places inadequately served by local telecommunications
infrastructures and can make broadband connectivity and the resulting flow of
e-commerce, rich content, and broadcast programming globally available.
THE INTERPACKET SOLUTION
Our broadband satellite-based Internet network overlays the public Internet
around the world and offers solutions to many of the current global Internet
infrastructure limitations. Our network currently incorporates nine
geostationary satellites, uplinked from six strategically located teleports, or
earth-based satellite transmission stations, and allows for the rapid delivery
of broadband Internet connectivity worldwide. ESPRESSO, and ESPRESSO BIZKIT, our
branded satellite-based Internet connectivity services, supplement or bypass
local and international telecommunications connections, enabling our ISP
customers to deliver a more reliable, higher quality of Internet service to
their subscribers. Our enhanced Internet services, including ESPRESSO VOICE, our
Internet telephony service, are complementary to the broadband access we provide
to our international ISP customers and create additional revenue opportunities.
The broadcast capabilities of our satellite network also create an
efficient, reliable means for Internet content aggregators to multicast, or
transmit, bandwidth-intensive forms of rich, Web-based content simultaneously to
multiple locations around the world. We currently broadcast ESPRESSO NEWS, our
aggregated newsfeed, and we recently entered into an agreement with iBEAM to
deliver streaming content around the world.
Our satellite-based Internet network and services feature:
SCALABLE, PROPRIETARY AND GLOBAL NETWORK DESIGN. Our network incorporates a
proprietary design to integrate the broadcast capabilities of satellites with
Internet networking technologies to connect our international ISP customers to
the Internet backbone. Our network currently incorporates nine geostationary
satellites, uplinked from six strategically located teleports, which enable the
transmission of data from terrestrial to satellite-based networks. The design of
our network is scalable, allowing us to rapidly and cost-effectively add
satellite and fiber optic cable capacity in response to our customers' Internet
needs.
HIGH QUALITY, BRANDED SERVICE. ESPRESSO, our primary Internet connectivity
service, provides a high quality, direct connection to the Internet backbone.
ESPRESSO supplements or bypasses the Internet connections available to
international ISPs from their local telecommunications providers. This reduces
reliance on local Internet infrastructure and enables our ISP customers to
deliver more reliable, higher quality Internet services to their subscribers. We
believe ESPRESSO is a well known brand name in the international ISP
marketplace.
RAPID PROVISIONING. The simplex, or receive only, format of ESPRESSO allows
us to activate our new customers quickly and helps our customers avoid the costs
and delays of acquiring transmission facilities and regulatory approvals. Our
network and our customer service group deliver rapid provisioning of initial
Internet connectivity and subsequent bandwidth upgrades to our customers. This
system allows our ISP customers to avoid making the significant capital
investments necessary to establish and maintain fixed levels of bandwidth. Thus,
our ISP customers are afforded a cost-effective, pay-as-they-grow means to
increase the level of access and Internet services that they offer to their
subscribers.
ENHANCED INTERNET SERVICES. The broadband capacity of our network
facilitates the delivery of complementary Internet-based services to our ISP
customers. ESPRESSO VOICE enables our customers to route phone-to-phone calls
over our network in a cost-effective manner. Our ESPRESSO BIZKIT service
provides a direct-to-business Internet service through our ISP customers and
eliminates last mile connectivity issues for their business customers. We
recently initiated a managed co-location service with
30
<PAGE>
the introduction of ESPRESSO COLO, contracting with Exodus Communications, Inc.
and AboveNet Communications, Inc., to deliver Web-hosting services to our ISP
customers.
MULTICASTING CONTENT DELIVERY. The point-to-multipoint broadcast
capabilities of our satellite-based Internet network creates an efficient,
reliable means for Internet content aggregators to transmit streaming forms of
Web-based content simultaneously to multiple locations across the globe. Our
network is designed to enable content aggregators and distributors to deliver
streaming audio and video content distributors to Internet users worldwide. We
recently began multicasting ESPRESSO NEWS, our aggregated newsfeed, to customers
in Western Europe, including the United Kingdom.
CUSTOMER-FOCUSED NETWORK MANAGEMENT AND SUPPORT. Our experienced network
management team is able to customize sophisticated Internet solutions to meet
the needs of growing international ISPs. We are able to proactively manage
operations and solutions and can help our customers operate more efficiently in
an ever-changing Internet marketplace. Our network operations centers in Santa
Monica and London allow our technical staff to actively monitor the status and
performance of our network and customers on a 24 hour, seven day a week basis.
OUR STRATEGY
Our goal is to become the leading provider of global satellite Internet
connectivity and services by building the world's largest, premier quality and
cost-efficient satellite network. We also intend to capitalize on our
proprietary network design, our network's broadband capabilities, and the global
reach of our satellite coverage to offer content delivery to Internet content
aggregators. To achieve this goal we intend to:
INCREASE OUR GLOBAL CUSTOMER BASE. We had 468 customers worldwide as of
February 15, 2000. We intend to increase our customer base by growing our sales
force and aggressively marketing our Internet services through a variety of
marketing activities, such as direct marketing and participation at trade shows.
We believe that heightened recognition of our ESPRESSO brand and the high
quality of our Internet services among ISPs internationally will continue to
facilitate additional growth among new international ISP customers and establish
us as the leading provider of global satellite Internet connectivity, enhanced
Internet service and content multicasting.
CAPITALIZE ON OUR EARLY ENTRANT STATUS. We have aggressively deployed our
network in over 80 countries and have developed an international reputation for
providing high quality Internet connectivity and related services abroad using
our satellite overlay network. Our multilingual international sales and
marketing force of 36 individuals leverages our experience as one of the first
providers of satellite-based Internet services internationally and helps us
enter new countries and develop new business relationships. We intend to
continue to capitalize upon our reputation and experience as a leading provider
of satellite-based Internet services to the international ISP community.
BROADEN OUR INTERNET SERVICE OFFERINGS. We intend to continue to develop
additional Internet services and solutions that provide revenue-generating
opportunities. We plan to introduce caching, Internet applications delivery and
virtual private network services later this year. As the demand for additional
Internet services by our customers increases, their needs can be satisfied by
our network. We intend to continue to develop services that provide our ISP
customers with cost savings and with the Internet services they need to satisfy
the demands of their Internet users. The expansion of our Internet services also
serves to maintain the loyalty of our customers.
PROVIDE TURNKEY SOLUTIONS TO THE EMERGING INTERNET CONTENT INDUSTRY. We
intend to capitalize on the many advantages of our Internet network to become a
leading global supplier of managed satellite network services to the emerging
content aggregator industry. Our network serves as an overlay to the public
Internet around the world, offering content providers, distributors and
aggregators a turnkey solution to the many distribution difficulties caused by
the congestion and inadequate bandwidth capacities of the
31
<PAGE>
international Internet infrastructure. We hope to exploit this advantage and
offer our current and future content aggregator customers an efficient and
cost-effective means to broadcast their Internet products to ISPs, businesses
and other users around the world.
EXPAND OUR NETWORK INFRASTRUCTURE. We believe the increasing worldwide need
for Internet connectivity, services and rich content on demand will lead to a
greater need for our network. We intend to support and continue to assure the
quality and availability of our service with the acquisition of additional
satellite and fiber optic cable capacity. We will continue to pursue a strategy
of connecting to U.S. Internet backbone operators, regional satellite owners
abroad and operators of Internet exchange points to add regional and
intraregional links and make our Internet network more globally pervasive. We
believe that the sophistication of our satellite-based Internet network will
provide us a competitive advantage as the global Internet infrastructure expands
and evolves.
DEVELOP OUR STRATEGIC AND BUSINESS RELATIONSHIPS. We have entered into a
strategic relationship with iBEAM, which will enable us to derive revenue from
the emerging content distribution industry. We intend to pursue additional
strategic and business relationships to accelerate market acceptance of our
services and increase our global brand recognition. We believe that these
relationships will facilitate our efforts to become the world's premier
satellite-based Internet network.
INTERPACKET SERVICES
CONNECTIVITY
ESPRESSO. Our ESPRESSO connectivity service allows international ISPs to
use our global network of interconnected geostationary satellites and fiber
optic cable facilities to download content from the Internet at any time at
speeds ranging from 64 kilobits per second to 45 megabits per second. ESPRESSO'S
simplex, or receive-only, format offers advantages over more traditional leased
line connections, which are typically unable to accommodate asymmetrical
bandwidth requirements of the Internet. An international ISP may link to our
network and receive ESPRESSO service with the customer's existing Internet
links, regardless of the provider of those links. While we also offer duplex
service, or two-way transmission, our customers typically choose the simplex
format of ESPRESSO as it does not require transmission equipment and may be
activated quickly. Transmission equipment is more expensive than receive-only
equipment and typically requires a local transmission license, which can often
be time-consuming and costly to obtain.
We assign every ESPRESSO customer a committed information rate, or
guaranteed transmission throughput, according to their capacity needs and
budget. The committed information rate acts as our guarantee that the customer
will be able to access the U.S. Internet backbone at that data rate on a
24 hour a day, seven day a week basis. The monthly cost of an ESPRESSO link
varies from approximately $1,000 for a low-speed simplex link, ranging from 64
to 256 Kbps, to $200,000 or more for a dedicated 45 Mbps simplex link or a
high-speed duplex link, though prices vary considerably from continent to
continent based on facility costs, the particular satellite that we use and the
competition within the local market. The customer equipment for ESPRESSO, which
primarily includes a receive-only satellite dish, costs approximately $3,500 and
can be installed and operational within several hours.
Most existing terrestrial networks normally require a number of hops to
reach the Internet backbone, which increases latency, or delay, and potential
data loss and lowers the quality of service. ESPRESSO is a direct connection to
the Internet backbone, with only a single hop between the Internet backbone and
our ISP customer. Our technical ability to provide guaranteed bandwidth and the
ability to configure the connection for any desired degree of asymmetry are
attractive features of our ESPRESSO service that are not generally available
from traditional telecommunications service providers.
32
<PAGE>
[Graphic showing terrestrial hops to the Internet with satellite uplink and
ESPRESSO simplex downlink transmission]
ESPRESSO BIZKIT. We currently partner with over 40 of our ISP customers who
market our ESPRESSO BIZKIT application to their business customers seeking
significant download capacity. ESPRESSO BIZKIT is a high-speed receive-only
satellite service that allows the business subscriber to download data directly
from the Internet backbone via our network, eliminating connectivity and latency
issues in the last mile of terrestrial land lines. We believe that our ESPRESSO
BIZKIT application is an opportunity to expand our customer base to the
international corporate user market.
33
<PAGE>
INTERPACKET NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)
and Comprehensive Income for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE>
After the stock split discussed in Note 12 to InterPacket Networks, Inc.'s
consolidated financial statements is effective, we expect to be in a position to
render the following audit report.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 11, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InterPacket Networks, Inc.:
We have audited the accompanying consolidated balance sheets of InterPacket
Networks, Inc. (a Delaware corporation) and subsidiary as of December 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and comprehensive income and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly,
in all material respects, the financial position of InterPacket Networks, Inc.
and subsidiary as of December 31, 1998 and 1999, and the results of their
operations and their 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.
F-2
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
ASSETS
<TABLE>
<CAPTION>
PRO-FORMA
(SEE NOTE 8)
1998 1999 1999
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash.................................................. $ 1,855 $15,948,294 $15,948,294
Accounts receivable, net of allowance of
$16,600 and $140,200 at December 31, 1998
and 1999, respectively.............................. 369,742 1,333,914 1,333,914
Accounts receivable from related parties,
net of allowance of $63,400 at
December 31, 1998................................... 1,308,844 206,274 206,274
Inventory............................................. 161,047 1,063,090 1,063,090
Advances to stockholder and employees................. 42,280 68,485 68,485
Deposits.............................................. 116,778 5,000 5,000
Prepaid expenses and other assets..................... 64,263 161,396 161,396
---------- ----------- -----------
Total current assets............................ 2,064,809 18,786,453 18,786,453
---------- ----------- -----------
Property and Equipment:
Operating equipment................................... 681,462 2,319,687 2,319,687
Computer equipment.................................... 90,367 442,726 442,726
Furniture and fixtures................................ 9,124 76,836 76,836
Equipment under capital leases........................ -- 41,456,658 41,456,658
---------- ----------- -----------
780,953 44,295,907 44,295,907
Less--Accumulated depreciation........................ (98,929) (1,422,989) (1,422,989)
---------- ----------- -----------
682,024 42,872,918 42,872,918
---------- ----------- -----------
Deposits.............................................. 330,378 1,570,457 1,570,457
Deposits to related parties........................... -- 26,344 26,344
Intangible assets, net of amortization of $22,433..... -- 426,228 426,228
Other assets.......................................... -- 608,179 608,179
---------- ----------- -----------
Total assets.................................... $3,077,211 $64,290,579 $64,290,579
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PRO-FORMA
(SEE NOTE 8)
1998 1999 1999
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current Liabilities:
Bank overdraft............................................ $ 373,213 $ -- $ --
Accounts payable.......................................... 1,172,434 1,773,932 1,773,932
Accrued expenses.......................................... 931,807 1,804,938 1,804,938
Accounts payable and accrued expenses from related
parties................................................. 288,749 54,938 54,938
Deferred revenue.......................................... 681,671 1,831,711 1,831,711
Current portion of capital leases......................... -- 2,138,068 2,138,068
Customer deposits......................................... 352,657 751,835 751,835
Deposits from related party............................... 181,970 49,756 49,756
---------- ----------- -----------
Total current liabilities........................... 3,982,501 8,405,178 8,405,178
---------- ----------- -----------
Capital Leases, net of Current Portion...................... -- 38,669,292 38,669,292
---------- ----------- -----------
Mandatorily Redeemable Preferred Stock--$.001 par value:
Authorized--3,000,000 shares
Issued and outstanding--3,000,000 shares at December 31,
1999.................................................... -- 14,823,800 --
---------- ----------- -----------
Commitments and Contingencies (Note 4)
Stockholders' Equity (Deficit):
Common stock--$.001 par value:
Authorized--50,000,000 shares
Issued and outstanding--8,526,316 and 12,193,897
shares at December 31, 1998 and 1999 and 15,193,897
in pro forma 1999..................................... 8,526 12,193 15,193
Additional paid-in capital................................ 357,730 45,124,620 59,945,420
Stockholder receivables................................... (35,158) (35,158) (35,158)
Deferred compensation..................................... -- (30,585,462) (30,585,462)
Other comprehensive income................................ -- 2,173 2,173
Deficit................................................... (1,236,388) (12,126,057) (12,126,057)
---------- ----------- -----------
Stockholders' equity (deficit)...................... (905,290) 2,392,309 17,216,109
---------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)......................................... $3,077,211 $64,290,579 $64,290,579
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Network services..................................... $ 406,895 $ 2,283,701 $ 10,051,114
Revenue from related parties--network services....... 175,924 1,831,233 738,362
Revenue from related parties--traditional telecom
services........................................... 1,176,330 7,294,757 2,684,751
---------- ----------- ------------
Total revenue.................................. 1,759,149 11,409,691 13,474,227
Operating Expenses:
Cost of network services............................. 452,748 5,284,329 10,346,284
Cost of traditional telecom services................. 531,834 4,749,765 1,273,645
Cost from related parties............................ 21,246 777,724 993,292
Selling and marketing expenses....................... 131,714 828,120 2,396,857
General and administrative expenses.................. 429,435 1,017,567 4,297,178
General and administrative expenses
from related parties............................... 24,565 80,480 389,075
Non-cash compensation charges........................ -- -- 2,488,405
Depreciation and amortization........................ 9,390 87,569 1,346,493
---------- ----------- ------------
Total operating expenses....................... 1,600,932 12,825,554 23,531,229
---------- ----------- ------------
Income (Loss) from Operations.......................... 158,217 (1,415,863) (10,057,002)
Other Income (Expense):
Interest income...................................... 902 22,886 205,792
Interest expense..................................... (129) (110) (942,990)
Other................................................ -- (2,824) (94,669)
---------- ----------- ------------
773 19,952 (831,867)
---------- ----------- ------------
Income (Loss) before Provision for
Income Taxes......................................... 158,990 (1,395,911) (10,888,869)
Provision (Benefit) for Income Taxes................... 69,613 (68,013) 800
---------- ----------- ------------
Net Income (Loss)...................................... $ 89,377 $(1,327,898) $(10,889,669)
========== =========== ============
Basic and diluted income (loss) per common share....... $ 0.01 $ (0.16) $ (1.05)
========== =========== ============
Weighted average number of common shares............... 7,250,000 8,412,000 10,392,000
========== =========== ============
Pro forma basic and diluted loss per common share
(unaudited).......................................... $ (1.01)
============
Weighted average number of common shares used to
compute pro forma loss per common share
(unaudited).......................................... 10,803,000
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK OTHER RETAINED
--------------------- ADDITIONAL STOCKHOLDER DEFERRED COMPREHENSIVE EARNINGS
SHARES AMOUNT PAID-IN CAPITAL RECEIVABLES COMPENSATION INCOME (DEFICIT)
---------- -------- --------------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, at December 31,
1996...................... 6,316,000 $ 6,316 $ (3,158) $ (158) $ -- $ -- $ 2,133
Issuance of common stock.... 1,784,000 1,784 73,216 (40,000) -- -- --
Stockholder contributions... -- -- 38,098 -- -- --
Net income.................. -- -- -- -- -- -- 89,377
---------- ------- ----------- -------- ------------ ------ ------------
Balance, at December 31,
1997...................... 8,100,000 8,100 108,156 (40,158) -- -- 91,510
Issuance of common stock.... 426,316 426 249,574 -- -- -- --
Repayment of stockholder
note...................... -- -- -- 5,000 -- -- --
Net loss.................... -- -- -- -- -- -- (1,327,898)
---------- ------- ----------- -------- ------------ ------ ------------
Balance, at December 31,
1998...................... 8,526,316 8,526 357,730 (35,158) -- -- (1,236,388)
Issuance of common stock.... 3,590,247 3,590 11,556,573 -- -- --
Compensation expense
relating to issuance of
common stock.............. -- -- 1,775,954 -- -- --
Exercise of stock options... 77,334 77 136,450 -- -- -- --
Compensation expense
relating to stock
options................... -- -- 31,297,913 -- (30,585,462) -- --
Comprehensive income:
Net loss.................. -- -- -- -- -- -- (10,889,669)
Cumulative translation
adjustment.............. -- -- -- -- -- 2,173 --
Comprehensive loss.......... -- -- -- -- -- -- --
---------- ------- ----------- -------- ------------ ------ ------------
Balance, at December 31,
1999...................... 12,193,897 $12,193 $45,124,620 $(35,158) $(30,585,462) $2,173 $(12,126,057)
========== ======= =========== ======== ============ ====== ============
<CAPTION>
TOTAL
------------
<S> <C>
Balance, at December 31,
1996...................... $ 5,133
Issuance of common stock.... 35,000
Stockholder contributions... 38,098
Net income.................. 89,377
------------
Balance, at December 31,
1997...................... 167,608
Issuance of common stock.... 250,000
Repayment of stockholder
note...................... 5,000
Net loss.................... (1,327,898)
------------
Balance, at December 31,
1998...................... (905,290)
Issuance of common stock.... 11,560,163
Compensation expense
relating to issuance of
common stock.............. 1,775,954
Exercise of stock options... 136,527
Compensation expense
relating to stock
options................... 712,451
Comprehensive income:
Net loss.................. (10,889,669)
Cumulative translation
adjustment.............. 2,173
------------
Comprehensive loss.......... (10,887,496)
------------
Balance, at December 31,
1999...................... $ 2,392,309
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $ 89,377 $(1,327,898) $(10,889,669)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Compensation expense relating to stock options.......... -- -- 712,451
Compensation expense relating to issuance of common
stock................................................. -- -- 1,775,954
Depreciation and amortization expense................... 9,390 87,569 1,346,493
Bad debt expense........................................ -- 80,000 183,574
Deferred income taxes................................... 68,813 (68,813) --
Decrease (increase) in assets, net of acquisition:
Accounts receivable................................... (61,032) (325,292) (1,119,207)
Accounts receivable from related parties.............. (804,352) (563,910) 1,102,570
Inventory............................................. -- (161,047) (902,043)
Advances to stockholder and employees................. -- (42,280) (26,205)
Deposits.............................................. -- (326,568) (1,266,423)
Prepaid expenses and other assets..................... (4,110) (180,741) 19,647
Increase (decrease) in liabilities, net of acquisition:
Bank overdraft........................................ 330,424 42,789 (373,213)
Accounts payable...................................... 79,451 1,092,983 601,498
Accrued expenses...................................... 154,908 776,899 810,577
Accounts payable and accrued expenses from related
parties............................................. 17,516 271,233 (233,811)
Deferred revenue...................................... 50,560 615,621 1,128,449
Deposits.............................................. 55,800 285,357 399,178
Deposits from related party........................... -- 181,970 (132,214)
--------- ----------- ------------
Net cash provided by (used in) operating
activities........................................ (13,255) 437,872 (6,862,394)
--------- ----------- ------------
Cash Flows from Investing Activities:
Capital expenditures...................................... (55,621) (691,017) (1,956,353)
Payment for acquisition................................... -- -- (500,000)
Other assets.............................................. -- -- (125,373)
--------- ----------- ------------
Net cash used in investing activities............... (55,621) (691,017) (2,581,726)
--------- ----------- ------------
Cash Flows from Financing Activities:
Issuance of common stock.................................. 66,760 250,000 11,696,690
Issuance of preferred stock............................... -- -- 14,823,800
Repayment of stockholder note............................. -- 5,000 --
Repayment of capital lease obligations.................... -- -- (649,298)
Initial public offering costs included in other assets.... -- -- (482,806)
--------- ----------- ------------
Net cash provided by financing activities........... 66,760 255,000 25,388,386
--------- ----------- ------------
Effect of exchange rate changes on cash..................... -- -- 2,173
Increase (decrease) in cash................................. (2,116) 1,855 15,946,439
Cash, beginning of period................................... 2,116 -- 1,855
--------- ----------- ------------
Cash, end of period......................................... $ -- $ 1,855 $ 15,948,294
========= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. NATURE OF BUSINESS
InterPacket Networks, Inc. (the "Company" or "InterPacket") is a Delaware
corporation in the business of providing a satellite-based broadband Internet
network that delivers high-speed Internet services to international Internet
service providers and other businesses. The Company's proprietary network design
integrates the broadcast capabilities of satellites with Internet network
technologies to offer its international customers a scalable solution to the
contraints of the public Internet infrastructure. Effective December 1999, the
Company discontinued traditional telephony services to focus on its Internet
business.
On September 23, 1999, IPG Acquisition Inc. was incorporated in the State of
Delaware. On November 5, 1999, Interpacket Group, Inc. and IPG Acquisition Inc.
merged to become InterPacket Group, Inc., a Delaware corporation. On February
18, 2000, the Company changed its name to InterPacket Networks, Inc., which has
been retroactively reflected in the accompanying consolidated financial
statements.
In September 1998, the Company established InterPacket (UK) Limited, a
wholly owned subsidiary in the United Kingdom, to expand operations in Europe.
In November 1998, the Company entered into a joint venture with Internet
Promoters India Limited ("IPIL") to provide Internet services in India. The
Company owns 49 percent of the equity of IPIL and accounts for the investment
under the equity method.
On September 28, 1999, the Company completed the acquisition of certain
assets and technology from a subsidiary of Level 3 Communications Limited, for a
cash price of approximately $500,000. (see Note 10).
The Company faces risks normally associated with early stage enterprises
including the need to raise additional capital to fund future operations and
expansion. There can be no assurance that the Company will be successful in
raising the needed capital. Also, should the Company be successful in obtaining
capital, there can be no assurances that profitable operations can be achieved.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
InterPacket and its wholly-owned subsidiary. All material intercompany
transactions have been eliminated.
REVENUE RECOGNITION
The Company records revenue for Internet service during the month of service
and for long distance telecommunications sales at the time of customer usage.
Deferred revenue consists of advance billings for the following month's services
or prepayments from new customers not yet in service. Included in accounts
receivable and deferred revenue as of December 31, 1998 and 1999 are $409,475
and $794,217, respectively, of billed but unearned revenues.
COST OF SERVICES
Cost of services represent direct charges from vendors that the Company
incurs to deliver service to its customers. These include access fees, leasing
costs for satellite facilities, teleports, Internet connectivity and the
rate-per-minute charges from other carriers that terminate traffic on behalf of
the Company.
F-8
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES
Management determined that the functional currency of its foreign subsidiary
is the local currency. Balance sheets prepared in their functional currencies
are translated to the reporting currency, the United States dollar, at exchange
rates in effect at the end of the accounting period except for stockholders'
equity accounts which are translated at rates in effect when these balances were
originally recorded. Revenue and expense accounts are translated at a weighted
average of exchange rates during the period. The cumulative effect of
translation is included in other comprehensive income in the accompanying
consolidated balance sheets.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
requires that comprehensive income, which is the total of net income and all
other non-owner changes in equity, be displayed in the financial statements. The
adoption of SFAS No. 130 had no impact on total stockholders' equity. The
components of the Company's comprehensive income as presented in the
consolidated statements of stockholders' equity (deficit) and comprehensive
income include net income and unrealized gains and losses from currency
translation.
BASIC AND DILUTED INCOME (LOSS) PER SHARE
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing the net earnings available to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares, consisting of incremental common shares issuable
upon the exercise of stock options and the conversion of the preferred shares
are excluded from the diluted earnings per share calculation as their effect is
anti-dilutive.
A summary of the shares used to compute net income (loss) per share and pro
forma net loss per share is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Weighted average common shares used to
compute basic net loss per common share... 7,250,000 8,412,000 10,392,000
Effect of dilutive securities............... -- -- --
--------- --------- ----------
Weighted average common shares used to
compute diluted loss per common share..... 7,250,000 8,412,000 10,392,000
========= =========
Conversion of preferred stock............... 411,000
----------
Weighted average number of common shares
used to compute pro forma loss per common
share..................................... 10,803,000
==========
</TABLE>
F-9
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pro forma loss per common share gives effect to the conversion of 3,000,000
shares of preferred stock into common stock upon the effectiveness of the
initial public offering.
INVENTORY
Inventory represents purchased communications equipment which the Company
resells to its customers. The inventory is carried at the lower of cost or
market.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation of property and
equipment is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Operating equipment.............................. 5 years
Computer equipment............................... 3 years
Furniture and fixtures........................... 5 years
Equipment under capital leases................... 11 to 13 years
</TABLE>
Replacements and betterments, renewals and extraordinary repairs that extend
the life of the asset are capitalized; other repairs and maintenance are
expensed. The cost and accumulated depreciation applicable to assets sold or
retired are removed from the accounts and any gain or loss on disposition is
recognized in other income or expense.
Included in the Company's balance sheets at December 31, 1998 and 1999 are
approximately $280,000 and $42.9 million, respectively, of equipment which is
located outside of the United States.
DEPOSITS
Deposits represent payments made to satellite operators and long distance
providers to secure lower rates. These deposits are refunded or applied against
future services.
INTANGIBLE ASSETS
Intangible assets represent the excess of cost over the fair market value of
net tangible assets acquired and are amortized using the straight-line method
over a five-year period. The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
intangible assets might warrant revision or that the remaining balance of the
intangible assets and other long-lived assets may not be recoverable. When
factors indicate that the intangible assets and other long-lived assets should
be evaluated for possible impairment, the Company uses an estimate of
undiscounted future net cash flows over the remaining life of the assets to
determine if impairment has incurred. Assets are grouped at the lowest level for
which there are identifiable cash flows that are largely independent from other
asset groups. The Company uses discounted future expected net cash flows to
determine the amount of impairment loss.
F-10
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS
Other assets include capitalized initial public offering costs of $482,806
and the investment in IPIL which is being accounted for under the equity method.
STATEMENTS OF CASH FLOWS
During the periods ended December 31, 1997 and 1998, no cash was paid for
interest. During 1999, the Company paid $784,807 in interest charges. For the
same periods, cash paid for income taxes amounted to $1,600, $800 and $5,724,
respectively.
Non-cash investing and financing activities are as follows for the years
ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
Issuance of common stock for notes............ $40,000 $ -- $ --
Conversion of debt to equity.................. $ 6,338 $ -- $ --
Assets acquired under capital leases.......... $ -- $ -- $41,456,658
</TABLE>
These non-cash transactions are excluded from the statements of cash flows.
CONCENTRATIONS OF RISK
As of December 31, 1999, the Company had cash account balances of
approximately $15.1 million at financial institutions which were in excess of
federally-insured amounts.
The Company provided carrier grade telephony service to a single customer
who accounted for a substantial portion of the overall revenue of the Company.
The Company's largest customer accounted for 76 percent and 12 percent of gross
accounts receivable at December 31, 1998 and 1999, respectively. The Company's
largest customer represented 77 percent, 80 percent and 25 percent of revenue
during the years ended December 31, 1997, 1998 and 1999. The Company's largest
customer is a related party (see Note 3).
For the year ended December 31, 1999, 73 percent of total revenue and
91 percent of revenue from network services were generated outside the United
States.
Purchases from the four largest vendors for the years ended December 31,
1997 and 1998 amounted to 88 percent and 59 percent, respectively, and purchases
from the two largest vendors for the year ended December 31, 1999 amounted to 47
percent of total purchases.
In providing its network application services, the Company is dependent on
uninterrupted satellite service which is provided by four vendors. The Company
also relies predominantly on one vendor for uplink services. From time to time,
the Company experienced interruptions in satellite transmission service for
which they do not receive reimbursement from the provider. An extended period of
disruption could have a material adverse effect on the Company's financial
position and results of operations.
F-11
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash, receivables, payables and accrued
liabilities approximate their fair value because of the short maturities of
these instruments. The carrying value of the Company's capital leases
approximate their fair values because the interest rates are comparable to those
available to the Company on similar terms.
3. RELATED PARTY TRANSACTIONS
A significant stockholder and member of the board of directors of the
Company is an executive at STAR Telecommunications, Inc. ("STAR"). During the
years ended December 31, 1997, 1998 and 1999, the Company provided long distance
telephone service to STAR in the amount of $1,352,254, $9,119,990 and
$3,419,113, respectively. Accounts receivable for these services totaled
$1,281,003, net of the reserve, and $204,374 as of December 31, 1998 and 1999,
respectively. The Company also had an outstanding deposit from STAR as of
December 31, 1998 and 1999 in the amount of $181,970 and $49,756, respectively.
The Company has purchased services from STAR in the amount of $21,246, $640,941
and $993,292 for the years ended December 31, 1997, 1998 and 1999, respectively.
Accounts payable and accrued liabilities for these services totaled $287,801 and
$39,000 at December 31, 1998 and 1999, respectively. As of December 31, 1999,
the Company had a deposit with STAR in the amount of $4,920. During the year
ended December 31, 1998, STAR paid the Company $75,000 as a one-time payment to
obtain a lower per-minute rate for a specific circuit to a particular country.
The Company then paid this amount to another related party to buy out a royalty
interest in the revenue generated from such circuit, thereby reducing the
per-minute rate. The pricing of related party transactions was determined by
management.
During 1999, the Company expensed consulting fees from the current chairman
of the board in the amount of $43,750. At December 31, 1999, accounts payable
for these services amounted to $8,750.
During the years ended December 31, 1997 and 1998, the Company purchased
services from a company related to the former chairman of the board and
stockholder in the amount of $1,915 and $146,167, respectively. During the year
ended December 31, 1999, the Company purchased services from companies primarily
owned by this stockholder in the amount of $31,207. The Company paid rent for
its corporate headquarters in the amount of $22,650, $71,096 and $284,634 to a
company partially owned by this stockholder. Accounts payable for these services
amounted to $948 and $7,188 as of December 31, 1998 and 1999, respectively.
Accounts receivables from one of these entities is $1,900 at December 31, 1999.
The Company also has outstanding deposits from these related entities in the
amount of $21,424 at December 31, 1999. The Company provided services to one of
these related parties during the years ended December 31, 1998 and 1999 in the
amount of $6,000 and $4,000, respectively. During 1999, the
F-12
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Company also accelerated the vesting of stock options for the former chairman of
the board and recorded a related compensation expense in the amount of $145,000.
During the years ended December 31, 1998 and 1999, the Company provided
payroll services for a company owned by the former chairman of the board and
stockholder. The Company paid the payroll costs for two persons in the amount of
$54,795 and $26,736, respectively. As of December 31, 1998, the Company had been
reimbursed $26,954 and recorded a related party receivable in the amount of
$27,841. The Company has been reimbursed for the payroll costs in full as of
December 31, 1999.
During 1998, the Company advanced an executive and significant stockholder
$42,280. As of December 31, 1999, $34,733 of this amount was still outstanding
and included in advances to stockholder and employees.
During the year ended December 31, 1999, the Company purchased services from
a company owned by a director, executive officer and stockholder in the amount
of $29,484.
4. COMMITMENTS AND CONTINGENCIES
The Company has leases for satellite transponder space and related
facilities under various agreements expiring through 2011. At December 31, 1999,
the minimum aggregate payments under the capital leases and non-cancelable
operating leases are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES TOTAL
-------------- ---------------- ------------
<S> <C> <C> <C>
Year Ending December 31,
2000............................... $ 5,870,548 $12,174,662 $ 18,045,210
2001............................... 5,802,000 10,590,441 16,392,441
2002............................... 5,802,000 8,777,266 14,579,266
2003............................... 5,802,000 6,611,840 12,413,840
2004............................... 5,802,000 2,894,250 8,696,250
Thereafter......................... 37,628,000 12,669,972 50,297,972
------------ ----------- ------------
66,706,548 $53,718,431 $120,424,979
----------- ------------
Less: Amount representing
interest......................... (25,899,188)
------------
40,807,360
Less: Current portion.............. (2,138,068)
------------
$ 38,669,292
============
</TABLE>
The Company has also committed to lease three additional transponders that
begin on August 15, 2000, May 15, 2001 and November 15, 2001. The Company has
committed to leasing these transponders through the end of their useful lives
which is expected to be October 2013. Estimated future payments under these
commitments are approximately $56.5 million.
Office space and office equipment rent expense for the years ended
December 31, 1997, 1998 and 1999 was $22,650, $71,096 and $284,634,
respectively. Rental for leased lines, satellite access and related facilities
for the years ended December 31, 1997, 1998 and 1999 amounted to $317,551,
$6,281,302 and $10,433,321, respectively.
F-13
<PAGE>
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has employment agreements with three executives. The agreements
provide for a continuation of salary in the event of termination without cause.
Also, stock options will vest immediately upon certain events. The Company has
also committed to issue 100,000 stock options to the chief executive officer at
the initial public offering price.
5. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," under which deferred assets and liabilities are
provided on differences between financial reporting and taxable income using
enacted tax rates. Deferred income tax expenses are based on the changes in
deferred income tax assets or liabilities from period to period.
Under SFAS No. 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods. A
valuation allowance is recognized if based on the weight of available evidence,
it is more likely than not that some portion or all of the deferred tax asset
will not be realized. The net deferred tax asset of $3,884,019 at December 31,
1999 has been fully reserved.
The components of the net deferred taxes at December 31, 1998 and 1999 are
as follows:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Deferred tax asset:
Net operating loss................................. $ 35,246 $ 5,830,352
Cash to accrual.................................... 480,388 2,158,807
--------- -----------
515,634 7,989,159
Deferred tax liability:
Depreciation....................................... (34,721) (3,036,996)
Cash to accrual.................................... -- (1,068,144)
--------- -----------
(34,721) (4,105,140)
--------- -----------
480,913 3,884,019
Less--valuation reserve.............................. (480,913) (3,884,019)
--------- -----------
Net deferred taxes................................... $ -- $ --
========= ===========
</TABLE>
The provision for income taxes for the years ended December 31, 1997, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal taxes................................. $ -- $ -- $ --
State taxes................................... 800 800 800
-------- -------- --------
800 800 800
-------- -------- --------
Deferred:
Federal taxes................................. 58,542 (58,542) --
State taxes................................... 10,271 (10,271) --
-------- -------- --------
68,813 (68,813) --
-------- -------- --------
Provision (benefit) for income taxes............ $ 69,613 $(68,013) $ 800
======== ======== ========
</TABLE>
F-14
<PAGE>
5. INCOME TAXES (CONTINUED)
Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for the years ended December 31, 1997, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- -----------
<S> <C> <C> <C>
Income taxes at the statutory federal rate........... $54,057 $(474,610) $(3,702,215)
State income taxes, net of federal income tax
effect............................................. 9,276 (77,390) (619,439)
Permanent differences................................ 739 5,130 924,510
Change in valuation reserve.......................... -- 480,913 3,403,106
Other................................................ 5,541 (2,056) (5,162)
------- --------- -----------
$69,613 $ (68,013) $ 800
======= ========= ===========
</TABLE>
The Company has net operating loss carryforwards of approximately $13
million for Federal and State income tax purposes, which will expire through
2019 and 2004, respectively.
6. ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Payroll and related costs.............................. $114,516 $ 383,746
Network costs.......................................... 774,291 835,453
Other.................................................. 43,000 585,739
-------- ----------
$931,807 $1,804,938
======== ==========
</TABLE>
7. STOCK OPTIONS
On January 1, 1998, the Company adopted the 1998 Stock Option Plan (the
"Plan"). The Plan provides for the granting of stock options to purchase up to
2,900,000 shares of common stock and terminates in ten years. Options vest over
a period as determined by the Board of Directors, generally three years and
expire in ten years. The option price is determined by the Board of Directors
but may not be less than the fair market value of the stock on the date of
grant, except for participants who are 10 percent stockholders of the Company,
for which the price may not be less than 110 percent of the fair market value.
On June 14, 1999, the Company adopted the 1999 Director Stock Option Plan
(the "Directors Plan"). The Plan provides for the granting of stock options to
purchase up to 200,000 shares of common stock and terminates in ten years. Each
year all non-employee directors shall be granted options to purchase 10,000
shares of common stock. Options vest and become exercisable on the first
anniversary of the date of grant, provided that the individual has remained in
continuous service as a director of InterPacket for the preceding twelve-month
period. Options also vest and become exercisable upon a change in control, as
defined. The option price shall equal the fair market value of the stock on the
date of grant.
The Company has elected to adopt SFAS No. 123, "Accounting for Stock-Based
Compensation," for disclosure purposes only and applies Accounting Principle
Board (APB) Opinion No. 25 and related interpretations in accounting for its
employee stock options.
F-15
<PAGE>
7. STOCK OPTIONS (CONTINUED)
The following is a summary of the Company's outstanding options and activity
for the years ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------------------- --------------------
WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding, at
beginning of year.................................... -- $ -- 758,000 $ 0.88
Granted.............................................. 758,000 0.88 755,000 3.39
Granted below current market prices.................. -- -- 1,461,750 4.74
Exercised............................................ -- -- (77,334) 1.77
Canceled............................................. -- -- (79,832) 1.32
------- ----- --------- ------
Options outstanding, at
end of year.......................................... 758,000 $0.88 2,817,584 $ 3.52
======= ===== ========= ======
Options exercisable at end of year..................... -- -- 332,000 $ 0.76
======= ===== ========= ======
Weighted average fair value of options granted during
the period........................................... $0.21 $ 0.79
===== ======
Weighted average fair value of options granted during
the period below their current market prices......... $33.27
======
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
RANGE OF WEIGHTED AVERAGE ------------------------------
EXERCISE NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.50 306,000 8.1 years $0.50 200,666 $0.50
0.585-1.25 355,334 8.7 years 1.18 131,334 1.16
2.25-4.50 1,462,250 9.8 years 4.01 -- --
5.00 694,000 9.9 years 5.00 -- --
----------- ---------- --------- ----- ------- -----
$ 0.50-5.00 2,817,584 9.5 years $3.52 332,000 $0.76
=========== ========== ========= ===== ======= =====
</TABLE>
As permitted by SFAS No. 123, the Company continues to apply the accounting
rules of APB No. 25 governing the recognition of compensation expense from its
stock option plan. Such accounting rules measure compensation expense on the
first date at which both the number of shares and the exercise price are known.
Under the Company's plan, this would typically be the grant date. The Company
generally issues its stock options with an exercise price based on the fair
market value of the Company's stock at the date of grant as determined by the
board of directors. The Company also issued certain stock options to Company
executives and employees at exercises prices below their current market prices.
The related compensation charges of $31,297,913 are amortized over the three
year vesting periods of the related options.
Under the provisions of SFAS No. 123, equity instruments granted to
non-employees are excluded from the pro forma disclosure requirements and are
recorded as compensation expense at fair value in the accompanying statements of
operations. The Company issued no options to non-employees during the periods
presented. During 1999, the Company changed the vesting term for the former
chairman of the board and another former employee which resulted in additional
compensation expense of $240,538.
F-16
<PAGE>
7. STOCK OPTIONS (CONTINUED)
Had the Company applied the fair value based method of accounting to all
grants of stock options, under SFAS No. 123, the Company would have recorded
additional compensation expense as follows for the years ended December 31, 1998
and 1999, respectively:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Additional compensation expense............................. $ 25,572 $ 161,578
Net loss:
As reported............................................... 1,327,898 10,889,669
Pro forma................................................. 1,353,470 11,051,247
Net loss per share:
As reported............................................... 0.16 1.05
Pro forma................................................. 0.16 1.06
</TABLE>
These pro forma amounts were determined by estimating the fair value of each
option on its grant date using the Black-Scholes option-pricing model.
Assumptions of 5.4 percent and 5.49 percent for the risk free interest rate, 5
years for expected life, no volatility and no expected dividends were applied to
all grants.
8. MANDATORILY REDEEMABLE PREFERRED STOCK
On November 12, 1999, the Company entered into a Series A Convertible
Preferred Stock Purchase Agreement to issue 3 million shares of convertible
preferred stock at $5.00 per share. The preferred stockholders have certain
registration and preemptive rights; as well as preferential rights upon
dissolution of the Company. In the event of a liquidation or dissolution of the
Company (as defined), the preferred stockholders are guaranteed to receive such
funds to allow them an internal rate of return of 35 percent annually from the
original date of issuance. Each preferred share is convertible into a share of
common stock if requested by the majority of the preferred stockholders or upon
a public offering at not less than $7.00 per share and which raises a minimum of
$25 million. The conversion ratio is subject to adjustment in certain
circumstances such as upon future sale of Company shares at a price below $5.00.
The preferred stockholders may request redemption at the initial purchase price
after November 12, 2003. See Note 2 for pro forma weighted average number of
common shares used to compute pro forma loss per common share.
9. CAPITAL STOCK
On April 9, 1998, the Company sold 426,316 shares of common stock to an
investor for $250,000.
On April 14, 1999, the Company sold 2,008,864 shares of common stock through
a private placement for $4,519,928. The Company sold 594,442 of these shares to
employees and directors of the Company. In August 1999, the Company sold 33,776
additional shares for $75,997.
In September and October of 1999, the Company sold 1,480,942 shares of
common stock in a private placement for net proceeds of $6,664,242. The Company
sold 602,444 of these shares to employees and directors of the Company. In
December 1999, the Company sold 66,665 shares of common stock to an existing
stockholder for net proceeds of $299,996.
On September 3, 1997, the Board of Directors authorized an increase to the
authorized number of common shares from 10,000 to 10 million and effected a
1,000-for-1 stock split of the Company's issued and outstanding shares. This
increase became effective March 31, 1998. On June 1, 1999, the Board of
Directors approved a 2-for-1 stock split, which became effective July 7, 1999.
The stock splits have been retroactively reflected in the accompanying
consolidated financial statements for all periods presented. On February 24,
1999, the Board of Directors approved an increase in the authorized common
shares to 50 million.
F-17
<PAGE>
10. ACQUISITION
On September 28, 1999, the Company acquired certain assets and technology
from a subsidiary of Level 3 Communications Limited for $500,000. The
acquisition has been accounted for by the purchase method of accounting and,
accordingly, the results of operations of SatinNet Limited for the period from
September 28, 1999 are included in the accompanying consolidated financial
statements. In connection with this purchase, the Company recorded approximately
$449,000 of intangible assets which are being amortized over a five-year period.
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition had taken place on January 1,
1998:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------ ------------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenue..................................... $11,571 $13,600
Net loss.................................... $ 1,541 $11,058
Net loss per common share................... $ 0.18 $ 1.06
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
11. BUSINESS SEGMENTS
During 1997, 1998 and 1999, the Company had two business segments, network
services and traditional telecom services. The network services segment derives
revenues from the sale of Internet-based network services, including
connectivity and multi-point newsfeeds.
The traditional telecom services segment provides traditional switched based
wholesale long distance service, primarily to STAR Telecommunications, Inc., an
international long distance company.
The accounting policies of the segments are the same as those described in
the significant accounting policies, however, the Company evaluates performance
based on gross margin before depreciation and amortization expense. The Company
does not internally analyze these segments below revenue less direct operating
expenses, therefore selling, general and administrative expenses and
depreciation expense is not allocated to any specific segment. The Company has
no intercompany sales among the network services
F-18
<PAGE>
11. BUSINESS SEGMENTS (CONTINUED)
and the traditional telecom services segments. All capital leases relate to the
network services segment. Reportable segment information for the years ended
December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
TRADITIONAL
NETWORK TELECOM UNALLOCATED
SERVICES SERVICES CORPORATE ASSETS TOTAL
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
December 31, 1997:
Revenue................................... $ 582,819 $1,176,330 $ -- $ 1,759,149
Gross margin before depreciation and
amortization............................ 124,926 628,395 -- 753,321
December 31, 1998:
Revenue................................... 4,114,934 7,294,757 -- 11,409,691
Gross margin before depreciation and
amortization............................ (1,674,316) 2,272,189 -- 597,873
Segment assets............................ 1,263,428 1,762,319 51,464 3,077,211
December 31, 1999:
Revenue................................... 10,789,476 2,684,751 -- 13,474,227
Gross margin before depreciation and
amortization............................ (495,100) 1,356,106 -- 861,006
Segment assets............................ 179,772 48,094,028 16,016,779 64,290,579
</TABLE>
Information regarding the Company's domestic and foreign revenues are as
follows:
<TABLE>
<CAPTION>
DOMESTIC FOREIGN TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
Fiscal 1997.............................................. $ 867,349 $ 891,800 $ 1,759,149
Fiscal 1998.............................................. 2,886,231 8,523,460 11,409,691
Fiscal 1999.............................................. 3,688,006 9,786,221 13,474,227
</TABLE>
No individual foreign country represented more than 10 percent of revenue or
long-lived assets for any of the periods presented.
12. SUBSEQUENT EVENTS
The Company has entered into new leases for satellite transponder space and
related facilities under various agreements expiring through February 2003
resulting in aggregate lease payments of approximately $11.5 million.
Through February 11, 2000, the Company has granted an additional 221,500
stock options at $5.00 and 9,000 stock options at $8.00 per share. The estimated
compensation charge related to the option grants will be approximately
$5.7 million over a three to four-year period.
On January 26, 2000, the Board increased the authorized number of shares
available for grant under the 1998 Stock Option Plan to 4.6 million and
increased the authorized number of shares available for grant under the 1999
Director Stock Option Plan to 550,000. The Board also amended the option terms
of several executives to accelerate vesting with an extended exercise period
under specified circumstances such as a change in control. The amended 1998
Stock Option Plan provides that upon a change in control 50 percent of the
unvested options outstanding immediately prior to such change accelerate and
become fully vested, unless the employee is provided with replacement options.
The vesting periods were extended to three years for new options issued under
the 1999 Director Stock Option Plan and to four years for new
F-19
<PAGE>
12. SUBSEQUENT EVENTS (CONTINUED)
options issued under the 1998 Stock Option Plan. The Board also approved to
increase the authorized number of common shares to 250 million and to adopt a
401(k) plan for the benefit of the Company's employees.
Effective February 1, 2000, the Company signed an employment agreement with
a new executive. The agreement provides for the continuation of salary in the
event of termination without cause. This executive was allowed to purchase
60,000 shares of common stock at $5.00 per share. The compensation charge
related to this stock purchase is estimated at $1.5 million.
On February , 2000, the Company's Board of Directors approved a to
stock split which has been retroactively reflected for all periods
presented.
F-20
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of InterPacket Networks, Inc. and
Subsidiary:
We have audited in accordance with generally accepted auditing standards the
consolidated financial statements of InterPacket Networks, Inc. and subsidiary
as of December 31, 1998 and 1999 and for the three years in the period ended
December 31, 1999, included in this Registration Statement on Form S-1, and have
issued our report thereon dated February 11, 2000. Our audits were made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedule of valuation and qualifying accounts is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 11, 2000
F-21
<PAGE>
INTERPACKET NETWORKS, INC. AND SUBSIDIARY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END OF
OF PERIOD PROVISION WRITE-OFF PERIOD
---------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1997................. $ -- $ -- $ -- $ --
Year ended December 31, 1998................. $ -- $ 16,600 $ -- $ 16,600
Year ended December 31, 1999................. $ 16,600 $ 183,600 $ (60,000) $ 140,200
Deferred tax valuation allowance
Year ended December 31, 1997................. $ -- $ -- $ -- $ --
Year ended December 31, 1998................. $ -- $ (480,913) $ -- $ (480,913)
Year ended December 31, 1999................. $(480,913) $(3,403,106) $ -- $(3,884,019)
Receivable from related party
Year ended December 31, 1997................. $ -- $ -- $ -- $ --
Year ended December 31, 1998................. $ -- $ 63,400 $ -- $ 63,400
Year ended December 31, 1999................. $ 63,400 $ -- $ (63,400) $ --
</TABLE>
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO OF INTERPACKET APPEARS HERE]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JOINT LEAD MANAGERS AND BOOKRUNNERS
CHASE H&Q LEHMAN BROTHERS
CIBC WORLD PARTNERS
----------------
, 2000
---------------------
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is current only as of
the date of this prospectus.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in the securities in this offering, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) we expect to incur in connection with
our sale and distribution of the securities being registered. All of the amounts
shown are estimated except the registration fee of the SEC and the NASD filing
fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
SEC registration fee........................................ $ 22,770
NASD filing fee............................................. 9,125
Blue sky fees and expenses.................................. *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Miscellaneous............................................... *
--------
Total..................................................... *
========
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation provides that our directors shall not be
personally liable to InterPacket or our stockholders for monetary damages for
any breach of fiduciary duty as a director, to the fullest extent permitted by
law, except to the extent such exemption from liability is not permitted under
the General Corporation Law of the State of Delaware (the "GCL"). Further, our
bylaws provide that we shall, to the maximum extent permitted by law, indemnify
our directors and officers and may indemnify our employees and other agents.
Subsection (a) of Section 145 of the GCL empowers a corporation to indemnify
any director or officer, or former director or officer, 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), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding provided that such director or officer acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
that such director or officer had no cause to believe his or her conduct was
unlawful.
Subsection (b) of Section 145 of the GCL empowers a corporation to indemnify
any director or officer, or former director or officer, 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 acted in any of the capacities set forth
above, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit, provided that such director or
officer acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect of any claim, issue or matter as to which such director
or officer shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which
II-1
<PAGE>
such action was brought shall determine that despite the adjudication of
liability such director or officer is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith; that indemnification provided for by Section 145 shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and that the corporation shall have power to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or her or incurred by him or her in any such
capacity or arising out of his or her status as such whether or not the
corporation would have the power to indemnify him or her against such
liabilities under Section 145.
We have also entered into indemnification agreements with each of our
directors and officers. The indemnification agreements may require us, among
other things, to indemnify our directors and officers against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms.
Reference is also made to our Underwriting Agreement contained in
Exhibit 1.1 hereto, which indemnifies our directors and officers against certain
liabilities.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling InterPacket pursuant to
the foregoing provisions, we have been informed that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1997, we have granted or issued and sold the following
unregistered securities:
(a) In June 1997, we issued and sold 1,684,000 shares of our common stock
to Peter S. Zimble for an aggregate purchase price of $70,000.
(b) In September 1997, we issued and sold 100,000 shares of our common stock
to Julie M. Spira for an aggregate purchase price of $5,000.
(c) In April 1998, we issued and sold a total of 426,316 shares of our
common stock to Joseph T. Arsenio and the Delaware Charter Guarantee &
Trust Co., as trustee for Joseph T. Arsenio, for an aggregate purchase
price of $250,000.
(d) In April 1999, we issued and sold a total of 2,008,864 shares of our
common stock to certain accredited investors for an aggregate purchase
price of $4,519,928.
(e) In August 1999, we issued and sold 33,776 shares of our common stock to
Joseph T. Arsenio for an aggregate purchase price of $75,997.
(f) In September 1999, we issued and sold a total of 1,480,942 shares of
our common stock to certain accredited investors for an aggregate
purchase price of $6,664,242.
(g) In November 1999, we issued and sold a total of 3,000,000 shares of our
Series A Preferred Stock to certain accredited investors for an aggregate
purchase price of $15,000,000. The preferred stock will convert
automatically into 3,000,000 shares of common stock once this
Registration Statement is declared effective.
II-2
<PAGE>
(h) In December 1999, we issued and sold a total of 66,665 shares of our
shares of our common stock to Joseph T. Arsenio and Delaware Charter
Guarantee & Trust Co., as trustee for Joseph T. Arsenio, and as trustee
for Meredith M. Arsenio, for an aggregate purchase price of $299,996.
(i) In February 2000, we issued and sold a total of 60,000 shares of our
common stock to Timothy F. Sylvester for a purchase price of $300,000.
(j) Through February 15, 2000, we have granted options to purchase an
aggregate of 3,292,750 shares of our common stock, at a weighted average
exercise price of $3.65, to directors, officers and employees pursuant to
our 1998 Stock Option Plan and our 1999 Director Stock Option Plan.
The issuances of the securities in the transactions above were exempt from
registration under the Securities Act pursuant to (1) Section 4(2) of the
Securities Act or Regulation D promulgated thereunder as transactions by an
issuer not involving a public offering, where the purchasers represented their
intention to acquire the securities for investment only and not with a view to
distribution and received or had access to adequate information about
InterPacket or (2) Rule 701 promulgated under the Securities Act as transactions
pursuant to a compensatory benefit plan or a written contract relating to
compensation. No underwriting discounts or commissions were paid in connection
with these sales, appropriate legends were affixed to the stock certificates
issued in these transactions and there was no general solicitation or
advertising.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.+
3.1 Certificate of Incorporation, as currently in effect.
3.2 Bylaws, as currently in effect.
5.1 Opinion of Riordan & McKinzie, a Professional Law
Corporation.+
9.1 Voting Agreement and Irrevocable Proxy dated as of November
12, 1999 between InterPacket Networks, Inc. and Jeffrey
Sudikoff.
10.1 Amended and Restated 1998 Stock Option Plan of InterPacket
Networks, Inc.
10.2 Form of Incentive Stock Option Agreement under the Amended
and Restated 1998 Stock Option Plan of InterPacket Networks,
Inc.
10.3 Form of Nonqualified Stock Option Agreement under the
Amended and Restated 1998 Stock Option Plan of InterPacket
Networks, Inc.
10.4 Amended and Restated 1999 Director Stock Option Plan of
InterPacket Networks, Inc.
10.5 Form of Nonqualified Stock Option Agreement under the
Amended and Restated 1999 Director Stock Option Plan of
InterPacket Networks, Inc.
10.6 Employment Agreement dated as of July 1, 1999 by and between
Jonathan L. Gans and InterPacket Networks, Inc.
10.7 Reserved for future use.
10.8 Reserved for future use.
10.9 Reserved for future use.
10.10 Employment Agreement dated as of January 1, 1999 by and
between Julie M. Spira and InterPacket Networks, Inc.
10.11 Employment Agreement dated as of February 1, 2000 by and
between Timothy F. Sylvester and InterPacket Networks, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.12 Secured Promissory Note dated as of February 1, 2000 by
Timothy F. Sylvester in favor of InterPacket Networks, Inc.
10.13 Series A Convertible Preferred Stock Agreement dated as of
November 12, 1999 among InterPacket Networks, Inc. and each
of the entities listed on the Schedule of Purchasers
attached thereto as Exhibit A.
10.14 Form of Indemnification Agreement between InterPacket
Networks, Inc. and each director and executive officer.
10.15 Standard Office Lease--Gross dated as of January 1, 1999 by
and between 1901 Main Street Partners, LLC and InterPacket
Networks, Inc.
10.16 Contract dated as of September 1, 1999 by and between
Satelites Mexicanos, S.A. DE C.V. and InterPacket Networks,
Inc.++
10.17 Reserved for future use.
10.18 Investor Rights Agreement dated as of November 12, 1999
among InterPacket Networks, Inc. and certain stockholders.
21 Subsidiaries.
23.1 Consent of Riordan & McKinzie (included in Exhibit 5.1).+
23.2 Consent of Arthur Andersen LLP.
24 Powers of Attorney, incorporated by reference from the
signature pages to this registration statement.
27 Financial Data Schedule.
</TABLE>
- ------------------------
+ To be filed by amendment.
++ Certain portions of this exhibit have been omitted from the copies filed as
part of the Registration Statement hereof and are the subject of a request
for confidential treatment with respect thereto.
(B) FINANCIAL STATEMENT SCHEDULES
The following schedule is filed as part of this Registration Statement:
Schedule II--InterPacket Networks, Inc.--Valuation and Qualifying Accounts.
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of any schedule, or because
the information required is included in the financial statements or the notes
thereto.
ITEM 17. UNDERTAKINGS
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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
the registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
The undersigned registrant hereby undertakes 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.
The undersigned registrant hereby undertakes that:
(1) 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 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Monica, State of
California, on the 18th day of February 2000.
<TABLE>
<S> <C> <C>
INTERPACKET NETWORKS, INC.
By: /s/ JONATHAN L. GANS
-----------------------------------------
Jonathan L. Gans
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jonathan L. Gans and Allen J. Sciarillo, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all such capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, as well as any
registration statement (or amendment thereto) related to this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to file the same, with all exhibits thereto, and all
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 and
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 attorneys-in-fact and agents, or any of them, or 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, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chief Executive Officer,
/s/ JONATHAN L. GANS President and Director
------------------------------------------- (Principal Executive February 18, 2000
Jonathan L. Gans Officer)
/s/ ALLEN J. SCIARILLO Chief Financial Officer
------------------------------------------- (Principal Financial and February 18, 2000
Allen J. Sciarillo Chief Accounting Officer)
/s/ PETER HIRSHBERG
------------------------------------------- Chairman of the Board February 18, 2000
Peter Hirshberg
/s/ JEFFREY C. BARBAKOW
------------------------------------------- Director February 18, 2000
Jeffrey C. Barbakow
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BRENT COHEN
------------------------------------------- Director February 18, 2000
Brent Cohen
/s/ JAMES E. KOLSRUD
------------------------------------------- Director February 18, 2000
James E. Kolsrud
------------------------------------------- Director February , 2000
Lawrence D. Lenihan, Jr.
/s/ NORMAN J. PATTIZ
------------------------------------------- Director February 18, 2000
Norman J. Pattiz
</TABLE>
II-7
<PAGE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERPACKET GROUP, INC.
InterPacket Group, Inc. (the "Corporation"), a corporation
duly organized and existing under and by virtue of the General Corporation Law
of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the board of directors of the Corporation duly
adopted resolutions setting forth a proposed amendment to the Corporation's
Restated Certificate of Incorporation and declaring said amendment to be
advisable. The resolutions setting forth the proposed amendments are as follows:
RESOLVED, that Article I of the Corporation's Restated
Certificate of Incorporation be amended to read in full as
follows:
"The name of the corporation is InterPacket Networks, Inc.
(the "Corporation")."
RESOLVED FURTHER, that the first paragraph of Article IV of
the Corporation's Restated Certificate of Incorporation be
amended to read in full as follows:
"The total number of shares of stock which the Corporation
shall have authority to issue is Two Hundred and Fifty-Three
Million (253,000,000), consisting of Two Hundred and Fifty
Million (250,000,000) shares of common stock, $.001 par value
per share (the "Common Stock"), and Three Million (3,000,000)
shares of preferred stock, $.001 par value per share (the
"Preferred Stock")."
RESOLVED FURTHER, that Article IV, Section 5(h)(v) of the
Corporation's Restated Certificate of Incorporation be amended
to read in full as follows:
"(v) "Additional Stock" shall mean any shares of Common Stock,
or instruments convertible or exercisable into Common Stock
either directly or indirectly, issued (or deemed to have been
issued as provided in this subparagraph (h)) by the
Corporation after the date hereof other than (A) shares of
Common Stock issued upon conversion of any shares of Series A
Preferred, (B) shares of Common Stock issued to employees,
directors or consultants pursuant to the Corporation's
existing stock option or stock incentive plans,
<PAGE>
(C) shares of Common Stock or Convertible Securities issued
in connection with strategic relationships approved by a
majority of the Outside Directors (as defined herein) of the
Board, including the Series A Preferred Director, (D)
warrants or other equity securities, and the equity
securities issued or issuable upon the conversion or exercise
thereof, issued to banks, equipment lessors or other
commercial lenders in connection with financing activities,
provided that the aggregate number of shares of Common Stock
issued under clauses (B), (C) and (D) do not exceed 5,150,000
shares of Common Stock (before making applicable or
appropriate adjustments for any stock splits, stock dividends
and the like since the original issuance date of the Series A
Preferred), (E) shares issued upon conversion or exercise of
convertible or exercisable securities in existence as of the
date hereof, (F) shares issued in stock splits, stock
dividends and the like. The "Effective Price" of
Additional Stock shall mean the quotient determined by
dividing the total number of Additional Stock issued or sold,
or deemed to have been issued or sold by the Corporation under
this subparagraph (h), into the aggregate consideration
received, or deemed to have been received by the Corporation
for such issue under this subparagraph (h), for such
Additional Stock."
SECOND: That thereafter, the proposed amendment was approved
by written consent of a majority of the outstanding shares of Common Stock and
Preferred Stock of the Corporation pursuant to Section 228 of the General
Corporation Law of the State of Delaware, and written notice has been duly
given.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be signed by Timothy F. Sylvester, its Executive
Vice President - Business and Legal Affairs, this 17th day of February, 2000.
INTERPACKET GROUP, INC.,
a Delaware corporation
By: /s/ Timothy F. Sylvester
---------------------------------
Timothy F. Sylvester
Executive Vice President -
Business and Legal Affairs
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERPACKET GROUP, INC.
InterPacket Group, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "GCL"), does hereby certify:
FIRST: That the Corporation was originally incorporated under the name
IPG Acquisition Inc., and the date of filing of the Corporation's original
Certificate of Incorporation with the Secretary of State of the State of
Delaware was September 23, 1999.
SECOND: This Restated Certificate of Incorporation has been adopted
pursuant to Sections 242 and 245 of the GCL and restates and amends the
provisions of the Certificate of Incorporation of the Corporation.
THIRD: That the Board of Directors of the Corporation (the "Board")
adopted resolutions dated November 4, 1999 proposing and declaring advisable
the amendment and restatement of the Certificate of Incorporation, that such
amendment and restatement of the Certificate of Incorporation was approved by
written consent of a majority of the stockholders of the Corporation dated as
of November 4, 1999, pursuant to Section 228 of the GCL, and that such
resolutions so approved by the Board and a majority of the stockholders of
the Corporation read as follows:
RESOLVED, that the text of the Certificate of Incorporation be amended
and restated to read in its entirety as follows:
I.
The name of the corporation is InterPacket Group, Inc. (the
"Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801. The name and address of the
Corporation's registered agent in the State of Delaware is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801.
<PAGE>
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
IV.
The total number of shares of stock which the Corporation shall have
authority to issue is Fifty-Three Million (53,000,000), consisting of Fifty
Million (50,000,000) shares of common stock, $.001 par value per share (the
"Common Stock"), and Three Million (3,000,000) shares of preferred stock,
$.001 par value per share (the "Preferred Stock").
(a) There is hereby designated a series of Preferred Stock to be known
as "Series A Preferred." The number of shares constituting the Series A
Preferred shall be Three Million (3,000,000), which number may not be
increased without a vote of the holders of the Series A Preferred.
(b) The Series A Preferred shall, except as provided in Section 4(b)
hereof, with respect to dividend rights and rights on liquidation,
dissolution or winding up, (i) rank senior to the Common Stock and (ii) rank
senior to other series of convertible preferred stock of the Corporation
designated by the Board of Directors of the Corporation prior to, on or after
the date hereof.
Section 1. DEFINITIONS. For purposes of this Article IV the
following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the
Corporation.
(b) "Conversion Price" shall have the meaning set forth in
Section 5(a) of this Article IV.
(c) "Conversion Rights" shall have the meaning set forth in
the preamble to Section 5 of this Article IV.
(d) "Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are at any time
directly or indirectly convertible into or exchangeable for Additional Stock,
or any rights or options to acquire the same.
(e) "Corporation" shall mean this corporation.
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(f) "Outside Director" means a person other than an officer
or employee of the Corporation or any of its subsidiaries or affiliates or
any other individual having a relationship which, in the reasonable opinion
of the Board, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. Additionally, James Kolsrud
will not be considered an Outside Director.
(g) "Qualified IPO" shall have the meaning set forth in
Section 5(c) of this Article IV.
Section 2. DIVIDENDS. Each holder of a share of Series A Preferred
shall be entitled to receive dividends on an as-converted basis when, as and
if any dividends are declared by the Board on Common Stock or any other
series of Preferred Stock. Dividends on the Series A Preferred shall be
non-cumulative.
Section 3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the Corporation shall provide
each holder of a share of Series A Preferred with prior, written notice of at
least 15 days of such event, and all assets and funds of the Corporation
legally available for distribution shall be distributed to the holders of the
Common Stock and the Series A Preferred in the following order of priority:
(i) FIRST, ratably among the holders of the Series A
Preferred until such holders have received the preferential amount of $5.00
per share of Series A Preferred held thereby, as adjusted for stock
dividends, combinations or splits with respect to such shares (the "Original
Price"), plus all declared and unpaid dividends thereon, if any, provided
that if the assets and funds thus distributed among the holders of the Series
A Preferred are insufficient to permit the payment to such holders of such
full preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed among the
holders of the Series A Preferred, ratably in proportion to such full
preferential amounts each such holder would be entitled to first receive; and
(ii) SECOND, all remaining amounts shall be paid and
distributed on a PARI PASSU basis among the holders of the Common Stock and
Series A Preferred in proportion to the number of shares of Common Stock then
held by them and shares of Common Stock which they then have the right to
acquire upon conversion of the shares of Series A Preferred then held by
them, provided that, at such time as the holders of Series A Preferred shall
have received pursuant to Sections 3(a)(i) and (ii) an aggregate amount that
provides the holders of Series A Preferred an internal rate of return from
the original date of issuance of the shares of Series A Preferred held
thereby of thirty-five percent (35%) compounded annually on the amount
originally invested therein (the "IRR"), then the holders of
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Series A Preferred shall not receive any further portion of the remaining
assets and funds of the Corporation available for distribution and all such
remaining assets and funds shall be distributed ratably to the holders of
Common Stock, provided, further, that if all such assets and funds are
distributed and the holders of Series A Preferred have not received a
sufficient amount to have reached the IRR, then the amount received or to be
received by holders of Common Stock shall be reduced and redistributed to the
holders of Series A Preferred until such time as such holders have received a
sufficient amount to have reached the IRR. Notwithstanding anything
contained in this Section 3(a) to the contrary, if the holders of the Series
A Preferred would be entitled to receive in the aggregate a greater amount of
the assets and funds to be distributed under this Section if their shares of
Series A Preferred had been converted into Common Stock than such holders
would be entitled to receive in the aggregate pursuant to Sections 3(a)(i)
and (ii) if such shares were not so converted, then, for purposes of this
Section 3, such shares of Series A Preferred will be deemed converted without
any further action on the part of such holders, and such holders will not be
entitled to receive any amount under Sections 3(a)(i) or (ii) in their
capacity as holders of Series A Preferred.
(b) A consolidation, reorganization, recapitalization or
merger of the Corporation with or into any other corporation or entity (other
than a merger with or into a wholly owned subsidiary of the Corporation), or
a sale, conveyance or distribution of all or substantially all of the assets
of the Corporation, or the effectuation by the Corporation of a transaction
or series of transactions, other than a Qualified IPO, in which the
Corporation's stockholders immediately prior to such transaction or series of
transactions own immediately after such transaction or series of transactions
less than 50% of the equity securities of the surviving corporation (each, a
"Liquidation Event"), shall be deemed to be a liquidation, dissolution or
winding up of this Corporation within the meaning of this Section 3 unless
the holders of the outstanding shares of Series A Preferred are entitled to
approve such Liquidation Event pursuant to Section 4(b)(iv) and 75% or more
of the outstanding shares of Series A Preferred affirmatively elect that such
Liquidation Event shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 3.
(c) Insofar as any distribution pursuant to Section 3(a)
consists of assets other than cash, the value thereof shall be, for purposes
of the provisions of Section 3(a), the fair value at the time of such
distribution, as determined in good faith by the Board, including the Series
A Preferred Director (as defined herein). Any securities not subject to
investment letter or similar restrictions on free marketability shall be
valued as follows:
(i) If traded on a securities exchange, the value shall
be deemed to be the average of the security's closing prices on such exchange
over the thirty (30) day period ending one (1) day prior to the distribution;
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(ii) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the thirty
(30) day period ending three (3) days prior to the distribution; and
(iii) If there is no active public market, the value
shall be the fair market value thereof as determined in good faith by the
Board.
The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be adjusted to make
an appropriate discount from the market value determined as above in clauses
(i), (ii) or (iii) to reflect the fair market value thereof as determined in
good faith by the Board.
Section 4. VOTING.
(a) At all meetings of the stockholders of the Corporation
and in the case of any actions of stockholders in lieu of a meeting, each
share of Common Stock shall be entitled to one vote, and each share of Series
A Preferred shall be entitled to that number of votes equal to the number of
whole shares of Common Stock into which such share is then convertible (in
accordance with Section 5 hereof, but excluding declared but unpaid dividends
on each share of Series A Preferred) on the record date set for the meeting
or action or, if no record date is set, on the date of such meeting or the
date such action is taken. Fractional votes shall not, however, be permitted
and any fractional voting rights available on an as-converted basis (after
aggregating all shares into which shares of Series A Preferred held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward). Except as otherwise expressly provided below
in this Section 4 or as required by law, the holders of Common Stock and
Series A Preferred shall vote together as a single class in accordance with
this Section 4(a), and neither the Common Stock nor any of the Series A
Preferred shall be entitled to vote as a separate class on any matter to be
voted on by stockholders of the Corporation.
(b) Without the affirmative vote of the holders of a majority
or, where noted below, of 75% or more of the then outstanding shares of
Series A Preferred, the Corporation shall not:
(i) amend, waive, alter or repeal any provision of this
Certificate of Incorporation or the Corporation's Bylaws in a way that
alters, directly or indirectly, the voting powers, preferences, or other
special rights or privileges or restrictions of the Series A Preferred, as
set forth herein, or otherwise adversely affects the Series A Preferred
holders;
(ii) without the affirmative vote of 75% or more of the
outstanding shares of Series A Preferred, increase or decrease (other than as
otherwise provided
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for in this Certificate of Incorporation) the number of authorized shares of
Preferred Stock of the Corporation;
(iii) authorize, issue or designate, whether by
reclassification or otherwise, any new class or series of stock or any other
securities convertible into equity securities of the Corporation having a
preference over, or being PARI PASSU with, the Series A Preferred with
respect to dividend rights, redemption, liquidation preferences, conversion
rights or voting rights;
(iv) without the affirmative vote of 75% or more of the
outstanding shares of Series A Preferred, liquidate, dissolve or wind up the
Corporation or sell all or substantially all of the assets of the Corporation
or effect or undergo any other Liquidation Event, provided that, if as a
result of any such event, shares of Series A Preferred would be deemed
converted into shares of Common Stock pursuant to Section 3(a)(ii) and (A)
the holders thereof are to be paid cash and/or cash equivalents, then no vote
of the holders of the Series A Preferred shall be required to approve any
such event under this Section 4 or (B) consideration other than cash or cash
equivalents (or a combination of (i) cash and/or cash equivalents and (ii)
some other form of consideration) is to be paid to such holders, then such
event shall be subject to the reasonable approval of the holders of a
majority of the then outstanding Series A Preferred, provided further that
the reasonableness of the approval thereof shall be based solely on the
ability of such holders to liquidate promptly such consideration, taken as a
whole, in a manner that would enable such holders to receive at least the IRR
for such shares. Notwithstanding anything contained in this Section 4(b)(iv)
to the contrary, if the indemnification terms of such event do not provide
that indemnification shall be (i) pro rata among all of the stockholders of
the Corporation and (ii) limited to the consideration received by each such
stockholder pursuant to such event, then such event shall be subject to the
approval of 75% or more of the outstanding shares of Series A Preferred in
accordance with this Section 4;
(v) redeem, purchase or otherwise acquire for value (or
pay into or set aside for a sinking fund for such purpose) (i) any share or
shares of Preferred Stock otherwise than by redemption or conversion in
accordance herewith or (ii) any of the Common Stock; or
(vi) issue a dividend of any kind.
(c) Notwithstanding the provisions of paragraph (b) above,
the actions of the Corporation specified therein shall not require the
separate affirmative vote of the holders of a majority of the Series A
Preferred if less that twenty-five percent (25%) of the aggregate number of
shares of Series A Preferred theretofore issued by the Corporation are at the
time outstanding.
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(d) So long as any shares of Series A Preferred remain
outstanding, the holders of the Series A Preferred shall have, in addition to
the other voting rights set forth herein, the exclusive right, voting
separately as a single class, to elect one director of the Corporation, with
the remaining directors to be elected by the other classes of stock entitled
to vote therefore at each meeting of shareholders held for the purpose of
electing directors (the "Series A Preferred Director"). The right of the
holders of Series A Preferred to vote for the election of directors may be
exercised at any annual meeting or at any special meeting called for such
purpose or at any adjournment thereof, or by the written consent, delivered
to the Secretary of the Corporation, of the holders of a majority of all
shares of Series A Preferred outstanding as of the record date of such
written consent.
(e) With respect to the Series A Preferred Director,
immediately after the date of issue, the Board of Directors of the
Corporation shall call for a special meeting or written consent of the
holders of shares of Series A Preferred to elect the Series A Preferred
Director. Each director, and any subsequent director elected pursuant to
this paragraph, shall serve as a director until his successor is elected and
qualified. In the event of a vacancy in respect of any directorship elected
by the holders of shares of Series A Preferred pursuant to this clause (e),
the Corporation agrees to call a special meeting of the holders of shares of
Series A Preferred at the request of the majority of the holders of
outstanding Series A Preferred, in order that the holders of the Series A
Preferred may elect a successor director, and at which meeting the holders of
Series A Preferred shall be entitled to the same voting rights as provided in
the first sentence of the prior paragraph.
Section 5. CONVERSION. The holders of the Series A Preferred shall
have the following conversion rights (the "Conversion Rights"):
(a) CONVERSION RIGHT. Each share of Series A Preferred may
convert, or automatically will be converted, as provided herein, without the
payment of any additional consideration by the holder thereof, into such
number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Price by the then applicable Conversion
Price, determined as hereinafter provided (the "Conversion Price"). The
Conversion Price for the Series A Preferred shall initially be $5.00 per
share. Such initial Conversion Price shall be adjusted as hereinafter
provided.
(b) OPTIONAL CONVERSION. Each share of Series A Preferred
shall be convertible into Common Stock in accordance with this Section 5 at
the option of the holder thereof at any time after the date of issuance of
such share at the office of the Corporation or any transfer agent for the
Common Stock, as further described in subsection (e) below.
(c) AUTOMATIC CONVERSION.
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(i) Each share of Series A Preferred shall
automatically be converted into Common Stock in accordance with this Section
5 upon the closing of a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of shares of Common Stock if the gross
proceeds generated from the sale of such shares of Common Stock sold pursuant
to such registration equals or exceeds $25,000,000 at an offering price
(prior to the underwriters' commissions and expenses) that is not less than
$7.00 per share, as adjusted for stock dividends, combinations or splits (a
"Qualified IPO"). In the event of the automatic conversion of the Series A
Preferred upon a public offering as aforesaid, each person entitled to
receive the Common Stock issuable upon such conversion of Series A Preferred
(i) shall not be deemed to have converted such Series A Preferred until the
closing of such offering and (ii) shall be entitled to receive a sufficient
number of shares of Common Stock so that such conversion provides such person
on the date of such conversion a return on the shares of Series A Preferred
held thereby equal to the IRR and the Corporation shall take all appropriate
action to insure that such person receives the requisite number of shares of
Common Stock following such conversion.
(ii) Additionally, each share of Series A Preferred
shall be automatically converted into Common Stock upon the affirmative vote
or the written consent of the holders of at least a majority of the
then-outstanding shares of Series A Preferred. In such event, the conversion
of all shares of Series A Preferred shall be deemed to have occurred upon the
date of receipt of such vote or consent or on such later date as may be
specified by such holders.
(d) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the
then-effective Conversion Price.
(e) MECHANICS OF OPTIONAL CONVERSION. Before any holder of
Series A Preferred shall be entitled to convert the same into full shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his attorney duly authorized in writing, at the
office of the Corporation or of any transfer agent for the Series A
Preferred, and shall give written notice to the Corporation at such office
that such holder elects to convert the same and shall state therein such
holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A Preferred, or to such holder's nominee
or nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid, together with cash
in lieu of any fraction of a share and any accrued but unpaid dividends on
the converted shares of Series
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A Preferred. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such shares of Common
Stock at the close of business on such date. From and after such date, all
rights of the holder with respect to the Series A Preferred so converted
shall terminate, except only the right of such holder to receive certificates
for the number of shares of Common Stock issuable upon conversion thereof and
cash for any fractional share.
(f) MECHANICS OF AUTOMATIC CONVERSION. All holders of record
of shares of Series A Preferred will be given written notice of the date of
any automatic conversion referenced in Section 5(c). Such notice will be
sent by mail, first class, postage prepaid, to each record holder of Series A
Preferred at such holder's address appearing on the stock register. Each
holder of shares of Series A Preferred shall, promptly after receiving such
notice, surrender such holder's certificate or certificates for all such
shares to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock or
other securities to which such holder is entitled. Upon the date of any such
automatic conversion, all rights with respect to the Series A Preferred will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock or other securities into which such Series A
Preferred has been converted and cash for any fraction of a share and any
accrued but unpaid dividends on the converted shares of Series A Preferred.
All certificates evidencing shares of Series A Preferred which are
automatically converted in accordance with the provisions hereof shall, from
and after the date of such automatic conversion, be deemed to have been
retired and canceled and the shares of Series A Preferred represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of
the holder or holders thereof to surrender such certificates. As soon as
practicable after the date of any such automatic conversion and the surrender
of the certificate or certificates for Series A Preferred as aforesaid, the
Corporation shall cause to be issued and delivered to such holder, or to such
holder's written order, a certificate or certificates for the number of full
shares of Common Stock or other securities issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 5(c)
in respect of any fraction of a share of Common Stock otherwise issuable upon
such conversion.
(g) CERTAIN ADJUSTMENTS TO CONVERSION PRICE APPLICABLE TO
SERIES A PREFERRED.
(i) ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS AND
COMBINATIONS OF COMMON STOCK. In the event the outstanding shares of Common
Stock shall, after the filing of this Certificate of Incorporation, be
further subdivided (split), or combined (reverse split), by reclassification
or otherwise, or in the event of any dividend or other distribution payable
on the Common Stock in shares of Common Stock, the Conversion Price
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in effect immediately prior to such subdivision, combination, dividend or
other distribution, concurrently with the effectiveness of such subdivision,
combination or dividend or other distribution, shall be adjusted so that the
holder of any shares of Series A Preferred thereafter convertible into Common
Stock pursuant to this Certificate of Incorporation shall be entitled to
receive the number and type of shares of Common Stock or other securities of
the Corporation which such holder would have owned or have been entitled to
receive after the happening of any of the events described above, had such
shares of Series A Preferred been converted into Common Stock immediately
prior to the happening of such event or the record date therefor, as
applicable. An adjustment made pursuant to this clause (i) shall become
effective (x) in the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination of
holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective.
(ii) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In
case of a reclassification, reorganization or exchange transaction or any
consolidation or merger of the Corporation with another corporation (other
than a merger with or into a wholly owned subsidiary of the Corporation or
other reorganization which is deemed to be a liquidation pursuant to Section
3(b) of this Article IV), each share of Series A Preferred shall thereafter
be convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such Series A Preferred would have
been entitled upon such reclassification, reorganization, exchange,
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the Board) shall be made in the application of
the provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Series A Preferred, to the end that the
provisions set forth herein (including provisions with respect to changes in
and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of
stock or other property thereafter deliverable upon the conversion of the
Series A Preferred.
(iii) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS.
In the event the Corporation at any time or from time to time after the
filing of this Certificate of Incorporation makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in securities or assets of the Corporation
other than shares of Common Stock, then and in each such event provision
shall be made so that the holders of Series A Preferred shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities or assets of the Corporation
which they would have received had their Series A Preferred been converted
into Common Stock on the date of such event and had they thereafter, during
the period from the date of such event to and including the conversion date,
retained such securities or assets receivable by them as aforesaid during
such period, subject to all other
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adjustments called for during such period under this Section 5 with respect
to the rights of the holders of the Series A Preferred.
(h) SALE OF SHARES BELOW CONVERSION PRICE.
(i) If at any time after the date hereof, the
Corporation issues or sells Additional Stock (as defined in subpart (v)
below), or is deemed by the express provisions of this subparagraph (h) to
have issued or sold, other than as a dividend or other distribution on any
class of stock as provided in subparagraph (f)(iii), above, and other than
upon a subdivision or combination of shares of Common Stock as provided in
subparagraphs (f)(i) or f(ii), above, for consideration per share less than
the Conversion Price in effect on the date of and immediately prior to such
issue, then and in each such case, the Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Conversion Price then in effect by a fraction,
(A) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of
Common Stock equivalents which the aggregate consideration received by the
Corporation for the total number of shares of Additional Stock so issued
would purchase if purchased at such Conversion Price, and (B) the denominator
of which shall be the number of shares of Common Stock equivalents
outstanding immediately after the Additional Stock is issued or sold;
PROVIDED, HOWEVER, that such fraction shall in no event be greater than one
(1). For purposes of the above calculation, the number of shares of Common
Stock outstanding immediately prior to and after such issuance shall be
calculated on a fully diluted basis as if all shares of Common Stock then
issuable upon conversion or exercise of then outstanding rights or options to
acquire Common Stock or other stocks or securities convertible into Common
Stock were outstanding as of such date.
(ii) For the purpose of making any adjustment required
under this subparagraph (h), the consideration received by the Corporation
for any issue or sale of securities shall (A) to the extent it consists of
cash be computed at the net amount of cash received by the Corporation after
deduction of any expenses payable by the Corporation and any underwriting or
similar commissions, compensation, or concessions paid or allowed by the
Corporation in connection with such issue or sale, (B) to the extent it
consists of property as determined in good faith by the Board, and (C) if
Additional Stock, Convertible Securities or rights or options to purchase
either Additional Stock or Convertible Securities are issued or sold together
with other stock or securities or other assets of the Corporation for a
consideration which covers both, be computed as the portion of the
consideration so received, computed as provided in (A) and (B) above, that
may be reasonably determined in good faith by the Board to be allocable to
such Additional Stock, Convertible Securities or rights or options, as the
case may be.
(iii) For the purpose of the adjustment required under this
subparagraph (h), if the Corporation issues or sells any Convertible Securities
and if the
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Effective Price (as defined in subpart (v) below) of the Additional Stock
underlying such Convertible Securities is less than the then applicable
Conversion Price in effect for the Series A Preferred, then in each case the
Corporation shall be deemed to have issued at the time of the issuance of
such Convertible Securities the maximum number of Additional Stock issuable
upon exercise or conversion thereof and to have received as consideration for
the issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Corporation for the issuance of such
rights or options or Convertible Securities, plus, in the case of such rights
or options, the minimum amount of consideration, if any, payable to the
Corporation upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable
to the Corporation upon the conversion thereof. No further adjustment of the
applicable Conversion Price, adjusted upon the issuance of such rights,
options or Convertible Securities, shall be made as a result of the actual
issuance of Additional Stock on the exercise of any such rights, options or
the conversion of any such Convertible Securities. If any such rights or
options or the conversion privilege represented by any such Convertible
Securities shall expire without having been exercised, the applicable
Conversion Price, adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the applicable Conversion Price
that would have been in effect had an adjustment been made on the basis that
the only Additional Stock so issued were the Additional Stock, if any,
actually issued or sold on the exercise of such rights or options or rights
of conversion of such Convertible Securities, and such Additional Stock, if
any, were issued or sold for the consideration actually received by the
Corporation upon such exercise, plus the consideration, if any, actually
received by the Corporation for the granting of all such rights or options,
whether or not exercised, plus the consideration received for issuing or
selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Corporation on the conversion
of such Convertible Securities.
(iv) For the purpose of the adjustment required under
this subparagraph (h), if the Corporation issues or sells any rights or
options for the purchase of Convertible Securities and if the Effective Price
of the Additional Stock underlying such Convertible Securities is less than
the then applicable Conversion Price in effect for a series of Convertible
Stock, then in each such case the Corporation shall be deemed to have issued
at the time of the issuance of such rights or options the maximum number of
Additional Stock issuable upon conversion of the total amount of Convertible
Securities covered by such rights or options and to have received as
consideration for the issuance of such Additional Stock an amount equal to
the amount of consideration, if any, received by the Corporation for the
issuance of such rights or options, plus the minimum amounts of
consideration, if any, payable to the Corporation upon the exercise of such
rights or options and plus the minimum amount of consideration, if any,
payable to the Corporation upon the conversion of such Convertible
Securities. No further adjustment of the applicable Conversion Price,
adjusted upon the issuance of such rights or options, shall be made as a
result of the actual issuance of the Convertible Securities upon the exercise
of such rights or options or upon the actual issuance of Additional Stock
upon the conversion of such Convertible Securities. The provisions of
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subpart (iii) above for the readjustment of the applicable Conversion Price
upon the expiration of rights or options or the rights of conversion of
Convertible Securities shall apply, the necessary changes having been made,
to the rights, options and Convertible Securities referred to in this subpart
(iv).
(v) "Additional Stock" shall mean any shares of Common
Stock, or instruments convertible or exercisable into Common Stock either
directly or indirectly, issued (or deemed to have been issued as provided in
this subparagraph (h)) by the Corporation after the date hereof other than
(A) shares of Common Stock issued upon conversion of any shares of Series A
Preferred, (B) shares of Common Stock issued to employees, directors or
consultants pursuant to the Corporation's existing stock option or stock
incentive plans, (C) shares of Common Stock or Convertible Securities issued
in connection with strategic relationships approved by a majority of the
Outside Directors (as defined herein) of the Board, including the Series A
Preferred Director, (D) warrants or other equity securities, and the equity
securities issued or issuable upon the conversion or exercise thereof, issued
to banks, equipment lessors or other commercial lenders in connection with
financing activities, provided that the aggregate number of shares of Common
Stock issued under clauses (B), (C) and (D) do not exceed 3,100,000 shares of
Common Stock (before making applicable or appropriate adjustments for any
stock splits, stock dividends and the like since the original issuance date
of the Series A Preferred), (E) shares issued upon conversion or exercise of
convertible or exercisable securities in existence as of the date hereof, (F)
shares issued in stock splits, stock dividends and the like. The "Effective
Price" of Additional Stock shall mean the quotient determined by dividing the
total number of Additional Stock issued or sold, or deemed to have been
issued or sold by the Corporation under this subparagraph (h), into the
aggregate consideration received, or deemed to have been received by the
Corporation for such issue under this subparagraph (h), for such Additional
Stock.
(i) DURATION OF ADJUSTED CONVERSION PRICE. Following each
computation or readjustment of an adjusted Conversion Price as provided above
in this Section 5, the new adjusted Conversion Price shall remain in effect
until a further computation or readjustment thereof is required by this
Section 5.
(j) OTHER ACTION AFFECTING COMMON STOCK. In case after the filing
of this Certificate of Incorporation the Corporation shall take any action
affecting its shares of Common Stock, other than an action described above in
this Section 5, that in the good faith opinion of the Board would have a
materially adverse effect upon the Conversion Rights set forth herein, the
Conversion Price of the affected Series A Preferred shall be adjusted in a
manner and at a time as the Board may in good faith determine to be equitable
in the circumstances.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of a Conversion Price of any of the Series A
Preferred pursuant to this
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Section 5, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of such Series A Preferred a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request, at any time, of any holder of any Series A Preferred, furnish or
cause to be furnished to such holder a like certificate setting forth: (i)
such adjustments and readjustments; (ii) the applicable Conversion Price of
such Series A Preferred at the time in effect; and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of such Series A Preferred.
(l) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid
in previous quarters) or other distribution, any capital reorganization of
the Corporation, any reclassification or recapitalization of the
Corporation's capital stock, any consolidation or merger with or into another
corporation or other entity, any transfer of all or substantially all of the
assets of the Corporation or any dissolution, liquidation or winding up of
the Corporation, the Corporation shall mail to each holder of Series A
Preferred at least ten (10) days prior to the date specified for the taking
of a record, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution or other such event.
(m) COMMON STOCK RESERVED. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of
shares of Common Stock as shall from time to time be sufficient to effect the
full conversion of all outstanding Series A Preferred.
(n) PAYMENT OF TAXES. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred, other than any tax or other
charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the
shares of Series A Preferred so converted were registered.
(o) NO IMPAIRMENT. The Corporation will not, by amendment of this
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
the carrying out of all the provisions hereof, and in the taking of all such
action as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series A Preferred as set forth herein against
impairment.
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Section 6. MANDATORY REDEMPTION OF SERIES A PREFERRED.
(a) MANDATORY REDEMPTION. The holder of any outstanding shares of
Series A Preferred may at its option request at any time in accordance with
this Section 6(a) that the Corporation redeem such shares on the fourth
anniversary of the first issuance of any share of Series A Preferred or on
any date thereafter (the "Redemption Date"), and the Corporation shall redeem
such share, in the manner and at the applicable Redemption Price hereinafter
specified. To effect a redemption under this Section 6(a), any such holder
shall deliver, not less than thirty (30) days prior to the Redemption Date, a
notice to the Corporation setting forth the number of shares of Series A
Preferred that such holder elects to have redeemed. In the event the
Corporation does not have sufficient funds legally available to redeem all of
the Series A Preferred that one or more holders thereof have elected to be
redeemed on such date, the Corporation shall on such date redeem pro rata
(based upon the number of shares held by each such holder) the maximum number
of shares of Series A Preferred it can legally redeem, and shall redeem the
remainder (the "Unredeemed Series A Preferred") as soon as the Corporation
has funds legally available therefor on one or more occasions as necessary.
Each deferred date upon which the Corporation redeems shares of Series A
Preferred in accordance with the immediately preceding sentence is also
herein referred to as a "Redemption Date." Shares of Unredeemed Series A
Preferred that are not redeemed within sixty (60) days of the Redemption Date
initially specified by the holder thereof in the notice delivered to the
Corporation in accordance with this Section 6(a) (such initially specified
Redemption Date, the "Accrual Date") shall accrue cumulative cash dividends
at an annual rate of 12% of the Original Price from the Redemption Date until
redeemed in accordance with this Section 6, and for each twelve-month period
(or any portion thereof if redeemed in accordance herewith by the Corporation
within such period) following the Accrual Date in which the Corporation fails
to redeem such share in accordance herewith, the annual dividend rate with
respect to such shares shall increase by five (5) percentage points to a
maximum of an amount which is the lesser of 30% or the maximum amount
permitted by law until such time as the Corporation has redeemed such shares
by paying to the holders thereof the Redemption Price then due.
(b) REDEMPTION PRICE. The redemption price (the "Redemption
Price") shall be the Original Price plus all accrued but unpaid dividends due
thereon, including, with respect to shares of Unredeemed Series A Preferred
only, those dividends calculated pursuant to Section 6(a).
(c) REDEMPTION NOTICE BY THE CORPORATION. The Corporation shall,
not less than ten (10) days nor more than thirty (30) days prior to any
Redemption Date, mail written notice (a "Redemption Notice"), postage
prepaid, to each holder opting to have its
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shares of Series A Preferred redeemed under Section 6(a) at the holder's post
office address last shown on the records of the Corporation. Each Redemption
Notice shall state:
(i) the number of shares of the Series A Preferred held by
the holder which the Corporation shall redeem on such Redemption Date in
accordance with the provisions hereof;
(ii) that the shares of Series A Preferred held by the holder
which the Corporation shall so redeem on such Redemption Date shall be
redeemed on such Redemption Date, which shall be specified as a calendar date
and shall be a business day;
(iii) the applicable Redemption Price; and
(iv) the time and manner in, and place at, which the holder
is to surrender to the Corporation on such Redemption Date the certificate or
certificates representing the shares of Series A Preferred to be redeemed on
such date.
(d) SURRENDER OF STOCK. On or before each Redemption Date, each
holder of Series A Preferred to be redeemed pursuant to this Section 6 shall
surrender to the Corporation the certificate or certificates representing the
shares to be redeemed on such Redemption Date, in the manner and at the place
designated in the Redemption Notice, and upon each such Redemption Date the
Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof,
or to such payee as such owner may designate in writing to the Corporation
prior to each such Redemption Date, and each surrendered certificate shall be
canceled and retired.
(e) TERMINATION OF RIGHTS. If a Redemption Notice is duly given
and if, on or prior to a Redemption Date, the Redemption Price is paid, then
notwithstanding that the certificates evidencing any of the shares of Series
A Preferred so called for redemption on such Redemption Date have not been
surrendered, all rights with respect to such shares shall forthwith after
such Redemption Date cease.
Section 7. REISSUANCE OF PREFERRED STOCK. No shares of Series A
Preferred which are redeemed, purchased or acquired by the Corporation or
converted into Common Stock shall be reissued, and all such shares shall be
canceled and eliminated from the shares which the Corporation shall be
authorized to issue.
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V
Unless and except to the extent that the bylaws of the corporation shall
so require, the election of directors of the corporation need not be by
written ballot.
VI
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors of the corporation is
expressly authorized to make, alter and repeal the bylaws of the corporation,
subject to the power of the stockholders of the corporation to alter or
repeal any bylaw whether adopted by them or otherwise.
VII
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the GCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the GCL is amended after approval by the stockholders of this
Article VII to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director shall be
eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
The Corporation is authorized to provide indemnification of agents (as
defined in Section 145 of the GCL) for any breach of duty to the Corporation
and its stockholders through Bylaw provisions, through agreements with the
agents, and/or through stockholder resolutions, or otherwise, in excess of
the indemnification otherwise permitted by Section 145 of the GCL, subject to
the limitations on such excess indemnification set forth in Section 102 of
the GCL.
Any repeal or modification of this Article VII shall be prospective and
shall not affect the rights under this Article VII in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability
or indemnification.
VIII
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The corporation reserves the right at any time, and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate
of Incorporation, in a manner now or hereafter prescribed by the laws of the
State of Delaware at the time in force; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation
in its present form or as hereafter amended are granted subject to the rights
reserved in this Article VIII.
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IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by Jonathan Gans, its Chief
Executive Officer, this 10th day of November, 1999.
By: /s/ Jonathan Gans
--------------------------------
Jonathan Gans
Chief Executive Officer
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
INTERPACKET NETWORKS, INC.
A Delaware corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I Offices. . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.1 Registered Office. . . . . . . . . . . . . .2
Section 1.2 Principal Executive Office . . . . . . . . .2
Section 1.3 Other Offices. . . . . . . . . . . . . . . .2
ARTICLE II Meetings of Stockholders. . . . . . . . . . . . .2
Section 2.1 Annual Meetings. . . . . . . . . . . . . . .2
Section 2.2 Special Meetings . . . . . . . . . . . . . .2
Section 2.3 Notice of Meetings . . . . . . . . . . . . .2
Section 2.4 Adjournments . . . . . . . . . . . . . . . .3
Section 2.5 Quorum . . . . . . . . . . . . . . . . . . .3
Section 2.6 Organization . . . . . . . . . . . . . . . .3
Section 2.7 Voting; Proxies. . . . . . . . . . . . . . .3
Section 2.8 Fixing Date for Determination of
Stockholders of Record . . . . . . . . . . .4
Section 2.9 List of Stockholders Entitled to Vote. . . .4
Section 2.10 Action by Written Consent of Stockholders. .5
Section 2.11 Inspectors of Election . . . . . . . . . . .5
Section 2.12 Conduct of Meetings. . . . . . . . . . . . .6
ARTICLE III Board of Directors. . . . . . . . . . . . . . . .6
Section 3.1 Number; Qualifications . . . . . . . . . . .6
Section 3.2 Election; Resignation; Vacancies . . . . . .6
Section 3.3 Regular Meetings . . . . . . . . . . . . . .7
Section 3.4 Special Meetings . . . . . . . . . . . . . .7
Section 3.5 Telephonic Meetings Permitted. . . . . . . .7
Section 3.6 Quorum; Vote Required for Action . . . . . .7
Section 3.7 Organization . . . . . . . . . . . . . . . .7
Section 3.8 Action by Written Consent of Directors . . .7
ARTICLE IV Committees. . . . . . . . . . . . . . . . . . . .8
Section 4.1 Committees . . . . . . . . . . . . . . . . .8
Section 4.2 Committee Rules. . . . . . . . . . . . . . .8
ARTICLE V Officers . . . . . . . . . . . . . . . . . . . . . . .8
Section 5.1 Executive Officers; Election;
Qualifications; Term of Office; Resignation;
Removal; Vacancies . . . . . . . . . . . . .8
Section 5.2 Powers and Duties of Executive Officers. . .9
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE VI Stock . . . . . . . . . . . . . . . . . . . . . .9
Section 6.1 Certificates . . . . . . . . . . . . . . . .9
Section 6.2 Lost, Stolen or Destroyed Stock
Certificates; Issuance of New Certificates. 9
ARTICLE VII Indemnification . . . . . . . . . . . . . . . . .9
Section 7.1 Right to Indemnification . . . . . . . . . .9
Section 7.2 Prepayment of Expenses . . . . . . . . . . 10
Section 7.3 Claims . . . . . . . . . . . . . . . . . . 10
Section 7.4 Nonexclusivity of Rights . . . . . . . . . 10
Section 7.5 Other Sources. . . . . . . . . . . . . . . 10
Section 7.6 Amendment or Repeal. . . . . . . . . . . . 11
Section 7.7 Other Indemnification and Prepayment of
Expenses . . . . . . . . . . . . . . . . . 11
ARTICLE VIII Miscellaneous . . . . . . . . . . . . . . . . . 11
Section 8.1 Fiscal Year. . . . . . . . . . . . . . . . 11
Section 8.2 Seal . . . . . . . . . . . . . . . . . . . 11
Section 8.3 Manner of Notice . . . . . . . . . . . . . 11
Section 8.4 Waiver of Notice of Meetings of
Stockholders, Directors and Committees . . 11
Section 8.5 Form of Records. . . . . . . . . . . . . . 11
Section 8.6 Amendment of Bylaws. . . . . . . . . . . . 12
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ARTICLE I
OFFICES
Section 1.1 REGISTERED OFFICE. The registered office of InterPacket
Networks, Inc. (the "Corporation") in the State of Delaware shall be at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle 19801, and the name of the registered agent at that
address shall be The Corporation Trust Company.
Section 1.2 PRINCIPAL EXECUTIVE OFFICE. The principal executive office
of the Corporation shall be located at such place within or outside of the State
of Delaware as the board of directors of the Corporation (the "Board of
Directors") from time to time shall designate.
Section 1.3 OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 ANNUAL MEETINGS. If required by applicable law, an annual
meeting of stockholders shall be held for the election of directors at such
date, time and place, either within or without the State of Delaware, as may be
designated by resolution of the Board of Directors from time to time. Any other
proper business may be transacted at the annual meeting.
Section 2.2 SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors, but
such special meetings may not be called by any other person or persons.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 2.3 NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Corporation's Certificate of
Incorporation (the "Certificate of Incorporation") or these Bylaws (the
"Bylaws"), the written notice of any meeting 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 mailed, such notice shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation.
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Section 2.4 ADJOURNMENTS. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. 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, notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting.
Section 2.5 QUORUM. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, at each meeting of stockholders
the presence in person or by proxy of the holders of a majority in voting power
of the outstanding shares of stock entitled to vote at the meeting shall be
necessary and sufficient to constitute a quorum. In the absence of a quorum,
the stockholders so present may, by a majority in voting power thereof, adjourn
the meeting from time to time in the manner provided in Section 2.4 of these
Bylaws until a quorum shall attend. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the Corporation or any subsidiary of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 2.6 ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the Chief Executive Officer,
or in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section 2.7 VOTING; PROXIES. Except as otherwise provided by or
pursuant to the provisions of the Certificate of Incorporation, each stockholder
entitled to vote at any meeting of stockholders shall be entitled to one vote
for each share of stock held by such stockholder which has voting power upon the
matter in question. 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
years from its date, unless the proxy provides for a longer period. A 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. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the Corporation. Voting
at meetings of stockholders need not be by written ballot. At all meetings of
stockholders for the election of
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directors a plurality of the votes cast shall be sufficient to elect. All
other elections and questions shall, unless otherwise provided by the
Certificate of Incorporation, these Bylaws, the rules or regulations of any
stock exchange applicable to the Corporation, or applicable law or pursuant
to any regulation applicable to the Corporation or its securities, be decided
by the affirmative vote of the holders of a majority in voting power of the
shares of stock of the Corporation which are present in person or by proxy
and entitled to vote thereon.
Section 2.8 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. 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, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or 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 by the Board of
Directors, and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty (60)
nor less than ten (10) days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten (10) days from the date
upon which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
(60) days prior to such other action. If no record date is fixed: (1) 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; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
of the Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation in accordance with applicable law, or, if prior
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. 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.
Section 2.9 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten (10) days before every meeting of stockholders, 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
3
<PAGE>
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. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present. Upon
the willful neglect or refusal of the directors to produce such a list at any
meeting for the election of directors, they shall be ineligible for election
to any office at such meeting. Except as otherwise provided by law, the
stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list of stockholders or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 2.10 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which minutes of proceedings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall, to the extent required by law, be given to
those stockholders who have not consented in writing and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting if
the record date for such meeting had been the date that written consents signed
by a sufficient number of holders to take the action were delivered to the
Corporation.
Section 2.11 INSPECTORS OF ELECTION. The Corporation may, and shall if
required by law, in advance of any meeting of stockholders, appoint one or more
inspectors of election, who may be employees of the Corporation, to act at the
meeting or any adjournment thereof and to make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In the event that no inspector so appointed or
designated is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector or
inspectors so appointed or designated shall (i) ascertain the number of shares
of capital stock of the Corporation outstanding and the voting power of each
such share, (ii) determine the shares of capital stock of the Corporation
represented at the meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares of
capital stock of the Corporation represented at the meeting and such inspectors'
count of all votes and ballots. Such certification and report shall
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specify such other information as may be required by law. In determining the
validity and counting of proxies and ballots cast at any meeting of
stockholders of the Corporation, the inspectors may consider such information
as is permitted by applicable law. No person who is a candidate for an
office at an election may serve as an inspector at such election.
Section 2.12 CONDUCT OF MEETINGS. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the person presiding over any meeting of
stockholders shall have the right and authority to convene and to adjourn the
meeting, to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the presiding officer of the meeting,
may include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. The presiding officer at any meeting of stockholders,
in addition to making any other determinations that may be appropriate to the
conduct of the meeting, shall, if the facts warrant, determine and declare to
the meeting that a matter or business was not properly brought before the
meeting and, if such presiding officer should so determine, such person shall so
declare to the meeting that any such matter or business not properly brought
before the meeting shall not be transacted or considered. Unless and to the
extent determined by the Board of Directors or the person presiding over the
meeting, meetings of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 NUMBER; QUALIFICATIONS. The Board of Directors shall
consist of one or more members, the number thereof to be determined from time to
time by resolution of the Board of Directors. Directors need not be
stockholders.
Section 3.2 ELECTION; RESIGNATION; VACANCIES. The Board of Directors
shall initially consist of the persons named as directors in the Certificate of
Incorporation or elected by the incorporator of the Corporation, and each
director so elected shall hold office until the first annual meeting of
stockholders or until his successor is duly elected and qualified. At the first
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annual meeting of stockholders and at each annual meeting thereafter, the
stockholders shall elect directors, each of whom shall hold office for a term of
one year or until his successor is duly elected and qualified, subject to such
director's earlier death, resignation, disqualification or removal. Any
director may resign at any time upon written notice to the Corporation. Unless
otherwise provided by law or the Certificate of Incorporation, any newly created
directorship or any vacancy occurring in the Board of Directors for any cause
may be filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum, or by a plurality of the votes
cast at a meeting of stockholders, and each director so elected shall hold
office until the expiration of the term of office of the director whom he has
replaced or until his successor is elected and qualified.
Section 3.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine.
Section 3.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Secretary, or by any two (2)
members of the Board of Directors. Notice of a special meeting of the Board of
Directors shall be given by the person or persons calling the meeting at least
twenty-four hours before the special meeting.
Section 3.5 TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof 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 a meeting pursuant to this
Bylaw shall constitute presence in person at such meeting.
Section 3.6 QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
Board of Directors a majority of the whole Board of Directors shall constitute a
quorum for the transaction of business. Except in cases in which the
Certificate of Incorporation, these Bylaws or applicable law otherwise provides,
the vote of a majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
Section 3.7 ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the Chief Executive
Officer, or in his absence by the President, or in their absence by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 3.8 ACTION BY WRITTEN CONSENT OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at
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any meeting of the Board of Directors, or of any committee thereof, may be
taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors
or such committee.
ARTICLE IV
COMMITTEES
Section 4.1 COMMITTEES. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they 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. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
Section 4.2 COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules,
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these Bylaws.
ARTICLE V
OFFICERS
Section 5.1 EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF
OFFICE; RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall elect a
Chief Executive Officer, a President, a Secretary and a Chief Financial Officer,
and it may, if it so determines, choose a Chairman of the Board and a Vice
Chairman of the Board from among its members. The Board of Directors may also
choose one or more Vice Presidents and one or more Assistant Secretaries. Each
such officer shall hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding his election, and until
his successor is elected and qualified or until his earlier resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. The Board of Directors may remove any officer with or without
cause at any
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time, but such removal shall be without prejudice to the contractual rights
of such officer, if any, with the Corporation. Any number of offices may be
held by the same person. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any regular or
special meeting.
Section 5.2 POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of
the Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
ARTICLE VI
STOCK
Section 6.1 CERTIFICATES. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
of the Board of Directors, if any, or the Chief Executive Officer or the
President or a Vice President, and by the Chief Financial Officer or the
Secretary or an Assistant Secretary of the Corporation certifying the number of
shares owned by him in the Corporation. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 6.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VII
INDEMNIFICATION
Section 7.1 RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter
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be amended, any person (a "Covered Person") who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or,
while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust, enterprise or
nonprofit entity, including service with respect to employee benefit plans,
against all liability and loss suffered and expenses (including attorneys'
fees) reasonably incurred by such Covered Person. Notwithstanding the
preceding sentence, except as otherwise provided in Section 7.3, the
Corporation shall be required to indemnify a Covered Person in connection
with a proceeding (or part thereof) commenced by such Covered Person only if
the commencement of such proceeding (or part thereof) by the Covered Person
was authorized by the Board of Directors of the Corporation.
Section 7.2 PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees) incurred by a Covered Person in defending
any proceeding in advance of its final disposition, provided, however, that, to
the extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Covered Person to repay all amounts advanced if it should be ultimately
determined that the Covered Person is not entitled to be indemnified under this
Article VII or otherwise.
Section 7.3 CLAIMS. If a claim for indemnification or advancement of
expenses under this Article VII is not paid in full within thirty days after a
written claim therefor by the Covered Person has been received by the
Corporation, the Covered Person may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to be paid
the expense of prosecuting such claim. In any such action, the Corporation
shall have the burden of proving that the Covered Person is not entitled to the
requested indemnification or advancement of expenses under applicable law.
Section 7.4 NONEXCLUSIVITY OF RIGHTS. The rights conferred on any
Covered Person by this Article VII shall not be exclusive of any other rights
which such Covered Person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, these Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 7.5 OTHER SOURCES. The Corporation's obligation, if any, to
indemnify or to advance expenses to any Covered Person who was or is serving at
its request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such Covered Person may collect as indemnification or
advancement of expenses from such other corporation, partnership, joint venture,
trust, enterprise or non-profit enterprise.
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Section 7.6 AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any Covered Person in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 7.7 OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES. This
Article VII shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Covered Persons when and as authorized by appropriate corporate
action.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 8.2 SEAL. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 8.3 MANNER OF NOTICE. Except as otherwise provided herein,
notices to directors and stockholders shall be in writing and delivered
personally or mailed to the directors or stockholders at their addresses
appearing on the books of the Corporation. Notice to directors may be given by
telegram, telecopier, telephone or other means of electronic transmission.
Section 8.4 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 8.5 FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time.
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Section 8.6 AMENDMENT OF BYLAWS. These Bylaws may be altered, amended
or repealed, and new bylaws made, by the Board of Directors, but the
stockholders may make additional bylaws and may alter and repeal any bylaws
whether adopted by them or otherwise.
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EXHIBIT 9.1
VOTING AGREEMENT AND IRREVOCABLE PROXY
This VOTING AGREEMENT AND IRREVOCABLE PROXY (the "Agreement") is made
and entered into as of November 12, 1999, by and between InterPacket Group,
Inc., a Delaware corporation (the "Company"), and Jeffrey P. Sudikoff
("Sudikoff").
RECITALS
A. Sudikoff is the record holder and Beneficial Owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of 1,293,334 shares of the issued and outstanding common stock of the
Company (such shares, and all other shares of the capital stock of the Company
with respect to which Sudikoff is or may become the record holder and Beneficial
Owner of on or after the date hereof, are collectively referred to in this
Agreement as the "Shares").
B. The Company and Sudikoff have agreed that, to better facilitate the
Company=s private and public fund-raising efforts, it is in the best interests
of both parties for Sudikoff to enter into and be bound by the terms of this
Agreement. In that regard, Sudikoff has agreed to appoint a committee of the
Board of Directors of the Company (the "Voting Committee") as his attorney and
proxy in respect of the Shares, as further set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. GRANT OF PROXY; COVENANTS OF SUDIKOFF.
1.1 PROXY; OWNERSHIP OF SHARES. Sudikoff hereby irrevocably
appoints the Voting Committee as his attorney and proxy with full power of
substitution, to vote the Shares in such manner as the Voting Committee, in its
sole discretion by or through its duly authorized representative, shall deem
proper at any meeting of stockholders of the Company (whether annual or special
and whether or not an adjourned or postponed meeting) or consent in lieu of any
such meeting. This proxy and power of attorney is irrevocable and coupled with
an interest, shall not be terminated by any act of Sudikoff or by operation of
law, by lack of appropriate power or authority, or by the occurrence of any
other event or events, other than as described in Sections 1.2 or 3.1 below.
Sudikoff hereby revokes all other proxies and powers of attorney with respect to
the Shares which he may have heretofore appointed or granted, and no subsequent
proxy or power of attorney shall be given or written consent executed (and if
given or executed, shall not be effective) by Sudikoff with respect thereto.
Sudikoff hereby represents and warrants that he is the record holder and
Beneficial Owner of the Shares.
<PAGE>
1.2 DISPOSITION OR ENCUMBRANCE OF SHARES. Notwithstanding
anything contained herein to the contrary, Sudikoff may, in his sole discretion,
sell, transfer, tender, assign, hypothecate or otherwise dispose of, or create
or permit to exist any security interest or lien on (collectively, a
"Transfer"), the Shares. Upon a Transfer of any Shares whereby Sudikoff ceases
to be the record holder and Beneficial Owner of such Shares, if such Transfer is
to a third party purchaser that is not a member of Sudikoff's immediate family
and is not otherwise an affiliate of Sudikoff, as each such term is defined in
the Exchange Act, then the proxy granted under this Agreement shall terminate as
to such Shares only, and the remaining Shares shall continue to be subject to
the terms and conditions of this Agreement.
1.3 ADDITIONAL PURCHASES. Sudikoff agrees that any shares of
capital stock of the Company that Sudikoff purchases or with respect to which
Sudikoff otherwise becomes the record holder or Beneficial Owner of after the
execution of this Agreement shall be subject to the terms and conditions of this
Agreement to the same extent as if they constituted Shares.
1.4 NO PARTICIPATION. Sudikoff covenants and agrees that,
during the term of this Agreement, (a) he will not directly or indirectly vote
any of the Shares and (b) he will not directly or indirectly influence any
member of the Voting Committee with respect to the manner in which the Shares
are voted by the Voting Committee, (c) he will not participate with the
executive officers of the Company in respect of any activity relating to
strategic planning, the review and consideration of material transactions or any
fundamental change in operations, (d) he will not attend any meetings of the
Board of Directors or any Committee thereof unless he is invited to attend such
meeting by the Board or such Committee (other than the Voting Committee,
meetings of which he shall not attend under any circumstances), as the case may
be, and (e) he will otherwise avoid active involvement in the day-to-day
business of the Company.
2. VOTING COMMITTEE. The Company covenants and agrees that it will take
all necessary actions to direct the Company=s Board of Directors to immediately
establish the Voting Committee and to appoint three (3) members of the Board to
such committee, all of whom shall be outside directors who are not members of
the Company's management or an affiliate of Sudikoff, as defined above. One of
such members shall be the representative of Pequot Capital or of any venture
capital fund not affiliated with the Company or Sudikoff serving on the Board
for so long as Pequot Capital or such fund, as the case may be, shall have a
representative serving on the Board and such representative shall be willing to
serve as a member of the Voting Committee. In that regard, the Voting Committee
shall act as proxy holder pursuant to the terms of this Agreement. The Voting
Committee shall be maintained by the Board of Directors through the term of this
Agreement. All votes by the Voting Committee with respect to the Shares may only
be made by the unanimous consent or resolution thereof, and any member of such
Committee may, on behalf thereof, vote the Shares pursuant to the proxy granted
hereunder in the manner specified by such consent or resolution. In the event
that the Voting Committee is unable to agree unanimously, the Voting Committee
shall cause such Shares to be present at any meeting of the Company's
shareholders but shall be recorded as abstentions.
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3. MISCELLANEOUS.
3.1 TERMINATION. This Agreement shall terminate and have no
further force and effect (a) on November 1, 2004 unless otherwise terminated at
an earlier date as a result of the Transfer by Sudikoff of Beneficial Ownership
of all of the Shares, (b) on the consummation of a change in control, which, for
purposes of this Agreement, shall be any transaction or series of related
transactions in which more than 50% of the voting stock of the Company is
acquired or (c) following the completion of the Company's initial public
offering, when, for a period of 180 consecutive days, the Shares constitute less
than 2% of the outstanding voting stock of the Company.
3.2 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
3.3 ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of all parties
hereto.
3.4 AMENDMENTS, WAIVERS, ETC. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated, with
respect to any party hereto, except upon the execution and delivery of a written
agreement executed by all such parties. In that regard, the Company may not
amend, change, supplement, waive or otherwise modify or terminate any of the
terms of this Agreement without the unanimous approval or written consent of the
Board of Directors of the Company and the provisions of this sentence shall not
be waived or waivable by any party hereto.
3.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telecopy or
mail (registered or certified mail, postage prepaid, return receipt requested)
or by any courier service, such as Federal Express, providing proof of delivery.
All communications hereunder shall be delivered to the respective parties at the
following addresses and numbers:
If to Sudikoff:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
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If to InterPacket InterPacket Group, Inc.
1902 Main Street, 2nd Floor
Santa Monica, California 90405
Fax No. (310) 382-3310
Attn: General Counsel
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
3.6 SEVERABILITY. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
3.7 SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
3.8 REMEDIES CUMULATIVE. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
3.9 NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
3.10 NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any person
or entity who or which is not a party hereto.
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3.11 NO CONFLICTS. Each of Sudikoff and the Company severally
represents, warrants and covenants that he or it, as the case may be, has not
taken and will not take any action that conflicts with, violates or would
otherwise be inconsistent with the terms, conditions and restrictions set forth
in this Agreement.
3.12 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
3.13 DESCRIPTIVE HEADINGS. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
3.14 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
THE COMPANY: INTERPACKET GROUP, INC.
By: /s/ Jon Gans
---------------------------------
Jon Gans, Chief Executive Officer
SUDIKOFF:
/s/ Jeffery P. Sudikoff
--------------------------------------
Jeffrey P. Sudikoff
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AMENDED AND RESTATED
1998 STOCK OPTION PLAN
OF
INTERPACKET NETWORKS, INC.
Section 1. DESCRIPTION OF PLAN. This is the amended and restated 1998
Stock Option Plan (the "Plan") of InterPacket Networks, Inc., a Delaware
corporation (the "Company"). Under this Plan, officers, key employees and
consultants of the Company or any of its subsidiaries and members of the
Board of Directors of the Company, to be selected as set forth below, may be
granted options ("Options") to purchase shares of the Company's Common Stock,
par value $.001 per share (the "Common Stock"). For purposes of this Plan,
the term "subsidiary" means any directly or indirectly majority or wholly
owned entity of the Company (individually, a "Subsidiary" and collectively,
the "Subsidiaries"). It is intended that the Options under this Plan will
either qualify for treatment as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and be designated
"Incentive Stock Options" or not qualify for such treatment and be designated
"Nonqualified Stock Options." Incentive Stock Options may only be granted to
employees of the Company or any Subsidiary.
Section 2. PURPOSE OF PLAN. The purpose of the Plan and of granting
Options to specified persons is to further the growth, development and
financial success of the Company and its Subsidiaries by providing additional
incentives to certain officers, key employees, consultants and members of the
Board of Directors (or equivalent bodies) of the Company or its Subsidiaries.
By assisting such persons in acquiring shares of Common Stock, the Company
can ensure that such persons will themselves benefit directly from the
Company's and its Subsidiaries' growth, development and financial success.
Section 3. ELIGIBILITY. The persons who shall be eligible to receive
grants of Options under the Plan shall be (a) the officers, key employees and
consultants of the Company and the Subsidiaries; provided that bona fide
services shall be rendered to the Company or its Subsidiaries by such
consultant and such services shall not have been in connection with the offer
and sale of securities in a capital-raising transaction and (b) members of
the Board of Directors (or equivalent bodies) of the Company or its
Subsidiaries. A person who holds an Option is herein referred to as a
"Participant," and more than one Option may be granted to any Participant.
The aggregate fair market value (determined as of the time an Option is
granted) of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any Participant in any calendar year
under this Plan and any other incentive stock option plans (which qualify
under Section 422 of the Code) of the Company or any Subsidiary shall not
exceed $100,000. To the extent that a Participant's Incentive Stock Options
exceed that limit, they will be treated as Nonqualified Stock Options (but
all of the other provisions of the Option shall remain
<PAGE>
applicable), with the first Options that were granted to the Participant to
be treated as Incentive Stock Options.
Section 4. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the
"Committee") to be composed of not less than two (2) members of the Board
until such time as the Company registers shares of its equity securities
under the Securities Act of 1933, as amended, provided that the Board of
Directors of the Company may, from time to time, serve as the Committee for
purposes of administering all aspects of the Plan. Subject to the preceding
sentence, members of the Committee shall be appointed, both initially and as
vacancies occur, by the Board, to serve at the pleasure of the Board. On and
after the first date that the Company becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to the extent possible and advisable, the Committee may be
constituted so as to permit this Plan to comply with Rule 16b-3 promulgated
under Section 16 of the Exchange Act and Section 162(m) of the Code. The
Committee shall meet at such times and places as it determines and may meet
through a telephone conference call. A majority of its members shall
constitute a quorum, and the decision of a majority of those present at any
meeting at which a quorum is present shall constitute the decision of the
Committee. A memorandum signed by all of its members shall constitute the
decision of the Committee without necessity, in such event, for holding an
actual meeting.
(b) The Committee is authorized and empowered to
administer the Plan and, subject to the Plan, (i) to select the Participants,
to determine the number of shares of Common Stock which may be purchased and
in general to grant Options and to extend the time period during which a
Nonqualified Stock Option may be exercised after taking into account any
possible adverse accounting treatment and the possible loss of Incentive
Stock Option status; (ii) to determine the dates upon which Options shall be
granted and the terms and conditions thereof in a manner not inconsistent
with the Plan, which terms and conditions need not be identical as to the
various Options granted; (iii) to determine which Options are to be Incentive
Stock Options and which Options are to be Nonqualified Stock Options; (iv) to
interpret the Plan; (v) to prescribe, amend and rescind rules relating to the
Plan; (vi) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
by the Committee; (vii) to determine the rights and obligations of
Participants under the Plan; (viii) to specify the purchase price to be paid
by Participants for shares of Common Stock; (ix) to accelerate the time
during which an Option may be exercised in accordance with the provisions of
Section 16 hereof, and to otherwise accelerate the time during which an
Option may be exercised (but not reduce the time of exercise for Options
which have vested), in each case notwithstanding the provisions in the Option
Agreement (as defined in Section 13) stating the time during which it may be
exercised; and (x) to make all other determinations deemed necessary or
advisable for the administration of the Plan. The interpretation and
construction by the Committee of any provision of the Plan or of any Option
granted under it shall be final,
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conclusive and binding. No member of the Committee shall be liable for any
action or determination made with respect to the Plan or any Option granted
hereunder.
Section 5. SHARES SUBJECT TO PLAN. The maximum amount of shares of
Common Stock for which Options may be granted pursuant to the Plan shall be
4,600,000 and the maximum number that may be issued to any Participant is
4,600,000. The number of shares of Common Stock which may be purchased by a
Participant upon exercise of each Option shall be determined by the Committee
and set forth in each Option Agreement. Upon the expiration or termination,
in whole or in part, for any reason of an outstanding Option or any portion
thereof which shall not have vested or shall not have been exercised in full
or in the event that any shares of Common Stock acquired pursuant to the Plan
are reacquired by the Company, (a) any shares of Common Stock which have not
been purchased or (b) the shares of Common Stock reacquired, as the case may
be, shall again become available for the granting of additional Options under
the Plan. Notwithstanding the preceding sentence, shares subject to a
terminated option shall continue to be considered to be outstanding for
purposes of determining the maximum number of shares that may be issued to a
single Participant. Similarly, the repricing of an Option will be considered
the grant of a new Option for that purpose.
Section 6. OPTION PRICE. Except as provided in Section 11 or Section
12 hereof, the purchase price per share (the "Option Price") of the shares of
Common Stock underlying each Option shall be determined by the Committee but
shall not be less than 100 percent of the fair market value of such shares on
the date of grant of Option, provided that if the Participant is a 10-percent
stockholder of the Company (determined using the constructive ownership rules
of Section 424(d) of the Code) at the time such Participant is granted an
Incentive Stock Option, the Option Price shall be not less than 110 percent
of said fair market value. Such fair market value shall be determined by the
Committee (i) if the Company's securities are traded on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System (or a similar successor system), on the basis of the
reported closing sales price on such date or, in the absence of a reported
sales price on such date, on the basis of the average of the reported closing
bid and asked price on such date, or, if the date of determination is not a
trading day, the immediately preceding trading day, or (ii) in the absence of
both a reported sales price and a reported bid and asked price under clause
(i), the Committee shall determine such fair market value on the basis of
such evidence as it deems appropriate, in its sole discretion. In the case of
an Incentive Stock Option, "Fair Market Value" shall be determined without
reference to any restriction other than one that, by its terms, will never
lapse.
Section 7. RESTRICTIONS ON GRANTS; VESTING OF OPTIONS.
(a) Notwithstanding any other provisions set forth
herein or in any Option Agreement, no Options may be granted under the Plan
subsequent to 10 years from the date hereof. The vesting of all Options may
be based on the passage of time. The Committee shall determine the vesting
schedule applicable to each Option or group of Options in a schedule,
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a copy of which shall be filed with the records of the Committee and attached
to each Option Agreement to which the same applies. The vesting schedule need
not be identical for all Options granted hereunder. The Committee may
periodically review the vesting criteria applicable to any Option or Options
then outstanding and, in its sole judgment, may adjust the same to reflect
unanticipated major events, including but not limited to superior individual
performance, catastrophic occurrences, mergers and acquisitions.
(b) If an adjustment in outstanding shares of Common
Stock occurs due to a Change in Control, as defined below, and, in connection
therewith, Options are assumed or substituted by the surviving or acquiring
corporation (the "Acquiror"), then fifty percent (50%) of the unvested shares
subject to all such assumed or substituted Options shall vest at the time of
the termination of employment of a Participant if (i) the Participant was an
employee of the Company immediately prior to the date of the Change in
Control, (ii) the Participant's employment with the Acquiror terminates
within the eighteen (18) months following the date of the Change in Control,
and (iii) such employment is either terminated without Cause, as defined
below, by the Acquiror or terminated with Good Reason, as defined below, by
the Participant.
(c) "Change in Control" means the happening of any of
the following:
(i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the Company or any
present shareholder of the Company) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or
(ii) The occurrence of a transaction requiring
shareholder approval, and involving the sale of all or substantially all of
the assets of the Company or the merger of the Company with or into another
corporation or entity in which the Company is not the surviving entity.
(d) "Cause" shall mean (i) any intentional act of fraud,
embezzlement or theft in connection with a Participant's duties or in the
course of his or her employment with the Company or the Acquiror, (ii)
conduct which, based upon a reasonable determination by the Company or the
Acquiror, demonstrates gross unfitness to serve or job abandonment, (iii) the
intentional wrongful disclosure of confidential information of the Company or
the Acquiror, or (iv) the intentional, material violation of any contract
between the Company or the Acquiror and such Participant that is not
corrected within thirty (30) days after written notice to such Participant
and any such violation shall have resulted in material harm or damage to the
Company or the Acquiror. For purposes of this Section 7(d), no act, conduct,
or failure to act on the part of any Participant shall be deemed
"intentional" if it was due primarily to an error in judgment or negligence,
but shall be deemed "intentional" only if done or omitted to be done by such
Participant not in good faith and without reasonable belief that his or her
action or omission was in the best interests of the Company or the Acquiror.
Notwithstanding the foregoing, no Participant shall be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to such Participant a copy of a resolution duly adopted by the
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affirmative vote of not less than two thirds of the Company's or the
Acquiror's Board of Directors then in office at a meeting of the Board called
and held for such purpose, after reasonable notice to such Participant and an
opportunity for such Participant, together with his or her counsel, if any,
to be heard before the Board, finding that, in the good faith opinion of the
Board, such Participant had committed an act constituting "Cause" as herein
defined and specifying the particulars thereof in detail.
(e) "Good Reason" shall mean (i) a reduction of either
base salary or total cash compensation payable to the Participant as in
effect immediately prior to the Change in Control, (ii) the failure to
provide a package of welfare benefit plans which, taken as a whole, provide
substantially similar or superior benefits to those in which a Participant
was entitled to participate immediately prior to the Change in Control
(except that employee contributions may be raised to the extent of any cost
increases imposed by third party insurers or other benefit providers) or any
action by the Company which would otherwise adversely affect any
Participant's participation in, or reduces his or her benefits under, any of
such plans, (iii) any material change in a Participant's responsibilities,
authority, duties, or reporting relationship resulting in diminution of
position, provided that such change shall not be deemed to occur as a result
of new reporting duties and responsibilities for such Participant due to
Acquiror's reasonable reassignment of Participant to a new position following
a Change in Control, (iv) requiring that such Participant relocate to a
worksite that is more than 35 miles from the Company's headquarters in Santa
Monica, California (or subsequent headquarters location at which a
Participant agrees to work), unless a Participant accepts such relocation
opportunity, (v) a failure or refusal of the Acquiror to perform the
Company's obligations under the assumed or substituted option or any other
material agreement relating to the terms and conditions of a Participant's
service for the Company, or (vi) any material breach by the Acquiror of any
of the materials provisions of this option (as it may be assumed or
substituted) or any other material agreement relating to the terms and
conditions of a Participant's service for the Company.
Section 8. EXERCISE OF OPTIONS. Once vested, and prior to its
termination date, an Option may be exercised by the Participant by giving
written notice to the Company specifying the number of shares of Common Stock
to be purchased and accompanied by payment of the full purchase price
therefor in cash, by check or in such other form of lawful consideration as
the Committee may approve from time to time, including without limitation and
in the sole discretion of the Committee, the assignment and transfer by the
Participant to the Company of outstanding shares of Common Stock theretofore
held by the Participant in a manner intended to comply with the provisions of
Rule l6b-3 under the Exchange Act, if applicable, and the minimum holding
period required to avoid adverse accounting treatment. After giving due
considerations of the consequences under Section 16 of the Exchange Act and
under the Code, the Committee may also authorize the exercise of Options by
the delivery to the Company
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or its designated agent of an irrevocable written notice of exercise form
together with irrevocable instructions to a broker-dealer to sell or margin a
sufficient portion of the shares of Common Stock and to deliver the sale or
margin loan proceeds directly to the Company to pay the exercise price of the
Option. Once vested, and prior to its termination date, an Option may only be
exercised by the Participant or in the event of death of the Participant, by
the person or persons (including the deceased Participant's estate) to whom
the deceased Participant's rights under such Option shall have passed by will
or the laws of descent and distribution. Notwithstanding the foregoing, in
the event of disability (within the meaning of Section 22(e)(3) of the Code)
of a Participant, a designee of the Participant (or the legal representative
of the Participant if the Participant has no designee) may exercise the
Option on behalf of such Participant (provided such Option would have been
exercisable by such Participant) until the right to exercise such Option
expires, as set forth in such Participant's particular Option Agreement or
this Plan.
Section 9. ISSUANCE OF COMMON STOCK. The Company's obligation to
issue shares of Common Stock upon exercise of an Option is expressly
conditioned upon the compliance by the Company with any registration or other
qualification obligations with respect to such shares of Common Stock under
any federal and state law or rulings and regulations of any government
regulatory body and the requirements of any stock exchange or other
securities market on which the Company's securities may then be traded,
and/or the making of such investment representations or other representations
and undertakings by the Participant (or the Participant's designee, legal
representative, heir or legatee, as the case may be) in order to comply with
the requirements of any exemption from any such registration or other
qualification obligations or the requirements of any stock exchange or other
securities market on which the Company's securities may be traded with
respect to such shares of Common Stock which the Company in its sole
discretion shall deem necessary or advisable. Such required representations
and undertakings may include representations and agreements that such
Participant (or the Participant's designee, legal representative, heir or
legatee): (a) is purchasing such shares of Common Stock for investment and
not with any present intention of selling or otherwise disposing of such
shares of Common Stock; and (b) agrees to have a legend placed upon the face
and reverse of any certificates evidencing such shares of Common Stock (or,
if applicable, an appropriate data entry made in the ownership records of the
Company) setting forth (i) any representations and undertakings which such
Participant has given to the Company or a reference thereto, and (ii) that,
prior to effecting any sale or other disposition of any such shares of Common
Stock, the Participant must furnish to the Company an opinion of counsel,
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of federal and state
laws and regulatory agencies, provided that any such legend or data entry
shall be removed when no longer applicable without the necessity of an
opinion of counsel. The inability of the Company to obtain, from any
regulatory body having jurisdiction, stock exchange or quotation system
authority reasonably deemed by the Company's counsel to be necessary for the
lawful issuance and sale of any shares of Common Stock hereunder shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares of Common Stock as to which such requisite authority shall not
have been obtained.
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Section 10. NONTRANSFERABILITY. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than
by will or by the laws of descent or distribution. Any permitted transferee
shall be required prior to any transfer of an Option or shares of Common
Stock acquired pursuant to the exercise of an Option to execute a written
undertaking to be bound by the provisions of the applicable Option Agreement.
Section 11. RECAPITALIZATION, REORGANIZATION; MERGER OR CONSOLIDATION.
(a) Subject to Section 11(b) hereof, if the outstanding
shares of Common Stock of the Company are exchanged for different securities
of the Company through a reorganization, recapitalization or reclassification
or if the number of outstanding shares is changed through a stock split or
stock dividend, an appropriate adjustment shall be made (i) in the number or
kind of shares which may be purchased pursuant to the exercise of Options, as
provided in Section 5 hereof, and (ii) in the number, exercise price, or kind
of securities subject to any outstanding Option granted under the Plan. Any
such adjustment in an outstanding Option, however, shall be made without
change in the total price applicable to the unexercised portion of the Option
but with a corresponding adjustment in the price for each share covered by
the Option. In making such adjustments, or in determining that no such
adjustments are necessary, the Committee may rely upon the advice of counsel
and accountants to the Company, and the determination of the Committee shall
be final, conclusive and binding. No fractional shares of stock shall be
issued or issuable under the Plan on account of any such adjustment.
(b) Subject to Section 16 hereof (i) upon the
dissolution, liquidation or sale of all or substantially all of the business,
properties and assets of the Company, (ii) upon any reorganization, merger,
consolidation or exchange of securities in which the Company does not
survive, (iii) upon any reorganization, merger, consolidation or exchange of
securities in which the Company does survive and any of the Company's
stockholders have the opportunity to receive cash, securities and/or other
property in exchange for their shares of the capital stock of the Company or
(iv) upon any Change in Control (each of the events described in clauses (i),
(ii), (iii) or (iv) is referred to herein as an "Extraordinary Event"), the
Plan and each outstanding Option shall terminate. Subject to Section 16
hereof, in such event, each Participant who is not tendered an option by the
surviving entity in accordance with all of the terms of the immediately
succeeding sentence, or who does not accept any such substituted option which
is so tendered, shall have the right until 10 days before the effective date
of such Extraordinary Event to exercise, in whole or in part, any unexpired
Option or Options issued to the Participant, to the extent that said Option
is then vested and exercisable pursuant to the provisions of said Option or
Options and of Section 7 of the Plan. The Company shall use its reasonable
best efforts to cause the surviving entity in any Extraordinary Event to
tender to any Participant an option or options to purchase other securities
of the surviving entity on the same basis as any Participant may purchase
shares of Common Stock hereunder and under the applicable Option Agreement
(including satisfaction of similar vesting provisions). The Company shall use
its reasonable best efforts to cause such new option or options to contain
such terms and provisions as shall substantially preserve the rights and
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benefits of any Option then outstanding under the Plan with any reasonable
changes to take into account the circumstances of the surviving entity.
(c) The grant of an Option under the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications or changes in its capital or business structures or to
merge, consolidate, dissolve or liquidate or to sell or transfer all or any
part of its business or assets and issue new shares without preemptive rights.
Section 12. SUBSTITUTE OPTIONS. If the Company at any time should
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or share exchange, or through the acquisition of
stock or assets of such entity or its subsidiaries or otherwise, Options may
be granted under the Plan to option holders of such entity or its
subsidiaries, in substitution for options to purchase interests in such
entity held by them at the time of succession. The Committee, in its sole and
absolute discretion, shall determine the extent to which such substitute
Options shall be granted (if at all), the person or persons to receive such
substitute Options (who need not be all option holders of such entity), the
number of shares of Common Stock subject to Options to be received by each
such person, the Option Price of such Option (which may be determined without
regard to Section 6 hereof) and the terms and conditions of such substitute
Options; provided, however, that the Option Price of each such substituted
Option which is an Incentive Stock Option shall be an amount such that, in
the sole and absolute judgment of the Committee (and in compliance with
Section 424(a) of the Code), the economic benefit provided by such Option is
not greater than the economic benefit represented by the option in the
acquired entity as of the date of the Company's acquisition of such entity.
Section 13. OPTION AGREEMENT. Each Option granted under the Plan
shall be evidenced by a written option agreement (an "Option Agreement")
executed by the Company and the Participant which (a) shall contain each of
the provisions and agreements herein specifically required to be contained
therein; (b) shall indicate whether such Option is to be an Incentive Stock
Option or a Nonqualified Stock Option, and if an Incentive Stock Option shall
contain terms and conditions permitting such Option to qualify for treatment
as an incentive stock option under Section 422 of the Code; and (c) may
contain such other terms and conditions as the Committee deems desirable and
which are not inconsistent with the Plan.
Section 14. RIGHTS AS A STOCKHOLDER. No Participant (or any legal
representative, heir or legatee) shall have any rights as a stockholder of
the Company with respect to any shares of Common Stock covered by any Option
until the date of the issuance of a stock certificate to such person upon the
due exercise of such Option. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 11
hereof.
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Section 15. TERMINATION OF OPTIONS. Each Option Agreement shall set
forth a termination date thereof, which, with respect to Nonqualified Stock
Options, shall be no later than ten (10) years from the date such Option is
granted and with respect to Incentive Stock Options, if the Participant is a
10-percent stockholder of the Company (determined using the constructive
ownership rules of Section 424(d) of the Code) at the time such Incentive
Stock Option is granted, the Incentive Stock Option shall terminate no later
than five years from the date of the grant thereof. An Incentive Stock Option
shall contain any termination events required by Section 422 of the Code. The
termination of employment or engagement in another relationship of a
Participant (by death or otherwise) shall not accelerate or otherwise affect
the number of shares with respect to which an Option may be exercised, and
the Option may only be exercised with respect to that number of shares which
could have been purchased under the Option had the Option been exercised by
the Participant on the date of such termination.
Section 16. ACCELERATION OF OPTIONS. Notwithstanding the provisions
of Sections 7 or 11 hereof, or any provision to the contrary contained in a
particular Option Agreement, the Committee, in its sole discretion, at any
time, or from time to time, may elect to accelerate the vesting of all or any
portion of any Option then outstanding, provided that, in connection with a
Change in Control, if substitute or replacement options are not provided to
Participants, then fifty percent (50%) of the unvested portions of each
Option outstanding immediately prior to the consummation of such Change in
Control shall accelerate and be fully and immediately vested. The decision by
the Committee to accelerate an Option or to decline to accelerate an Option
shall be final, conclusive and binding. In the event of the acceleration of
the exercisability of Options as the result of a decision by the Committee
pursuant to this Section 16, each outstanding Option so accelerated shall be
exercisable for a period of at least five days from and after the date of
such acceleration and upon such other terms and conditions as the Committee
may determine in its sole discretion, provided that such terms and conditions
(other than terms and conditions relating solely to the acceleration of
exercisability and the related termination of an Option) may not adversely
affect the rights of any Participant without the consent of the Participant
so adversely affected. Any outstanding Option which has not been exercised by
the holder at the end of such period shall terminate automatically and become
null and void.
Section 17. WITHHOLDING OF TAXES. The Company or a Subsidiary, as the
case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company (or such Subsidiary) to the Participant the
requisite tax upon the amount of taxable income, if any, recognized by the
Participant in connection with the exercise in whole or in part of any
Option, or the sale of shares of Common Stock issued to the Participant upon
the exercise of an Option, as may be required from time to time under any
federal or state tax laws and regulations. This withholding of tax shall be
made from the Company's (or such Subsidiary's) concurrent or next payment of
wages, salary, bonus or other income to the Participant or by payment to the
Company (or such Subsidiary) by the Participant of the required withholding
tax,
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as the Committee may determine, provided that, in the sole discretion of the
Committee, the Participant may pay such tax by reducing the number of shares
of Common Stock issued upon exercise of an Option (for which purpose such
shares of Common Stock shall be valued at fair market value as determined by
the Committee, which determination shall be final, conclusive and binding).
To the extent necessary to avoid adverse accounting treatment, the number of
shares that may be withheld for this purpose shall not exceed the minimum
number needed to satisfy the applicable income and employment tax withholding
rules.
Section 18. EFFECTIVENESS AND TERMINATION OF THE PLAN. The Plan shall
be effective on the date on which it is adopted by the Board. The Plan shall
terminate, in addition to the other termination events set forth in the Plan,
when all shares of Common Stock which may be issued hereunder have been so
issued, provided that the Board may in its sole discretion terminate the Plan
at any other time. Subject to Section 11 hereof, no such termination shall in
any way affect any Option then outstanding.
Section 19. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option.
Section 20. AMENDMENT OF PLAN. The Board of Directors may make such
amendments to the Plan and, with the consent of each Participant adversely
affected, the Committee may make such changes in the terms and conditions of
granted Options as it shall deem advisable after taking into account any
possible adverse accounting treatment and the possible loss of Incentive
Stock Option status. Whether a modification of an existing Incentive Stock
Option will be treated as the issuance of a new Incentive Stock Option will
be determined in accordance with the rules of Code Section 424(h). Whether a
modification of an existing Option previously granted to an Insider will be
treated as a new grant for purposes of Section 16 of the Exchange Act will be
determined in accordance with Rule 16b-3 promulgated by the Securities and
Exchange Commission. Such amendments and changes shall include, but not be
limited to, acceleration of the time at which an Option may be exercised, but
may not, without the approval of the stockholders (a) increase the maximum
number of shares subject to Options, except pursuant to Section 11 hereof, or
(b) change the designation of the class of employees eligible to receive
Incentive Stock Options.
Section 21. TRANSFERS AND LEAVES OF ABSENCE. For purposes of the
Plan, (a) a transfer of a Participant's employment or consulting
relationship, without an intervening period, between the Company and a
Subsidiary shall not be deemed a termination of employment or a termination
of a consulting relationship and (b) a Participant who is granted in writing
a leave of absence shall be deemed to have remained in the employ of, or in a
consulting relationship with, the Company (or a Subsidiary, whichever is
applicable) during such leave of absence except that for purposes of
exercising an Incentive Stock Option, the Participant will be considered to
have
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terminated employment on the 91st day of the leave, unless his or her right
to re-employment is guaranteed by statute or contract.
Section 22. NO OBLIGATION TO EXERCISE OPTION. The granting of an
Option shall impose no obligation on the Participant to exercise such Option.
Section 23. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board, the members of the
Committee shall be indemnified by the Company to the fullest extent permitted
by law against the reasonable expenses and liabilities, including reasonable
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
thereof, to which they or any of them may be a party by reason of any action
taken or any failure to act under or in connection with the Plan or any
Option granted thereunder, and against all amounts paid by them in
satisfaction of a judgment in any such action, suit or proceeding except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is not entitled to indemnification
under applicable law, provided that within 60 days after institution of any
such action, suit or proceeding such Committee member shall in writing offer
the Company the opportunity, at the Company's expense, to handle and defend
the same.
Section 24. GOVERNING LAW. The Plan and any Option granted pursuant
to the Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
Section 25. NOT AN EMPLOYMENT OR OTHER AGREEMENT. Nothing contained
in the Plan or in any Option Agreement shall confer, intend to confer or
imply any rights of employment or any rights to a consulting or other
relationship or rights to continued employment by, or rights to a continued
consulting or other relationship with, the Company or any Subsidiary in favor
of any Participant or limit the ability of the Company, any Subsidiary or any
other entity to terminate, with or without cause, in its sole and absolute
discretion, the employment of, or consulting or other relationship with, any
Participant, subject to the terms of any written employment or consulting
agreement to which a Participant is a party.
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INTERPACKET NETWORKS, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Agreement") is entered into
as of _____________________ by and between Interpacket Networks, Inc., a
Delaware corporation (the "Company"), and _____________________ ("Optionee")
pursuant to the Interpacket Group, Inc. 1998 Stock Option Plan (the "Plan").
All capitalized terms not otherwise defined herein shall have the meanings
set forth in the Plan.
R E C I T A L S:
A. Optionee is an officer or employee of the Company or of a direct or
indirect subsidiary of the Company (individually, a "Subsidiary" and
collectively, the "Subsidiaries").
B. The Company desires to grant Optionee the right to purchase shares of
the Company's Common Stock, par value $.001 per share (the "Common Stock"),
pursuant to the terms and conditions of this Agreement and the Plan.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the covenants hereinafter set forth,
the parties agree as follows:
1. OPTION; NUMBER OF SHARES. The Company hereby grants to Optionee the
right (the "Option") to purchase up to a maximum of __________ shares (the
"Shares") of Common Stock at a price of $_______ per share (the "Option Price")
to be paid in accordance with Section 6 hereof. This Option and the right to
purchase all or any portion of the Shares are subject to the terms and
conditions stated in this Agreement and in the Plan. It is intended that the
Option will qualify for treatment as an incentive stock option under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
2. VESTING CRITERIA. The Option shall vest in equal annual installments
with respect to ___% of the Shares, commencing on _________________ and as
further set forth in Schedule A attached to this Agreement. Such vesting
installments shall be cumulative, such that this Option may be exercised as to
any or all of the Shares covered by an installment at any time or times after
that installment becomes exercisable and until this Option expires or
terminates.
<PAGE>
3. TERM OF AGREEMENT. This Option, and Optionee's right to exercise this
Option, shall terminate when the first of the following occurs: (a) termination
pursuant to Sections 11, 15 or 16 of the Plan; (b) the expiration of ten (10)
years from the date hereof (unless Optionee is a 10-percent stockholder of the
Company (determined using the constructive ownership rules of Section 424(d) of
the Code) at the time such Option is granted), the Option shall terminate no
later than five years after the date of the grant thereof, or (c) 90 days after
the date of termination of Optionee's employment with the Company and the
Subsidiaries, unless such termination results from Optionee's death or
disability (within the meaning of Section 22(e)(3) of the Code) or Optionee dies
within 90 days after the date of termination of Optionee's employment with the
Company and the Subsidiaries, in which case this Agreement and the Option shall
terminate 180 days after the date of termination of Optionee's employment with
the Company and the Subsidiaries.
4. TERMINATION OF EMPLOYMENT. The termination for any reason of
Optionee's employment with the Company and the Subsidiaries shall not accelerate
the vesting of the Option or affect the number of Shares with respect to which
the Option may be exercised, and this Option may only be exercised with respect
to that number of Shares which could have been purchased under the Option had
the Option been exercised by Optionee on the date of such termination.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of Optionee under
this Agreement may not be assigned or transferred except by will, by the laws
of descent or distribution and may be exercised during the lifetime of
Optionee only by such Optionee, provided that in the event of disability
(within the meaning of Section 22(e)(3) of the Code) of Optionee, a designee
of Optionee (or the Optionee's legal representative if Optionee has not
designated anyone) may exercise the Option on behalf of Optionee (provided
the Option would have been exercisable by Optionee) until the right to
exercise the Option expires pursuant to Section 3 hereof. Any attempt to
sell, pledge, assign, hypothecate, transfer or otherwise dispose of the
Option in contravention of this Agreement or the Plan shall be void and shall
have no effect. If Optionee should die while Optionee is engaged in an
employment relationship with the Company and/or any Subsidiary, and provided
Optionee's rights hereunder shall have vested, in whole or in part, pursuant
to Section 2 hereof, Optionee's designee, legal representative, or legatee,
the successor trustee of Optionee's inter vivos trust or the person who
acquired the right to exercise the Option by reason of the death of Optionee
(individually, a "Successor") shall succeed to Optionee's rights under this
Agreement. After the death of Optionee, only a Successor may exercise the
Option.
6. EXERCISE OF OPTION. On or after the vesting of the Option in
accordance with Section 2 hereof and until termination of the Option in
accordance with Section 3 hereof, the Option may be exercised by Optionee (or
such other person specified in Section 5 hereof) to
2.
<PAGE>
the extent exercisable as determined under Section 2 hereof, upon delivery of
the following to the Company at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares (which may not be less than 100) or all of the
Shares (if less than 100 Shares then remain covered by the Option) then being
purchased;
(b) a check, cash or any combination thereof in the amount of the
aggregate Option Price (or payment of the aggregate Option Price in such other
form of lawful consideration as the Committee may approve from time to time
under the provisions of Section 8 of the Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under federal, state
or other applicable tax laws with respect to the taxable income, if any,
recognized by Optionee in connection with the exercise, in whole or in part,
of the Option (unless the Company and Optionee shall have made other
arrangements for deductions or withholding from Optionee's wages, bonus or
other income paid to Optionee by the Company or any Subsidiary, or a
reduction in the number of shares issuable to Optionee upon exercise of the
Option, provided such arrangements satisfy the requirements of applicable tax
laws); and
(d) a written representation and undertaking, if requested by the
Company pursuant to Section 7(b) hereof, in such form and substance as the
Company may require, setting forth the investment intent of Optionee, or a
Successor, as the case may be, and such other agreements, representations and
undertakings as described in the Plan.
7. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that the Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such securities under the Securities
Act of 1933, as amended, on the basis of certain exemptions from such
registration requirement. Accordingly, Optionee agrees that Optionee's exercise
of the Option may be expressly conditioned upon Optionee's delivery to the
Company of such representations and undertakings as the Company may reasonably
require in order to secure the availability of such exemptions, including a
representation that Optionee is acquiring the Shares for investment and not with
a present intention of selling or otherwise disposing of such Shares.
3.
<PAGE>
(c) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and liabilities connected
with the Option are set forth herein and in the Plan, a copy of which is
attached.
8. NO RIGHTS AS A STOCKHOLDER. Optionee shall have no rights as a
stockholder of any shares of Common Stock covered by the Option until the date
(the "Exercise Date") an entry evidencing such ownership is made in the stock
transfer books of the Company. Except as may be provided under Section 11 of
the Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the Exercise Date.
9. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. The inability of
the Company to obtain, from any regulatory body having jurisdiction, stock
exchange or quotation system, authority reasonably deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares of Common
Stock hereunder and under the Plan shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
10. CONFIDENTIALITY. Optionee agrees to hold in the strictest of
confidence all material information, including without limitation all financial
information, provided to Optionee by the Company, and further agrees not to use
such information for any purpose adverse to the Company, not to duplicate such
information or to deliver such information to any other person.
11. THIS AGREEMENT SUBJECT TO PLAN. This Agreement is made under the
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is being
provided to Optionee together with this Agreement. A copy of the Plan is also
available to Optionee at the Company's principal executive offices upon request
and without charge. The interpretation of the Committee of any provision of the
Plan, the Option or this Agreement, and any determination with respect thereto
or hereto by the Committee, shall be final, conclusive and binding on all
parties.
12. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of the Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may reasonably deem necessary; provided, however, that any such legend
or legends shall be removed when no longer applicable.
4.
<PAGE>
13. NOTICES. All notices, requests and other communications hereunder
shall be in writing and, if given by telecopy, shall be deemed to have been
validly delivered 12 hours after confirmation of transmission to the fax numbers
set forth below, if sent during usual business hours; if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery; and, if mailed, shall be deemed to have been validly served,
given or delivered three business days after deposit in the United States mails,
as registered or certified mail, with proper postage prepaid and addressed to
the party or parties to be notified, at the following addresses (or such other
address(es) as a party may designate for itself by like notice):
If to the Company:
Interpacket Networks, Inc.
1901 Main Street, 2nd Floor
Santa Monica, CA 90405
Fax No.: (310) 382-3310
If to Optionee:
___________________
__________________________
__________________________
Fax No.: _________________
14. NOT AN EMPLOYMENT AGREEMENT. Nothing contained in this Agreement
shall confer, intend to confer or imply any rights to an employment relationship
or rights to a continued employment relationship with the Company and/or any
Subsidiary in favor of Optionee or limit the ability of the Company and/or any
Subsidiary to terminate, with or without cause, in its sole and absolute
discretion, the employment or other relationship with Optionee, subject to the
terms of any written employment agreement to which Optionee is a party.
15. NOTICE OF DISQUALIFYING DISPOSITION OF SHARES. If the Optionee sells
or otherwise disposes of any of the Shares acquired pursuant to exercise of this
Option on or before the later of (a) the date two years after the date of this
Option, or (b) the date one year after the date of exercise pursuant to which
such Shares were acquired, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that the Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee by reason of such disposition.
16. GOVERNING LAW. This Agreement shall be construed under and governed
by the laws of the State of Delaware without regard to the conflict of law
provisions thereof.
5.
<PAGE>
17. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original and both of which together shall be deemed one
Agreement.
6.
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement
as of the date first above written.
THE COMPANY:
Interpacket Networks, Inc.,
a Delaware corporation
By:
---------------------------
Name:
Title:
OPTIONEE:
---------------------------
Name:
----------------------
7.
<PAGE>
SCHEDULE A
VESTING SCHEDULE
No option granted under this Agreement shall be exercisable until it
has vested. Options granted pursuant to this Agreement shall vest and become
exercisable as follows:
8.
<PAGE>
INTERPACKET NETWORKS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is entered
into as of _____________________ by and between InterPacket Networks, Inc., a
California corporation (the "Company"), and _____________________ ("Optionee")
pursuant to the InterPacket Networks, Inc. 1998 Stock Option Plan, as amended
(the "Plan"). All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Plan.
R E C I T A L S:
- - - - - - - -
A. Optionee is an officer, employee, consultant or member of the
Board of Directors of the Company or of a direct or indirect subsidiary of the
Company (individually, a "Subsidiary" and collectively, the "Subsidiaries").
B. The Company desires to grant Optionee the right to purchase
shares of the Company's Common Stock, par value $.001 per share (the "Common
Stock"), pursuant to the terms and conditions of this Agreement and the Plan.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, the parties agree as follows:
1. OPTION; NUMBER OF SHARES. The Company hereby grants to Optionee
the right (the "Option") to purchase up to a maximum of __________ shares (the
"Shares") of Common Stock at a price of $_______ per share (the "Option Price")
to be paid in accordance with Section 6 hereof. This Option and the right to
purchase all or any portion of the Shares are subject to the terms and
conditions stated in this Agreement and in the Plan.
2. VESTING CRITERIA. The Option shall vest in equal annual
installments with respect to ___% of the Shares, commencing on _________________
and as further set forth in Schedule A attached to this Agreement. Such vesting
installments shall be cumulative, such that this Option may be exercised as to
any or all of the Shares covered by an installment at any time or times after
that installment becomes exercisable and until this Option expires or
terminates.
3. TERM OF AGREEMENT. This Option, and Optionee's right to exercise
this Option, shall terminate when the first of the following occurs:
(a) termination pursuant to Sections 11, 15 or 16 of the Plan; (b) the
expiration of ten (10) years from the date hereof; or
<PAGE>
(c) 90 days after the date of termination of Optionee's employment or other
relationship with the Company and the Subsidiaries, unless such termination
results from Optionee's death or disability (within the meaning of
Section 22(e)(3) of the Code) or Optionee dies within 90 days after the date of
termination of Optionee's employment or consulting relationship with the Company
and the Subsidiaries, in which case this Agreement and the Option shall
terminate 180 days after the date of termination of Optionee's employment or
other relationship with the Company and the Subsidiaries.
4. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. The termination
for any reason of Optionee's employment or other relationship with the Company
and the Subsidiaries shall not accelerate the vesting of the Option or affect
the number of Shares with respect to which the Option may be exercised, and this
Option may only be exercised with respect to that number of Shares which could
have been purchased under the Option had the Option been exercised by Optionee
on the date of such termination.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of Optionee under
this Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by such Optionee, provided that in the event of disability (within the
meaning of Section 22(e)(3) of the Code) of Optionee, a designee of Optionee (or
the Optionee's legal representative if Optionee has not designated anyone) may
exercise the Option on behalf of Optionee (provided the Option would have been
exercisable by Optionee) until the right to exercise the Option expires pursuant
to Section 3 hereof. Any attempt to sell, pledge, assign, hypothecate, transfer
or otherwise dispose of the Option in contravention of this Agreement or the
Plan shall be void and shall have no effect. If Optionee should die while
Optionee is engaged in an employment or other relationship with the Company
and/or any Subsidiary, and provided Optionee's rights hereunder shall have
vested, in whole or in part, pursuant to Section 2 hereof, Optionee's designee,
legal representative, or legatee, the successor trustee of Optionee's inter
vivos trust or the person who acquired the right to exercise the Option by
reason of the death of Optionee (individually, a "Successor") shall succeed to
Optionee's rights under this Agreement. After the death of Optionee, only a
Successor may exercise the Option.
6. EXERCISE OF OPTION. On or after the vesting of the Option in
accordance with Section 2 hereof and until termination of the Option in
accordance with Section 3 hereof, the Option may be exercised by Optionee (or
such other person specified in Section 5 hereof) to the extent exercisable as
determined under Section 2 hereof, upon delivery of the following to the Company
at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement
and states the number of Shares (which may not be less than 100) or all of the
Shares (if less than 100 Shares then remain covered by the Option) then being
purchased;
2.
<PAGE>
(b) a check, cash or any combination thereof in the amount of
the aggregate Option Price (or payment of the aggregate Option Price in such
other form of lawful consideration as the Committee may approve from time to
time under the provisions of Section 8 of the Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under federal, state or
other applicable tax laws with respect to the taxable income, if any, recognized
by Optionee in connection with the exercise, in whole or in part, of the Option
(unless the Company and Optionee shall have made other arrangements for
deductions or withholding from Optionee's wages, bonus or other income paid to
Optionee by the Company or any Subsidiary, provided such arrangements satisfy
the requirements of applicable tax laws); and
(d) a written representation and undertaking, if requested by
the Company pursuant to Section 7(b) hereof, in such form and substance as the
Company may require, setting forth the investment intent of Optionee, or a
Successor, as the case may be, and such other agreements, representations and
undertakings as described in the Plan.
7. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that the Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon
the exercise of the Option without registering such securities under the
Securities Act of 1933, as amended, on the basis of certain exemptions from such
registration requirement. Accordingly, Optionee agrees that Optionee's exercise
of the Option may be expressly conditioned upon Optionee's delivery to the
Company of such representations and undertakings as the Company may reasonably
require in order to secure the availability of such exemptions, including a
representation that Optionee is acquiring the Shares for investment and not with
a present intention of selling or otherwise disposing of such Shares.
(c) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and liabilities connected
with the Option are set forth herein and in the Plan.
8. NO RIGHTS AS A STOCKHOLDER. Optionee shall have no rights as a
stockholder of any shares of Common Stock covered by the Option until the date
(the "Exercise Date") an entry evidencing such ownership is made in the stock
transfer books of the Company. Except as may be provided under Section 11 of
the Plan, the Company will make no adjustment
3.
<PAGE>
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the Exercise Date.
9. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. The inability
of the Company to obtain, from any regulatory body having jurisdiction, stock
exchange or quotation system, authority reasonably deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares of Common
Stock hereunder and under the Plan shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
10. CONFIDENTIALITY. Optionee agrees to hold in the strictest of
confidence all material information, including without limitation all financial
information, provided to Optionee by the Company, and further agrees not to use
such information for any purpose adverse to the Company, not to duplicate such
information or to deliver such information to any other person.
11. THIS AGREEMENT SUBJECT TO PLAN. This Agreement is made under the
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is being
provided to Optionee together with this Agreement. A copy of the Plan is also
available to Optionee at the Company's principal executive offices upon request
and without charge. The interpretation of the Committee of any provision of the
Plan, the Option or this Agreement, and any determination with respect thereto
or hereto by the Committee, shall be final, conclusive and binding on all
parties.
12. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of the Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may reasonably deem necessary; provided, however, that any such legend
or legends shall be removed when no longer applicable.
13. NOTICES. All notices, requests and other communications
hereunder shall be in writing and, if given by telecopy, shall be deemed to have
been validly delivered 12 hours after confirmation of transmission to the fax
numbers set forth below, if sent during usual business hours; if given by
personal delivery, shall be deemed to have been validly served, given or
delivered upon actual delivery; and, if mailed, shall be deemed to have been
validly served, given or delivered three business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
4.
<PAGE>
If to the Company:
InterPacket Networks, Inc.
1901 Main Street, 2nd Floor
Santa Monica, CA 90405
Fax No.: (310) 382-3310
If to Optionee:
___________________
__________________________
__________________________
Fax No.: _________________
14. NOT AN EMPLOYMENT OR OTHER AGREEMENT. Nothing contained in this
Agreement shall confer, intend to confer or imply any rights to an employment or
other relationship or rights to a continued employment or other relationship
with the Company and/or any Subsidiary in favor of Optionee or limit the ability
of the Company and/or any Subsidiary to terminate, with or without cause, in its
sole and absolute discretion, the employment or other relationship with
Optionee, subject to the terms of any written employment or other agreement to
which Optionee is a party.
15. GOVERNING LAW. This Agreement shall be construed under and
governed by the laws of the State of Delaware without regard to the conflict of
law provisions thereof.
16. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
5.
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY:
InterPacket Networks, Inc.,
a Delaware corporation
By:
-------------------------
Name:
Title:
OPTIONEE:
------------------------------
Name:
6.
<PAGE>
EXHIBIT 10.4
AMENDED AND RESTATED
1999 DIRECTOR STOCK OPTION PLAN
OF
INTERPACKET NETWORKS, INC.
1. PURPOSES. The purposes of this amended and restated 1999 Director
Stock Option Plan (the "Plan") are to retain the services of qualified
individuals who are not employees of InterPacket Networks, Inc., a Delaware
corporation (the "Company"), to serve as members of the Board of Directors
and to secure for the Company the benefits of the incentives inherent in
increased equity ownership by such individuals by granting such individuals
options ("Options") to purchase shares of the Company's Common Stock, $.001
par value per share (the "Common Stock").
2. ADMINISTRATION. The Board of Directors, the Chairman of the Board of
Directors or an individual designated by the Board of Directors or the Chairman
(in each case, the "Administrator") will be responsible for administering the
Plan. The Administrator will have authority to adopt such rules as it may deem
appropriate to carry out the purposes of the Plan, and shall have authority to
interpret and construe the provisions of the Plan and any agreements and notices
under the Plan and to make determinations pursuant to any Plan provision. Each
interpretation, determination or other action made or taken by the Administrator
pursuant to the Plan shall be final and binding on all persons. The
Administrator shall not be liable for any action or determination, and shall be
entitled to indemnification and reimbursement in the manner provided in the
Company's Articles of Incorporation and Bylaws as such documents may be amended
from time to time.
3. SHARES AVAILABLE. Subject to the provisions of Section 6(b) of
the Plan, the maximum number of shares of Common Stock which may be issued
under the Plan shall not exceed 550,000 shares. Either authorized and
unissued shares of Common Stock or treasury shares may be delivered pursuant
to the Plan. The number of shares subject to an Option which lapses, expires
or is otherwise terminated without the issuance of such shares, shall
increase the number of shares available under this Plan by the number of
shares subject to such lapsed, expired or terminated Option.
4. OPTIONS. Each member of the Board of Directors that is not an
employee of the Company or any subsidiary of the Company (a "Non-Employee
Director") shall receive grants of Options under the Plan as follows:
(a) OPTION GRANTS.
(i) INITIAL GRANTS. Each Non-Employee Director
who was a member of the Board on the date that this Plan is effective (the
"Effective Date") shall be granted as of such date an initial Option to
purchase 10,000 shares of Common Stock.
<PAGE>
(ii) SUBSEQUENT GRANTS. Each Non-Employee
Director who was a member of the Board on the date that this Plan was amended
and restated shall receive an Option to purchase 75,000 shares of Common
Stock on and as of such date.
(iii) ADDITIONAL GRANTS. Additional grants of
options may be made to one or more Non-Employee Directors at any time and
from time to time, in the sole judgment of the Administrator.
(b) EXERCISE PRICE. The per share exercise price of each
Option shall be the Fair Market Value of a share of Common Stock as of the date
of grant of the Option determined in accordance with the provisions of the Plan.
For purposes of this Plan, "Fair Market Value" means the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system (including without limitation the
Nasdaq National Market), its Fair Market Value shall be the closing sales price
for such stock or the closing bid if no sales were reported, as quoted on such
system or exchange for the date of determination or, if the date of
determination is not a trading day, the immediately preceding trading day, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable.
(ii) If the Common Stock is regularly quoted on the
Nasdaq system (but not on the Nasdaq National Market) or quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock on
the date of determination or, if there are no quoted prices on the date of
determination, on the last day on which there are quoted prices prior to the
date of determination.
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined by the
Administrator.
(c) VESTING. Except as may be set forth in the option
agreement entered into between a Non-Employee Director and the Company or as
otherwise determined by the Administrator, each Option shall vest pro rata in
equal annual installments over the three (3) year period commencing on the first
anniversary of the date of grant, provided that the Non-Employee Director has
remained in continuous service as a director of the Company for the twelve (12)
month period prior to each such anniversary and is a Non-Employee Director on
the applicable anniversary date.
(d) TERM OF OPTIONS.
(i) TEN-YEAR TERM. Each Option shall expire ten (10)
years from its date of grant, subject to earlier termination as provided herein.
2
<PAGE>
(ii) EXERCISE FOLLOWING TERMINATION OF SERVICE
DUE TO DEATH. If a Non-Employee Director ceases to be a member of the Board
by reason of such Non-Employee Director's death, the Options granted to such
Non-Employee Director may be exercised by any beneficiary of such
Non-Employee Director for a period of ninety (90) days following such death,
subject to the earlier expiration of such Options as provided for in Section
4(d)(i) above. At the end of such ninety-day period, all vested Options shall
expire. All unvested Options shall expire on the date of the Non-Employee
Director's death.
(iii) TERMINATION OF OPTIONS IF A NON-EMPLOYEE
DIRECTOR IS REMOVED FROM THE BOARD FOR CAUSE. In the event a Non-Employee
Director is removed from the Board for "cause," all Options granted to such
Non-Employee Director (whether or not then vested and exercisable) shall
immediately terminate and be of no further force and effect as of the effective
date of such removal from the Board. Whether a Non-Employee Director is removed
by the Board for "cause" shall be determined by the Board.
(iv) EXERCISE FOLLOWING OTHER TERMINATIONS OF
SERVICE. If a Non-Employee Director ceases to be a member of the Board for
any reason other than death or removal from the Board for cause, the Options
granted to such Non-Employee Director may be exercised by such Non-Employee
Director, but only to the extent the Option was exercisable at the time of
the Non-Employee Director's termination, at any time within ninety (90) days
after the date of such termination of service, subject to the earlier
expiration of such Options as provided for in Section 4(d)(i) above. At the
end of such ninety-day period, all vested Options shall expire. All unvested
Options shall expire on the date of the Non-Employee Director's termination
of service with the Board.
(e) TIME AND MANNER OF EXERCISE OF OPTIONS.
(i) NOTICE OF EXERCISE. Subject to the other
terms and conditions hereof, a Non-Employee Director may exercise any Option,
to the extent such Option is vested, by giving written notice of exercise to
the Company, provided that in no event shall an Option be exercisable for a
fractional share. The date of exercise of an Option shall be the later of (A)
the date on which the Company receives such written notice and (B) the date
on which the conditions provided in Section 4(e)(ii) are satisfied.
(ii) METHOD OF PAYMENT. The consideration to be
paid for the shares to be issued upon exercise of an Option may consist of
(A) cash, (B) check, (C) other shares of Common Stock, and, if necessary to
avoid adverse accounting treatment, which have been owned by the Non-Employee
Director for at least six (6) months at the time of exercise, (D) in the
event the Common Stock is publicly traded, delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to sell or
margin a sufficient portion of the shares of Common Stock and to deliver the
sale or margin loan proceeds directly to the Company to pay all or a portion
of the exercise price of the Option, or (E) any combination of the foregoing
methods of payment.
3
<PAGE>
(iii) STOCKHOLDER RIGHTS. A Non-Employee Director
shall have no rights as a stockholder with respect to any shares of Common Stock
issuable upon exercise of an Option until a certificate evidencing such shares
shall have been issued to the Non-Employee Director pursuant to Section 4(e)(v),
and no adjustment shall be made for dividends or distributions or other rights
in respect of any share for which the record date is prior to the date upon
which the Non-Employee Director shall become the holder of record thereof.
(iv) LIMITATION ON EXERCISE. No Option shall be
exercisable unless the Common Stock subject thereto has been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and qualified
under applicable state "blue sky" laws in connection with the offer and sale
thereof, or the Company has determined that an exemption from registration
under the Securities Act and from qualification under such state "blue sky"
laws is available.
(v) ISSUANCE OF SHARES. Subject to the foregoing
conditions, as soon as is reasonably practicable after its receipt of a
proper notice of exercise and payment of the exercise price of the Option for
the number of shares with respect to which the Option is exercised, the
Company or its transfer agent and registrar, as the case may be, shall
deliver to the Non-Employee Director (or following the Non-Employee
Director's death, the beneficiary entitled to exercise the Option), at the
principal office of the Company or at such other location as may be
acceptable to the Company and the Non-Employee Director (or such
beneficiary), one or more stock certificates for the appropriate number of
shares of Common Stock issued in connection with such exercise. Shares sold
in connection with a "cashless exercise" described in clause (D) of Section
4(e)(ii) shall be delivered to the broker referred to therein in accordance
with the procedures established by the Company from time to time.
(f) RESTRICTIONS ON TRANSFER. An Option may not be
transferred, pledged, assigned or otherwise disposed of, except by will or by
the laws of descent and distribution; provided that an Option may be, to the
extent permitted in the Option Agreement, transferred to a Non-Employee
Director's family members or to one or more trusts established in whole or in
part for the benefit of the Non-Employee Director and/or one or more of such
family members. The Option shall be exercisable, during the Non-Employee
Director's lifetime, only by the Non-Employee Director or by the individual
or entity to whom the Option has been transferred in accordance with the
previous sentence. No assignment or transfer of the Option or of the rights
represented thereby, whether voluntary or involuntary, by operation of law or
otherwise, except by will or the laws of descent and distribution or in
accordance with this Section 4(f), shall vest in the assignee or transferee
any interest or right in the Option, and immediately upon any attempt to
assign or transfer the Option the same shall terminate and be of no force or
effect.
5. VESTING ON CHANGE IN CONTROL. Anything in the Plan to the contrary
notwithstanding, in the event of a Change in Control of the Company, any Options
outstanding as of the date such Change in Control is determined to have occurred
that are not yet
4
<PAGE>
exercisable and vested on such date shall become fully exercisable and
vested. For purposes of this Plan, "Change in Control" means the happening of
any of the following:
(a) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (other than the Company or any present shareholder of
the Company) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or
(b) The occurrence of a transaction requiring
shareholder approval, and involving the sale of all or substantially all of
the assets of the Company or the merger of the Company with or into another
corporation or entity in which the Company is not the surviving entity.
6. RECAPITALIZATION OR REORGANIZATION.
(a) AUTHORITY OF THE COMPANY AND SHAREHOLDERS. The
existence of the Plan shall not affect or restrict in any way the right or
power of the Company or the shareholders of the Company to make or authorize
any adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or consolidation of
the Company, any issue of stock or of options, warrants or rights to purchase
stock or of bonds, debentures, preferred or prior preference stocks whose
rights are superior to or affect the Common Stock or the rights thereof or
which are convertible into or exchangeable for Common Stock, or the
dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) CHANGE IN CAPITALIZATION. Notwithstanding any other
provision of the Plan, in the event of any change in the outstanding Common
Stock by reason of a stock dividend, recapitalization, reorganization,
merger, consolidation, stock split, combination or exchange of shares (a
"Change in Capitalization"), (i) such proportionate adjustments as may be
necessary (in the form determined by the Administrator in its sole
discretion) to reflect such change shall be made to prevent dilution or
enlargement of the rights of Non-Employee Directors under the Plan with
respect to the aggregate number of shares of Common Stock authorized to be
awarded under the Plan, the number of shares of Common Stock covered by each
outstanding Option and the exercise prices in respect thereof and the number
of shares of Common Stock covered by future Option grants and (ii) the
Administrator may make such other adjustments, consistent with the foregoing,
as it deems appropriate in its sole discretion.
(c) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each outstanding Option will vest and
become exercisable on a
5
<PAGE>
date prior to the consummation of the proposed action that is reasonably
sufficient to enable the Non-Employee Directors to exercise their Options.
7. TERMINATION AND AMENDMENT OF THE PLAN.
(a) TERMINATION. The Plan shall terminate on the tenth
anniversary of the Effective Date. Following such date, no further grants of
Options shall be made pursuant to the Plan.
(b) GENERAL POWER OF BOARD. Notwithstanding anything herein to
the contrary, but subject to Section 7(c), the Board may at any time and from
time to time terminate, modify, suspend or amend the Plan in whole or in part;
provided that no such termination, modification, suspension or amendment shall
be effective without shareholder approval if such approval is required to comply
with any applicable law or stock exchange or national market system rule.
(c) WHEN NON-EMPLOYEE DIRECTORS' CONSENTS REQUIRED. The Board
may not alter, amend, suspend, or terminate the Plan without the consent of any
Non-Employee Director to the extent that such action would adversely affect his
or her rights with respect to Options that have previously been granted.
8. MISCELLANEOUS.
(a) NO RIGHT TO REELECTION. Nothing in the Plan shall be
deemed to create any obligation on the part of the Board to nominate any of its
members for reelection by the Company's stockholders, nor confer upon any
Non-Employee Director the right to remain a member of the Board for any period
of time, or at any particular rate of compensation.
(b) SECURITIES LAW RESTRICTIONS. The Administrator may require
each Non-Employee Director purchasing or acquiring shares of Common Stock
pursuant to the Plan to agree with the Company in writing that such Non-Employee
Director is acquiring the shares for investment and not with a view to the
distribution thereof. All certificates for shares of Common Stock delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Administrator may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission or
any exchange or national market system upon which the Common Stock is then
listed or traded, and any applicable federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. No shares of
Common Stock shall be issued hereunder unless the Company shall have determined
that such issuance is in compliance with, or exempt from, all applicable federal
and state securities laws.
(c) EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company.
6
<PAGE>
(d) APPLICABLE LAW. Except as to matters of federal law,
the Plan and all actions taken thereunder shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
conflicts of law principles.
(e) EFFECTIVE DATE. The Plan shall be effective as of the
Effective Date, subject to the approval thereof by the shareholders of the
Company, which approval shall be obtained no later than the first anniversary of
the Effective Date. If such shareholder approval is not obtained, all prior
Option grants shall be void AB INITIO and of no further force and effect.
7
<PAGE>
INTERPACKET NETWORKS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") is
entered into as of _________________, by and between Interpacket Networks, Inc.,
a Delaware corporation (the "Company"), and ________ ("Optionee") pursuant to
the Company's 1999 Director Stock Option Plan (the "Plan"). All capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Plan.
R E C I T A L S:
A. Optionee is a non-employee member of the Board of Directors
of the Company (the "Board").
B. The Company desires to grant Optionee the right to purchase
shares of the Company's Common Stock, par value $.001 per share (the "Common
Stock"), pursuant to the terms and conditions of this Agreement and the Plan.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the covenants hereinafter
set forth, the parties agree as follows:
1. OPTION; NUMBER OF SHARES. The Company hereby grants to
Optionee the right (the "Option") to purchase up to a maximum of ______ shares
(the "Shares") of Common Stock at a price of $_____ per share (the "Option
Price") to be paid in accordance with Section 6 hereof. This Option and the
right to purchase all or any portion of the Shares are subject to the terms and
conditions stated in this Agreement and in the Plan.
2. VESTING CRITERIA. The Option shall vest and become
exercisable as set forth in Schedule A attached to this Agreement, provided that
Optionee has remained in continuous service as a director of the Company for the
preceding twelve (12)-month period prior to each such anniversary and is a
Non-Employee Director on the applicable anniversary date.
<PAGE>
3. TERM OF AGREEMENT. This Option, and Optionee's right to
exercise this Option, shall terminate when the first of the following occurs:
(a) termination pursuant to Sections 4(d)(ii), 4(d)(iii) or 4(d)(iv) of the
Plan; or (b) the expiration of ten (10) years from the date hereof.
4. TERMINATION OF SERVICE OR OTHER RELATIONSHIP. The
termination for any reason of Optionee's service or other relationship with the
Company shall not accelerate the vesting of the Option or affect the number of
Shares with respect to which the Option may be exercised, and this Option may
only be exercised with respect to that number of Shares which could have been
purchased under the Option had the Option been exercised by Optionee on the date
of such termination.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of Optionee
under this Agreement may not be assigned or transferred except by will, by the
laws of descent and distribution, or in accordance with Section 4(f) of the Plan
and may be exercised during the lifetime of Optionee only by such Optionee. Any
attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of
the Option in contravention of this Agreement or the Plan shall be void and
shall have no effect. If Optionee should die while Optionee is a member of the
Board, and provided Optionee's rights hereunder shall have vested, in whole or
in part, pursuant to Section 2 hereof, Optionee's designee, legal
representative, or legatee, the successor trustee of Optionee's inter vivos
trust or the person who acquired the right to exercise the Option by reason of
the death of Optionee (individually, a "Successor") shall, subject to Section
4(d)(ii) of the Plan, succeed to Optionee's rights under this Agreement. After
the death of Optionee, only a Successor may exercise the Option.
6. EXERCISE OF OPTION. On or after the vesting of the Option
in accordance with Section 2 hereof and until termination of the Option in
accordance with Section 3 hereof, the Option may be exercised by Optionee (or
such other person specified in Section 5 hereof) to the extent exercisable as
determined under Section 2 hereof, upon delivery of the following to the Company
at its principal executive offices:
(a) a written notice of exercise which identifies this
Agreement and states the number of Shares then being purchased, provided that in
no event shall an Option be exercisable for a fractional share;
(b) a (i) check, (ii) cash, (iii) other shares which
have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the shares as to which the Option shall be exercised and
which have been owned by the Non-Employee Director for at least six (6) months
at the time of exercise, (iv) in the event the Common Stock is publicly traded,
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of
proceeds required to pay the
2.
<PAGE>
exercise price, or (v) any combination of the
foregoing methods of payment in the amount of the aggregate Option Price;
(c) a check or cash in the amount reasonably
requested by the Company to satisfy the Company's withholding obligations under
federal, state or other applicable tax laws with respect to the taxable income,
if any, recognized by Optionee in connection with the exercise, in whole or in
part, of the Option (unless the Company and Optionee shall have made other
arrangements for deductions or withholding from Optionee's wages, bonus or other
income paid to Optionee by the Company, provided such arrangements satisfy the
requirements of applicable tax laws); and
(d) a written representation and undertaking, if
requested by the Company pursuant to Section 7(b) hereof, in such form and
substance as the Company may require, setting forth the investment intent of
Optionee, or a Successor, as the case may be, and such other agreements,
representations and undertakings as described in the Plan.
7. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that the Option
is being acquired by Optionee for Optionee's personal account, for investment
purposes only, and not with a view to the distribution, resale or other
disposition thereof.
(b) Optionee acknowledges that the Company may issue
Shares upon the exercise of the Option without registering such securities under
the Act on the basis of certain exemptions from such registration requirement.
Accordingly, Optionee agrees that Optionee's exercise of the Option may be
expressly conditioned upon Optionee's delivery to the Company of such
representations and undertakings as the Company may reasonably require in order
to secure the availability of such exemptions, including a representation that
Optionee is acquiring the Shares for investment and not with a present intention
of selling or otherwise disposing of such Shares.
(c) Optionee acknowledges receipt of this Agreement
granting the Option, and the Plan, and understands that all rights and
liabilities connected with the Option are set forth herein and in the Plan.
8. NO RIGHTS AS A SHAREHOLDER. Optionee shall have no rights
as a shareholder of any shares of Common Stock issuable upon exercise of the
Option until a certificate evidencing such shares shall have been issued to the
Optionee, and no adjustment shall be made for dividends or distributions or
other rights in respect of any share for which the record date is prior to the
date upon which the Optionee shall become the holder of record thereof, except
as may be provided under Section 6(b) of the Plan.
3.
<PAGE>
9. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. The
inability of the Company to obtain, from any regulatory body having
jurisdiction, stock exchange or quotation system, authority reasonably deemed
by the Company's counsel to be necessary for the lawful issuance and sale of
any shares of Common Stock hereunder and under the Plan shall relieve the
Company of any liability in respect of the nonissuance or sale of such shares
as to which such requisite authority shall not have been obtained.
10. CONFIDENTIALITY. Optionee agrees to hold in the strictest
of confidence all material information, including without limitation all
financial information, provided to Optionee by the Company, and further agrees
not to use such information for any purpose adverse to the Company, not to
duplicate such information or to deliver such information to any other person.
11. THIS AGREEMENT SUBJECT TO PLAN. This Agreement is made
under the provisions of the Plan and shall be interpreted in a manner consistent
with it. To the extent that any provision in this Agreement is inconsistent with
the Plan, the provisions of the Plan shall control. A copy of the Plan is being
provided to Optionee together with this Agreement. A copy of the Plan is also
available to Optionee at the Company's principal executive offices upon request
and without charge. The interpretation of the Board of any provision of the
Plan, the Option or this Agreement, and any determination with respect thereto
or hereto by the Board, shall be final, conclusive and binding on all parties.
12. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that
federal securities laws and the securities laws of the state in which Optionee
resides may require the placement of certain restrictive legends upon the Shares
issued upon exercise of the Option, and Optionee hereby consents to the placing
of any such legends upon certificates evidencing the Shares as the Company, or
its counsel, may reasonably deem necessary; provided, however, that any such
legend or legends shall be removed when no longer applicable.
13. NOTICES. All notices, requests and other communications
hereunder shall be in writing and, if given by telecopy, shall be deemed to have
been validly delivered 12 hours after confirmation of transmission to the fax
numbers set forth below, if sent during usual business hours; if given by
personal delivery, shall be deemed to have been validly served, given or
delivered upon actual delivery; and, if mailed, shall be deemed to have been
validly served, given or delivered three business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
If to the Company:
4.
<PAGE>
Interpacket Networks, Inc.
1901 Main Street, 2nd Floor
Santa Monica, CA 90405
Fax No.: (310) 382-3310
If to Optionee:
----------------------------------
----------------------------------
----------------------------------
Fax No.:
--------------------
14. NO RIGHT TO REELECTION. Nothing contained in this
Agreement shall confer, intend to confer or imply any obligation on the part of
the Board to nominate any of its members for reelection by the Company's
shareholders, nor confer upon any Optionee the right to remain a member of the
Board for any period of time, or at any particular rate of compensation.
15. GOVERNING LAW. This Agreement shall be construed under and
governed by the laws of the State of Delaware without regard to the conflict of
law provisions thereof.
16. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original and both of which
together shall be deemed one agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
5.
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed
this Agreement as of the date first above written.
THE COMPANY:
INTERPACKET NETWORKS, INC.,
a Delaware corporation
By:
------------------------------
Name:
Title:
OPTIONEE:
--------------------------------
Name:
6.
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is dated as of July 1, 1999 (the
"Effective Date") by and between InterPacket Group, Inc., a California
corporation (the "Company"), and Jonathan Gans, an individual (the
"Executive"), relating to the exclusive professional services of Executive.
WHEREAS, the Company desires to obtain the continued professional
services of Executive; and
WHEREAS, Executive desires to continue to provide such services to
Company upon the following terms and conditions;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other valuable consideration, the parties agree as follows:
1. TERM. Company hereby employs Executive in the position and with the
duties and responsibilities described in Paragraph 2 for the period commencing
on the Effective Date and ending three (3) years from the Effective Date (the
"Term"). The Term shall be extended by an additional period of one (1) year
unless either party shall give written notice to the other of its intent to
terminate the Agreement not less than 30 days prior to the expiration of the
Term. If the Term is so extended, all references to "the Term" in this Agreement
shall be deemed to include such the extension thereof.
2. POSITION, DUTIES, RESPONSIBILITIES. The Company hereby agrees to
employ Executive, and Executive agrees to serve, as Chief Executive Officer of
the Company during the Term. Subject to the terms hereof, Executive shall serve
on an exclusive and full time basis at the Company's principal place of business
in Santa Monica, California or such other place to which Executive shall
consent, which shall be reasonably granted. Executive shall have the full
authority and responsibility prescribed by the Company's Bylaws relating to or
otherwise normally attendant to an officer of a corporation holding such
position and shall have, subject to the periodic review and approval of the
Board of Directors of the Company or any committee thereof, general supervision,
direction and control of the business and affairs of the Company, including
without limitation the authority to hire, fire and establish the compensation,
benefits, bonuses and rewards for the Company's employees. Executive shall
devote his best efforts and attention to the performance of his duties as the
Chief Executive Officer of the Company.
3. COMPENSATION. Executive shall be paid the following compensation
while employed by the Company pursuant to this Agreement:
<PAGE>
3.1 SALARY. The Company agrees to pay or cause to be paid to
Executive a base salary at the annual rate of no less than Two Hundred Ninety
Five Thousand Dollars ($295,000) per year during the first year of the Term
("Base Salary"). Base Salary shall be increased by no less than 10% per annum
("Annual Salary") on January 1 of each calendar year during the Term, and shall
be paid in accordance with the Company's payroll policy as in effect from time
to time.
3.2 BENEFITS; STOCK OPTIONS. Executive shall entitled to
medical and all other benefits made available generally to executives of the
Company. Executive shall also be entitled to participate in the Company's stock
option plans (the "Option Plans") as determined by the Board of Directors or any
committee thereof, in its discretion.
3.3 TRAVEL AND OTHER EXPENSES. The Company shall reimburse
Executive for reasonable and ordinary expenses relating to the performance of
his duties hereunder including without limitation all travel, accommodation,
meals, entertainment and other necessary business expenses. Such expenses shall
be supported by reasonable documentation and shall be subject to reasonable
audit by the Company.
3.4 VACATION. Executive shall be entitled to four (4) weeks of
vacation for each calendar year during which Executive is employed by the
Company. Executive shall also be entitled to all paid Company holidays. If
Executive ceases to be employed during any calendar year, the total number of
vacation days accruing shall be prorated based on the number of months, or
portion thereof, that Executive was employed by the Company. Such vacation time
shall accrue and cumulate to the extent not actually taken by the Executive
until the Executive is entitled to eight (8) weeks of accrued vacation.
Executive shall be entitled to customary flexibility in using such vacation time
without strict regard to the actual accrual of vacation.
3.5 BONUS. Executive shall be entitled to a year end bonus
(payable in cash within 30 days after the end of each calendar year during the
Term) equal to a minimum of $100,000. The Board of Directors may consider an
additional payment of a cash bonus to the Executive based on the Company's
performance and such other incentives or bonuses as the Board of Directors may
in its discretion determine to award.
3.6 INDEMNIFICATION. The Company shall indemnify Executive
pursuant to a separate Indemnification Agreement, such indemnification to
survive the termination of this agreement and be effective until the expiration
of all statutes of limitations applicable to any and all Proceedings (as defined
in the Indemnification Agreement).
4. [intentionally omitted]
5. TERMINATION OF EMPLOYMENT; COMPENSATION DUE.
2
<PAGE>
5.1 DEATH.
5.1.1 TERMINATION. Other than the obligations
contained in Section 5.1.2 hereof, this Agreement shall terminate automatically
upon the death of Executive.
5.1.2 COMPENSATION. Following the death of
Executive, the Company shall pay to Executive's beneficiary or estate, as
instructed by Executive in writing on file with Company, or if no one has been
so designated, to his estate, (i) the Annual Salary to which Executive is
entitled through the date of termination, (ii) all accrued but unused vacation
pay, and (iii) the pro rata portion of Executive's annual minimum guaranteed
bonus based upon the number of expired months (calculated using the last day of
the month in which his death or, with respect to Sections 5.2.2 and 5.3.1(b),
the termination of his employment occurs) in the calendar year in which his
death or termination occurs (the sum of (i), and (ii) and (iii) hereunder being
referred to as "Accrued Compensation"). Following the death of Executive, the
Company shall make any payments required under any death benefit policy, benefit
plan or then existing life insurance policy maintained by the Company to the
beneficiary thereof. Thereafter, the Company's obligations hereunder shall
terminate.
5.2 DISABILITY.
5.2.1 TERMINATION. Should Executive be prevented
from properly performing Executive's duties hereunder by reason of any physical
or mental incapacity for a period of more than 180 days in the aggregate during
any twelve (12) month period, then, to the extent permitted by law, at the
Company's discretion, the Company may terminate its obligations hereunder except
for (i) any Accrued Compensation through the date of such termination, and (ii)
any rights Executive may have under any disability plan in which Executive is a
participant.
5.2.2 COMPENSATION. During any period that
Executive is disabled under this Agreement, but terminating upon any termination
of this Agreement pursuant to Section 5.2.1, Executive shall continue to receive
an amount equal to his Annual Salary minus any compensation received by
Executive under any disability insurance policy the premiums for which have been
paid by the Company. Following the termination of Executive's employment under
Section 5.2.1, the Company shall pay Executive an amount equal to his Accrued
Compensation through the date on which his employment is terminated, and the
Company shall have no further obligations to the Executive under this Agreement.
5.3 BY COMPANY.
5.3.1 FOR CAUSE. (a) The Company may terminate, without
liability, this Agreement For Cause (as defined in this paragraph), an any time
upon written notice to Executive. "Cause" is defined as (i) the breach by
Executive of any material term of this
3
<PAGE>
Agreement, provided such breach, if capable of a cure, is not cured within
thirty (30) days after Executive received written notice of such breach and
demand for a cure by the Company, which notice identifies such breach with
particularity, (ii) the engaging by the Employee in conduct materially
adverse to the Company and inconsistent with his duties and responsibilities
under Section 2 above and the failure to cease such conduct within thirty
(30) days after written demand therefor by the Company identifying with
reasonable particularity such conduct and harm or (iii) the conviction (by
trial or upon a plea) of Executive of a misdemeanor involving moral turpitude
or a felony.
(b) In the event the Company terminates Executive For
Cause, the Company shall pay Executive an amount equal to his Accrued
Compensation through the date on which his employment is terminated, and the
Company shall have no further obligations to the Executive under this Agreement.
5.3.2 WITHOUT CAUSE. If the Company terminates Executive for
any reason other than due to his death, disability (as determined pursuant to
Section 5.2.1) or as a result of those reasons listed in Section 5.3.1 hereof
("Without Cause"), the Company shall (i) continue to pay Executive his Annual
Salary, (ii) pay to Executive, pursuant to Section 3.5 hereof, the greater of
(A) his minimum guaranteed bonus, (B) his actual bonus paid during the preceding
year, and (C) the average of the actual bonuses paid during the two preceding
years, and (iii) continue to provide the health and other benefits described in
Sections 3.2 and 3.4 hereof (clauses (i), (ii) and (iii) hereof collectively,
"Termination Without Cause Obligations"); the Termination Without Cause
Obligations shall be provided for a period of time equal to the greater of (i)
the remainder of the unexpired Term calculated as if no premature termination of
this Agreement had occurred, or (ii) if the Term has less than one year
remaining at the time of such termination, such remaining amount of time plus
twelve months. In addition, at the time of any termination Without Cause, all of
Executive's outstanding options granted pursuant to any of the Option Plans
shall immediately vest and the time period during which such options may be
exercised shall be extended for two (2) years.
5.4 BY EXECUTIVE.
5.4.1 FOR GOOD REASON. Executive may terminate, without
liability, this Agreement "For Good Reason" if (i) the Company breaches any
material term of this Agreement, provided that, if such breach is capable of
cure, such breach continues for a period of thirty (30) days after the Company
receives written notice of such breach by Executive identifying such breach with
particularity, (ii) if the Company assigns to the Executive, or if another
employee of the Company assumes, duties and responsibilities substantially
inconsistent with the duties and responsibilities described in Section 2 of this
Agreement or (iii) upon a Change in Control (as defined below).
A "Change in Control" means the happening of any of the
following: (i) when any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act
4
<PAGE>
of 1934, as amended (the "Act"), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities, or (ii)
the occurrence of a transaction requiring shareholder approval and involving
the sale of all or substantially all of the assets of the Company or the
merger of the Company with or into another corporation in which (A) the
Company is not the surviving corporation, or (B) the shareholders of the
Company immediately prior to such merger are the owners of less than fifty
percent (50%) of the combined voting power of the Company and such other
corporation immediately after such merger, or (iii) the election of the Board
of Directors in any special or annual election or shareholders' consent where
the incumbent directors immediately prior to such election or consent do not
constitute a majority of the Board of Directors immediately after such
election.
In the event Executive terminates this Agreement For Good
Reason, the Company shall fulfill the obligations set forth in Section 5.3.2
hereof and all of Executive's outstanding options granted pursuant to any of the
Option Plans shall immediately vest and the time period during which such
options may be exercised shall be extended for two (2) years.
6. EXECUTIVE COVENANTS.
6.1 CONFIDENTIALITY. Executive acknowledges that in his
employment hereunder he will occupy a position of trust and confidence.
Executive shall not, except as may be required to perform his duties hereunder
or as required by applicable law, for a period of two (2) years following the
termination of this Agreement or until such information shall have become public
other than by the Executive's unauthorized disclosure, disclose to others or
use, whether directly or indirectly, any Confidential Information regarding the
Company, its subsidiaries and affiliates. "Confidential Information" shall mean
information about the Company, its subsidiaries and affiliates, and their
respective clients and customers and that was learned by Executive in the course
of his employment by the Company, its subsidiaries and affiliates, including
without limitation any proprietary knowledge, trade secrets, data, formulae,
information and client and customer lists and all papers, resumes, and records
(including computer records) of the documents containing such Confidential
Information. Executive acknowledges that such Confidential Information is
specialized, unique in nature and of great value to the Company, its
subsidiaries and affiliates, and that such information gives the Company a
competitive advantage. Executive agrees to deliver or return to the Company, at
the Company's request at any time or upon termination or expiration of his
employment or as soon thereafter as possible, (i) all documents, computer tapes
and disks, records, lists, data, drawings, prints, notes and written information
(and all copies thereof) furnished by the Company, its subsidiaries and
affiliates, or prepared by the Executive during the term of his employment with
the Company, its subsidiaries and affiliates, and (ii) all notebooks and other
data relating to research or experiments or other work conducted by Executive in
the scope of employment.
5
<PAGE>
6.2 NON-COMPETITION. During the term of this Agreement,
Executive shall not, directly or indirectly, without the prior written consent
of the Company, provide consultative services or otherwise provide services to
(whether as an employee or a consultant, with or without pay), own, manage,
operate, join, control, participate in, or be connected with (as a stockholder,
partner or otherwise), any business, individual, partner, firm, corporation, or
other entity that is then a competitor of the Company, its subsidiaries or
affiliates (each such competitor a "Competitor of the Company"); provided that
nothing herein shall prevent Executive from the beneficial ownership of up to 5%
of the publicly traded securities of any person who may be deemed to be a
Competitor of the Company, and provided, further, that if the Company terminates
the Employee's employment hereunder Without Cause or the Employee terminates his
employment For Good Reason prior to the expiration of the term of this
Agreement, the provisions of this Section 6.2 shall not apply from and after the
date of such termination of employment. The Company acknowledges that Executive
has been non-executive Chairman and CEO of DFR Consulting Group, Inc. dba
Ideabase since 1992, and, subject to this Section 6.2, may continue in such
position throughout the Term.
6.3 NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the
term of this Agreement and for a period of one (1) month thereafter, the
Employee shall not, directly or indirectly, influence or attempt to influence
customers or suppliers of the Company, or any of its subsidiaries or affiliates,
or to divert their business to any Competitor of the Company, provided, that if
the Company terminates the Employee's employment hereunder Without Cause or the
Employee terminates his employment For Good Reason prior to the expiration of
the term of this Agreement, the provisions of this Section 6.3 shall not apply
from and after the date of such termination of employment.
6.4 INJUNCTIVE RELIEF. It is expressly agreed that the Company
will or would suffer irreparable injury if the Executive were to disclose
Confidential Information, compete with the Company or solicit customers or
suppliers the Company in violation of this Section 6, that money damages would
be insufficient to compensate the Company and that the Company would be reason
of such competition or disclosure be entitled to injunctive relief in a court of
appropriate jurisdiction.
7. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned without
the written consent of the non-assigning party, provided that Executive's rights
to payments hereunder shall, upon his death, inure to the benefit of the
Executive's personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees. Any Change of Control shall be deemed to be
an assignment requiring consent of Executive.
8. NOTICES. All notices hereunder shall be in writing and shall be
either served by certified or registered mail, air courier, by hand, or by
facsimile, in each case with charges prepaid. Notices shall be deemed effective
when mailed, hand delivered, or faxed. Notices to Executive shall be given at
the address set forth in the records of the Company for Executive, with a copy
to _____________________________. Notices to the Company shall be
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addressed to its principal place of business, currently 1901 Main Street,
Blvd., Second Floor, Santa Monica, California 90405, Fax No. (310) 382-3310,
Attn: General Counsel, with a copy to Timothy F. Sylvester, Esq., Riordan &
McKinzie, 300 South Grand Avenue, 29th Floor, Los Angeles, CA 90071, Fax No.
(213) 229-8550. This notice provision may be changed with respect to any
party by such party notifying the other of such change in accordance with the
provisions of this Section.
9. PLACE OF PERFORMANCE. The primary place where Executive shall
perform his duties for Company shall be at the Company's principal place of
business in Santa Monica, California or such other place as Executive may agree
at his sole discretion. In addition, Executive agrees to render his services
away from such city from time to time in the ordinary course of business, as the
proper performance of his duties may require.
10. EQUITABLE REMEDIES. Executive and the Company agree that the
services to be rendered by Executive pursuant to this Agreement are of a
special, unique and extraordinary character which gives them a peculiar value,
the loss of which may not be reasonably or adequately compensated in damages in
any action at law, and that a breach by Executive of any of the terms of this
Agreement may cause the Company great and irreparable injury and damage.
Executive expressly agrees that the Company may apply for the remedies of
injunction, specific performance and other equitable relief to prevent a breach
of this Agreement by Executive. This provision shall not, however, be construed
as a waiver of any of the rights which the Company may have hereunder, at law,
for damages, or otherwise.
11. COMPLETE AGREEMENT. In entering into this Agreement, neither party
has relied upon any representation, warranty, assurance or statement of
intention not expressly set forth herein.
12. SEVERABILITY. If any provision of this Agreement is declared
invalid, illegal or incapable of being enforced by any court of competent
jurisdiction, all of the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed in California. Only California Courts (state and
federal) shall have jurisdiction of any action, suit or proceeding brought
regarding this Agreement.
14. MODIFICATION AND WAIVER. No provision of this Agreement may be
modified, waived, or discharged unless agreed to in writing by both parties
hereto. The failure of a party to insist upon strict adherence to any term,
condition or other provision of this Agreement shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term, condition or other provision of this Agreement.
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15. ATTORNEY FEES. In the event of any action, suit, or proceeding
arising from or based on this Agreement brought by either party hereto against
the other, the prevailing party shall be entitled to recover from the other its
reasonable, attorneys' fees and disbursements in connection therewith in
addition to the costs of such action, suit or proceeding.
16. HEADINGS. The headings in this Agreement are solely for the
convenience of reference and shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
/s/ NORMAN PATTIZ /s/ JONATHAN GANS
----------------------------- ----------------------------
Name: Norman Pattiz Jonathan Gans
Title: Director/Chairman
Compensation Committee
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of January 1,
1999 (the "Effective Date") by and between InterPacket Group, Inc., a Delaware
corporation (the "Company"), and Julie Spira, an individual ("Executive"),
relating to the exclusive professional services of Executive.
WHEREAS, the Company desires to obtain the continued professional
services of Executive; and
WHEREAS, Executive desires to continue to provide such services to the
Company upon the following terms and conditions;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other valuable consideration, the parties agree as follows:
1. TERM. The Company hereby employs Executive in the position and with
the duties and responsibilities described in Paragraph 2 for the period
commencing on the Effective Date and ending December 31, 2001 (the "Term"). The
Term shall be extended by an additional period of one (1) year unless either
party shall give written notice to the other of its intent to terminate the
Agreement not less than thirty (30) days prior to the expiration of the Term. If
the Term is so extended, all references to "the Term" in this Agreement shall be
deemed to include such extension thereof.
2. POSITION, DUTIES, RESPONSIBILITIES. The Company hereby agrees to
employ Executive, and Executive agrees to serve, as Executive Vice President -
Sales and Marketing of the Company during the Term, provided that the Company
may change Executive's title during the term to another executive vice president
level title relating to sales and/or marketing. Subject to the terms hereof,
Executive shall serve on an exclusive and full time basis at the Company's
principal place of business in Santa Monica, California or such other place as
the Company may from time to time determine. Executive shall devote her best
efforts and attention to the performance of her duties.
3. COMPENSATION. Executive shall be paid the following compensation
while employed by the Company pursuant to this Agreement:
3.1 SALARY. The Company agrees to pay or cause to be paid
to Executive a base salary at the annual rate of no less than Two hundred
forty thousand ($240,000) per year during the Term ("Base Salary"). Base
Salary shall be paid in accordance with the Company's payroll policy as in
effect from time to time. Base Salary shall be subject to increase in
accordance with Attachment A, and Executive shall be paid a bonus/commission
in accordance with Attachment A.
<PAGE>
3.2 BENEFITS; STOCK OPTIONS. Executive shall be entitled to
medical and all other benefits made available generally to executives of the
Company. Executive shall also be entitled to participate in the Company's stock
option plans (the "Option Plans") as determined by the Board of Directors or any
committee thereof, in its discretion.
3.3 TRAVEL AND OTHER EXPENSES. The Company shall reimburse
Executive for reasonable and ordinary expenses relating to the performance of
her duties hereunder including without limitation all travel, accommodation,
meals, entertainment and other necessary business expenses. Such expenses shall
be supported by reasonable documentation and shall be subject to reasonable
audit by the Company.
3.4 VACATION. Executive shall be entitled to four (4) weeks of
vacation for each calendar year during which Executive is employed by the
Company. Executive shall also be entitled to all paid Company holidays. If
Executive ceases to be employed during any calendar year, the total number of
vacation days accruing shall be prorated based on the number of months, or
portion thereof, that Executive was employed by the Company. Such vacation time
shall accrue and cumulate to the extent not actually taken by Executive until
Executive is entitled to eight (8) weeks of accrued vacation. Executive shall be
entitled to customary flexibility in using such vacation time without strict
regard to the actual accrual of vacation.
3.5 BONUS. The Board of Directors, or a committee thereof, may
consider the payment of a cash bonus to Executive based on the Company's
performance and such other incentives or bonuses as the Board of Directors, or
such committee, may in its discretion determine to award.
3.6 INDEMNIFICATION. The Company shall indemnify Executive
pursuant to a separate Indemnification Agreement, such indemnification to
survive the termination of this Agreement and be effective until the expiration
of all statutes of limitations applicable to any and all Proceedings (as defined
in the Indemnification Agreement).
4. [intentionally omitted]
5. TERMINATION OF EMPLOYMENT; COMPENSATION DUE.
5.1 DEATH.
5.1.1 TERMINATION. Other than the obligations
contained in Section 5.1.2 hereof, this Agreement shall terminate automatically
upon the death of Executive.
5.1.2 COMPENSATION. Following the death of
Executive, the Company shall pay to Executive's beneficiary or estate, as
instructed by Executive in writing on file with
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the Company, or if no one has been so designated, to her estate, (i) the
Annual Salary to which Executive is entitled through the date of termination,
(ii) all accrued but unused vacation pay, and (iii) the pro rata portion of
Executive's annual minimum guaranteed bonus based upon the number of expired
months (calculated using the last day of the month in which her death or,
with respect to Sections 5.2.2 and 5.3.1(b), the termination of her
employment occurs) in the calendar year in which her death or termination
occurs (the sum of (i), and (ii) and (iii) hereunder being referred to as
"Accrued Compensation"). Following the death of Executive, the Company shall
make any payments required under any death benefit policy, benefit plan or
then existing life insurance policy maintained by the Company to the
beneficiary thereof. Thereafter, the Company's obligations hereunder shall
terminate.
5.2 DISABILITY.
5.2.1 TERMINATION. Should Executive be prevented
from properly performing Executive's duties hereunder by reason of any physical
or mental incapacity for a period of more than 180 days in the aggregate during
any twelve (12) month period, then, to the extent permitted by law, at the
Company's discretion, the Company may terminate its obligations hereunder except
for (i) any Accrued Compensation through the date of such termination, and (ii)
any rights Executive may have under any disability plan in which Executive is a
participant.
5.2.2 COMPENSATION. During any period that
Executive is disabled under this Agreement, but terminating upon any termination
of this Agreement pursuant to Section 5.2.1, Executive shall continue to receive
an amount equal to her Annual Salary minus any compensation received by
Executive under any disability insurance policy the premiums for which have been
paid by the Company. Following the termination of Executive's employment under
Section 5.2.1, the Company shall pay Executive an amount equal to her Accrued
Compensation through the date on which her employment is terminated, and the
Company shall have no further obligations to Executive under this Agreement.
5.3 BY THE COMPANY.
5.3.1 FOR CAUSE. (a) The Company may terminate,
without liability, this Agreement For Cause (as defined in this paragraph), at
any time upon written notice to Executive. "Cause" is defined as (i) the breach
by Executive of any material term of this Agreement, provided such breach, if
capable of a cure, is not cured within thirty (30) days after Executive received
written notice of such breach and demand for a cure by the Company, which notice
identifies such breach with particularity, (ii) the engaging by Executive in
conduct adverse to the Company or materially inconsistent with her duties and
responsibilities under Section 2 above and the failure to cease such conduct and
rectify any harm to the Company within thirty (30) days after written demand
therefor by the Company identifying with reasonable particularity such conduct
and harm or (iii) the conviction (by trial or upon a plea) of Executive of a
misdemeanor involving moral turpitude or a felony.
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(b) In the event the Company terminates Executive For Cause,
the Company shall pay Executive an amount equal to her Accrued Compensation
through the date on which her employment is terminated, and the Company shall
have no further obligations to Executive under this Agreement.
5.3.2 WITHOUT CAUSE. If the Company terminates
Executive for any reason other than due to her death, disability (as determined
pursuant to Section 5.2.1) or as a result of those reasons listed in Section
5.3.1 hereof ("Without Cause"), the Company shall (i) continue to pay Executive
her Annual Salary, (ii) pay to Executive, pursuant to Section 3.5 hereof, the
greater of (A) her minimum guaranteed bonus, (B) her actual bonus paid during
the preceding year, and (C) the average of the actual bonuses paid during the
two preceding years, and (iii) continue to provide the health and other benefits
described in Sections 3.2 and 3.4 hereof (clauses (i), (ii) and (iii) hereof
collectively, "Termination Without Cause Obligations"); the Termination Without
Cause Obligations shall be provided for a period of time equal to the greater of
(i) the remainder of the unexpired Term calculated as if no premature
termination of this Agreement had occurred, or (ii) if the Term has less than
one year remaining at the time of such termination, such remaining amount of
time plus twelve months. In addition, at the time of any termination Without
Cause, all of Executive's outstanding options granted pursuant to any of the
Option Plans shall immediately vest and the time period during which such
options may be exercised shall be extended for two (2) years.
5.4 BY EXECUTIVE.
5.4.1 FOR GOOD REASON. Executive may terminate,
without liability, this Agreement "For Good Reason" if (i) the Company breaches
any material term of this Agreement, provided that, if such breach is capable of
cure, such breach continues for a period of thirty (30) days after the Company
receives written notice of such breach by Executive identifying such breach with
particularity or (ii) if the Company assigns to Executive duties and
responsibilities substantially inconsistent with the duties and responsibilities
described in Section 2 of this Agreement, or (iii) upon a Change in Control (as
defined below), provided that any change in Executive's title in accordance with
Section 2 shall not constitute an event giving rise to the right of Executive to
terminate this Agreement For Good Reason hereunder.
A "Change in Control" means the happening of any of
the following: (i) when any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Act"), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities, or (ii) the occurrence of a transaction requiring
shareholder approval and involving the sale of all or substantially all of the
assets of the Company or the merger of the Company with or into another
corporation in which (A) the Company is not the surviving corporation, or (B)
the shareholders of the Company
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immediately prior to such merger are the owners of less than fifty percent
(50%) of the combined voting power of the Company and such other corporation
immediately after such merger, or (iii) the election of the Board of
Directors in any special or annual election or shareholders' consent where
the incumbent directors immediately prior to such election or consent do not
constitute a majority of the Board of Directors immediately after such
election, provided that in no event shall the initial public offering of the
Company's securities constitute a Change in Control for purposes of this
Agreement.
In the event Executive terminates this Agreement For
Good Reason, the Company shall fulfill the obligations set forth in Section
5.3.2 hereof and all of Executive's outstanding options granted pursuant to any
of the Option Plans shall immediately vest and the time period during which such
options may be exercised shall be extended for two (2) years.
6. EXECUTIVE COVENANTS.
6.1 CONFIDENTIALITY. Executive acknowledges that in her
employment hereunder she will occupy a position of trust and confidence.
Executive shall not, except as may be required to perform her duties hereunder
or as required by applicable law, for a period of one (1) year following the
termination of this Agreement or until such information shall have become public
other than by Executive's unauthorized disclosure, disclose to others or use,
whether directly or indirectly, any Confidential Information regarding the
Company, its subsidiaries and affiliates. "Confidential Information" shall mean
information about the Company, its subsidiaries and affiliates, and their
respective clients and customers and that was learned by Executive in the course
of her employment by the Company, its subsidiaries and affiliates, including
without limitation any proprietary knowledge, trade secrets, data, formulae,
information and client and customer lists and all papers, resumes, and records
(including computer records) of the documents containing such Confidential
Information. Executive acknowledges that such Confidential Information is
specialized, unique in nature and of great value to the Company, its
subsidiaries and affiliates, and that such information gives the Company a
competitive advantage. Executive agrees to deliver or return to the Company, at
the Company's request at any time or upon termination or expiration of her
employment or as soon thereafter as possible, (i) all documents, computer tapes
and disks, records, lists, data, drawings, prints, notes and written information
(and all copies thereof) furnished by the Company, its subsidiaries and
affiliates, or prepared by Executive during the term of her employment with the
Company, its subsidiaries and affiliates, and (ii) all notebooks and other data
relating to research or experiments or other work conducted by Executive in the
scope of her employment.
6.2 NON-COMPETITION. During the Term, Executive shall not,
directly or indirectly, without the prior written consent of the Company,
provide consultative services or otherwise provide services to (whether as an
employee or a consultant, with or without pay), own, manage, operate, join,
control, participate in, or be connected with (as a stockholder, partner or
otherwise), any business, individual, partner, firm, corporation, or other
entity that
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is then a competitor of the Company, its subsidiaries or affiliates (each
such competitor a "Competitor of the Company"); provided that nothing herein
shall prevent Executive from the beneficial ownership of up to 5% of the
publicly traded securities of any person who may be deemed to be a Competitor
of the Company, and provided, further, that if the Company terminates the
Employee's employment hereunder Without Cause or the Employee terminates her
employment For Good Reason prior to the expiration of the term of this
Agreement, the provisions of this Section 6.2 shall not apply from and after
the date of such termination of employment.
6.3 NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the
Term and for a period of [six (6) months] thereafter, Executive shall not,
directly or indirectly, influence or attempt to influence customers or suppliers
of the Company, or any of its subsidiaries or affiliates, or to divert their
business to any Competitor of the Company, provided that if the Company
terminates Executive's employment hereunder Without Cause or Executive
terminates her employment For Good Reason prior to the expiration of the term of
this Agreement, the provisions of this Section 6.3 shall not apply from and
after the date of such termination of employment.
6.4 NON-SOLICITATION OF EMPLOYEES. Executive recognizes that
she possesses and will possess confidential information about other employees of
the Company, its subsidiaries and affiliates, relating to their education,
experience, skills, abilities, compensation and benefits, and interpersonal
relationships with customers of the Company, its subsidiaries and affiliates.
Executive recognizes that the information she possesses and will possess about
these other employees is not generally known, is of substantial value to the
Company, it subsidiaries and affiliates in developing their business and in
securing and retaining customers, and has been and will be acquired by him
because of her business position with the Company, its subsidiaries and
affiliates. Executive agrees that, during the term of this Agreement and for a
period of [six (6) months] thereafter, she will not, directly or indirectly,
solicit or recruit any employee of the Company, its subsidiaries and affiliates
for the purpose of being employed by him or by any Competitor of the Company on
whose behalf she is acting as an agent, representative or employee and that she
will not convey any such Confidential Information or trade secrets about other
employees of the Company, its subsidiaries and affiliates to any other person,
provided that it the Company terminates Executive's employment hereunder Without
Cause or Executive terminates her employment For Good Reason prior to expiration
of the term of this Agreement, the provisions of this Section 6.4 shall not
apply from and after the date of such termination of employment.
6.5 INJUNCTIVE RELIEF. It is expressly agreed that the
Company will or would suffer irreparable injury if Executive were to disclose
Confidential Information, compete with the Company or solicit customers,
suppliers or employees of the Company in violation of this Section 6, that
money damages would be insufficient to compensate the Company and that the
Company would by reason of such competition or disclosure be entitled to
injunctive relief in a court of appropriate jurisdiction.
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6.6 SURVIVAL OF PROVISIONS. Except as expressly provided
otherwise herein, the obligations contained in this Section 6 shall survive the
termination or expiration of Executive's employment with the Company and shall
be fully enforceable thereafter. If it is determined by a court of competent
jurisdiction in any state that any restriction in this Section 6 is excessive in
duration or scope or is unreasonable or unenforceable under the laws of that
state, it is the intention of the parties that such restriction may be modified
or amended by the court to render it enforceable to the maximum extent permitted
by the law of that state.
7. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned without
the written consent of the non-assigning party, provided that Executive's rights
to payments hereunder shall, upon her death, inure to the benefit of Executive's
personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees.
8. NOTICES. All notices hereunder shall be in writing and shall be
either served by certified or registered mail, air courier, by hand, or by
facsimile, in each case with charges prepaid. Notices shall be deemed effective
when mailed, hand delivered, or faxed. Notices to Executive shall be given at
the address set forth in the records of the Company for Executive, with a copy
to Michael Leventhal, c/o Wolf, Rifkin & Shapiro, 11400 West Olympic Blvd.,
Ninth Floor, Los Angeles, CA 90064. Notices to the Company shall be addressed to
its principal place of business, currently 1901 Main Street, Blvd., Second
Floor, Santa Monica, California 90405, Fax No. (310) 382-3310, Attn: General
Counsel, with a copy to Timothy F. Sylvester, Esq., Riordan & McKinzie, 300
South Grand Avenue, 29th Floor, Los Angeles, CA 90071, Fax No. (213) 229-8550.
This notice provision may be changed with respect to any party by such party
notifying the other of such change in accordance with the provisions of this
Section.
9. PLACE OF PERFORMANCE. Executive agrees to render her services away
from the Company's principal place of business from time to time in the ordinary
course of business, as the proper performance of her duties may require.
10. EQUITABLE REMEDIES. Executive and the Company agree that the
services to be rendered by Executive pursuant to this Agreement are of a
special, unique and extraordinary character which gives them a peculiar value,
the loss of which may not be reasonably or adequately compensated in damages in
any action at law, and that a breach by Executive of any of the terms of this
Agreement may cause the Company great and irreparable injury and damage.
Executive expressly agrees that the Company may apply for the remedies of
injunction, specific performance and other equitable relief to prevent a breach
of this Agreement by Executive. This provision shall not, however, be construed
as a waiver of any of the rights which the Company may have hereunder, at law,
for damages, or otherwise.
11. COMPLETE AGREEMENT. In entering into this Agreement, neither party
has relied upon any representation, warranty, assurance or statement of
intention not expressly set forth herein.
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12. SEVERABILITY. If any provision of this Agreement is declared
invalid, illegal or incapable of being enforced by any court of competent
jurisdiction, all of the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed in California. Only California courts (state and
federal) shall have jurisdiction of any action, suit or proceeding brought
regarding this Agreement.
14. MODIFICATION AND WAIVER. No provision of this Agreement may be
modified, waived, or discharged unless agreed to in writing by both parties
hereto. The failure of a party to insist upon strict adherence to any term,
condition or other provision of this Agreement shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term, condition or other provision of this Agreement.
15. ATTORNEY FEES. In the event of any action, suit, or proceeding
arising from or based on this Agreement brought by either party hereto against
the other, the prevailing party shall be entitled to recover from the other its
reasonable, attorneys' fees and disbursements in connection therewith in
addition to the costs of such action, suit or proceeding.
16. HEADINGS. The headings in this Agreement are solely for the
convenience of reference and shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
INTERPACKET GROUP, INC. JULIE SPIRA
/s/ Jon Gans /s/ JULIE SPIRA
------------------- -------------------
Name: Jon. Gans Julie Spira
Title: CEO
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ATTACHMENT A
Base Salary and Commission Plan
The following is the commission/bonus plan for 1999-2001.
1999 Base Salary $240,000/year
Commission/Bonus: $20,000 will be paid for $5 million in bandwidth sales
$40,000 will be paid for $7.5 million in bandwidth sales
$60,000 will be paid for $10 million in bandwidth sales
2000 Base Salary $270,000/year
Commission/Bonus: $25,000 based upon a mutually agreeable goal
$50,000 based upon a mutually agreeable goal
$75,000 based upon a mutually agreeable goal
2001 Base Salary $300,000/year
Commission/Bonus: $30,000 based upon a mutually agreeable goal
$60,000 based upon a mutually agreeable goal
$90,000 based upon a mutually agreeable goal
Commissions/bonuses will be paid at the time of achievement.
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is dated as of February 1, 2000 (the
"Effective Date") by and between InterPacket Group, Inc., a Delaware
corporation (the "Company"), and Timothy F. Sylvester, an individual
("Executive").
WHEREAS, the Company desires to obtain the professional services of
Executive; and
WHEREAS, Executive desires to provide such services to the Company upon
the following terms and conditions;
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the parties agree as follows:
1. TERM. The Company hereby employs Executive in the position and
with the duties and responsibilities described in Paragraph 2 for the period
commencing on the Effective Date and ending three (3) years from the
Effective Date (the "Term"). The Term shall be extended by an additional
period of one (1) year unless either party shall give written notice to the
other of its intent to terminate this Agreement not less than 30 days prior
to the expiration of the Term. If the Term is so extended, all references to
"the Term" in this Agreement shall be deemed to include such the extension
thereof.
2. POSITION, DUTIES, RESPONSIBILITIES. The Company hereby agrees to
employ Executive, and Executive agrees to serve, as Executive Vice
President-Business and Legal Affairs during the Term. Subject to the terms
hereof, Executive shall serve on an exclusive and full time basis at the
Company's principal place of business in Santa Monica, California or such
other place in Los Angeles County to which Executive shall consent, which
shall be reasonably granted. Executive shall report to the Company's Chief
Executive Officer and/or its Board of Directors, as appropriate. Executive
shall be the chief legal officer of the Company and in such capacity shall
oversee all business transactions, strategic partnerships, acquisitions and
related business development and expansion initiatives, facilitate the
drafting and filing of the registration statement relating to the initial
public offering of the Company's Common Stock and manage human resources,
legal and administrative matters, as requested. Executive shall have the
full authority and responsibility prescribed by the Company's Bylaws relating
to or otherwise normally attendant to his position as an executive officer of
a corporation holding such position and shall hold such responsibilities as
shall be determined pursuant to the periodic review and approval of the Chief
Executive Officer and/or Board of Directors or any committee thereof.
3. COMPENSATION. Executive shall be paid the following compensation
while employed by the Company pursuant to this Agreement:
<PAGE>
3.1 SALARY. The Company agrees to pay or cause to be paid to
Executive a base salary at the annual rate of no less than One Hundred Fifty
Thousand Dollars ($150,000) per year ("Base Salary") during the Term. In the
sole discretion of the Chief Executive Officer, Base Salary may be increased
on January 1 of each calendar year during the Term, commencing on January 1,
2001. Base Salary shall be paid in accordance with the Company's payroll
policy as in effect from time to time.
3.2 BONUS. By May 1, 2000, the Company shall consider and adopt
a bonus plan with agreed upon bonus targets that contemplate the payment to
Executive of an annual bonus of at least $50,000 on achievement of such
targets.
3.3 BENEFITS. Executive shall entitled to medical and all other
benefits made available generally to executives of the Company.
3.4 STOCK OPTIONS; STOCK PURCHASE. Executive shall receive an
option (the "Option") to purchase 125,000 shares of the Company's common
stock at a price of $5.00 per share, the fair market value of the Company's
Common Stock as of the Effective Time, as determined by the Board of
Directors, pursuant to the terms of the Non-Qualified Stock Option Agreement
to be entered into by and between the Company and Executive substantially in
the form attached hereto as EXHIBIT A and otherwise pursuant to the terms of
the Company's 1998 Stock Option Plan. In addition to Executive's
participation in the Company's 1998 Stock Option Plan, Executive shall also
be entitled to participate in any of the Company's other stock option plans
(collectively with the Company's 1998 Stock Option Plan, the "Option Plans")
as determined by the Board of Directors or any committee thereof, in its
discretion. Executive shall be entitled to purchase 60,000 shares of Common
Stock at a purchase price of $5.00 per share, such purchase price to be paid
in the form of cash in the amount of $150,000 and the delivery by Executive
of a promissory note, substantially in the form attached hereto as EXHIBIT B,
in the principal amount of $150,000.
3.5 BUSINESS TRAVEL AND OTHER BUSINESS EXPENSES. The Company
shall reimburse Executive for reasonable and ordinary expenses relating to
the performance of his duties hereunder including without limitation all
travel, accommodation, meals, entertainment and other reasonably necessary
business expenses. Such expenses shall be supported by reasonable
documentation and shall be subject to reasonable audit by the Company.
3.6 VACATION. Executive shall be entitled to four (4) weeks of
vacation for each calendar year during which Executive is employed by the
Company. Executive shall also be entitled to all paid Company holidays. If
Executive ceases to be employed during any calendar year, the total number of
vacation days accruing shall be prorated based on the number of months, or
portion thereof, that Executive was employed by the Company. Such vacation
time shall accrue and cumulate to the extent not actually taken by Executive
until Executive is entitled to eight (8) weeks of accrued vacation.
Executive shall be entitled to
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customary flexibility in using such vacation time without strict regard to
the actual accrual of vacation.
3.7 INDEMNIFICATION. The Company shall indemnify Executive
pursuant to a separate Indemnification Agreement, such indemnification to
survive the termination of this Agreement and be effective until the
expiration of all statutes of limitations applicable to any and all
Proceedings (as defined in the Indemnification Agreement).
4. TERMINATION OF EMPLOYMENT; COMPENSATION DUE.
4.1 DEATH.
4.1.1 TERMINATION. Other than the obligations contained
in Section 4.1.2 hereof, this Agreement shall terminate automatically upon
the death of Executive.
4.1.2 COMPENSATION. Following the death of Executive, the
Company shall pay to Executive's beneficiary or estate, as instructed by
Executive in writing on file with the Company, or if no one has been so
designated, to his estate, (i) the Annual Salary to which Executive is
entitled through the date of termination and (ii) all accrued but unused
vacation pay (the sum of (i), and (ii) hereunder being referred to as
"Accrued Compensation"). Following the death of Executive, the Company shall
make any payments required under any death benefit policy, benefit plan or
then existing life insurance policy maintained by the Company to the
beneficiary thereof. Thereafter, the Company's obligations hereunder shall
terminate.
4.2 DISABILITY.
4.2.1 TERMINATION. Should Executive be prevented from
properly performing Executive's duties hereunder by reason of any physical or
mental incapacity for a period of more than 180 days in the aggregate during
any twelve (12) month period, then, to the extent permitted by law, at the
Company's discretion, the Company may terminate its obligations hereunder
except for (i) any Accrued Compensation through the date of such termination,
and (ii) any rights Executive may have under any disability plan in which
Executive is a participant.
4.2.2 COMPENSATION. During any period that Executive is
disabled under this Agreement, but terminating upon any termination of this
Agreement pursuant to Section 4.2.1, Executive shall continue to receive an
amount equal to his Annual Salary minus any compensation received by
Executive under any disability insurance policy the premiums for which have
been paid by the Company. Following the termination of Executive's
employment under Section 4.2.1, the Company shall pay Executive an amount
equal to his
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Accrued Compensation through the date on which his employment is terminated,
and the Company shall have no further obligations to Executive under this
Agreement.
4.3 BY THE COMPANY.
4.3.1 FOR CAUSE. (a) The Company may terminate, without
liability, this Agreement For Cause (as defined in this paragraph), an any
time upon written notice to Executive. "For Cause" is defined as (i) the
breach by Executive of any material term of this Agreement, provided such
breach, if capable of a cure, is not cured within thirty (30) days after
Executive received written notice of such breach and demand for a cure by the
Company, which notice identifies such breach with particularity, (ii) the
engaging by the Employee in conduct materially adverse to the Company and
inconsistent with his duties and responsibilities under Section 2 above and
the failure to cease such conduct within thirty (30) days after written
demand therefor by the Company identifying with reasonable particularity such
conduct and harm, (iii) the conviction (by trial or upon a plea) of Executive
of a misdemeanor involving moral turpitude or a felony or (iv) a
determination made by the vote of 75% of more of the Outside Members of the
Board of Directors that Executive has regularly and consistently failed to
perform his duties and obligations as an executive officer under this
Agreement, after written notice of such failure has been delivered to
Executive and Executive has had a period of thirty (30) days to cure such
failure. For purposes of this Section, "Outside Member" shall mean any
member of the Board of Directors who is not an executive officer or employee
of the Company.
(b) In the event the Company terminates Executive For Cause,
the Company shall pay Executive an amount equal to his Accrued Compensation
through the date on which his employment is terminated, and the Company shall
have no further obligations to Executive under this Agreement.
4.3.2 WITHOUT CAUSE. If the Company terminates Executive for
any reason other than due to his death, disability (as determined pursuant to
Section 4.2.1) or as a result of those reasons listed in Section 4.3.1 hereof
("Without Cause"), the Company shall (i) continue to pay Executive his Annual
Salary, (ii) pay to Executive, pursuant to Section 3.5 hereof, the greater of
(A) his actual bonus paid during the preceding year, if any, and (B) the
average of the actual bonuses paid during the two preceding years, if any,
and (iii) continue to provide the health and other benefits described in
Section 3.2 (clauses (i), (ii) and (iii) hereof collectively, "Termination
Without Cause Obligations"); the Termination Without Cause Obligations shall
be provided for a period of time equal to the greater of (i) the remainder of
the unexpired Term calculated as if no premature termination of this
Agreement had occurred, or (ii) if the Term has less than one year remaining
at the time of such termination, such remaining amount of time plus twelve
months. In addition, at the time of any termination Without Cause, all of
Executive's outstanding options granted pursuant to any of the Option Plans
shall immediately vest and the time period during which such options may be
exercised shall be extended for a period of two (2) years.
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4.4 BY EXECUTIVE.
4.4.1 FOR GOOD REASON. Executive may terminate, without
liability, this Agreement "For Good Reason" if (a) the Company breaches any
material term of this Agreement, provided that, if such breach is capable of
cure, such breach continues for a period of thirty (30) days after the
Company receives written notice of such breach by Executive identifying such
breach with particularity, (b) a material diminution in Executive's
responsibilities or authority occurs without Executive's consent, which shall
include, among other things, any modification of Executive's reporting
responsibilities to any person other than the Company's Chief Executive
Officer or its Board of Directors, (c) Executive is required to relocate his
principal place of business outside of Los Angeles County or (d) a Change in
Control (as defined below) occurs.
A "Change in Control" means the happening of any of the following:
(x) when any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Act"), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities, or (y) the occurrence of a transaction requiring
stockholder approval and involving the sale of all or substantially all of
the assets of the Company or the merger of the Company with or into another
corporation in which (i) the Company is not the surviving corporation, or
(ii) the stockholders of the Company immediately prior to such merger are the
owners of less than fifty percent (50%) of the combined voting power of the
Company and such other corporation immediately after such merger, or (z) the
election of the Board of Directors in any special or annual election or
stockholders' consent where the incumbent directors immediately prior to such
election or consent do not constitute a majority of the Board of Directors
immediately after such election.
In the event Executive terminates this Agreement For Good Reason,
the Company shall fulfill the obligations set forth in Section 4.3.2 hereof
and all of Executive's outstanding options granted pursuant to any of the
Option Plans shall immediately vest and the time period during which such
options may be exercised shall be extended for two (2) years.
5. EXECUTIVE COVENANTS.
5.1 CONFIDENTIALITY. Executive acknowledges that in his
employment hereunder he will occupy a position of trust and confidence.
Executive shall not, except as may be required to perform his duties
hereunder or as required by applicable law, for a period of two (2) years
following the termination of this Agreement or until such information shall
have become public other than by Executive's unauthorized disclosure,
disclose to others or use, whether directly or indirectly, any Confidential
Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the
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Company, its subsidiaries and affiliates, and their respective clients and
customers and that was learned by Executive in the course of his employment
by the Company, its subsidiaries and affiliates, including without limitation
any proprietary knowledge, trade secrets, data, formulae, information and
client and customer lists and all papers, resumes, and records (including
computer records) of the documents containing such Confidential Information.
Executive acknowledges that such Confidential Information is specialized,
unique in nature and of great value to the Company, its subsidiaries and
affiliates, and that such information gives the Company a competitive
advantage. Executive agrees to deliver or return to the Company, at the
Company's request at any time or upon termination or expiration of his
employment or as soon thereafter as possible, (i) all documents, computer
tapes and disks, records, lists, data, drawings, prints, notes and written
information (and all copies thereof) furnished by the Company, its
subsidiaries and affiliates, or prepared by Executive during the Term of his
employment with the Company, its subsidiaries and affiliates, and (ii) all
notebooks and other data relating to research or experiments or other work
conducted by Executive in the scope of employment.
5.2 NON-COMPETITION. During the Term, Executive shall not,
directly or indirectly, without the prior written consent of the Company,
provide consultative services or otherwise provide services to (whether as an
employee or a consultant, with or without pay), own, manage, operate, join,
control, participate in, or be connected with (as a stockholder, partner or
otherwise), any business, individual, partner, firm, corporation, or other
entity that is then a competitor of the Company, its subsidiaries or
affiliates (each such competitor a "Competitor of the Company"); provided
that nothing herein shall prevent Executive from the beneficial ownership of
up to 5% of the publicly traded securities of any person who may be deemed to
be a Competitor of the Company, and provided, further, that if the Company
terminates the Employee's employment hereunder Without Cause or the Employee
terminates his employment For Good Reason prior to the expiration of the
Term of this Agreement, the provisions of this Section 5.2 shall not apply
from and after the date of such termination of employment.
5.3 NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the Term
and for a period of six (6) months thereafter, the Employee shall not,
directly or indirectly, influence or attempt to influence customers or
suppliers of the Company, or any of its subsidiaries or affiliates, or to
divert their business to any Competitor of the Company, provided, that if the
Company terminates the Employee's employment hereunder Without Cause or the
Employee terminates his employment For Good Reason prior to the expiration of
the Term, the provisions of this Section 5.3 shall not apply from and after
the date of such termination of employment.
5.4 INJUNCTIVE RELIEF. It is expressly agreed that the Company
will or would suffer irreparable injury if Executive were to disclose
Confidential Information, compete with the Company or solicit customers or
suppliers the Company in violation of this Section 6, that money damages
would be insufficient to compensate the Company and that the Company
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would by reason of such competition or disclosure be entitled to injunctive
relief in a court of appropriate jurisdiction.
6. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned without
the written consent of the non-assigning party, provided that Executive's
rights to payments hereunder shall, upon his death, inure to the benefit of
Executive's personal or legal representatives, executors, administrators,
heirs, distributees, devisees and legatees. Any Change of Control shall be
deemed to be an assignment requiring consent of Executive.
7. NOTICES. All notices hereunder shall be in writing and shall be
either served by certified or registered mail, air courier, by hand, or by
facsimile, in each case with charges prepaid. Notices shall be deemed
effective when mailed, hand delivered, or faxed. Notices to Executive shall
be given at the address set forth in the records of the Company for
Executive. This notice provision may be changed with respect to any party by
such party notifying the other of such change in accordance with the
provisions of this Section 7.
8. PLACE OF PERFORMANCE. The primary place where Executive shall
perform his duties for the Company shall be at the Company's principal place
of business. In addition, Executive agrees to render his services away from
such city from time to time in the ordinary course of business, as the proper
performance of his duties may require.
9. EQUITABLE REMEDIES. Executive and the Company agree that the
services to be rendered by Executive pursuant to this Agreement are of a
special, unique and extraordinary character which gives them a peculiar
value, the loss of which may not be reasonably or adequately compensated in
damages in any action at law, and that a breach by Executive of any of the
terms of this Agreement may cause the Company great and irreparable injury
and damage. Executive expressly agrees that the Company may apply for the
remedies of injunction, specific performance and other equitable relief to
prevent a breach of this Agreement by Executive. This provision shall not,
however, be construed as a waiver of any of the rights which the Company may
have hereunder, at law, for damages, or otherwise.
10. COMPLETE AGREEMENT. In entering into this Agreement, neither party
has relied upon any representation, warranty, assurance or statement of
intention not expressly set forth herein.
11. SEVERABILITY. If any provision of this Agreement is declared
invalid, illegal or incapable of being enforced by any court of competent
jurisdiction, all of the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
12. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to
agreements made and to be performed in California. Only California courts
(state and federal) shall have jurisdiction of any action, suit or proceeding
brought regarding this Agreement.
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13. MODIFICATION AND WAIVER. No provision of this Agreement may be
modified, waived, or discharged unless agreed to in writing by both parties
hereto. The failure of a party to insist upon strict adherence to any term,
condition or other provision of this Agreement shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term, condition or other provision of
this Agreement.
14. ATTORNEY FEES. In the event of any action, suit, or proceeding
arising from or based on this Agreement brought by either party hereto
against the other, the prevailing party shall be entitled to recover from the
other its reasonable, attorneys' fees and disbursements in connection
therewith in addition to the costs of such action, suit or proceeding.
15. HEADINGS. The headings in this Agreement are solely for the
convenience of reference and shall not affect its interpretation.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
INTERPACKET GROUP, INC. TIMOTHY F. SYLVESTER
/s/ Jonathan Gans /s/ Timothy F. Sylvester
-------------------------------- -------------------------------
Name: Jonathan Gans Timothy F. Sylvester
Title: Chief Executive Officer
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EXHIBIT A
OPTION AGREEMENT
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EXHIBIT B
PROMISSORY NOTE
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SECURED PROMISSORY NOTE
$150,000 Santa Monica, California
February 1, 2000
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to the
order of InterPacket Group, Inc., a Delaware corporation ("Holder"), the
principal sum of One Hundred Fifty Thousand Dollars ($150,000), together with
interest, as provided below.
1. PAYMENTS. The principal amount of this promissory note (this "Note")
shall be paid in full, in lawful money of the United States of America, upon the
earlier of (a) the third anniversary of the date of this Note or (b) on such
date as Maker is no longer providing services (as an employee or consultant) to
Holder or any affiliated company of Holder. In addition, Maker shall be
obligated to prepay the principal amount of this Note to the extent, and upon
receipt, of the after-tax proceeds received by Maker as a result of the sale or
disposition of the Pledged Collateral (as defined below).
2. INTEREST. The unpaid principal amount of this Note shall bear
interest at the Applicable Federal Rate (as defined below) in effect from time
to time, which interest shall be payable, in lawful money of the United States
of America, (a) to the extent of the accrued and unpaid interest on the
principal prepaid, at the time of any prepayment required by Section 1, and (b)
in full on the maturity date of this Note as provided in the first sentence of
Section 1. Interest shall be calculated on the basis of a 365 or 366-day year,
as applicable, and actual days elapsed. "Applicable Federal Rate" means the
variable rate equal to the minimum sufficient stated rate allowable under
Proposed Treasury Regulations Sections 1.7872-3(b) and 1.7872-3(c) or any
successor regulations to such sections.
3. COLLATERAL. Maker hereby grants and creates a security interest in
favor of Holder in the Pledged Collateral (as defined below) as security for all
of Maker's obligations under this Note. For purposes of this Note, "Pledged
Collateral" means the 60,000 shares of Common Stock of Maker (the "Common
Stock") purchased by him on the date hereof, together with all dividends and
distributions and securities received by Maker in respect of or exchange for the
Common Stock. Maker agrees that Holder shall retain possession of the Pledged
Collateral to secure Maker's performance of his obligations under this Note.
Maker hereby agrees to execute and deliver such further documentation (including
financing statements) and take such further action as Holder may request in
order to perfect and enforce the aforesaid security interest. Without limiting
the generality of the foregoing, Holder shall have such rights and remedies with
respect to the Pledged Collateral as are prescribed by Division 9 of the
California Commercial Code. Maker shall have the right to withdraw Pledged
Collateral from the security interest at the time of Maker's sale or other
disposition of the Pledged Collateral, provided that upon receipt Maker applies
the net after-tax proceeds of such sale or disposition to prepayment of this
Note as
<PAGE>
provided in Sections 1 and 2. This Note shall be a full recourse note.
4. EVENT OF DEFAULT. As used herein, "Event of Default" shall be any or
all of the following: (a) failure of Maker to pay within ten (10) days after
receipt from Holder of a written demand for payment after Maker has failed to
pay when due any amount provided for in this Note; (b) the failure of Maker to
observe, keep or perform any covenant, agreement or condition contained in this
Note (other than a default of the type referred to in the preceding clause (a))
if such failure in performance is not cured within ten (10) days after Maker
received written notice from Holder containing a reasonable description of such
default; and (c) the bankruptcy of Maker. Upon the occurrence of an Event of
Default, Holder may, in its sole discretion, by giving written notice to Maker,
declare all amounts of principal and accrued interest to be immediately due and
payable in full. The failure of Holder to accelerate Maker's obligation to make
payments in any one instance shall not constitute a waiver of the right to
accelerate on any later date.
5. ENFORCEMENT. If any action is commenced to enforce payment of this
Note or Holder's other rights hereunder or to determine the respective rights of
Maker and Holder, the prevailing party in such action shall be entitled to
receive the reasonable fees and expenses incurred by it in such proceeding.
Maker waives presentment, demand for payment (other than as provided in Section
4), notice of dishonor and all other notices.
6. SEVERABLE PROVISIONS. Every provision of this Note is intended to be
severable. If any term or provision hereof is declared by a court of competent
jurisdiction to be illegal, invalid or unenforceable for any reason whatsoever,
such illegality, invalidity or unenforceability shall not affect the balance of
the terms and provisions hereof, which terms and provisions shall remain binding
and enforceable.
7. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the internal laws (and not the laws of conflicts of laws) of the
State of California.
IN WITNESS HEREOF, Maker has executed this Promissory Note as of the
day and year first above written.
/s/ Timothy F. Sylvester
------------------------------------
Timothy F. Sylvester
<PAGE>
INTERPACKET GROUP, INC.
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
NOVEMBER 12, 1999
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TABLE OF CONTENTS
<TABLE>
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PAGE
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SECTION 1 AUTHORIZATION AND SALE OF PREFERRED STOCK . . . . . . . . . . . . . . . .1
1.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Sale of Series A Preferred. . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2 CLOSING DATE; DELIVERY. . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . .2
3.1 Organization and Standing; Certificate and Bylaws . . . . . . . . . . . .2
3.2 Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.4 Authorization; No Breach. . . . . . . . . . . . . . . . . . . . . . . . .3
3.5 Equity Investments; Subsidiaries. . . . . . . . . . . . . . . . . . . . .4
3.6 Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.7 Material Contracts and Other Commitments. . . . . . . . . . . . . . . . .5
3.8 Tax Returns and Audits. . . . . . . . . . . . . . . . . . . . . . . . . .5
3.9 Litigation, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.10 Title to Properties; Liens and Encumbrances . . . . . . . . . . . . . . .6
3.11 Licenses, Trademarks, Patents and Other Rights. . . . . . . . . . . . . .6
3.12 Compliance with Laws and Other Instruments. . . . . . . . . . . . . . . .7
3.13 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.14 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.15 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.16 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . . . .8
3.17 ERISA; Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.18 Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.19 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.20 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.21 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.22 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . . . . 11
3.23 Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. . . . . . . . . . . . 12
4.1 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Economic Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Execution, Delivery and Performance . . . . . . . . . . . . . . . . . . 12
4.6 Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 No Public Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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4.8 Access to Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5 CONDITIONS TO CLOSING OF PURCHASERS . . . . . . . . . . . . . . . . . . 13
5.1 Representations and Warranties Correct; No Material Adverse
Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Opinion of Company's Counsel. . . . . . . . . . . . . . . . . . . . . . 14
5.5 Investor Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 Letter Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7 Governmental Authorizations, etc. . . . . . . . . . . . . . . . . . . . 14
5.8 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . 15
5.9 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.10 Approval of Investment Committee. . . . . . . . . . . . . . . . . . . . 15
5.11 Voting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.12 Co-Sale First Amendment.. . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6 CONDITIONS TO CLOSING OF THE COMPANY. . . . . . . . . . . . . . . . . . 15
6.1 Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Blue Sky. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Governmental Authorizations, etc. . . . . . . . . . . . . . . . . . . . 16
6.6 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 7 COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Inspection; Additional Information. . . . . . . . . . . . . . . . . . . 17
7.3 Confidential Treatment of Information . . . . . . . . . . . . . . . . . 17
7.4 Keeping of Records and Books of Account . . . . . . . . . . . . . . . . 17
7.5 Life Insurance on Senior Management . . . . . . . . . . . . . . . . . . 18
7.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.7 Preservation of Existence; Amendment of Certificate and Bylaws. . . . . 18
7.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.11 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.12 Merger; Sales of Assets, etc. . . . . . . . . . . . . . . . . . . . . . 19
7.13 Limitation on Affiliate Transactions. . . . . . . . . . . . . . . . . . 20
7.14 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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<TABLE>
<S> <C>
7.15 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.16 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.17 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.18 Enforcement of Voting Agreement . . . . . . . . . . . . . . . . . . . . 22
7.19 Resignation of Peter Zimble . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH
SECURITIES ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Restrictions on Transferability . . . . . . . . . . . . . . . . . . . . 23
8.2 Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.3 Notice of Proposed Transfers. . . . . . . . . . . . . . . . . . . . . . 24
SECTION 9 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1 General Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 24
9.2 Indemnification Principles. . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Claim Notice; Right to Defend . . . . . . . . . . . . . . . . . . . . . 25
9.4 Survival of Representations and Warranties. . . . . . . . . . . . . . . 26
SECTION 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.5 Nouns and Pronouns. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.6 Exchanges; Lost, Stolen or Mutilated Certificates . . . . . . . . . . . 28
10.7 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . 28
10.9 Notices, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.11 Descriptive Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.12 Facsimile Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
EXHIBITS
A - Schedule of Purchasers
B - Restated Certificate of Incorporation
C - Schedule of Exceptions
D - Opinion of Riordan & McKinzie
E - Investor Rights Agreement
F(1) - Consultant Letter
F(2) - Confidentiality Letter
F(3) - Board Letter
F(4) - Online Services Sideletter Agreement
G - Voting Agreement
H - Co-Sale First Amendment
</TABLE>
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<PAGE>
INTERPACKET GROUP, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of November 12, 1999 by and among InterPacket Group,
Inc., a Delaware corporation (the "Company"), and each of the entities listed on
the Schedule of Purchasers attached hereto as EXHIBIT A (each a "Purchaser" and,
collectively, the "Purchasers").
SECTION 1
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 AUTHORIZATION. The Company has authorized the sale and issuance
hereunder of up to 3,000,000 shares of its Series A Convertible Preferred Stock
(the "Series A Preferred"), having the rights, privileges and preferences as set
forth in the Restated Certificate of Incorporation (the "Certificate") in the
form attached to this Agreement as EXHIBIT B.
1.2 SALE OF SERIES A PREFERRED. Subject to the terms and conditions
hereof, each of the Purchasers, severally and not jointly, agrees to purchase
from the Company, and the Company agrees to issue and sell to each Purchaser,
the number of shares of Series A Preferred set forth opposite such Purchaser's
name on the Schedule of Purchasers, at a purchase price of $5.00 per share, for
an aggregate purchase price for each Purchaser as indicated thereon. The shares
of Series A Preferred sold to the Purchasers pursuant to this Agreement are
referred to as the "Shares."
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall be held at the offices of Riordan & McKinzie,
300 South Grand Avenue, Los Angeles, California 90071, at 9:00 a.m. (Los Angeles
time), on November 12, 1999, or at such other time and place upon which the
Company and Pequot Private Equity Fund II, L.P. ("Pequot") shall agree (the date
of the Closing is hereinafter referred to as the "Closing Date").
2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser
a certificate or certificates, registered in such Purchaser's name, representing
the number of Shares set forth opposite such Purchaser's name on EXHIBIT A
against payment by
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such Purchaser of the purchase price therefor as set forth on EXHIBIT A by
wire transfer of immediately available funds per the Company's instructions.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached hereto as
EXHIBIT C (the "Schedule of Exceptions"), the Company represents and warrants to
each Purchaser as follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. Each of the
Company and its subsidiaries (the "Subsidiaries") is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Each of the Company and the Subsidiaries has all
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. Each of the Company and the Subsidiaries is qualified and
authorized to do business and is in good standing as a foreign corporation in
each jurisdiction where the failure to be so qualified would have a material
adverse effect on the Company's and the Subsidiaries' business, properties,
prospects or condition (financial or otherwise), taken as a whole (a "Material
Adverse Effect"). The Company has furnished to legal counsel to the Purchasers
copies of its Certificate and Bylaws, as amended to date, and of the
organizational documents of each Subsidiary. Said copies are true, correct and
complete and contain all amendments through the date hereof.
3.2 CORPORATE POWER. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and (i) the Investor Rights
Agreement, (ii) the Board Letter, (iii) the Confidentiality Letter, (iv) the
Online Services Sideletter Agreement, (v) the Consultant Letter, (vi) the Voting
Agreement and (vii) the Co-Sale First Amendment ((i) through (vii), each as
defined herein and collectively, the "Transaction Documents"), to sell and issue
the Shares hereunder, to issue the Common Stock issuable upon conversion of the
Shares (the "Conversion Stock"), and to carry out and perform its obligations
under the terms of this Agreement (including the filing of the Certificate with
the Delaware Secretary of State), the Transaction Documents and the Right of
First Refusal and Co-Sale Agreement dated as of April 1, 1998 (the "Co-Sale
Agreement") among the Company, the Founders (as defined therein), Joseph T.
Arsenio II and Delaware Charter Guarantee & Trust Company TTEE FBO: Joseph T.
Arsenio II.
3.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of common stock, $.001 par value (the "Common Stock"), of
which 12,123,232 shares are outstanding, and 3,000,000 shares of preferred
stock, $.001 par value, all of which have been designated Series A Convertible
Preferred Stock, and none of which
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are issued and outstanding immediately prior to the Closing. Immediately
after the Closing, there will be 12,123,232 shares of Common Stock and
3,000,000 shares of Series A Preferred issued and outstanding. The Company
has reserved 3,000,000 shares of Common Stock for issuance upon conversion of
the Shares. The Company has reserved up to 3,100,000 shares of Common Stock
for issuance to officers, employees, directors, consultants or advisors
pursuant to existing stock option plans that have been approved by the
Company's Board of Directors. The Series A Preferred has the rights,
preferences, privileges and restrictions set forth in the Certificate. All of
the issued and outstanding shares of Common Stock are validly issued, fully
paid and nonassessable and free and clear of all Encumbrances (as defined
herein). Schedule 3.3 contains a list of all holders of capital stock of the
Company and each Subsidiary and options, warrants, rights to purchase such
capital stock that will be outstanding immediately before and immediately
after the Closing, in each case, including the number of shares of capital
stock held by each such holder. Except as set forth on Schedule 3.3, no
class of capital stock of the Company or any Subsidiary is entitled to
preemptive rights. Except as set forth on Schedule 3.3, there are no
outstanding options, warrants, subscription rights, calls or commitments of
any character whatsoever relating to, or securities or rights convertible
into, shares of any class of capital stock of the Company or any Subsidiary,
and there are no Contracts (as defined herein), by which the Company or any
Subsidiary is or may become bound to issue additional shares of its capital
stock or options, warrants or other rights to purchase or acquire any shares
of its capital stock. Except as set forth on Schedule 3.3, the number of
shares of capital stock issuable in connection with securities described in
the immediately preceding sentence is not subject to adjustment by reason of
the issuance of the Shares hereunder or the issuance of shares of Common
Stock upon conversion of such Shares. Except as set forth on Schedule 3.3,
neither the Company nor any Subsidiary has declared or paid any dividend or
made any other distribution of cash, stock or other property with respect to
its capital stock to its stockholders. Except as set forth on Schedule 3.3
or as contemplated by this Agreement, the Transaction Documents or the
Certificate or except for the right to vote its shares of Common Stock for
the election of directors, no person has the right to nominate or elect one
or more directors of the Company.
(b) On a fully diluted basis, after giving effect to the conversion,
exchange or exercise of all options, warrants and other securities convertible,
exercisable or exchangeable into shares of capital stock of the Company that
will be outstanding immediately after the Closing, the shares of Common Stock
issuable upon the conversion of the Shares held by each Purchaser shall
represent the percentage set forth opposite such Purchaser's name on EXHIBIT A
hereto of the outstanding fully diluted shares of Common Stock immediately after
the Closing.
3.4 AUTHORIZATION; NO BREACH. The execution, delivery and performance of
this Agreement and of each Transaction Document, and the consummation of all
transactions contemplated hereby or thereby, including but not limited to the
filing of the Certificate with the Delaware Secretary of State and the offering,
sale and issuance of the Shares pursuant to this Agreement, have been duly
authorized by all required corporate actions of the Company, its directors and
its stockholders. This Agreement, the Transaction
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Documents and the Co-Sale Agreement, as amended by the Co-Sale First
Amendment, constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as the indemnification provisions of Section 1.7 of the Investor
Rights Agreement may be limited by principles of public policy, and subject
to laws of general application relating to bankruptcy, insolvency,
reorganization, moratorium and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable
remedies. Except as set forth on Schedule 3.4, the execution and delivery by
the Company of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby, thereby and under the
Co-Sale Agreement, as amended by the Co-Sale First Amendment, including but
not limited to the sale and issuance of the Shares pursuant to this
Agreement, do not and will not (with or without due notice, lapse of time, or
both), (i) conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the creation
of any Encumbrance upon the Company's capital stock or assets pursuant to,
(iv) give any third party the right to accelerate any obligation under, (v)
result in a violation of or (vi) require any authorization, consent,
qualification, approval, exemption, filing or other action by or notice to
any court or administrative or governmental body (other than post-closing
filings in connection with certain state and federal securities laws, which
filings will be made in a timely basis) pursuant to, (A) the Certificate or
Bylaws of the Company, or any U.S. or, to the Company's actual knowledge,
foreign law, statute, rule, regulation, instrument, order, judgment or decree
to which the Company or any of its properties is subject, or (B) any contract
to which the Company is a party or any of its property is subject.
3.5 EQUITY INVESTMENTS; SUBSIDIARIES. Except as set forth on
Schedule 3.5, the Company has never had, nor does it presently have, any
subsidiaries, nor has it owned, nor does it presently own, whether directly or
indirectly owned, any capital stock or other proprietary interest, directly or
indirectly, in any corporation, association, trust, partnership, joint venture
or other entity. All of the outstanding shares of each class of capital stock
of the Subsidiaries (a) are owned beneficially and of record by the Company free
and clear of any Encumbrances (other than restrictions arising from applicable
securities laws or under this Agreement), (b) constitute 100% of the issued and
outstanding shares of capital stock of each Subsidiary and (c) have been validly
issued and are fully paid and non-assessable.
3.6 OWNERSHIP OF SHARES. Upon issuance and delivery of the Shares (and
the Conversion Stock upon conversion thereof pursuant to the terms of the
Certificate) to each Purchaser pursuant to this Agreement against payment of the
consideration therefor, such Shares and Conversion Stock will be duly and
validly issued, fully paid and nonassessable, free and clear of all
Encumbrances, other than (i) restrictions arising from applicable securities
laws (or restrictions on transfer set forth herein or in the Investment Rights
Agreement), and (ii) any Encumbrances created by or through such Purchaser. The
delivery of the Shares to each Purchaser at the Closing and the delivery of the
Conversion Stock upon conversion of the Shares will transfer good and valid
title to, and beneficial ownership of, such Shares and the Conversion Stock,
other than as a result of any Encumbrances described in clauses (i) and
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(ii) of the preceding sentence. Except as set forth on Schedule 3.6, the
issuance and sale of the Shares pursuant hereto (and the issuance of the
Conversion Stock pursuant to the Certificate upon the conversion of the
Shares) will not give rise to any preemptive rights or rights of first
refusal.
3.7 MATERIAL CONTRACTS AND OTHER COMMITMENTS. Neither the Company nor
any of the Subsidiaries is a party to, nor is the Company or any of the
Subsidiaries or any of their respective assets bound or affected by, any
contract, agreement, lease or other commitment, written or oral, absolute or
contingent, other than (i) contracts listed in Schedule 3.7, accurate and
complete copies of which have been delivered to counsel to the Purchasers, and
(ii) contracts which do not involve commitments by any party thereto in excess
of $250,000 in value (collectively, the "Contracts"). As to the Company or any
of the Subsidiaries, as the case may be, each of such Contracts is, as of the
date hereof, and immediately after the Closing will be, legal, valid, binding
and in full force and effect and enforceable in all material respects in
accordance with its terms. There is no breach, violation or default by the
Company or any of the Subsidiaries (or, to the knowledge of the Company, any
other party) under any such Contract or any other contract to which the Company
or any Subsidiary is a party or any of their respective assets are bound or
affected by and no event (including, without limitation, the consummation of the
transactions contemplated by this Agreement) which, with notice or lapse of time
or both, would (A) constitute a breach, violation or default by the Company or
any of the Subsidiaries (or, to the best knowledge of the Company, any other
party) under any such Contract or other contract or (B) give rise to any lien or
right of termination, modification, cancellation, prepayment, suspension,
limitation, revocation or acceleration against the Company or any of the
Subsidiaries under any such Contract or other contract, except for any such
breach, violation, default or event that would not have a Material Adverse
Effect. Except as set forth on Schedule 3.7, none of the Company, the
Subsidiaries nor, to the knowledge of the Company, any other party to any of
such Contracts (i) is in arrears in respect of the performance or satisfaction
of any of the material terms and conditions on its part to be performed or
satisfied under any of such Contracts or (ii) has granted or has been granted
any intentional waiver or indulgence of any material term or condition under any
of such Contracts or has repudiated any material provision thereof.
3.8 TAX RETURNS AND AUDITS. Each of the Company and the Subsidiaries has
filed (or caused to be filed), or has obtained an extension for, all U.S.
federal, state, local and, to the Company's actual knowledge, foreign tax
returns required to be filed by it other than those tax returns the failure of
which to file would not have a Material Adverse Effect, and has paid all taxes
due and payable by it, if any, except for taxes that are being contested in good
faith by appropriate proceedings, or taxes the failure of which to pay would not
have a Material Adverse Effect. Such returns were true and correct in all
material respects when filed. No federal or state tax returns of the Company or
the Subsidiaries have been audited and no controversy with respect to U.S.
federal, state, local or, to the Company's actual knowledge, foreign taxes of
any type is pending, or to the Company's actual knowledge, is threatened. The
Company has withheld or collected in all material respects from each
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payment made to each of its employees, the amount of all taxes required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or proper depositaries.
3.9 LITIGATION, ETC. There are no civil, criminal or administrative
actions, suits, proceedings or investigations at law or in equity by or before
any U.S. or, to the Company's actual knowledge, foreign court, arbitrator or
similar panel, governmental instrumentality or other agency pending or, to the
Company's actual knowledge, threatened, or to its knowledge, claims asserted (or
any basis therefor or threat thereof), to which the Company or a Subsidiary is a
party or its property is subject and which could reasonably be expected to have
a Material Adverse Effect, and none which questions the validity of this
Agreement, the Transaction Documents, the Co-Sale Agreement, as amended by the
Co-Sale First Amendment, or the Certificate or any action taken or to be taken
in connection herewith or therewith. Neither the Company nor any of the
Subsidiaries is subject to any order, writ, injunction or decree of any court of
any U.S. federal, state, municipal or other domestic or, to the Company's actual
knowledge, foreign governmental department, commission, board, bureau, agency or
instrumentality.
3.10 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. Each of the Company and
the Subsidiaries has good and marketable title to its properties and assets and,
with respect to the property and assets leased by either the Company or a
Subsidiary, holds valid leasehold interests therein, in each case to the extent
necessary to conduct its respective business as currently conducted in all
material respects, and in each case subject to no mortgage, pledge, lien,
security interest, conditional sale agreement, encumbrance or charge
("Encumbrances"), except (i) tax, materialmen's or like liens for obligations
not yet due or payable or being contested in good faith by appropriate
proceedings, or (ii) Encumbrances which materially impair the Company's or any
Subsidiary's use thereof or materially detract from the value of the Company and
the Subsidiaries, taken as a whole.
3.11 LICENSES, TRADEMARKS, PATENTS AND OTHER RIGHTS. The Company and each
Subsidiary holds all material U.S., and to the Company's actual knowledge,
foreign permits, licenses and other similar authority necessary for the conduct
of its business as currently conducted, and it is not in default in any material
respect under any of such permits, licences or other similar authority. The
Company and each Subsidiary owns or has a right to use all material patents,
patent rights, copyrights, trademarks, trademark rights, servicemarks, trade
names, trade name rights and other proprietary rights ("Intellectual Property"),
if any, necessary to conduct its business as now being conducted, and, to the
Company's best knowledge, without conflict with or infringement upon any valid,
material rights of others, and the Company has not received any notice of
infringement upon or conflict with the asserted intellectual property rights of
others and has no reasonable basis to believe that it will do so in the
foreseeable future. Except as set forth on Schedule 3.11, neither the Company
nor any Subsidiary has any patents, patent applications, registered trademarks
or trademark applications, and there are no licenses to or from the Company or
any Subsidiary with respect thereto. To the Company's best knowledge, the
Company and each Subsidiary has the right to
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use all material trade secrets, know-how and other technical data it is now
using to conduct its business (the "Proprietary Information") free and clear
of any Encumbrances or claims of others, and to the Company's best knowledge,
no other person has developed trade secrets, know-how or technical
information substantially similar or identical to those of the Company or the
Subsidiaries. Reasonable security measures have been taken by the Company to
protect the secrecy, confidentiality and value of the Proprietary Information
and, to the extent deemed appropriate by the Company, the Intellectual
Property.
3.12 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. Neither the Company
nor any Subsidiary is in violation of (i) any provision of its respective
certificate or articles of incorporation, bylaws or other charter document,
(ii) any term or provision of any Contract to which it is a party, or (iii)
any U.S. federal, state, local or, to the Company's actual knowledge, foreign
law, rule or regulation (including the Foreign Corrupt Practices Act and any
law, rule or regulation relating to occupational health and safety and the
environment or the use, storage or disposal of hazardous materials)
applicable to the Company or its Subsidiaries, except where, in the case of
any violation described in clauses (ii) or (iii), such violation would not
have a Material Adverse Effect.
3.13 REGISTRATION RIGHTS. Upon the Closing, except as set forth in the
Investor Rights Agreement, no person has the right to cause the Company or
any Subsidiary to register under the Securities Act of 1933, as amended (the
"Securities Act") any of its securities or any of its securities which may
hereafter be issued.
3.14 OFFERING. Subject to the accuracy of the Purchasers'
representations in Section 4 hereof, the offer, sale and issuance of the
Shares and the issuance of the Conversion Stock upon conversion of the
Shares, constitute transactions exempt from the registration requirements of
the Securities Act, and applicable state securities laws, and neither the
Company nor any authorized agent acting on its behalf has taken, or will take
any action hereafter, that could be reasonably expected to cause the loss of
such exemption.
3.15 FINANCIAL STATEMENTS.
(a) The Company has provided each Purchaser with (i) an audited
consolidated balance sheet as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flow of
the Company and its subsidiaries for the period then ended (the "Audited
Financial Statements") and (ii) an unaudited consolidated balance sheet as of
June 30, 1999 and the related consolidated statements of operations,
stockholders' equity and cash flow of the Company and its subsidiaries for
the period then ended (the "Unaudited Financial Statements"). The Audited
Financial Statements have been prepared from the books and records of the
Company in conformity with generally accepted accounting principles ("GAAP")
consistently applied, have been audited by Arthur Andersen LLP, the Company's
independent certified public accountants, and fairly present, in all material
respects, the financial position, results of operations and cash flows of the
Company and its subsidiaries at the dates and for the periods indicated. The
Unaudited Financial
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Statements have been prepared in accordance with GAAP (other than for
accompanying notes) on a basis consistent with the Audited Financial
Statements and fairly present, in all material respects, the financial
condition and results of operations of the Company and its subsidiaries as of
the dates and for the periods indicated, subject to normal year-end
adjustments.
(b) Except as set forth in Schedule 3.15(b), the Company and the
Subsidiaries, taken as a whole, do not have any liabilities, obligations or
commitments of any nature (whether accrued, absolute, contingent,
unliquidated or otherwise, whether known or unknown, whether due or to become
due and regardless of when addressed), except (i) liabilities, obligations or
commitments reflected in, reserved against or disclosed in the footnotes of
the Audited Financial Statements or the Unaudited Financial Statements, and
(ii) liabilities, obligations or commitments incurred since June 30, 1999 in
the ordinary course of the Company's and its Subsidiaries' business and
consistent with the Company's and its Subsidiaries' past practice, which,
individually or in the aggregate, do not have a Material Adverse Effect.
(c) The financial forecasts furnished by the Company to the
Purchasers, a copy of which is attached hereto as Schedule 3.15(c) (the
"Forecasts"), were prepared by the Company in good faith upon assumptions and
estimates that the Company believed to be reasonable, based upon the
information known by the Company at the time of their preparation. The
Purchasers acknowledge and agree that (i) the Company is not making any
representation or warranty under this Section 3.15(c) that the actual future
operating results, financial condition or prospects of the Company and its
Subsidiaries will match or exceed those described in the Forecasts and (ii)
the actual future operating results, financial condition and prospects of the
Company and its Subsidiaries could be substantially worse than as described
in the Forecasts.
3.16 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 3.16 or as contemplated by this Agreement, since June 30, 1999 each
of the Company and the Subsidiaries has conducted its business in the
ordinary course consistent with past practice and there has not been (a) any
change that has caused a Material Adverse Effect, nor has any event or change
occurred which could reasonably be expected to result in a Material Adverse
Effect, (b) any intentional waiver or cancellation of any valuable right of
the Company or any Subsidiary, or the cancellation of any material debt or
claim held by the Company or any Subsidiary, (c) any payment, discharge or
satisfaction of any material claim, liability or obligation of the Company or
any Subsidiary other than in the ordinary course of business, (d) any
material Encumbrance upon the assets of the Company or any Subsidiary that
would be prohibited by the terms of Section 7.11 hereof if it were to arise
after the Closing Date, (e) any declaration or payment of dividends on, or
other distribution with respect to, or any direct or indirect redemption or
acquisition of, any securities of the Company or any Subsidiary, (f) any
sale, assignment or transfer of any material, tangible or intangible assets
of the Company or any Subsidiary except in the ordinary course of business,
(g) any loan by the Company or any Subsidiary to any officer, director,
employee, consultant or stockholder of the Company or any Subsidiary (other
than advances to such persons in the case of travel,
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entertainment or other similar advances in the ordinary course of business),
(h) any material increase, direct or indirect, in the compensation paid or
payable to any officer or director of the Company or any Subsidiary or, other
than in the ordinary course of business, to any other employee, consultant or
agent of the Company or any Subsidiary, (i) any material change in the
accounting methods, practices or policies of the Company or any Subsidiary,
(j) any indebtedness incurred for borrowed money by the Company or any
Subsidiary other than in the ordinary course of business, (k) to the
Company's knowledge, any change in the respective laws or regulations of the
country of incorporation of the Company or any Subsidiary that could
reasonably be expected to have a Material Adverse Effect, (l) any material
adverse change in the manner of business or operations of the Company or any
Subsidiary (including, without limitation, any accelerations or deferral of
the payment of any material accounts payable or other current, material
liabilities or deferral of the collection of any material accounts or notes
receivable), (m) any capital expenditures or commitments therefor by the
Company or any Subsidiary that aggregate in excess of $250,000 for any
twelve-month period, (n) any issuance of any stock, bonds or other securities
of the Company or any Subsidiary, (o) any amendment of the certificate of
incorporation, bylaws or other organizational documents of the Company or any
Subsidiary, or (n) any agreement or commitment (contingent or otherwise) by
the Company or any Subsidiary to do any of the foregoing.
3.17 ERISA, LABOR MATTERS.
(a) Schedule 3.17 hereto contains a true and complete list of
(i) each plan, program, policy, payroll practice, contract, agreement or other
arrangement, or commitment therefor, providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral, and whether or not legally binding, which
is sponsored, maintained, contributed to or required to be contributed to by the
Company or pursuant to which the Company has any liability, including, but not
limited to, any "employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (each,
a "Benefit Plan"); and (ii) each management, employment, bonus, option, equity
(or equity-related), severance, consulting, noncompetition, confidentiality or
similar agreement or contract (each, an "Employee Agreement"), pursuant to which
the Company has any liability between the Company and any current, former or
retired employee, officer, consultant, independent contractor, agent or director
of the Company (an "Employee"). The Company does not sponsor, maintain,
contribute to, nor is it required to contribute to, nor has the Company ever
sponsored, maintained, contributed to or been required to contribute to, or
incurred any liability to, (i) any "defined benefit plan" (as defined in ERISA
Section 3(35)); (ii) any "multiemployer plan" (as defined in ERISA
Section 3(37)) or (iii) any Benefit Plan which provides, or has any liability to
provide, life insurance or medical benefits to any Employee following his or her
retirement or termination of employment, except as required by Section 4980B of
the Internal Revenue Code of 1986, as amended (the "Code") or applicable state
law.
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(b) The Company has previously provided to the Purchasers current,
accurate and complete copies of (i) the plan document for each Benefit Plan
and the written agreement for each Employee Agreement, including all
amendments thereto, (ii) trust or other funding agreements relating thereto
(if any), (iii) the two most recent annual reports (Series 5500 and related
schedules) required under ERISA (if any), (iv) the most recent determination
letter (if any) received from the Internal Revenue Service, (v) the most
recent summary plan description (with all subsequent summaries of material
modifications) (if any), and (vi) all communications to any Employee or
Employees that materially alters the provisions of any Benefit Plan or
Employee Agreement.
(c) Each Benefit Plan has been established and maintained in all
respects in accordance with its terms and in compliance with all applicable,
laws, statutes, orders, rules and regulations, including but not limited to
ERISA and the Code (including Section 414 thereof), except where the failure
to so establish and maintain such plan would not reasonably be expected to
have a Material Adverse Effect.
(d) Except as provided in Schedule 3.17, the execution of, and
performance of the transactions contemplated in, this Agreement will not in
and of themselves (i) constitute an event under any Benefit Plan or Employee
Agreement that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligations to fund benefits with respect to any
Employee or (ii) result in a bonus or payment to any officer or director of
the Company.
(e) For purposes of this Section 3.17, the term "Company" includes
any entity that is aggregated with the Company pursuant to Section 414 of the
Code or any regulations promulgated thereunder.
3.18 YEAR 2000. To the Company's best knowledge after reasonable
investigation, none of the computer software or computer hardware or similar
or related items of automated, computerized or software systems that are used
by the Company or any Subsidiary or sublicensed to the Company or any
Subsidiary in the conduct of its business will malfunction, will cease to
function, will generate incorrect dates or will produce incorrect results
when processing, providing or receiving (i) date-related data, in, from, into
and between 1999 and 2000 or (ii) date-related data in connection with any
valid date in 1999 and 2000, causing a Material Adverse Effect. Any
reprogramming, updates or enhancements that the Company believes is necessary
to permit proper functioning, in and following the year 2000, of the
Company's and the Subsidiaries' systems, equipment and products and testing
of such systems and equipment and reprogramming will be completed by November
30, 1999. To the Company's best knowledge after reasonable investigation,
the cost to the Company and the Subsidiaries of such reprogramming and
testing will not have a Material Adverse Effect.
3.19 DISCLOSURE. Neither this Agreement nor the Transaction Documents
contain any untrue statement of a material fact or omit to state a material
fact necessary in
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order to make the statements contained herein and therein, in the light of
the circumstances under which they are made, not misleading. To the
Company's knowledge, there is no fact which the Company has not disclosed to
the Purchasers which could reasonably be expected to result in a Material
Adverse Effect.
3.20 CONSENTS. Except as set forth on Schedule 3.20, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private, foreign or domestic) is required
by the Company in connection with the execution, delivery and performance of
this Agreement or the Transaction Documents, the consummation by the Company
of the transactions contemplated hereby or thereby, or the issuance, sale or
delivery of the Shares or the shares issuable upon conversion of the Shares.
3.21 BROKERS OR FINDERS. Neither the Company nor any Subsidiary has
incurred or will incur, directly or indirectly, as a result of any agreement
entered into or action taken by the Company or any Subsidiary, any liability
for brokerage or finders' fees or agents' commissions or any similar charges
in connection with this Agreement.
3.22 SUPPLIERS AND CUSTOMERS. The Company does not have any knowledge
of any termination, cancellation or threatened termination or cancellation or
limitation of, or any material, adverse modification or change in, or
expression of material dissatisfaction with, the business relationship
between the Company or any Subsidiary and any supplier, customer, vendor,
customer or client, in each case, providing or purchasing materials or
services, as applicable, in an aggregate amount in excess of $75,000
individually, or $375,000 in the aggregate, on an annualized basis. Attached
as Schedule 3.22 is a list of all service credits and discounts that the
Company and its Subsidiaries provided to their respective customers from
January 1, 1999 through the Closing Date.
3.23 AFFILIATES. Attached hereto on Schedule 3.23 is a list of all
affiliates of the Company. For purposes of this Section 3.23, a person is
an "affiliate" of the Company if that person controls, is controlled by, or
is under common control with, the Company. Except as set forth on Schedule
3.23, no employee, officer, stockholder or director of the Company or member
of his or her immediate family is indebted to the Company, nor is the Company
indebted (or committed to make loans or extend or guarantee credit) to any of
them, other than (i) for payment of salary for services rendered, (ii)
reimbursement for expenses incurred on behalf of the Company, and (iii) for
other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company). Except as set forth on
Schedule 3.23, to the best of the Company's knowledge, no employee, officer
or director has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with
the Company, except that employees, officers or directors of the Company and
members of their immediate families may own stock in publicly traded
companies that may compete with the Company. Except as set forth on Schedule
3.23, to the best of the Company's
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knowledge, no officer, stockholder, director or any member of their immediate
families is, directly or indirectly, interested in any Contract.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally and not jointly represents and warrants
to the Company with respect to the purchase of the Shares as follows:
4.1 ACCREDITED INVESTOR. Such Purchaser is an "accredited investor"
as such term is defined in Rule 501(a) of Regulation D of the Securities Act
of 1933, as amended (the "Securities Act").
4.2 EXPERIENCE. Such Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the
merits and risks of its investment in the Company and has the capacity to
protect its own interests.
4.3 ECONOMIC RISK. Such Purchaser understands that the purchase of
the Shares hereunder is a speculative investment which involves a high degree
of risk of loss of the Purchaser's investment therein. Such Purchaser is
able to bear the economic risk of its investment in the Shares for an
indefinite period of time, including the risk of a complete loss of such
Purchaser's investment in such securities.
4.4 INVESTMENT. Such Purchaser is acquiring the Shares and the
Conversion Stock for investment for its own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. Such Purchaser understands that the Shares to be
purchased and the Conversion Stock have not been, and, except as provided in
the Investor Rights Agreement, will not be, registered or qualified, as the
case may be, under the Securities Act or any applicable state securities laws
by reason of a specific exemption from the registration or qualification
provisions of the Securities Act or any applicable state securities laws, the
availability of which depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of such Purchaser's representations
as expressed herein and, therefore, cannot be sold unless subsequently
registered or qualified, as the case may be, under the Securities Act or any
applicable state securities laws or an exemption from such registration or
qualification is available.
4.5 EXECUTION, DELIVERY AND PERFORMANCE. Such Purchaser has full
right, power and authority to execute and deliver this Agreement and the
Transaction Documents to which it is a party and to perform its obligations
hereunder and thereunder, and such execution and delivery has been duly
authorized by all required actions of such Purchaser. At or before the
Closing, such Purchaser will execute and deliver to the Company the
Transaction Documents to which it is a party, and the Purchaser acknowledges
and agrees that the Shares
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purchased will be subject to the terms and provisions of the Transaction
Documents, the Co-Sale Agreement, as amended by the Co-Sale First Amendment,
and the Company's Certificate and Bylaws. This Agreement, the Transaction
Documents, when so executed and delivered by the Purchaser, and the Co-Sale
Agreement, as amended by the Co-Sale First Amendment, will constitute valid
and binding obligations of the Purchaser, enforceable against the Purchaser
in accordance with their respective terms, except as the indemnification
provisions of Section 1.7 of the Investor Rights Agreement may be limited by
principles of public policy, and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable
remedies. No consent, approval, authorization, order, filing, registration
or qualification of or with any court, governmental authority or third person
is required to be obtained by the Purchaser in connection with the execution
and delivery of this Agreement and the Transaction Documents or the
performance of the Purchaser's obligations hereunder, thereunder or under the
Co-Sale Agreement, as amended by the Co-Sale First Amendment.
4.6 RULE 144. Such Purchaser acknowledges that the Shares and the
Conversion Stock must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available. Such Purchaser is aware of the provisions of Rule 144 promulgated
under the Securities Act ("Rule 144").
4.7 NO PUBLIC MARKET. Such Purchaser understands that no public
market now exists for any of the securities issued by the Company and that
the Company has made no assurances that a public market will ever exist for
the Company's securities.
4.8 ACCESS TO DATA. Such Purchaser acknowledges that it has had a
full opportunity to ask questions and receive answers concerning the Company
and the terms and conditions of the offering of the Shares and has had full
access to the Company's officers and such other information concerning the
Company as it has requested.
4.9 BROKERS OR FINDERS. Such Purchaser has not incurred and will not
incur, directly or indirectly, as a result of any action taken by such
Purchaser, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
SECTION 5
CONDITIONS TO CLOSING OF PURCHASERS
The Purchasers' obligations to purchase the Shares at the Closing are
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT, NO MATERIAL ADVERSE
CHANGE. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects as of the Closing
Date with the same force and
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effect as if made on such date, and there shall not have been a change since
June 30, 1999 that could reasonably be expected to cause a Material Adverse
Effect.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchasers a certificate of the Company, executed by the Chief Executive
Officer of the Company, dated the Closing Date, and certifying as to the
fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement.
5.4 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received
from Riordan & McKinzie an opinion addressed to the Purchasers, dated the
Closing Date, in substantially the form attached hereto as EXHIBIT D.
5.5 INVESTOR RIGHTS AGREEMENT. The Investor Rights Agreement in the
form of EXHIBIT E (the "Investor Rights Agreement") shall have been executed
and delivered by the Company, the Purchasers and the other parties thereto
and shall be in full force and effect as of the Closing.
5.6 LETTER AGREEMENTS.
(a) The Consultant Letter in the form of EXHIBIT F(1) (the
"Consultant Letter") shall have been executed and delivered by the Company
and shall be in full force and effect as of the Closing.
(b) The Intel confidentiality side letter dated as of the date
hereof in the form of EXHIBIT F(2) (the "Confidentiality Letter") shall have
been executed and delivered by the Company and Intel Corporation and shall be
in full force and effect as of the Closing.
(c) The Intel non-voting observer side letter dated as of the date
hereof in the form of EXHIBIT F(3) (the "Board Letter") shall have been
executed and delivered by the Company and Intel Corporation and shall be in
full force and effect as of the Closing.
(d) The Sideletter Agreement as of date hereof in the form of
EXHIBIT F(4) (the "Online Services Sideletter Agreement") shall have been
executed and delivered by the Company, Intel Corporation and Intel Online
Services, Inc. and shall be in full force and effect as of the Closing.
5.7 GOVERNMENTAL AUTHORIZATIONS, ETC. All governmental
authorizations, consents, approvals, exemptions or other actions required to
issue or purchase the Shares pursuant to this Agreement shall have been
obtained and shall be in full force and effect.
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5.8 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings on
the part of the Company in connection with the transactions contemplated
hereby and all documents and instruments incident to such transactions shall
be reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as they
may reasonably request.
5.9 DUE DILIGENCE. Pequot shall have completed its business, legal
and intellectual property due diligence investigation of the Company and the
Subsidiaries with results thereof reasonably satisfactory to Pequot.
5.10 APPROVAL OF INVESTMENT COMMITTEE. If relevant, the Investment
Committee of each of the Purchasers shall have approved the investment by
such Purchaser pursuant to this Agreement.
5.11 VOTING AGREEMENT. A voting agreement relating to the shares of
Common Stock held by Jeffrey Sudikoff substantially in the form of EXHIBIT G
(the "Voting Agreement") shall have been executed by the Company and Mr.
Sudikoff.
5.12 CO-SALE FIRST AMENDMENT. The First Amendment to the Right of
First Refusal and Co-Sale Agreement in the form of EXHIBIT H (the "Co-Sale
First Amendment") shall have been executed and delivered by the Company and
the other parties thereto and shall be in full force and effect as of the
Closing.
SECTION 6
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to issue and sell the Shares at the Closing is,
at the option of the Company, subject to the fulfillment as of the Closing
Date of the following conditions:
6.1 REPRESENTATIONS. The representations and warranties made by the
Purchasers in Section 4 hereof shall be true and correct in all material
respects as of the Closing Date with the same force and effect as if made on
such date.
6.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchasers on or prior to the Closing
Date shall have been performed or complied with in all material respects.
6.3 BLUE SKY. The Company shall have obtained all necessary blue sky
law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares and the
Conversion Stock issuable upon conversion thereof, except with respect to
those, the failure of which to obtain or be available would not cause a
Material Adverse Effect.
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6.4 TRANSACTION DOCUMENTS. Each Purchaser shall have executed and
delivered the Transaction Documents to which it is a party, and each
Transaction Document shall be in full force and effect as of the Closing.
6.5 GOVERNMENTAL AUTHORIZATIONS, ETC. All governmental
authorizations, consents, approvals, exemptions, or other actions required to
issue or purchase the Shares pursuant to this Agreement and for the conduct
of the business of the Company following the Closing, shall have been
obtained and shall be in full force and effect unless the failure to obtain
such authorizations, consents, approvals, exemptions or other actions would
not have a Material Adverse Effect.
6.6 PROCEEDINGS AND DOCUMENTS. All corporate, limited partnership and
other proceedings on the part of each Purchaser in connection with the
transactions contemplated at the Closing hereby and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Company and its legal counsel, and the Company and
its legal counsel shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
SECTION 7
COVENANTS OF THE COMPANY
Except as set forth in Section 7.3, from and after the Closing Date, so
long as the Purchasers hold in the aggregate a minimum of 50% of the Shares
that they purchased on the Closing Date or until the consummation of a
Qualified IPO (as defined in the Certificate), the Company agrees to the
following:
7.1 FINANCIAL INFORMATION. The Company shall provide to each
Purchaser holding 500,000 shares of Series A Preferred:
(a) As soon as practicable after the end of each fiscal year, and
in any event within ninety (90) days thereafter, a consolidated balance sheet
and consolidated statements of operations, stockholders' equity and cash flow
of the Company and its Subsidiaries as of and for such year, prepared in
accordance with GAAP and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and all
audited by Arthur Andersen LLP or some other nationally recognized public
accounting firm and shall be accompanied by such accountants' annual
management letter.
(b) As soon as practicable after the end of each of the first
three fiscal quarters of the Company's fiscal year, and in any event within
forty-five (45) days thereafter, a consolidated balance sheet and
consolidated statements of operations, stockholders' equity and cash flow of
the Company and its Subsidiaries as of and for such quarter and for the
current fiscal year to date, and setting forth in each case in comparative
form the figures for corresponding quarters in the previous fiscal year, and
setting forth in
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comparative form the current fiscal year then reported, prepared in
accordance with GAAP (other than for accompanying notes), subject to changes
resulting from year-end audit adjustments, all in reasonable detail and all
certified by the Chief Financial Officer of the Company. The financial
report for each fiscal quarter shall be accompanied by a brief report by the
Chief Executive Officer of the Company explaining business developments and
material problems, if any, occurring during the quarter.
7.2 INSPECTION; ADDITIONAL INFORMATION. The Company will allow each
Purchaser who holds at least 1,000,000 Shares to visit and inspect at any
reasonable time any of the properties of the Company (upon reasonable advance
notice) and will deliver or provide to each such Purchaser with reasonable
promptness such information and data, including access to books and records,
with respect to the Company and its Subsidiaries as any such Purchaser may from
time to time reasonably request, provided that the Company shall not be
obligated to provide any information that it considers in good faith to be a
trade secret or to contain confidential or classified information. In addition,
the Company shall send to such Purchaser, promptly upon becoming available,
copies of all financial statements, reports, notices, press releases, proxy
statements and other documents sent by the Company to its stockholders and
copies of all regular and periodic reports, if any, filed by the Company with
the Securities and Exchange Commission or any securities exchange.
7.3 CONFIDENTIAL TREATMENT OF INFORMATION. Each Purchaser (other than
Intel Corporation) agrees to use its best efforts to maintain the
confidentiality of all nonpublic information, including forecasts, obtained by
it from the Company, provided that (a) each such Purchaser may, to the extent
required by law, disclose such information in connection with the sale or
transfer of any Shares or Common Stock issued upon the conversion thereof if
such Purchaser's transferee agrees in writing to be bound by the provisions
hereof and (b) each such Purchaser may disclose such information (i) at the
request of any applicable regulatory authority or in connection with an
examination of the Company by any such authority, (ii) pursuant to subpoena or
other court process, (iii) when required to do so in accordance with the
provisions of any applicable law, (iv) to such Purchaser's officers, agents,
representatives, independent auditors and other professional advisors provided
such persons need access to such information in performing their work and
acknowledge and are bound by such Purchaser's confidentiality obligations
hereunder and (v) this Section 7.3 shall not be applicable with respect to
information that (A) is now or becomes generally available to the public other
than as a result of a disclosure by any such Purchaser or any partner, director,
officer, employee, agents, representative or affiliate of such Purchaser in
violation of this Agreement or (B) was known by or was available to any such
Purchaser on a non-confidential basis from a source other than the Company or
its representatives, prior to receipt in accordance with this Agreement.
7.4 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall keep, and
cause each Subsidiary to keep, adequate records and books of account, in which
complete entries with respect to the financial transactions of the Company and
its Subsidiaries will be made in accordance with GAAP, consistently applied.
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7.5 LIFE INSURANCE ON SENIOR MANAGEMENT. The Company shall diligently
and in good faith seek to obtain as soon as practicable after the Closing and,
to the extent commercially practicable, maintain in full force and effect keyman
life insurance policies in the amount of $2 million on each of Jonathan Gans,
the Company's Chief Executive Officer and Chairman of the Board, and Peter
Zimble, the Company's President, the proceeds of which shall be payable to the
Company upon the death of any such officer. The Company shall also obtain and
thereafter maintain in force a policy of life insurance on the life of any other
key executive of the Company which the Board of Directors of the Company shall
determine is necessary and appropriate, in such amounts as determined by the
Board of Directors, with proceeds payable to the Company.
7.6 NOTICES. The Company shall give prompt notice in writing to the
Purchasers of (a) any notice of, or other communication relating to, a default
under, or any amendment or modification that materially and adversely affects
the Company's or any Subsidiary's rights to, any Contract, (b) the filing or
commencement of, or any credible threat or notice of intention of any person
that is reasonably likely to file or commence, any action, suit or proceeding by
or before any federal, state, local or foreign court or governmental agency,
authority or regulatory body against the Company that could reasonably be
expected to have a Material Adverse Effect, (c) any written correspondence with
the Company's independent auditors relating to substantive issues regarding the
Company's financial statements, operations, accounting issues and practices,
properties, assets and financial condition, (d) any filing made by the Company
with the Commission and (e) any material default by the Company under this
Agreement, the Transaction Documents or the Co-Sale Agreement, as amended by the
Co-Sale First Amendment. In each case such notice shall be delivered together
with a reasonably detailed description of the action taken or proposed to be
taken by any of the Company or its Subsidiaries with respect thereto.
7.7 PRESERVATION OF EXISTENCE; AMENDMENT OF CERTIFICATE AND BYLAWS.
(a) The Company shall preserve and keep in full force and effect each
of its and its Subsidiaries' existence and right to do business as a corporation
under the laws of the jurisdiction of its organization and of all material
jurisdictions in which they are qualified to do business. The Company shall
comply in all material respects with the provisions of its Certificate of
Incorporation and Bylaws, and shall cause each of its Subsidiaries to comply in
all material respects with the provisions of their respective charters, bylaws,
articles of association and other constitutive documents.
(b) Without the approval of the Board of Directors of the Company
that includes the affirmative vote of the Purchasers' Designee, the Company
shall not amend, supplement, modify or repeal any provision of the Certificate
or Bylaws of the Company or take any other action, including, without
limitation, the adoption of a stockholders' rights plan or similar plan, which
would materially and adversely affect the rights or benefits of the Purchasers
under this Agreement, the Transaction Documents or the
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Co-Sale Agreement, as amended by the Co-Sale First Amendment, including,
without limitation, the conversion rights of the holders of the Shares under
the Certificate.
7.8 COMPLIANCE WITH LAWS. The Company shall, and shall cause each of its
Subsidiaries to, operate its business so as to not be in violation of any law,
rule or regulation of the country of its incorporation, including ERISA and the
Foreign Corrupt Practices Act, that is applicable to the Company or the
Subsidiaries, as applicable, except for any such violation that would not have a
Material Adverse Effect.
7.9 TAXES. The Company shall in all material respects pay and discharge
promptly when due all taxes and other governmental charges imposed upon it
before the same shall become delinquent or in default, provided that such
payment and discharge shall not be required with respect to any such tax or
charge so long as the Company shall be contesting the same in good faith in
appropriate proceedings.
7.10 INSURANCE. The Company shall do or cause to be done all things
necessary to preserve and maintain in full force and effect fire, casualty and
comprehensive general liability and other liability insurance policies, with
extended coverage, on the properties, assets, business and personnel of the
Company and its Subsidiaries, in amounts deemed adequate by the Company, and in
accordance with the standards of the industry in which the Company and its
Subsidiaries operate. To the extent reasonably available, as determined by the
Board of Directors, the Company shall purchase, within 30 days after the
Closing, and maintain thereafter, a directors' and officers' insurance policy in
form, substance, and amounts reasonably satisfactory to the director designated
by the holders of Shares should the Purchasers exercise their right to name a
director to the Company's Board of Directors.
7.11 LIMITATION ON LIENS. The Company shall not, and will not permit any
of its Subsidiaries to, create, assume or permit to exist any Encumbrance upon
any of its property or assets, whether now owned or hereafter acquired, of the
Company, except for those (i) existing as of the Closing Date and set forth on
Schedule 7.11, (ii) arising from the Company's purchase or lease of such asset,
(iii) incurred in the ordinary course of business, other than those relating to
indebtedness having an aggregate principal amount of $3,000,000 at any one time
outstanding (excluding any Encumbrances, if any, that may be created, assumed or
permitted to exist with respect to any capital lease obligations under any lease
of, or any other right conveying the right to use, space segment capacity,
terrestrial facilities or Internet-protocol switching or routing equipment),
(iv) those incurred in connection with any other transaction permitted by the
terms of this Agreement, (v) except as otherwise approved by the Purchasers
holding a majority of the outstanding Shares or (vi) in addition to those
permitted by clauses (i) through (v), relating to indebtedness having an
aggregate principal amount of $1,000,000 or less.
7.12 MERGER; SALES OF ASSETS, ETC. Without the prior written consent of
the Purchasers holding a majority of the Shares, the Company will not (a) merge
with or into or
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consolidate with, or sell all or substantially all of its assets to, any
other person unless (i) either (A) in the case of merger or consolidation,
the Company will be the surviving entity or (B) in the case of a merger or
consolidation where the Company is not the surviving entity and in the case
of a sale of all or substantially all of its assets, the entity formed by
such consolidation or into which the Company is merged or the entity which
acquires all of substantially all of the assets of the Company shall have
assumed in writing all of the obligations of the Company under each of this
Agreement, the Transaction Documents and the Co-Sale Agreement, as amended by
the Co-Sale First Amendment, (ii) immediately after the consummation of such
merger or consolidation the surviving entity would not be in violation of any
of the provisions applicable to the Company contained in this Agreement, any
Transaction Document or the Co-Sale Agreement, as amended by the Co-Sale
First Amendment, (b) except in the ordinary course of business, purchase,
hold or acquire any capital stock, evidence of indebtedness or other equity
interests of, or make any loan or advances to, or make any investment in, any
other person, except for loans and advances to, and investments in the
capital stock of, any existing or future subsidiary of the Company or any
existing or future joint venture in which the Company holds at least a 40%
ownership interest, or (c) sell, transfer or otherwise dispose of assets of
the Company having a sales price in excess of an aggregate of $2.5 million in
any 12-month period, provided that, to the extent that any of the foregoing
transactions would result in the conversion of the Shares into shares of
Common Stock pursuant to Section 3(a)(ii) of the Certificate, then such
transaction shall not require the consent of the Purchasers pursuant to this
Section 7.12 if such transaction also does not require the consent of the
holders of the Series A Preferred under Section 4(b)(iv) of the Certificate.
7.13 LIMITATION ON AFFILIATE TRANSACTIONS. Except with respect to any
transaction not in excess of $1 million with STAR Telecommunications, Inc. or
any subsidiary thereof, the Company shall not, and will not permit its
Subsidiaries to, sell or transfer any property, assets or services to, or
purchase or acquire any property, assets or services from, or otherwise engage
in any other transactions with a director or any of the Company's affiliates
(which is defined to be any person or entity which, directly or indirectly,
controls, is controlled by or is under common control with such person or entity
or a holder of more than 5% of the capital stock of such entity), except that
the Company may engage in any of the foregoing transactions with any such
director or affiliate in the ordinary course of business at prices and on terms
that are at least as favorable as those that could generally be obtained on an
arm's-length basis from unrelated third parties, unless the amount involved
exceeds $200,000 per transaction or $2 million annually, in which case the
approval of a majority of the disinterested, Outside Directors (as defined in
the Certificate) of the Board of Directors of the Company, including the Series
A Preferred Director (as defined in the Certificate), shall be required,
provided that the Company may enter into any employment agreement with, and make
any other compensation arrangement with respect to, any officer or director of
the Company or any Subsidiary, as a majority of the disinterested members of the
Board of Directors of the Company or any such Subsidiary (or a majority of the
disinterested members of any Compensation Committee thereof), as applicable, may
determine in their sole discretion.
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7.14 LIMITATION ON DIVIDENDS. The Company shall not, and shall not permit
any of its Subsidiaries to, declare, pay or make any dividend or distribution
(in cash, property or obligations) on any partnership, ownership or similar
equity interests (now or hereafter outstanding) of the Company or such
Subsidiary or on any warrants, options or other rights with respect to any such
partnership, ownership or similar equity interests (now or hereafter
outstanding) of the Company or such Subsidiary (other than dividends or
distributions payable in its equity interests or warrants to purchase its equity
interests), or apply, or permit any of its Subsidiaries to apply, any of its
funds, property or assets to the purchase, redemption, sinking fund or other
retirement of, or agree, or permit any of its Subsidiaries to agree, to purchase
or redeem, any such equity interests (now or hereafter outstanding) of the
Company or any Subsidiary, or warrants, options or other rights with respect to
any such equity interests (now or hereafter outstanding) of the Company or any
Subsidiary, provided that (a) the Company may pay dividends if declared for the
Shares and (b) any wholly-owned subsidiary of the Company may make a cash
dividend or distribution to the Company or another wholly-owned subsidiary.
7.15 BOARD OF DIRECTORS.
(a) At the Closing, the directors of the Company shall be Jonathan
Gans, Peter Hirshberg, Peter Zimble, Jeffrey C. Barbakow, James E. Kolsrud,
Norman J. Pattiz and Lawrence D. Lenihan, Jr.
(b) One (1) director of the Company, who shall be reasonably
acceptable to the Company, shall be nominated by the Purchasers holding at least
a majority of the outstanding Shares, voting as a separate class. Additionally,
one (1) additional director mutually agreeable to the holders of 75% or more of
the Series A Preferred shall be presented to the Company for consideration as a
member of the Board and if such designee is reasonably acceptable to the
Company, he or she shall also be appointed to the Board. Such Board designees
shall be referred to herein collectively as the "Purchasers' Designees". In
each case, upon the death, resignation or removal of either Purchaser Designee
from the office of director, such Purchasers shall have the right to elect or
present, as the case may be, another nominee(s) to fill such vacancy, in each
case so long as such nominee is reasonably acceptable to the Company and such
nominee is selected in the same manner used to nominate the vacating director.
In addition to the non-voting observer provided for in the Board Letter, the
holders of a majority of the Series A Preferred shall be entitled to designate a
non-voting observer to attend and participate in (but not to vote at) all
meetings of the Board of Directors of the Company and any committee of the Board
(the "Non-voting Observer"). The Non-voting Observer shall have the same access
and limitations to information concerning the business and operations of the
Company as directors of the Company, and shall be entitled to participate in
discussions and consult with the Board of Directors of the Company without
voting, provided that the Company may exclude the Non-voting Observer from
access to any material or any meeting or portion thereof if the Company believes
on the advice of counsel that such exclusion is necessary to preserve the
attorney-client privilege.
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(c) The Company shall, upon request therefor, promptly reimburse each
of the Purchasers' Designees and the Non-voting Observer, as the case may be,
for all reasonable expenses incurred by him or her in connection with his or her
attendance at meetings of the Board of Directors or of committees of the Board
of Directors and any other activities undertaken thereby in the capacity as a
director of the Company or observer, as applicable. The foregoing shall be in
addition to, and not in lieu of (or in duplication of), any indemnification or
reimbursement obligations of the Company under the Certificate of Incorporation
or Bylaws of the Company or by law. The Non-voting Observer shall be entitled
to indemnification from the Company to the maximum extent permitted by law as
though he or she were a director of the Company.
(d) In addition to any requirements specified in the Bylaws of the
Company, the Company shall notify the Purchasers' Designees and the Non-voting
Observer by facsimile at the same facsimile number provided to the Company by
Pequot or Intel, as the case may be, in accordance with Section 10.9 hereof of
(i) every meeting (or action by written consent) of the Board of Directors of
the Company and (ii) every meeting (or action by written consent) of the board
of directors of its subsidiaries and of any committee of the Board of Directors
of the Company or its subsidiaries, to the extent, in the case of clause (ii),
that a Purchasers' Designee is on the board of directors of such subsidiaries or
is on such committee of the Board of Directors of the Company or its
subsidiaries, at least three days in advance of such meeting (or distribution of
written consents), or, if such notice under the circumstances is not
practicable, as soon before the meeting (or distribution) as is practicable.
7.16 USE OF PROCEEDS. The Company agrees to use the net proceeds from the
sale of the Shares for the continued deployment of its network, the growth of
its sales organization, working capital and other general corporate purposes.
7.17 INTELLECTUAL PROPERTY. The Company shall, and shall cause any
Subsidiary to, use its commercially reasonable efforts to cause all material
Intellectual Property and other material Proprietary Information, including, but
not limited to, technological developments, inventions, discoveries or
improvements made by its employees, if any, to be fully documented in
engineering or other notebooks substantially in accordance with the prevailing
industrial professional standards, and, where reasonably practicable and
appropriate, file and prosecute United States and foreign patent applications
relating to and protecting such developments. In addition, the Company shall,
and shall cause any Subsidiary to, use its commercially reasonable efforts to
cause all material Intellectual Property and other material Proprietary
Information, including, but not limited to, all technological developments,
inventions, discoveries or improvements made by any of its employees or any
employees of its Subsidiaries, if any, to be owned by it and, where reasonably
practicable and appropriate, obtain reasonable legal protections for its benefit
with respect to such property.
7.18 ENFORCEMENT OF VOTING AGREEMENT. The Company shall use its best
efforts to enforce the terms and conditions of the Voting Agreement.
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7.19 RESIGNATION OF PETER ZIMBLE. The Company will use its best efforts
to insure that Peter Zimble resigns from the Board of Directors of the Company
prior to the filing by the Company of a registration statement relating to the
initial public offering of its Common Stock with the Securities and Exchange
Commission.
SECTION 8
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
8.1 RESTRICTIONS ON TRANSFERABILITY. The Shares and the Conversion Stock
are "Restricted Securities" and shall not be sold, assigned, transferred or
pledged except upon the conditions specified in this Section 8, which conditions
are intended to ensure compliance with the provisions of the Securities Act.
Each Purchaser will cause any proposed purchaser, assignee, transferee, or
pledgee of the Shares or the Conversion Stock held by such Purchaser to agree to
take and hold such securities subject to the provisions and upon the conditions
specified in this Section 8.
8.2 RESTRICTIVE LEGENDS. Each certificate representing (i) the Shares,
(ii) the Conversion Stock and (iii) any other securities issued in respect of
the Series A Preferred or the Conversion Stock upon any stock split, stock
dividend, recapitalization, merger, consolidation, or similar event
("Recapitalization"), shall (unless otherwise permitted by the provisions of
Rule 144) be stamped or otherwise imprinted with legends in the following form
(in addition to any legend required under applicable state securities laws):
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
PROVISIONS WHICH ARE CONTAINED IN AN INVESTOR RIGHTS AGREEMENT, A COPY
OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION."
Each Purchaser consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Series A Preferred or the
Conversion Stock in order to implement the restrictions on transfer established
in this Section 8.
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8.3 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 8.3. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership or (ii) in transactions
involving the distribution without consideration of Restricted Securities by any
of the Purchasers to any of its affiliates), unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the holder thereof shall give written notice to the Company of such holder's
intention to effect such transfer, sale, assignment or pledge, unless the
Company has engaged a transfer agent to administer transfers of its capital
stock, in which case, the procedures of such transfer agent shall be followed.
Each such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and, if requested by
the Company, which request shall be in its reasonable discretion, shall be
accompanied, at such holder's expense, by either (i) a written opinion of legal
counsel, who shall be, and whose legal opinion shall be, reasonably satisfactory
to the Company, addressed to the Company, to the effect that the proposed
transfer of the Restricted Securities may be effected without registration under
the Securities Act or any applicable states securities laws or (ii) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 8.2 above, except that such certificate shall not bear such restrictive
legend if in the opinion of counsel for such holder and the Company such legend
is not required in order to establish compliance with any provision of the
Securities Act.
SECTION 9
INDEMNIFICATION
9.1 GENERAL INDEMNIFICATION. The Company shall indemnify, defend and
hold each Purchaser, its affiliates and their respective officers, directors,
partners, employees, agents, successors and assigns (each a "Purchaser
Entity") harmless from and against all Losses (as defined below) incurred or
suffered by a Purchaser Entity as a result of the breach of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or any Transaction Document. Each Purchaser, severally and
not jointly, shall indemnify, defend and hold the Company, its affiliates,
their respective officers, directors, employees, agents, successors and
assigns harmless against all Losses as a result of the breach of any of its
representations, warranties, covenants or agreements in this Agreement or any
Transaction Document. Notwithstanding anything to the contrary in this
Agreement, no indemnification payment by the Company pursuant to this Section
9 with respect to any Losses otherwise payable hereunder (other than any
Losses resulting from breaches of the
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representation and warranty in Section 3.3 which shall not be subject to the
Deductible) shall be payable until the time as such Losses shall aggregate for
all Purchaser Entities to more than $100,000 (the "Deductible"), at which point
the Company shall be obligated to indemnify the Purchasers from and against all
Losses relating back to the first dollar.
9.2 INDEMNIFICATION PRINCIPLES. For purposes of this Section 9, (i)
"Losses" shall mean each and all of the following items: claims, losses,
liabilities, obligations, payments, damages (excluding, however, all special,
indirect, punitive or consequential damages or loss of potential profits on an
investment in the Shares or otherwise, except to the extent that any indemnified
party is subject to any such punitive or consequential damages pursuant to a
valid, enforceable, non-appealable judgment rendered by a court of competent
jurisdiction in favor of a third party against such indemnified party), charges,
judgments, fines, penalties, amounts paid in settlement, costs and expenses
(including, without limitation, interest which may be imposed in connection
therewith, costs and expenses of investigation, actions, suits, proceedings,
demands, assessments and reasonable fees, expenses and disbursements of counsel,
consultants and other experts); and (ii) each of the representations and
warranties made by any party in this Agreement or any Transaction Document shall
be deemed to have been made without the inclusion of limitations or
qualifications as to materiality, such as the words "Material Adverse Effect,"
"material" and "in all material respects" or words of similar import. Any
payment (or deemed payment) by the Company to a Purchaser pursuant to this
Section 9 shall be treated for federal income tax purposes as an adjustment to
the price paid by such Purchaser for the Shares pursuant to this Agreement. In
addition, notwithstanding anything in this Section 9 to the contrary, in the
event of a breach of the representation and warranty set forth in Section
3.3(b), to the extent that the Shares held by any Purchaser represent, as
calculated therein, a percentage of the outstanding shares of Common Stock that
is less than the percentage set forth opposite such Purchaser's name on EXHIBIT
A hereto, then the Company shall issue to such Purchaser, at no cost to the
Purchaser, an additional amount of the shares of Series A Preferred Stock such
that, if such issuance were made on the Closing Date, such representation and
warranty would have been true and accurate in all respects when made.
9.3 CLAIM NOTICE; RIGHT TO DEFEND. A party seeking indemnification (the
"Indemnified Party") under this Section 9 shall promptly upon becoming aware of
the facts indicating that a claim for indemnification may be warranted, give to
the party from whom indemnification is being sought (the "Indemnifying Party") a
claim notice relating to such Loss (a "Claim Notice"). Each Claim Notice shall
specify the nature of the claim, the applicable provision(s) of this Agreement
or other instrument under which the claim for indemnity arises, and, if
possible, the amount or the estimated amount thereof. No failure or delay in
giving a Claim Notice (so long as the same is given prior to expiration of the
representation or warranty upon which the claim is based) and no failure to
include any specific information relating to the claim (such as the amount or
estimated amount thereof) or any reference to any provision of this Agreement or
other instrument under which the claim arises shall affect the obligation of the
Indemnifying Party unless such failure materially and adversely prejudices the
Indemnifying Party. If such Loss relates to the commencement of any action or
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proceeding by a third person, the Indemnified Party shall give a Claim Notice to
the Indemnifying Party regarding such action or proceeding and the Indemnifying
Party shall be entitled to participate therein to assume the defense thereof
with counsel reasonably satisfactory to the Indemnified Party. After notice
from the Indemnifying Party to the Indemnified Party of its election to assume
the defense of such action or proceeding, the Indemnifying Party shall not be
liable (except to the extent the proviso to this sentence is applicable, in
which event it will be so liable) to the Indemnified Party under this Section 9
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, provided that each Indemnified Party shall have the right to
employ separate counsel to represent it and assume its defense (in which case,
the Indemnifying Party shall not represent it) if (i) upon the advice of
counsel, the representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them,
(ii) in the event the Indemnifying Party has not assumed the defense thereof
within ten (10) days of receipt of notice of such claim or commencement of
action, and in which case the fees and expenses of one such separate counsel
shall be paid by the Indemnifying Party or (iii) if such Indemnified Party who
is a defendant in any action or proceeding which is also brought against the
Indemnifying Party reasonably shall have concluded that there may be one or more
legal defenses available to such Indemnified Party which are not available to
the Indemnifying Party. If any Indemnified Party employs such separate counsel
it will not enter into any settlement agreement which is not approved by the
Indemnifying Party, such approval not to be unreasonably withheld. If the
Indemnifying Party so assumes the defense thereof, it may not agree to any
settlement of any such claim or action as the result of which any remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party. In any action
hereunder as to which the Indemnifying Party has assumed the defense thereof
with counsel reasonably satisfactory to the Indemnified Party, the Indemnified
Party shall continue to be entitled to participate in the defense thereof, with
counsel of its own choice, but, except as set forth above, the Indemnifying
Party shall not be obligated hereunder to reimburse the Indemnified Party for
the costs thereof.
9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties in this Agreement shall survive the execution and delivery of this
Agreement and the Closing until the close of business on the date which is two
(2) years after the Closing Date (except to the extent a Claim Notice has been
given in accordance with Section 9.3, in which case, such representations and
warranties shall survive until the resolution of the claim or claims for
indemnity set forth in such notice, and except to the extent of the
representations and warranties contained in Section 3.8, which shall survive
until the termination of their respective, applicable statute of limitations)
and shall in no way be affected by any investigation or knowledge of the subject
matter thereof made by or on behalf of any Purchaser. All covenants and
agreements in this Agreement shall survive until, by their terms, they are no
longer operational.
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SECTION 10
MISCELLANEOUS
10.1 GOVERNING LAW. This Agreement shall be governed by and interpreted
under the laws of the State of Delaware, without giving effect to principles of
conflicts of laws.
10.2 EXPENSES. The parties hereto pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement and the transactions contemplated hereby; provided, however, that
whether or not the transactions contemplated hereby are consummated, the Company
shall, promptly upon request therefor, reimburse (i) Pequot for its reasonable
costs and expenses (including, without limitation, the fees and expenses of its
counsel) in connection with the transactions contemplated hereby and for any
out-of-pocket expenses of Pequot (including, without limitation, legal fees and
expenses) incurred to enforce this provision, up to an amount not exceeding
$25,000 and (ii) Intel Corporation in the amount of $10,000.
10.3 OTHER REMEDIES. In addition to those remedies specifically set forth
herein and in the Transaction Documents, if any, each Purchaser may proceed to
protect and enforce its rights under this Agreement and the Transaction
Documents either by suit in equity and/or by action at law, including, but not
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained in
this Agreement or in the Transaction Documents. No right or remedy conferred
upon or reserved to the holders of Shares under this Agreement or the
Transaction Documents is intended to be exclusive of any other right or remedy,
and every right and remedy shall be cumulative and in addition to every other
right and remedy given under this Agreement and the Transaction Documents or now
and hereafter existing under applicable law. Every right and remedy given by
this Agreement and the Transaction Documents or by applicable law to the holders
of Shares may be exercised from time to time and as often as may be deemed
expedient by the holders.
10.4 FURTHER ASSURANCES. At any time or from time to time after the
Closing, the Company, on the one hand, and the Purchasers, on the other hand,
agree to cooperate with each other, and at the request of the other party, to
execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby relating to
the Purchase and to otherwise carry out the intent of the parties hereunder.
10.5 NOUNS AND PRONOUNS. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of names and pronouns shall include the plural and vice
versa.
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10.6 EXCHANGES; LOST, STOLEN OR MUTILATED CERTIFICATES. Upon surrender by
any Purchaser to the Company of any certificate representing the Shares, the
Company at its expense shall issue in exchange therefor, and deliver to such
Purchaser, new certificates representing such Shares in such amounts or
denominations as may be requested by such Purchaser. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
certificate representing any Shares and in case of any such loss, theft or
destruction, upon delivery of an indemnity agreement satisfactory to the
Company, or in case of any such mutilation, upon surrender and cancellation of
such certificate, the Company at its expense shall issue and deliver to such
Purchaser a new certificate for such Shares, of like tenor, in lieu of such
lost, stolen or mutilated certificate.
10.7 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided in
this Agreement, this Agreement shall benefit and bind the successors, assigns,
heirs, executors and administrators of the parties to this Agreement.
10.8 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto at the Closing constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that holders of a majority of the Shares (including for this
purpose the Conversion Stock) may, with the Company's prior written consent,
waive, modify or amend, on behalf of all such holders, any provision hereof
other than the conditions set forth in Section 5.
10.9 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing (or in the form of a facsimile
(confirmed in writing) to be given only during the recipient's normal
business hours unless arrangements have otherwise been made to receive such
notice by facsimile outside of normal business hours) and shall be mailed by
registered or certified mail or by a nationally recognized overnight courier,
postage prepaid, or otherwise delivered by hand, messenger, or facsimile (as
provided above) addressed (a) if to a Purchaser, at the address or facsimile
number for such Purchaser as set forth on the signature pages hereto or at
such other address or facsimile number as such Purchaser shall have furnished
to the Company in writing, with a copy to David Malat, Chief Financial
Officer of Pequot, 500 Nyala Farm Road, Westport, CT 06880, fax: (203)
429-2517, (b) if to any other holder of Shares or Conversion Stock, at such
address or facsimile number as such holder shall have furnished the Company
in writing or, until any such holder so furnishes an address or facsimile
number to the Company, then to and at the address or facsimile number of the
last holder of such Shares or Conversion Stock who has so furnished an
address or facsimile number to the Company or (c) if to the Company, to 1901
Main Street, 2nd Floor, Santa Monica, California 90405, fax: (310) 382-3310,
and addressed to the attention of the Corporate Secretary (or at such other
address or facsimile number as the Company shall
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have furnished in writing to the Purchasers), with a copy to Riordan &
McKinzie, 300 South Grand Avenue, 29th Floor, Los Angeles, California, 90071,
fax: (213) 229-8550, Attention Timothy F. Sylvester, Esq.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered, if
delivered personally, or, if sent by mail, at the earlier of its receipt or
seventy-two (72) hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid, or, if by nationally recognized overnight courier, the
following business day after it has been timely delivered to or deposited with
such courier, addressed and mailed as aforesaid, or, if by facsimile, pursuant
to the above, when received.
10.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
invalid, unenforceable or void, this Agreement shall continue in full force and
effect without said provision.
10.11 DESCRIPTIVE HEADINGS. The descriptive headings herein have been
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
10.12 FACSIMILE SIGNATURES. Any signature page delivered by a fax machine
shall be binding to the same extent as an original signature page, with regard
to any agreement subject to the terms hereof or any amendment thereto. Any
party who delivers such a signature page agrees to later deliver an original
counterpart to any party which requires it.
10.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument, but only one of which
need be produced.
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SIGNATURE PAGE FOR INTERPACKET GROUP, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"COMPANY" INTERPACKET GROUP, INC., a Delaware corporation
By: /s/ Jonathan Gans
----------------------------------------------------------
Jonathan Gans
Chief Executive Officer
"PURCHASERS" PEQUOT PRIVATE EQUITY FUND II, L.P., a Delaware limited
partnership
By: /s/ Amiel Peretz
----------------------------------------------------------
Name: Amiel Peretz
Title: Chief Operating Officer-Pequot Capital Management, Inc.
as Investment Manager
Address: 500 Nyala Farm Road
Westport, CT 06880
Fax: (203) 429-2400
INTEL CORPORATION, a
Delaware corporation
By: /s/ Arvind Sodhani
----------------------------------------------------------
Print Name: Arvind Sodhani
Title: Vice President and Treasurer
Address: 2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: M&A Portfolio Manager - M/S RN6-46
Fax No. (408) 765-6038
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attention: General Counsel
Fax No. (408) 765-1859
<PAGE>
BAYSTAR CAPITAL, L.P., a
Delaware limited partnership
By: BayStar Capital Management LLC,
its General Partner
By: /s/ Steven M. Lamar
---------------------------------------------------
Name: Steven M. Lamar
Title: Vice President
Address: 1500 West Market Street, Suite 200
Mequon, WI 53092
Fax: (415) 835-3777
H&Q INTERPACKET GROUP INVESTORS, LLC
By: /s/ Robert N. Savoie
-------------------------------------
Name: Robert N. Savoie
Title: Tax Director, Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
Fax: (415) 439-3818
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Robert N. Savoie
-------------------------------------
Name: Robert N. Savoie
Title: Tax Director, Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
Fax: (415) 439-3818
<PAGE>
HAMBRECHT & QUIST EMPLOYEE VENTURE FUND, L.P. II
By: H&Q Venture Management, L.L.C.,
its General Partner
By: /s/ Robert N. Savoie
--------------------------------------
Name: Robert N. Savoie
Title: Tax Director, Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
Fax: (415) 439-3818
ACCESS TECHNOLOGY PARTNERS, L.P.
By: Access Technology Management, L.L.C.,
its General Partner
By: H&Q Venture Management, L.L.C.,
its Managing Member
By: /s/ Robert N. Savoie
-----------------------------------
Name: Robert N. Savoie
Title: Tax Director, Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
Fax: (415) 439-3818
ACCESS TECHNOLOGY PARTNERS BROKERS FUND, L.P.
By: H&Q Venture Management, L.L.C.,
its General Partner
By: /s/ Robert N. Savoie
--------------------------------------
Name: Robert N. Savoie
Title: Tax Director, Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
Fax: (415) 439-3818
<PAGE>
BAYSTAR INTERNATIONAL LTD, a
British Virgin Island corporation
By: BayStar International Management, LLC,
its General Partner
By: /s/ Steven M. Lamar
--------------------------------------
Name: Steven M. Lamar
Title: Vice President
Address: 1500 West Market Street, Suite 200
Mequon, WI 53092
Fax: (415) 835-3777
<PAGE>
EXHIBIT A
LIST OF PURCHASERS
<TABLE>
<CAPTION>
Fully Diluted
Percentage
of Outstanding
Purchase Common
Name No. of Shares Price Stock
- ---------------------------- -------------- ----------- ---------------
<S> <C> <C> <C>
Pequot Private Equity 1,800,000 $9,000,000 10.91%
Fund II, L.P.
Intel Corporation 800,000 $4,000,000 4.85%
BayStar Capital, L.P. 100,000 $500,000 .61%
BayStar International 100,000 $500,000 .61%
Ltd.
H&Q InterPacket Group 16,800 $84,000 .10%
Investors, LLC
Hambrecht & Quist 10,000 $50,000 .06%
California
Hambrecht & Quist 10,000 $50,000 .06%
Employee Venture Fund,
L.P. II
Access Technology 160,000 $800,000 .97%
Partners, L.P.
Access Technology 3,200 $16,000 .02%
Partners Brokers Fund,
L.P.
</TABLE>
<PAGE>
Exhibit 10.14
INDEMNIFICATION
AGREEMENT
This Indemnification Agreement, made and entered into this ___ day
of ________ 2000 (the "Agreement"), by and between InterPacket Networks,
Inc., a Delaware corporation (the "Company"), and _________________ (the
"Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to
serve corporations as directors and/or officers unless they are provided with
adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining
such persons; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the increased difficulty in attracting and retaining such
persons is detrimental to the best interests of the Company's stockholders
and that the Company should act to assure such persons that there will be
increased certainty of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on
behalf of, such persons to the fullest extent permitted by applicable law so
that they will serve or continue to serve the Company free from undue concern
that they will not be so indemnified; and
WHEREAS, each of Section 145 of the General Corporation Law of the
State of Delaware and the Company's Bylaws is nonexclusive, and therefore
contemplates that contracts may be entered into with respect to
indemnification of directors, officers and employees; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to
take on additional service for or on behalf of the Company on the condition
that Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve as a
_________ of the Company. Indemnitee may at any time and for any reason
resign or be removed from such position (subject to any other contractual
obligation or any obligation imposed by operation of law). This Agreement
shall continue in force after Indemnitee has ceased to serve as a ________ of
the Company.
<PAGE>
Section 2. INDEMNIFICATION - GENERAL. The Company shall indemnify,
and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided
in this Agreement and (b) subject to the provisions of this Agreement, to the
fullest extent permitted by applicable law in effect on the date hereof and
as such law may be amended from time to time. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
Section 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF
THE COMPANY. Subject to the provisions of this Agreement, Indemnitee shall be
entitled to the rights of indemnification provided in this Section 3 if, by
reason of his Corporate Status (as hereinafter defined), he is, or is
threatened to be made, a party to or a participant in any Proceeding (as
hereinafter defined), other than a Proceeding by or in the right of the
Company. Pursuant to this Section 3 but subject to the provisions of this
Agreement, Indemnitee shall be indemnified against all Expenses, judgments,
penalties, taxes, fines and amounts paid in settlement (including all
interest assessments and other charges paid or payable in connection
therewith) actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any
criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful.
Section 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Subject to
the provisions of this Agreement, Indemnitee shall be entitled to the rights
of indemnification provided in this Section 4 if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or a participant in
any Proceeding brought by or in the right of the Company to procure a
judgment in its favor. Pursuant to this Section 4 but subject to the
provisions of this Agreement, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; PROVIDED, HOWEVER, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court
of Chancery of the State of Delaware, or the court in which such Proceeding
shall have been brought or is pending, shall determine that such
indemnification may be made.
Section 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a party to
(or a participant in) and is successful, on the merits or otherwise, in any
Proceeding, he shall be indemnified to the maximum extent permitted by law
against all Expenses actually and reasonably incurred by him or on his behalf
in connection therewith. If Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf in connection with each successfully
resolved claim,
2
<PAGE>
issue or matter. For purposes of this Section 5 and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to
such claim, issue or matter.
Section 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding
to which Indemnitee is not a party, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 7. ADVANCEMENT OF EXPENSES. Notwithstanding any provision of
this Agreement to the contrary, the Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding in which Indemnitee is involved with by reason of Indemnitee's
Corporate Status within fifteen (15) days after the receipt by the Company of
a statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Indemnitee and shall include or be preceded or
accompanied by an undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses. Any such advance and
undertakings to repay pursuant to this Section 7 shall be unsecured and
interest free.
Section 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Chief Executive Officer of the Company a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to Section 8(a) hereof, a determination with respect to Indemnitee's
entitlement thereto shall be made in the specific case: (i) if a Change in
Control (as hereinafter defined) shall have occurred, by Independent Counsel
(as hereinafter defined) in a written opinion to the Board, a copy of which
shall be delivered to Indemnitee; or (ii) if a Change in Control shall not
have occurred, (A) by a majority vote of the Disinterested Directors (as
hereinafter defined), even though such Disinterested Directors represent less
than a quorum of the Board, or (B) if there are no such Disinterested
Directors or, if such Disinterested Directors so direct, by Independent
Counsel in a written opinion to the Board, a copy of which shall be delivered
to Indemnitee or (C) if so directed by the Board, by the stockholders of the
Company; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within thirty (30) days
after such determination. Indemnitee shall cooperate with the person, persons
or entity making such determination with respect to Indemnitee's entitlement
to indemnification, including
3
<PAGE>
providing to such person, persons or entity upon reasonable advance request
any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any costs or expenses (including
attorneys' fees and disbursements) incurred by Indemnitee in so cooperating
with the person, persons or entity making such determination shall be borne
by the Company (irrespective of the determination as to Indemnitee's
entitlement to indemnification) and the Company hereby indemnifies and agrees
to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change in Control shall not have occurred, the Independent Counsel
shall be selected by the Disinterested Directors or, if there are no such
Disinterested Directors, by the Board, and the Company shall give written
notice to Indemnitee advising him of the identity of the Independent Counsel
so selected. If a Change in Control shall have occurred, the Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection by made by the Board, in which event the preceding sentence
shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may, within ten (10)
days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such
selection; PROVIDED; HOWEVER, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. Absent a proper and timely objection, the person so
selected shall act as Independent Counsel. If such written objection is so
made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or the Court
of Chancery of the State of Delaware or other court of competent jurisdiction
has determined that such objection is without merit. If, within twenty (20)
days after submission by Indemnitee of a written request for indemnification
pursuant to Section 8(a) hereof, no Independent Counsel shall have been
selected and not objected to, either the Company or Indemnitee may petition
the Court of Chancery of the State of Delaware or other court of competent
jurisdiction for resolution of any objection which shall have been made by
the Company or Indemnitee to the other's selection of Independent Counsel
and/or for the appointment as Independent Counsel of a person selected by the
Court of Chancery of the State of Delaware or by such other person as the
Court of Chancery of the State of Delaware shall designate, and the person
with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. Upon
the due commencement of any judicial proceeding or arbitration pursuant to
Section 10(a) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the consent of
Indemnitee to the settlement of any Proceeding which the Company has undertaken
to defend if the Company
4
<PAGE>
assumes full and sole responsibility for such settlement and the settlement
grants Indemnitee a complete and unqualified release in respect of the
potential liability. Indemnitee shall not unreasonably withhold his consent
to any proposed settlement; PROVIDED, HOWEVER, that the Company shall not
settle any proceeding in any manner that would impose any penalty or
limitation on Indemnitee without his written consent. The Company shall not
be liable for any amount paid by Indemnitee in settlement of any Proceeding
unless the Company has consented to such settlement, which consent shall not
be unreasonably withheld.
Section 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS; LIMITATIONS
ON INDEMNIFICATION.
(a) In making a determination with respect to entitlement to
indemnification under this Agreement, the person or persons or entity making
such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request
for indemnification in accordance with Section 8(a) of this Agreement, and
the Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any
determination contrary to that presumption. Neither the failure of the
Company (including by its directors or Independent Counsel) to have made a
determination prior to the commencement of any action pursuant to this
Agreement that indemnification is proper in the circumstances because
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Company (including by its directors or Independent
Counsel) that Indemnitee has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that Indemnitee has
not met the applicable standard of conduct.
(b) If the person, persons or entity empowered or selected
under Section 8 of this Agreement to determine whether Indemnitee is entitled
to indemnification shall not have made a determination within sixty (60) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of
such indemnification under applicable law; PROVIDED, HOWEVER, that such sixty
(60) day period may be extended for a reasonable time, not to exceed an
additional thirty (30) days, if the person, persons or entity making the
determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further,
that the foregoing provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination, the Board has resolved to submit such determination to the
stockholders for their consideration at an annual meeting thereof to be held
within seventy-five (75) days after such receipt and such determination is
made thereat, or (B) a special meeting of stockholders is called within
5
<PAGE>
fifteen (15) days after such receipt for the purpose of making such
determination, such meeting is held for such purpose within sixty (60) days
after having been so called and such determination is made thereat, or (ii)
if the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not (except as otherwise
expressly provided in this Agreement or as otherwise required by law) of
itself adversely affect the right of Indemnitee to indemnification or create
a presumption that Indemnitee did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Company or, with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that his conduct was unlawful.
(d) For purposes of any determination of Good Faith, Indemnitee
shall be deemed to have acted in Good Faith if Indemnitee's action is based
on the records or books of account of the Company, including financial
statements, or on information supplied to Indemnitee by any officer of the
Company in the course of his or her 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 9(d) shall not be deemed to be exclusive or to limit in any way
the other circumstances in which Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
(e) The knowledge and/or actions, or failure to act, of any
director, officer, agent or employee of the Company shall not be imputed to
Indemnitee for purposes of determining the right to indemnification under
this Agreement.
(f) Notwithstanding any other provision of this Agreement, no
indemnification shall be paid or Expenses reimbursed under this Agreement on
account of any judgment rendered against Indemnitee (i) in a matter for which
indemnification is not permitted under applicable law (federal or state) or
(ii) for an accounting of profits made from the purchase and sale of
securities of the Company under Section 16 of the Securities Exchange Act of
1934, as amended. Any provision herein to the contrary notwithstanding, the
Company shall not be obligated pursuant to the terms of this Agreement to
indemnify Indemnitee or otherwise act in violation of any undertaking
appearing in and required by the rules and regulations promulgated under the
Securities Act in any registration statement filed with the Securities and
Exchange Commission under the Securities Act. Indemnitee acknowledges that
paragraph (h) of Item 512 of Regulation S-K currently generally requires the
Company to undertake in connection with any registration statement filed
under the Act to submit the issue of the enforceability of Indemnitee's
rights under this Agreement in connection with any liability under the
Securities Act on public policy grounds to a court of appropriate
jurisdiction and to be governed by any final adjudication of such issue.
Indemnitee specifically agrees that any such undertaking shall supersede the
provisions of this Agreement and to be bound by any such undertaking.
6
<PAGE>
Section 10. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not
timely made pursuant to Section 7 of this Agreement, (iii) no determination
of entitlement to indemnification shall have been made pursuant to Section
8(b) of this Agreement within ninety (90) days after receipt by the Company
of the request for indemnification, (iv) payment of indemnification required
under Sections 5 or 6, the last sentence of Section 8(b) or the last sentence
of Section 17(h) of this Agreement is not made within fifteen (15) days after
receipt by the Company of a written request therefor, or (v) payment of
indemnification pursuant to Sections 3 or 4 of this Agreement is not made
within thirty (30) days after a determination has been made that Indemnitee
is entitled to indemnification, Indemnitee shall be entitled to an
adjudication by the Court of Chancery of the State of Delaware of his
entitlement to such indemnification or advancement of Expenses.
Alternatively, in accordance with this Section 10, Indemnitee, at his option,
may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an
adjudication or an award in arbitration within one hundred eighty (180) days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 10(a); PROVIDED, HOWEVER, that the
foregoing clause shall not apply in respect of a proceeding brought by
Indemnitee to enforce his rights under Section 5 of this Agreement. The
Company shall not oppose Indemnitee's right to seek any such adjudication or
award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason
of that adverse determination.
(c) If a determination shall have been made pursuant to Section
8(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 10, absent (i) a misstatement
by Indemnitee of a material fact, or an omission of a material fact necessary
to make Indemnitee's statement not materially misleading, in connection with
the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by
the Company against, any and all expenses (of the types described in the
definition of Expenses in Section 17 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or arbitration, but
only if (and only to the extent) he prevails therein.
7
<PAGE>
If it shall be determined in said judicial adjudication or arbitration that
Indemnitee is entitled to receive part but not all of the indemnification or
advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be
appropriately prorated.
(e) The Company shall be precluded from asserting in any
judicial preceding or arbitration commenced pursuant to this Section 10 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
Section 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's Certificate of Incorporation, the Company's Bylaws, any
other agreement, a vote of stockholders or a resolution of directors, or
otherwise. No amendment, alteration or repeal of this Agreement or of any
provision hereof shall limit or restrict any right of Indemnitee under this
Agreement in respect of any action taken or omitted by such Indemnitee in his
Corporate Status prior to such amendment, alteration or repeal. To the extent
that a change in the General Corporation Law of the State of Delaware,
whether by statute or judicial decision, permits greater indemnification or
advancement of Expenses than would be afforded currently under the Company's
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive
of any other right or remedy, and every other right and remedy shall be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, or agents of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by
such policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director, officer, employee or
agent under such policy or policies.
(c) 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 Indemnitee, and Indemnitee shall execute all papers
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.
8
<PAGE>
(d) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable (or for which advancement
is provided hereunder) hereunder if and to the extent that Indemnitee has
otherwise actually received such payment under any insurance policy,
contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses
hereunder to Indemnitee who is or was serving at the request of the Company
as a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Section 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and its successors and assigns (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company) and shall inure
to the benefit of Indemnitee and his heirs, executors and administrators. In
the event that the Company shall be a constituent corporation in a
consolidation, merger or other reorganization, the Company, if it shall not
be the surviving, resulting or acquiring company therein, shall require as a
condition thereto that the surviving, resulting or acquiring company agree to
indemnify Indemnitee to the full extent provided herein. Whether or not the
Company is the resulting, surviving or acquiring company in any such
transaction, Indemnitee shall also stand in the same position under this
Agreement with respect to the resulting, surviving or acquiring company as he
would have with respect to the Company if its separate existence had
continued. The Company shall require and cause any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform if no such succession had taken place.
Section 13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including without limitation, each
portion of any Section of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that is not itself invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby and
shall remain enforceable to the fullest extent permitted by law; (b) such
provision or provisions shall be deemed reformed to the extent necessary to
conform to applicable law and to give the maximum effect to the intent of the
parties hereto; and (c) to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
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Section 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Notwithstanding any other provision of this Agreement, but subject
to Section 10(d) hereof, Indemnitee shall not be entitled to indemnification
or advancement of Expenses under this Agreement with respect to any
Proceeding brought by Indemnitee, or any claim therein, unless the bringing
of such Proceeding or making of such claim shall have been approved by the
Board.
Section 15. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of
this Agreement.
Section 16. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part
of this Agreement or to affect the construction thereof.
Section 17. DEFINITIONS. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the
Company occurring after the Effective Date of a nature that would be required
to be reported in response to Schedule 14A of Regulation 14A (or in response
to any similar schedule or form) promulgated under the Securities Exchange
Act of 1934 (the "Act"), whether or not the Company is then subject to such
reporting requirement; PROVIDED, HOWEVER, that, without limitation, such a
Change in Control shall be deemed to have occurred if after the Effective
Date (i) any "person" (as such term is used in Section 13(d) and 14(d) of the
Act) (other than (A) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or (B) a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board in
office immediately prior to such person attaining such percentage interest;
(ii) there occurs a proxy contest, or the Company is a party to a merger,
consolidation, sale of assets, plan of liquidation or other reorganization
not approved by at least two-thirds of the members of the Board then in
office, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the
Board thereafter; or (iii) during any period of two (2) consecutive years,
other than as a result of an event described in clause (a)(ii) of this
Section 17, individuals who at the beginning of such period constituted the
Board (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute
at least a majority of the Board.
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(b) "Corporate Status" describes the status of a person who is
or was a director and/or officer of the Company, of any subsidiary of the
Company or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such person is or was serving
at the request of the Company.
(c) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Effective Date" means _____________, 2000.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees or experts, witness fees,
travel expenses, duplicating 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, being or
preparing to be a witness in, or otherwise participating in, a Proceeding.
(f) "Good Faith" shall mean Indemnitee having acted in good
faith and in a manner Indemnitee reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any criminal
Proceeding, having had no reasonable cause to believe Indemnitee's conduct
was unlawful.
(g) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five (5) years has been, retained to represent:
(i) the Company or Indemnitee in any matter material to either such party
(other than with respect to matters concerning Indemnitee under this
Agreement, or of other indemnitees under similar indemnification agreements),
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement. The Company agrees to pay
the reasonable fees and expenses of the Independent Counsel referred to above
and to fully indemnify such counsel against any and all Expenses, claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
(h) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual,
threatened or completed proceeding, whether brought by or in the right of the
Company or otherwise, including any counterclaims therein, and whether civil,
criminal, administrative or investigative, in which Indemnitee was, is or
will be involved as a party or otherwise, by reason of the fact of
Indemnitee's Corporate Status, by reason of any action taken by him or of any
inaction on his part while acting as director and/or officer of the Company
or
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any subsidiary of the Company or by reason of the fact that he is or was
serving at the request of the Company as a director, officer, employee or
agent of any other corporation, partnership, joint venture, trust or other
enterprise, in each case whether or not (i) the claim arose, or is based on
facts occurring, before or after the Effective Date and (ii) he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification or advancement of expenses can be provided under
this Agreement.
Section 18. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby
in order to induce Indemnitee to continue to serve as a director and/or
officer of the Company, and the Company acknowledges that Indemnitee is
relying upon this Agreement in serving as a director and/or officer of the
Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
Section 19. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 20. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify
the Company 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. The failure of Indemnitee to so
notify the Company shall not relieve the Company of any obligation which it
may have to Indemnitee under this Agreement or otherwise, except to the
extent the Company is materially prejudiced by such failure.
Section 21. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom
said notice or other communication shall have been directed, or (ii) mailed
by certified or registered mail with postage prepaid, on the third business
day after the date on which it is so mailed:
(a) If to Indemnitee, to:
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Telephone:___________________________
Facsimile:___________________________
(b) If to the Company, to:
InterPacket Networks, Inc.
1901 Main Street, Second Floor
Santa Monica, California 90405
Telephone: (310) 382-3300
Facsimile: (310) 382-3310
Attention: Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
Section 22. CONTRIBUTION. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts
paid or to be paid in settlement and/or for Expenses, in connection with any
claim relating to an indemnifiable event under this Agreement, in such
proportion as is deemed fair and reasonable in light of all of the
circumstances of such Proceeding in order to reflect (i) the relative
benefits received by the Company and Indemnitee as a result of the event(s)
and/or transaction(s) giving cause to such Proceeding; and/or (ii) the
relative fault of the Company (as its directors, officers, employees and
agents) and Indemnitee in connection with such event(s) and/or
transactions(s).
Section 23. GOVERNING LAW; SUBMISSION TO JURISDICTION; APPOINTMENT OF
AGENT FOR SERVICE OF PROCESS. This Agreement and the legal relations among
the parties shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware, without regard to its conflict of
laws rules. Except with respect to any arbitration commenced by Indemnitee
pursuant to Section 10(a) of this Agreement, the Company and Indemnitee
hereby irrevocably and unconditionally (i) agree that any action or
proceeding arising out of or in connection with this Agreement shall be
brought only in the Court of Chancery of the State of Delaware (the "Delaware
Court"), and not in any other state or federal court in the United States of
America or any court in any other country, (ii) consent to submit to the
exclusive jurisdiction of the Delaware Court for purposes of any action or
proceeding arising out of or in connection with this Agreement, (iii)
appoint, to the extent such party is not a resident of the State of Delaware,
irrevocably __________________________________________________________ as its
agent in the State of Delaware as such party's agent for acceptance of legal
process in
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connection with any such action or proceeding against such party with the
same legal force and validity as if served upon such party personally within
the State of Delaware, (iv) waive any objection to the laying of venue of any
such action or proceeding in the Delaware Court, and (v) waive, and agree not
to plead or to make, any claim that any such action or proceeding brought in
the Delaware Court has been brought in an improper or otherwise inconvenient
forum.
Section 24. MISCELLANEOUS. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
INTERPACKET NETWORKS, INC.
By:
-----------------------------------
Name:
Title:
INDEMNITEE
-----------------------------------
Name:
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STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, January 1,
1999 is made by and between 1901 Main Street Partners, LLC (herein called
"Lessor") and INTERPACKET doing business under the name of Same (herein
called "Lessee").
1.2 PREMISES: Suite Number(s) Second floor floors, consisting of
approximately 5,880 sq. feet more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 1901 Main Street
in the City of Santa Monica County of Los Angeles State of California, as
more particularly described in Exhibit _______ hereto, and as defined in
paragraph 2.
1.4: USE: General office use or any other use approved by Landlord,
subject to paragraph 6.
1.5 TERM: Sixty (60) months commencing January 1, 1999 ("Commencement
Date") and ending December 31, 2003, as defined in paragraph 3.
1.6 BASE RENT: Sixteen thousand one hundred seventy dollars ($16,170)
per month, payable on the 1st day of each month, per paragraph 4.1 ___________
______________________________________________________________________________.
1.7 BASE RENT INCREASE: Anually on each anniversary of the Commencement
Date, the monthly Base Rent payable under Paragraph 1.6 above shall increase
4%.
1.8 RENT PAID UPON EXECUTION: 0
for __________________________________________________________________________.
1.9 SECURITY DEPOSIT: Sixteen thousand one hundred seventy dollars
($16,170).
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 36.3% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the
Basic Lease Provisions. "Building" shall include adjacent parking structure
used in connection therewith. The Premises, the Building, the Common Areas,
the land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as
the "Office Building Project." Lessor hereby leases to Lessee from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2,
as the "Premises," including rights to the Common Areas as hereinafter
specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject
to the rules and regulations attached hereto, and as established by Lessor
from time to time, Lessee shall be entitled to rent and use 13 parking spaces
in the Office Building Project at the monthly rate applicable from time to
time for monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon
demand by Lessor.
2.2.2 The monthly parking rate per parking space will be sixty
dollars ($60) per month at the commencement of the term of this Lease, and is
subject to change upon five (5) days prior written notice to Lessee. Monthly
parking fees shall be payable one month in advance prior to the first day of
each calendar month.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Office Building Project that are provided and designated
by the Lessor from time to time for the general non-exclusive use of Lessor,
Lessee and of other lessees of the Office Building Project and their
respective employees, suppliers, shippers, customers and invitees, including
but not limited to common entrances, lobbies, corridors, stairways and
stairwells, public restrooms, elevators, escalators, parking areas to the
extent not otherwise prohibited by this Lease, loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, ramps, driveways,
landscaped areas and decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as Lessor may appoint shall have the
exclusive control and management of the Common Areas and shall have the
right, from time to time, to modify, amend and enforce said rules and
regulations. Lessor shall not be responsible to Lessee for the
non-compliance with said rules and regulations by other lessees, their
agents, employees and invitees of the Office Building Project,
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the
lobbies, windows, stairways, air shafts, elevators, escalators, restrooms,
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, decorative walls, landscaped
areas and walkways; provided, however, Lessor shall at all times provide the
parking facilities required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries
of the Office Building Project to be a part of the Common Areas, provided
that such other land and improvements have a reasonable and functional
relationship to the Office Building Project:
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Office Building Project as
Lessor may, in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
INITIALS:
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PAGE 1 OF 10 PAGES
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3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease
term is defined as the completion of the improvements, Lessee and Lessor
shall execute an amendment to this Lease establishing the date of Tender of
Possession (as defined in paragraph 3.2.1) or the actual taking of possession
by Lessee, whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this
Lease, Lessee shall pay to Lessor the Base Rent for the Premises set forth in
paragraph 1.6 of the Basic Lease Provisions, without offset or deduction.
Lessee shall pay Lessor upon execution hereof the advance Base Rent described
in paragraph 1.8 of the Basic Lease Provisions. Rent for any period during
the term hereof which is for less than one month shall be prorated based upon
the actual number of days of the calendar month involved. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may
designate in writing.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter
defined, for each Comparison Year exceeds the amount of all Operating
Expenses for the Base Year, such excess being hereinafter referred to as the
"Operating Expense Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of
the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that
the square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office
Building Project.
(b) "Base Year" is defined as the calendar year in which the Lease
term commences.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee
shall have no obligation to pay a share of the Operating Expense Increase
applicable to the first twelve (12) months of the Lease Term (other than such
as are mandated by a governmental authority, as to which government mandated
expenses Lessee shall pay Lessee's Share, notwithstanding they occur during
the first twelve (12) months). Lessee's Share of the Operating Expense
Increase for the first and last Comparison Years of the Lease Term shall be
prorated according to that portion of such Comparison Year as to which Lessee
is responsible for a share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, stairways, parkways, driveways, landscaped areas,
striping, bumpers, irrigation systems, Common Area lighting facilities,
building exteriors and roofs, fences and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire
detection systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and
costs, materials, supplies and tools, used in maintaining and/or cleaning the
Office Building Project and accounting and a management fee attributable to
the operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements
of equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise
reimbursed by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time in advance of
Lessee's Share of the Operating Expense Increase for any Comparison Year, and
the same shall be payable monthly or quarterly, as Lessor shall designate,
during each Comparison Year of the Lease term, on the same day as the Base
Rent is due hereunder. In the event that Lessee pays Lessor's estimate of
Lessee's Share of Operating Expense Increase as aforesaid, Lessor shall
deliver to Lessee within sixty (60) days after the expiration of each
Comparison Year a reasonably detailed statement showing Lessee's Share of the
actual Operating Expense Increase incurred during such year. If Lessee's
payments under this paragraph 4.2(g) during said Comparison Year exceed
Lessee's Share as indicated on said statement, Lessee shall be entitled to
credit the amount of such overpayment against Lessee's Share of Operating
Expense Increase next falling due. If Lessee's payments under this paragraph
during said Comparison Year were less than Lessee's Share as indicated on
said statement, Lessee shall pay to Lessor the amount of the deficiency
within ten (10) days after delivery by Lessor to Lessee of said statement.
Lessor and Lessee shall forthwith adjust between them by cash payment any
balance determined to exist with respect to that portion of the last
Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
INITIALS:
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- -C- 1984 American Industrial Real Estate Association
PAGE 2 OF 10 PAGES
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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions
as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may
use, apply or retain all or any portion of said deposit for the payment of
any rent or other charge in default for the payment of any other sum to which
Lessor may become obligated by reason of Lessee's default, or to compensate
Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so
uses or applies all or any portion of said deposit, Lessee shall within ten
(10) days after written demand therefor deposit cash with Lessor in an amount
sufficient to restore said deposit to the full amount then required of
Lessee. If the monthly Base Rent shall, from time to time, increase during
the term of this Lease, Lessee shall, at the time of such increase, deposit
with Lessor additional money as a security deposit so that the total amount
of the security deposit held by Lessor shall at all times bear the same
proportion to the then current Base Rent as the initial security deposit
bears to the initial Base Rent set forth in paragraph 1.6 of the Basic Lease
Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or
other increment for its use, to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest hereunder) at the expiration of the
term hereof, and after Lessee has vacated the Premises. No trust relationship
is created herein between Lessor and Lessee with respect to said Security
Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use
which is reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of
record, or any applicable building code, regulation or ordinance in effect on
such Lease term Commencement Date. In the event it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor,
after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in
effect or which may hereafter come into effect, whether or not they reflect a
change in policy from that now existing, during the term or any part of the
term hereof, relating in any manner to the Premises and the occupation and
use by Lessee of the Premises. Lessee shall conduct its business in a lawful
manner and shall not use or permit the use of the Premises or the Common
Areas in any manner that will tend to create waste or a nuisance or shall
tend to disturb other occupants of the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the
violation, to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition
existing as of the Lease Commencement Date or the date that Lessee takes
possession of the Premises, whichever is earlier, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and any easements,
covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Lessee acknowledges that it has satisfied itself by its own independent
investigation that the Premises are suitable for its intended use, and that
neither Lessor nor Lessor's agent or agents has made any representation or
warranty as to the present or future suitability of the Premises, Common
Areas, or Office Building Project for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls, roof, and
common areas, and the equipment whether used exclusively for the Premises or
in common with other premises, in good condition and repair; provided,
however, Lessor shall not be obligated to paint, repair or replace wall
coverings, or to repair or replace any improvements that are not ordinarily a
part of the Building or are above then Building standards. Except as provided
in paragraph 9.5, there shall be no abatement of rent or liability of Lessee
on account of any injury or interference with Lessee's business with respect
to any improvements, alterations or repairs made by Lessor to the Office
Building Project or any part thereof. Lessee expressly waives the benefits of
any statute now or hereafter in effect which would otherwise afford Lessee
the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the
cost thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located)
that serves only Lessee or the Premises, to the extent such cost is
attributable to causes beyond normal wear and tear. Lessee shall be
responsible for the cost of painting, repairing or replacing wall coverings,
and to repair or replace any Premises improvements that are not ordinarily a
part of the Building or that are above then Building standards. Lessor may,
at its option, upon reasonable notice, elect to have Lessee perform any
particular such maintenance or repairs the cost of which is otherwise
Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Lessee. Lessee shall repair any damage to the
Premises occasioned by the installation or removal of Lessee's trade
fixtures, alterations, furnishings and equipment. Except as otherwise stated
in this Lease, Lessee shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, air conditioning, window coverings,
wall coverings, carpets, wall panelling, ceilings and plumbing on the
Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, Utility Installations or repairs
in, on or about the Premises, or the Office Building Project. As used in
this paragraph 7.3 the term "Utility Installation" shall mean carpeting,
window and wall coverings, power panels, electrical distribution systems,
lighting fixtures, air conditioning, plumbing, and telephone and
telecommunication wiring and equipment. At the expiration of the term,
Lessor may require the removal of any or all of said alterations,
improvements, additions or Utility Installations, and the restoration of the
Premises and the Office Building Project to their prior condition, at
Lessee's expense. Should Lessor permit Lessee to make its own alterations,
improvements, additions or Utility Installations, Lessee shall use only such
contractor as has been expressly approved by Lessor, and Lessor may require
Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for
mechanic's and materialmen's liens and to insure completion of the work.
Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, or use a contractor not
expressly approved by Lessor, Lessor may, at any time during the term of this
Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form,
with proposed detailed plans. If Lessor shall give its consent to Lessee's
making such alteration, improvement, addition or Utility Installation, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so
from the applicable governmental agencies, furnishing a copy thereof to
Lessor prior to the commencement of the work, and compliance by Lessee with
all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy
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any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office
Building Project, upon the condition that if Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to such contested lien claim or demand indemnifying Lessor against
liability for the same and holding the Premises, the Building and the Office
Building Project free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's reasonable attorneys' fees and
costs in participating in such action if Lessor shall decide it is to
Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including
but not limited to, floor coverings, panelings, doors, drapes, built-ins,
moldings, sound attenuation, and lighting and telephone or communication
systems, conduit, wiring and outlets, shall be made and done in a good and
workmanlike manner and of good and sufficient quality and materials and shall
be the property of Lessor and remain upon and be surrendered with the
Premises at the expiration of the Lease term, unless Lessor requires their
removal pursuant to paragraph 7.3(a). Provided Lessee is not in default,
notwithstanding the provisions of this paragraph 7.3(a), Lessee's personal
property and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises or the
Building, and other than Utility Installations, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of paragraph
7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such utilities as plumbing,
electrical systems, communication systems, and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of
Comprehensive General Liability insurance utilizing an Insurance Services
Office standard form with Broad Form General Liability Endorsement (GL0404),
or equivalent, in an amount of not less than $1,000,000 per occurrence of
bodily injury and property damage combined or in a greater amount as
reasonably determined by Lessor and shall insure Lessee with Lessor as an
additional insured against liability arising out of the use, occupancy or
maintenance of the Premises. Compliance with the above requirement shall
not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$5,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expenses,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount
of the full replacement cost thereof, as the same may exist from time to
time, utilizing Insurance Services Office standard form, or equivalent,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, plate glass, and such
other perils as Lessor deems advisable or may be required by a lender having
a lien on the Office Building Project. In addition, Lessor shall obtain and
keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all Operating Expenses for said period. Lessee
will not be named in any such policies carried by Lessor and shall have no
right to any proceeds therefrom. The policies required by these paragraphs
8.2 and 8.4 shall contain such deductibles as Lessor or the aforesaid lender
may determine. In the event that the Premises shall suffer an insured loss
as defined in paragraph 9.1(f) hereof, the deductible amounts under the
applicable insurance policies shall be deemed an Operating Expense. Lessee
shall not do or permit to be done anything which shall invalidate the
insurance policies carried by Lessor. Lessee shall pay the entirety of any
increase in the property insurance premium for the Office Building Project
over what it was immediately prior to the commencement of the term of this
Lease if the increase is specified by Lessor's insurance carrier as being
caused by the nature of Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days prior written notice to Lessor. Lessee shall, at
least thirty (30) days prior to the expiration of such policies, furnish
Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the
other, for direct or consequential loss or damage arising out of or incident
to the perils covered by property insurance carried by such party, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. If necessary all property insurance policies
required under this Lease shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or
any entity arising from Lessee's use of the Office Building Project, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims, costs and expenses arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, employees, or invitees, and from and against
all costs, attorney's fees, expenses and liabilities incurred by Lessor as
the result of any such use, conduct, activity, work, things done, permitted
or suffered, breach, default or negligence, and in dealing reasonably
therewith, including but not limited to the defense or pursuit of any claim
or any action or proceeding involved therein; and in case any action or
proceeding be brought against Lessor by reason of any such matter, Lessee
upon notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in
such defense. Lessor need not have first paid any such claim in order to be
so indemnified. Lessee, as a material part of the consideration to Lessor,
hereby assumes all risk of damage to property of Lessee or injury to persons,
in, upon or about the Office Building Project arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for loss of or damage to the goods, wares, merchandise or
other property of Lessee, Lessee's employees, invitees, customers, or any
other person in or about the Premises or the Office Building Project, nor
shall Lessor be liable for injury to the person of Lessee, Lessee's
employees, agents or contractors, whether such damage or injury is caused by
or results from theft, fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether said damage or injury results from conditions
arising upon the Premises or upon other portions of the Office Building
Project, or from other sources or places, or from new construction or the
repair, alteration or improvement of any part of the Office Building Project,
or of the equipment, fixtures or appurtenances applicable thereto, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible, Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee, occupant or user
of the Office Building Project, nor from the failure of Lessor to enforce the
provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that
the cost to repair is less than fifty percent (50%) of the then Replacement
Cost of the building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is fifty percent (50%) or more of the then
Replacement Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall
mean if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
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9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense,
repair such damage (but not Lessee's fixtures, equipment or tenant
improvements originally paid for by Lessee) to its condition existing at the
time of the damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from making any substantial
use of the Premises, Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written
notice to Lessee within thirty (30) days after the date of the occurrence of
such damage of Lessor's intention to cancel and terminate this Lease as of
the date of the occurrence of such damage, in which event this Lease shall
terminate as of the date of the occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total
Destruction, then Lessor may at Lessor's option either (i) repair such damage
or destruction as soon as reasonably possible at Lessor's expense (to the
extent the required materials are readily available through usual commercial
channels) to its condition existing at the time of the damage, but not
Lessee's fixtures, equipment or tenant improvements, and this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of
Lessor's intention to cancel and terminate this Lease, in which case this
Lease shall terminate as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to
the Premises, Lessor may at Lessor's option cancel and terminate this Lease
as of the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within 30 days after the date of
occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than twenty (20) days after
the occurrence of an Insured Loss falling within the classification of
Premises Damage during the last twelve (12) months of the term of this Lease.
If Lessee duly exercises such option during said twenty (20) day period,
Lessor shall, at Lessor's expense, repair such damage, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option during said twenty (20) day period, then Lessor may at
Lessor's option terminate and cancel this Lease as of the expiration of said
twenty (20) day period by giving written notice to Lessee of Lessor's
election to do so within ten (10) days after the expiration of said twenty
(20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair
or restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to
the extent the operation and profitability of Lessee's business as operated
from the Premises is adversely affected. Except for said abatement of rent,
if any, Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel
and terminate this Lease by giving Lessor written notice of Lessee's election
to do so at any time prior to the commencement or completion, respectively,
of such repair or restoration. In such event this Lease shall terminate as of
the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Office Building Project subject
to reimbursement by Lessee of Lessee's Share of such taxes in accordance with
the provisions of paragraph 4.2, except as otherwise provided in paragraph
10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying any increase in real property tax specified in the tax assessor's
records and work sheets as being caused by additional improvements placed
upon the Office Building Project by other lessees or by Lessor for the
exclusive enjoyment of any other lessee. Lessee shall, however, pay to
Lessor at the time that Operating Expenses are payable under paragraph 4.2(c)
the entirety of any increase in real property tax if assessed solely by
reason of additional improvements placed upon the Premises by Lessee or at
Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Office Building Project or
any portion thereof by any authority having the direct or indirect power to
tax, including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or in any portion thereof, as against Lessor's right to rent
or other income therefrom, and as against Lessor's business of leasing the
Office Building Project. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge (i) in substitution of, partially or
totally, any tax, fee, levy, assessment or charge hereinabove included within
the definition of "real property tax," or (ii) the nature of which was
hereinbefore included within the definition of "real property tax," or (iii)
which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv)
which is imposed as a result of a change in ownership, as defined by
applicable local statutes for property tax purposes, of the Office Building
Project or which is added to a tax or charge hereinbefore included within the
definition of real property tax by reason of such change of ownership, or (v)
which is imposed by reason of this transaction, any modifications or changes
hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are
not separately assessed, Lessee's portion of that tax shall be equitably
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information (which may include the cost
of construction) as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines,
water for reasonable and normal drinking and lavatory use, and replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and Utilities shall be provided
during generally accepted business days and hours or such other days or hours
as may hereafter be set forth. Utilities and services required at other
times shall be subject to advance request and reimbursement by Lessee to
Lessor of the cost thereof.
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11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services,
over standard office usage for the Office Building Project. Lessor shall
require Lessee to reimburse Lessor for any excess expenses or costs that may
arise out of a breach of this subparagraph by Lessee. Lessor may, in its
sole discretion, install at Lessee's expense supplemental equipment and/or
separate metering applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute a material default and breach of this Lease without the need
for notice to Lessee under paragraph 13.1. "Transfer" within the meaning of
this paragraph 12 shall include the transfer or transfers aggregating: (a) if
Lessee is a corporation, more than twenty-five percent (25%) of the voting
stock of such corporation, or (b) if Lessee is a partnership, more than
twenty-five percent (25%) of the profit and loss participation in such
partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate"; provided that before such assignment shall be effective, (a) said
assignee shall assume, in full, the obligations of Lessee under this Lease
and (b) Lessor shall be given written notice of such assignment and
assumption. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease even if after such
assignment or subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom shall not be
necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all
other obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach
of any of the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed
by third parties, then an assignment or sublease, and Lessor's consent
thereto, shall not be effective unless said guarantors give their written
consent to such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent and such action shall not relieve such persons from liability under
this Lease or said sublease; however, such persons shall not be responsible
to the extent any such amendment or modification enlarges or increases the
obligations of the Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible
for the performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent
null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and conditions shall
apply to any subletting by Lessee of all or any part of the Premises and
shall be deemed included in all subleases under this Lease whether or not
expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however,
that until a default shall occur in the performance of Lessee's obligations
under this Lease, Lessee may receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due under the
sublease. Lessee agrees that such sublessee shall have the right to rely
upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as
to whether such default exists and notwithstanding any notice from or claim
from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee or Lessor for any such rents so paid by said sublessee to
Lessor.
(b) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublessee as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by
reason of entering into a sublease under this Lease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in a
sublease to which Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event
Lessor shall undertake the obligations of Lessee under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to
do then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be at least as financially responsible as
Lessee was expected to be at the time of the execution of this Lease or of
such assignment or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment
or subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency),
13.1(f) (false statement), 16(a) (estoppel certificate), 30(b)
(subordination), 33 (auctions), or 41.1 (easements), all of which are hereby
deemed to be material, non-curable defaults without the necessity of any
notice by Lessor to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
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(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee other than those referenced in subparagraphs (b) and (c), above,
where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently pursues such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within
sixty (60) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease, where possession is not restored to
Lessee within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days. In the event that any provision of this
paragraph 13.1(e) is contrary to any applicable law, such provision shall be
of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee all damages
incurred by Lessor by reason of Lessee's default including, but not limited
to, the cost of recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and any real estate commission actually paid; the worth at
the time of award by the court having jurisdiction thereof of the amount by
which the unpaid rent for the balance of the term after the time of such
award exceeds the amount of such rental loss for the same period that Lessee
proves could be reasonably avoided; that portion of the leasing commission
paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of
this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all
of Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense Increase
or other sums due hereunder will cause Lessor to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Office Building Project.
Accordingly, if any installment of Base Rent, Operating Expense Increase, or
any other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to 6% of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late
charge by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor prevent Lessor from exercising any
of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under
the threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs; provided that if so much of the Premises or the Office Building
Project are taken by such condemnation as would substantially and adversely
affect the operation and profitability of Lessee's business conducted from
the Premises, Lessee shall have the option, to be exercised only in writing
within thirty (30) days after Lessor shall have given Lessee written notice
of such taking (or in the absence of such notice, within thirty (30) days
after the condemning authority shall have taken possession), to terminate
this Lease as of the date the condemning authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the rent and Lessee's Share of Operating Expense
Increase shall be reduced in the proportion that the floor area of the
Premises taken bears to the total floor area of the Premises. Common Areas
taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease
as of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises
or the Office Building Project under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property
of Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any separate award for
loss of or damage to Lessee's trade fixtures, removable personal property and
unamortized tenant improvements that have been paid for by Lessee. For that
purpose the cost of such improvements shall be amortized over the original
term of this Lease excluding any options. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are _________________________
______________________________ as "listing broker" and _______________________
________________________________________________ as "cooperating broker,"
licensed real estate broker(s). A "cooperating broker" is defined as any
broker other than the listing broker entitled to a share of any commission
arising under this Lease. Upon execution of this Lease by both parties,
Lessor shall pay to said brokers jointly, or in such separate shares as they
may mutually designate in writing, a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of
$__________________________, for brokerage services rendered by said
broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under
this Lease, or any subsequently granted option which is substantially similar
to an Option granted to Lessee under this Lease, or (ii) if Lessee acquires
any rights to the Premises or other premises described in this Lease which
are substantially similar to what Lessee would have acquired had an Option
herein granted to Lessee been exercised, or (iii) if Lessee remains in
possession of the Premises after the expiration of the term of this Lease
after having failed to exercise an Option, or (iv) if said broker(s) are the
procuring cause of any other lease or sale entered into between the parties
pertaining to the Premises and/or any adjacent property in which Lessor has
an interest, or (v) if the Base Rent is increased, whether by agreement or
operation of an escalation clause contained herein, then as to any of said
transactions or rent increases, Lessor shall pay said broker(s) a fee in
accordance with the schedule of said broker(s) in effect at the time of
execution of this Lease. Said fee shall be paid at the time such increased
rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of
this paragraph 15 to the extent of their interest in any commission arising
under this Lease and may enforce that right directly against Lessor;
provided, however, that all brokers having a right to any part of such total
commission shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other
than the person(s), if any, whose names are set forth in paragraph 15(a),
above) in connection with the negotiation of this Lease and/or the
consummation of the transaction contemplated hereby, and no other broker or
other person, firm or entity is entitled to any commission or finder's fee in
connection with said transaction and Lessee and Lessor do each hereby
indemnify and hold the other harmless from and against any costs, expenses,
attorneys' fees or liability for compensation or charges which may be claimed
by any such unnamed broker, finder or other similar party by reason of any
dealings or actions of the indemnifying party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement
in writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and
the date
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to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Office Building
Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it
shall be conclusive upon such party that (i) this Lease is in full force and
effect, without modification except as may be represented by the requesting
party, (ii) there are no uncured defaults in the requesting party's
performance, and (iii) if Lessor is the requesting party, not more than one
month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender
or purchaser designated by Lessor such financial statements of Lessee as may
be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Lessor's obligations thereafter to be
performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only, signed
by the parties in interest at the time of the modification. Except as
otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate broker listed in paragraph 15 hereof nor any cooperating broker
on this transaction nor the Lessor or any employee or agents of any paid
persons has made any oral or written warranties or representations to Lessee
relative to the condition or use by Lessee of the Premises or the Office
Building Project and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to
the signature of the respective parties, as the case may be. Mailed notices
shall be deemed given upon actual receipt at the address required, or
forty-eight hours following deposit in the mail, postage prepaid, whichever
first occurs. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice
purposes. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent
to or approval of any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee
of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions
of this Lease pertaining to the obligations of Lessee, except that the rent
payable shall be two hundred percent (200%) of the rent payable immediately
preceding the termination date of this Lease, and all Options, if any,
granted under the terms of this Lease shall be deemed terminated and be of no
further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be
initiated in the county in which the Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed
of trust, or any other hypothecation or security now or hereafter placed upon
the Office Building Project and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to
quiet possession of the Premises shall not be disturbed if Lessee is not in
default and so long as Lessee shall pay the rent and observe and perform all
of the provisions of this Lease, unless this Lease is otherwise terminated
pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect
to have this Lease and any Options granted hereby prior to the lien of its
mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options
are dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder without further notice to Lessee or, at Lessor's option, Lessor
shall execute such documents on behalf of Lessee as Lessees'
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to
decision or judgment. The provisions of this paragraph shall inure to the
benefit of the broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same,
performing any services required of Lessor, showing the same to prospective
purchasers, lenders, or lessees, taking such safety measures, erecting such
scaffolding or other necessary structures, making such alterations, repairs,
improvements or additions to the Premises or to the Office Building Project
as Lessor may reasonably deem necessary or desirable and the erecting, using
and maintaining of utilities, services, pipes and conduits through the
Premises and/or other premises as long as there is no material adverse effect
to Lessee's use of the Premises. Lessor may at any time place on or about the
Premises or the Building any ordinary "For Sale" signs and Lessor may at any
time during the last 120 days of the term hereof place on or about the
Premises any ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for
the same.
INITIALS: JK
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- -C- 1984 American Industrial Real Estate Association
PAGE 8 OF 10 PAGES
<PAGE>
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and
safes, and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether
to grant such consent. The holding of any auction on the Premises or Common
Areas in violation of this paragraph shall constitute a material default of
this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease
or to renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (2) the option of right of first refusal to lease
the Premises or the right of first offer to lease the Premises or the right
of first refusal to lease other space within the Office Building Project or
other property of Lessor or the right of first offer to lease other space
within the Office Building Project or other property of Lessor; (3) the right
or option to purchase the Premises or the Office Building Project, or the
right of first refusal to purchase the Premises or the Office Building
Project or the right of first offer to purchase the Premises or the Office
Building Project, or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee; provided,
however, that an Option may be exercised by or assigned to any Lessee
Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any,
herein granted to Lessee are not assignable separate and apart from this
Lease, nor may any Option be separated from this Lease in any manner, either
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised
unless the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) during the
period of time commencing on the day after a monetary obligation to Lessor is
due from Lessee and unpaid (without any necessity for notice thereof to
Lessee) and continuing until the obligation is paid, or (iii) in the event
that Lessor has given to Lessee three or more notices of default under
paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are
cured, during the 12 month period of time immediately prior to the time that
Lessee attempts to exercise the subject Option, (iv) if Lessee has committed
any non-curable breach, including without limitation those described in
paragraph 13.1(b), or is otherwise in default of any of the terms, covenants
or conditions of this Lease.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessor gives to Lessee three or more notices of
default under paragraph 13.1(c), or paragraph 13.1(d), whether or not the
defaults are cured, or (iv) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in default of any of the terms, covenants and conditions of this
Lease.
40. SECURITY MEASURES--LESSOR'S RESERVATION.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the
benefit of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Noting herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within
the definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90
days prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights
expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material default of this Lease by Lessee without
the need for further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
INITIALS: JK
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PAGE 9 OF 10 PAGES
<PAGE>
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of
such entity represent and warrant that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days
after execution of this Lease, deliver to Lessor evidence of such authority
satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
46. LENDER MODIFICATION. Lessee agrees to made such reasonable
modifications to this Lease as may be reasonably required by an institutional
lender in connection with the obtaining of normal financing or refinancing of
the Office Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which
constitute a part of this Lease:
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
<TABLE>
<CAPTION>
LESSOR LESSEE
<S> <C>
1901 Main Street Partners, LLC Interpacket
- ------------------------------------------------- -------------------------------------------------
By KMK Capital Corp. By John Gans
---------------------------------------------- ----------------------------------------------
Its Manager Its Chief Executive Officer
------------------------------------ ------------------------------------
By Jeff Kirshner By [ILLEGIBLE]
---------------------------------------------- ----------------------------------------------
Its Manager Its CEO
------------------------------------ ------------------------------------
Executed at Executed at
-------------------------------------- -------------------------------------
on on
---------------------------------------------- ----------------------------------------------
Address Address
----------------------------------------- -----------------------------------------
</TABLE>
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- -C- 1984 American Industrial Real Estate Association
PAGE 10 OF 10 PAGES
For these forms write or call the American Industrial Real Estate
Association, 700 South Flower Street, Suite 600, Los Angeles, CA 90017.
(213) 687-8777.
- -C- 1984 - By American Industrial Real Estate Association. All rights
reserved. No part of these words may be reproduced in any form without
permission in writing.
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
[MAP]
EXHIBIT A
INITIALS:
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- -C- 1984 American Industrial Real Estate Association
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
[LOGO]
Dated:________________________________
By and Between 1901 Main Street Partners, LLC and INTERPACKET
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common
Areas, including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor
in good faith judges to be a threat to the safety, reputation, or property of
the Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into
areas not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in
appropriate receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks
or bolts.
7. Lessee shall be responsible for the inappropriate use of any
toilet rooms, plumbing or other utilities. No foreign substances of any kind
are to be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of
the premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the
Premises or Building that causes excessive vibration or floor loading in any
part of the Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the building only with the Lessor's knowledge and consent, and subject
to such reasonable limitations, techniques and timing, as may be designated
by Lessor. Lessee shall be responsible for any damage to the Office
Building Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or
work to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on
Saturdays, Sundays and legal holidays, and on other days between the hours of
____ P.M. and ____ A.M. of the following day. If Lessee uses the Premises
during such periods, Lessee shall be responsible for securely locking any
doors it may have opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used
by Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the
Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or by
applicable governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning
other than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines
upon the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing,
cooking or food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall
not constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants.
Lessee agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size, passenger automobiles herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to
as "Oversized Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
3. Parking stickers or identification devices shall be the property
of Lessor and be returned to Lessor by the holder thereof upon termination of
the holder's parking privileges. Lessee will pay such replacement charge as
is reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly
identification devices to any person or entity that willfully refuses to
comply with the applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking
spaces from floor to floor, within one floor, and/or to reasonably adjacent
offsite location(s), and to reasonably allocate them between compact and
standard size spaces, as long as the same complies with applicable laws,
ordinances and regulations.
6. Users of the parking area will obey all posted signs and park only
in the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area
is required to park and lock his own vehicle. Lessor will not be responsible
for any damage to vehicles, injury to persons or loss of property, all of
which risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such
method or methods as Lessor and/or its licensee may establish at rates
generally applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the
parking structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations,
laws and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a
license only and no bailment is intended or shall be created hereby.
INITIALS:
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- -C- 1984 American Industrial Real Estate Association
EXHIBIT B
PAGE 1 OF 1 PAGES
<PAGE>
FIRST EXPANSION AMENDMENT TO LEASE
This First Expansion Amendment to Lease dated September 15, 1999, by and
between 1901 Main Street Partners, LLC (as Lessor), and Interpacket (as
Lessee) for the Premises located at 1901 Main Street, Second Floor is made a
part of that certain Lease dated January 1, 1999 (the Lease), which is hereby
amended to include the following terms and conditions:
A. Paragraph 1.2 of the Lease is hereby amended to include Suite 100,
consisting of approximately 2,335 rentable square feet, effective June 26,
1999, and Suite 105, consisting of approximately 1,372 rentable square feet,
effective July 19, 1999. The total square footage under this Lease, as of
July 19, 1999, is therefore 9,587.
B. Paragraph 1.5 of the Lease is hereby amended to reflect a term
commencement date of June 26, 1999 for Suite 100 and July 19, 1999 for Suite
105. The ending date for both suites shall be co-terminus with the end date
for the Second Floor, being December 31, 2003.
C. Paragraph 1.6 of the Lease is hereby amended, to include a base
monthly rent of $5,254.00 for Suite 100, effective June 26, 1999, and
$3,087.00 for Suite 105, effective July 19, 1999. The total monthly base rent
due under this Paragraph, as of July 19, 1999, shall therefore be $24,511.00.
Both additional rent amounts shall be subject to the annual four percent
increase stipulated in Paragraph 1.7 of the Lease, effective January 1st of
each year.
D. Paragraph 1.9 of the Lease is amended to require an additional
security deposit of $3,087.00 for Suite 105, and $5,254.00 for Suite 100.
The total deposit under this Lease shall therefore be $24,511.
E. Paragraph 1.10 of the Lease is amended to show that Lessee's share
of the Operating Expenses for all three suites shall be 59.19%.
F. Both Suite 105 and 100 shall be accepted by Lessee in an "as-is"
condition. Lessor shall have no obligation to make any improvements to either
space.
G. Paragraph 2.2 of the Lease is hereby amended to include the use of
32 additional parking spaces, bringing the total available spaces for
Lessee's use to 45.
Except as amended herein, all other terms of the Lease remain in full force
and effect.
LESSOR LESSEE
1901 MAIN STREET PARTNERS, LLC INTERPACKET
By: /s/ Jeff Kirshner, By: /s/ John Gans
----------------------------- -----------------------------
JEFF KIRSHNER, MANAGER JOHN GANS, CEO
Dated: 9-15-99 Dated:
----------------------------- ---------------------------
<PAGE>
CONTRACT NUMBER: 279-1
CONTRACT FOR RENDERING OF THE INTERNATIONAL SERVICE OF SIGNAL CONDUCTION VIA
SATELLITE THROUGH THE MEXICAN SATELLITE SYSTEM ("SISTEMA DE SATELITES
MEXICANOS"), ENTERED INTO BY AND BETWEEN SATELITES MEXICANOS, S.A. DE C.V.,
WHICH SHALL HEREINAFTER BE NAMED "SATMEX", REPRESENTED IN THIS ACT BY MR. LAURO
ANDRES GONZALES MORENO, IN HIS CAPACITY AS CHIEF EXECUTIVE OFFICER (C.E.O.), AND
AS THE OTHER PARTY BY INTERPACKET GROUP, INC., WHICH SHALL HEREINAFTER BE NAMED
"THE CLIENT", REPRESENTED BY MR. PETER ZIMBLE, IN HIS STATUS AS LEGAL
REPRESENTATIVE, PURSUANT TO THE FOLLOWING DECLARATIONS AND CLAUSES:
DECLARATIONS
I. "SATMEX" DECLARES:
I.1 That it is a Variable Capital Stock Corporation ("Sociedad Anonima de
Capital Variable"), duly incorporated in accordance with Mexican law.
I.2 That according to the provisions of the Mexican Federal
Telecommunications Law ("Ley Federal de Telecomunicaciones"), and in
the Mexican Regulations of Communication Via Satelite ("Reglamento de
Comunicacion Via Satelite"), occupation of the 109.2 DEG., 113.0 DEG.
and 116.8 DEG. West longitude geostationary orbit positions was
concessioned on behalf of "SATMEX" for exclusive exploitation of the
"C" and "Ku" frequency bands and the rights of transmission and
reception of signals.
I.3 That Mr. Lauro Andres Gonzalez Moreno, Engineer, in his status of
C.E.O., has enough faculties to subscribe this Contract.
I.4 That it meets the technical and economic conditions to take on
commitment of the provision of the service covered by this Contract.
I.5 That its Federal Taxpayer Registration Number is: SME-970626 MK5.
I.6 That Satmex 5 satellite has a useful life time of approximately
fourteen (14) years, six (6) months, starting from September 1st, 1999.
I.7 That for the exercise and fulfillment of the rights and obligations
under its care, derived from entering into this Contract, it indicates
as its address that located on Boulevard Manuel Avila Camacho No. 40,
piso 23rd, Colinia Lomas de Chapultepec, C.P. 11000, Mexico Distrito
Federal.
II. "THE CLIENT" DECLARES:
II.1 That it is a Corporation, duly incorporated under the laws of the State
of California, Unites Stated of America.
II.2 That Mr. Peter Zimble, in his status as legal representative has enough
faculties to subscribe this Contract.
II.3 That it is presenting a certified and a simple copy of the
documentation indicated in the foregoing declarations.
II.4 That any modification on its firm name and/or the power of attorney
granted to its legal representative, shall be reported to "SATMEX" in
writing and in a timely fashion.
II.5 That it complies with the applicable legislation in the countries
comprised within Continental region of the Satmex 5 satellite where the
service shall operate, and that it has obtained the necessary
authorization or authorizations from the corresponding regulating
institutions, to install, operate or exploit the transmitting and/or
receiving ground station or stations.
<PAGE>
II.6 That it accepts the General Conditions of service Supply of Conduction
of Signals Via Satellite through the Mexican Satellite System, issued
by "SATMEX" (Annex I), as well as the Technical Annex (Annex II),
which, duly signed by the parties, are added to this Contract, to form
an integral part of same.
II.7 That it is acquainted with the established legal framework, in the
Mexican and international settings, to which rendering of the service
subject matter of this Contract is subject, and is bound to use the
service rendered by "SATMEX" to cover its communication needs within
that legal framework.
II.8 That it indicates as its address, for effects of this Contract, that
located at on 1901 Main Street 2nd floor, Santa Monica 90405
California, United States of America.
After having effected the foregoing declarations, the parties agree to enter
into a Contract and bind themselves pursuant to the following:
CLAUSES
FIRST. "SATMEX" is bound to provide to "THE CLIENT" the international
service of signal conduction via satellite, through the
Mexican Satellite System, by means of the space segment
assignation in the category of Non-Preemptible service, on the
C band, 3C, 15C and 19C transponders, of the Continental
region, of the Satmex 5 satellite, with a bandwidth of 108.00
MHz, according to the terms, conditions, and technical, legal
and tariff modalities contained in this Contract and its
Annexes.
"THE CLIENT" accepts that "SATMEX" will only provide the
services object of this contract in those regions covered by
Satmex 5 satellite and in the countries where "SATMEX" have
the correspondent permits, authorizations and concessions to
provide private services through the Mexican Satellites
System.
SECOND. "SATMEX" shall assign to "THE CLIENT" the satellite access
frequencies and their respective operation parameters, on the
basis of the link calculations previously presented by "THE
CLIENT" to "SATMEX" for each transmission and/or reception
carrier on which the ground stations that form part of its
network shall access.
"SATMEX" may modify the frequencies assigned to "THE CLIENT"
for justified reasons or optimization movements of the space
segment on the corresponding satellite, for which it shall
give "THE CLIENT" timely written notice of the respective
modifications. "THE CLIENT" is bound to carry out location
changes and release the preceding frequencies within the term
jointly agreed.
The satellite, band, coverage region, transponder,
polarization, link points, satellite frequencies, operation
parameters, location of the ground stations, antenna
diameters, are described in Annex II, which shall be updated
as "THE CLIENT" requests from "SATMEX" modifications or
enlargements on the service Contracted; in such case, the
parties shall subscribe the respective Agreement.
THIRD. "THE CLIENT" is bound to notify "SATMEX" in writing the
name(s), position(s), address(es), telephone number(s) and fax
number(s) of the technically responsible person(s) in charge
of its company's satellite network, at the latest within the
first five (5) working days following the signature hereof, or
when said responsible persons are changed.
FOURTH. "SATMEX" shall deliver the satellite access frequencies and
its operation parameters to "THE CLIENT", in writing, at the
time this Contract is signed.
FIFTH. The ground station(s) through which the service is provided
shall satisfy the technical specifications and features set
forth by "SATMEX" to operate with the Mexican Satellite
System, and shall fulfill among others, recommendation ITU-R.
S.580-5 and operate with agile and fractionary step frequency
synthesizers. The above shall be described in the technical
memory of the network delivered by "THE CLIENT" to "SATMEX."
2
<PAGE>
SIXTH. The invoicing of the service shall begin as of the date this
Contract is signed.
SEVENTH. "SATMEX" shall send to the address declared by "THE CLIENT"
the monthly invoice of the service Contracted, within the
first five (5) working days of each month, which shall be sent
per month in advance.
In case "THE CLIENT" does not receive the invoice at its
address in a timely manner, the latter shall notify this to
the "SATMEX" collection area and effect the corresponding
payment.
EIGHTH. If "THE CLIENT" is not in agreement with any invoice, it shall
immediately present its application for clarification and/or
adjustment, in writing, to "SATMEX", explaining the reasons
and grounds for its disagreement. Such event does not exempt
"THE CLIENT" of its payment obligation.
NINTH. "THE CLIENT" shall guarantee to "SATMEX" fulfillment of the Contract by
means of a cash deposit in [***]. "THE CLIENT" is bound to
deliver to "SATMEX" proof of deposit at the time this Contract
is signed.
"SATMEX" is in agreement to review payment puntuality and
overall credit history. If "THE CLIENT" upon six (6)
consecutive months of timely payments, "SATMEX" will return
one-half of the deposit [***]. Upon an additional six (6)
consecutive months of timely payments, "SATMEX" will return
the remainder of the deposit [***] to "THE CLIENT"
"SATMEX" may pay "THE CLIENT" an annual interest rate of 3.0%,
of the deposit subject to history of monthly payments due and
received no later than the fifteenth (15th) day of each month.
The payment of said interest will take place at year end of
each calendar year.
"SATMEX" may dispose of such deposit, in the moment "THE
CLIENT" does not pay one monthly bill of the service, up to
the due amount plus the generated moratory interests.
Said deposit shall be returned to "THE CLIENT" at the end of
the term in force of this Contract, if the latter is updated
with its payments.
TENTH. "THE CLIENT" is bound to pay to "SATMEX" for the service subject matter
of this Contract, the total amount of [***], in monthly
payments in advance of [***].
"THE CLIENT" is bound to make payments in a timely manner, at
the latest on the fifteenth (15th) day of each month. If "THE
CLIENT" ceases to cover one (1) monthly payment, the service
shall be suspended. As the case may be, for reactivation, "THE
CLIENT" shall cover previously the indebtedness, moratory
interest and reconnection charges.
The parties agree that each of them shall pay the taxes and
tariffs generated under their care, according to the legal
ordinances in force in their respective countries.
When "THE CLIENT" ceases to cover more than one (1) monthly
payment, "SATMEX" may assign the capacity to another
interested party.
ELEVENTH. Moratory interest shall be calculated on the basis of the rate
resulting from adding three (3) times the Prime Rate, issued
by the New York Citibank, proportionately to the days of delay
in payment, divided into twelve (12) months, on unpaid
balances of the amounts owed monthly.
Said interest shall be applied as of the day following the
payment expiration date and until the same is received by
"SATMEX."
- ---------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE>
TWELFTH: "SATMEX" shall only be liable, for compensation effects, for
dolus, for service interruptions in the part corresponding to
the space segment, facilities or equipment owned by it, but in
no case for acts of god or force majeure. "SATMEX's"
responsibility, shall in no case, exceed the amount of the
guarantee given by "THE CLIENT".
In case of service supply interruption, "THE CLIENT" shall
inform this immediately to the "SATMEX" Satellite Control
Center ("Centro de Control Satelital") in order for the reason
to be determined, the failure corrected, and the service
reestablished. Likewise, it shall notify "SATMEX" in writing
so that, as the case may be and on the basis of the Control
Center's technical report, the corresponding compensation is
made to it, in accordance with the stipulations of article 18
of Annex I.
When it is necessary to provide maintenance to its facilities
or equipment, among others, "SATMEX" may interrupt the
service. in coordination with "THE CLIENT", and the latter
shall not be entitled to any compensation. In any case,
"SATMEX" shall make its best efforts so that said
interruptions cause the least possible damage to "THE CLIENT"
If service interruptions arises, derived from operation of the
ground stations through which the service is provided, which
stations are not authorized or technically approved and are
causing interferences, "SATMEX" shall not be bound to grant
compensations.
THIRTEENTH. The term of this Contract counted from the date it is signed
and will conclude on August 31st, 2010.
FOURTEENTH. "THE CLIENT" may cancel part of the capacity contracted or
terminate this Contract, notifying this to "SATMEX", in
writing, at least thirty (30) working days in advance. In such
case, the cancellation or termination date shall be referred
to a calendar month (last day of the month).
In case it is "THE CLIENT" that cancels part of the capacity
contracted or terminates this Contract before the end of the
term in force indicated in CLAUSE THIRTEENTH, the latter shall
pay to "SATMEX", in one single payment and before the date
notified by "THE CLIENT" has elapsed, the amount resulting
from the tariff corresponding on a monthly basis to Contracts
at one (1) year, for each month remaining to conclude the time
period originally agreed upon, not to exceed twelve (12
months.
In the assumption of partial cancellation, the aforementioned
payment shall be applied to the capacity affected.
Advance cancellation or termination of a service does not
release "THE CLIENT" from previous indebtedness or moratory
interest.
"SATMEX" reserves the right to assign the satellite capacity
released due to advance cancellation or termination to another
interested party, as of the day following the termination or
cancellation date.
FIFTEENTH. "SATMEX" may rescind this Contract for any of the following
reasons:
I. For any type of transmission of the rights
and/or obligations derived from this Contract,
made by "THE CLIENT" to third parties, without
having prior written authorization from
"SATMEX."
II. If "THE CLIENT" does not pay more than one (1)
monthly invoice of the service or for three (3)
suspensions of same in the term of one (1)
year.
III. If "THE CLIENT" does not adjust to satellite
access parameters indicated by "SATMEX."
IV. If "THE CLIENT" does not attend appropriately
and/or carry out the necessary adjustments on
the generated signals on their equipments that
cause or may cause affectations to third
parties.
V. If "THE CLIENT" does not grant or maintain the
guarantee mentioned in CLAUSE NINTH in time and
form.
4
<PAGE>
VI. For dissolution or liquidation of "THE CLIENT",
or if it is declared in bankruptcy or
suspension of payments, or if it is in any of
the cases stipulated in Article 2nd of the
Mexican Law of Bankruptcy and Suspension of
Payments ("Ley de Quiebras y Suspension de
Pagos").
VII. If "THE CLIENT" decides not to accept the
relocation assigned to it by "SATMEX" in its
satellites.
VIII. In general, because "THE CLIENT" does not
fulfill any of the obligations derived from
this Contract, as well as its Annexes.
SIXTEENTH. If "THE CLIENT" incurres in any of the causes of rescission
indicated in the preceding clause, "SATMEX" shall communicate
this in writing so that in a maximum term of fifteen (15)
calendar days, "THE CLIENT" amends the breach of its
obligation. If after said term has elapsed "THE CLIENT" has
not amend the breach of its obligation, "SATMEX" may rescind
this Contract, without a court order.
In case "SATMEX" rescinds this Contract, "THE CLIENT" is bound
to perform the payment referred to in CLAUSE FOURTEENTH and
release the satellite capacity mentioned in CLAUSE FIRST; in
such case, "SATMEX" shall have the possibility to relocate
such capacity immediately.
SEVENTEENTH. "SATMEX" shall not incur any liability whatsoever for damages
suffered by "THE CLIENT" or third parties, in a specific but
not limiting manner, for delay in delivery, deficient
functioning or failures that might appear in the space segment
subject matter of this Contract, as well as service
interruptions in the part corresponding to the space segment
or equipment owned by it, derived from act of God or force
majeure.
EIGHTEENTH. Both parties are bound to maintain all of the information and
documentation exchanged between them, by virtue of the
fulfillment and execution of this Contract, as strictly
confidential, except: (i) if same is requested by a judicial
or administrative authority and/or (ii) if said information is
deemed to be of public knowledge.
The parties may use the confidential information only by means
of prior written consent from the other party.
NINETEENTH. This contract only covers the service provided by "SATMEX",
"THE CLIENT" being committed to obtain the authorization or
permit/license, whose granting is a faculty of the
corresponding governing bodies at the site of the ground
station(s), on its own behalf. In the event of the obtaining
of permits, licenses or other authorizations in the Andean
region, which consists of Bolivia, Colombia, Ecuador, Peru and
Venezuela, "THE CLIENT" shall file as a satellite provider
"Andesat via Satmex".
TWENTIETH: In case of controversy regarding the fulfillment, contents,
construction and scope of the obligations in this Contract,
the parties submit to the indications of the ordinance in
force for the Federal District and the jurisdiction and
competence of the Courts of Mexico City, thus waiving their
right to the jurisdiction that might correspond to them due to
their present or future address or for any other reason. The
official language for these purposes is Spanish.
This Contract is signed in two copies, one copy remaining in possession of
either party, in Mexico City, as of September 1st, 1999.
FOR "SATMEX" FOR "THE CLIENT"
/s/Lauro A. Gonzalez Moreno /s/Peter Zimble
-------------------------------------- --------------------------------
MR. LAURO GONZALEZ MORENO MR. PETER ZIMBLE
C.E.O. LEGAL REPRESENTATIVE
5
<PAGE>
ANNEX I
CLIENT: INTERPACKET GROUP, INC.
CONTRACT NUMBER: 279-1
GENERAL PROVISION CONDITIONS OF THE SATELLITE SIGNAL
CARRYING PERMANENT SERVICE THROUGH THE MEXICAN SATELLITE SYSTEM
GENERAL PROVISIONS.
1. The service to be provided by SATMEX consists of the
carrying of signals by satellite on the C and Ku bands of
the Mexican Satellite System, abiding by the provisions of
the Concession Title, the Mexican Federal Law on
Telecommunications, the Satellite Communication
Regulations, the Mexican Federal Law on Radio and
Television and its Regulations, the Constitution and
Agreement of the UTI, the International Telecommunications
Regulations, International Treaties and Agreements on the
matter approved by the Senate of the Republic and any
other administrative provisions on the matter.
2. The definitions of the technical terms used in the
contracts and/or agreements, should be understood
according to the documents already indicated in the above
paragraph, the definitions that may be issued by the
Telecommunications, Radio communications and Development
Standardization Sectors of the UTI, as well as the
correspondent Glossary of Terms of the Federal
Telecommunications Commission and/or of
Telecommunicaciones de Mexico.
3. THE CLIENT shall be responsible for obtaining and
possessing the necessary concessions, permits, licenses or
authorizations from the Mexican Federal Government or from
the authorities on the matter in each country to by
linked.
PROVISION.
4. The permanent service shall be provided based two
categories, according to their continuity priority in case
of contingency or partial or total failure of the assigned
satellite, these being:
NON-PREEMPTIBLE SERVICE - Is the one whose transponder has
back-up amplifiers and is not interrupted to give priority
to a protected service, but does not possess, in the case
of fault, immediate protection in another transponder or
satellite.
INTERRUPTIBLE SERVICE - Is the one subject to be required
at any time due to being used to provide immediate
protection to a protected service and even to a
Non-Preemptible service, due to the latter being
considered as priorities. During normal operation, the
transponder possesses backup transponders.
Protected Service shall be provided only for the State
satellite capacity; and it is used for national security
and social benefit services, and has maximum priority over
any service category, in case of contingency.
Each category of the permanent service has a different
tariff, which is defined in Annex II of the respective
contract.
6
<PAGE>
5. The space segment by which the service is provided shall be assigned
based on the carriers of information and transmission for standardized
integrated velocities, for complete transponders or fractions of band
widths and/or transponder power, measured in Megahertz (MHz) and
decibel Watts (dBw), respectively.
6. THE CLIENT, when contracting the service, must deliver a technical
specifications sheet describing the network, its topology, the ground
stations and their equipment, the satellite access technique, the
required capacity and link calculation for each carrier, according to
the format which shall be previously given
thereto by SATMEX.
7. The frequency synthesizers of THE CLIENT's ground stations must be
efficient and steeped in kilohertz. The operation of equipment for
crystal-syntonized frequencies or with tuning limitations are not
acceptable, as this prevents the relocation of the service in case of
interference and may also lead to greater
consumption of band width, charged to THE CLIENT.
8. The responsible technicians appointed by THE CLIENT to operate the
ground stations of its satellite network, must not exceed the nominal
satellite access parameters assigned to each carrier. The personnel of
the primary or Alternate Satellite Control Center of SATMEX, when
detecting excesses, shall immediately coordinate the necessary
rectifications with the manager of the ground station or the network.
In the case that THE CLIENT does not make the necessary rectifications
or deactivation of the carriers that operate out of the parameters, it
shall be charged economic penalties for the use of excess power or
bandwidth, or for the damages caused to other clients.
The economic penalty shall be for the amount resulting from applying
the highest tariff for the affected bandwidth and/or power, and also,
in such case, the economic compensations amounts that SATMEX gives to
an afected client(s). The payment of such penalties does not imply
authorization to continue operating the service out of the assigned
access parameters.
If THE CLIENT, for reliability in its link(s), requires operation with
a higher satellite power level, it may request (with link calculations)
that SATMEX authorize it, if such possibility exists, applying the
corresponding adjustments in the bill.
9. THE CLIENT, prior to accessing the satellite, must coordinate the
necessary technical testing of their ground stations with the Primary
or Alternate Satellite Control Center, according to the procedure and
protocol established by SATMEX.
10. The ground stations which do not meet the insulation tests, radiation
pattern or other parameter which affects or may affect other signals or
satellites, may not be authorized to operate with the satellites until
they have been corrected, without this implying any responsibility for
SATMEX.
Additionally, if an already tested ground station starts to produce
interference with other signals during its operation, it must suspend
its access to the satellite until the complete rectification of such
interference. In this case, THE CLIENT must provide every facility, so
that jointly with the Primary or Alternate Control Center, do whatever
proceeds to help it to eliminate the interference.
In the case that the manager(s) of the ground station(s) through which
the service is run does/do not comply with the indications of the
Primary or Alternate Satellite Control Center of SATMEX in a timely
fashion, to correct or deactivate the ground station which is producing
the interference. THE CLIENT shall pay SATMEX a fine equivalent to one
percent (1%) of the monthly tariff for each hour or fraction for the
delay plus the equivalent of the compensations SATMEX would have to pay
to other clients as a consequence of said interference.
THE CLIENT is committed to supervise the operating status of the ground
stations and to make sure that these do not produce interference to
their own signals, other clients signals or other satellites.
11. When a client's signals are affected by interference whose origin in
unknown or undetermined which does not allow its immediate
rectification, THE CLIENT shall have the option to be relocated, as
soon as possible, to a free space so as to provide its communications
with continuity.
7
<PAGE>
This must be immediately reported to the monitoring areas of the
Primary or Alternate Satellite Control Center of SATMEX, so that in
coordination with the assignations area, it may attend and aid in the
relocation activities. As the case may be, SATMEX shall notify THE
CLIENT of the new frequencies and operating parameters, be they
temporary or definitive.
The costs incurred as a result of relocating the frequencies of the
ground stations shall be paid by THE CLIENT.
12. Any modification to the service or change of location of the ground
stations must be requested from SATMEX at least thirty (30) working
days in advance, including the complement to the technical
specifications sheet and the link calculations for the modified
carriers or new sites.
THE CLIENT must not make modifications to the service without prior
coordination with SATMEX.
CONTRACTING.
13. To contract the service, THE CLIENT must possess a public network
concession or permit, of the type envisaged in Articles 24 and 31 of
the Mexican Federal Law on Telecommunications, respectively and
pursuant to the provisions of the Satellite Communication Regulations.
The obtention of such permits shall be the responsibility of and at the
cost of THE CLIENT. A copy of this document must be presented to
SATMEX.
BILLING.
14. When the magnitude of any of the concepts used as the basis for the
application of the tariff results in fractions greater than those
established in the same, these shall be converted into unit, decimal or
centesimal values, rounded up to the nearest higher number, as
corresponds.
15. The invoices for the concept of the provision of permanent services
shall be formulated for periods that correspond to one calendar month,
except when the start of the service is on a day in the middle of the
month, in which case the initial invoice shall be formulated for the
amount corresponding to the number of days remaining for the conclusion
of such month in which the service is provided.
16. THE CLIENT shall pay the invoices under its charge, at the latest in
the date established in the correspondent invoice and in the same
currency as shown in such documents. THE CLIENT shall have the option
to pay in the banking institutions authorized by SATMEX or by an
electronic bank transfer at SATMEX account at:
Bank: [***]
Domicile: [***]
Account number: [***]
ABA number: [***]
Beneficiary: [***]
COMPENSATIONS.
17. SATMEX shall in no case bear economic responsibility for damages and
injuries caused by the interruptions in the service to THE CLIENT or
third parties.
- ---------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
8
<PAGE>
SATMEX shall not grant compensation for the interruptions in the
service derived from the operation of the ground station(s) which are
not technically authorized or approved and which cause interference, or
for the total or partial suspension of an interruptible service due to
providing immediate protection to a
protected or uninterruptible service, which have priority thereover.
The compensations shall be taken into account starting from the date on
which the Satellite Control Center of SATMEX issues the report
confirming the causes that led to the interruption.
18. The interruptions in the provision of the service, imputable to SATMEX,
shall be compensated in the following way:
I. Only shall be compensated continuous interruptions of
three (3) hours. The compensation shall be equal to one
eighth of the billing corresponding to one (1) day. A
fraction of one hour shall be calculated as a complete
hour.
II. SATMEX shall not take into consideration requests for
compensation when the interruption is due to THE CLIENT's
negligence, or a failure of the apparatus and equipment
which are not the property of SATMEX and whose
conservation and operation does not pertain thereto.
III. The compensations, when applicable, shall be credited to
THE CLIENT in the due account for the second and third
months following the month in which the interruption
occurred.
IV. Devolutions shall only be made in those cases in which it
is impossible to apply the compensations to other periods
or services contracted by THE CLIENT.
This Annex is signed in two copies, one copy remaining in possession of each
party, in Mexico City, on September 1st, 1999.
FOR "SATMEX" FOR "THE CLIENT"
/s/Lauro A. Gonzalez Moreno /s/Peter Zimble
---------------------------------------- --------------------------------
MR. LAURO GONZALEZ MORENO MR. PETER ZIMBLE
C.E.O. LEGAL REPRESENTATIVE
9
<PAGE>
ANNEX II
- --------------------------------------------------------------------------------
CLIENT: INTERPACKET GROUP, INC.
- --------------------------------------------------------------------------------
ADDRESS: 901 MAIN STREET 2ND FLOOR, SANTA MONICA
- --------------------------------------------------------------------------------
CITY: CALIFORNIA, UNITED STATED OF AMERICA 90405
- --------------------------------------------------------------------------------
CONTRACT: 279-I DATE: SEPTEMBER 1ST, 1999 PERIOD IN USE: ELEVEN (11) YEARS
- --------------------------------------------------------------------------------
REPRESENTED: MR. PETER ZIMBLE
- --------------------------------------------------------------------------------
TECHNICAL INFORMATION
- --------------------------------------------------------------------------------
NETWORK: POINT-POINT BANDWIDTH: 108 MHz
- --------------------------------------------------------------------------------
EXPLOTATION: PRIVATE NETWORK
- --------------------------------------------------------------------------------
SATELLITE: SATMEX 5 BAND: C SERVICE CATEGORY: NON PREEMPTIBLE
- --------------------------------------------------------------------------------
ORBITAL POSITION: 116.8DEG.W TRANSPONDER: 3C, 15C y 19C
- --------------------------------------------------------------------------------
REGION: CONTINENTAL
- --------------------------------------------------------------------------------
TELEPORT(S): CALIFORNIA, UNITED STATES OF AMERICA
- --------------------------------------------------------------------------------
COST
- --------------------------------------------------------------------------------
TOTAL AMOUNT USD
[***]
MONTHLY COST USD
[***]
- --------------------------------------------------------------------------------
DATE: MEXICO. CITY., AS OF SEPTEMBER 1ST, 1999
FOR "SATMEX" FOR "THE CLIENT"
/s/Lauro A. Gonzalez Moreno /s/Peter Zimble
------------------------------------- ---------------------------------
MR. LAURO GONZALEZ MORENO MR. PETER ZIMBLE
C.E.O. LEGAL REPRESENTATIVE
- ---------------
[***] Confidential treatment has been requested for the bracketed portions. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
10
<PAGE>
EXHIBIT 4.1
INTERPACKET GROUP, INC.
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of
November 12, 1999 by and among InterPacket Group, Inc., a Delaware corporation
(the "Company"), the entities listed on the Schedule of Purchasers attached to
this Agreement as EXHIBIT A (collectively, the "Purchasers") and Jonathan Gans,
Peter Zimble, Julie Spira, James E. Kolsrud, Norman J. Pattiz, Jeffrey C.
Barbakow, Joseph T. Arsenio II and Delaware Charter Guarantee & Trust Company
TTEE FBO: Joseph T. Arsenio II (collectively, the "Stockholders").
RECITALS
WHEREAS, the Company and the Purchasers are entering into that certain
Series A Convertible Preferred Stock Purchase Agreement dated of even date
herewith (the "Series A Purchase Agreement") providing for, among other things,
the sale by the Company to the Purchasers of shares of the Company's Series A
Convertible Preferred Stock, $.001 par value per share (the "Series A
Preferred");
WHEREAS, the sale of the Series A Preferred to the Purchasers is
conditioned upon the rights set forth herein being extended to each such
Purchaser, and the Company desires to extend such rights herein; and
WHEREAS, the Company and the Purchasers desire to extend certain rights
herein to the Stockholders.
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. DEFINITIONS.
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange
Commission of the United States or any other U.S. federal agency at the time
administering the Securities Act.
"COMMON STOCK" shall mean the Company's common stock, $.001
par value per share.
"COMMON STOCK EQUIVALENTS" means and includes all shares of
Common Stock issued and outstanding at the relevant time plus (i) all shares of
Common Stock that may be
<PAGE>
issued upon exercise of any options, warrants and other rights of any kind that
are then exercisable, and (ii) all shares of Common Stock that may be issued
upon conversion or exchange of (A) any convertible securities, including without
limitation, the Series A Preferred and all other preferred stock and debt
securities then outstanding, which are by their terms then convertible into or
exchangeable for Common Stock, or (B) any such convertible securities issuable
upon exercise of options, warrants or other rights that are then exercisable.
"HOLDER" shall mean each of the Purchasers (and their
transferees as permitted by Section 1.6) holding Registrable Securities or
securities convertible into or exercisable for Registrable Securities.
"INITIATING HOLDERS" shall mean Holders who in the aggregate
hold at least thirty percent (30%) of the Registrable Securities and join in a
request referred to in Section 1.2(a).
"OTHER HOLDERS" shall mean holders of Company securities,
other than Holders, having rights or obligations arising from, or proposing to
distribute their securities pursuant to, a registration referred to in this
Agreement, including the Stockholders.
"REGISTRABLE SECURITIES" means (i) any Common Stock now held
or hereafter acquired by any Holder and (ii) any Common Stock issued or issuable
on conversion of the Series A Preferred now held or hereafter acquired by any
Holder. Shares of Common Stock or other securities shall only be treated as
Registrable Securities if they have not been (A) sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, or (B) sold in a single transaction exempt from the registration
and prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, excluding
Selling Expenses (as defined below), incurred by the Company in complying with
Sections 1.2, 1.3 or 1.4 hereof, including, without limitation, all
registration, qualification and filing fees, accounting fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company and reasonable
fees and disbursements of one counsel for the Holders selected by the Holders
(or if no Holders shall be participating in such registration, then the one
counsel for and selected by a majority of those participating Other Holders) and
approved by the Company (which approval shall not be unreasonably withheld),
blue sky fees and expenses and the expense of any special audits incident to or
required by any such registration.
2
<PAGE>
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, or any
similar United States federal statute.
"SELLING EXPENSES" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by Holders and Other Holders. Such expenses shall be borne by
Holders and Other Holders.
"SELLING HOLDERS" shall mean each Holder and Other Holder
holding securities of the Company that are included in a registration statement
under the Securities Act pursuant to this Agreement.
1.2 REGISTRATION RIGHTS.
(a) REQUEST FOR REGISTRATION. In case the Company
shall receive from Initiating Holders a written request that the Company effect
any registration, qualification or compliance with respect to not less than
thirty percent (30%) of the then outstanding Registrable Securities with an
anticipated aggregate offering price, net of any underwriting discounts and
commissions, in excess of $5,000,000 (a "Registration Notice"), the Company
will:
(i) promptly give written notice of the
proposed registration, qualification or compliance to all other Holders and
the Other Holders; and
(ii) as soon as practicable, use its best
efforts to effect such registration, qualification or compliance (including,
without limitation, appropriate qualification under applicable blue sky or
other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder and securities of
the same class and series held by any Other Holder joining in such request as
are specified in a written request received by the Company from any Holder or
Other Holder within twenty (20) days after such Holder's or Other Holder's
receipt of such written notice from the Company. Notwithstanding the
foregoing, the Company shall not be obligated to take any action to effect
any such registration, qualification or compliance pursuant to this Section
1.2:
(A) In any particular jurisdiction in
which the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance unless
the Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act;
3
<PAGE>
(B) Prior to six (6) months after
the effective date of the Company's first registered public offering of its
stock, if the underwriters of such public offering shall (1) release an
aggregate of at least 50,000 shares of Common Stock but less than 200,000 shares
of Common Stock from the applicable Lock Up Period (as defined below), then,
subject to the other provisions of this Section 1.2(a)(ii), the Company shall be
obligated at such time to effect a registration, qualification or compliance
under this Section 1.2 with respect to the same percentage of Registrable
Securities held by the Holders that such released shares represent in proportion
to the total number of shares of Common Stock held by all of the holders of such
released shares, (2) release an aggregate of 200,000 or more shares of Common
Stock from the applicable Lock Up Period, then the limitations set forth in this
clause (B) shall cease with respect to the transactions contemplated by such
Registration Notice or (3) shorten such Lock Up Period with respect to all
parties subject thereto (any of the foregoing releases, a "Lock Up Release"), in
which case the six-month restriction set forth in this clause (B) shall be
shortened to terminate simultaneously with such shortened Lock Up Period;
(C) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date three (3) months immediately following the effective date of,
any registration statement pertaining to securities of the Company sold by the
Company (other than with respect to a registration statement relating solely to
a Commission Rule 145 transaction or a stock option or other employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective, and
provided further that, if such registration statement relates to an underwritten
offering, then if a Lock Up Release shall be given, then the three-month
restriction set forth in this clause (C) shall terminate or be reduced
proportionately in accordance with the procedures set forth in Section
1.2(a)(ii)(B);
(D) After the Company has effected
two (2) registrations pursuant to this Section 1.2, and the second of such
registrations has been declared or ordered effective; or
(E) If the Company shall furnish to
such Holders a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of a majority of the Outside Directors
(as defined in the Series A Purchase Agreement) of the Board of Directors it
would be detrimental to the Company or its stockholders for a registration
statement to be filed in the near future, then the Company's obligation to use
its best efforts to register, qualify or comply under this Section 1.2 shall be
deferred for a period not to exceed ninety (90) days from the date of receipt of
written request from the Initiating Holders, provided, however, that the Company
shall not utilize this right more than once in any twelve (12) month period.
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Subject to the foregoing clauses (A) through (E), the Company shall
file a registration statement covering the Registrable Securities and the
securities held by the Other Holders so requested to be registered as soon as
practicable, after receipt of the request or requests of the Initiating Holders.
(b) UNDERWRITING. In the event that a registration
pursuant to this Section 1.2 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders and Other Holders as part
of the Registration Notice. In such event, the right of any Holder or Other
Holder to registration pursuant to Section 1.2 shall be conditioned upon such
Holder's or Other Holder's participation in the underwriting arrangements
required by this Section 1.2, and the inclusion of such Holder's Registrable
Securities or such Other Holder's securities in the underwriting to the extent
requested shall be limited to the extent provided herein. The Company shall
(together with all Holders and Other Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company, but subject to the reasonable approval of the Holders holding a
majority of the Registrable Securities held by all Holders participating in the
offering. Notwithstanding any other provision of this Section 1.2, if the
managing underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company shall so advise all Holders and Other Holders proposing to
distribute their securities through such underwriting, and the number of shares
that may be included in the registration and underwriting shall be allocated,
FIRST, among all participating Holders in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities on an as-converted basis
held by such Holders at the time of filing the registration statement and,
SECOND, among any Other Holders in proportion to the number of shares proposed
to be included in such registration by such Other Holders. No Registrable
Securities or other securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
any Holder or Other Holder disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the Initiating Holders. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to one hundred eighty
(180) days after the effective date of the registration statement relating
thereto, or such other shorter period of time as the underwriters may require
pursuant to Section 1.11 or to the extent that any entity or person
participating in the offering is released, in whole or in part, from its "market
standoff" agreement (in which event any time restriction of Purchaser will be
released in a similar manner), and the Company shall use reasonable efforts to
include in the related underwriting agreement language to reflect the foregoing
provisions of this sentence.
1.3 COMPANY REGISTRATIONS.
(a) NOTICE OF REGISTRATION. If at any time or from
time to time the Company shall determine to register any of its securities of
the same series and class as any of
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the Registrable Securities or any securities held by the Stockholders (or any
securities convertible into or exchangeable or exercisable for shares of such
series and class) either for its own account or the account of a security holder
or holders, other than (i) a registration relating solely to a stock option or
other employee benefit plan, (ii) a registration relating solely to a Commission
Rule 145 transaction, or (iii) with respect to the Company's registration of
shares of Common Stock in its initial public offering, the Company will:
(A) promptly give to each Holder and Other
Holder written notice thereof; and
(B) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities and shares held by
the Other Holders specified in a written request or requests received by the
Company from any Holder or any Other Holder within twenty (20) days after such
Holder's or Other Holder's receipt of such written notice from the Company.
(b) UNDERWRITING. If the registration of which
the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders and Other Holders as a
part of the written notice given pursuant to Section 1.3(a)(i). In such event
the right of any Holder and/or any Other Holder to registration pursuant to this
Section 1.3 shall be conditioned upon such Holder's and/or Other Holder's
participation in such underwriting and the inclusion of their securities in the
underwriting to the extent provided herein. All Holders and Other Holders
proposing to distribute their securities through such underwriting shall,
together with the Company, enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.3, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
securities to be included in such registration. The Company shall so advise all
Holders and Other Holders, and the number of shares that may be included in the
registration and underwriting shall be allocated, FIRST, to the Company (if the
registration has been initiated by the Company), SECOND, among all the
participating Holders in proportion to the respective amounts of Registrable
Securities held by such Holders at the time of filing of the registration
statement, and, THIRD, among the Other Holders in proportion to the number of
shares proposed to be included in such registration by such Other Holders,
provided that in no event shall the number of Registrable Securities included in
any such offering be reduced below 20% of the total number of securities in the
offering. If any Holder or Other Holder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, and shall not
be transferred in a public distribution prior to one hundred eighty (180) days
with respect to the Company's initial public offering and 90 days otherwise
after the effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require
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pursuant to Section 1.11 or to the extent that any entity or person
participating in the offering is released, in whole or in part, from its "market
standoff" agreement (in which event any time restriction of Purchaser will be
released in a similar manner), and the Company shall use reasonable efforts to
include in the related underwriting agreement language to reflect the foregoing
provisions of this sentence.
(c) RIGHT TO TERMINATE REGISTRATION. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 1.3 prior to the effectiveness of such registration whether
or not any Holder or Other Holder has elected to include securities in such
registration; provided, however, if the Holders elect to use their demand
registration right pursuant to Section 1.2 hereof, then such registration shall
be governed by Section 1.2 and it shall not be terminated.
1.4 REGISTRATIONS ON FORM S-3.
(a) REQUEST FOR REGISTRATION. If at any time or
from time to time any Holder requests that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of the Registrable Securities with a reasonably anticipated aggregate
price to the public of at least $1,000,000, and the Company is a registrant
entitled to use Form S-3 to register the Registrable Securities for such an
offering, the Company shall use its best efforts to cause such Registrable
Securities to be registered for the offering on such form and to cause such
Registrable Securities to be qualified in such jurisdictions as the
participating Holders may reasonably request. The substantive provisions of
Section 1.3(b) shall be applicable to each such registration initiated under
this Section 1.4 involving an underwriting.
(b) LIMITATIONS. Notwithstanding the foregoing,
the Company shall not be obligated to take any action pursuant to this Section
1.4:
(i) in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(ii) if the Company, within ten (10)
days of the receipt of the request of any Holder requesting registration
under this Section 1.4, gives notice of its bona fide intention to effect the
filing of a registration statement with the Commission within ninety (90)
days of receipt of such request (other than with respect to a registration
statement relating solely to a Commission Rule 145 transaction or a stock
option or other employee benefit plan), provided that if the Company fails to
effect such filing within such 90-day period, then the limitations set forth
in this clause (ii) shall cease with respect to such Holder's request and,
subject to the provisions of Sections 1.4(b)(i), (iii) and (iv), the Company
shall be obligated to effect the registration in accordance with Section
1.4(a);
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(iii) within a three (3) month period
immediately following the effective date of any registration statement
pertaining to securities of the Company (other than with respect to a
registration statement relating solely to a Commission Rule 145 transaction
or a stock option or other employee benefit plan), provided that, if such
registration statement relates to an underwritten offering, then if a Lock Up
Release shall be given, then the three-month restriction set forth in this
clause (iii) shall terminate or be reduced proportionately in accordance with
the procedures set forth in Section 1.2(a)(ii)(B); or
(iv) if the Company shall furnish to the
participating Holders a certificate signed by the Chief Executive Officer of
the Company stating that in the good faith judgment of a majority of the
Outside Directors (as defined in the Series A Purchase Agreement) of the
Board of Directors it would be detrimental to the Company or its stockholders
for a registration statement to be filed in the near future, then the
Company's obligation to use its best efforts to file a registration statement
shall be deferred for a period not to exceed ninety (90) days from the
receipt of the request to file such registration by such Holder; provided,
however, that the Company shall not utilize this right more than once in any
twelve (12) month period.
1.5 EXPENSES OF REGISTRATION.
(a) REGISTRATION EXPENSES. The Company shall
bear all Registration Expenses incurred in connection with all registrations
pursuant to Sections 1.2 and 1.3 and the first registration pursuant to Section
1.4. The Holders, pro rata based on the number of shares registered, shall bear
all Registration Expenses incurred in connection with all registrations, other
than the first such registration, pursuant to Section 1.4. In the event any
Initiating Holders withdraw a Registration Notice, abandon a registration
statement or, following an effective registration pursuant to Section 1.2
hereof, do not sell Registrable Securities, then all Registration Expenses in
respect of such Registration Notice shall be borne, at the Initiating Holders'
option, either by the Initiating Holders or by the Company. If borne by the
Company, such withdrawn or abandoned registration shall be deemed to be an
effective registration for purposes of Section 1.2(a)(ii)(D) hereof only if the
reason for such abandonment or withdrawal was due to any cause within the
control of Purchasers.
(b) SELLING EXPENSES. Unless otherwise stated,
all Selling Expenses relating to securities registered on behalf of the Holders
and Other Holders shall be borne by the Holders and Other Holders pro rata on
the basis of the number of shares so registered.
1.6 REGISTRATION AND QUALIFICATION. If and whenever the
Company is required to use its best efforts to effect the registration of any
securities under the Securities Act pursuant to this Agreement, the Company will
as promptly as is practicable:
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(a) prepare and file with the Commission and use
its best efforts to cause to become effective, a registration statement under
the Securities Act relating to the securities to be offered on such form as the
Initiating Holders, or if not filed pursuant to Section 1.2 or Section 1.4
hereof, the Company, determines and for which the Company then qualifies;
(b) prepare and file with the Commission such
amendments (including post-effective amendments) and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities until the earlier of such time as all of such securities have been
disposed of in accordance with the intended methods of disposition set forth in
such registration statement or the expiration of one hundred twenty (120) days
after such registration statement becomes effective; provided that such one
hundred twenty (120) day period shall be extended in the case of a registration
pursuant to Section 1.2 hereof for such number of days that equals the number of
days elapsing from (i) the date the written notice contemplated by Section
1.6(f) hereof is given by the Company to (ii) the date on which the Company
delivers to the Selling Holders the supplement or amendment contemplated by
Section 1.6(f) hereof;
(c) furnish to the Selling Holders and to any
underwriter of such securities such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such registration
statement or prospectus, and such other documents, as the Selling Holders or
such underwriter may reasonably request;
(d) make every reasonable effort to prevent the
issuance of any stop order suspending the effectiveness of such registration
statement or to obtain the withdrawal of any order suspending the effectiveness
of such registration statement as early as possible;
(e) if requested by an Initiating Holder, (i)
furnish to each Selling Holder an opinion of counsel for the Company addressed
to each Selling Holder and dated the date of the closing under the underwriting
agreement (if any) (or if such offering is not underwritten, dated the effective
date of the registration statement), and (ii) use its best efforts to furnish to
each Selling Holder a "comfort" or "special procedures" letter addressed to each
Selling Holder and signed by the independent public accountants who have audited
the Company's financial statements included in such registration statement, in
each such case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and
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such other matters as an Initiating Holder may reasonably request and, in the
case of such accountants' letter, with respect to events subsequent to the date
of such financial statements;
(f) immediately notify the Selling Holders in
writing (i) at any time when a prospectus relating to a registration hereunder
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) of any request by the Commission or any other
regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or other document relating to such
offering, and in either such case (i) or (ii) at the request of a Selling Holder
prepare and furnish to such Selling Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(g) use its best efforts either (A) to cause all
such Registrable Securities to be listed on a national securities exchange (if
such securities are not already so listed) and on each additional national
securities exchange on which similar securities issued by the Company are then
listed, if the listing of such securities is then permitted under the rules of
such exchange, or (B) to secure designation of all such Registrable Securities
as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-1
of the Commission or, failing that, to secure listing on NASDAQ for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two (2) market makers to register as such with respect to
Registrable Securities with the National Association of Securities Dealers,
Inc.;
(h) upon the transfer of shares by a Selling
Holder in connection with a registration hereunder, furnish unlegended
certificates representing ownership of such securities being sought in such
denominations as shall be requested by the Selling Holders or the underwriters;
(i) use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered by the registration
statement;
(j) provide a transfer agent for the Common
Stock no later than the effective date of the first registration of any
Registrable Securities;
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(k) enter into such customary agreements
(including an underwriting agreement in customary form) and take such other
actions as the selling Holders of Registrable Securities shall reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities;
(l) make available for inspection by any selling
Holder of Registrable Securities, by any underwriter participating in any
disposition to be effected pursuant to such registration statement and by any
attorney, accountant or other agent retained by any such selling Holder or any
such underwriter, all pertinent financial and other records and pertinent
corporate documents and properties of the Company, and cause all of the
Company's officers, directors and employees to supply all information reasonably
requested by any such selling Holder, underwriter, attorney, accountant or agent
in connection with such registration statement;
(m) make such representations and warranties to
the selling Holders of Registrable Securities and the underwriters as are
customarily made by issuers to selling stockholders and underwriters, as the
case may be, in primary underwritten public offerings; and
(n) deliver promptly to each Holder
participating in the offering and each underwriter, if any, copies of all
correspondence between the Commission and the Company, its counsel and auditors
relating to discussions with the Commission and its staff with respect to the
registration statement.
1.7 INDEMNIFICATION.
(a) BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act pursuant
to this Agreement, the Company will and hereby does indemnify and hold harmless,
to the fullest extent permitted by law, each Holder, each of its officers,
fiduciaries, employees, stockholders, directors and general and limited partners
(and the officers, fiduciaries, employees, stockholders and directors thereof),
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter or Qualified
Independent Underwriter, if any, and each person who controls any underwriter or
Qualified Independent Underwriter within the meaning of Section 15 of the
Securities Act, against all costs, expenses, claims, losses, damages,
liabilities, actions or proceedings (whether commenced or threatened) in respect
thereof ("Claims") (including any Claims incurred in settlement of any
litigation, commenced or threatened) to which each such indemnified party may be
subject under the Securities Act or otherwise insofar as such Claims arise out
of or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
securities were registered under the Securities Act or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements
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therein not misleading, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus or any
amendment or supplement thereto, together with the documents incorporated by
reference therein, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating to
action required of or inaction by the Company in connection with any such
registration, and the Company will reimburse each Holder, each of its officers,
fiduciaries, employees, stockholders, directors and partners, each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such Claim, provided
that the Company will not be liable in any such case to the extent that any such
Claim, arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed by
such Holder, controlling person or underwriter and stated to be specifically for
use therein. If the Holders are represented by counsel other than counsel for
the Company, the Company will not be obligated under this subsection (a) to
reimburse legal fees and expenses of more than one separate counsel for the
Holders. Such indemnity and reimbursement of expenses shall remain in full force
and effect regardless of any investigation made by or on behalf of such
indemnified party and shall survive the transfer of such securities by such
Holder.
(b) BY THE HOLDERS. In the event of any
registration of any securities of any Holder under the Securities Act pursuant
to this Agreement, each Holder will and hereby does indemnify and hold harmless,
to the fullest extent permitted by law, the Company and each other Holder, and
each of their respective officers, fiduciaries, employees, stockholders,
directors and general and limited partners (and the officers, fiduciaries,
employees, stockholders and directors thereof), and each person controlling the
Company and such other Holder within the meaning of Section 15 of the Securities
Act, with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter or Qualified
Independent Underwriter, if any, and each person who controls any underwriter or
Qualified Independent Underwriter within the meaning of Section 15 of the
Securities Act, against all Claims (including any Claims incurred in settlement
of any litigation, commenced or threatened) to which each such indemnified party
may be subject under the Securities Act or otherwise insofar as such Claims
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such securities were registered under the Securities Act or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact
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required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (iii) any violation by such Holder of any federal, state or
common law rule or regulation applicable to such Holder and relating to action
required of or inaction by such Holder in connection with any such registration,
and such Holder will reimburse the Company and each other Holder, and each of
their respective officers, fiduciaries, employees, stockholders, directors and
partners, each person controlling the Company or such other Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such Claim, provided that, in each case only to the
extent that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) or violation is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited in an amount equal to the net proceeds from the
shares sold by such Holder. Such indemnity and reimbursement of expenses shall
remain in full force and effect regardless of any investigation made by or on
behalf of such indemnified party and shall survive the transfer of such
securities by such Holder.
(c) PROCEDURE FOR INDEMNIFICATION. Each party
indemnified under paragraph (a) or (b) of this Section 1.7 (the "Indemnified
Party") shall, promptly after receipt of notice of any claim or the commencement
of any action against such Indemnified Party in respect of which indemnity may
be sought, notify the party required to provide indemnification (the
"Indemnifying Party") in writing of the claim or the commencement thereof;
provided that the failure of the Indemnified Party to notify the Indemnifying
Party shall not relieve the Indemnifying Party from any liability which it may
have to an Indemnified Party on account of the indemnity agreement contained in
paragraph (a) or (b) of this Section 1.7, unless the Indemnifying Party was
materially prejudiced by such failure, and in no event shall relieve the
Indemnifying Party from any other liability which it may have to such
Indemnified Party. If any such claim or action shall be brought against an
Indemnified Party, it shall notify the Indemnifying Party thereof and the
Indemnifying Party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Indemnifying Party to the Indemnified
Party of its election to assume the defense of such claim or action, the
Indemnifying Party shall not be liable (except to the extent the proviso to this
sentence is applicable, in which event it will be so liable) to the Indemnified
Party under this Section 1.7 for any legal or other expenses subsequently
incurred by the Indemnified Party in connection with the defense thereof other
than reasonable costs of investigation; provided that each Indemnified Party
shall have the right to employ separate counsel to represent it and assume its
defense (in which case, the Indemnifying Party shall not represent it) if (i)
upon the advice of counsel, the representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them, (ii) in the event the Indemnifying Party has not assumed the
defense
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thereof within ten (10) days of receipt of notice of such claim or commencement
of action, and in which case the fees and expenses of one such separate counsel
shall be paid by the Indemnifying Party or (iii) if such Indemnified Party who
is a defendant in any action or proceeding which is also brought against the
Indemnifying Party reasonably shall have concluded that there may be one or more
legal defenses available to such Indemnified Party which are not available to
the Indemnifying Party. If any Indemnified Party employs such separate counsel
it will not enter into any settlement agreement which is not approved by the
Indemnifying Party, such approval not to be unreasonably withheld. If the
Indemnifying Party so assumes the defense thereof, it may not agree to any
settlement of any such claim or action as the result of which any remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party. In any action
hereunder as to which the Indemnifying Party has assumed the defense thereof
with counsel reasonably satisfactory to the Indemnified Party, the Indemnified
Party shall continue to be entitled to participate in the defense thereof, with
counsel of its own choice, but, except as set forth above, the Indemnifying
Party shall not be obligated hereunder to reimburse the Indemnified Party for
the costs thereof.
If the indemnification provided for in this Section
1.7 shall for any reason be unavailable to an Indemnified Party in respect of
any loss, claim, damage or liability, or any action in respect thereof, referred
to therein, then each Indemnifying Party shall, in lieu of indemnifying such
Indemnified Party, contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, claim, damage or liability, or action in respect
thereof, in such proportion as shall be appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and the Indemnified Party on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied specifically for use in any registration statement, prospectus,
offering circular or other similar document by the Indemnifying Party on the one
hand or the Indemnified Party on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission, but not by reference to any Indemnified Party's
stock ownership in the Company. If, however, the allocation provided in the
second preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative faults but also the relative benefits of the indemnifying party and the
indemnified party as well as any other relevant equitable considerations. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this Section 1.7 were to be determined by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the preceding sentences of this Section 1.7. In no
event, however, shall a Holder be required to contribute in excess of the amount
of the net proceeds received by such Selling Holder in
14
<PAGE>
connection with the sale of securities in the offering which is the subject of
such loss, claim, damage or liability. The amount paid or payable by an
Indemnified Party as a result of the loss, claim, damage or liability, or action
in respect thereof, referred to above in this paragraph shall be deemed to
include, for purposes of this paragraph, any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 12(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The indemnification and contribution agreements contained
herein shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
1.8 INFORMATION BY SELLING HOLDERS. The Holders in any
registration shall furnish to the Company such information regarding such
Holders as shall be necessary to enable the Company to comply with the
provisions hereof in connection with any registration, qualification or
compliance referred to in this Agreement.
1.9 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of securities of the Company to the public without
registration, after such time as a public market exists for the Common Stock,
the Company agrees to use its best efforts to:
(a) Make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities Act,
at all times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act");
(b) File with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) Furnish to any Holder forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time after ninety (90) days after the effective
date of the first registration statement filed by the Company for an offering of
its securities to the general public), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as such
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such Holder to sell any such securities without
registration.
15
<PAGE>
1.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted Holders under Sections 1.2, 1.3 and 1.4
and Stockholders under Section 1.3 may be assigned in connection with any
transfer or assignment of Registrable Securities by a Holder or securities by a
Stockholder provided that: (a) such transfer may otherwise be effected in
accordance with applicable securities laws, (b) such transfer is effected in
compliance with the restrictions on transfer contained in any agreement between
the Company and the Holder or the Stockholder and (c) such assignee or
transferee agrees in writing to be bound by the terms of this Agreement and
assumes all of the obligations of the transferring Holder or Stockholder
hereunder. Subject to the terms of Section 1.12, no transfer or assignment will
divest a Holder or Stockholder or any subsequent owner of such rights and powers
unless all Registrable Securities held thereby, in the case of a Holder or a
transferee thereof, are transferred or assigned.
1.11 "MARKET STAND-OFF" AGREEMENT. Each Holder and Stockholder
hereby agrees that, during the period of duration specified by the Company or by
an underwriter of Common Stock or other securities of the Company, following the
date of the first sale to the public pursuant to a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period (such period, whether or not it relates to such a first
sale to the public, is referred to elsewhere in this Agreement as a "Lock Up
Period"), except the securities included in such registration; provided,
however, that:
(a) all officers and directors of the Company
and all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements; and
(b) such market stand-off time period shall not
(i) exceed one hundred eighty (180) days in connection with the first
registration statement of the Company which covers Common Stock or other
securities to be sold on its behalf to the public, and (ii) exceed ninety (90)
days with respect to any subsequent registration statement, provided that if an
underwriting agreement entered into in connection with an offering has a shorter
market stand-off period than that period set forth in this clause (b), then such
period shall be reduced to the shorter period, and provided further that, no
Holder shall be subject to any such market stand-off period under this clause
(b)(ii) with respect to any such subsequent registration statement unless any
securities of the Company held by the Holder are included in such registration
statement.
Notwithstanding the foregoing, the obligations described in
this Section 1.11 shall not apply to a registration relating solely to stock
option or other employee benefit plans on Form S-8 or similar forms which may be
promulgated in the future, or a registration
16
<PAGE>
relating solely to a Commission Rule 145 transaction on Form S-4, Form S-14 or
Form S-15 or similar forms which may be promulgated in the future. In the event
that the underwriter or underwriters of such offering of Common Stock shall
release any shares of Common Stock from any stand-off contained in an
underwriting agreement or similar agreements, such release will apply to the
similar restrictions herein on a pro-rata basis among all holders of Common
Stock subject to such agreement or similar agreements.
This Section 1.11 shall be binding on all transferees or
assignees of Registrable Securities or securities previously held by a
Stockholder, whether or not such persons are entitled to registration rights
pursuant to Section 1.10, and if requested by the Company, any such transferee
or assignee shall confirm in writing its agreement to be bound by the provisions
hereof.
1.12 TERMINATION OF REGISTRATION RIGHTS. Except for the
provisions of Section 1.11, the registration rights granted in Sections 1.2, 1.3
and 1.4 shall terminate, with respect to each Holder and Stockholder, as
applicable, at such time as either (a) all Registrable Securities or securities
of the Company held by such Holder or Stockholder, respectively, can be sold
pursuant to Rule 144(k) without compliance with the registration requirements of
the Securities Act or (b) all Registrable Securities or securities of the
Company held by such Holder or Stockholder, respectively, constitute less than
one percent (1.0%) of the fully diluted voting securities of the Company and can
be sold without volume limitations under Rule 144. The respective indemnities,
representations and warranties of the Holders, Stockholders and the Company
shall survive such termination.
1.13 NO INCONSISTENT AGREEMENTS. The rights granted to the
holders of Registrable Securities hereunder do not in any way conflict with and
are not inconsistent with any other agreements to which the Company is a party
or by which it is bound. Without the prior written consent of the Purchasers
holding a majority of the Registrable Securities, the Company will not on or
after the date of this Agreement, enter into any agreement with respect to its
securities which is inconsistent with the rights granted in this Agreement or
otherwise conflicts with the provisions hereof, other than any lock-up agreement
with the underwriters in connection with any registered offering effected
hereunder, pursuant to which the Company shall agree not to register for sale,
and the Company shall agree not to sell or otherwise dispose of, Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock,
for a specified period following the registered offering. The Company further
agrees that if any other registration rights agreement entered into after the
date of this Agreement with respect to any of its securities contains terms
which are more favorable to, or less restrictive on, the other party thereto
than the terms and conditions in this Agreement are (insofar as they are
applicable) to the Purchasers, then the terms and conditions of this Agreement
shall immediately be deemed to have been amended without further action by the
Company or any of the Holders of Registrable Securities so that the Purchasers
shall be entitled to the benefit of any such more favorable or less restrictive
terms or conditions.
17
<PAGE>
1.14 RIGHT OF FIRST OFFER BY THE COMPANY. The Company hereby
grants to each Holder a right of first offer with respect to future sales by the
Company of its Shares (as hereinafter defined). Each time the Company proposes
to offer any shares of, or securities convertible into or exchangeable or
exercisable for any shares of, any class of its capital stock ("Shares"), the
Company shall first make an offering of such Shares to the Holders in accordance
with the following provisions.
(a) The Company shall deliver a notice
("Notice") to the Holders stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms upon which it proposes to offer such Shares.
(b) By written notification received by the
Company, within twenty (20) calendar days after receipt of the Notice, each
Holder may elect to purchase or obtain, at the price and on the terms specified
in the Notice, up to that portion of such Shares that equals the proportion that
the number of shares of Common Stock issued to and held by that Holder bears to
the total number of shares of Common Stock then outstanding (assuming full
conversion of all convertible securities).
(c) If all Shares that the Holders are entitled
to obtain pursuant to subsection 1.14(b) are not elected to be obtained as
provided in such subsection, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 1.14(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within ninety (90) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Holders in accordance herewith.
(d) The right of first offer in this Section
1.14 shall not be applicable to (i) the issuance or sale of shares of Common
Stock (or options therefor) to employees, directors and consultants for the
primary purpose of soliciting or retaining their services; (ii) the issuance
of securities pursuant to a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Securities Act; (iii) the
issuance of securities pursuant to the conversion or exercise of convertible
or exercisable securities as to which the Holders have previously been
afforded a right to purchase under this Section 1.14; (iv) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange
of stock or otherwise; or (v) the issuance of stock, warrants or other
securities or rights to persons or entities with which the Company has
business relationships, provided such issuances are for other than primarily
equity financing purposes and provided that at the time of any such issuance,
the aggregate of such issuance and similar issuances in the preceding twelve
month period do not exceed 1% of the then outstanding Common Stock (assuming
full conversion and exercise of all convertible
18
<PAGE>
and exercisable securities) and provided, further, that the aggregate of all
such issuances referred to in this Section 1.14(d) shall not exceed 3.1 million
shares of Common Stock (before making applicable or appropriate adjustment for
any stock splits, stock dividends and the like following the date of this
Agreement) and any such issuances in excess of such amount shall be otherwise
subject to the terms of this Section 1.14.
2. MISCELLANEOUS.
2.1 WAIVERS AND AMENDMENTS. With the written consent of the
Company and the Purchasers holding more than 75% of the Registrable Securities,
the obligations of the Company and the rights of the Purchasers under this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely), and with the same consent, the Company, when authorized by
resolution of the Board of Directors, may amend this Agreement or enter into a
supplementary agreement for the purpose of adding any provisions to this
Agreement; provided, however, that no such waiver or supplemental agreement
shall reduce the above percentage of Registrable Securities, the holders of
which are required to consent to any waiver or supplemental agreement, without
the consent of the record or beneficial holders of 75% of the Registrable
Securities. Neither this Agreement nor any provisions hereof may be changed,
waived, discharged or terminated orally, but only by a signed statement in
writing. Any amendment, waiver or supplementary agreement effected in accordance
with this paragraph shall be binding upon each Purchaser, each future holder of
any Registrable Securities, each Stockholder and the Company.
2.2 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing (or in the form of a facsimile
(confirmed in writing) to be given only during the recipient's normal business
hours unless arrangements have otherwise been made to receive such notice by
facsimile outside of normal business hours) and shall be mailed by registered or
certified mail or by a nationally recognized overnight courier, postage prepaid,
or otherwise delivered by hand, messenger, or facsimile (as provided above)
addressed (a) if to a Purchaser, at the address or facsimile number for such
Purchaser set forth on the signature pages hereto or at such other address or
facsimile number as such Purchaser shall have furnished to the Company in
writing, (b) if to any Stockholder, at the address or facsimile number for such
Stockholder set forth on the signature pages hereto, (c) if to any other holder
of securities of the Company entitled to notices and other communications
hereunder, at such address or facsimile number as such holder shall have
furnished the Company in writing or, until any such holder so furnishes an
address or facsimile number to the Company, then to and at the address or
facsimile number of the last holder of such securities who has so furnished an
address or facsimile number to the Company, or (d) if to the Company, to 1901
Main Street, 2nd Floor, Santa Monica, California 90405 addressed to the
attention of the Corporate Secretary (or at such other address as the Company
shall have furnished in writing to the Purchasers) with a copy to Riordan &
McKinzie, 300 South Grand Avenue, 29th Floor, Los Angeles, California 90071,
Attention: Timothy F. Sylvester, Esq.
19
<PAGE>
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered, if
delivered personally, or, if sent by mail, at the earlier of its receipt or
seventy-two (72) hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid, or, if by nationally recognized overnight courier, the
following business day after it has been timely delivered to or deposited with
such courier, addressed and mailed as aforesaid, or, if by facsimile, pursuant
to the above, when received.
2.3 DESCRIPTIVE HEADINGS. The descriptive headings herein have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
2.4 GOVERNING LAW. This Agreement shall be governed by and
interpreted under the laws of the State of Delaware as applied to agreements
among California residents, made and to be performed entirely within the State
of Delaware.
2.5 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument, but only one of
which need be produced.
2.6 FACSIMILE SIGNATURES. Any signature page delivered by a
fax machine or telecopy machine shall be binding to the same extent as an
original signature page, with regard to any agreement subject to the terms
hereof or any amendment thereto. Any party who delivers such a signature page
agrees to later deliver an original counterpart to any party which requires it.
2.7 EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.8 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided in this Agreement, this Agreement shall benefit and bind the
successors, assigns, heirs, executors and administrators of the parties to this
Agreement.
2.9 ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter of this Agreement.
2.10 SEPARABILITY; SEVERABILITY. Unless expressly provided in
this Agreement, the rights of each Purchaser and Stockholder under this
Agreement are several rights, not rights jointly held with any other Purchasers
or Stockholders. Any invalidity, illegality or limitation on the enforceability
of this Agreement with respect to any Purchaser or Stockholder
20
<PAGE>
shall not affect the validity, legality or enforceability of this Agreement with
respect to the other Purchasers or Stockholders. In the event that any provision
of this Agreement becomes or is declared by a court of competent jurisdiction to
be illegal, invalid, unenforceable or void, this Agreement shall continue in
full force and effect without said provision.
2.11 STOCK SPLITS. All references to numbers of shares in this
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
2.12 REMEDIES. The parties hereto acknowledge that there would
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to injunctive relief, including specific performance, to enforce such
obligations without the posting of any bond, and, if any action should be
brought in equity to enforce any of the provisions of this Agreement, none of
the parties hereto shall raise the defense that there is an adequate remedy at
law.
2.13 FURTHER ASSURANCES. Each party hereto shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments,
and documents as any other party hereto reasonably may request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
21
<PAGE>
SIGNATURE PAGE FOR INTERPACKET GROUP, INC.
INVESTOR RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first above written.
COMPANY: INTERPACKET GROUP, INC., a
Delaware corporation
By: /s/ Jonathan Gans
-------------------------------
Name: Jonathan Gans
Title: Chief Executive Officer
Address: 1901 Main Street
Santa Monica, CA 90405
Fax: (310) 382-3310
PURCHASERS: PEQUOT PRIVATE EQUITY FUND II, L.P., a
Delaware limited partnership
By: /s/ Amiel Peratz
-------------------------------
Name: Amiel Peratz
Title: Chief Operating
Officer--Pequot Capital
Management, as Investment
Manager
Address: 500 Nyala Farm Road
Westport, CT 06880
Fax: (203) 429-2400
INTEL CORPORATION, a
Delaware corporation
By: /s/ Arvind Sodhani
-------------------------------
Name: Arvind Sodhani
Title: Vice President & Treasurer
Address: 2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: M&A Portfolio
Manager - M/S RN6-46
Fax No. (408) 765-6038
<PAGE>
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attention: General Counsel
Fax No. (408) 765-1859
BAYSTAR CAPITAL, L.P., a
Delaware limited partnership
By: BayStar Capital Management LLC,
its General Partner
By: /s/ Steven M. Lamar
-----------------------
Name: Steven M. Lamar
Title: Vice President
Address: 1500 West Market Street,
Suite 200
Mequon, WI 53092
Fax: (415) 835-3777
H&Q INTERPACKET GROUP INVESTORS, LLC
By: /s/ Robert N. Savoie
------------------------------
Name: Robert N. Savoie
Title: Tax Director,
Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
<PAGE>
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Robert N. Savoie
-----------------------------------
Name: Robert N. Savoie
Title: Tax Director, Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
HAMBRECHT & QUIST EMPLOYEE VENTURE
FUND, L.P. II
By: H&Q Venture Management, L.L.C.,
its General Partner
By: /s/ Robert N. Savoie
---------------------------
Name: Robert N. Savoie
Title: Tax Director,
Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
ACCESS TECHNOLOGY PARTNERS, L.P.
By: Access Technology Management, L.L.C.,
its General Partner
By: H&Q Venture Management, L.L.C.,
its Managing Member
By: /s/ Robert N. Savoie
-----------------------
Name: Robert N. Savoie
Title: Tax Director,
Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
<PAGE>
ACCESS TECHNOLOGY PARTNERS BROKERS
FUND, L.P.
By: H&Q Venture Management, L.L.C.,
its General Partner
By: /s/ Robert N. Savoie
----------------------------
Name: Robert N. Savoie
Title: Tax Director,
Attorney-in-Fact
Address: One Bush Street
San Francisco, CA 94104
STOCKHOLDERS: /s/ Jonathan Gans
----------------------------------------------
Jonathan Gans
Address:
--------------------------
--------------------------
/s/ Peter Zimble
----------------------------------------------
Peter Zimble
Address:
--------------------------
--------------------------
/s/ Julie Spira
----------------------------------------------
Julie Spira
Address: 13219 Fiji Wy. #F
--------------------------
Marina del Rey, CA 90292
--------------------------
/s/ James E. Kolsrud
----------------------------------------------
James E. Kolsrud
Address: 1021 23rd St.
--------------------------
Santa Monica, CA 90403
--------------------------
/s/ Norman J. Pattiz
----------------------------------------------
Norman J. Pattiz
Address:
--------------------------
--------------------------
<PAGE>
/s/ Jeffrey C. Barbakow
----------------------------------------------
Jeffrey C. Barbakow
Address:
--------------------------
--------------------------
/s/ Joseph T. Arsenio II
----------------------------------------------
Joseph T. Arsenio II
Address:
--------------------------
--------------------------
DELAWARE CHARTER GUARANTEE & TRUST
COMPANY TTEE FBO: JOSEPH T. ARSENIO II
By: /s/ Kathleen Grunewald
---------------------------
Name: Kathleen Grunewald
Title: IRA Controller,
Per Limited Power
of Attorney
Address: One Bush Street, 13th Floor
--------------------------
San Francisco, CA 94121
--------------------------
<PAGE>
PURCHASERS: BAYSTAR INTERNATIONAL LTD, a
British Virgin Island corporation
By: BayStar International Management, LLC,
its General Partner
By: /s/ Steven M. Lamar
--------------------------------
Name: Steven M. Lamar
Title: Vice President
Address: 1500 West Market Street, Suite 200
Mequon, WI 53092
Fax: (415) 835-3777
<PAGE>
EXHIBIT A
Pequot Private Equity Fund II, L.P.
Intel Corporation
BayStar Capital, L.P.
BayStar International Ltd.
H&Q InterPacket Group Investors, LLC
Hambrecht & Quist California
Hambrecht & Quist Employee Venture Fund, L.P. II
Access Technology Partners, L.P.
Access Technology Partners Brokers Fund, L.P.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF INTERPACKET NETWORKS, INC.
<TABLE>
<CAPTION>
Place of Incorporation of
Legal Name of Subsidiary Organization
- --------------------------------------------------------------------------------------
<S> <C>
Interpacket (U.K.) Limited United Kingdom
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated February 11, 2000 (and to all references to our Firm) included in
or made a part of this registration statement on Form S-1.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 18, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERPACKET
NETWORKS, INC. 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,948,294
<SECURITIES> 0
<RECEIVABLES> 1,333,914
<ALLOWANCES> 0
<INVENTORY> 1,063,090
<CURRENT-ASSETS> 18,786,453
<PP&E> 44,295,907
<DEPRECIATION> (1,422,989)
<TOTAL-ASSETS> 64,290,579
<CURRENT-LIABILITIES> 8,405,178
<BONDS> 0
14,823,800
0
<COMMON> 12,193
<OTHER-SE> 2,380,116
<TOTAL-LIABILITY-AND-EQUITY> 64,290,579
<SALES> 0
<TOTAL-REVENUES> 13,474,227
<CGS> 0
<TOTAL-COSTS> 23,531,229
<OTHER-EXPENSES> 94,669
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 942,990
<INCOME-PRETAX> (10,888,869)
<INCOME-TAX> 800
<INCOME-CONTINUING> (10,889,669)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,889,669)
<EPS-BASIC> (1.05)
<EPS-DILUTED> 0
</TABLE>
