UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
CONCENTRIC NETWORK CORPORATION
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(Name of Issuer)
Common Stock, par value $.001
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(Title of Class of Securities)
20589R107
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(CUSIP Number)
Wayne A. Wirtz, Esq.
SBC Communications, Inc.
175 E. Houston, 11th Floor
San Antonio, Texas 78205
(210) 351-3736
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
October 19, 1998
----------------------------------------
(Date of Event which Requires Filing of this Statement)
If a filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
(Continued on following pages)
(Page 1 of 9 Pages)
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CUSIP NO. 20589R107 PAGE 2 OF 9 PAGES
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
SBC Communications Inc.; 43-1301883
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(A) [ ]
(B) [X ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
WC
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7. SOLE VOTING POWER
NUMBER OF 0
SHARES ------------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 1,813,358 (See Item 4)
EACH ------------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON 0
WITH ------------------------------------------------------------
10. SHARED DISPOSITIVE POWER
1,813,358 (See Item 4)
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
1,813,358
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
[ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.85% (See Item 5)
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14. TYPE OF REPORTING PERSON
HC
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CUSIP NO. 20589R107 PAGE 3 OF 9 PAGES
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Southwestern Bell Internet Services, Inc.; 74-2784856
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(A) [ ]
(B) [X ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7. SOLE VOTING POWER
NUMBER OF 0
SHARES --------------------------------------------------------------
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 1,813,358 (See Item 4)
EACH --------------------------------------------------------------
REPORTING 9. SOLE DISPOSITIVE POWER
PERSON 0
WITH --------------------------------------------------------------
10. SHARED DISPOSITIVE POWER
1,813,358 (See Item 4)
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
1,813,358
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES
[ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.85% (See Item 5)
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14. TYPE OF REPORTING PERSON
CO
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Item 1. SECURITY AND ISSUER.
This statement relates to the Common Stock $.001 par value (the
"Common Stock"), of Concentric Network Corporation, a Delaware corporation (the
"Issuer") with its principal executive offices at 10590 N. Tantau Avenue,
Cupertino, California 95014.
Item 2. IDENTITY AND BACKGROUND.
(a) and (b) Southwestern Bell Internet Services, Inc. is a Delaware
corporation ("SBIS") and a direct wholly-owned subsidiary of SBC
(as hereinafter defined), with its principal office and principal
place of business at 1651 North Collins Boulevard, Richardson,
Texas 75080.
SBC Communications Inc. is a Delaware corporation ("SBC"), with
its principal office and principal place of business at 175 E.
Houston, San Antonio, Texas 78205-2233. Other than executive
officers and directors, there are no persons or corporations
controlling or ultimately in control of SBC.
The name of each executive officer and director of SBC and SBIS
are set forth in Exhibit 1 hereto and incorporated herein by
reference. The business address of all of the individuals listed
on Exhibit 1 is c/o The Vice President and Secretary, SBC
Communications Inc., 175 E. Houston, 11th Floor, San Antonio,
Texas 78205.
(c) SBC is a communications holding company whose subsidiaries are
engaged principally in communications.
SBIS is a provider of Internet access, consultative and
connectivity services.
The present principal occupation of each executive officer and
director of SBC and SBW are set forth in Exhibit 1 hereto and
incorporated herein by reference.
(d) During the last five years, neither SBIS or SBC nor, to the best
of their knowledge, any of their directors or executive officers
has been convicted in any criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) During the last five years, neither SBIS or SBC nor, to the best
of their knowledge, any of their officers or directors has been
a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction resulting in a judgment, decree or
final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities
laws, or finding any violation with respect to such laws, and
which judgment, decree or final order was not subsequently
vacated.
Page 4 of 9
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(f) Each executive officer and director of SBC is a citizen of the
United States except for director Carlos Slim Helu, a citizen of
Mexico.
Each executive officer and director of SBIS is a citizen of the
United States.
Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
As more fully described in Item 4 below, pursuant to a Stock
Purchase Agreement dated as of October 19, 1998 by and between SBIS and Issuer
(the "Stock Purchase Agreement"), SBIS will pay $21,896,297.85 (subject to
adjustment as described in Item 4) as consideration for 906,679 shares of Common
Stock of the Issuer (the "Common Stock") and 906,679 warrants to purchase common
stock of the Issuer (the "Warrants") each described in this Schedule 13D. The
funds used to purchase the Common Stock and the Warrants will come from working
capital funds of SBC. The source of funds, if any, that SBIS will use to pay the
exercise price under the Warrants (as hereinafter defined) will be determined at
the time of such exercise.
Item 4. PURPOSE OF THE TRANSACTION.
The purchase by SBIS of the Common Stock and the issuance by the
Issuer to SBIS of the Warrants will be effected in connection with the
commencement of a strategic business relationship between SBIS and certain of
its Affiliates, on the one hand, and the Issuer, on the other hand. "Affiliate"
means any person that directly or indirectly, through one or more
intermediaries, has control of or is controlled by, or is under common control
with, the person specified.
SBIS intends to continue to review its investment in the Issuer
on an ongoing basis and based upon the results of such review, market and
general economic conditions, regulatory approvals and other regulatory
conditions and other factors SBIS deems relevant, may seek to modify its
investment in the Issuer through any available means permitted by the Stock
Purchase Agreement and Warrants including, without limitation, increases or
decreases in its investment through open market purchases or sales or privately
negotiated transactions or actions of the type enumerated in clauses (a) through
(j) of Item 4 of Schedule 13D. Except as set forth herein, and subject to the
foregoing, SBIS has no current plans or proposals that would result in any of
the actions specified in clauses (a) through (j) of Item 4 of Schedule 13D.
A. STOCK PURCHASE AGREEMENT
On October 19, 1998, Issuer and SBIS entered into the Stock
Purchase Agreement pursuant to which Issuer will sell to SBIS 906,679 shares of
Common Stock and 906,679 Warrants (as described below) in exchange for
$21,896,297.85 in cash. The amount of Common Stock to be
Page 5 of 9
<PAGE>
issued will be reduced by the amount of any Common Stock purchased by SBIS on
the open market, and the purchase price will be reduced by $24.15 for each such
share. The consummation of the Stock Purchase Agreement (the "Closing") will
take place on the later of November 18, 1998 or five days after the expiration
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
The Stock Purchase Agreement provides that shares of Common Stock
purchased pursuant to the Stock Purchase Agreement or issued upon exercise of
the Warrants, and the Warrants themselves, are not transferable other than (i)
to the Issuer; (ii) to any Affiliate of SBIS; (iii) after the one-year
anniversary of the Closing, in compliance with Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"); (iv) pursuant to a rights offering,
dividend or other pro rata distribution to the stockholders of SBIS; (v) after
the one-year anniversary of the Closing, in private placement transactions
exempt from the registration requirements of the Securities Act; or (vi) in
response to a bona fide public tender offer or exchange offer subject to
Regulation 14D or Rule 13e-3 promulgated under the Securities Exchange Act of
1934, as amended, which is made by or on behalf of the Issuer. In the event of a
proposed transfer pursuant to (v) above to certain limited persons and in
amounts over certain volume limitations, SBIS must provide prior written notice
of such transfer, and such transfer shall be subject to the Issuer's right of
first refusal, within five days of receipt of the notice, to purchase all (but
not less than all) of the shares of Common Stock or Warrants specified in the
notice at a price equal to that to be paid by the third party.
B. WARRANTS
Pursuant to the Stock Purchase Agreement, the Issuer will issue
to SBIS 906,679 Warrants to purchase Common Stock. Each Warrant entitles the
holder thereof to purchase one share of Common Stock, subject to adjustment in
certain circumstances to prevent dilution. The Warrants are exercisable at
$21.00 per share of Common Stock subject to adjustment to account for
adjustments made in the number of shares of Common Stock that may be purchased
upon exercise of such Warrants. Warrants may be exercised for cash or, at the
option of the holder thereof, without any cash payment, for that number of
shares of Common Stock that reflects the difference between (i) the current
market value of a share of Common Stock and (ii) the exercise price per share of
Common Stock under such Warrant. The Warrants are subject to the transfer
restrictions described above.
Prior to receipt of Regulatory Relief, the Warrants will be
exercisable by the holder thereof only to the extent that doing so is consistent
with the Communications Act of 1934, as amended by The Telecommunications Act of
1996. Warrants may not be transferred unless registered under the Securities Act
of 1933, as amended, or an exemption from the registration requirements of such
act applies. The Warrants
Page 6 of 9
<PAGE>
will expire on the third anniversary of the consummation of the Stock
Purchase Agreement.
The foregoing descriptions of the documents listed in Item 7 and
filed as exhibits hereto are qualified in their entirety by the complete texts
of such documents.
Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) The total number of shares of Common Stock that SBIS would
beneficially own upon Stock is 906,679, which represents 5.4% of the
outstanding shares of Common Stock of the Issuer. The total number of
shares of Common Stock that SBIS would beneficially own upon exercise
of the 906,679 Warrants that it holds is 906,678 which represents 5.4%
of the total outstanding shares of Common Stock. Assuming issuance of
the Common Stock and exercise of the Warrants, the total number of
shares of outstanding Common Stock that SBW would beneficially own
would be 1,813,358 representing 10.85% of the outstanding shares of
Common Stock. The foregoing calculations are (i) based on the
14,899,822 shares of the Common Stock of the Issuer outstanding as of
October 19, 1998 and (ii) assume that the shares of Common Stock to be
issued pursuant to the Stock Purchase Agreement or exercise of the
Warrants or both, as the case may be, are issued and outstanding at
the time of such calculation. The Stock and Warrants beneficially
owned by SBC are to be owned by and registered in the name of SBIS.
(b) SBC and SBIS share the power to vote and to dispose of the Common
Stock and the power to dispose of the Warrants. The shares of Common
Stock beneficially owned by SBIS are subject to certain transfer
restrictions described more fully in Item 4 of this Schedule 13D.
(c) No transactions in the Common Stock were effected by SBC or SBIS in
the past sixty days.
(d) None.
(e) Not applicable.
Item 6. CONTRACTS, ARRANGEMENTS, UNDERTAKINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE
ISSUER.
Other than the Stock Purchase Agreement and the provisions of the
Warrants (each as described in Item 4), there are no contracts, arrangements,
understandings or relationships between SBC and SBIS, or among SBC, SBIS and any
other person with respect to securities of the Issuer.
Page 7 of 9
<PAGE>
Item 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Identity of Executive Officers and Directors of
SBC and SBIS
Exhibit 2 Stock Purchase Agreement, dated as of
October 19, 1998, by and between Issuer and
SBIS.
Exhibit 3 Form of Warrant Certificate: Included as
Exhibit A of Exhibit 2
Exhibit 4 Joint Filing Agreement
Page 8 of 9
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SIGNATURES
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
SBC COMMUNICATIONS INC.
By: /s/ Donald E. Kiernan
--------------------------------------
Donald E. Kiernan
Senior Vice President,
Treasurer and Chief
Financial Officer
SOUTHWESTERN BELL
INTERNET SERVICES, INC.
By: /s/ Patrick J. Pascarella
-------------------------------------
Patrick J. Pascarella
Secretary
Dated: October 28, 1998
Page 9 of 9
Exhibit 1
DIRECTORS AND EXECUTIVE OFFICERS OF
SBC COMMUNICATIONS INC. AND SOUTHWESTERN
BELL INTERNET SERVICES, INC.
The name, present principal occupation or employment, and the name
of any corporation or other organization in which such employment is conducted,
of each director, advisory director and executive officer of SBC Communications
Inc. ("SBC") and Southwestern Bell Internet Services, Inc. ("SBIS"), as
applicable, is set forth below. Except as set forth below each of the directors
and executive officers is a citizen of the United States. The business address
of each director and executive officer is SBC Communications Inc., 175 East
Houston, San Antonio, TX 78205, unless otherwise noted. Unless otherwise
indicated, each occupation set forth opposite an executive officer's name refers
to employment with SBC.
Name Present Principal Occupation or Employment
SBC:
DIRECTORS
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Edward E. Whitacre, Jr. Chairman of the Board and Chief Executive Officer
Royce S. Caldwell President - SBC Operations
Clarence C. Barksdale Vice Chairman, Board of Trustees, Washington
University
James E. Barnes Chairman of the Board, President and Chief
Executive Officer, MAPCO Inc., Retired
August A. Busch, III Chairman of the Board and President, Anheuser-Busch
Companies, Inc.
Ruben R. Cardenas Partner, Cardenas, Whitis & Stephen, L.L.P.,
Attorneys
William P. Clark Chief Executive Officer, Clark Company
Martin K. Eby, Jr. Chairman of the Board and Chief Executive Officer,
The Eby Corporation
Herman E. Gallegos Independent Management Consultant
Jess T. Hay Chairman, HCB Enterprises Inc.; Chairman of the
Texas Foundation for Higher Education
Bobby R. Inman United States Navy, Retired
Charles F. Knight Chairman and Chief Executive Officer,
Emerson Electric Co.
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<PAGE>
Exhibit 1
Mary S. Metz Dean, University Extension, University of California,
Berkeley
Haskell M. Monroe, Jr. Dean of Faculties Emeritus and Director of Academic
Development, Texas A&M University
Toni Rembe Partner, Pillsbury Madison & Sutro LLP
S. Donley Ritchey Managing Partner, Alpine Partners
Joyce M. Roche Independent Consultant
Richard M. Rosenberg Chairman and Chief Executive Officer (Retired),
BankAmerica Corporation
Carlos Slim Helu* Chairman of the Board, Grupo Carso, S.A. de C.V.
Patricia P. Upton President and Chief Executive Officer,
Aromatique, Inc.
ADVISORY DIRECTOR
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Gilbert F. Amelio Technologist, Aircraft Ventures, LLC
EXECUTIVE OFFICERS
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Edward E. Whitacre, Jr. Chairman of the Board, President and Chief
Executive Officer
Royce S. Caldwell President - SBC Operations
Cassandra C. Carr Senior Vice President - Regulatory
J. Cliff Eason President - SBC International
James D. Ellis Senior Executive Vice President and General Counsel
Charles E. Foster Group President - SBC
Karen Jennings acting Senior Vice President - Human Resources
James S. Kahan Senior Vice President - Corporate Development
Donald E. Kiernan Senior Vice President, Treasurer and Chief
Financial Officer
Stanley T. Sigman President and Chief Executive Officer -
SBC Wireless, Inc.
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*Citizen of Mexico
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<PAGE>
Exhibit 1
SBIS:
DIRECTORS
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Steven Hubbard President - SBIS; President - Pacific Bell Internet**
J. Michael Turner Executive Vice President, SBC Operations, Inc.***
EXECUTIVE OFFICERS
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Steven Hubbard President**
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** Mr. Hubbard's business address is 303 Second Street, San Francisco,
California 94107.
*** Mr. Turner's business address is 530 McCullough, Suite 1415, San Antonio,
Texas 78215.
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Execution Copy
STOCK PURCHASE AGREEMENT
by and between
CONCENTRIC NETWORK CORPORATION, As Issuer
and
SOUTHWESTERN BELL INTERNET SERVICES, INC.,
As Investor
October 19, 1998
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1. Definitions......................................................-1-
1.1. Defined Terms..............................................-1-
1.2. Other Terms................................................-4-
1.3. Other Definitional Provisions..............................-5-
SECTION 2. Issuance and Sale of Common Stock................................-5-
SECTION 3. Representations and Warranties of
the Company......................................................-6-
(a) Organization; Corporate Power..............................-6-
(b) Capital Stock and Related Matters..........................-6-
(c) Subsidiaries; Investments..................................-7-
(d) Authorization; No Breach...................................-8-
(e) Company Reports; Financial
Statements.................................................-9-
(f) No Material Adverse Change................................-10-
(g) Absence of Certain Developments...........................-10-
(h) Contracts and Commitments.................................-11-
(i) Intellectual Property Rights..............................-12-
(j) Litigation, etc...........................................-14-
(k) Brokerage.................................................-14-
(l) Compliance with Laws......................................-14-
(m) Affiliated Transactions...................................-15-
SECTION 4. Representations and Warranties of
the Investor....................................................-15-
(a) Execution; Authorization; No
Contravention.............................................-16-
(b) Securities Act............................................-16-
(c) Brokerage.................................................-17-
SECTION 5. Covenants.......................................................-17-
(a) Inspection Rights.........................................-17-
(b) Confidentiality...........................................-17-
(c) Filings...................................................-18-
(d) Reservation of Common Stock...............................-18-
(e) Further Assurances........................................-18-
(f) Board Representations.....................................-18-
(g) Repurchases by the Company................................-19-
SECTION 6. Conditions......................................................-19-
6.1. Conditions to Each Party's Obligation to
Effect the Closing........................................-19-
(a) Regulatory Consents..................................-19-
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(b) Litigation...........................................-19-
(c) Trial Agreement. ...................................-20-
6.2. Conditions to Obligations of
Investor..................................................-20-
(a) Representations and Warranties.......................-20-
(b) Performance of Obligations of the
Company..............................................-20-
(c) Legal Opinion........................................-20-
6.3. Conditions to Obligation of the
Company...................................................-20-
(a) Representations and Warranties.......................-20-
(b) Performance of Obligations of
Investor.............................................-21-
SECTION 7. Termination.....................................................-21-
7.1. Termination by Mutual Consent.............................-21-
7.2. Termination by Either Investor or the
Company...................................................-21-
7.3. Termination by the Company................................-21-
7.4. Termination by Investor...................................-21-
7.5. Effect of Termination and
Abandonment...............................................-22-
SECTION 8. Investor's Transfer Restrictions................................-22-
SECTION 9. The Company's Right of First Refusal............................-23-
SECTION 10. Survival and Indemnification....................................-24-
Survival of Representations, Warranties,
Covenants and Agreements; Knowledge of
Breach; Indemnification.........................................-24-
SECTION 11. Miscellaneous...................................................-25-
(a) Expenses...................................................-25-
(b) Public Disclosure..........................................-25-
(c) Successors and Assigns; Assignment.........................-26-
(d) Remedies...................................................-26-
(e) Amendments and Waivers.....................................-26-
(f) Severability...............................................-26-
(g) Counterparts...............................................-26-
(h) Descriptive Headings.......................................-26-
(i) Governing Law..............................................-27-
(j) Notices....................................................-27-
(k) Entire Agreement...........................................-27-
(l) Definition of Knowledge....................................-28-
-ii-
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
October 19, 1998 by and between CONCENTRIC NETWORK CORPORATION, a Delaware
corporation (the "Company"), and SOUTHWESTERN BELL INTERNET SERVICES, INC., a
Delaware corporation (the "Investor").
RECITALS:
WHEREAS, the Company desires to issue and sell to the Investor, and the
Investor desires to purchase and acquire from the Company the shares of Common
Stock and Warrants (as defined herein).
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties to this Agreement hereby agree as follows:
SECTION 1. Definitions.
1.1. Defined Terms. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Affiliate" means any Person that directly or indirectly, through
one or more intermediaries, has control of or is controlled by, or is under
common control with, the Person specified.
"Agreement" shall have the meaning set forth in the first
paragraph of this Agreement.
"Antitrust Authorization Condition" shall have the meaning set
forth in Section 2(b).
"Antitrust Division" shall mean the Antitrust Division of the
United States Department of Justice.
"Audit Date" shall have the meaning set forth in Section 3(e).
<PAGE>
"Balance Sheet Data" shall have the meaning set forth in Section
3(e).
"Business" means all business operations and activities currently
conducted by the Company and its Subsidiaries.
"Common Stock" means the common stock, par value $0.001 per
share, of the Company.
"Company" shall have the meaning set forth in the first paragraph
of this Agreement.
"Company Reports" shall have the meaning set forth in Section
3(e).
"Contracts" shall have the meaning set forth in Section 3(i).
"Deductible" shall have the meaning set forth in Section 8.
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall have the meaning set forth in Section 3(e).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof and (vi) trade
secrets and other confidential information (including, without limitation,
tangible and intangible proprietary information, ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), processes, know-how, manufacturing and production processes and
techniques, research and development
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<PAGE>
information, drawings, schematics, specifications, designs, plans, proposals,
technical data, technology, copyrightable works, financial and marketing plans
and customer and supplier lists and information).
"Internex" shall mean Internex Information Services, Inc.
"Investor" shall have the meaning set forth in the first
paragraph of this Agreement.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any filing or agreement to file a financing statement as debtor under
the Uniform Commercial Code of the applicable jurisdiction or any similar
statute other than to reflect ownership by a third party of property leased to
the Company or any Subsidiaries under a lease which is not in the nature of a
conditional sale or title retention agreement.
"Material Adverse Effect" shall mean a material adverse effect on
the financial condition, operating results, assets, operations or prospects of
the Company and its Subsidiaries taken as a whole.
"Person" means any individual, partnership, corporation,
association, joint stock company, trust, joint venture, unincorporated
organization or governmental entity or department, agency or political
subdivision thereof.
"Preferred Stock" shall have the meaning set forth in Section
3(b).
"Purchase Price" shall have the meaning set forth in Section
2(a).
"Regulatory Relief Date" shall mean the date on which Investor or
its Affiliates have, in their sole reasonable judgment, obtained any or all
necessary federal and/or state regulatory approvals to provide landline,
interLATA long-distance service in any of Investor's or its Affiliates'
in-region states pursuant to the Communications Act of 1934, as amended by the
Telecommunications Act of 1996.
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<PAGE>
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
"Subsidiary" of any specified Person or entity means a
corporation or other entity of which the majority of the voting power of the
equity securities or other equity interests is owned, directly or indirectly, by
such specified Person or entity or any Subsidiary of such specified Person or
entity.
"Transaction Documents" means this Agreement and the Warrant
Certificate.
"Warrant Certificate" shall mean the certificate evidencing the
Warrants, substantially in the form of Exhibit A.
"Warrants" shall mean the warrants to purchase Common Stock at an
exercise price of $21.00 per share, evidenced by the Warrant Certificate to be
issued to the Investor.
"Year 2000 Issue" with respect to any person shall mean any
significant risk that computer hardware, software or equipment containing
embedded microchips utilized in the business or operations of such person will
not, in the case of dates or time periods occurring after December 31, 1999,
function at least as effectively and reliably as in the case of times or time
periods occurring before January 1, 2000, including the making of accurate leap
year calculations.
1.2. Other Terms. Other terms may be defined elsewhere in the
text of this Agreement and, unless otherwise indicated, shall have such meaning
indicated throughout this Agreement.
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<PAGE>
1.3. Other Definitional Provisions. (a) The words "hereof",
"herein", and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States Dollars.
SECTION 2. Issuance and Sale of Common Stock.
(a) At the closing of the transactions contemplated hereby (the
"Closing"), (i) the Company will issue and sell to the Investor 906,679 shares
of Common Stock, subject to a reduction by the number of shares of Common Stock
the Investor purchases on the open market prior to the Closing and 906,679
Warrants and will deliver to the Investor the certificate(s) for such Common
Stock and the Warrant Certificate and (ii) the Investor will purchase such
shares and Warrants from the Company for an aggregate consideration consisting
of $21,896,297.85 (less $24.15 times the number of shares of Common Stock
purchased on the open market) (the "Purchase Price"), and will pay at the
Closing the Purchase Price by wire transfer to the Company into the account
designated by the Company no later than seven business days prior to the Closing
Date (as hereinafter defined).
(b) Subject to Section 6 hereof, the Closing will occur at the
Company's executive offices at 10:00 a.m. on the later of thirty days from the
execution of this Agreement or five business days after satisfaction of the
Antitrust Authorization Condition (the "Closing Date"). As used herein, the term
"Antitrust Authorization Condition" shall mean that the waiting period
applicable under the HSR Act to the issuance to the Investor of shares of Common
Stock and the exercise of the Warrants shall have expired or early termination
shall have been granted with respect thereto.
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SECTION 3. Representations and Warranties of the Company.
As a material inducement to the Investor to enter into this
Agreement and purchase the Common Stock and Warrants hereunder, the Company
hereby represents and warrants that as of the date hereof and as of the Closing:
(a) Organization; Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is qualified to do business in every jurisdiction in which
it is required to be qualified, except where the failure to so qualify has not
had and would not reasonably be expected to have a Material Adverse Effect. The
Company possesses all requisite corporate power and authority and all licenses,
permits and authorizations necessary to own and operate its properties and to
carry on the Business, subject to such exceptions as have not had and are not
reasonably expected to have a Material Adverse Effect. The Company has delivered
to Investor correct and complete copies of the Company's certificate of
incorporation and by-laws reflecting all amendments made thereto at any time
prior to the date of this Agreement.
(b) Capital Stock and Related Matters.
(i) The authorized capital stock of the Company consists of
110,000,000 shares of Common Stock, of which 14,899,822 shares were issued and
outstanding as of the date hereof and 10,000,000 shares of Preferred Stock,
$.001 par value, of which 154,657 shares of Series B Preferred Stock (the
"Preferred Stock") were issued and outstanding as of the date hereof. Except as
contemplated by the Transaction Documents and except for 3,441,044 shares of
Common Stock reserved for issuance pursuant to employee and director stock
option grants, 890,686 shares of Common Stock reserved pursuant to employee and
director stock and option plans (as to which grants have not been made) and
warrants to purchase 2,512,757 shares of Common Stock, neither the Company nor
any Subsidiary has outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock, nor does it have outstanding
any rights, options or warrants to subscribe for or to purchase its capital
stock or any stock or securities convertible into or exchangeable for its
capital stock or any stock appreciation rights or phantom stock plans, nor
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has it reserved any shares of capital stock for issuance upon exercise or
conversion of any rights, options or warrants to subscribe for or to purchase
its capital stock or any stock or securities convertible into or exchangeable
for its capital stock. Neither the Company nor any Subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any warrants, options or other rights
to acquire its capital stock. All of the outstanding shares of the Company's
capital stock are, and the shares of Common Stock to be issued hereunder and
upon exercise of the Warrants will be upon such issuance and receipt by the
Company of payment therefor, duly authorized, validly issued, fully paid and
nonassessable.
(ii) There are no statutory stockholders preemptive rights or
similar contractual rights to which the Company is subject or rights of refusal
to which the Company is subject with respect to the issuance of capital stock of
the Company. Except as set forth in the Company Reports, the Company has not
violated any applicable federal or state securities laws in connection with the
offer, sale or issuance of any of its capital stock, and the offer, sale and
issuance of the Common Stock hereunder do not require registration under the
Securities Act, assuming the Investor's representation in Section 4(b) is true
in all respects. There are no agreements to which the Company or, to the
knowledge of the officers of the Company, any holders of the capital stock of
the Company is a party with respect to the voting or transfer of the Company's
capital stock.
(iii) The Company has authorized the issuance and sale to the
Investor of the shares of Common Stock being sold to the Investor pursuant to
Section 2 hereof (including those shares issuable upon exercise of the
Warrants).
(c) Subsidiaries; Investments. Each of the Company's
Subsidiaries, which are listed on Exhibit B hereto, is wholly owned by the
Company and is duly organized, validly existing and in good standing under the
laws of the state of its incorporation, possesses all requisite corporate power
and authority and, except for such exceptions as have not had and are not
reasonably expected to have a Material Adverse Effect, all licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and is qualified to
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do business in every jurisdiction in which it is required to be qualified,
except where the failure to so qualify has not had and is not reasonably
expected to have a Material Adverse Effect. All of the outstanding shares of
capital stock of each Subsidiary are duly authorized, validly issued, fully paid
and nonassessable, and all such shares are owned by the Company free and clear
of any Lien. Neither the Company nor any Subsidiary owns or holds the right to
acquire any shares of stock or any other security or interest in any other
Person.
(d) Authorization; No Breach. The execution, delivery and
performance of the Transaction Documents by the Company have been duly
authorized by the Company. Each of the Transaction Documents has been duly
executed by the Company and constitutes a valid and legally binding obligation
of the Company, enforceable in accordance with its terms subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles. The execution and delivery of the Transaction Documents, and
the fulfillment of and compliance with the terms thereof by the Company, do not
and shall not (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 Lien upon the Company's or any Subsidiary's capital stock or assets
pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency or other Person pursuant to, the charter or bylaws of the Company or,
any Contract (as defined in Section 3(i)) or any law, statute, rule, regulation,
order, judgment, decree, agreement, license or instrument to which the Company
or any Subsidiary is subject, except for (A) any such conflict, breach, default,
Lien or right of modification, termination or acceleration (other than any of
the foregoing arising pursuant to the charter or bylaws of the Company) which
would not reasonably be expected to have a Material Adverse Effect or prejudice
in any material respect the rights of the Investor under any of the Transaction
Documents or (B) the requirement to obtain any authorizations or take or make
any related actions and filings required under state securities or "blue sky"
laws or to obtain any other authorization, consent,
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approval, action, notice, declaration or filing if the failure to do so would
not reasonably be expected to have a Material Adverse Effect or prejudice in any
material respect the rights of the Investor under any of the Transaction
Documents.
(e) Company Reports; Financial Statements. The Company has
delivered or made available to the Investor (i) each registration statement,
report, proxy statement or information statement filed with the SEC since
December 31, 1997 (the "Audit Date"), including the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, the Company's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 and the
Company's proxy statement with respect to its 1998 annual meeting, the Company's
reports on Form 8-K filed June 11, 1998, April 17, 1998 and February 18, 1998,
in each case in the form (including exhibits, annexes and any amendments
thereto) filed with the SEC (collectively, the "Company Reports"). As of their
respective dates, the Company Reports complied in all material respects with the
requirements of the Securities Act and the Securities Exchange Act and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading. Each of
the balance sheets included in or incorporated by reference into the Company
Reports (including the related notes and schedules) fairly presents in all
material respects the financial position of the Company or Internex, as the case
may be, as of its date and each of the statements of operations, stockholders
equity and cash flows included in or incorporated by reference into the Company
Reports (including any related notes and schedules) fairly presents in all
material respects the results of operations, net losses and cash flows, as the
case may be, of the Company or Internex, as the case may be, for the periods set
forth therein (subject, in the case of unaudited statements, to the absence of
notes and normal year-end audit adjustments), in each case in accordance with
generally accepted accounting principles ("GAAP") consistently applied during
the periods involved, except as may be noted therein (the date of the most
recently filed balance sheet of the Company is hereinafter referred to as the
"Balance Sheet Date").
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(f) No Material Adverse Change. Since the Balance Sheet Date,
there has been no material adverse change in the financial condition, operating
results, assets, operations, employee relations or customer or supplier
relations of the Company and its Subsidiaries, taken as a whole.
(g) Absence of Certain Developments.
(i) Except as expressly contemplated by the Transaction
Documents or as disclosed in the Company Reports since the Audit Date, neither
the Company nor any Subsidiary has:
(A) issued any notes, bonds or other debt securities or any
capital stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities (other than employee stock options and shares of Common Stock
issued upon the exercise thereof, shares of the Company's Series A
Preferred Stock and Series B Preferred Stock issued in connection with the
Company's dividend payment and exchange offer related to its outstanding
Shares of Preferred Stock and shares issued in connection with the
acquisition of its Subsidiaries);
(B) borrowed any amount or incurred or become subject to any
liabilities, except liabilities incurred in the ordinary course of business
and liabilities under contracts entered into in the ordinary course of
business (including any capital lease obligations);
(C) discharged or satisfied any material Lien or paid any
material obligation or liability, other than in the ordinary course of
business;
(D) declared or made any payment or distribution of cash or other
property to its stockholders with respect to its capital stock or other
equity securities or purchased or redeemed any shares of its capital stock
or other equity securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other equity
securities) other
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than dividend payments made with respect to the Company's Preferred Stock;
(E) sold, assigned or transferred any material Intellectual
Property or disclosed any proprietary confidential information to any
Person (other than any such disclosure in the ordinary conduct of business
operations or which disclosure was subject to a confidentiality agreement,
which in either case does not have a Material Adverse Effect);
(F) suffered any extraordinary losses, waived any rights of
material value or canceled any material debts or claims, other than in the
ordinary course of business and consistent with past practice;
(G) changed its accounting principles, practices or methods,
except as required by GAAP; or
(H) suffered any loss, or threatened loss, of any supplier or
customer or group of related suppliers or customers which is reasonably
expected to have a Material Adverse Effect.
(h) Contracts and Commitments.
(i) All of the contracts, agreements and instruments (a)
filed as exhibits to the Company Reports which have not expired in accordance
with their terms or (b) which have been entered into since the Audit Date and
which will be filed as exhibits to the Form 10-K for the year ended December 31,
1998 (the "Contracts") are valid and legally binding obligations of the Company
or its Subsidiaries, as the case may be, and, to the knowledge of the Company,
the other parties thereto, and, to the knowledge of the Company or the
applicable Subsidiary, are enforceable in accordance with their terms subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles. To the knowledge of the Company or the
applicable Subsidiary: (i) the Company and its Subsidiaries have performed in
all material respects all obligations required to be performed by them under the
Contracts and are not in material default under or in material breach of any
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Contract or in receipt of any claim of such default or breach; (ii) no event has
occurred which with the passage of time or the giving of notice or both would
result in a material default, material breach or event of material noncompliance
by the Company or any Subsidiary under any Contract; (iii) neither the Company
nor any Subsidiary has any present expectation or intention of not fully
performing all its material obligations under the Contracts; (iv) neither the
Company nor any Subsidiary has knowledge of any material breach or anticipated
material breach by the other parties to any Contract; and (v) neither the
Company nor any Subsidiary has any written notice or other communication to the
effect that any other party to any Contract intends to terminate such contract,
agreement or instrument prior to the expiration of the maximum stated term of
such contract, agreement or instrument.
(ii) A true and correct copy of each of the Contracts which
are referred to in (i)(b) hereof, together with all amendments, waivers or other
changes thereto has been supplied or made available to the Investor through the
SEC's EDGAR filing system.
(i) Intellectual Property Rights.
(i) To the Company's knowledge, neither the Company nor any
Subsidiary is, or as a result of the execution and delivery of this Agreement or
the performance of the Company's obligations hereunder will be, in violation of
any license, sublicense or other agreement applicable to it and, to the
Company's knowledge, the Company or one of its Subsidiaries owns all right,
title and interest to, or has the right to use pursuant to a valid license, all
Intellectual Property Rights used in the Business, subject to such exceptions as
have not had and are not reasonably expected to have a Material Adverse Effect.
(ii) To the Company's knowledge (A) there have been no claims
made against the Company or any Subsidiary or threatened or, to the Company's
knowledge, likely to be threatened by any Person, asserting the invalidity,
misuse or unenforceability of any Intellectual Property Rights referred to in
(i) above or challenging the ownership, validity or effectiveness of any of the
Intellectual Property Rights, which, if successful, would reasonably be expected
to have a Material Adverse Effect, (B) to the Company's knowledge, neither the
Company nor any
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Subsidiary has received any notices of any material unauthorized use,
infringement or misappropriation by, or conflict with, any present or former
employee of the Company, principal shareholders, strategic partners or any other
third party with respect to such Intellectual Property Rights (including,
without limitation, any demand or request that the Company or any Subsidiary
license any rights from a third party) which, if successful, would reasonably be
expected to have a Material Adverse Effect, (C) to the Company's knowledge, the
conduct of the Business has not infringed, misappropriated or conflicted with
and does not infringe, misappropriate or conflict with any Intellectual Property
Rights of other Persons, and (D) to the Company's knowledge, the Intellectual
Property Rights owned by or licensed to the Company or its Subsidiaries have not
been infringed, misappropriated or conflicted by other Persons, except in the
case of the clause (A) (B), (C) or (D) above for any infringement,
misappropriation or conflict that has not had and is not reasonably expected to
have a Material Adverse Effect. No Intellectual Property Right or product is
subject to any Lien and the Company does not know of any fact that would render
the Intellectual Property Rights invalid. Except with respect to Intellectual
Property Rights licensed by the Company from third parties in the ordinary
course of business, to the Company's knowledge, no Intellectual Property Right
is subject to any outstanding order, judgment, decree, stipulation or agreement
restricting in any manner the licensing or exploitation thereof by the Company
or any Subsidiary. Except for license agreements for the Company's products
executed in the ordinary course of business, without alteration or amendment of
any material term therein, and in accordance with the Company's past practices,
to the Company's knowledge neither the Company nor any Subsidiary has entered
into any agreement to indemnify any other person against any charge of
infringement relating to any Intellectual Property Right. To the Company's
knowledge, no employee of the Company or any Subsidiary is in violation of any
term of any confidentiality or invention assignment agreement, employment
contract (whether written or verbal), patent disclosure agreement or any other
contract or agreement relating to the relationship of any such employee with the
Company or any Subsidiary or any other party (including prior employers) because
of the nature of the business conducted or proposed to be conducted by the
Company or any Subsidiary. To the Company's knowledge, all registered
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trademarks, service marks and copyrights held by the Company or its Subsidiaries
are valid and subsisting.
(j) Litigation, etc. Except as set forth in the Company Reports,
there are no actions, suits, proceedings, orders, investigations or claims
pending (other than any such actions, suits, proceedings, orders, investigations
and claims which may be pending but of which none of the Company, any of its
Subsidiaries and their respective representatives have received notice) or, to
the Company's knowledge, threatened against the Company or any Subsidiary (or to
the Company's knowledge, pending or threatened against any of the officers or
directors of the Company or any Subsidiary) at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality which seek to enjoin or prevent the consummation of or otherwise
relate specifically to the transactions contemplated by the Transaction
Documents or which have had or are reasonably expected to have a Material
Adverse Effect; neither the Company nor any Subsidiary is subject to any pending
arbitration proceedings under collective bargaining agreements or otherwise or,
to the Company's knowledge, any governmental investigations or inquiries
(including, without limitation, inquiries as to the qualification to hold or
receive any license or permit) which have had or are reasonably expected to have
a Material Adverse Effect. Neither the Company nor any Subsidiary is subject to
any judgment, order or decree of any court or other governmental agency that
requires or prohibits any conduct on the part of the Company or its Subsidiaries
that affects the Business in a manner that would have a Material Adverse Effect.
(k) Brokerage. Except as set forth on Schedule 3(n) hereto, there
are no claims for brokerage commissions, finders' fees or similar compensation
in connection with the transactions contemplated by the Transaction Documents
for which the Investor will have any liability or responsibility based on any
arrangement or agreement binding upon the Company or any of its Subsidiaries.
(l) Compliance with Laws. To the Company's knowledge, neither the
Company nor any Subsidiary has violated any law or any governmental rule, order
or regulation or requirement which violation through the date hereof has had or
would reasonably be expected to have a
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Material Adverse Effect, and neither the Company nor any Subsidiary has received
notice of any such violation. To the knowledge of the Company, the operation of
the Business by the Company and its Subsidiaries complies and has complied in
all material respects with the Communications Act of 1934, as amended, and the
rules, orders, regulations and other applicable requirements of the Federal
Communications Commission and the public utility commissions of the states in
which the Business is conducted having jurisdiction over the Company or any of
its Subsidiaries; provided, however, that no representation or warranty is made
regarding the effect of future pronouncements or rulings by any applicable
governmental body.
(m) Affiliated Transactions. Except as disclosed in the Company
Reports hereto, no officer, director or Affiliate of the Company or any
Subsidiary or, to the knowledge of the Company, any individual related by blood,
marriage or adoption to any such individual or any entity in which any such
Person or individual owns a greater than 10% beneficial interest, is a party to
any agreement, contract, commitment or transaction with the Company or any
Subsidiary that is material to the Company and its Subsidiaries, taken as a
whole, or has any material interest in any material property used by the Company
or any Subsidiary which is required to be filed or disclosed in the Company
Reports pursuant to Item 404 of Regulation S-K of the Act.
(n) Year 2000. The Company has reviewed its operations and those
of its Subsidiaries with a view to assessing whether it or its Subsidiaries'
respective businesses, networks or products will, in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data, be vulnerable to a Year 2000 Issue and reasonably
anticipates that it will on a timely basis successfully resolve any Year 2000
Issue. Based on such review, the Company has no reason to believe that a
Material Adverse Effect will occur with respect to it or any Subsidiary's
businesses or operations resulting from a Year 2000 Issue.
SECTION 4. Representations and Warranties of the Investor.
As a material inducement to the Company to enter into this
Agreement and issue and sell the Common Stock and
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Warrants hereunder, the Investor hereby represents and warrants that:
(a) Execution; Authorization; No Contravention. The Investor has
duly executed and delivered to the Company each Transaction Document to which it
is a party, and each such Transaction Document constitutes a valid and legally
binding obligation of the Investor, enforceable against the Investor in
accordance with its terms subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles. The
execution, delivery and performance by the Investor of each Transaction Document
to which it is a party and the consummation of the transactions contemplated
thereby: (a) are within the Investor's corporate power and authority and have
been duly authorized by all necessary corporate action on the part of the
Investor; (b) do not and will not conflict with or contravene the terms of the
Investor's certificate of incorporation or bylaws; (c) do not and will not
violate, conflict with or result in any breach or contravention of or require
any consent, authorization, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency or other Person pursuant to (i) any material agreement, lease or
contract of such Investor, or (ii) any applicable statute or any rule or
regulation of any governmental authority or any order or decree applicable to
such Investor (other than as required by the HSR Act.
(b) Securities Act. The Investor is acquiring the Common Stock
solely for the purpose of investment and not with a view to, or for sale in
connection with, any distribution thereof in violation of the Securities Act.
The Investor acknowledges that the shares of Common Stock are not registered
under the Securities Act, and that such shares may not be transferred or sold
except pursuant to the registration provisions of such Securities Act or
pursuant to an applicable exemption therefrom and pursuant to state securities
laws and regulations as applicable and are subject to substantial restrictions
on transferability under the terms of the Stockholders' Agreement. The Investor
is knowledgeable, sophisticated and experienced in business and financial
matters of the type contemplated by the Transaction Documents and is able to
bear the economic risks associated with its investment in
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the Company. The Investor has been afforded access to information regarding the
Company and its Subsidiaries and their respective financial condition, operating
results, properties, liabilities, operations and management sufficient to enable
it to evaluate the risks and merits of its investment in the Company.
(c) Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by the Transaction Documents for which the Company will have any
liability or responsibility based on any arrangement or agreement binding upon
the Investor.
SECTION 5. Covenants.
(a) Inspection Rights. The Company shall permit, and cause its
Subsidiaries to permit, the representatives designated by the Investor upon
reasonable notice and during normal business hours, to (x) visit and inspect any
of the properties of the Company and its Subsidiaries, (y) examine the corporate
and financial records of the Company and its Subsidiaries and to make copies
thereof, and (z) discuss the affairs, finances and accounts of any such
corporations with the directors, officers, key employees and (with the prior
consent of the Company, which will not be unreasonably withheld) independent
accountants of the Company.
(b) Confidentiality. The Investor shall hold in confidence all
information and data obtained by it from the Company or any Subsidiary (whether
in connection with the negotiation of the transactions contemplated by the
Transaction Documents, pursuant to Section 5(a) or otherwise) and shall not
disclose such information to any Person without the prior written consent of the
Company (except that the Investor may disclose such information to those of its
Affiliates, directors, officers and other representatives who require access to
such information and who has executed a copy of the Company's standard
Confidentiality and Proprietary Information Agreement, previously provided to
Investor, in order to enable the Investor to exercise its rights under the
Transaction Documents and who agree to be subject to the restrictions set forth
in this Section 5(b)); provided, however, that the provisions of this Section
5(b) shall not apply to any information or data that can be shown (i) to be
generally
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available to the public through no fault of the Investor or its Affiliates,
directors, officers and other representatives or (ii) to have been lawfully
obtained by the Investor from other sources not subject to a confidentiality
obligation to the Company.
(c) Filings. The Company and the Investor will promptly file
with the FTC and the Antitrust Division a notification and report form and
related documentary materials if and when required by the HSR Act in connection
with any of the transactions contemplated by this Agreement and the Transaction
Documents and promptly file any additional information requested as soon as
reasonably practicable after receipt of request thereof. Each of the Company and
the Investor will use their reasonable best efforts to obtain as promptly as
practicable after the date hereof early termination or expiration of any waiting
period applicable under the HSR Act to the transactions contemplated hereby.
(d) Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of the exercise of the Warrants, the number of
shares of its Common Stock issuable upon the exercise of the Warrants. All
shares of Common Stock which are so issuable shall, when issued upon the
exercise of the Warrants, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges.
(e) Further Assurances. If at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement or the Transaction Documents, the proper officers or directors of the
Company or the Investor, as the case may be, shall execute and deliver any
further instruments or documents and take all such necessary action that may
reasonably be requested by the other party.
(f) Board Representations. The Investor shall be entitled to
designate, at its option, either (i) one non-director delegate who shall be
entitled to receive notice of and to attend all meetings of the Company's Board
of Directors, as well as to receive all materials received by directors, but who
shall not be a member of the Board of Directors, shall have no fiduciary duties
to the Company, to the Board of Directors or stockholders of the Company and
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shall not be entitled to vote at meetings of the Board of Directors (an
"Observer") or (ii) a designee that the Company agrees to use its best efforts
to have the Company's Board of Directors nominate to serve on the Company's
Board of Directors. Any Observer shall execute and deliver to the Company a copy
of the Company's standard Proprietary Information and Nondisclosure Agreement as
a condition to receiving the information provided for hereunder.
(g) Repurchases by the Company. Provided that the Investor has
not purchased any equity securities of the Company, except as contemplated
hereby (including te Warrants), until the Regulatory Relief Date, the Company
will not reacquire or redeem any capital stock so that the ownership by Investor
and its Affiliates would equal or exceed on a fully diluted basis 10% of all
equity of the Company.
SECTION 6. Conditions.
6.1. Conditions to Each Party's Obligation to Effect the
Closing. The respective obligation of each party to effect the Closing is
subject to the satisfaction or waiver at or prior to the Closing of each of the
following conditions:
(a) Regulatory Consents. The Antitrust Authorization Condition
shall have been satisfied and all notices, reports and other filings required to
be made prior to the Closing by the Company or Investor or any of their
respective Subsidiaries with, and all consents, registrations, approvals,
permits and authorizations required to be obtained prior to the Closing by the
Company or Investor or any of their respective Subsidiaries from, any government
or regulatory authority, agency, commission, body or other governmental entity
("Governmental Entity") in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by the
Company and Investor shall have been made or obtained (as the case may be).
(b) Litigation. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, law, ordinance, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
restrains, enjoins or otherwise
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prohibits the Closing or the exercise of the Warrants (collectively, an
"Order"), and no Governmental Entity shall have instituted any proceeding or
threatened to institute any proceeding seeking any such Order.
(c) Trial Agreement. At the time of Closing, no federal or state
regulatory agency or court shall have ruled that the Trial Agreement, executed
on the date hereof, violates any federal, state or local statute, rule or
regulation, provided that there is no reasonable prospect that the Trial
Agreement can be conformed to the ruling, while satisfying the original intent
of the parties to the Trial Agreement.
6.2. Conditions to Obligations of Investor. The obligations of
Investor to effect the Closing are also subject to the satisfaction or waiver at
or prior to the Closing of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date (except to the extent any such representation or
warranty expressly speaks as of an earlier date), and Investor shall have
received a certificate signed on behalf of the Company by the President or
Executive Vice President of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date.
(c) Legal Opinion. Investor shall have received an opinion of
Wilson Sonsini Goodrich & Rosati, counsel to the Company, dated the Closing
Date, regarding the due authorization, validity and fully paid and nonassessable
status of the shares of Common Stock.
6.3. Conditions to Obligation of the Company. The obligation of
the Company to effect the Closing is also subject to the satisfaction or waiver
by the Company at or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Investor set forth in this
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Agreement shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date, (except to the extent any such representation and warranty expressly
speaks as of an earlier date).
(b) Performance of Obligations of Investor. Investor shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
SECTION 7. Termination.
7.1. Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing, by mutual written consent of the
Company and Investor.
7.2. Termination by Either Investor or the Company. This
Agreement may be terminated at any time prior to the Closing by either Investor
or the Company if (i) the Closing shall not have occurred by April 30, 1999, or
(ii) any Order permanently restraining, enjoining or otherwise prohibiting the
Closing shall become final and non-appealable; provided, that the right to
terminate this Agreement pursuant to clause (i) above shall not be available to
any party that has breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the
occurrence of the failure of the Closing to occur.
7.3. Termination by the Company. This Agreement may be
terminated at any time prior to the Closing, by action of the Company if there
has been a material breach by Investor of any representation, warranty, covenant
or agreement contained in this Agreement that is not curable or, if curable, is
not cured within 15 days after written notice is given by the Company to
Investor.
7.4. Termination by Investor. This Agreement may be terminated
at any time prior to the Closing, by action of Investor if there has been a
material breach by the Company of any representation, warranty, covenant or
agreement contained in this Agreement that is not curable or, if curable, is not
cured within 15 days after written notice is given by Investor to the Company.
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7.5. Effect of Termination and Abandonment. In the event of
termination of this Agreement, this Agreement shall become void and of no effect
with no liability on the part of any party hereto (or of any of its directors,
officers, employees, agents, legal and financial advisors or other
representatives); provided, however, except as otherwise provided herein, no
such termination shall relieve any party hereto of any liability or damages
resulting from any breach of this Agreement.
SECTION 8. Investor's Transfer Restrictions.
(a) The Investor shall not, directly or indirectly, sell,
transfer, pledge, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise dispose of, any (x) shares of Common Stock purchased
hereunder or upon exercise of the Warrant or (y) Warrants except: (i) to the
Company; (ii) to an Affiliate of Investor, so long as such Affiliate agrees to
hold such shares subject to all of the provisions of Sections 8 and 9 of this
Agreement, and agrees to transfer such shares of Common Stock to the Investor or
another Affiliate of Investor if it ceases to be an Affiliate; (iii) pursuant to
a rights offering, dividend or other pro rata distribution to the stockholders
of the Investor; (iv) after the date which is the one year anniversary of the
Closing, pursuant to Rule 144 promulgated under the Securities Act (including
the observance of the requirements of paragraph (f) of such rule, whether or not
otherwise applicable to such disposition, solely with respect to transactions
that would otherwise constitute a First Refusal Sale (as defined below)); (v)
after the date which is the one year anniversary of the Closing, in private
placement transactions exempt from the registration requirements of the
Securities Act; provided that in the event of a proposed transfer to one of the
parties listed on Exhibit C hereto pursuant to this subsection (v) in one or
more transactions occurring during a 90-day period of 100,000 or more shares of
Common Stock or Warrants to acquire 100,000 shares or more of Common Stock (a
"First Refusal Sale"), such transfer shall be subject to the provisions of
Section 9 below; or (vi) in response to a bona fide public tender offer or
exchange offer subject to Regulation 14D or Rule 13e-3 promulgated under the
Exchange Act for cash or other consideration which is made by or on behalf of
the Company.
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(b) Any attempted sale, transfer or other disposition by
Investor or an Affiliate of Investor which is not in compliance with this
Section 8 or Section 9 below shall be null and void.
SECTION 9. The Company's Right of First Refusal.
(a) Prior to the Investor effecting a First Refusal Sale
pursuant to Section 8(a)(v), the Company shall have a first refusal right to
purchase such shares on the following terms and conditions:
(i) The Investor shall give prior notice (the "Transfer
Notice") to the Company in writing of such intention, specifying the name of the
proposed purchaser or transferee, the number of shares of Common Stock proposed
to be sold or transferred, the proposed price therefor and the other material
terms upon which such disposition is proposed to be made.
(ii) The Company shall have the right, exercisable by
written notice given by the Company to the Investor within five (5) business
days after receipt of such Transfer Notice (the "Response Notice"), to purchase
all, but not less than all of the shares of Common Stock specified in such
Transfer Notice for cash at the price per share or, if consideration other than
cash is specified in the Transfer Notice, in an amount in cash equal to the Fair
Market Value of such non-cash consideration, as specified in the Transfer
Notice. Fair Market Value shall, with respect to securities which are traded,
constitute the average closing price over the twenty trading days prior to the
date of the Transfer Notice and with respect to other consideration, shall be
determined in good faith by the Investor.
(iii) If the Company exercises its right of first refusal
hereunder, the closing of the purchase of the shares of Common Stock with
respect to which such right has been exercised shall take place within thirty
(30) calendar days after the Company gives the Response Notice to the Investor.
Upon exercise of its right of first refusal, the Company and the Investor shall
be legally obligated to consummate the purchase and sale contemplated thereby
and shall use their best efforts to secure any approvals required in connection
therewith.
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(iv) If the Company does not exercise its right of first
refusal hereunder within five business days or fails to close within the time
period specified in (iii) above (providing that nothing contained herein should
relieve the Company of liability for such breach), the Investor shall be free,
during the period of sixty (60) calendar days following (A) the expiration of
such five-day period or (B) such failure to close, to sell the shares of Common
Stock specified in such Transfer Notice to the proposed purchaser or transferee
specified in such Transfer Notice and on terms not less favorable to the
Investor than the terms specified in such Transfer Notice.
(b) The Company may assign its right of first refusal hereunder
to any other person.
SECTION 10. Survival and Indemnification.
Survival of Representations, Warranties, Covenants and
Agreements; Knowledge of Breach; Indemnification. Notwithstanding any otherwise
applicable statute of limitations, the representations and warranties of each of
the Investor and the Company, respectively, included or provided for herein
shall survive the execution and delivery of this Agreement thirty (30) days
after the receipt by the Investor or the Company, as the case may be, of audited
consolidated financial statements for the other party, as of and for the year
ending December 31, 1998, together with a report thereon by the other party's
independent public accountants provided, however, that any representation,
warranty, covenant or agreement contained in Sections 3(n) and 4(c) shall
survive the execution and delivery of this Agreement until the expiration of the
applicable statute of limitations (including any waivers or extensions thereof)
with respect to such matters; provided, however, that the provisions of this
Section 10 shall constitute the exclusive remedy on the part of any party hereto
in respect of a breach of the representations and warranties of the other party
contained in this Agreement. The covenants and other agreements contained in
this Agreement shall survive the execution and delivery of this Agreement
except that covenants or agreements with a term specified therein shall
terminate at the end of such term. Investor and the Company shall indemnify each
other for breaches of the foregoing representations, warranties and covenants as
to which the indemnified party has given notice during the periods of survival
set forth above, provided,
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that, in no event shall the Investor be liable to the Company or the Company be
liable to the Investor, as the case may be, pursuant to this Section 10, for any
breach of the representations, warranties, covenants and agreements included or
provided for herein or in any schedule or certificate or other document
delivered pursuant to this Agreement, unless and until all claims for which
damages are recoverable hereunder by the Investor or the Company, as the case
may be, exceed $500,000 (the "Deductible"), in which case the Investor or the
Company, as the case may be, shall be entitled to damages equal to such excess,
but not more than the Purchase Price plus the charges and expenses (including
reasonable attorneys' fees and expenses) incurred by the party sustaining such
damages in connection with the Transaction Documents and the transactions
thereby. Any payments pursuant to this Section 10 shall be treated as an
adjustment to the Purchase Price for all tax purposes. The indemnification
provided for by this Section 10 shall apply notwithstanding any investigation
made by or on behalf of any party.
SECTION 11. Miscellaneous.
(a) Expenses. Except as otherwise expressly provided in this
Agreement, the parties shall bear their own respective expenses (including, but
not limited to, all compensation and expenses of counsel, financial advisors,
consultants, actuaries and independent accountants) incurred in connection with
this Agreement and the transactions contemplated hereby and by the Transaction
Documents.
(b) Public Disclosure. Each party to this Agreement hereby
agrees with the other party hereto that, except as may be required to comply
with the requirements of applicable law or the rules and regulations of each
stock exchange or of the Nasdaq National Market or other automated quotation
system upon which the securities of one of the parties is listed or to which
such securities are admitted for trading no press release or similar public
announcement or communication will be made or caused to be made concerning the
execution or performance of this Agreement unless specifically approved in
advance by both parties hereto.
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(c) Successors and Assigns; Assignment. Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior written consent of
the other party hereto, except that the Investor may designate, by written
notice to the Company, an Affiliate to acquire some or all of the shares of
Common Stock or Warrants hereunder; provided, however, that no such designation
of an Affiliate shall relieve the Investor of its obligations under this
Agreement. The Investor, any Affiliate and any sucessors and assigns shall be
treated as one entity for the purposes of this Agreement.
(d) Remedies. Any Person having any rights under any provision
of this Agreement will be entitled to proceed to enforce such rights
specifically, to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law.
(e) Amendments and Waivers. This Agreement and any of the terms
contained herein may only be amended or modified by the Company and the Investor
or their successor and assigns in writing.
(f) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
(h) Descriptive Headings. The headings of the sections contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect the meaning or interpretation of
this Agreement.
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(i) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware without
giving effect to the conflict of laws provisions thereof.
(j) Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the Investor and to the Company at the addresses
indicated below:
if to the Investor, to: Southwestern Bell Internet
Services, Inc.
175 E. Houston
San Antonio, Texas 78205
Attention: Thomas W. Hartmann
Facsimile: (210) 351-3488
with a copy to: Sullivan & Cromwell
1701 Pennsylvania Ave., N.W.
Washington, D.C. 20006-5805
Attention: Janet T. Geldzahler
Facsimile: (202) 956-7515
if to the Company, to: Concentric Network Corporation
10590 N. Tantau Avenue
Cupertino, CA 95014
Attention: Michael Anthofer
Facsimile: (408) 342-2876
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: David Segre
Facsimile: (650) 496-7556
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(k) Entire Agreement. This Agreement and the Schedules hereto
and the other Transaction Documents
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represent the entire agreement between the Investor and the Company with respect
to the subject matter hereof, and such agreements supersede all prior agreements
between such parties with respect to the subject matter hereof.
(l) Definition of Knowledge. For the purpose of this Agreement,
"knowledge of the Company" or "known" or a similar phrase shall mean the actual
knowledge of those individuals listed on Exhibit D.
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IN WITNESS WHEREOF, the undersigned parties have duly executed
this Agreement as of the date first above written.
CONCENTRIC NETWORK CORPORATION
By: /s/ Michael F. Anhofer
-----------------------------------------------
Name: Michael F. Anhofer
Title: Senior V.P. and C.E.O.
SOUTHWESTERN BELL INTERNET SERVICES, INC.
By: /s/ Steven C. Hubbard
-----------------------------------------------
Name: Steven C. Hubbard
Title: CEO/President
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EXHIBIT A
CONCENTRIC NETWORK CORPORATION
Warrants for the Purchase of Shares of
Common Stock of Concentric Network Corporation
- --------------------------------------------------------------------------------
No. 1A 906,679 Warrants
FOR VALUE RECEIVED, CONCENTRIC NETWORK CORPORATION, a Delaware
corporation (the "Company"), hereby certifies that Southwestern Bell Internet
Services, Inc., a Delaware corporation ("SBIS"), or permitted assigns
(collectively, the "Holder") is entitled, subject to the provisions of this
warrant certificate (including any substitute certificate issued pursuant to the
terms hereof, this "Warrant Certificate") representing 906,679 warrants
("Warrants"), to purchase from the Company, at the times specified herein, one
fully paid and non-assessable share of Common Stock (as hereinafter defined) at
the Exercise Price, as defined below. The number of shares of Common Stock to be
received upon the exercise of a Warrant and the Exercise Price are subject to
adjustment from time to time, but only as hereinafter set forth.
Concurrently with the issuance of the Warrants, SBIS is purchasing
906,679 shares of Common Stock, par value $.001 per share, of the Company
pursuant to a Stock Purchase Agreement, dated as of October 19, 1998 (the
"Purchase Agreement").
1. Definitions. The following terms, as used herein, have the following
meanings:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person.
"Aggregate Exercise Price" shall have the meaning set forth in Section
2(a) hereof.
"Common Stock" means the common stock, $0.001 par value, of the
Company, and (in accordance with Section 8 hereof) capital stock of any class or
classes into which such Common Stock or any such other class may thereafter be
changed or reclassified.
"Exercise Price" means $21.00 per share.
"Exercise Subscription Form" shall have the meaning set forth in
Section 2(a) hereof.
<PAGE>
"Expiration Date" means 4:00 p.m., New York City time, on _______,
2001; provided, however, that if such day is a day on which banking institutions
in the City of New York are authorized by law to close, the "Expiration Date"
shall be on the next succeeding day that shall not be such a day.
"Person" means any individual, corporation, partnership, joint stock
company, joint venture, association, trust, unincorporated organization,
government or any agency, department or political subdivision thereof, or any
other entity.
"Regulatory Relief" means that SBC Communications Inc. or its
Affiliates, in their sole reasonable judgment, have obtained any or all
necessary federal and/or state regulatory approvals to provide landline,
interLATA long-distance service in any of SBIS' or its Affiliates' in-region
states pursuant to the Communications Act of 1934, as amended by the
Telecommunications Act of 1996.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
2. Exercise and Duration of Warrants.
(a) The Holder of this Warrant Certificate shall have the right to
exercise any or all of the Warrants (but not as to a fractional share of Common
Stock) at any time, or from time to time until the Expiration Date by
presentation and surrender hereof to the Company with the appropriate Exercise
Subscription Form annexed hereto (the "Exercise Subscription Form") and an
Investment Representation Statement annexed hereto duly executed and accompanied
by proper payment of the Exercise Price, as the case may be, multiplied by the
number of shares of Common Stock specified in such form (the "Aggregate Exercise
Price"), all subject to the terms and conditions hereof. Notwithstanding the
foregoing, prior to receipt of Regulatory Relief, the Holder may only exercise
Warrants to the extent that the total equity securities in the Company held by
Holder and its Affiliates is consistent with the restrictions contained in the
Communications Act of 1934, as amended by the Telecommunications Act of 1996.
Each Warrant not exercised prior to the Expiration Date shall become void and
all rights in respect thereof shall cease as of such time.
(b) The Aggregate Exercise Price must be paid in U.S. dollars in cash,
wire transfer of immediately available funds, bank cashier's check or bank draft
payable to the order of the Company. Upon receipt by the Company of this Warrant
Certificate and a properly executed Exercise Subscription Form, together with
the Aggregate Exercise Price at the Company's office designated for such
purpose, the Holder shall be deemed to be the holder of record of the shares of
Common Stock receivable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such
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shares of Common Stock shall not then be actually delivered to the Holder. The
Holder shall pay any and all documentary, stamp or similar issue taxes of the
United States or any state thereof payable in respect of the issue or delivery
of such shares of Common Stock. The Company shall not be required to pay any tax
or other charge that may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the record
holder of the Warrants being exercised and in such case the Company shall not be
obligated to issue or deliver any stock certificate until such tax or charge has
been paid in full or it has been established to the satisfaction of the Company
that no such tax or charge is due.
(c) Notwithstanding Sections 2(a) and 2(b) above, at the option of the
Holder of the Warrants, the Warrants may be exercised in the manner set forth in
paragraph (2)(a) above, except that the Holder may, in lieu of paying the
Aggregate Exercise Price in the manner set forth in Section 2(b) above,
exercise, without making any payment in cash, Warrants for that number of shares
of Common Stock determined by dividing (i) the difference between (x) the
current market price per share of Common Stock (as defined in Section 8(b)
below) on the day of exercise multiplied by the number of shares of Common Stock
specified in the Exercise Subscription Form and (y) the Aggregate Exercise Price
by (ii) the current market price per share of Common Stock on the day of
exercise.
(d) If the Holder exercises less than all the Warrants, this Warrant
Certificate shall be surrendered by the Holder to the Company and a new Warrant
Certificate of the same tenor and for the unexercised number of Warrants which
was not surrendered shall be executed by the Company. Subject to the provisions
hereof regarding transfer of the Warrants, the Company shall register the new
Warrant Certificate in such name or names as may be directed in writing by the
Holder and deliver the new Warrant Certificate to the person or persons entitled
to receive the same.
(e) Upon surrender of this Warrant Certificate in conformity with the
foregoing provisions, the Company shall transfer to the Holder of this Warrant
Certificate appropriate evidence of ownership of any shares of Common Stock or
other securities or property (including any money) to which the Holder is
entitled, registered or otherwise placed in, or payable to the order of, such
name or names as may be directed in writing by the Holder, and shall deliver
such evidence of ownership and any other securities or property (including any
money) to the person or persons entitled to receive the same, together with an
amount in cash in lieu of any fraction of a share of Common Stock as provided in
Section 5 below.
(f) Notwithstanding anything to the contrary contained herein, no
Holder of these Warrants shall be entitled to exercise the same unless, at the
time of exercise, (i) either a registration statement under the Securities Act,
shall have been filed with, and declared effective by, the Securities and
Exchange Commission or the issuance of shares of Common Stock upon the exercise
of the Warrants is permitted pursuant to an available exemption from the
registration requirements of the Securities Act and (ii) all applicable
requirements under the Hart-Scott-
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Rodino Antitrust Improvements Act of 1976, as amended, with respect to the
issuance of shares of Common Stock upon the exercise of the Warrants shall have
been satisfied.
3. Restrictive Legend. Any substitute Warrant Certificate and any
certificates evidencing shares of Common Stock issued pursuant to exercise of
Warrants shall bear the following legend, unless such securities have been
registered under the Securities Act or unless the Company determines otherwise
in compliance with applicable law:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS
OF ANY STATE, AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREUNDER."
4. Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and delivery upon exercise of the Warrants
such number of its authorized but unissued shares of its Common Stock or other
securities of the Company from time to time issuable upon exercise of the
Warrants as will be sufficient to permit the exercise in full of the Warrants.
All such shares of Common Stock shall be duly authorized and, when issued upon
such exercise, shall be validly issued, fully paid and non-assessable, free and
clear of all liens, security interests, charges and other encumbrances or
restrictions on sale (other than restrictions on resale imposed under applicable
law) and free and clear of all preemptive or similar rights, except for any of
the foregoing that may be imposed by or through the Holder of the Warrants or
the Person to whom shares of Common Stock or other securities are issued upon
the exercise thereof.
5. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of any Warrant. With respect
to any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the current market price per share of Common Stock on the day of exercise.
6. Transfer, Loss of Warrant Certificate.
(a) Subject to the provisions of this Section 6 and Section 15, the
Company will, from time to time, register the transfer of any outstanding
Warrant Certificate upon its records. Each taker and Holder of this Warrant
Certificate by taking or holding the same, consents and agrees that prior to any
transfer of this Warrant Certificate, the holder hereof shall give written
notice to the Company of such holder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail. The Company shall register such transfer upon surrender of
such Warrant Certificate to the Company for transfer, accompanied by appropriate
instruments of transfer duly executed by the holder or
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the holder's duly authorized attorney. Upon any such registration of transfer, a
new Warrant Certificate shall be issued in the name of the transferee, and the
surrendered Warrant Certificate shall be canceled. Each Warrant Certificate
evidencing the transferred Warrants shall bear, unless the same has been
registered under the Securities Act, the restrictive legend set forth in Section
3 herein.
(b) Notwithstanding anything to the contrary contained in Section 6(a),
the Company shall not be obligated to register the transfer of any outstanding
Warrant Certificate unless a registration statement under the Securities Act,
shall have been filed with, and declared effective by, the Securities and
Exchange Commission with respect to the transfer of the applicable Warrants or
such transfer is permitted pursuant to an available exemption from the
registration requirements of the Securities Act.
(c) Any attempted or purported Transfer of Warrants in violation of
paragraph 6(b) above shall not be effective to Transfer ownership of such
Warrants to the purported Transferee thereof, who shall not be entitled to any
rights as a Holder with respect to the Warrants purported to be Transferred. All
rights with respect to any Warrants attempted or purported to be Transferred in
violation of the aforementioned provisions shall remain the property of the
Person who initially attempted or purported to transfer such Warrants in
violation thereof. Upon a determination by the Board of Directors of the Company
that there has been or is threatened an attempted or purported Transfer of
Warrants in violation of the aforementioned provisions, the Board of Directors
of the Company may take such action as it deems advisable, including, but not
limited to, refusing to give effect on the books of the corporation to such
attempted or purported Transfer or instituting legal proceedings to enjoin or
rescind the same.
(d) Upon receipt by the Company of evidence satisfactory to it (in the
exercise of its reasonable discretion) of the loss, theft, destruction or
mutilation of this Warrant Certificate, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant Certificate, if mutilated, the Company shall
execute and deliver a new Warrant Certificate of like tenor and date. Any such
new Warrant Certificate executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not the warrant so
lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone.
The provisions of this Section 6 are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen, or destroyed Warrant Certificates.
7. Rights of the Holder. Prior to the exercise of any Warrant, the
Holder shall not, by virtue hereof, be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote, to give or
withhold consent to any corporate action of the Company, to receive dividends or
other distributions, to exercise any preemptive or similar right or to receive
any notice of meetings of stockholders or any notice of any proceedings of the
Company except as may be specifically provided for herein.
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8. Anti-Dilution Provisions. The Exercise Prices in effect at any time,
and the number of shares of Common Stock which may be purchased upon the
exercise hereof, shall be subject to change or adjustment as follows:
(a) In case the Company shall (i) pay a dividend or make any other
distribution on or in respect of its Common Stock in shares of Common
Stock, (ii) subdivide its outstanding Common Stock, (iii) combine its
outstanding Common Stock into a smaller number of shares of Common Stock,
or (iv) issue by reclassification of its Common Stock (whether pursuant to
a merger or consolidation or otherwise) any other shares representing
common equity of the Company, then (x) the number of shares of Common Stock
theretofore issuable upon exercise of a Warrant shall be appropriately
adjusted so that the Holder of each Warrant exercised after the record date
fixing stockholders to be affected by such event shall be entitled to
purchase at the Exercise Price, as adjusted below, the number of shares of
Common Stock (or other shares representing common equity of the Company)
which he would have owned or have been entitled to receive after the
happening of any of the events described above, had such Warrant been
exercised immediately prior to such record date and (y) the Exercise Price
shall be adjusted by multiplying the Exercise Price by a fraction, the
numerator of which is equal to the number of shares of Common Stock
purchasable prior to the adjustment specified in (x) above and the
denominator of which is equal to the number of shares of Common Stock
purchasable after such adjustment. An adjustment made pursuant to this
subparagraph shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(b) The "current market price per share of Common Stock" at any date
shall be deemed to be the average of the daily Closing Prices (as defined
below) for 30 consecutive Trading Days (as defined below) immediately
preceding the day in question, after appropriate adjustment for stock
dividends, distributions, subdivisions, combinations or reclassifications
occurring within such 30-day period. The term "Closing Price" on any day
shall mean the reported last sale price per share of Common Stock on such
day or, in case no such sale takes place on such day, the average of the
reported closing bid and asked prices, in each case on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the last quoted sale price or,
if not so quoted, the average of the closing bid and asked prices quoted on
the Nasdaq National Market or, if not so quoted, the average of the closing
bid and asked prices as furnished by any member of the National Association
of Securities Dealers, Inc. selected from time to time by the Company for
that purpose; and the term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if the Common Stock is quoted on the Nasdaq
National Market, then the Nasdaq National Market, is open for the
transaction of business
-5-
<PAGE>
or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the Nasdaq National Market, a
Monday, Tuesday, Wednesday, Thursday, or Friday on which banking
institutions in the City of New York, New York are not authorized or
obligated by law or executive order to close.
(c) In the event that at any time, as a result of an adjustment made
pursuant to Sections 8(a) above, the Holder shall become entitled to
receive any shares of the capital stock of the Company other than Common
Stock, thereafter the number of such other shares so receivable upon
exercise of the Warrants shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Section 8(a).
(h) In case:
(i) the Company shall authorize the issuance to all holders
of its Common Stock of rights or warrants to subscribe
for or purchase shares of its Common Stock or of any
other subscription rights or warrants; or
(ii) the Company shall authorize the distribution to all
holders of its Common Stock (whether pursuant to a
merger or consolidation or otherwise) of evidences of
its indebtedness or assets (other than dividends paid
in or distributions of the Company's capital stock for
which the Exercise Price shall have been adjusted
pursuant to Section 8(a) above); or
(iii) of any capital reorganization or reclassification of
the Common Stock (other than a change in par value of
the Common Stock) or of any consolidation or merger to
which the Company is a party and for which approval of
any stockholders of the Company is required (other than
a consolidation or merger in which the Company is the
continuing corporation and that does not result in any
reclassification or change of the Common Stock
outstanding), or of the conveyance or transfer of the
properties and assets of the Company substantially as
an entirety; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(v) the Company proposes to take any action (other than
actions of the character described in Section 8(a)
above) that would require an adjustment of the Exercise
Prices pursuant to this Section 8;
-7-
<PAGE>
then the Company shall cause to be mailed by registered mail or overnight
courier to the Holder, at the earliest practicable time (and in any event
not less than 20 days prior to the applicable record or effective date
hereinafter specified), a notice stating (A) the date as of which the
holders of Common Stock of record to be entitled to receive any such
rights, warrants or distributions are to be determined, or (B) the date on
which any such reorganization, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding-up.
(e) Whenever reference is made in this Section 8 to the issuance of
shares of Common Stock, the term "Common Stock" shall include any equity
securities of any class of the Company hereafter authorized which shall not
be limited to a fixed sum or percentage in respect of the right of the
holders thereof to participate in dividends or distributions of assets upon
the voluntary or involuntary liquidation, dissolution or winding-up of the
Company.
(f) Notwithstanding any provision to the contrary in this Section 8,
the Exercise Price in effect at any time, and the number of shares of
Common Stock which may be purchased upon the exercise hereof, shall not be
subject to change or adjustment in either of the following cases:
(i) In case the Company shall issue shares of Common Stock to any
Person, or rights, options or warrants to any Persons entitling such
Persons to subscribe for or purchase shares of Common Stock, at a price
per share at least equal to or greater than the current market price
per share of Common Stock as of the issue date such shares of Common
Stock or rights, options or warrants to any such Person; or
(ii) In case the Company purchases any assets or securities (a
"Purchase") and provides all or some of the consideration for such
Purchase in shares of Common Stock.
Notwithstanding any other provision contained in this Section 8, no adjustment
to the Exercise Price need be made unless the adjustment would require an
increase or decrease of at least 1% in the Exercise Price as then in effect. Any
adjustments that are not made as a result of this Section 8(g) shall be carried
forward and taken into account in any subsequent adjustment.
9. Officers' Certificate. Whenever any adjustment in the Exercise Price
is made, the Company (A) shall as soon as reasonably practicable file in the
custody of its Secretary at its
-8-
<PAGE>
principal office, a statement describing the adjustment and the method of
calculation used, and may obtain the certificate of any independent firm of
public accountants of national recognition selected by the Board of Directors of
the Company which, if obtained, shall be presumptive evidence of the correctness
of any such calculation that such adjustment was properly calculated in
accordance with the provisions of Section 8 and (B) shall cause a copy of such
statement to be mailed by first class mail postage prepaid to the Holder.
10. Consolidation or Merger. In case of any consolidation of the
Company with, or merger of the Company into, any other Person or any merger of
another Person into the Company (other than a consolidation or merger in which
the Company is the continuing corporation and that does not result in any
reclassification or change of the Common Stock outstanding), the Holder of this
Warrant Certificate shall have the right thereafter to exercise the Warrants for
the kind and amount of securities, cash and other property receivable upon such
consolidation or merger by a holder of the number of shares of Common Stock of
the Company for which the Warrants may have been exercised immediately prior to
such consolidation or merger, assuming such holder of Common Stock of the
Company (i) is not a Person with which the Company consolidated or into which
the Company merged or which merged into the Company, as the case may be
("Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed
to exercise his rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation or merger
(provided that if the kind or amount of securities, cash and other property
receivable upon such consolidation or merger is not the same for each share of
Common Stock of the Company held immediately prior to such consolidation or
merger by other than a constituent Person or an Affiliate thereof and in respect
of which such rights of election shall not have been exercised ("non-electing
share"), then for the purpose of this Section 10 the kind and amount of
securities, cash and other property receivable upon such consolidation or merger
by each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting shares). Adjustments for
events subsequent to the effective date of such a consolidation or merger shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Warrant Certificate. In any such event, effective provisions shall be made
in the certificate or articles of incorporation of the resulting or surviving
corporation or otherwise so that the provisions set forth herein for the
protection of the rights of Warrant holders shall thereafter continue to be
applicable; and any such resulting or surviving corporation shall expressly
assume the obligation to deliver, upon exercise, such shares of stock, other
securities, cash and property. The provisions of this Section 10 shall similarly
apply to successive consolidations or mergers.
11. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid. Any notice shall be deemed given when so delivered personally, sent by
facsimile transmission or, if mailed, three (3) business days after the date of
deposit in the United States mail, by certified mail return receipt requested,
as follows:
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<PAGE>
If to the Company: Concentric Network Corporation
10590 N. Tantau Avenue
Cupertino, CA 95014
Attention: Michael Anthofer
Facsimile: (408) 342-2876
If to the Holder: Southwestern Bell Internet Services, Inc.
175 E. Houston
San Antonio, Texas 78205
Attention: General Attorney,
Mergers & Acquisitions
Facsimile: (210) 351-3488
or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery.
12. APPLICABLE LAW. THIS WARRANT CERTIFICATE AND ALL RIGHTS ARISING
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW
OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
13. Amendments; Waivers. Any provision of this Warrant Certificate may
be amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Holder and the Company, or in the
case of a waiver, by the party against whom the waiver is to be effective. No
failure or delay by either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
14. Agreement of Holder. By acceptance of this Warrant Certificate and
the Warrants represented thereby the Holder hereby agrees to be bound by the
terms and conditions contained herein.
15. Transfers. Transfers of the Warrants shall be made in accordance
with Section 8 of the Purchase Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has duly caused this Warrant
Certificate to be signed and attested by its duly authorized officers and to be
dated as of ____________, 1998.
CONCENTRIC NETWORK CORPORATION
By:
------------------------------------------
Name:
Title:
Attest:
By:
----------------------------
Name:
Title:
Consented to and Accepted:
SOUTHWESTERN BELL INTERNET SERVICES, INC.
By:
----------------------------
Name:
Title:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
SECURITIES LAWS OF ANY STATE, AND NEITHER THE SECURITIES NOR ANY INTEREST
THEREIN MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN APPLICABLE EXEMPTION THEREUNDER. NO HOLDER OF WARRANTS EVIDENCED BY THIS
CERTIFICATE MAY TRANSFER SUCH WARRANTS OR ANY INTEREST THEREIN TO ANY PERSON
OTHER THAN SBC COMMUNICATIONS INC. OR AN AFFILIATE OF SBC COMMUNICATIONS INC.
-11-
<PAGE>
ASSIGNMENT FORM
(To be executed if Holder desires to transfer a Warrant)
For Value Received, the undersigned hereby sells, assigns and transfers
to _______________________.
- --------------------------------------------------------------------------------
Please insert social security or other identifying number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address including zip code)
Warrants represented by this Warrant Certificate, and does hereby irrevocably
appoint _______________________ Attorney, to transfer such rights on the books
of the Company with full power of substitution.
Date:______________________.
________________________________(1)
(Signature of Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
(1) The signature must correspond with the name as written upon the face of the
within Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
-12-
<PAGE>
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise for cash of Warrants at the Exercise Price)
To: Concentric Network Corporation
The undersigned irrevocably exercises Warrants for the purchase of
__________ shares of common stock, $0.001 par value, of Concentric Network
Corporation (the "Common Stock") at the Exercise Price and herewith makes
payment of $_______ (such payment being made in U.S. dollars in cash, wire
transfer of immediately available funds, bank cashier's check or bank draft
payable to the order of Concentric Network Corporation), all on the terms and
conditions specified in the attached Warrant Certificate, and surrenders this
Warrant Certificate and all right, title and interest in the Warrants exercised
hereby to Concentric Network Corporation and directs that the shares of Common
Stock deliverable upon the exercise of these Warrants be registered or placed in
the name and at the address specified below and delivered thereto.
Date:____________________.
________________________________(1)
(Signature of Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
(1) The signature must correspond with the name as written upon the face of the
within Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
-13-
<PAGE>
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised Warrants evidenced by the
within Warrant Certificate to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
-14-
<PAGE>
EXERCISE SUBSCRIPTION FORM
(To be executed only upon cashless exercise of Warrants at the Exercise Price)
To: Concentric Network Corporation
The undersigned irrevocably exercises Warrants for the purchase of
__________ shares of common stock, $0.001 par value, of Concentric Network
Corporation (the "Common Stock") at the Exercise Price without any cash payment
pursuant to Section 2(c) of the attached Warrant Certificate and on the other
terms and conditions specified therein, and surrenders this Warrant Certificate
and all right, title and interest in the Warrants exercised hereby to Concentric
Network Corporation and directs that the shares of Common Stock deliverable upon
the exercise of these Warrants be registered or placed in the name and at the
address specified below and delivered thereto.
Date:__________________.
________________________________(1)
(Signature of Owner)
___________________________________
(Street Address)
___________________________________
(City) (State) (Zip Code)
(1) The signature must correspond with the name as written upon the face of the
within Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
-15-
<PAGE>
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised Warrants evidenced by the
within Warrant Certificate to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE>
EXHIBIT B
Subsidiaries
InterNex Information Services, Inc.
Delta Internet Services, Inc.
AnaServe, Inc.
<PAGE>
EXHIBIT C
[Omitted]
<PAGE>
EXHIBIT D
[Omitted]
EXHIBIT 4
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) promulgated under the Securities
Exchange Act of 1934, the undersigned agree to the joint filing of a Statement
on Schedule 13D (including any and all amendments thereto) with respect to the
shares of Concentric Network Corporation and further agree to the filing of this
agreement as an Exhibit thereto. In addition, each party to this Agreement
expressly authorizes each other party to this Agreement to file on its behalf
any and all amendments to such Statement on Schedule 13D.
Date: October 28, 1998
SBC COMMUNICATIONS INC.
By: /s/ Donald E. Kiernan
---------------------------
Donald E. Kiernan
Senior Vice President,
Treasurer and Chief
Financial Officer
SOUTHWESTERN BELL
INTERNET SERVICES, INC.
By: /s/ Patrick J. Pascarella
---------------------------
Patrick J. Pascarella
Secretary
