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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___ )*
Verio Inc.
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(Name of Issuer)
Common Stock, $0.001 par value per share
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(Title of Class of Securities)
923433 10 6
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(CUSIP Number)
Richard J. Parrino, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5600
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
May 15, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See 240.13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
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CUSIP No. 923433 10 6
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
NTT Rocky, Inc.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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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
0
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NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 4,493,877 shares
OWNED BY -------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH -------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
4,493,877 shares
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,493,877 shares
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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)
14.0%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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SCHEDULE 13D
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CUSIP No. 923433 10 6
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Nippon Telegraph and Telephone Corporation
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
00
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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
Japan
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7 SOLE VOTING POWER
0
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NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 4,493,877 shares
OWNED BY -------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 0
WITH -------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
4,493,877 shares
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,493,877 shares
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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)
14.0%
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14 TYPE OF REPORTING PERSON*
HC
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
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Item 1. Security and Issuer
The title of the class of equity securities to which this
Schedule 13D relates is the Common Stock, par value $0.001 per share (the
"Common Stock"), of Verio Inc., a Delaware corporation (the "Company"). The
principal executive offices of the Company are located at 8005 South Chester
Street, Suite 200, Englewood, Colorado 80112.
Item 2. Identity and Background
(a) - (c) and (f)
Nippon Telegraph and Telephone Corporation ("NTT"), a corporation
organized under the laws of Japan, has its principal executive office at 19-2
Nishi-Shinjuku 3-chome, Shinjuku-ku, Tokyo 163-8019, Japan. NTT's principal
business is providing local, long-distance and other telecommunications
services. NTT Rocky, Inc. ("NTTR"), a Delaware corporation and an indirect
wholly owned subsidiary of NTT, has its principal executive office at 101
Park Avenue, 41st Floor, New York, NY 10178. NTTR is involved in investing
in telecommunications enterprises. NTT and NTTR are referred to herein as
the Reporting Persons.
NTTR is a direct wholly owned subsidiary of NTT America, Inc.
("NTTA"), a New York corporation which has its principal executive office at
101 Park Avenue, 41st Floor, New York, NY 10178. NTTA is a direct wholly
owned subsidiary of NTT. The principal business of NTTA is acting as a
holding company for telecommunications businesses in the United States.
The name, principal occupation, business address and citizenship
of each of the directors and executive officers of the Reporting Persons and
of NTTA are set forth on Schedule A hereto.
(d) and (e)
Neither of the Reporting Persons nor, to the best knowledge of
each Reporting Person, any of its directors or executive officers has, during
the last five years, been (a) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (b) a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and
as a result of such proceeding was or is subject to 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.
Item 3. Source and Amount of Funds or Other Consideration
NTTR purchased 4,493,877 shares of Common Stock (the "Shares") on
May 15, 1998 (the "Closing Date") pursuant to a Stock Purchase and Master
Strategic Relationship Agreement dated as of April 7, 1998 (the "Stock
Purchase Agreement") between the Company and NTT (the "Stock Purchase").
Effective as of April 28, 1998, NTT assigned to NTTR substantially all of
NTT's rights and obligations under the Stock Purchase Agreement. Pursuant to
the Stock Purchase Agreement, NTT has guaranteed the performance of NTTR
under the Stock Purchase Agreement.
The aggregate purchase price paid by NTTR for the Shares was
$99,999,997.94. All of the funds used to pay such purchase price were
provided from NTTA's working capital.
The Stock Purchase Agreement is filed herewith as Exhibit 1 and
is incorporated herein by reference.
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Item 4. Purpose of Transaction
Reference is made to the discussion in Item 3 hereof, which is
incorporated herein by reference, for a description of the Stock Purchase.
The Stock Purchase was conditioned upon, and was effected concurrently with,
the consummation on May 15, 1998 of the Company's initial public offering of
Common Stock (the "IPO").
Concurrently with their execution of the Stock Purchase
Agreement, the Company and NTT entered into an Investment Agreement dated as
of April 7, 1998 (the "Investment Agreement"). Effective as of April 28,
1998, NTT assigned to NTTR substantially all of its rights and obligations
under the Investment Agreement. Pursuant to the Investment Agreement, NTT
has guaranteed the performance of NTTR under the Investment Agreement.
Concurrently with the execution of the Stock Purchase Agreement
and the Investment Agreement, the Company and NTTA entered into an Outside
Service Provider Agreement dated as of April 7, 1998 (the "OSP Agreement").
The OSP Agreement became effective upon consummation of the Stock Purchase.
The OSP Agreement provides for certain commercial arrangements involving
telecommunications services between the Company and NTTA and certain
affiliated companies of NTTA.
Pursuant to the Investment Agreement, neither NTT, as Purchaser
under the Investment Agreement (the "Purchaser"), nor the Purchaser's
Affiliates may acquire any additional securities of the Company in any manner
prior to the date which is six months following the Closing Date (May 15,
1998). The Investment Agreement provides that, from and after the date which
is six months following the Closing Date, the Purchaser or its Affiliates may
acquire Voting Securities of the Company through open market and privately
negotiated purchases or otherwise, if, and only to the extent that, after the
acquisition thereof the Purchaser and its Affiliates collectively would own
in the aggregate no more than 17.5% (the "Percentage Limitation") of the
Diluted Common Stock of the Company. At all times prior to the termination of
the Standstill Restrictions described below, the Purchaser is required to give
the Company written notice of the intention of the Purchaser or any of its
Affiliates to purchase additional Company Securities at least two business days
prior to the date the Purchaser or any such Affiliate purchases or agrees to
purchase any such securities. Subject to their obligations under the
Investment Agreement as described in this Item 4 and in Item 6 hereof, the
Reporting Persons may acquire additional shares of Common Stock in the
market, in privately negotiated transactions or otherwise.
The Reporting Persons have no current plans to dispose of the
Shares. However, subject to their obligations under the Investment Agreement
and the Lock-up Agreement described in Item 6 hereof, the Reporting Persons
in the future may dispose of the Shares or other shares of Common Stock in
the market, in privately negotiated transactions or otherwise.
Pursuant to the Investment Agreement, the Company is obligated
promptly after the Closing Date to appoint to the Company's Board of
Directors (the "Company Board") an individual designated by the Purchaser
(the "Purchaser Board Designee"), who will have an initial term on the
Company Board ending at the third annual stockholder meeting of the Company
following the Closing Date. The Purchaser waived the appointment of the
Purchaser Board Designee as a condition of the consummation of the Stock
Purchase subject to the Company's undertaking to cause such appointment after
the Closing Date promptly upon notification by the Purchaser of the individual
designated by it to serve as the Purchaser Board Designee. The Purchaser Board
Designee will be entitled to serve as a member of the Company Board through the
expiration of such initial term so long as the Purchaser and its Affiliates
collectively own beneficially either (i) at least 50% of the aggregate Company
Securities purchased by the Purchaser at the time of the IPO pursuant to the
Stock Purchase Agreement (adjusted as appropriate for any subsequent stock
split or reverse stock split or other similar action) or (ii) at least 5% of
the Diluted Common Stock of the Company (the amount in clause (i) or (ii)
above, the "Ownership Threshold"). If at any time during such initial term the
Purchaser and its Affiliates collectively cease to own beneficially Company
Securities at least equal to the Ownership Threshold, the Purchaser will, upon
the request of the Company, be required to cause the Purchaser Board Designee
to resign from the Company. Following the expiration of the initial term of
the Purchaser Board Designee, until such time as the Purchaser and its
Affiliates collectively no longer beneficially own Company Securities at least
equal to the Ownership Threshold, the Company will be required to take all
corporate action necessary to nominate for election to the Company Board an
individual
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appointed by the Purchaser and to recommend to the Company's stockholders
such nominee's election to the Company Board.
The Investment Agreement provides that, until such time as the
Purchaser and its Affiliates collectively no longer beneficially own Company
Securities at least equal to the Ownership Threshold, (i) the Purchaser also
will have the right to appoint an observer who will have observer rights at
meetings of the Company Board and, under specified circumstances, an observer
who will have observer rights at meetings of the executive committee of the
Company Board and (ii) at the request of the Purchaser, under specified
circumstances, the Company will cause to be appointed to the executive
committee of the Company Board the Purchaser designee appointed to the
Company Board or elected to the Company Board in accordance with the
provisions described in the immediately preceding paragraph.
The Investment Agreement provides that, during the period
commencing on April 7, 1998 and ending on the fifth anniversary of the Closing
Date, except as (a) specifically permitted by the Investment Agreement or (b)
specifically requested in writing in advance by the Company upon the approval
of the Company Board (without any prior solicitation or request (or other act
encouraging the delivery of such a writing) having been made to the Company or
the Company Board or otherwise having been publicly made), the Purchaser will
not, and will ensure that its Affiliates do not, in any manner, directly or
indirectly, take any of the following actions (collectively, the "Standstill
Restrictions"): (i) acquire, or offer or agree to acquire, or make any
proposal or indicate any interest with respect to the acquisition of, directly
or indirectly, by purchase or otherwise, any material amount of the assets or
property of, any amounts of the Voting Securities of, or any material amounts
of the securities (other than Voting Securities) of the Company or any of its
successors or Controlled Affiliates; (ii) solicit proxies or consents or become
a "participant" in a "solicitation" (as such terms are defined or used in
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of proxies or consents with respect to any Voting Securities
of the Company or any of its successors or Controlled Affiliates, or initiate
or become a participant in any stockholder proposal or "election contest" (as
such term is defined or used in Rule 14a-11 under the Exchange Act) with
respect to the Company or any of its successors or Controlled Affiliates or
induce others to initiate the same, or otherwise seek to advise or influence
any Person with respect to the voting of any Voting Securities of the Company
or any of its successors or Controlled Affiliates; (iii) take any action for
the purpose of calling a stockholders' meeting of the Company or any of its
successors or Controlled Affiliates; (iv) make any proposal or any public
announcement relating to, or submit to the Company or any of its directors,
officers, representatives, trustees, employees, attorneys, advisors, agents or
Affiliates any proposal for, a tender or exchange offer for Voting Securities
of the Company or any of its successors or Controlled Affiliates, the
acquisition of Voting Securities of the Company that would result in the
Purchaser (together with its Affiliates) exceeding the Percentage Limitation or
a merger, business combination, sale of assets, liquidation, restructuring,
recapitalization or other extraordinary corporate transaction relating to the
Company or any of its successors or Controlled Affiliates (other than with
respect to joint ventures, licenses, transactions contemplated by the OSP
Agreement or other transactions in the ordinary course of business) or take any
action that might require the Company or any of its successors or Controlled
Affiliates to make any public announcement regarding any of the foregoing; (v)
deposit Voting Securities of the Company or any of its successors or Controlled
Affiliates held by it into a voting trust or subject any such securities to
voting agreements, or grant any proxy with respect to any such securities to
any person not designated by the Company; (vi) form, join or in any way
participate in a "group" (within the meaning of Section 13(d)(3) of the
Exchange Act) for the purpose of acquiring, holding, voting or disposing of
Voting Securities of the Company or any of its successors or Controlled
Affiliates or taking any other actions restricted or prohibited under clauses
(i) through (v) above; (vii) disclose to any Person any intention, plan or
arrangement inconsistent with the foregoing; (viii) advise, assist or encourage
any other Person in connection with any of the foregoing; (ix) enter into any
discussions, negotiations, arrangements or understandings with any other Person
with respect to, or aid, abet or encourage any action
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prohibited by, any of the foregoing; (x) make (publicly or to the Company or
any of its directors, officers, representatives, trustees, employees,
attorneys, advisors, agents, Affiliates or security holders, directly or
indirectly) any request or proposal to amend, waive or terminate any of the
Standstill Restrictions or related provisions or any inquiry or statement
relating thereto; or (xi) act, alone or in concert with others, to seek to
control or influence in any material respect the management or policies of
the Company.
The Investment Agreement provides that, notwithstanding the
Standstill Restrictions, in the event (i) the Company publicly announces or
invites any Person other than the Purchaser to make a proposal, or elects to
enter into negotiations, with respect to, or (ii) the Company Board adopts a
plan or program regarding (whether or not publicly announced) any merger,
consolidation or other business combination, liquidation or recapitalization
of the Company, or any sale or transfer of all or substantially all of the
assets of the Company or any sale or transfer of Voting Securities of the
Company that, if consummated, would constitute a Change of Control, then the
Purchaser and its Affiliates will be permitted to participate in any such
process on terms that are substantially comparable to those made available to
any other participant in such process.
The Investment Agreement provides that the Standstill
Restrictions will lapse and have no further force or effect (i) in the event
of any agreement between the Company and any other Person or group pursuant
to which, if consummated, a Change of Control would occur (any such event
being an "Acquisition Event") or (ii) in the event any Person or group shall
commence a tender offer or exchange offer which, if successful, would result
in a Change of Control (a "Third Party Offer"), and the bidder has financing
or financial commitments from responsible financial institutions sufficient
to finance the cash portion of such Third Party Offer, provided that in the
event that the transactions contemplated in connection with the Acquisition
Event are not completed or the Third Party Offer is not completed, all
Standstill Restrictions will be reinstated upon two business days' written
notice to the Purchaser and will remain effective until subsequently
terminated pursuant to the Investment Agreement. The Purchaser and its
Affiliates will be entitled to retain any Company Securities purchased by
them following such termination but prior to such reinstatement, provided
that such Company Securities and all subsequent acquisitions of Company
Securities by the Purchaser or any of its Affiliates will be subject to all
of the provisions of the Investment Agreement.
Pursuant to the Investment Agreement, the Purchaser may not, and
is required to ensure that its Affiliates do not, Transfer any Company
Securities while there is pending, or otherwise Transfer any Company
Securities in contemplation of, any Acquisition Proposal, unless such
Acquisition Proposal has been recommended publicly by the Company Board to
all Company stockholders, provided that if the Company Board has not publicly
recommended against such Acquisition Proposal within three months of the
later of (i) the initial public announcement thereof by the acquiror or (ii)
the formal presentation of such Acquisition Proposal to the Company Board,
then such restrictions will lapse and have no further force or effect,
provided, further, that in the event such Acquisition Proposal is not
completed, all such restrictions will be reinstated upon two business days'
written notice to the Purchaser and will remain effective until subsequently
terminated pursuant to the Investment Agreement.
The Investment Agreement provides that at all times prior to the
termination or lapsing of the Standstill Restrictions, the Purchaser will
take all action as may be required so that all Voting Securities of the
Company owned by the Purchaser and its Affiliates are voted (i) with respect
to elections of members of the Board of Directors, for the Company Board's
nominees to the Company Board, and (ii) with respect to all other matters to
be voted on by stockholders, either (A) in accordance with the
recommendations of the Company Board, or (B) for or against any such matter
in the same proportion as the shares owned by all other stockholders
(excluding the Purchaser and each of its Affiliates that is a stockholder of
the Company) are voted with respect to such matters. The Purchaser and all
Affiliates of the Purchaser owning Voting Securities of the Company are
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required to be present, in person or by proxy, at all meetings of the
stockholders of the Company so that all such securities owned by the
Purchaser and any such Affiliate may be counted for the purposes of
determining the presence of a quorum at such meetings.
Other than as described above, neither Reporting Person has any
plans or proposals which relate to, or may result in, any of the matters
listed in Items (a) - (j) of Schedule 13D.
The foregoing description of the Investment Agreement is
qualified in its entirety by reference to the Investment Agreement, which is
filed herewith as Exhibit 2 and is incorporated herein by reference.
Capitalized terms used in such description and not defined herein have the
definitions given to such terms in the Investment Agreement.
Item 5. Interest in Securities of the Issuer
(a) As of the close of business on May 15, 1998, the Reporting
Persons beneficially owned 4,493,877 shares of Common Stock. Based on
information set forth in the Company's final prospectus dated May 11, 1998
with respect to the IPO, such 4,493,877 shares of Common Stock represented
approximately 14.0% of the total number of shares of Common Stock outstanding
on May 15, 1998 immediately after the consummation of the IPO. Because such
percentage of beneficial ownership is based on outstanding (not fully diluted)
shares of Common Stock, such percentage is higher than the maximum percentage
(12.5%) of fully diluted shares the Purchaser was permitted to acquire in the
Stock Purchase pursuant to the Stock Purchase Agreement.
(b) The Reporting Persons share the power to vote or direct the
vote and to dispose or direct the disposition of the 4,493,877 shares of
Common Stock beneficially owned by them. However, by virtue of its ownership
of all of the outstanding capital stock of NTTR through its wholly owned
subsidiary NTTA, NTT has the power to cause NTTR to vote, and to dispose or
direct the disposition of, such shares of Common Stock at the times and in
the manner determined by NTT.
(c) Except as described above in Item 3 hereof and in this Item
5, neither of the Reporting Persons, nor, to the best knowledge of each
Reporting Person, any of its directors or executive officers has effected any
transaction in shares of Common Stock during the past 60 days.
(d) None.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer
INVESTMENT AGREEMENT
Reference is made hereby to Item 3 hereof which is incorporated
by reference in this Item 6.
The Investment Agreement provides that, subject to specified
exceptions, neither the Purchaser nor any of its Affiliates may, directly or
indirectly, sell, pledge or otherwise dispose of (any such action, a
"Transfer") any Company Securities (except to the Purchaser or any Affiliate
of the Purchaser) without first offering to sell all such Company Securities
to the Company pursuant to a right of first offer or, in the case of a
Significant Transfer, a right of first refusal. A Significant Transfer is a
proposed Transfer of the Company Securities to (i) any of up to 15 Persons
that are, or that the Company reasonably believes are likely to become,
competitors of the Company in the business of providing access to the
Internet for business customers in the United States, as identified in a list
that may be updated or revised by the Company no more than semi-annually upon
notice to the Purchaser, or (ii) any Person that following such Transfer
would (alone or collectively with all Affiliates of such Person) beneficially
own more than 10% of the outstanding Common Stock. The parties' obligations
with respect to such rights of first offer and first refusal are subject to
compliance
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with notice and closing requirements and other conditions, some of which vary
with the Market Price of Company Securities subject to the proposed
Transfer. Each transferee of the Company Securities is required to agree to
be bound by the same transfer restrictions as the Purchaser and its
Affiliates if such transferee's beneficial ownership of Company Securities
following a Transfer exceeds 7.5% of the Diluted Common Stock of the
Company. The Company's rights of first offer and first refusal do not apply
to any Transfer of Company Securities in a Public Distribution, in a
transaction pursuant to Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"), in certain other transactions effected on a
nationally recognized securities exchange or the Nasdaq Stock Market, in an
Acquisition Transaction or in connection with a pledge that satisfies
specified requirements.
The Investment Agreement provides that, in the case of the IPO
and, if requested by any underwriter of the Common Stock, in the case of any
other offering of securities of the Company registered under the Securities
Act, the Purchaser will not, and will ensure that its Affiliates do not,
directly or indirectly, sell, offer, pledge, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, warrant or right to purchase, or otherwise dispose of or
transfer, or enter into any swap or other agreement or any arrangement that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership in, any Company Securities held by it or them,
during the period following the effective date of a registration statement of
the Company filed under the Securities Act equal to (i) in the case of the
IPO, six months, or (ii) in the case of any other offering of securities of
the Company registered under the Securities Act, 90 days, except in either
case for Company Securities included in such registration and provided that,
if directors and officers of the Company holding Common Stock generally are
subject to holdback restrictions of shorter duration, such shorter periods
will apply to the Purchaser and its Affiliates.
Under the Investment Agreement, the Purchaser is entitled to demand
registration by the Company (a "Demand Registration") of the Shares and all
other Company Securities acquired by the Purchaser or any of its Affiliates,
together with any securities issued or issuable by the Company in respect of
any such securities by way of a distribution or split or in connection with
certain other specified types of transactions (collectively, the "NTT
Registrable Securities"), at any time after the first anniversary of the IPO
closing date (subject to a maximum of three Demand Registrations in total).
Such demand is required to be made (i) by holders of a majority of the
outstanding NTT Registrable Securities with respect to at least 25% of the NTT
Registrable Securities purchased by the Purchaser pursuant to the Stock
Purchase Agreement or (ii) with respect to NTT Registrable Securities the
anticipated aggregate offering price of which, net of underwriting discounts
and commissions, is at least $25 million or (ii) if the Company is then
eligible to file a registration statement on Form S-3 under the Securities Act,
by any holder or holders of NTT Registrable Securities with respect to NTT
Registrable Securities with an anticipated aggregate offering price, net of
underwriting discounts and commissions, in excess of $15 million. Upon such
request, the Company is required to use its reasonable best efforts to register
under the Securities Act, subject to certain holdback periods, NTT Registrable
Securities held by the requesting holders and any other permitted holders who
desire to sell Common Stock pursuant to such Demand Registration. In addition,
the Investment Agreement provides that, after the first anniversary of the IPO
closing date and subject to certain limitations, holders of NTT Registrable
Securities may participate in any registration of Common Stock by the Company
under the Securities Act (other than on Form S-4 or S-8 under the Securities Act
or in a registration in which the only Common Stock being registered is Common
Stock issuable upon the conversion of other securities) (each, a "Piggyback
Registration"). The Company is required to pay all registration expenses (other
than underwriting discounts and commissions, transfer and documentary stamp
taxes, if any, and fees and disbursements of counsel of the holders, other than
the fees and disbursements of a single such counsel, which will be paid by the
Company) with respect to all registered Demand Registrations and Piggyback
Registrations. Under the Investment Agreement, the Company is required to
indemnify the selling stockholders and other specified persons, and the selling
stockholders are required to indemnify the Company and other specified persons,
against certain liabilities, including liabilities under the Securities Act, in
respect of any registration statement covered by the Investment Agreement.
The Purchaser is permitted under the Investment Agreement to
assign its registration rights thereunder (but only with all related
obligations) to any permitted transferee to which it transfers no less than
20% of the NTT Registrable Securities purchased by the Purchaser or any of
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its Affiliates pursuant to the Stock Purchase Agreement or as permitted by
the Investment Agreement (determined on an as-converted basis), subject to
specified restrictions of the Investment Agreement. Securities will no longer
be considered NTT Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of under such
registration statement, (ii) such securities shall have been transferred
pursuant to Rule 144, (iii) such securities shall have been otherwise
transferred or disposed of, and new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company, and
subsequent transfer or disposition of such securities shall not require
registration or qualification under the Securities Act or any similar state law
then in force or (iv) such securities shall have ceased to be outstanding. In
addition, the right of any holder of NTT Registrable Securities to exercise the
foregoing registration rights will terminate at such time as all NTT
Registrable Securities held or entitled to be held upon conversion by such
holder may immediately be sold during any 90-day period pursuant to Rule 144
under the Securities Act or any similar rule or regulation.
The foregoing description of the Investment Agreement is
qualified in its entirety by reference to the Investment Agreement, which is
filed herewith as Exhibit 2 and is incorporated herein by reference.
Capitalized terms used in such description and not defined herein have the
definitions given to such terms in the Investment Agreement.
LOCK-UP AGREEMENT
In connection with the IPO, NTTR executed a letter agreement
dated May 15, 1998 (the "Lock-up Agreement") whereby NTTR agreed that,
without the prior written consent of Smith Barney Inc., for a period of six
months from the date of the underwriting agreement relating to the IPO, it
would not, directly or indirectly, offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, warrant or right to purchase, or otherwise dispose of
or transfer any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock, whether owned on May 15, 1998 or
thereafter acquired by NTTR or with respect to which NTTR has on May 15, 1998
or thereafter acquires the power of disposition, or enter into any swap or
any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of shares of
Common Stock, whether any such swap transaction is to be settled by delivery
of shares of Common Stock or other securities, in cash or otherwise. The
provisions of the Lock-up Agreement will not prohibit or restrict NTTR or any
affiliate of the NTTR from selling or otherwise transferring any shares of
Common Stock to any affiliate of NTTR, provided that each such affiliate of
NTTR acquiring shares of Common Stock executes a lock-up agreement in the form
of the Lock-up Agreement concurrently with the consummation of any such sale or
transfer to such affiliate. For purposes of the Lock-up Agreement, an
affiliate of NTTR means NTTR and each direct or indirect wholly owned
subsidiary of NTT.
The foregoing description of the Lock-up Agreement is qualified
in its entirety by reference to the Lock-up Agreement, which is filed
herewith as Exhibit 3 and is incorporated herein by reference.
Except as described in this Schedule 13D, neither of the
Reporting Persons nor, to the best knowledge of each Reporting Person, any of
its directors or executive officers has any contracts, arrangements,
understandings or relationships with respect to any securities of the Company.
- 7 -
<PAGE> 11
Item 7. Material to be Filed as Exhibits
Exhibit 1 - Stock Purchase and Master Strategic Relationship
Agreement dated as of April 7, 1998 between Verio
Inc. and Nippon Telegraph and Telephone Corporation.
Exhibit 2 - Investment Agreement dated as of April 7, 1998
between Verio Inc. and Nippon Telegraph and Telephone
Corporation.*.
Exhibit 3 - Lock-up Agreement dated May 15, 1998 between NTT
Rocky, Inc. and Smith Barney Inc., Credit Suisse
First Boston and Donaldson, Lufkin & Jenrette
Securities Corporation.
- --------------------------------
* Portions of Exhibit 2 have been omitted pursuant to requests for
confidential treatment made to the Securities and Exchange Commission by
the Company and the Reporting Persons.
Signatures
After reasonable inquiry and to the best of our knowledge and belief, we
certify that the information set forth in the Schedule 13D is true, complete
and correct.
NTT ROCKY, INC.
By: /s/ KEISUKE NAKASAKI
-----------------------------------
Name: Keisuke Nakasaki
Title: President
NIPPON TELEGRAPH AND TELEPHONE
CORPORATION
By: /s/ TATSUO KAWASAKI
-----------------------------------
Name: Tatsuo Kawasaki
Title: Vice President
Dated: May 22, 1998
- 8 -
<PAGE> 12
SCHEDULE A
Directors and Executive Officers of
Nippon Telegraph and Telephone Corporation
The name, present principal occupation or employment, and
business address of each of the directors and executive officers (or their
Japanese equivalents) of Nippon Telegraph and Telephone Corporation ("NTT")
is set forth below. Unless otherwise indicated below an individual's name,
each individual listed below has a business address of 19-2 Nishi-Shinjuku
3-chome, Shinjuku-ku, Tokyo 163-8019, Japan. Each individual listed below is
a citizen of Japan.
<TABLE>
<S> <C>
Name Principal Occupation
Shigeo Sawada Chairman and Representative Director of
NTT
Jun-ichiro Miyazu President and Representative Director of
NTT
Hidekazu Inoue Senior Executive Vice President and
Representative Director of NTT
Toshiharu Aoki Senior Executive Vice President and
Representative Director of NTT
Kazuo Asada Senior Executive Vice President and
3-15 Babu-cho Representative Director of NTT
Chuo-ku
Osaka-shi, 540-8511
Japan
Toshio Hayata Executive Vice President and Managing
Director of NTT
Shigeru Ikeda Executive Vice President and Managing
Director of NTT
Shuichi Kizuka Executive Vice President and Managing
Director of NTT
Masanobu Suzuki Executive Vice President and Managing
Director of NTT
Yuji Matsuo Executive Vice President and Managing
3-1 Sakura-machi Director of NTT
Kumamoto-shi
Kumamoto 860-8519
Japan
Hiroshi Ishihara Executive Vice President and Managing
3-1 Otemachi Director of NTT
2-chome
Chiyoda-ku
Tokyo 100-0004
Japan
</TABLE>
<PAGE> 13
<TABLE>
<S> <C>
Toshiyuki Mineshima Executive Vice President and Managing
Director of NTT
Norio Wada Executive Vice President and Managing
Director of NTT
Hitoshi Tajima Executive Vice President and Managing
Director of NTT
Hiroshi Ishikawa Executive Vice President and Managing
Director of NTT
Shoichi Makino Senior Vice President and Director of NTT
Hirofumi Shimada Senior Vice President and Director of NTT
1137-5, Nitta-cho
Nagano-shi
Nagano 380-8519
Japan
Masahiro Shibao Senior Vice President and Director of NTT
9-60, Osu 4-chome
Naka-ku
Nagoya-shi
Aichi 460-8319
Japan
Ryuji Nunotani Senior Vice President and Director of NTT
Tadayuki Arai Senior Vice President and Director of NTT
Kiyoshi Mita Senior Vice President and Director of NTT
Tatsuo Izawa Senior Vice President and Director of NTT
Yoshinori Uda Senior Vice President and Director of NTT
9-1, Konan 1-chome
Minato-ku
Tokyo 108-8019
Japan
Seiji Takashima Senior Vice President and Director of NTT
2-1, Gohashi
3-chome
Wakabayashi-ku
Sendai-miyagi 984-8519
Japan
Satoshi Miura Senior Vice President and Director of NTT
Michio Takeuchi Senior Vice President and Director of NTT
Michitomo Ueno Senior Vice President and Director of NTT
</TABLE>
A-2
<PAGE> 14
<TABLE>
<S> <C>
Toshiaki Fukui Senior Vice President and Director of NTT
6-77, Motoi-machi
Naka-ku
Hiroshima-shi
Hiroshima 730-0011
Japan
Katsuya Okimi Senior Vice President and Director of NTT
Kunihiro Kato Senior Vice President and Director of NTT
Shinichi Aizawa Senior Vice President and Director of NTT
Masaaki Kasahara Senior Vice President and Director of NTT
Kanji Koide Senior Vice President and Director of NTT
Yoshiyuki Sukemune Senior Vice President and Director of NTT
Ryuzo Sejima Counselor to the President of NTT
Masashi Kokima Chief Executive Counselor of NTT
</TABLE>
Directors and Executive Officers of NTT America, Inc.
The name and present principal occupation or employment of each
of the directors and executive officers of NTT America, Inc. ("NTTA") is set
forth below. Unless otherwise indicated, each individual listed below has a
business address of 101 Park Avenue, 41st Floor, New York, NY 10178 and is a
citizen of Japan.
<TABLE>
<S> <C>
Directors Principal Occupation
Keisuke Nakasaki President and CEO of NTTA
Akihiko Okada Vice President and Secretary of NTTA
Mitsuo Murakami Vice President of NTTA
Tatsuo Kawasaki Vice President, Global Communications
19-2 Nishi-Shinjuku Business Project of NTT
3-chome
Shinjuku-ku
Tokyo 163-8019
Japan
</TABLE>
Executive Officers (who are not Directors)
<TABLE>
<S> <C>
Fred Schweizer Vice President and General Manager of
U.S. citizen Business Communications Group
Takeshi Yamaguchi Treasurer
</TABLE>
A-3
<PAGE> 15
Directors and Executive Officers of NTT Rocky, Inc.
The name and present principal occupation or employment of each
of the directors and executive officers of NTT Rocky, Inc. is set forth
below. Each individual listed below has a business address of 101 Park
Avenue, 41st Floor, New York, NY 10178 and is a citizen of Japan.
<TABLE>
<S> <C>
Directors/Officers Principal Occupation
Keisuke Nakasaki See above
Director, Chairman and President
Takeshi Yamaguchi See above
Director, Vice President, Treasurer and
Assistant Secretary
Hajime Kii Director, Corporate Affairs of NTTA
Director, Vice President, Secretary and
Assistant Treasurer
</TABLE>
A-4
<PAGE> 1
EXHIBIT 1
================================================================================
VERIO INC.
STOCK PURCHASE AND
MASTER STRATEGIC RELATIONSHIP AGREEMENT
APRIL 7, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. AGREEMENT TO SELL AND PURCHASE SHARES.......................................1
1.1 Sale and Purchase of Shares........................................1
1.2 Closing............................................................2
1.3 Legend; Stop Transfer Order........................................3
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................3
2.1 Organization, Good Standing and Qualification......................3
2.2 Authority; Binding Nature of Agreements............................3
2.3 Non-Contravention; Consents........................................4
2.4 Fully Paid and Nonassessable.......................................4
2.5 Private Placement Memorandum; Financial Statements; Taxes..........4
2.6 Absence of Changes.................................................5
2.7 Litigation.........................................................5
2.8 Intellectual Property Rights.......................................6
2.9 Compliance with Law; Governmental Approvals........................6
2.10 Capitalization.....................................................6
2.11 Brokers, etc.......................................................6
2.12 No Other Ventures..................................................7
2.13 Investment Company Act.............................................7
2.14 Insurance..........................................................7
2.15 Labor Matters......................................................7
2.16 Certain Compensation Plans.........................................7
2.17 Environmental Protection...........................................8
2.18 Properties.........................................................8
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2.19 Liabilities........................................................8
2.20 Transactions with Principals.......................................8
2.21 Registration Rights................................................9
2.22 Contracts and Other Commitments....................................9
2.23 Regulation by the FCC..............................................9
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............................9
3.1 Organization and Good Standing.....................................9
3.2 Authority; Binding Nature of Agreements............................9
3.3 Non-Contravention; Consents.......................................10
3.4 Litigation........................................................10
3.5 Brokers, etc......................................................10
3.6 Investment Representations........................................11
3.7 Company Disclosure Documents......................................12
4. CONDITIONS TO CLOSING......................................................12
4.1 Conditions to the Purchaser's Obligations.........................12
4.2 Conditions to the Company's Obligations...........................13
5. COVENANTS OF THE PARTIES...................................................15
5.1 Filings and Consents..............................................15
5.2 Covenant to Satisfy Conditions....................................15
5.3 Reservation of Shares.............................................15
5.4 Further Assurances................................................15
6. TERMINATION................................................................16
6.1 Termination.......................................................16
6.2 Effect of Termination.............................................16
7. SUCCESSORS AND ASSIGNS.....................................................16
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
7.1 Successors and Assigns............................................16
7.2 Novation..........................................................16
7.3 Guarantee.........................................................17
7.4 Certain Waivers and Authorizations................................19
8. MISCELLANEOUS..............................................................20
8.1 Press Releases and Announcements..................................20
8.2 Interpretation....................................................20
8.3 Fees and Expenses.................................................21
8.4 Governing Law; Jurisdiction and Venue; Waiver of Jury Trial.......21
8.5 Specific Enforcement..............................................22
8.6 Survival..........................................................22
8.7 No Third Party Beneficiaries......................................23
8.8 Entire Agreement..................................................23
8.9 Severability......................................................23
8.10 Amendment and Waiver..............................................23
8.11 Relationship of the Parties.......................................23
8.12 Notices...........................................................24
8.13 Counterparts......................................................25
8.14 Attorney's Fees...................................................25
</TABLE>
iii
<PAGE> 5
ATTACHMENTS
Disclosure Schedule
Exhibit A Definitions
Exhibit B Certificate of Designation of Series X Junior Preferred Stock
Exhibit C Private Placement Memorandum
Exhibit D Form of Legal Opinion of Company Counsel
Exhibit E Form of Legal Opinion of Purchaser (and/or Assignee
and Purchaser Party Affiliate) Counsel
iv
<PAGE> 6
STOCK PURCHASE AND MASTER STRATEGIC RELATIONSHIP AGREEMENT
This Stock Purchase and Master Strategic Relationship Agreement (this
"Agreement") is entered into as of April 7, 1998, by and between VERIO INC., a
Delaware corporation (the "Company"), and NIPPON TELEGRAPH AND TELEPHONE
CORPORATION, a Japanese corporation (the "Purchaser"). Capitalized terms used in
this Agreement and not otherwise defined are defined in Exhibit A.
WHEREAS, the Purchaser wishes to purchase from the Company, and the
Company wishes to issue and sell to the Purchaser, certain shares of the
Company's Common Stock, par value $0.001 per share (the "Common Stock");
WHEREAS, such sale and purchase of Common Stock is to occur
concurrently with the IPO;
WHEREAS, the parties hereto have entered into an Investment Agreement
dated of even date herewith (the "Investment Agreement") providing for certain
rights and obligations of such parties with respect to the Common Stock and
other matters; and
WHEREAS, the Company and an Affiliate of the Purchaser have entered
into an Outside Service Provider Agreement dated of even date herewith (the
"Outside Service Provider Agreement") providing for certain matters;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, the parties hereto, intending to be legally bound, agree as follows:
1. AGREEMENT TO SELL AND PURCHASE SHARES
1.1 SALE AND PURCHASE OF SHARES.
(a) Subject to the terms and conditions hereof, at the Closing,
the Company will issue and sell to the Purchaser, and the Purchaser will
purchase from the Company, shares of Common Stock equal in number to the lesser
of (i) 12.5% of the Diluted Common Stock (calculated as of the Closing Date and
giving effect to the sale of shares of Common Stock on the Closing Date pursuant
to this Agreement and in the IPO), or (ii) the quotient of (A) $100 million
divided by (B) the Per Share Price.
(b) Notwithstanding the provisions of paragraph (a) above, in the
event that the applicable waiting period, including any extension thereof, under
the HSR Act with respect to the purchase and sale of Common Stock contemplated
hereby shall not have been subject to early termination or expired prior to the
consummation of the IPO, then, at the Closing, in lieu of Common Stock, the
Purchaser shall purchase from the Company, and the Company shall issue and sell
to the Purchaser, shares of the Company's Series X Junior Preferred Stock (the
"Junior Preferred Stock"). The number of shares of Junior Preferred Stock to be
so purchased shall be such number that is equal to the quotient of (i) the
number of shares of Common Stock that the Purchase otherwise would have
purchased pursuant to paragraph (a) above, divided by (ii) five
1
<PAGE> 7
hundred (500), so that, upon a conversion immediately following the Closing of
all such shares of Junior Preferred Stock into shares of Common Stock as
provided in the Company's Certificate of Designation with respect to the Junior
Preferred Stock (the "Certificate of Designation"), the number of shares of
Common Stock resulting from such conversion would equal the number of shares of
Common Stock that the Purchaser otherwise would have purchased pursuant to
paragraph (a) above. The purchase price per share of Junior Preferred Stock
shall be equal to the product of (i) the Per Share Price, multiplied by (ii)
five hundred (500), so that the aggregate purchase price for the Junior
Preferred Stock to be purchased at the Closing shall be the aggregate purchase
price that would have been payable for the shares of Common Stock that the
Purchaser otherwise would have purchased pursuant to paragraph (a) above. The
Purchaser acknowledges and agrees that if Junior Preferred Stock is purchased by
it pursuant hereto, the Purchaser shall not be entitled to convert such Junior
Preferred Stock into Common Stock, but the Junior Preferred Stock shall be
converted into Common Stock pursuant to the terms of the Certificate of
Designation automatically upon the expiration or early termination of the
applicable waiting period, including any extension thereof, under the HSR Act. A
copy of the Certificate of Designation is attached hereto as Exhibit B and
incorporated herein by reference.
(c) The price per share of the Common Stock to be purchased
pursuant to this Agreement (the "Per Share Price") shall be the product of (i)
the IPO Price multiplied by (ii) 96.75%, provided, that if prior to the Closing
Date the Company shall sell shares of Common Stock (other than (i) in connection
with a merger, buyout or acquisition, (ii) a sale, grant or other issuance to
any employee, consultant or director of the Company or any of its Affiliates,
(iii) pursuant to any pre-existing commitment of the Company and (iv) any other
nonmaterial sales of Common Stock not exceeding $1,000,000 in value per sale) at
a price per share less than the Per Share Price as so determined, then the Per
Share Price shall be such lower price per share of Common Stock.
(d) At the Closing, the Purchaser shall pay the purchase price
for the shares of Common Stock or Junior Preferred Stock purchased hereunder
(the "Purchased Shares") by wire transfer of immediately available funds in U.S.
dollars to the account specified in writing by the Company.
(e) No fractional shares shall be issued upon the sale of any
Common Stock to the Purchaser pursuant to this Agreement, and the number of
shares of Common Stock to be issued to the Purchaser shall be rounded to the
nearest whole share. Fractional shares of Junior Preferred Stock may be issued
upon the sale of Junior Preferred Stock pursuant to this Agreement, if
applicable, provided, that no fractional shares of Common Stock shall be issued
upon any conversion of such Junior Preferred Stock into Common Stock, and the
number of shares of Common Stock to be then issued to the Purchaser shall be
rounded to the nearest whole share.
1.2 CLOSING.
The closing of the purchase and sale contemplated by this Agreement
(the "Closing") shall take place at the offices of Morrison & Foerster LLP, 425
Market Street, San Francisco, California, 94105, at 10:00 a.m. (California time)
on the date of and concurrently with the
2
<PAGE> 8
consummation of the IPO, or on such other date or at such other place or time as
the Company and the Purchaser may mutually agree (such date, the "Closing
Date").
1.3 LEGEND; STOP TRANSFER ORDER.
All certificates representing the Purchased Shares shall bear legends
and be subject to stop transfer orders as specified in the Investment Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the disclosure schedule attached
hereto (the "Disclosure Schedule") or in the Private Placement Memorandum of the
Company dated as of March 19, 1998 (the "Private Placement Memorandum"), a copy
of which is attached hereto as Exhibit C and the text of which is incorporated
herein by reference, the Company hereby represents and warrants to the Purchaser
as follows:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company is
duly qualified to conduct business in each jurisdiction in which the nature of
its business or the ownership of its properties requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the condition (financial or otherwise), properties or business operations of
the Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect"). The Company has all requisite corporate power and authority to carry
on its business as presently conducted.
(b) The Company, as of the date of the Private Placement
Memorandum, has no subsidiaries that constitute "significant subsidiaries"
within the meaning of Regulation S-X under the Securities Act, provided, that
the Purchaser acknowledges that the Company is engaged in a program of buyouts
and acquisitions of other Entities, and that in connection with such program the
Company may purchase shares or other securities of other Entities prior to the
Closing or increase its ownership of Entities less than wholly-owned by the
Company as of the date of the Private Placement Memorandum.
(c) The Company has delivered to the Purchaser accurate and
complete copies of the Company's certificate of incorporation and bylaws,
including all amendments thereto and the amendments thereto that are to be
effective upon consummation of the IPO.
2.2 AUTHORITY; BINDING NATURE OF AGREEMENTS.
The Company has the requisite corporate power and authority to enter
into and to perform its obligations under this Agreement and all other
Transactional Agreements. The execution, delivery and performance by the Company
of this Agreement and such other Transactional Agreements, and the consummation
or performance of the Transactions, have been duly authorized by all necessary
corporate action on the part of the Company, other than the filing of the
Certificate of Designation with the Secretary of State of the State of Delaware.
Each of this Agreement and such other Transactional Agreements constitutes, or
upon execution and delivery will constitute, the legal, valid and binding
obligation of the Company, enforceable
3
<PAGE> 9
against the Company in accordance with its terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (ii) laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
2.3 NON-CONTRAVENTION; CONSENTS.
(a) Neither the execution and delivery by the Company of this
Agreement or any other Transactional Agreement, nor the consummation or
performance by the Company of any of the Transactions to be consummated or
performed by it, will directly or indirectly (with or without notice or lapse of
time): (i) violate any provision of the Company's certificate of incorporation
or bylaws; (ii) constitute or result in a breach or default by the Company, or
give rise to a right of termination on the part of any other party, or result in
the creation or imposition of any lien, claim or encumbrance on any Company
assets, under any agreement or instrument to which the Company is a party or by
which it is bound; or (iii) constitute a violation by the Company of any
Requirement of Law, except in each case for any such violation, breach, default
or termination or any such lien, claim or encumbrance which would not have a
Material Adverse Effect.
(b) Except for compliance with the terms of the HSR Act, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority on the part
of the Company is required in connection with the consummation of the
Transactions, except for such consents, approvals, authorizations or orders the
absence of which, either individually or in the aggregate, would not have a
Material Adverse Effect.
2.4 FULLY PAID AND NONASSESSABLE.
The Purchased Shares, when issued, sold and delivered in accordance
with the terms of this Agreement for the consideration expressed herein, will be
duly and validly issued, fully paid, and nonassessable, and not subject to
preemptive or any other similar rights of the stockholders of the Company or
others.
2.5 PRIVATE PLACEMENT MEMORANDUM; FINANCIAL STATEMENTS; TAXES.
(a) The Private Placement Memorandum, as of the date thereof, did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) The financial statements of the Company included in the
Private Placement Memorandum have been prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP") applied on a consistent
basis during the periods involved, except (i) as may be otherwise indicated in
such financial statements or the notes thereto, (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements, or (iii) as otherwise indicated in the
Disclosure Schedule. Such financial statements fairly present in all material
respects the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of
4
<PAGE> 10
their operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(c) The Company has (or, in the case of returns becoming due
after the date hereof and on or before the Closing Date, will have prior to the
Closing Date) duly filed all Company Tax Returns required to be filed by the
Company on or before the Closing Date with respect to all applicable Taxes. No
penalties or other charges are or will become due with respect to any of the
Company Tax Returns as the result of the late filing thereof in an amount which
would have a Material Adverse Effect. All of the Company Tax Returns are (or, in
the case of returns becoming due after the date hereof and on or before the
Closing Date, will be) true and complete in all material respects. The Company
either (i) has paid all Taxes due or claimed to be due by any Taxing authority
in connection with any of the Company Tax Returns or otherwise required to be
filed or paid prior to the date hereof, or (ii) to the extent such Taxes were
due prior to the date of the financial statements contained in the Private
Placement Memorandum (the "Financial Statements Date") has established in the
financial statements set forth in the Private Placement Memorandum adequate
reserves (in conformity with U.S. GAAP consistently applied) for the payment of
such Taxes, or, to the extent such Taxes were not due prior to the Financial
Statements Date, has established adequate reserves for the payment of such Taxes
in the ordinary course of business and in accordance with good business
practices; except in any of the cases described in the preceding clauses (i) and
(ii) for such Taxes the nonpayment of which would not have a Material Adverse
Effect. The amounts set up as reserves for Taxes on the financial statements set
forth in the Private Placement Memorandum are sufficient for the payment of all
unpaid Taxes, whether or not such Taxes are disputed or are yet due and payable,
for or with respect to the period through the Financial Statements Date, and for
which the Company may be liable in its own right (including, without limitation,
by reason of being a member of the same affiliated group) or as a transferee of
the assets of, or successor to, any Entity, other than any such Taxes as would
not have a Material Adverse Effect. The Company, either in its own right
(including, without limitation, by reason of being a member of the same
affiliated group) or as a transferee, does not have and on the Closing Date will
not have any liability for Taxes payable for or with respect to any periods
prior to and including the Closing Date materially in excess of the amounts
actually paid prior to the Closing Date or reserved for in financial statements
set forth in the Private Placement Memorandum, except for amounts payable for or
with respect to any periods following the Financial Statements Date.
2.6 ABSENCE OF CHANGES.
As of the date of this Agreement, there has been no change in the
Company's business or operations from the information presented in the Private
Placement Memorandum that would have a Material Adverse Effect.
2.7 LITIGATION.
As of the date hereof, there are no suits, proceedings or
investigations pending or, to the Knowledge of the Company, threatened against
the Company, which in any such case would have a Material Adverse Effect, or
which would materially adversely affect the Company's ability to perform its
obligations under this Agreement or any of the other Transactional Agreements.
5
<PAGE> 11
2.8 INTELLECTUAL PROPERTY RIGHTS.
(a) The patents, trademarks, service marks, trade names,
copyrights and rights or licenses to use the same, and any and all applications
therefor, as well as the trade secrets and similar proprietary information,
owned or held by the Company are all that are required to enable the Company to
conduct its business as now conducted, except for such failures to own or hold
as, in the aggregate, would not have a Material Adverse Effect. To the Company's
Knowledge, the Company's operations do not infringe rights under patents,
trademarks, service marks, trade names, trade secrets, copyrights or licenses or
any other proprietary rights of others, except for any such infringement as
would not have a Material Adverse Effect.
(b) The Company has the right and authority to utilize the
processes, systems and techniques presently employed by it in the design,
development and manufacture of its present products and all rights to any
material processes, systems and techniques developed by any employee or
consultant of the Company have been and will be duly and validly assigned to the
Company, except to the extent the failure to have such right or authority or to
obtain such assignment, in the aggregate, would not have a Material Adverse
Effect.
2.9 COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS.
(a) The Company is in compliance with all applicable Requirements
of Law, except for such non-compliance as in the aggregate would not have a
Material Adverse Effect.
(b) The Company has all governmental approvals, authorizations,
consents, licenses and permits required from each Governmental Authority with
jurisdiction over the Company or its properties to conduct its business as it is
currently being conducted, except for such approvals, authorizations, consents,
licenses or permits, the failure of which to obtain, in the aggregate, would not
have a Material Adverse Effect.
2.10 CAPITALIZATION.
As of the date of the Private Placement Memorandum, the information
regarding the actual capitalization of the Company set forth under the caption
"Capitalization" in the Private Placement Memorandum is true, correct and
complete, and all of the outstanding capital stock of the Company as therein
described was duly authorized, validly issued, fully paid and nonassessable as
of the date specified in the Private Placement Memorandum.
2.11 BROKERS, ETC.
The Company has not dealt with any broker, finder, or other similar
person in connection with the offer or sale of the Common Stock or Junior
Preferred Stock pursuant to this Agreement such that it will be under any
obligation to pay any broker's fee, finder's fee or commission in connection
with such offer and sale.
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2.12 NO OTHER VENTURES.
As of the date of the Private Placement Memorandum, the Company was not
engaged in any material partnership or joint venture with any other Person.
2.13 INVESTMENT COMPANY ACT.
The Company is not an "investment company" or a company "controlled by"
an "investment company," as such terms are defined in the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
2.14 INSURANCE.
The Company has insurance in such amounts and covering such risks as
are in accordance with normal industry practice.
2.15 LABOR MATTERS.
(a) There are no strikes, work stoppages, slowdowns or lockouts
existing or, to the Knowledge of the Company, threatened against the Company
that would have a Material Adverse Effect.
(b) To the Company's Knowledge, no key employee of the Company is
in violation of any judgment, decree or order, or any term of any employment
contract, patent disclosure agreement, other proprietary information agreement,
non-competition agreement or other contract or agreement relating to the
relationship of any such employee to any former employers, the Company or any
other party, because of the nature of the business conducted by the Company or
to the utilization by the employee of his or her best efforts with respect to
such business in his or her assigned duties at the Company, in any case which
violation would have a Material Adverse Effect.
(c) The consummation of the Transactions will not cause the
Company to incur or suffer any liability relating to, or obligation to pay,
material severance or termination amounts to any person or entity.
2.16 CERTAIN COMPENSATION PLANS.
(a) The Company does not have any material profit sharing,
deferred compensation, stock option, stock purchase, phantom stock or similar
plan that evidence rights to purchase securities of or to share in the profits
of the Company.
(b) The Company has not incurred any liability for any prohibited
transaction or funding deficiency or any complete or partial withdrawal
liability with respect to any pension, profit sharing or other plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), to which the Company makes or ever has made a contribution and in
which any employee of the Company is or has ever been a participant which,
individually or in the aggregate, would result in a Material Adverse Effect.
With respect to such plans, the Company is in compliance in all respects with
all applicable provisions of ERISA and the
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Internal Revenue Code of 1986, as amended, except where the failure to so comply
would not, individually or in the aggregate, have a Material Adverse Effect.
2.17 ENVIRONMENTAL PROTECTION.
(a) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, (i) the Company is in compliance with and not subject
to any known liability under applicable Environmental Law (as defined below),
and (ii) there is no civil, criminal or administrative action or investigation,
notice or demand letter or request for information pending or, to the Company's
Knowledge, threatened against the Company under any Environmental Law.
(b) For purposes of this Agreement, "Environmental Law" shall
mean all applicable federal, state and local laws or regulations relating to the
protection of the environment or human health, including, without limitation,
laws relating to omissions, discharges, releases or threatened releases of
"hazardous substances," as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
2.18 PROPERTIES.
The Company has good and marketable title to all real and personal
property described in the Private Placement Memorandum as being owned by it and
good and marketable title to a leasehold estate in the real and personal
property described in the Private Placement Memorandum as being leased by it,
free and clear of all liens, charges, encumbrances and restrictions, except to
the extent the failure to have such title or the existence of such liens,
charges, encumbrances or restrictions would not result in a Material Adverse
Effect.
2.19 LIABILITIES.
The Company did not have, at the Financial Statements Date, any
liabilities which in the aggregate exceeded five million dollars ($5,000,000),
which were not reflected in the balance sheet at such date included as part of
the financial statements included in the Private Placement Memorandum, nor did
it, at such date, have any contingent liabilities which in the aggregate
exceeded five million dollars ($5,000,000), which were not so reflected, in each
such case which liabilities or contingent liabilities were required by U.S. GAAP
to be reflected in such balance sheet. Since the Financial Statements Date, and
prior to the date hereof, the Company has not, other than in the ordinary course
of business, or in connection with the acquisition of other businesses and other
companies, incurred any material liabilities.
2.20 TRANSACTIONS WITH PRINCIPALS.
No present or former employee, shareholder, or officer or director of
the Company or their spouses, children or affiliates (as that term is defined in
Rule 405 under the Securities Act) is indebted to the Company in an amount in
excess of $100,000 nor is the Company indebted to any of them in such amount or,
directly or indirectly, interested in any transaction with the Company which is
material to the Company, including, without limitation, any agreement providing
for the employment of, furnishing of services by, rental of assets from or to,
or
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otherwise requiring payments to, any such employee, officer, director,
shareholder, family member or affiliate.
2.21 REGISTRATION RIGHTS.
Except as set forth in the Transactional Agreements, the Company is not
under any obligation to register any of its presently outstanding securities or
any of its securities which may hereafter be issued.
2.22 CONTRACTS AND OTHER COMMITMENTS.
Each material agreement and contract to which the Company is a party or
by which the Company is bound is in full force and effect and constitutes a
legal, valid and binding obligation of, and is legally enforceable against, the
Company and, to the Company's Knowledge, the other parties thereto, except where
the failure of the same to be in full force and effect and to be valid, binding
and enforceable would not have a Material Adverse Effect. The Company is not in
default, and, to the Company's Knowledge, the other party(ies) are not in
default, under any of such agreements or contracts, and there has not occurred
any event which to the Company's Knowledge (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute such a default, which default, or the occurrence of which default,
would result in a Material Adverse Effect.
2.23 REGULATION BY THE FCC.
At the date hereof, neither the Company nor any Affiliate of the
Company controlled by the Company is required to obtain from the Federal
Communications Commission any license or other authorization.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
3.1 ORGANIZATION AND GOOD STANDING.
The Purchaser is a corporation duly organized and validly existing
under the laws of Japan. Any Affiliate of the Purchaser that is a party to any
of the Transactional Agreements (a "Purchaser Party Affiliate") is a corporation
duly organized and validly existing under the laws of its state or other
jurisdiction of incorporation and, if such Affiliate is incorporated in the
United States, such Affiliate is in good standing under the laws of its state of
incorporation.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENTS.
Each of the Purchaser and each Purchaser Party Affiliate has the
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and all other Transactional Agreements to which
it is a party. The execution, delivery and performance by the Purchaser and each
Purchaser Party Affiliate of this Agreement and such other Transactional
Agreements to which they are parties, and the consummation or performance of the
Transactions, have been duly authorized by all necessary corporate action on the
part of the
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Purchaser and each Purchaser Party Affiliate which is a party thereto. Each of
this Agreement and such other Transactional Agreements constitutes, or upon
execution and delivery will constitute, the legal, valid and binding obligation
of the Purchaser and each Purchaser Party Affiliate which is a party thereto,
enforceable against the Purchaser and each Purchaser Party Affiliate, as the
case may be, in accordance with its terms, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (ii) laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
3.3 NON-CONTRAVENTION; CONSENTS.
(a) Neither the execution and delivery by the Purchaser or any
Purchaser Party Affiliate of this Agreement or any other Transactional Agreement
to which such Entity is a party, nor the consummation or performance by the
Purchaser or any Purchaser Party Affiliate of any of the Transactions to be
consummated or performed by them, will directly or indirectly (with or without
notice or lapse of time): (i) violate any provision of the Purchaser's or any
Purchaser Party Affiliate's certificate or articles of incorporation or bylaws
or other charter documents; (ii) constitute or result in a breach or default by
the Purchaser or any Purchaser Party Affiliate, or give rise to a right of
termination on the part of any other party, or result in the creation or
imposition of any lien, claim or encumbrance on any Purchaser or any Purchaser
Party Affiliate assets, under any agreement or instrument to which the Purchaser
or any Purchaser Party Affiliate is a party or by which the Purchaser or any
Purchaser Party Affiliate is bound; or (iii) constitute a violation by the
Purchaser or any Purchaser Party Affiliate of any Requirement of Law.
(b) Except for compliance with the terms of the HSR Act and
Sections 13 and 16 of the Exchange Act, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority on the part of the Purchaser or any
Purchaser Party Affiliate is required in connection with the consummation of the
Transactions.
3.4 LITIGATION.
As of the date hereof, there are no suits, proceedings or
investigations pending or, to the Knowledge of the Purchaser and any Purchaser
Party Affiliate, threatened against the Purchaser or any Purchaser Party
Affiliate, which in any such case would materially adversely affect the
Purchaser's or any Purchaser Party Affiliate's ability to perform its
obligations under this Agreement or any of the other Transactional Agreements.
3.5 BROKERS, ETC.
Neither the Purchaser nor any Purchaser Party Affiliate has granted or
become obligated to pay, or has taken any action that likely would result in any
Person claiming to be entitled to receive from the Company, any brokerage
commission, finder's fee or similar commission or fee in connection with any of
the Transactions, except for the investment banking fee of Deutsche Morgan
Grenfell, Inc., which shall be paid by the Purchaser.
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3.6 INVESTMENT REPRESENTATIONS.
(a) The Purchaser understands that none of the Purchased Shares
has been registered under the Securities Act. The Purchaser also understands
that the Purchased Shares are being offered and sold pursuant to an exemption
from registration contained in the Securities Act based in part upon the
Purchaser's representations contained in this Agreement, and that the Company is
relying upon the truth and accuracy of the Purchaser's representations,
warranties, acknowledgements and understandings set forth herein.
(b) The Purchaser is acquiring the Purchased Shares for the
Purchaser's own account for investment only, and not with the current intention
of making a public distribution thereof.
(c) The Purchaser has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Purchaser, by reason of its business or financial experience, has the capacity
to protect its own interests in connection with the Transactions. The Purchaser
is an "accredited investor" as that term is defined in Rule 501(a) of Regulation
D under the Securities Act.
(d) The Purchaser acknowledges that the Purchased Shares must be
held indefinitely and that the Purchaser must bear the economic risk of this
investment indefinitely unless the Purchased Shares are subsequently registered
under the Securities Act or an exemption from such registration is available.
Without limiting the obligations of the Company under the Investment Agreement,
the Purchaser understands that the Company has no present intention of
registering the Purchased Shares. The Purchaser also understands that there is
no assurance that any exemption from registration under the Securities Act will
be available and that, even if available, such exemption may not allow the
Purchaser to transfer all or any portion of the Purchased Shares under the
circumstances, in the amounts or at the times the Purchaser might propose.
(e) The Purchaser has been advised or is aware of the provisions
of Rule 144 under the Securities Act ("Rule 144"), which permit limited resale
of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things: (i) the availability of
certain current public information about the Company, (ii) the resale occurring
not less than one year after a party has purchased and paid for the security to
be sold, (iii) the sale being through an unsolicited "broker's transaction" or
in transactions directly with a market maker (as said term is defined under the
Exchange Act) and (iv) the number of shares being sold during any three-month
period not exceeding specified limitations.
(f) The Purchaser initiated discussions with the Company relating
to the purchase and sale contemplated by this Agreement on an unsolicited basis
prior to February 27, 1998. The Purchaser did not receive any information
regarding such purchase and sale through any general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act.
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3.7 COMPANY DISCLOSURE DOCUMENTS.
(a) The Purchaser has received and reviewed a copy of the Private
Placement Memorandum, including, without limitation, the language therein under
the caption "Risk Factors."
(b) The Purchaser has been furnished with materials relating to
the Company and its proposed activities, including, without limitation, the
Private Placement Memorandum. Without limiting the Company's obligations with
respect to any representations or warranties made by the Company in this
Agreement, the Purchaser has been afforded the opportunity to obtain any
additional information deemed necessary by the Purchaser to verify the accuracy
of any representations made or information conveyed to the Purchaser. The
Purchaser confirms that all documents, records and books pertaining to its
investment in Common Stock or Junior Preferred Stock and requested by the
Purchaser have been made available or delivered to the Purchaser. The Purchaser
has had an opportunity to ask questions of and receive answers from the Company,
or from a person or persons acting on the Company's behalf, concerning the terms
and conditions of this investment. The Purchaser has relied upon, and is making
its investment decision solely upon, the Private Placement Memorandum provided
to the Purchaser by or on behalf of the Company.
4. CONDITIONS TO CLOSING
4.1 CONDITIONS TO THE PURCHASER'S OBLIGATIONS.
The Purchaser's obligations to purchase the Purchased Shares and to
take the other actions required to be taken by it at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Purchaser, in whole or in part):
(a) The representations and warranties of the Company contained
in this Agreement shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, except to the extent any such representations and warranties are
stated to be made as of a specific date, in which case they shall be true as of
such date, except in each case for any inaccuracies in such representations and
warranties as would not have a Material Adverse Effect. In addition, the Company
shall have performed in all material respects all obligations required pursuant
to the terms of this Agreement or any of the other Transactional Agreements to
be performed or observed by it on or prior to the Closing.
(b) The Company shall have delivered to the Purchaser a
certificate, executed by an executive officer of the Company, dated the date of
the Closing, setting forth the Company's representation that the conditions set
forth in Section 4.1(a) above shall have been satisfied.
(c) The Purchaser Board Designee (as defined in the Investment
Agreement) shall have been appointed to a term on the Board of Directors of the
Company as provided in the Investment Agreement.
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(d) The Company shall have obtained any and all consents,
permits, waivers and approvals necessary or appropriate for consummation of the
Transactions (except for such as may be properly obtained subsequent to the
Closing), provided, that, notwithstanding anything to the contrary, the
expiration or early termination of the applicable waiting period under the HSR
Act shall not be a condition to the Purchaser's obligations hereunder.
(e) The Company shall have executed and delivered to the
Purchaser or a Purchaser Party Affiliate, as applicable, each of (i) the
Investment Agreement and (ii) the Outside Service Provider Agreement.
(f) There shall be no injunction, writ, preliminary restraining
order or other order in effect of any nature issued by a court or governmental
agency of competent jurisdiction directing that the Transactions not be
consummated in the manner provided for in this Agreement and the other
Transactional Agreements. No action or proceeding shall have been instituted and
remain pending before a court or other governmental body of competent
jurisdiction to restrain, prohibit or otherwise challenge any of the
Transactions (or seeking material damages from the Purchaser, the Company or any
Purchaser Party Affiliate as a result thereof), other than any such action or
proceeding which would not have a Material Adverse Effect or prevent the Company
or the Purchaser from performing their respective obligations hereunder or under
any of the other Transactional Agreements.
(g) The Company shall have delivered to the Purchaser a legal
opinion from counsel to the Company, in form and substance reasonably
satisfactory to the Purchaser and its counsel and addressing the matters listed
in Exhibit D hereto.
(h) On or prior to the Closing Date, the Purchaser shall have
received a certificate of the Secretary of State of the State of Delaware, dated
as of a recent date, as to the good standing of the Company.
(i) The IPO shall have been consummated or shall be consummated
concurrently with the Closing.
(j) If the Purchaser is purchasing shares of Junior Preferred
Stock pursuant to the terms hereof, the Certificate of Designation shall have
been filed with the Secretary of State of the State of Delaware.
4.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Company's obligations to sell the Purchased Shares and to take the
other actions required to be taken by the Company at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Company, in whole or in part):
(a) The representations and warranties of the Purchaser contained
in this Agreement shall be true in all material respects on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing Date, except to the extent any such
representations and warranties are stated to be made as of a specific date, in
which case they shall be true in all material respects as of such date, and the
Purchaser and any
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Purchaser Party Affiliate shall have performed in all material
respects all obligations required pursuant to the terms of this Agreement or any
of the other Transactional Agreements to be performed or observed by either of
them on or prior to the Closing.
(b) The Purchaser shall have delivered to the Company a
certificate, executed by an executive officer of the Purchaser, dated the date
of the Closing, setting forth the Purchaser's representation that the conditions
set forth in Section 4.2(a) above shall have been satisfied.
(c) The Purchaser and any Purchaser Purchaser Party Affiliate
shall have obtained any and all consents, permits, waivers and approvals
necessary or appropriate for consummation of the Transactions (except for such
as may be properly obtained subsequent to the Closing), provided, that,
notwithstanding anything to the contrary, the expiration or early termination of
the applicable waiting period under the HSR Act shall not be a condition to the
Company's obligations hereunder.
(d) The Purchaser or a Purchaser Party Affiliate shall have
executed and delivered to the Company each of (i) the Investment Agreement and
(ii) the Outside Service Provider Agreement.
(e) There shall be no injunction, writ, preliminary restraining
order or other order in effect of any nature issued by a court or governmental
agency of competent jurisdiction directing that the Transactions not be
consummated in the manner provided for in this Agreement and the other
Transactional Agreements. No action or proceeding shall have been instituted and
remain pending before a court or other governmental body of competent
jurisdiction to restrain, prohibit or otherwise challenge any of the
Transactions (or seeking material damages from the Purchaser, any Purchaser
Party Affiliate or the Company as a result thereof), other than any such action
or proceeding which would not have a Material Adverse Effect or prevent the
Company, the Purchaser or any Purchaser Party Affiliate from performing their
respective obligations hereunder or under any of the other Transactional
Agreements.
(f) The Purchaser shall have delivered to the Company a legal
opinion from counsel to the Purchaser and any Purchaser Party Affiliate, in form
and substance reasonably satisfactory to the Company and its counsel and
addressing the matters described in Exhibit E hereto.
(g) On or prior to the Closing Date, if the Purchaser or any
Purchaser Party Affiliate is organized in the United States, the Company shall
have received a certificate of the Secretary of State (or equivalent agency) of
the state of the Purchaser's or the Purchaser Party Affiliate's organization, as
to the good standing of such party.
(h) The IPO shall have been consummated or shall be consummated
concurrently with the Closing.
(i) Concurrently with such sale, the Purchaser shall have paid to
the Company the purchase price for the Purchased Shares.
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5. COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS.
Concurrently with execution and delivery of this Agreement, the
Purchaser and the Company shall make all filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), relating to the Transactions. In addition, the Purchaser will promptly
furnish all information as may be required by the Japanese Ministry of Finance
in order for the requisite approvals for the purchase and sale of the Purchased
Shares, and the consummation of the Transactions, to be obtained, and the
Company and the Purchaser will each promptly furnish all information as may be
required by the Federal Trade Commission and the Department of Justice under the
HSR Act in order for the requisite approvals for the purchase and sale of the
Purchased Shares, and the consummation of the Transactions, to be obtained or
any applicable waiting periods to be terminated or expire. Each party hereto
will cooperate with each other with respect to obtaining, as promptly as
practicable, and in any event prior to consummation of the IPO, all necessary
consents, approvals, authorizations and agreements of, and the giving of all
notices and making of all other filings with, any third parties, including
Governmental Authorities, necessary to authorize, approve or permit the
consummation of the Transactions. Each party hereto shall pay fifty percent
(50%) of the filing fee required in connection with the initial application
under the HSR Act with respect to the Transactions.
5.2 COVENANT TO SATISFY CONDITIONS.
Each party agrees to use all reasonable efforts to insure that the
conditions to the other party's obligations hereunder set forth in Section 4,
insofar as such matters are within the control of such party, are satisfied as
promptly as practicable, and in any event prior to consummation of the IPO,
provided, that notwithstanding anything herein to the contrary, the Company
shall have the sole and absolute discretion as to when, and whether, to
consummate the IPO, and may choose to cease pursuit of the IPO or to postpone
the IPO until after the termination of this Agreement, all without any liability
or obligation whatsoever to the Purchaser.
5.3 RESERVATION OF SHARES.
If the Purchaser purchases shares of Junior Preferred Stock at the
Closing pursuant to Section 1.1 hereof, then prior to or promptly following the
Closing the Company shall reserve for issuance upon any conversion of such
shares of Junior Preferred Stock such number of shares of Common Stock as would
be issued upon the conversion of all such shares of Junior Preferred Stock.
5.4 FURTHER ASSURANCES.
Each party shall execute and deliver such additional instruments,
documents or other writings as may be reasonably requested by any other party,
before or after the Closing, in order to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the other Transactional
Agreements.
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6. TERMINATION
6.1 TERMINATION.
(a) This Agreement may be terminated at any time prior to the
Closing:
(i) by the written agreement of the Purchaser and
the Company;
(ii) by the Company or the Purchaser, if the Closing
shall not have occurred by July 31, 1998, provided, that the failure to
consummate the Closing by such date is not a result of the Company, in
the case the Company is so electing to terminate this Agreement, or of
the Purchaser or any Purchaser Party Affiliate, in the case the
Purchaser is so electing to terminate this Agreement, failing to
perform any of its obligations or breaching any of its representations
and warranties hereunder or under any of the other Transactional
Agreements; and
(iii) by the Company or the Purchaser in the event
any court or governmental agency of competent jurisdiction shall have
issued an order, decree or ruling or taken any other action
restricting, enjoining or otherwise prohibiting the Transactions and
such order, decree, ruling or other action shall have become final and
unappealable, and the parties hereto hereby agree to use all
reasonable efforts to prevent any such order, decree, ruling or other
action from becoming final and unappealable.
6.2 EFFECT OF TERMINATION.
Except for the obligations of Section 8 hereof and this Section 6.2, if
this Agreement shall be terminated pursuant to the preceding Section 6.1, all
obligations, representations and warranties of the parties hereto under this
Agreement shall terminate and there shall be no liability hereunder of any party
hereto to any other party hereto, provided, that nothing in this Section 6 shall
relieve any party of liability for breach of any warranty, covenant or agreement
herein or in any other Transactional Agreement.
7. SUCCESSORS AND ASSIGNS
7.1 SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto. Except as otherwise
expressly provided herein, neither party may assign any of its rights or
obligations hereunder without the written consent of the other party hereto.
7.2 NOVATION.
(a) From and after the date of this Agreement, the Purchaser
shall have the right, with or without the consent of the Company, to assign all
of its rights and obligations under this Agreement (other than its obligations
pursuant to this Section 7, except in the circumstances and subject to the
conditions described in Section 7.2(b)), effecting a novation of such rights and
obligations, to a direct or indirect wholly-owned subsidiary of the Purchaser
(the "Assignee"),
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provided, that any such assignment shall only be made in conjunction with an
assignment by the Purchaser to the same transferee of its rights and obligations
under the Investment Agreement, pursuant to Section 10 of the Investment
Agreement. Such assignment shall become effective immediately upon notification
by the Purchaser to the Company of such assignment.
(b) In the event of a transfer of the rights and obligations of
the Purchaser under this Agreement pursuant to a statutory reorganization of the
Purchaser prescribed in the Supplementary Provisions to the Law Concerning
Partial Amendment to the Nippon Telegraph and Telephone Corporation Law (Law No.
98 of 1997) (the "Amendment"), the Purchaser shall ensure that all the rights
and obligations of the Purchaser under this Agreement and the ownership of the
Purchased Shares are transferred to the said successor entity without any
dilution or adverse effect on the enforceability of such obligations. Subject to
the aforesaid, the Company: (i) agrees that such a reorganization by itself
shall not constitute a default by the Purchaser or any successor entity of the
Purchaser under this Agreement and shall not constitute grounds for termination
of this Agreement by any of such parties; (ii) anything to the contrary herein
or elsewhere notwithstanding, consents to the transfer of all the rights and
obligations of the Purchaser under this Agreement (including, without
limitation, its obligations pursuant to Sections 7.3 and 7.4 hereof) to a
successor entity as part of such reorganization; (iii) consents to the transfer
of the Purchaser Shares to a successor entity as part of such reorganization;
and (iv) anything to the contrary herein or elsewhere notwithstanding, agrees to
absolutely and irrevocably release the Purchaser from its obligations under this
Agreement and the other Transactional Agreements upon such reorganization,
provided, in each case, that the successor entity shall be subject to the terms
and conditions of this Agreement and the other Transactional Agreements,
including, without limitation, the representations and warranties of the
Purchaser herein and in the other Transactional Agreements, and shall deliver to
the Company a written agreement to such effect, in form and substance reasonably
satisfactory to the Company, and provided, further, in each case, that the
successor entity is either one of the Regional Companies or the Long Distance
Company currently contemplated in the Amendment.
7.3 GUARANTEE.
(a) The Purchaser hereby absolutely, unconditionally and
irrevocably guarantees (i) the full and complete performance by each Assignee
and each Purchaser Party Affiliate of all covenants and obligations to be
performed by it under this Agreement, the Investment Agreement and all other
Transactional Agreements, and (ii) the payment of any and all damages, losses,
claims, demands, recoveries, deficiencies, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) which the Company
or any of its successors, assigns or Affiliates may suffer or incur in
connection with, resulting from or arising out of any breach by any Assignee or
any Purchaser Party Affiliate of any such covenants and obligations, which
guarantee shall be effective from and after the date hereof or, in the case of
any Assignee, automatically upon the effectiveness of the related assignment
pursuant to Section 7.2(a).
(b) Without limiting the generality of the preceding paragraph
(a), the Purchaser agrees that, in the event that any Assignee or any Purchaser
Party Affiliate fails to perform any of its duties and obligations under this
Agreement or any of the other Transactional Agreements, and monetary claims by
the Company or any of its successors, assigns or Affiliates arising out of or
with respect to such failure to perform have been determined (by any judgment of
a court, by
17
<PAGE> 23
an arbitral award, by execution of a settlement agreement or by final resolution
under the terms of the relevant Transactional Agreement) to be payable to the
Company or any such successor, assign or Affiliate ("Payment Determination"),
then the Purchaser shall promptly pay over to the Company or such successor,
assign or Affiliate all of the amounts so determined to be due to it within
thirty (30) days after such Payment Determination, if and to the extent that the
Assignee or the Purchaser Party Affiliate, as applicable, shall have failed to
pay such amounts within such time period. The Purchaser agrees that it will pay
and perform all obligations of the Assignee or the Purchaser Party Affiliate, as
applicable, established through any Payment Determination made as a result of
any litigation, arbitration or other proceeding, even though such litigation,
arbitration or any other proceeding may be appealed or is appealable by the
Purchaser, the Assignee or the Purchaser Party Affiliate.
(c) In addition to all other amounts to which it may be entitled
hereunder, in the event that the Company or any of its successors, assigns or
Affiliates recovers any amounts from the Purchaser or any Affiliate of the
Purchaser pursuant to this Section 7 or otherwise in connection with the matters
giving rise to the Purchaser's guarantee obligation hereunder, the Company or
any such successor, assign or Affiliate shall be entitled to recover from the
Purchaser all costs and expenses (including, without limitation, court costs and
reasonable attorneys' fees and expenses) incurred by the Company or any such
successor, assign or Affiliate in connection with the enforcement of this
Section 7 against the Purchaser and all actions or proceedings, in any way,
manner or respect arising out of or relating to the enforcement by the Company
of its rights under this Section 7 against the Purchaser. In the event that the
Company or any of its successors, assigns or Affiliates seeks to enforce this
Section 7 against the Purchaser and is finally judicially determined not to be
entitled to any recovery with respect to the matter for which the Purchaser's
guarantee hereunder was sought to be enforced, the Purchaser shall be entitled
to recover from the Company all costs and expenses (including, without
limitation, court costs and reasonable attorneys' fees and expenses) incurred by
the Purchaser in connection with the Purchaser's defending such enforcement
action.
(d) In the event that the Purchaser assigns its rights and
obligations under this Agreement pursuant to Section 7.2(a) above, (i) the
Purchaser and the Assignee shall be deemed to have made, jointly and severally,
the representations and warranties contained in Section 3 hereof, each with
respect to itself as if it were the "Purchaser" for purposes of such
representations and warranties, provided, that, with respect to the
representation and warranties in Section 3.1 hereof, the Assignee shall be
deemed to have represented and warranted that it is a corporation duly organized
and validly existing under the laws of its state or other jurisdiction of
incorporation and, if the Assignee is incorporated in the United States, that it
is in good standing under the laws of its state of incorporation; and (ii) each
of the conditions to the Company's obligations described in Section 4.2 shall be
deemed to include references to both the Purchaser and the Assignee, with
respect to each as if it were the "Purchaser." Without limiting the generality
of the foregoing, in the event of any such assignment, it shall be a condition
to the obligation of the Company to sell the Purchased Shares and to take the
other actions required to be taken by it at the Closing that each of the
Purchaser and the Assignee shall have delivered an opinion from their respective
counsel, in form and substance reasonably satisfactory to the Company and its
counsel and addressing the matters listed in Exhibit E hereto, with respect to
itself.
18
<PAGE> 24
7.4 CERTAIN WAIVERS AND AUTHORIZATIONS.
In connection with any assignment by the Purchaser pursuant to
Section 7.2(a) above and the guarantee by the Purchaser pursuant to Section 7.3
above:
(a) The Purchaser hereby irrevocably waives, to the fullest
extent permitted by law: (i) all statutes of limitations defenses; (ii) any
defense based upon any legal disability or any discharge or limitation of the
liability of any Assignee or any Purchaser Party Affiliate, whether consensual
or arising by operation of law or by any bankruptcy, reorganization,
receivership, insolvency or similar debtor-relief proceeding, or from any other
cause; (iii) presentment, demand, protest and notice of any kind, including,
without limitation, notices of nonperformance, protest and dishonor; and (iv)
any right to require the Company to proceed against any Assignee, any Purchaser
Party Affiliate or any other party or to pursue any other remedy in the
Company's power whatsoever.
(b) The Purchaser's obligations under Section 7.3 shall be
primary obligations and are independent of those of any Assignee or any
Purchaser Party Affiliate. The Company may bring a separate action against the
Purchaser, without first proceeding against any Assignee, any Purchaser Party
Affiliate or any other Person and without pursuing any other remedy. The
Company's rights hereunder shall not be exhausted by any action of the Company
until all obligations of all Assignees and all Purchaser Party Affiliates have
been performed and there shall be no outstanding default thereunder, and all
obligations of the Purchaser otherwise shall have been performed.
(c) To the fullest extent permitted by law, the Company may at
any time and from time to time, without the consent of or notice to the
Purchaser, without incurring any responsibility to the Purchaser, and without
impairing or releasing the obligations of the Purchaser hereunder, upon or
without any terms or conditions and in whole or in part:
(i) exercise or refrain from exercising any rights
against any Assignee or any Purchaser Party Affiliate or others or
otherwise act or refrain from acting;
(ii) subordinate, release, settle or compromise any of the
obligations of any Assignee or any Purchaser Party Affiliate;
(iii) consent to or waive any breach of, or any act,
omission or default under, this Agreement, the Investment Agreement or any
other Transactional Agreements, or otherwise agree with any Assignee or any
Purchaser Party Affiliate to amend, modify or supplement any such
Agreements or any other instrument or agreement; or
(iv) substitute, add or release any one or more
guarantors.
(d) The obligations of the Purchaser hereunder shall continue to
be effective if any obligations of any Assignee or any Purchaser Party Affiliate
are rescinded or nullified, or any payment made thereby must otherwise be
restored or returned to such party, or any trustee, receiver, custodian,
liquidator or other similar officer thereof (and is so returned) upon the
19
<PAGE> 25
bankruptcy of such party or upon or as a result of the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to such party.
(e) The obligations of the Purchaser hereunder shall continue to
be effective notwithstanding any other provision hereof or any amendment or
modification of this Agreement or any of the other Transactional Agreements, or
any assignment or any rejection thereof which may occur in any bankruptcy or
proceeding concerning any Assignee or any Purchaser Party Affiliate, whether
permanent or temporary, and whether or not assented to by any of the parties to
this Agreement or any of the other Transactional Agreements.
(f) Without notice to or further assent from the Purchaser, any
of the terms and conditions respecting the duties and obligations of any
Assignee or any Purchaser Party Affiliate under this Agreement and the other
Transactional Agreements may be waived or modified by any of such parties and
the Company, and the time of payment of any amount due or the time of
performance of any obligation of such parties may be compromised, settled or
extended in writing by such parties and the Company. The obligations of the
Purchaser hereunder shall not be discharged or impaired or otherwise affected by
(i) any extension or renewal of this Agreement or any of the other Transactional
Agreements or any obligations of any Assignee or any Purchaser Party Affiliate
thereunder, without notice or further assent from the Purchaser; (ii) any
rescission, waiver, amendment or modification of any of the terms or provisions
of this Agreement or any of the other Transactional Agreements; (iii) any
permitted assignment or delegation by the Company, or any of its successors and
assigns, of its rights and obligations under this Agreement or any of the other
Transactional Agreements; or (iv) any other act or thing which may or might in
any manner or to any extent vary the risk of the Purchaser or which would
otherwise operate as a discharge of the Purchaser as a matter of law.
8. MISCELLANEOUS
8.1 PRESS RELEASES AND ANNOUNCEMENTS.
All press releases and announcements concerning the investment
contemplated by this Agreement and the other Transactions shall be mutually
agreed to by the Company and the Purchaser, except for any such disclosure
required by law which, in the case of such disclosure by the Company, shall, to
the extent practicable under the circumstances, be first discussed with the
Purchaser and, in the case of such disclosure by the Purchaser, shall, to the
extent practicable under the circumstances, be first discussed with the Company.
The foregoing provisions of this Section 8.1 shall not prohibit or restrict in
any way disclosure by the Company with respect to this Agreement and the other
Transactional Agreements in connection with any financing, strategic
transaction, acquisition or disposition involving the Company or any of its
Affiliates, provided, that such disclosure shall be first discussed to the
extent reasonably practicable with the Purchaser.
8.2 INTERPRETATION.
(a) The various section headings are inserted for purposes of
reference only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
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<PAGE> 26
(b) Each party hereto acknowledges that it has been represented
by competent counsel and participated in the drafting of this Agreement and the
other Transactional Agreements, and agrees that any applicable rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in connection with the construction or
interpretation of this Agreement and the other Transactional Agreements.
(c) The original and controlling version of this Agreement and
the other Transactional Agreements shall be the version using the English
language. All translations of this Agreement or any of the other Transactional
Agreements into other languages shall be for the convenience of the parties
only, and shall not control the meaning or application of this Agreement or any
of the other Transactional Agreements. All notices and other communications
required or permitted by this Agreement or any other Transactional Agreement
must be in English, and the interpretation and application of such notices and
other communications shall be based solely upon the English language version
thereof.
(d) When a reference is made in this Agreement or any other
Transactional Agreement to a Section, Exhibit or Schedule, such reference shall
be to a Section of, Exhibit to or Schedule to this Agreement or such other
Transactional Agreement, unless otherwise indicated.
8.3 FEES AND EXPENSES.
Each party hereto shall be solely responsible for the payment of the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
Transactional Agreements, except to the extent expressly set forth in this
Agreement and the other Transactional Agreements. Without limiting the
generality of the foregoing, the Purchaser shall pay all stamp and other taxes,
if any, which may be payable in respect of the issuance, sale and delivery to
the Purchaser or any Assignee of Common Stock or Junior Preferred Stock pursuant
to the terms of this Agreement, or upon any conversion of any Common Stock, and
shall save the Company harmless against any loss or liability resulting from
nonpayment or delay in the payment of any such tax.
8.4 GOVERNING LAW; JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
(a) This Agreement is to be construed in accordance with and
governed by the internal laws of the State of New York (as permitted by Section
5-1401 of the New York General Obligations Law (or any similar successor
provision)) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of New York to the rights and duties of the parties.
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in the County of
Denver, Colorado. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of
Denver, Colorado (and each
21
<PAGE> 27
appellate court located in the State of Colorado) in connection with any
such legal proceeding, including to enforce any settlement, order or award;
(ii) agrees that each state and federal court located in
the County of Denver, Colorado shall be deemed to be a convenient forum;
and
(iii) waives and agrees not to assert (by way of motion, as
a defense or otherwise), in any such legal proceeding commenced in any
state or federal court located in the County of Denver, Colorado, any
claim that such party is not subject personally to the jurisdiction of
such court, that such legal proceeding has been brought in an inconvenient
forum, that the venue of such proceeding is improper or that this
Agreement or the subject matter of this Agreement may not be enforced in
or by such court.
(c) Each party hereto agrees to the entry of an order to enforce
any resolution, settlement, order or award made pursuant to this Section by the
state and federal courts located in the County of Denver, Colorado and in
connection therewith hereby waives, and agrees not to assert by way of motion,
as a defense, or otherwise, any claim that such resolution, settlement, order or
award is inconsistent with or violative of the laws or public policy of the laws
of the State of New York or any other jurisdiction.
(d) The Purchaser has irrevocably designated Corporation Service
Company, of One Civic Center Plaza, 1560 Broadway, Denver, Colorado 80202, as
agent for service of process hereunder and the above named is authorized and
directed to accept service of process on behalf of the Purchaser in any suit
regarding the Transactions or otherwise related to this Agreement or the other
Transactional Agreements.
(e) Each party to this Agreement hereby knowingly, voluntarily,
and intentionally waives the right to a trial by jury in respect of any
litigation arising out of, under or in connection with this Agreement, this
waiver being a material inducement for each such party to enter into this
Agreement.
8.5 SPECIFIC ENFORCEMENT.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific intent or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which they may be entitled by law or equity.
8.6 SURVIVAL.
The representations and warranties of the parties hereunder shall
survive the Closing for one (1) year, and thereafter shall terminate and be of
no force or effect.
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<PAGE> 28
8.7 NO THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns and are not for the benefit
of, nor may any provision hereof be enforced by, any other Person.
8.8 ENTIRE AGREEMENT.
This Agreement, the other Transactional Agreements and the other
documents delivered expressly hereby, constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Without limiting the generality of the foregoing, by
execution of this Agreement and the Investment Agreement, each party hereto
hereby terminates the Mutual Nondisclosure/Non-Solicitation Agreement dated as
of February 12, 1998 between the Company and the Purchaser, and such
Nondisclosure Agreement is hereby terminated.
8.9 SEVERABILITY.
The provisions of this Agreement shall be severable, and any
invalidity, unenforceability or illegality of any provision or provisions of
this Agreement shall not affect any other provision or provisions of this
Agreement, and each term and provision of this Agreement shall be construed to
be valid and enforceable to the full extent permitted by law.
8.10 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
mutual written consent of the Company and the Purchaser.
(b) No failure to exercise and no delay in exercising any right,
power or privilege granted under this Agreement shall operate as a waiver of
such right, power or privilege. No single or partial exercise of any right,
power or privilege granted under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Agreement are cumulative and are not
exclusive of any rights or remedies provided by law.
8.11 RELATIONSHIP OF THE PARTIES.
For all purposes of this Agreement and the other Transactional
Agreements, each of the parties hereto and their respective Affiliates shall be
deemed to be independent entities and, anything in this Agreement or the other
Transactional Agreements to the contrary notwithstanding, nothing herein shall
be deemed to constitute the parties hereto or any of their respective Affiliates
as partners, joint venturers, co-owners, an association or any entity separate
and apart from each party itself, nor shall this Agreement or any other
Transactional Agreement make any party hereto an employee or agent, legal or
otherwise, of the other parties for any purposes whatsoever. This Agreement does
not create or constitute, and shall not be construed as creating or
constituting, a voting trust agreement under the Delaware General Corporation
Law or any other applicable corporation law. None of the parties to this
Agreement or any other
23
<PAGE> 29
Transactional Agreement is authorized to make any statements or representations
on behalf of any other party or in any way to obligate any other party, except
as expressly authorized in writing by the other parties. Anything in this
Agreement or any other Transactional Agreement to the contrary notwithstanding,
no party hereto or thereto shall assume nor shall be liable for any liabilities
or obligations of the other parties, whether past, present or future.
8.12 NOTICES.
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party to be
notified; (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) two (2) days after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the parties
hereto at the respective addresses set forth below, or as notified by such party
from time to time at least ten (10) days prior to the effectiveness of such
notice:
if to the Purchaser: Nippon Telegraph and Telephone Corporation
Global Communications Headquarters
Tokyo Opera City Tower
20-2 Nishi-shinjuku 3-chome
Shinjuku-ku
Tokyo 163-14 Japan
Attention: Tatsuo Kawasaki
Facsimile: 81-3-5353-5753
with a copy to: NTT America, Inc.
101 Park Avenue, 41st Floor
New York, NY 10178
Attention: Richard Nohe
Facsimile: (212) 661-1078
and a copy to: Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Anthony S. Harrington
Facsimile: (202) 637-5910
if to the Company: Verio Inc.
8005 South Chester Street
Suite 200
Englewood, CO 80112
Attention: Carla Hamre Donelson
Facsimile: (303) 708-2494
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<PAGE> 30
with a copy to: Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Attention: Gavin B. Grover
Facsimile: (415) 268-7522
8.13 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
8.14 ATTORNEY'S FEES.
If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
25
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
By: /s/ JUN-ICHIRO MIYAZU
----------------------------------------
Name: Jun-Ichiro Miyazu
Title: President
VERIO INC.
By: /s/ JUSTIN JASCHKE
----------------------------------------
Justin Jaschke
Chief Executive Officer
26
<PAGE> 32
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AFFILIATE. "Affiliate" shall mean, with respect to any specified
Person, a Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under the common control with,
the Person specified.
AMENDMENT. "Amendment" shall have the meaning specified in Section 7.2
of the Agreement.
ASSIGNEE. "Assignee" shall have the meaning specified in Section 7.2 of
the Agreement.
BUSINESS DAY. "Business Day" shall mean any day other than a Saturday
or Sunday or other day on which commercial banks in California are authorized or
required by law to close.
CERTIFICATE OF DESIGNATION. "Certificate of Designation" shall have the
meaning specified in Section 1.1 of the Agreement.
CLOSING. "Closing" shall have the meaning specified in Section 1.2 of
the Agreement.
CLOSING DATE. "Closing Date" shall have the meaning specified in
Section 1.2 of the Agreement.
COMMON STOCK. "Common Stock" shall have the meaning specified in the
Recitals to the Agreement.
COMPANY TAX RETURNS. "Company Tax Returns" shall mean all federal,
state, local, foreign and other applicable tax returns and declarations of
estimated tax reports required to be filed by the Company (without regard to
extensions of time permitted by law or otherwise).
DILUTED COMMON STOCK. "Diluted Common Stock" shall mean the sum of (i)
the number of shares of Common Stock outstanding at the time the determination
is made plus (ii) the number of shares of Common Stock issuable upon the
exercise or conversion of all then outstanding rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock, whether at the time of issue or upon the passage of
time or the occurrence of some future event.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall have the meaning
specified in Section 2 of the Agreement.
DOLLARS OR $. "Dollars" or "$" shall mean United States Dollars.
A-1
<PAGE> 33
ENTITY. "Entity" shall mean any corporation (including any non profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
ENVIRONMENTAL LAW. "Environmental Law" shall have the meaning specified
in Section 2.17 of the Agreement.
ERISA. "ERISA" shall have the meaning specified in Section 2.16 of the
Agreement.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
FINANCIAL STATEMENTS DATE. "Financial Statements Date" shall have the
meaning specified in Section 2.5 of the Agreement.
GOVERNMENTAL AUTHORITY. "Governmental Authority" means any nation or
government, any state or other political subdivision thereof and any Entity
properly exercising executive, legislative, judicial, regulatory or
administrative functions of government.
HSR ACT. "HSR Act" shall have the meaning specified in Section 5.1 of
the Agreement.
INVESTMENT AGREEMENT. "Investment Agreement" shall have the meaning
specified in the Recitals to the Agreement.
IPO. "IPO" shall mean an underwritten initial public offering of Common
Stock pursuant to an effective registration statement filed by the Company under
the Securities Act.
IPO PRICE. "IPO Price" shall mean the "Price to the Public" or other
per share offering price for Common Stock stated on the face of the final
prospectus relating to the IPO.
JUNIOR PREFERRED STOCK. "Junior Preferred Stock" shall have the meaning
specified in Section 1.1 of the Agreement.
KNOWLEDGE. "Knowledge" means (i) with respect to the Company, the
actual knowledge of the Chief Executive Officer and the Chief Financial Officer,
and (ii) with respect to the Purchaser and any Purchaser Party Affiliate or
assignee of the Purchaser, the actual knowledge of the president of NTT America,
Inc. and Toru Takama, Director of Business Strategy of the Purchaser.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" shall have the
meaning specified in Section 2.1 of the Agreement.
OUTSIDE SERVICE PROVIDER AGREEMENT. "Outside Service Provider
Agreement" shall have the meaning specified in the Recitals to the Agreement.
PER SHARE PRICE. "Per Share Price" shall have the meaning specified in
Section 1.1 of the Agreement.
A-2
<PAGE> 34
PERSON. "Person" shall mean any individual, Entity or Governmental
Authority.
PRIVATE PLACEMENT MEMORANDUM. "Private Placement Memorandum" shall have
the meaning specified in Section 2 of the Agreement. References in the Agreement
to the Private Placement Memorandum shall include the financial statements and
notes thereto included in the Private Placement Memorandum.
PURCHASED SHARES. "Purchased Shares" shall have the meaning specified
in Section 1.1 of the Agreement.
PURCHASER PARTY AFFILIATE. "Purchaser Party Affiliate" shall have the
meaning specified in Section 3.1 of the Agreement.
REQUIREMENTS OF LAW. "Requirements of Law" shall mean, as to any
Person, the certificate of incorporation and bylaws or other organizational or
governing documents of such Person, and all federal, state, local and foreign
laws, rules and regulations, including, without limitation, securities,
antitrust, communications, licensing, health, safety, labor and trade laws,
rules and regulations, and all orders, judgments, decrees and other
determinations of any Governmental Authority or arbitrator, applicable to or
binding upon such Person or any of its property or to which such Person or any
of its property is subject.
RULE 144. "Rule 144" shall have the meaning specified in Section 3.6 of
the Agreement.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
TAXES. "Taxes" shall mean all federal, state, local and foreign taxes
(including, without limitation, income, profit, franchise, sales, use, real
property, personal property, ad valorem, excise, employment, social security and
wage withholding taxes) and installments of estimated taxes, assessments,
deficiencies, levies, imports, duties, license fees, registration fees,
withholdings, or other similar charges of every kind, character or description
imposed by any governmental or quasi-governmental authorities, and any interest,
penalties or additions to tax imposed thereon or in connection therewith.
TRANSACTIONAL AGREEMENTS. "Transactional Agreements" shall mean (i) the
Agreement, (ii) the Investment Agreement and (iii) the Outside Service Provider
Agreement.
TRANSACTIONS. "Transactions" shall mean all of the transactions
contemplated by the respective Transactional Agreements, including, without
limitation, the issuance of the Purchased Shares by the Company to the Purchaser
in accordance with the Agreement.
U.S. GAAP. "U.S. GAAP" shall have the meaning specified in Section 2.5
of the Agreement.
A-3
<PAGE> 1
EXHIBIT 2
THE INFORMATION BELOW MARKED (***) HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT MADE TO THE SECURITIES AND EXCHANGE COMMISSION. THE
OMITTED PORTION HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
===============================================================================
VERIO INC.
INVESTMENT AGREEMENT
APRIL 7, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. COMPANY BOARD OF DIRECTORS; OBSERVERS...............................1
1.1 Board Designee.............................................1
1.2 Nomination to Company Board................................2
1.3 Observer Rights............................................2
1.4 Committee Rights...........................................2
1.5 Eligible Individuals; Confidentiality......................3
1.6 Vacancies..................................................3
2. STANDSTILL COVENANT; VOTING OF SECURITIES...........................4
2.1 Standstill Agreement.......................................4
2.2 Exceptions.................................................7
2.3 Notice of Acquisition; Compliance..........................8
2.4 Voting.....................................................9
2.5 Consultation...............................................9
3. TRANSFER RESTRICTIONS...............................................9
3.1 Prohibited Transfers.......................................9
3.2 Compliance with Law.......................................11
3.3 Right of First Offer and Right of First Refusal...........12
4. REGISTRATION RIGHTS................................................15
4.1 Certain Definitions.......................................15
4.2 Demand Registration Rights................................15
4.3 Piggyback Registration....................................18
4.4 Obligations of the Company................................20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.5 Certain Holder Obligations................................23
4.6 Expenses of Registration..................................24
4.7 Delay of Registration.....................................24
4.8 Indemnification...........................................24
4.9 Assignment of Registration Rights.........................27
4.10 Termination of Registration Rights........................27
4.11 Rule 144..................................................28
4.12 No Conflicting Agreements.................................28
4.13 Remedies..................................................28
5. DESIGNATED EMPLOYEES...............................................28
5.1 Right to Designate........................................28
5.2 Access to Information; Confidentiality....................29
5.3 Status of Designated Employees; Expenses..................29
5.4 Purpose of Designated Employees...........................29
6. RESTRICTIVE LEGEND.................................................30
6.1 Legend....................................................30
6.2 Stop Transfer Order.......................................30
6.3 Removal of Legends........................................30
7. CONFIDENTIAL TREATMENT OF CONFIDENTIAL INFORMATION.................31
7.1 Protection of Confidential Information....................31
7.2 Return of Confidential Information........................32
7.3 Equitable Remedies........................................32
8. OTHER AGREEMENTS...................................................32
8.1 Nonsolicitation...........................................32
8.2 Further Assurances........................................32
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
9. TERMINATION........................................................33
9.1 Termination...............................................33
9.2 Effect of Termination.....................................33
10. SUCCESSORS AND ASSIGNS.............................................33
10.1 Successors and Assigns....................................33
10.2 Novation..................................................33
10.3 Guarantee.................................................34
10.4 Certain Waivers and Authorizations........................35
11. MISCELLANEOUS......................................................37
11.1 Interpretation............................................37
11.2 Fees and Expenses.........................................38
11.3 Governing Law; Jurisdiction and Venue; Waiver of Jury
Trial.....................................................38
11.4 Specific Enforcement......................................39
11.5 No Third Party Beneficiaries..............................39
11.6 Entire Agreement..........................................39
11.7 Severability..............................................39
11.8 Amendment and Waiver......................................39
11.9 Relationship of the Parties...............................40
11.10 Notices...................................................40
11.11 Counterparts..............................................41
11.12 Attorneys' Fees...........................................41
</TABLE>
iii
<PAGE> 5
INVESTMENT AGREEMENT
This Investment Agreement (this "Agreement") is entered into as of
April 7, 1998, by and between VERIO INC., a Delaware corporation (the
"Company"), and NIPPON TELEGRAPH AND TELEPHONE CORPORATION, a Japanese
corporation (the "Purchaser").
WHEREAS, pursuant to a Stock Purchase and Master Strategic Relationship
Agreement dated of even date herewith between the Company and the Purchaser (the
"Master Agreement"), the Purchaser has agreed to purchase, and the Company has
agreed to sell to the Purchaser, shares of the Common Stock of the Company, par
value $0.001 per share (the "Common Stock"), such purchase and sale to take
place concurrently with the Company's initial public offering;
WHEREAS, the parties hereto desire to set forth certain terms and
conditions applicable to, among other things, the acquisition, ownership and
disposition of Common Stock and securities (including, without limitation,
options, warrants, convertible or exchangeable securities or indebtedness, and
other rights) convertible into, exchangeable for or exercisable for, directly or
indirectly, Common Stock (whether at the time of issue or upon the passage of
time or the occurrence of some future event) (collectively, "Company
Securities"); and
WHEREAS, terms used herein without definition shall have the respective
meanings given them in the Master Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, the parties hereto, intending to be legally bound, agree as follows:
1. COMPANY BOARD OF DIRECTORS; OBSERVERS.
1.1 BOARD DESIGNEE.
(a) The Company shall take all corporate action necessary to appoint
to the Board of Directors of the Company (the "Company Board"), promptly upon
the closing of the purchase and sale to the Purchaser of Company Securities
pursuant to the Master Agreement (the "Closing"), an individual designated by
the Purchaser (such person, the "Purchaser Board Designee"). The Purchaser Board
Designee shall have an initial term on the Company Board ending at the third
annual stockholder meeting following the Closing (a "Class III Director"), and
thereafter shall be subject to election by the Company's stockholders.
(b) The Purchaser Board Designee shall be entitled to serve as a
member of the Company Board through the expiration of the initial term specified
in the preceding paragraph (a) so long as the Purchaser and its Affiliates
collectively shall own beneficially either (i) at least fifty percent (50%) of
the aggregate Company Securities purchased by the Purchaser at the time of the
IPO pursuant to the Master Agreement (including shares of Common Stock issuable
upon the conversion of any shares of Junior
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Preferred Stock purchased by the Purchaser pursuant to the Master Agreement, and
adjusted as appropriate for any subsequent stock split or reverse stock split or
other similar action) or (ii) at least five percent (5%) of the Diluted Common
Stock (the amount in clause (i) or (ii) above, the "Ownership Threshold"). If at
any time during such initial term the Purchaser and its Affiliates collectively
shall cease to own beneficially Company Securities at least equal to the
Ownership Threshold, the Purchaser shall, upon the request of the Company, cause
the Purchaser Board Designee to resign from the Company Board.
1.2 NOMINATION TO COMPANY BOARD.
Following the expiration of the initial term of the Purchaser Board
Designee as provided in Section 1.1(a) above, until such time as the Purchaser
and its Affiliates collectively no longer beneficially own Company Securities at
least equal to the Ownership Threshold, the Company shall take all corporate
action necessary to nominate for election to the Company Board as a Class III
Director an individual appointed by the Purchaser (the "Purchaser Board
Nominee"), and to recommend to the Company stockholders the Purchaser Board
Nominee's election to the Company Board as a Class III Director.
1.3 OBSERVER RIGHTS.
From and after the Closing, until such time as the Purchaser and its
Affiliates collectively no longer beneficially own Company Securities at least
equal to the Ownership Threshold, the Purchaser shall have the right to appoint
an observer (the "Purchaser Board Observer"), who shall have observer rights at
meetings of the Company Board, provided, that the Company Board shall have the
right to keep confidential from the Purchaser Board Observer for such period of
time as the Company Board deems reasonable any information and copies of written
materials the Company is required by law or agreement with a third party to keep
confidential.
1.4 COMMITTEE RIGHTS.
(a) From and after the Closing, until such time as the Purchaser and
its Affiliates collectively no longer beneficially own Company Securities at
least equal to the Ownership Threshold, the Company shall, at the request of the
Purchaser, cause to be appointed to the executive committee of the Company Board
(the "Executive Committee") the Purchaser Board Designee or any Purchaser Board
Nominee elected to the Company Board pursuant to Section 1.2 above, provided,
that, notwithstanding the foregoing, the Company shall not be required to cause
such appointment unless and until, and then only for so long as, (i) the
Executive Committee is delegated by the Company Board final decision-making
authority (which, for the purpose of clarification, shall not include any
decisions which require subsequent ratification by the Company Board) with
respect to material matters affecting the Company (other than matters listed on
Schedule 1 hereto), or (ii) the Company appoints and there continues to be as a
member
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of the Executive Committee more than a single individual who is not an employee
of the Company or the Chairman of the Company Board.
(b) From and after the Closing, during any period during which the
Purchaser would be entitled to appoint an individual to the Executive Committee
but for the operation of the proviso in paragraph (a) above, the Purchaser shall
have the right to appoint an observer (the "Purchaser Executive Committee
Observer"), who shall have observer rights at meetings of the Executive
Committee, provided, that the Executive Committee shall have the right to keep
confidential from the Purchaser Executive Committee Observer for such period of
time as the Executive Committee deems reasonable any information and copies of
written materials the Company is required by law or agreement with a third party
to keep confidential.
1.5 ELIGIBLE INDIVIDUALS; CONFIDENTIALITY.
The Purchaser Board Designee, the Purchaser Board Nominee, the Purchaser
Board Observer and the Purchaser Executive Committee Observer shall not be
employees of the Company, provided, that the Purchaser Executive Committee
Observer may be the Designated Employee with the rank of Assistant Vice
President. Each such individual, as a condition to his or her appointment or
nomination, or prior to attending any meeting of the Company Board or any
committee thereof, shall execute a confidentiality agreement in form and
substance satisfactory to the Company that is generally executed by other
similarly situated members of the Company Board or, if there are no such other
members, a confidentiality agreement in form and substance reasonably
satisfactory to the Company. In addition, each such individual shall be subject
to the procedures for the protection of certain information of the Company, as
set forth in Exhibit B hereto, provided, that such procedures are generally
applicable to other similarly situated members of the Company Board. For
purposes of this Section 1.5, a "similarly situated" member of the Board shall
be a member that (i) is not an employee of the Company and (ii) was appointed or
elected to the Company Board as the designee of a holder of at least five
percent (5%) of the Diluted Common Stock that maintains a strategic relationship
with the Company.
1.6 VACANCIES.
In the event that the Purchaser Board Designee or any Purchaser Board
Nominee ceases to serve as a member of the Company Board during such
individual's term of office for any reason and at such time the Purchaser would
have the right to a designation hereunder if an election for the resulting
vacancy were to be held, the director to fill such vacancy shall be designated
by the Purchaser, subject to the requirements provided herein for any such
designee.
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<PAGE> 8
2. STANDSTILL COVENANT; VOTING OF SECURITIES.
2.1 STANDSTILL AGREEMENT.
(a) During the period commencing on the date hereof and ending on the
fifth anniversary of the Closing Date (the "Standstill Period"), except as (i)
specifically permitted by this Agreement or (ii) specifically requested in
writing in advance by the Company upon the approval of the Company Board
(without any prior solicitation or request (or other act encouraging the
delivery of such a writing) having been made to the Company or the Company Board
or otherwise having been publicly made), the Purchaser shall not, and shall
ensure that its Affiliates do not, in any manner, directly or indirectly:
(i) acquire, or offer or agree to acquire, or make any
proposal or indicate any interest with respect to the acquisition of,
directly or indirectly, by purchase or otherwise, any material amount of
the assets or property of, any amounts of the Voting Securities of, or any
material amounts of the securities (other than Voting Securities) of the
Company or any of its successors or Controlled Affiliates, except, if
applicable, for any shares of Common Stock that may be issuable upon the
conversion of any shares of Junior Preferred Stock purchased by the
Purchaser pursuant to the Master Agreement or otherwise as permitted
pursuant to this Agreement, provided, that the foregoing limitation shall
not prohibit the acquisition of securities of the Company or any of its
successors or Controlled Affiliates issued as dividends or as a result of
stock splits and similar reclassifications of shares held by the Purchaser
or any of its Affiliates at the time of such dividend, split or
reclassification;
(ii) solicit proxies or consents or become a "participant" in
a "solicitation" (as such terms are defined or used in Regulation 14A under
the Exchange Act) of proxies or consents with respect to any Voting
Securities of the Company or any of its successors or Controlled
Affiliates, or initiate or become a participant in any stockholder proposal
or "election contest" (as such term is defined or used in Rule 14a-11 under
the Exchange Act) with respect to the Company or any of its successors or
Controlled Affiliates or induce others to initiate the same, or otherwise
seek to advise or influence any Person with respect to the voting of any
Voting Securities of the Company or any of its successors or Controlled
Affiliates;
(iii) take any action for the purpose of calling a
stockholders' meeting of the Company or any of its successors or Controlled
Affiliates;
(iv) make any proposal or any public announcement relating to,
or submit to the Company or any of its directors, officers,
representatives, trustees, employees, attorneys, advisors, agents or
Affiliates any proposal for, a tender or exchange offer for Voting
Securities of the Company or any of its successors or Controlled
Affiliates, the acquisition of Voting Securities of the Company that would
result in the Purchaser (together with its Affiliates)
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<PAGE> 9
exceeding the Percentage Limitation or a merger, business combination, sale
of assets, liquidation, restructuring, recapitalization or other
extraordinary corporate transaction relating to the Company or any of its
successors or Controlled Affiliates (other than with respect to joint
ventures, licenses, transactions contemplated by the Outside Service
Provider Agreement or other transactions in the ordinary course of
business) or take any action that might require the Company or any of its
successors or Controlled Affiliates to make any public announcement
regarding any of the foregoing, provided that nothing set forth in this
Section 2.1(a)(iv) shall prohibit or restrict the Purchaser or any of its
Affiliates from soliciting, offering, seeking to effect and negotiating
with any Person with respect to Transfers of Company Securities otherwise
permitted by this Agreement, and provided, further, that in so doing, the
Purchaser may, and may permit its Affiliates to, make any statement
required by applicable law, including without limitation, the amendment of
any statement on Schedule 13D under the Exchange Act;
(v) deposit Voting Securities of the Company or any of its
successors or Controlled Affiliates held by it into a voting trust or
subject any such securities to voting agreements (except for this Agreement
and except for any such agreement among the Purchaser and any or all of its
Affiliates who may hold such securities), or grant any proxy with respect
to any such securities to any person not designated by the Company;
(vi) except to the extent contemplated by this Agreement,
form, join or in any way participate in a "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) (except an arrangement solely among
the Purchaser and any or all of its Affiliates who may hold Voting
Securities of the Company or any of its successors or Controlled
Affiliates) for the purpose of acquiring, holding, voting or disposing of
Voting Securities of the Company or any of its successors or Controlled
Affiliates or taking any other actions restricted or prohibited under
clauses (i) through (v) above;
(vii) disclose to any Person any intention, plan or
arrangement inconsistent with the foregoing;
(viii) advise, assist or encourage any other Person in
connection with any of the foregoing;
(ix) enter into any discussions, negotiations, arrangements or
understandings with any other Person with respect to, or aid, abet or
encourage any action prohibited by, any of the foregoing;
(x) make (publicly or to the Company or any of its directors,
officers, representatives, trustees, employees, attorneys, advisors,
agents, Affiliates or security holders, directly or indirectly) any request
or proposal to
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<PAGE> 10
amend, waive or terminate any provision of this Section 2 or any inquiry
or statement relating thereto; or
(xi) act, alone or in concert with others, to seek to control
or influence in any material respect the management or policies of the
Company (beyond the actions of the Purchaser Board Designee or any
Purchaser Board Nominee in his or her role as such and while serving as a
member of the Company Board or the actions of the Designated Employees in
their roles as such and while serving in such capacity).
References in this Section 2.1 to the "acquisition" of securities, or any
derivation of such term, shall include, without limitation, any acquisitions
deemed to be purchases for purposes of Section 16 of the Securities Act.
(b) Notwithstanding the provisions of Section 2.1(a), from and after
the date six months following the Closing, the Purchaser or its Affiliates may
acquire Voting Securities of the Company through open market and privately
negotiated purchases or otherwise if, and only to the extent that, after the
acquisition thereof the Purchaser and its Affiliates collectively would
beneficially own in the aggregate no more than seventeen and one-half percent
(17.5%) of the Diluted Common Stock (such percentage limitation being the
"Percentage Limitation"). For purposes of clarification, the parties agree that
under no circumstances shall the Purchaser or any of its Affiliates, prior to
the date six months following the Closing, acquire any securities of the Company
in any manner, other than the Company Securities purchased pursuant to the
Master Agreement.
(c) The Percentage Limitation shall not be exceeded in violation of
Section 2.1(b) or any other provision of this Agreement if the percentage of
Diluted Common Stock beneficially owned by the Purchaser and its Affiliates
collectively is increased as a result of corporate action taken solely by the
Company and not caused by any action taken by the Purchaser or any of its
Affiliates, provided, that neither the Purchaser nor any of its Affiliates shall
thereafter acquire beneficial ownership of any additional Company Securities
unless such acquisition would not result in the Purchaser and its Affiliates
beneficially owning Company Securities in excess of the Percentage Limitation.
(d) Nothing contained in this Section 2 shall be deemed to (i)
restrict the manner in which the Purchaser Board Designee or any Purchaser Board
Nominee elected to the Company Board may participate in deliberations or
discussions of the Company Board or individual consultations with the Chairman
of the Board or any other members of the Company Board, so long as such actions
do not otherwise violate any provision of Section 2.1(a), (ii) prohibit or
restrict the Purchaser or any of its Affiliates from soliciting, offering,
seeking to effect and negotiating with any Person with respect to Transfers of
Company Securities otherwise permitted by this Agreement, (iii) prohibit or
restrict the Purchaser or any of its Affiliates from exercising any registration
rights pursuant to Section 4 of this Agreement or (iv) prohibit or restrict any
Designated Employees from acquiring securities of the Company or any of its
Controlled Affiliates
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pursuant to stock plans or other employee benefit plans of the Company or any of
its Controlled Affiliates (which securities shall not be deemed to be acquired
by Affiliates of the Company).
2.2 EXCEPTIONS.
Notwithstanding anything in Section 2.1 to the contrary:
(a) In the event (i) the Company publicly announces or invites any
Person other than the Purchaser to make a proposal, or elects to enter into
negotiations, with respect to, or (ii) the Company Board adopts a plan or
program regarding (whether or not publicly announced), any merger, consolidation
or other business combination, liquidation or recapitalization of the Company,
or any sale or transfer of all or substantially all of the assets of the Company
or any sale or transfer of Voting Securities of the Company that, if
consummated, would constitute a Change of Control, then the Purchaser and its
Affiliates shall be permitted to participate in any such process on terms that
are substantially comparable to those made available to any other participant in
such process.
(b) In the event of any agreement between the Company and any other
Person or group pursuant to which, if consummated, a Change of Control would
occur (any such event being an "Acquisition Event"), the restrictions of Section
2.1 shall lapse and have no further force and effect, provided, that in the
event that the transactions contemplated in connection with the Acquisition
Event are not completed, all restrictions contained in Section 2.1 shall be
reinstated upon two (2) Business Days' written notice to the Purchaser and shall
remain effective until subsequently terminated pursuant to this Agreement. The
Purchaser and its Affiliates shall be entitled to retain any Company Securities
purchased by them following such termination but prior to such reinstatement,
provided, that such Company Securities shall be subject to all of the provisions
of this Agreement, and provided, further, that all subsequent acquisitions of
Company Securities by the Purchaser or any of its Affiliates must be in complete
compliance with all provisions of this Agreement, including, without limitation,
Section 2.1(b) hereof.
(c) In the event any Person or group shall commence a tender offer or
exchange offer which, if successful, would result in a Change of Control (a
"Third Party Offer"), and the bidder has financing or financial commitments from
responsible financial institutions sufficient to finance the cash portion of
such Third Party Offer, then the restrictions of Section 2.1 shall lapse and
have no further force and effect so long as such Third Party Offer remains in
effect, provided, that in the event the Third Party Offer is not completed, all
restrictions contained in Section 2.1 shall be reinstated upon two (2) Business
Days' written notice to the Purchaser and shall remain effective until
subsequently terminated pursuant to this Agreement. The Purchaser and its
Affiliates shall be entitled to retain any Company Securities purchased by them
following such termination but prior to such reinstatement, provided, that such
Company Securities shall be subject to all of the provisions of this Agreement,
and provided, further, that all subsequent acquisitions of Company Securities by
the Purchaser or any of its Affiliates
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<PAGE> 12
must be in complete compliance with all provisions of this Agreement, including
without limitation, Section 2.1(b) hereof.
(d) For purposes of this Section 2, a "Change of Control" shall be
deemed to have occurred with respect to the Company if:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Controlled Affiliate
of the Company, any trustee or other fiduciary holding securities under any
compensatory benefit plan of the Company or an Affiliate of the Company, or
any entity owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), is or becomes the beneficial owner, directly or indirectly, of
Voting Securities representing more than fifty percent (50%) of the
Company's then outstanding Voting Securities;
(ii) a merger or consolidation of the Company with any other
corporation which is not a Controlled Affiliate of the Company is
consummated, other than a merger that would result in the Voting Securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than forty percent (40%) of
the combined voting power of the Voting Securities of the Company (or the
comparable voting securities of such surviving entity) outstanding
immediately after such merger or consolidation, provided, that a merger or
consolidation effected to implement a recapitalization of the Company or
such Affiliate (or similar transaction) in which no person acquires more
than thirty percent (30%) of the combined voting power of the Company's
then outstanding Voting Securities shall not constitute a "Change of
Control" of the Company; or
(iii) the sale or disposition by the Company of all or
substantially all of the Company's assets, other than to a Controlled
Affiliate of the Company, is consummated. (e) Nothing in this Section 2
shall prohibit or restrict the Purchaser from purchasing Company Securities
from the Company on the Closing Date as contemplated by Section 1.1 of the
Master Agreement.
2.3 NOTICE OF ACQUISITION; COMPLIANCE.
(a) At all times prior to the termination of the restrictions of
Section 2.1 above, prior to any time that the Purchaser or any of its Affiliates
wishes to purchase additional Company Securities, the Purchaser will give the
Company written notice of such intention at least two (2) Business Days prior to
the date the Purchaser or any such Affiliate purchases or agrees to purchase any
such securities.
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(b) The Purchaser shall not, and shall ensure that its Affiliates do
not, make any purchase or other acquisition of Company Securities other than in
compliance with all Requirements of Law.
2.4 VOTING.
At all times prior to the termination or lapsing of the restrictions of
Section 2.1 above, the Purchaser shall take all action as may be required so
that all Voting Securities of the Company owned by the Purchaser and its
Affiliates are voted (i) with respect to elections of members of the Board of
Directors, for the Company Board's nominees to the Company Board, and (ii) with
respect to all other matters to be voted on by stockholders, either (A) in
accordance with the recommendations of the Company Board, or (B) for or against
any such matter in the same proportion as the shares owned by all other
stockholders (excluding the Purchaser and each of its Affiliates that is a
stockholder of the Company) are voted with respect to such matters. The
Purchaser and all Affiliates of the Purchaser owning any such securities shall
be present, in person or by proxy, at all meetings of stockholders of the
Company so that all such securities owned by the Purchaser and any such
Affiliate may be counted for the purposes of determining the presence of a
quorum at such meeting.
2.5 CONSULTATION.
Notwithstanding anything in this Agreement to the contrary, (i) legal
counsel for the Purchaser at all times shall have the right to confer with legal
counsel for the Company regarding the application of the provisions of this
Section 2, and (ii) the Purchaser Board Designee, the Purchaser Board Nominee,
the Purchaser Board Observer and the Purchaser Executive Committee Observer
(while serving in such positions) and any member of the Board of Directors or
executive officer of the Purchaser may from time to time consult with the Chief
Executive Officer of the Company regarding the ownership of Company Securities
and other matters regarding the obligations of the Purchaser and its Affiliates
under this Section 2, provided, that such consultations pursuant to clauses (i)
and (ii) above shall not include any proposal regarding the acquisition of
control of the Company, any proposal for any other action prohibited by this
Section 2 or any proposal for the amendment of this Section 2 in contemplation
of any such acquisition or other action.
3. TRANSFER RESTRICTIONS.
3.1 PROHIBITED TRANSFERS.
(a) In the case of the IPO and, if requested by any underwriter of
the Common Stock, in the case of any other offering of securities of the Company
registered under the Securities Act, the Purchaser shall not, and shall ensure
that its Affiliates do not, directly or indirectly, sell, offer, pledge,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, warrant or right to purchase, or
otherwise dispose of or transfer, or enter into any swap or other agreement
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<PAGE> 14
or any arrangement that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership in, any Company Securities held by it or
them, during the period following the effective date of a registration statement
of the Company filed under the Securities Act equal to (i) in the case of the
IPO, six (6) months, or (ii) in the case of any other offering of securities of
the Company registered under the Securities Act, ninety (90) days, except in
either case for Company Securities included in such registration, provided that
if directors and officers of the Company holding Common Stock generally are
subject to hold-back restrictions of shorter duration, such shorter periods
shall apply to the Purchaser and its Affiliates. If requested, the Purchaser
shall enter, and shall ensure that all Affiliates of the Purchaser holding
securities of the Company enter, into a lock-up agreement with the applicable
underwriters that is consistent with the agreement in the preceding sentence.
(b) Notwithstanding anything herein to the contrary, the Purchaser
shall not, and shall ensure that its Affiliates do not, directly or indirectly,
sell, pledge or otherwise dispose of (any such action, a "Transfer") any Company
Securities to any of the following:
(i) except in accordance with Section 3.3 below, any Person
specified in Schedule 2 attached hereto, or any Affiliate of any such
Person, provided, that Schedule 2 may be revised or updated from time to
time by the Company upon notice to the Purchaser to include additional
Persons that are, or that the Company reasonably believes (based on the
publicly announced intent or plan of such Person) are likely to become,
competitors of the Company in the business of providing access to the
Internet for business customers in the U.S., provided, that such Schedule
2 shall be updated or revised no more than semi-annually and shall not
include at any time more than fifteen (15) Persons; and
(ii) except in accordance with Section 3.3 below, any Person
that following such Transfer would (alone or collectively with all
Affiliates of such Person) beneficially own more than ten percent (10%) of
the outstanding Common Stock.
(c) The Purchaser shall not, and shall ensure that its Affiliates do
not, Transfer any Company Securities while there is pending, or otherwise
Transfer any Company Securities in contemplation of, any Acquisition Proposal,
unless such Acquisition Proposal has been recommended publicly by the Company
Board to all Company stockholders, provided, that if the Company Board has not
publicly recommended against such Acquisition Proposal within three (3) months
of the later of (i) the initial public announcement thereof by the acquiror or
(ii) the formal presentation of such an Acquisition Proposal to the Company
Board, then the restrictions of this Section 3.1(c) shall lapse and have no
further force or effect, provided, further, that in the event such Acquisition
Proposal is not completed, all restrictions contained in this Section 3.1(c)
shall be reinstated upon two (2) Business Days' written notice to the Purchaser
and shall remain effective until subsequently terminated pursuant to this
Agreement. For purposes of this Agreement, "Acquisition Proposal" shall mean any
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offer or agreement by a third party to acquire, or proposal or indication of
interest with respect to the acquisition of (including any written or oral
proposal to the Company Board or to any director, officer or shareholder of the
Company or any public or other announcement of such a proposal or indication of
interest), by purchase or otherwise, from any Person or group of Persons,
capital stock of the Company representing in excess of thirty percent (30%) of
the voting power of the Company or assets of the Company representing in excess
of fifty percent (50%) of the assets or earning power of the Company and its
Controlled Affiliates, taken as a whole, or direct or indirect rights or options
to acquire (whether through purchase, exchange, conversion or otherwise) such
capital stock, assets or earning power.
(d) In order to enforce the foregoing covenants, the Company may
impose stop transfer instructions with respect to all Purchaser Shares (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of the applicable period for each such covenant.
(e) Any purported Transfers in violation of this Section 3 shall be
null and void.
(f) Nothing in Section 3.1(a), 3.1(b) or 3.1(c) shall be deemed to
restrict the Transfer of Company Securities by the Purchaser to any of its
Affiliates or by any such Affiliate to the Purchaser or any other Affiliate of
the Purchaser, provided, that all such Affiliates agree in writing to the
reasonable satisfaction of the Company to be bound by the provisions of this
Agreement.
3.2 COMPLIANCE WITH LAW.
(a) The Purchaser shall, and shall ensure that its Affiliates shall,
observe and comply with the Securities Act, the Exchange Act and applicable
state securities laws, and the rules and regulations promulgated under both, as
each is now in effect and as each is from time to time amended, and all other
Requirements of Law in connection with any permitted Transfer of Company
Securities, including, without limitation, all Requirements of Law relating to
the use of insider information or the trading of securities while in the
possession of nonpublic information.
(b) In furtherance of the foregoing, and in addition to the
restrictions specified above, the Purchaser shall not, and shall ensure that its
Affiliates do not, Transfer any Company Securities unless at such time at least
one of the following is satisfied:
(i) a registration statement under the Securities Act covering
the Company Securities proposed to be Transferred, describing the manner
and terms of the proposed sale, transfer or other disposition, and
containing a current prospectus, shall have been filed with the SEC and
made effective under the Securities Act;
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(ii) counsel representing the Purchaser, reasonably
satisfactory to the Company, shall have advised the Company in a written
opinion letter reasonably satisfactory to the Company and its counsel, and
upon which the Company and its counsel may rely, that no registration
under the Securities Act would be required in connection with the proposed
Transfer; or
(iii) an authorized representative of the SEC shall have
rendered written advice to the Purchaser (sought by the Purchaser or
counsel to the Purchaser, with a copy thereof and of all other related
communications delivered to the Company) to the effect that the SEC would
take no action, or that the staff of the SEC would not recommend that the
SEC take action, with respect to the proposed Transfer.
3.3 RIGHT OF FIRST OFFER AND RIGHT OF FIRST REFUSAL.
(a) In addition to the other restrictions provided in this Agreement,
if the Purchaser desires to Transfer any Company Securities (other than to any
Affiliate of the Purchaser), the Purchaser will give written notice to the
Company of such intention to Transfer Company Securities (as used in this
Section 3.3, the "Sale Notice"). The Sale Notice will describe either (i) if the
Purchaser intends to Transfer Company Securities to any Person that (A)
following such Transfer, would (alone or collectively with all Affiliates of
such Person) beneficially own more than ten percent (10%) of the outstanding
Common Stock or (B) is listed on Schedule 2 hereto, as revised or updated from
time to time in accordance with Section 3.1(b)(i) hereof (any such Transfer, a
"Significant Transfer"), (1) the class and number of Company Securities to be
transferred, (2) the minimum consideration for which the Purchaser will Transfer
the securities, and (3) the proposed Transferee and, to the extent such
information is reasonably available to the Purchaser, the amount of securities
of the Company then held by such proposed Transferee, or (ii) in the case of all
other proposed Transfers, the class and number of Company Securities to be
Transferred. In the event the Transfer is being made pursuant to paragraph (f)
below, the Sale Notice shall so state.
(b) In the event the proposed transfer is not a Significant Transfer,
the Company shall have the right, within (i) in the event the Market Price of
the Company securities proposed to be Transferred is less than fifty million
dollars ($50,000,000) (a "Small Sale"), fifteen (15) days, (ii) in the event the
Market Price of the Company Securities proposed to be Transferred is fifty
million dollars ($50,000,000) or more, but less than one hundred million dollars
($100,000,000) (a "Medium Sale"), thirty (30) days, and (iii) in the event the
Market Price of the Company Securities proposed to be Transferred is one hundred
million dollars ($100,000,000) or more (a "Large Sale"), sixty (60) days, in
each case after the delivery of the Sale Notice, to offer to purchase all (but
not less than all) of the Company Securities proposed to be Transferred, at a
price determined by the Company in its sole discretion, by delivery to the
Purchaser of a written notice (the "Right of First Offer Notice") stating the
price offered by the Purchaser. The Purchaser shall have the right within five
(5) Business Days after the
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delivery of the Right of First Offer Notice to accept such offer with respect
to all (but not less than all) such shares by delivery of written notice to
the Company.
(c) In the event the proposed Transfer is a Significant Transfer, the
Company shall have the right, within sixty (60) days after delivery of the Sale
Notice, to elect to purchase all (but not less than all) of the Company
Securities proposed to be so Transferred (the "Option Shares") on the same terms
and subject to the same conditions as those specified in the Sale Notice,
exercisable by delivery to the Purchaser of a written notice stating that the
Company elects to purchase the Option Shares.
(d) If the Purchaser accepts the Company's offer pursuant to
paragraph (b) above, or the Company exercises its rights to purchase the Option
Shares pursuant to paragraph (c) above, such purchase shall be consummated on a
date selected by the Purchaser and agreed by the Company, provided, that the
Company shall not be required to consummate such purchase prior to (i) (A) in
the event the proposed sale is a Small Sale, thirty (30) days, (B) in the event
the proposed sale is a Medium Sale, sixty (60) days, and (C) in the event the
proposed sale is a Large Sale, ninety (90) days, in each case following the
Purchaser's delivery of its acceptance notice to the Company, or (ii) in the
case of a Significant Transfer, ninety (90) days after the Company's delivery of
its election notice to the Purchaser. On such date, the Company shall pay to the
Purchaser the purchase price according to the terms and conditions set forth in
the Right of First Offer Notice or the Sale Notice, as the case may be, and the
Purchaser shall deliver to the Company a certificate or certificates evidencing
the shares so purchased, provided, that in the event of a Transfer in which the
consideration for the Company Securities is property other than cash or
instruments of indebtedness, the purchase price will be the fair market value of
such property, as determined by an independent third-party appraiser appointed
by the Company and approved by the Purchaser, in its reasonable discretion.
(e) If and to the extent the Purchaser fails to accept the offer of
the Company pursuant to paragraph (b) above, or the Company fails to exercise
its right of first refusal pursuant to paragraph (c) above, the Purchaser may
Transfer that number of shares specified in the Sale Notice (but no more and no
less than such specified number) to any transferee permitted by the terms of
this Agreement (and, in the case of a Significant Transfer, solely to the
transferee specified in the Sale Notice), provided, that (i) such Transfer is
completed within ninety (90) days after the expiration of such period; (ii) such
Transfer is made at a price and upon terms no more favorable to the transferee
than those specified in the Right of First Offer Notice or in the Sale Notice,
as the case may be; and (iii) if the proposed Transfer would be a Transfer of
seven and one-half percent (7.5%) or more of the Diluted Common Stock, or would
be to a Person that following such Transfer would beneficially own seven and
one-half percent (7.5%) or more of the Diluted Common Stock, the proposed
transferee executes and delivers to the Company, prior to receipt of such
shares, a written agreement in form and substance satisfactory to the Company to
be bound by all the provisions of this Section 3 and Section 6 hereof. In the
event that the Purchaser has not Transferred such securities within such ninety
(90) day period, the Purchaser shall not thereafter Transfer any of such
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Company Securities without first complying with the procedures set forth in
this Section 3.3.
(f) Notwithstanding the foregoing, the rights of first offer and
first refusal of the Company under this Section 3.3 shall not apply to: (i) any
Transfer of Company Securities in a Public Distribution; (ii) any Transfer of
Company Securities in a Rule 144 Transaction; (iii) any other Transfer of
Company Securities effected on a nationally recognized securities exchange or
the Nasdaq Stock Market, provided, that, to the knowledge of the Purchaser, no
purchaser of such securities is purchasing more than one-half of one percent
(0.5%) of the outstanding Common Stock in any such Transfer or will beneficially
own more than one percent (1%) of the outstanding Common Stock as a result of
such Transfer, or otherwise is purchasing such securities with the intent of
gaining or exercising control over the Company; (iv) any Transfer of Company
Securities pursuant to an Acquisition Transaction; or (v) any pledge of
securities made pursuant to a bona fide loan transaction with a financial
institution that creates a mere security interest, provided, that in the event
of any such pledge, (A) the Purchaser shall inform the Company of such pledge
prior to effecting it and (B) the pledgee shall execute and deliver to Company,
prior to receipt of such securities, a written agreement in form and substance
satisfactory to the Company to be bound by all the provisions of this Section 3
and Section 6 hereof, and provided, further, that the restrictions on other
Transfers of Company Securities described herein shall continue in accordance
with the terms hereof. For purposes of clarification, the obligation of a
transferee of Company Securities to execute and deliver an agreement of the type
specified in clause (iii) of paragraph (e) above shall not apply to any
Transfers of Company Securities referred to in clauses (i), (ii), (iii) and (iv)
of this paragraph (f).
(g) The Company, at its sole discretion, may exercise its rights of
first offer and first refusal as provided above either directly or through any
other Entities, and may assign such right to any other Entities, provided, that
the Company will guarantee the obligation of such Entities to purchase the
Company Securities subject to the exercise of such rights.
(h) For purposes of this Section 3.3, "Market Price" with respect to
Company Securities shall mean (i) with respect to any Company Securities (or
conversion equivalent) that are publicly traded, the average closing price per
share or unit of such equity interest (or conversion equivalent) on the ten (10)
consecutive trading days immediately preceding the date of determination, or
(ii) with respect to any Company Securities (or conversion equivalent) that are
not publicly traded, the fair market value thereof as determined by a nationally
recognized investment banking firm selected by the Purchaser subject to the
reasonable consent of the Company.
(i) The Purchaser shall ensure that any Affiliate of the Purchaser
desiring to Transfer any Company Securities (other than to the Purchaser or any
other Affiliate of the Purchaser) shall comply with the procedures described in
this Section 3.3 as if it were the "Purchaser" hereunder. All proposed Transfers
by the Purchaser and any of its Affiliates within any three (3) month period
shall be deemed one Transfer for purposes of
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determining whether such proposed Transfers constitute a Significant Transfer
or a Small, Medium or Large Sale.
4. REGISTRATION RIGHTS.
4.1 CERTAIN DEFINITIONS.
As used in this Agreement, the following capitalized terms have the
following meanings:
(a) "Demand Registration" shall mean a registration requested by the
Holders pursuant to Section 4.2 hereof.
(b) "Holders" shall mean the Purchaser and any transferee of the
Purchaser's rights under this Section 4 as permitted by the terms hereof.
(c) "Registrable Securities" shall mean the Purchaser Shares,
together with any securities issued or issuable by the Company in respect of any
of such securities by way of a distribution or split or in connection with a
combination or subdivision of such securities of the Company or a
reclassification, recapitalization, merger, consolidation or other
reorganization of the Company, provided, that as to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when:
(i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of under such registration statement;
(ii) such securities shall have been transferred pursuant to
Rule 144 promulgated under the Securities Act ("Rule 144");
(iii) such securities shall have been otherwise transferred or
disposed of, and new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company, and
subsequent transfer or disposition of them shall not require their
registration or qualification under the Securities Act or any similar
state law then in force; or
(iv) such securities shall have ceased to be outstanding.
4.2 DEMAND REGISTRATION RIGHTS.
(a) If, after the first anniversary of the closing date of the IPO,
the Company shall receive (i) a written request from the Holders of a majority
of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of (A)
at least twenty-five percent (25%) of the aggregate Registrable Securities
purchased by the Purchaser pursuant to the Master Agreement or (B) Registrable
Securities with an anticipated aggregate offering price, net of underwriting
commissions and discounts, of at least twenty-five million
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dollars ($25,000,000) or (ii) if the Company is eligible to file a registration
statement on Form S-3 under the Securities Act, a written request from any
Holder or Holders of the Registrable Securities that the Company file a
registration statement on Form S-3 under the Securities Act covering the
registration of Registrable Securities with an anticipated aggregate offering
price, net of underwriting discounts and commissions, in excess of fifteen
million dollars ($15,000,000), then, in each case, the Company shall, subject to
the limitations set forth in this Agreement, (y) promptly following receipt
thereof, give written notice of such request to all Holders (the "Notice of
Request for Registration") and (z) as soon as practicable, use its reasonable
best efforts to effect such registration under the Securities Act covering all
Registrable Securities which the Holders request to be registered by notice to
the Company within thirty (30) days of the mailing of the Notice of Request for
Registration by the Company.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as part of their request made pursuant to Section 4.2(a) and the Company shall
include such information in the Notice of Request for Registration. The
underwriter shall be selected by the Initiating Holders, subject to the consent
of the Company to such underwriter and its form of underwriting agreement, which
consent shall not be unreasonably withheld. In such event, the right of any
Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. If any Holder disapproves of the terms of the
underwriting, it may elect to withdraw therefrom by written notice to the
Company and the underwriter. The Registrable Securities so withdrawn shall also
be withdrawn from registration.
(c) Notwithstanding any other provision of this Section 4.2, if the
underwriter or underwriters determine, in good faith, that marketing factors
require a limitation of the number of shares to be underwritten, the
underwriters may limit in their sole discretion the number of Registrable
Securities and other Company Securities to be included in the registration and
underwriting, subject to the terms of this Section 4.2(c). The Company shall so
advise all holders of the Company's securities that would otherwise be
registered and underwritten pursuant to such registration. The Holders of
Registrable Securities shall have absolute priority over any other securities
requested to be included in such registration and underwriting. The number of
shares of such securities, including Registrable Securities, that may be
included in the registration and underwriting shall be allocated in the
following manner:
(i) first, among the Holders of Registrable Securities, in
proportion, as nearly as practicable, to the respective amounts of such
securities held by such holders and otherwise entitled to be included in
such registration;
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(ii) second, among holders of other securities in accordance
with the terms of their respective registration rights, if any, in each
case in proportion, as nearly as possible, to the respective amounts of
such securities held by each such holder and otherwise entitled to be
included in such registration; and
(iii) third, to any Company Securities proposed to be issued
or sold for the account of the Company.
(d) Notwithstanding anything to the contrary in this Section 4.2, in
the event that the underwriters require that the securities included in a
registration statement be cut back as set forth in the preceding paragraph (c),
as a result of which the number of Registrable Securities to be included in such
registration statement is less than fifty percent (50%) of the number of
Registrable Securities requested to be included in such registration statement,
the registration shall not be considered a Demand Registration, and shall not be
counted for purposes of the limit on Demand Registrations set forth in Section
4.2(f) hereof.
(e) Notwithstanding the foregoing, but subject to the terms of this
paragraph (e), the Company shall not be obligated to effect any registration
pursuant to this Section 4.2 if at the time of any request to register
Registrable Securities pursuant to this Section 4.2:
(i) the Company is engaged, or has or is considering plans to
engage, in a registered public offering;
(ii) the Company Board determines in good faith that the
registration might adversely affect any activity, plan or proposal of the
Company or any of its Affiliates, including any activity, plan or proposal
with respect to any financing, acquisition, recapitalization,
reorganization or other transaction;
(iii) the Company Board makes a good faith determination that
the filing or effectiveness of a registration statement would require the
disclosure of information relating to any development, event, occurrence
or change in circumstance relating in any way to the Company or its
business or plans, the disclosure of which might adversely affect the
Company, including without limitation the business and plans of the
Company; or
(iv) audited financial statements of the Company are not
available or the Company is not then able to comply with the SEC
requirements applicable to the requested registration (notwithstanding its
reasonable efforts to comply).
In the circumstances described in clauses (i), (ii), (iii) and (iv) above,
the Company may, at its option, direct that such request be delayed (x) for a
period not in excess of one hundred twenty (120) days from the effective date of
an offering described in clause (i), (y) for such period as the Company Board
determines in good faith is
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necessary to avoid any adverse effect on the Company's activities or planned
activities or to avoid the adverse effect of any required disclosure with
respect to the circumstances described in clauses (ii) and (iii), or (z) for
such period as is necessary to address the circumstance or circumstances
described in clause (iv), provided, that such deferrals cumulatively with
respect to one (1) or more requested registrations pursuant to this Section 4.2
shall not exceed in the aggregate one hundred twenty (120) days in any one (1)
year period or one hundred eighty (180) days in any two (2) year period.
(f) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 4.2:
(i) after the Company has effected three (3) Demand
Registrations and such registrations have been declared or ordered
effective;
(ii) during each period following the effective date of a
registration statement effected by the Company in an underwritten offering
of Common Stock, whether for its own account or for the account of others,
equal to the period of any lock-up of stockholders of the Company required
by the underwriting firm which was the lead manager of the offering
related to the registration statement; or
(iii) within one hundred eighty (180) days after the effective
date of any registration statement filed by the Company in response to a
request pursuant to this Section 4.2.
4.3 PIGGYBACK REGISTRATION.
(a) If, after the first anniversary of the closing date of the IPO,
the Company proposes to register any of its stock or other securities under the
Securities Act in connection with the public offering of such securities solely
for cash (other than a registration on Form S-8 or S-4 or a registration in
which the only Common Stock being registered is Common Stock issuable upon the
conversion or exercise of other securities), the Company shall give each Holder
written notice of such registration promptly (which notice, to the extent
reasonably practicable following the Board's determination to effect the
registration, without additional burden or delay, the Company shall use
reasonable efforts to mail at least thirty (30) days prior to the filing of the
applicable registration statement with the SEC). Upon the written request of
each Holder given within fifteen (15) days after mailing of such notice by the
Company, the Company shall, subject to the limitations set forth in this
Agreement, use its reasonable best efforts to include in the registration
statement under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered, provided, that the Company shall
under no circumstances be required to delay the filing or the effectiveness of
its registration statement in order to accommodate any Holders, regardless of
the time of delivering of any such notice, and provided, further, that nothing
in this Agreement shall prevent the Company from, at any time and for any
reason, in its sole discretion, abandoning, withdrawing or delaying any such
registration without obligation to any
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Holder, regardless of any action whatsoever that the Holder may have taken,
whether as a result of the issuance by the Company of any notice hereunder or
otherwise.
(b) Registrable Securities shall be sold in such offering only in
such quantity as the managing underwriter determines, in its sole discretion,
will not jeopardize the success of the offering by the Company. To the extent
that the managing underwriter will not permit the registration of all of the
securities sought to be registered, in the case of a registration pursuant to
this Section 4.3, the Company shall so advise all holders of the Company's
securities that would otherwise be registered and underwritten pursuant to such
registration, and the number of shares of such securities, including Registrable
Securities, that may be included shall be allocated in accordance with the
following priorities:
(i) first, among the shares of Common Stock proposed to be
included in such registration statement for the account of the Company;
(ii) second, pro rata among holders of Common Stock, if any,
requesting inclusion in such registration statement pursuant to
registration rights existing on the date of this Agreement and ranking
senior to the registration rights of the Holders of Registrable
Securities, as listed on Schedule 3 to this Agreement, to the extent
required by such senior registration rights;
(iii) third, pro rata with respect to all Holders of
Registrable Securities or holders of other Common Stock who have requested
to be included in the registration pursuant to this Section 4.3 or
pursuant to piggyback registration provisions of other agreements that
rank pari passu with the piggyback rights provided hereunder, in
proportion to the number of shares owned by each such holder; and
(iv) fourth, among holders of any other Common Stock, in
accordance with the terms of their respective registration rights, if any,
in proportion to the number of shares owned by each such holders.
The respective ownership percentages of any holder for purposes of prorating any
underwriting cutback or participation under this Section 4.3 shall be measured
as of the date of the determination of the final terms of the offering covered
by the registration statement for which such ownership percentages are being
calculated.
(c) In connection with any offering involving an underwriting under
this Section 4.3, the Company shall not be required to include any Holder's
securities in such underwriting unless such Holder accepts the underwriters
selected by the Company and the proposed pricing and other terms of the
underwriting as agreed upon between the Company and the underwriters (all in the
Company's sole discretion) and executes an underwriting agreement with such
underwriters containing such provisions as may be required by such underwriters.
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4.4 OBLIGATIONS OF THE COMPANY.
Whenever required under this Section 4 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for a period of up to one hundred
eighty (180) days or such shorter period as required until the distribution
contemplated in the registration statement has been completed, provided, that
the Company shall have the right to suspend the effectiveness of the
registration statement and by notice to the Holders to require the Holders to
cease using any related prospectus if at any time:
(i) the SEC or any other Governmental Authority issues any
stop order suspending the effectiveness of the registration statement or
qualification of the Registrable Securities or initiates or threatens to
initiate any proceedings for that purpose, provided, that the Company
shall use its reasonable best efforts to obtain the withdrawal of any such
stop order as soon as reasonably practicable;
(ii) any event happens that requires the making of any changes
in the registration statement or the related prospectus so that, as of
such date, the statements therein are not misleading and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided, that the Company shall
use its reasonable best efforts to make such required changes as soon as
practicable; or
(iii) the Company determines, in its judgment, that it is
advisable to suspend use of the related prospectus for valid business
reasons including, among other things, the acquisition or divestiture of
assets, public filings with the SEC, pending corporate developments and
similar events, provided, that the maximum period of suspension in
connection with the circumstances described in this clause (iii) that the
Company may require with respect to any registration requested by the
Holders during any one hundred eighty (180) day period shall be either (A)
forty-five (45) days, with respect to any registration which was deferred
by the Company pursuant to Section 4.2(e) above, or (B) ninety (90) days,
with respect to any registration with respect to which the Company did not
exercise any such deferral rights; and provided, further, that if the
Company has exercised any deferral rights pursuant to Section 4.2(e) above
with respect to any registration, then the Company may not suspend such
registration in connection with the circumstances described in this clause
(iii) until at least sixty (60) days shall have passed since the effective
date of the applicable registration statement;
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and provided, further, that the maximum period of one hundred eighty (180) days
specified above shall be extended for a period of time equal to the period of
the suspension of the effectiveness of the registration statement as provided
above.
(b) Notwithstanding the foregoing, if applicable rules under the
Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (x) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (y) reflects
facts or events representing material or fundamental change in the information
set forth in the registration statement, the Company may incorporate by
reference information required to be included in clauses (x) and (y) above to
the extent such information is contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement.
(c) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary during the period specified in the
preceding paragraph (a) to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(d) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(e) Use its reasonable best efforts to register or qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business, subject itself to
taxation or to file a general consent to service of process in any such
jurisdictions.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and, at the
request of any such Holder, prepare and furnish to such Holder a reasonable
number of copies of an amendment to such registration statement or related
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, the prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time:
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(i) of the issuance by the SEC of any stop order suspending
the effectiveness of the registration statement or any order preventing
the use of the related prospectus, or the initiation or any threats of any
proceedings for such purposes, in each case of which the Company is aware;
and
(ii) of the receipt by the Company of any written notification
of the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or any threats
of any proceeding for that purpose.
(h) Use its reasonable best efforts to comply with all applicable
rules and regulations of the SEC, and as soon as reasonably practicable make
available to its stockholders an earnings statement which shall satisfy the
provisions of Section 11(a) of the Securities Act, provided, that the Company
shall be deemed to have complied with this paragraph if it has complied with
Rule 158 under the Securities Act.
(i) If the registration is an underwritten registration, enter into a
customary underwriting agreement and in connection therewith:
(i) make such representations and warranties to the
underwriters in form, substance and scope as are customarily made by
issuers to underwriters in comparable underwritten offerings;
(ii) use reasonable efforts to obtain opinions of counsel to
the Company, addressed to the underwriters, and covering the matters
customarily covered in opinions requested in comparable underwritten
offerings;
(iii) use reasonable efforts to obtain "cold comfort" letters
and bring-downs thereof from the Company's independent certified public
accountants, addressed to the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters by independent accountants in connection with
underwritten offerings; and
(iv) deliver such documents and certificates as may be
reasonably and customarily requested by the managing underwriters and as
may be reasonably available to the Company to evidence compliance with
clause (f) above and with any customary conditions contained in the
underwriting agreement.
(j) Cooperate with the Holders of Registrable Securities covered by
such registration statement and the managing underwriter or underwriters or
agents, if any, to facilitate the timely preparation and delivery of
certificates (in such denominations as the Holders may reasonably request)
representing the securities to be sold under such registration statement.
(k) Use its reasonable best efforts in cooperation with the
underwriters to list such Registrable Securities on each securities exchange on
which similar securities issued by the Company are then listed.
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(l) Provide a transfer agent and registrar for all Registrable
Securities covered by such registration and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
4.5 CERTAIN HOLDER OBLIGATIONS.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 4 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company in writing (and signed by the Holder and stated to be specifically
for use in the related registration statement, preliminary prospectus,
prospectus or other document incident thereto) such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Holder's Registrable Securities. Any such information, or any comments
on any such information included in a draft of a registration statement provided
to a Holder for its comment, shall be provided to the Company promptly upon
request by the Company.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 4.2 if, due to the operation of
Section 4.5(a), the number of shares or the anticipated aggregate offering price
of the Registrable Securities to be included in the registration does not equal
or exceed the number of shares or the anticipated aggregate offering price
required to originally trigger the Company's obligation to initiate such
registration as specified in Section 4.2(a).
(c) Each Holder shall notify the Company, at any time when a
prospectus is required to be delivered under applicable law, of the happening of
any event as a result of which the prospectus included in the applicable
registration statement, as then in effect, with respect to information provided
or confirmed by such Holder, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing. Each Holder shall immediately upon the happening of any such event
cease using such prospectus. If so requested by the Company, each Holder
promptly shall return to the Company any copies of any prospectus in its
possession (other than permanent file copies) that contains an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
(d) Upon receipt of any notice from the Company (i) of the actual or
contemplated suspension of the effectiveness of a registration statement
pursuant to Section 4.4(a) above or (ii) that the Company has become aware that
the prospectus (or any preliminary prospectus) included in any registration
statement filed pursuant to Section 4.2 or 4.3 above, as then in effect,
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, each Holder shall forthwith cease from engaging in any sale or
delivery of Registrable Securities pursuant to the applicable registration
statement or related prospectus until such Holder has received written notice
from the
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Company to the effect that such sales or deliveries may be resumed and, if
applicable, the Company has delivered to the Holder a supplemental or amended
prospectus. In addition, if so directed by the Company, each Holder shall
deliver to the Company at the Company's expense all copies in such Holder's
possession of the prospectus covering the Registrable Securities that was in
effect prior to such amendment or supplement or that otherwise is requested by
the Company in connection with any suspension of the effectiveness of a
registration statement pursuant to Section 4.4(a) above.
4.6 EXPENSES OF REGISTRATION.
The Company will pay all Registration Expenses in connection with all
registrations of Registrable Securities pursuant to this Agreement, and each
Holder shall pay (x) any fees or disbursements of counsel to such Holder (other
than the fees or disbursements of a single counsel to the Holders, which shall
be paid by the Company) and (y) all underwriting discounts and commissions and
transfer taxes, if any, and documentary stamp taxes, if any, relating to the
sale or disposition of such Holder's Registrable Securities pursuant to the
registration statement. The Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 4.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
Demand Registration pursuant to Section 4.2. Notwithstanding the foregoing, each
Holder shall pay such Registration Expenses which such Holder is required to pay
under applicable law.
4.7 DELAY OF REGISTRATION.
No Holder shall have any right to obtain or seek an injunction restraining
or otherwise delaying any such registration as the result of any controversy
that might arise with respect to the interpretation or implementation of this
Section 4.
4.8 INDEMNIFICATION.
In the event any Registrable Securities are included in a registration
statement under this Section 4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"):
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(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(ii) the omission or alleged omission to state in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, a
material fact required to be stated therein, or necessary to make the
statements therein not misleading; or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any
state securities law applicable to the Company;
and the Company will pay to each such Holder, underwriter or controlling person,
as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action, provided, that the indemnity agreement contained in this
Section 4.8(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), and
provided, further, that the Company shall not be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person and provided,
further, that the Company shall not be liable to any Person who participates as
an underwriter in the offering or sale of Registrable Securities or to any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that such loss, claim, damage,
liability or action arises out of such Person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or amended, to the
Person asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in the final prospectus.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages or liabilities (joint or several) to which any of the foregoing
persons may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation
specified in clause (i) or (ii) of the definition thereof, in each case to the
extent (and only to the
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extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration, and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any Person intended to be indemnified
pursuant to this Section 4.8(b), in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, that the indemnity
agreement contained in this Section 4.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), and provided, further, that in no event shall any
indemnity under this Section 4.8(b) exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
4.8 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 4.8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel selected by the
indemnifying party (but subject to the reasonable approval of the indemnified
party), provided, that an indemnified party (together with all other indemnified
parties which may be represented without conflict by one counsel) shall have the
right to retain one separate counsel, with the fees and expenses to be paid by
the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 4.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 4.8.
(d) If the indemnification provided for in this Section 4.8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and of the indemnified party, on the other,
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
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knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 4.8 were determined
solely by pro rata allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 4.8(d), an indemnified party
shall not be required to contribute any amount in excess of the amount by which
the net proceeds received by such indemnified party or its affiliated
indemnified party in the offering exceeds the amount of any damages which such
indemnified party, or its affiliated indemnified party, has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with an underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and the Holders under this Section
4.8 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 4, and otherwise.
4.9 ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to cause the Company to register Registrable Securities pursuant
to this Section 4 may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such securities who (i) receives such
Registrable Securities pursuant to a transfer made in compliance with this
Agreement and any other restrictions on transfer imposed by law and (ii) after
such assignment or transfer, holds at least twenty percent (20%) of the shares
of the aggregate Registrable Securities purchased by the Purchaser or any of its
Affiliates pursuant to the Master Agreement or as permitted by this Agreement
(determined on an as-converted basis), provided, that: (x) the Company is,
promptly after such transfer, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned; (y) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of
Sections 4 and 6 of this Agreement; and (z) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act.
4.10 TERMINATION OF REGISTRATION RIGHTS.
The right of any Holder to request registration pursuant to Section 4.2 or
inclusion in any registration pursuant to Section 4.3 shall terminate at such
time as all Registrable Securities held or entitled to be held upon conversion
by such Holder may immediately
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be sold under Rule 144 or any similar rule or regulation hereafter adopted by
the SEC during any ninety (90) day period.
4.11 RULE 144.
(a) Following the consummation of the IPO, the Company shall file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder, all to the extent
required from time to time to enable the Holders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144, as such Rule may be amended from time to
time, or (ii) any similar rule or regulation hereafter adopted by the SEC.
(b) Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
4.12 NO CONFLICTING AGREEMENTS.
The Company will not hereafter enter into any agreement with respect to its
securities which would constitute a violation by the Company of, or prevent the
Company from performing, its obligations to Holders under this Section 4.
Without limiting the generality of the foregoing, the Company will not after the
date hereof grant to any other Person piggyback registration rights superior in
priority to the piggyback registration rights granted to the Purchaser in
Section 4.3 hereof.
4.13 REMEDIES.
The Holders of Registrable Securities, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of their rights under this Section 4. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Section 4
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
5. DESIGNATED EMPLOYEES.
5.1 RIGHT TO DESIGNATE.
Until the earlier of (i) the date the Purchaser and its Affiliates
collectively shall cease to own beneficially Company Securities at least equal
to the Ownership Threshold (but not less than three (3) years from the Closing
Date), or (ii) the termination or expiration of the Outside Service Provider
Agreement, the Purchaser shall have the right to designate up to a maximum of
three employees (the "Designated Employees") to be employed by the Company
pursuant to this Section 5, who shall have suitable experience and be reasonably
satisfactory to the Company, provided, that if the Purchaser and its Affiliates
collectively cease to own beneficially Company Securities at least equal to the
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Ownership Threshold as a result of a sale of Company Securities by the Purchaser
and its Affiliates pursuant to an Acquisition Transaction, then such right shall
continue until the termination or expiration of the Outside Service Provider
Agreement. One Designated Employee shall serve as an Assistant Vice President or
equivalent and the other Designated Employees shall serve as a director or
manager or the equivalent. Such Designated Employees shall have such substantive
responsibilities as the Company and the Purchaser may from time to time agree.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY.
The Designated Employees shall perform the normal roles and
responsibilities and have normal access to information required for the
performance of their responsibilities to the Company, provided, that the
Designated Employees shall have no access to Company customer data. Each
Designated Employee, as a condition to his or her employment by the Company,
shall execute a proprietary information and assignment agreement in the form
used by the Company for its employees generally, and shall be entitled following
termination of such employment to utilize, but only to the extent permitted by
such agreement and the procedures referred to below, the general knowledge,
skill and experience, ideas, concepts, techniques, and know-how possessed by
such Designated Employees prior to or acquired during the course of such
employment. In addition, each Designated Employee shall be subject to the
procedures for the protection of certain information of the Company, as set
forth in Exhibit B hereto.
5.3 STATUS OF DESIGNATED EMPLOYEES; EXPENSES.
The Company shall be responsible for the normal compensation expenses of
the Designated Employees, determined at the ordinary compensation levels of the
Company for its employees generally (excluding participation in the Company's
stock incentive plans, other than the Company's Employee Stock Purchase Plan),
and shall afford to the Designated Employees the same benefits as are provided
to similarly situated employees of the Company. The Purchaser shall be solely
responsible for, and shall indemnify and hold the Company harmless from and
against any claims for, the payment of any taxes or governmental charges of any
kind with respect to any such Designated Employees, other than normal income
taxes imposed in the U.S. and required to be withheld by an employer. The
Designated Employees shall, at the Company's expense, be provided with office
space and standard office equipment at the Company's facilities to the extent
reasonably necessary for them to carry out their intended purposes as described
in this Section 5.
5.4 PURPOSE OF DESIGNATED EMPLOYEES.
Without limiting the obligations of the Designated Employees pursuant to
Section 5.2 hereof, the Company and the Purchaser acknowledge that the
Designated Employees will be secunded to the Company in support of the Company's
and the Purchaser's relationship and operations under the Outside Service
Provider Agreement, and so that they may gain knowledge of the operation of
network operations, network
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engineering and service provisioning services as conducted by the Company, with
a view to enabling the Purchaser to provide such services to its customers.
6. RESTRICTIVE LEGEND.
6.1 LEGEND.
All certificates representing the Company Securities deliverable to the
Purchaser pursuant to the Master Agreement or otherwise acquired by the
Purchaser or any of its Affiliates (including, without limitation, any shares of
Common Stock acquired upon the conversion of any Junior Preferred Stock
purchased pursuant to the Master Agreement) (collectively, the "Purchaser
Shares"), and any certificates subsequently issued with respect thereto or in
substitution therefor, shall bear a legend substantially as follows, in addition
to any legend the Company determines is required pursuant to any applicable
Requirement of Law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR
THE ISSUER RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT TO
THE EFFECT THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE FURTHER SUBJECT TO CERTAIN
RESTRICTIONS RELATING TO TRANSFER, VOTING AND OTHER MATTERS SPECIFIED IN
THE INVESTMENT AGREEMENT DATED AS OF APRIL 7, 1998, A COPY OF WHICH IS ON
FILE AT THE OFFICE OF THE CORPORATE SECRETARY OF THE ISSUER.
6.2 STOP TRANSFER ORDER.
The Company, at its discretion, may cause a stop transfer order to be
placed with its transfer agent(s) with respect to the certificates for the
Purchaser Shares.
6.3 REMOVAL OF LEGENDS.
The legend set forth in Section 6.1 above and any stop transfer orders
shall be removed, and the Company shall issue certificates without such legends,
with respect to any Purchaser Shares transferred in any Transfer permitted by
the terms of this Agreement with respect to which (i) the Company has received
an opinion from counsel to the Purchaser or its Affiliates, as the case may be,
in form and substance and from counsel reasonably satisfactory to the Company,
that the Purchaser Shares so Transferred will cease to be "restricted
securities" within the meaning of Rule 144 following such
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Transfer, and (ii) the provisions of this Agreement provide that the transferee
of such Purchaser Shares will not be subject to the restrictions of this
Agreement.
7. CONFIDENTIAL TREATMENT OF CONFIDENTIAL INFORMATION.
7.1 PROTECTION OF CONFIDENTIAL INFORMATION.
(a) In the event any Covered Person (as defined below) (the
"Receiving Party") obtains from any other Covered Person or the Company (the
"Disclosing Party") any Confidential Information (as defined below), the
Receiving Party (subject in the case of the Designated Employees to Section 5.2
hereof): (i) shall treat all such Confidential Information as confidential; (ii)
shall use such Confidential Information only for the purposes contemplated in
this Agreement; (iii) shall protect such Confidential Information with the same
degree of care as the Receiving Party uses to protect its own proprietary
information against public disclosure, but in no case with less than reasonable
care; and (iv) shall not disclose such Confidential Information to any third
party except to such employees and agents of the Receiving Party who need to
know such Confidential Information for the purpose of effectuating this
Agreement and who have been informed of and have agreed to protect the
confidential nature of such Confidential Information (and the Receiving Party
shall be responsible for compliance by such employees and agents with such
agreement).
(b) "Confidential Information" shall mean technical and business
information relating to the Company's intellectual property rights, trade secret
processes or devices, techniques, data, formula, inventions (whether or not
patentable) or products, research and development (including research subjects,
methods and results), production, manufacturing and engineering processes,
computer software, costs, profit or margin information, pricing policies,
confidential market information, finances, customers, distribution, sales,
marketing and production and future business plans and any other information of
a "confidential" nature, specifically including, without limitation, any
information that is identified orally or in writing by the Company to be
confidential, or that the Receiving Party should reasonably understand under the
circumstances to be a trade secret or information of a similar nature, provided,
that Confidential Information shall not include any such information which: (i)
was in the public domain on the date hereof or comes into the public domain
other than through the fault or negligence of the Receiving Party; (ii) was
lawfully obtained by the Receiving Party from a third party without breach of
this Agreement and otherwise not in violation of the Disclosing Party's rights;
(iii) was known to the Receiving Party at the time of disclosure of such
Proprietary Information to the Receiving Party by the Disclosing Party and the
Receiving Party was not, at such time, subject to any confidentiality obligation
with respect thereto; or (iv) was independently developed by the Receiving Party
without making use of any Proprietary Information of the Disclosing Party.
(c) "Covered Person" shall mean the Purchaser or any Person (other
than the Company) that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company or the Purchaser, any
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officer, director, controlling person, partner, employee, representative or
agent of the Purchaser or any of its Affiliates (other than the Company), any
director, officer, employee or agent of the Company or any of its Affiliates, or
any person who was, at the time of the act or omission in question, such a
Person.
(d) "Affiliate" shall mean, with respect to any specified Person, a
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person
specified.
7.2 RETURN OF CONFIDENTIAL INFORMATION.
Upon the Disclosing Party's request at any time, the Receiving Party shall:
(i) return to the Disclosing Party or destroy all documents (including any
copies thereof) embodying the Disclosing Party's Confidential Information and
(ii) certify in writing to the Disclosing Party, within ten (10) days following
the Disclosing Party's request, that all such Confidential Information has been
returned or destroyed.
7.3 EQUITABLE REMEDIES.
The parties acknowledge that the extent of damages in the event of the
breach of any provision of this Section 7 would be difficult or impossible to
ascertain, and that there will be available no adequate remedy at law in the
event of any such breach. Each party therefore agrees that in the event it or
any Covered Person employed by or affiliated with it breaches any provision of
this Section 7, the aggrieved party (including, without limitation, the Company)
will be entitled to injunctive or other equitable relief, in addition to any
other relief to which it may be entitled.
8. OTHER AGREEMENTS.
8.1 NONSOLICITATION.
Unless otherwise agreed in writing, until the date three (3) years
following the date on which the Purchaser and its Affiliates no longer own any
Company Securities, the Purchaser shall not solicit, or allow its Affiliates to
solicit, for hire any employees of the Company or any of its Affiliates (other
than the Purchaser) ("Restricted Employees"), other than employees serving
strictly clerical roles. The phrase "solicit for hire" shall not include general
advertisements or other similar solicitations that are not specifically directed
at such Restricted Employees.
8.2 FURTHER ASSURANCES.
Each party shall execute and deliver such additional instruments, documents
or other writings as may be reasonably requested by the other party in order to
confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
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9. TERMINATION.
9.1 TERMINATION.
This Agreement (i) may be terminated at any time prior to the Closing by
the written agreement of the Purchaser and the Company and (ii) shall terminate
automatically upon any termination prior to the Closing of the Master Agreement.
9.2 EFFECT OF TERMINATION.
Except for the obligations of Sections 7 and 8.1, this Section 9 and
Section 11, if this Agreement shall be terminated pursuant to the preceding
Section 9.1, all obligations, representations and warranties of the parties
hereto under this Agreement shall terminate and there shall be no liability of
any party hereto to any other party hereto pursuant to the terms hereof,
provided, that nothing in this Section 9 shall relieve any party for breach of
any warranty, covenant or agreement herein or in any other Transactional
Agreement.
10. SUCCESSORS AND ASSIGNS.
10.1 SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto. Except as otherwise
expressly provided herein, neither party may assign any of its rights or
obligations hereunder without the written consent of the other party hereto.
10.2 NOVATION.
(a) From and after the date of this Agreement, the Purchaser shall
have the right, with or without the consent of the Company, to assign all of its
rights and obligations under this Agreement (other than its obligations pursuant
to this Section 10, except in the circumstances and subject to the conditions
described in Section 10.2(b)), effecting a novation, to a direct or indirect
wholly-owned subsidiary of the Purchaser (the "Assignee"), provided, that any
such assignment shall only be made in conjunction with an assignment by the
Purchaser to the same transferee of its rights and obligations under the Master
Agreement, pursuant to Section 7 of the Master Agreement. Such assignment shall
become effective immediately upon notification by the Purchaser to the Company
of such assignment.
(b) In the event of a transfer of the rights and obligations of the
Purchaser under this Agreement pursuant to a statutory reorganization of the
Purchaser prescribed in the Supplementary Provisions to the Law Concerning
Partial Amendment to the Nippon Telegraph and Telephone Corporation Law (Law No.
98 of 1997) (the "Amendment"), the Purchaser shall ensure that all the rights
and obligations of the Purchaser under this Agreement and the ownership of the
Purchaser Shares are transferred to the said successor entity without any
dilution or adverse effect on the
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enforceability of such obligations. Subject to the aforesaid, the Company: (i)
agrees that such a reorganization by itself shall not constitute a default by
the Purchaser or any successor entity of the Purchaser under this Agreement and
shall not constitute grounds for termination of this Agreement by any of such
parties; (ii) anything to the contrary herein notwithstanding, consents to the
transfer of all the rights and obligations of the Purchaser under this Agreement
(including, without limitation, its obligations pursuant to Sections 10.3 and
10.4 hereof) to a successor entity as part of such reorganization; (iii)
consents to the transfer of the Purchaser Shares to a successor entity as part
of such reorganization; and (iv) anything to the contrary herein or elsewhere
notwithstanding, agrees to absolutely and irrevocably release the Purchaser from
its obligations under this Agreement and the other Transactional Agreements upon
such reorganization, provided, in each case, that the successor entity shall be
subject to the terms and conditions of this Agreement and the other
Transactional Agreements, including, without limitation, the representations and
warranties of the Purchaser herein and in the other Transactional Agreements,
and shall deliver to the Company a written agreement to such effect, in form and
substance reasonably satisfactory to the Company, and provided, further, in each
case, that the successor entity is either one of the Regional Companies or the
Long Distance Company currently contemplated in the Amendment.
10.3 GUARANTEE.
(a) The Purchaser hereby absolutely, unconditionally and irrevocably
guarantees (i) the full and complete performance by each Assignee and each
Purchaser Party Affiliate of all covenants and obligations to be performed by it
under this Agreement, the Master Agreement and all other Transactional
Agreements, and (ii) the payment of any and all damages, losses, claims,
demands, recoveries, deficiencies, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) which the Company or any of
its successors, assigns or Affiliates may suffer or incur in connection with,
resulting from or arising out of any breach by any Assignee or any Purchaser
Party Affiliate of any such covenants and obligations, which guarantee shall be
effective from and after the date hereof or, in the case of any Assignee,
automatically upon the related assignment pursuant to Section 10.2(a).
(b) Without limiting the generality of the preceding paragraph (a),
the Purchaser agrees that, in the event that any Assignee or any Purchase Party
Affiliate fails to perform any of its duties and obligations under this
Agreement or any of the other Transactional Agreements, and monetary claims by
the Company or any of its successors, assigns or Affiliates arising out of or
with respect to such failure to perform have been determined (by any judgment of
a court, by an arbitral award, by execution of a settlement agreement or by
final resolution under the terms of the relevant Transactional Agreement) to be
payable to the Company or any such successor, assign or Affiliate ("Payment
Determination"), then the Purchaser shall promptly pay over to the Company or
such successor, assign or Affiliate all of the amounts so determined to be due
to it within thirty (30) days after such Payment Determination, if and to the
extent that the Assignee or the Purchaser Party Affiliate, as applicable, shall
have failed to pay such amounts within such time period. The Purchaser agrees
that it will pay and perform all
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<PAGE> 39
obligations of the Assignee or the Purchaser Party Affiliate, as applicable,
established through any Payment Determination made as a result of any
litigation, arbitration or other proceeding, even though such litigation,
arbitration or any other proceeding may be appealed or is appealable by the
Purchaser, the Assignee or the Purchaser Party Affiliate.
(c) In addition to all other amounts to which it may be entitled
hereunder, in the event that the Company or any of its successors, assigns or
Affiliates recovers any amounts from the Purchaser or any Affiliate of the
Purchaser pursuant to this Section 10 or otherwise in connection with the
matters giving rise to the Purchaser's guarantee obligation hereunder, the
Company or any such successor, assign or Affiliate shall be entitled to recover
from the Purchaser all costs and expenses (including, without limitation, court
costs and reasonable attorneys' fees and expenses) incurred by the Company or
any such successor, assign or Affiliate in connection with the enforcement of
this Section 10 against the Purchaser and all actions or proceedings, in any
way, manner or respect arising out of or relating to the enforcement by the
Company of its rights under this Section 10 against the Purchaser. In the event
that the Company or any of its successors, assigns or Affiliates seeks to
enforce this Section 10 against the Purchaser and is finally judicially
determined not to be entitled to any recovery with respect to the matter for
which the Purchaser's guarantee hereunder was sought to be enforced, the
Purchaser shall be entitled to recover from the Company all costs and expenses
(including, without limitation, court costs and reasonable attorney's fees and
expenses) incurred by the Purchaser in connection with the Purchaser's defending
such enforcement action.
10.4 CERTAIN WAIVERS AND AUTHORIZATIONS.
In connection with any assignment by the Purchaser pursuant to
Section 10.2(a) above and the guaranty by the Purchaser pursuant to Section 10.3
above:
(a) The Purchaser hereby irrevocably waives, to the fullest extent
permitted by law: (i) all statutes of limitations defenses; (ii) any defense
based upon any legal disability or any discharge or limitation of the liability
of any Assignee or any Purchaser Party Affiliate, whether consensual or arising
by operation of law or by any bankruptcy, reorganization, receivership,
insolvency or similar debtor-relief proceeding, or from any other cause; (iii)
presentment, demand, protest and notice of any kind, including, without
limitation, notices of nonperformance, protest and dishonor; and (iv) any right
to require the Company to proceed against any Assignee, any Purchaser Party
Affiliate or any other party or to pursue any other remedy in the Company's
power whatsoever.
(b) The Purchaser's obligations under Section 10.3 shall be primary
obligations and are independent of those of any Assignee or any Purchaser Party
Affiliate. The Company may bring a separate action against the Purchaser,
without first proceeding against any Assignee, any Purchaser Party Affiliate or
any other Person and without pursuing any other remedy. The Company's rights
hereunder shall not be exhausted by any action of the Company until all
obligations of all Assignees and all
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<PAGE> 40
Purchaser Party Affiliates have been performed and there shall be no
outstanding default thereunder, and all obligations of the Purchaser otherwise
shall have been performed.
(c) To the fullest extent permitted by law, the Company may at any
time and from time to time, without the consent of or notice to the Purchaser,
without incurring any responsibility to the Purchaser, and without impairing or
releasing the obligations of the Purchaser hereunder, upon or without any terms
or conditions and in whole or in part:
(i) exercise or refrain from exercising any rights against any
Assignee or any Purchaser Party Affiliate or others or otherwise act or
refrain from acting;
(ii) subordinate, release, settle or compromise any of the
obligations of any Assignee or any Purchaser Party Affiliate;
(iii) consent to or waive any breach of, or any act, omission
or default under, this Agreement, the Master Agreement or any other
Transactional Agreements, or otherwise agree with any Assignee or any
Purchaser Party Affiliate to amend, modify or supplement any such
Agreements or any other instrument or agreement; or
(iv) substitute, add or release any one or more guarantors.
(d) The obligations of the Purchaser hereunder shall continue to be
effective if any obligations of any Assignee or any Purchaser Party Affiliate
are rescinded or nullified, or any payment made thereby must otherwise be
restored or returned to such party, or any trustee, receiver, custodian,
liquidator or other similar officer thereof (and is so returned) upon the
bankruptcy of such party or upon or as a result of the appointment of a
custodian, receiver, trustee or other officer with similar powers with respect
to such party.
(e) The obligations of the Purchaser hereunder shall continue to be
effective notwithstanding any other provision hereof or any amendment or
modification of this Agreement or any of the other Transactional Agreements, or
any assignment or any rejection thereof which may occur in any bankruptcy or
proceeding concerning any Assignee or any Purchaser Party Affiliate, whether
permanent or temporary, and whether or not assented to by any of the parties to
this Agreement or any of the other Transactional Agreements.
(f) Without notice to or further assent from the Purchaser, any of
the terms and conditions respecting the duties and obligations of any Assignee
or any Purchaser Party Affiliate under this Agreement and the other
Transactional Agreements may be waived or modified by any of such parties and
the Company, and the time of payment of any amount due or the time of
performance of any obligation of such parties may be compromised, settled or
extended in writing by such parties and the Company.
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<PAGE> 41
The obligations of the Purchaser hereunder shall not be discharged or impaired
or otherwise affected by (i) any extension or renewal of this Agreement or any
of the other Transactional Agreements or any obligations of any Assignee or any
Purchaser Party Affiliate thereunder, without notice or further assent from the
Purchaser; (ii) any rescission or any waiver, amendment or modification of any
of the terms or provisions of this Agreement or any of the other Transactional
Agreements; (iii) any permitted assignment or delegation by the Company, or any
of its successors and assigns, of its rights and obligations under this
Agreement or any of the other Transactional Agreements; or (iv) any other act or
thing which may or might in any manner or to any extent vary the risk of the
Purchaser or which would otherwise operate as a discharge of the Purchaser as a
matter of law.
11. MISCELLANEOUS.
11.1 INTERPRETATION.
(a) References in this Agreement to "beneficial ownership" or
beneficially own," or any derivation of such terms, shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
(b) The various section headings are inserted for purposes of
reference only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
(c) Each party hereto acknowledges that it has been represented by
competent counsel and participated in the drafting of this Agreement and the
other Transactional Agreements, and agrees that any applicable rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in connection with the construction or
interpretation of this Agreement and the other Transactional Agreements.
(d) The original and controlling version of this Agreement and the
other Transactional Agreements shall be the version using the English language.
All translations of this Agreement or any of the other Transactional Agreements
into other languages shall be for the convenience of the parties only, and shall
not control the meaning or application of this Agreement or any of the other
Transactional Agreements. All notices and other communications required or
permitted by this Agreement or any other Transactional Agreement must be in
English, and the interpretation and application of such notices and other
communications shall be based solely upon the English language version thereof.
(e) When a reference is made in this Agreement or any other
Transactional Agreement to a Section, Exhibit or Schedule, such reference shall
be to a Section of, Exhibit to or Schedule to this Agreement or such other
Transactional Agreement, unless otherwise indicated.
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<PAGE> 42
11.2 FEES AND EXPENSES.
Each party hereto shall be solely responsible for the payment of the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
Transactional Agreements, except to the extent expressly set forth in this
Agreement and the other Transactional Agreements.
11.3 GOVERNING LAW; JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
(a) This Agreement is to be construed in accordance with and governed
by the internal laws of the State of New York (as permitted by Section 5-1401 of
the New York General Obligations Law (or any similar successor provision))
without giving effect to any choice of law rule that would cause the application
of the laws of any jurisdiction other than the internal laws of the State of New
York to the rights and duties of the parties.
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in the County of
Denver, Colorado. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of
Denver, Colorado (and each appellate court located in the State of
Colorado) in connection with any such legal proceeding, including to
enforce any settlement, order or award;
(ii) agrees that each state and federal court located in the
County of Denver, Colorado shall be deemed to be a convenient forum; and
(iii) waives and agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any state
or federal court located in the County of Denver, Colorado, any claim that
such party is not subject personally to the jurisdiction of such court,
that such legal proceeding has been brought in an inconvenient forum, that
the venue of such proceeding is improper or that this Agreement or the
subject matter of this Agreement may not be enforced in or by such court.
(c) Each party hereto agrees to the entry of an order to enforce any
resolution, settlement, order or award made pursuant to this Section by the
state and federal courts located in the County of Denver, Colorado and in
connection therewith hereby waives, and agrees not to assert by way of motion,
as a defense, or otherwise, any claim that such resolution, settlement, order or
award is inconsistent with or violative of the laws or public policy of the laws
of the State of New York or any other jurisdiction.
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<PAGE> 43
(d) The Purchaser hereby irrevocably designates Corporation Service
Company, of One Civic Center Plaza, 1560 Broadway, Denver, Colorado 80202, as
agent for service of process hereunder and the above named is authorized and
directed to accept service of process on behalf of the Purchaser in any suit
regarding the Transactions or otherwise related to this Agreement or the other
Transactional Agreements.
11.4 SPECIFIC ENFORCEMENT.
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific intent or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they may be entitled by law or equity.
11.5 NO THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and are not for the benefit of, nor
may any provision hereof be enforced by, any other Person.
11.6 ENTIRE AGREEMENT.
This Agreement, the Master Agreement and the other Transactional
Agreements, and the other documents delivered expressly hereby, constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
11.7 SEVERABILITY.
The provisions of this Agreement shall be severable, and any invalidity,
unenforceability or illegality of any provision or provisions of this Agreement
shall not affect any other provision or provisions of this Agreement, and each
term and provision of this Agreement shall be construed to be valid and
enforceable to the full extent permitted by law.
11.8 AMENDMENT AND WAIVER.
(a) This Agreement may be modified or amended at any time by the
agreement of the Purchaser and the Company, provided, that without the consent
of the Purchaser, the Company may (i) enter into agreements with permitted
assignees pursuant to the terms of this Agreement, providing in substance that
such permitted assignees will be bound by this Agreement, and (ii) amend this
Agreement (A) to satisfy any requirements, conditions, guidelines or opinions
contained in any opinion, directive, order, ruling or regulation of the SEC, the
Internal Revenue Service or any other United States federal or state agency, or
in any United States federal or state statute, and to cure
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<PAGE> 44
any ambiguity or correct or supplement any provision of this Agreement that may
be incomplete or inconsistent with any other provision contained herein, so long
as any amendment under this clause (ii) does not adversely affect the investment
in the Company of the Purchaser or any of its Affiliates or the rights of the
Purchaser or any of its Affiliates hereunder, and provided, further, that,
notwithstanding the foregoing provisions of this Section 11.8, no amendment of
this Agreement shall change the provisions of this Section 11.8 without the
prior written consent of the Purchaser.
(b) No failure to exercise and no delay in exercising any right,
power or privilege granted under this Agreement shall operate as a waiver of
such right, power or privilege. No single or partial exercise of any right,
power or privilege granted under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Agreement are cumulative and are not
exclusive of any rights or remedies provided by law.
11.9 RELATIONSHIP OF THE PARTIES.
For all purposes of this Agreement and the other Transactional Agreements,
each of the parties hereto and their respective Affiliates shall be deemed to be
independent entities and, anything in this Agreement or the other Transactional
Agreements to the contrary notwithstanding, nothing herein shall be deemed to
constitute the parties hereto or any of their respective Affiliates as partners,
joint venturers, co-owners, an association or any entity separate and apart from
each party itself, nor shall this Agreement or any other Transactional Agreement
make any party hereto an employee or agent, legal or otherwise, of the other
parties for any purposes whatsoever. This Agreement does not create or
constitute, and shall not be construed as creating or constituting, a voting
trust agreement under the Delaware General Corporation Law or any other
applicable corporation law. None of the parties to this Agreement or any other
Transactional Agreement is authorized to make any statements or representations
on behalf of any other party or in any way to obligate any other party, except
as expressly authorized in writing by the other parties. Anything in this
Agreement or any other Transactional Agreement to the contrary notwithstanding,
no party hereto or thereto shall assume nor shall be liable for any liabilities
or obligations of the other parties, whether past, present or future.
11.10 NOTICES.
All notices required or permitted hereunder shall be in writing and shall
be deemed effectively given: (i) upon personal delivery to the party to be
notified; (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) two (2) days after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the parties
hereto at the respective addresses set forth below, or as notified by such party
from time to time at least ten (10) days prior to the effectiveness of such
notice:
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<TABLE>
<S> <C>
if to the Purchaser: Nippon Telegraph and Telephone
Corporation
Global Communications Headquarters
Tokyo Opera City Tower
20-2 Nishi-shinjuku 3-chome
Shinjuku-ku
Tokyo 163-14 Japan
Attention: Tatsuo Kawasaki
Facsimile: 81-3-5353-5753
with a copy to: NTT America, Inc.
101 Park Avenue, 41st Floor
New York, NY 10178
Attention: Richard Nohe
Facsimile: (212) 661-1078
and a copy to: Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Anthony S. Harrington
Facsimile: (202) 637-5910
if to the Company: Verio Inc.
8005 South Chester Street
Suite 200
Englewood, CO 80122
Attention: Carla Hamre Donelson
Facsimile: (303) 708-2494
with a copy to: Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Attention: Gavin B. Grover
Facsimile: (415) 268-7522
</TABLE>
11.11 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall constitute an original, but all of which together shall constitute one
instrument.
11.12 ATTORNEYS' FEES.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
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<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
NIPPON TELEGRAPH AND
TELEPHONE CORPORATION
By: /s/ JUN-ICHIRO MIYAZU
--------------------------------
Name: Jun-Ichiro Miyazu
Title: President
VERIO INC.
By: /s/ JUSTIN JASCHKE
---------------------------------
Justin Jaschke
Chief Executive Officer
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<PAGE> 47
EXHIBIT A
CERTAIN DEFINITIONS
Terms used in the Agreement without definition shall have the respective
meanings given them in the Master Agreement. In addition, for purposes of the
Agreement (including this Exhibit A) the following terms shall have the
following meanings:
ACQUISITION EVENT. "Acquisition Event" shall have the meaning specified in
Section 2.2 of the Agreement.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall have the meaning
specified in Section 3.1 of the Agreement.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean a transaction
pursuant to an Acquisition Event, a Third Party Offer or an Acquisition Proposal
which has been publicly approved by the Company Board as described in Section
3.1(c) of the Agreement.
AFFILIATE. "Affiliate" shall have the meaning specified in Section 7.1 of
the Agreement.
AMENDMENT. "Amendment" shall have the meaning specified in Section 10.2 of
the Agreement.
ASSIGNEE. "Assignee" shall have the meaning specified in Section 10.2 of
the Agreement.
BUSINESS DAY. "Business Day" shall mean any day other than a Saturday or
Sunday or other day on which commercial banks in California are authorized or
required by law to close.
CHANGE OF CONTROL. "Change of Control" shall have the meaning specified in
Section 2.2 of the Agreement.
CLASS III DIRECTOR. "Class III Director" shall have the meaning specified
in Section 1.1 of the Agreement.
CLOSING. "Closing" shall have the meaning specified in Section 1.1 of the
Agreement.
COMMON STOCK. "Common Stock" shall have the meaning specified in the
Recitals to the Agreement.
COMPANY BOARD. "Company Board" shall have the meaning specified in Section
1.1 of the Agreement.
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COMPANY SECURITIES. "Company Securities" shall have the meaning specified
in the Recitals to the Agreement.
CONFIDENTIAL INFORMATION. "Confidential Information" shall have the meaning
specified in Section 7.1 of the Agreement.
CONTROLLED AFFILIATE. "Controlled Affiliate" with respect to a Person shall
mean any Affiliate of such Person that is controlled by such Person.
COVERED PERSON. "Covered Person" shall have the meaning specified in
Section 7.1 of the Agreement.
DEMAND REGISTRATION. "Demand Registration" shall have the meaning specified
in Section 4.1 of the Agreement.
DESIGNATED EMPLOYEES. "Designated Employees" shall have the meaning
specified in Section 5.1 of the Agreement.
DILUTED COMMON STOCK. "Diluted Common Stock" shall mean the sum of (i) the
number of shares of Common Stock outstanding at the time the determination is
made plus (ii) the number of shares of Common Stock issuable upon the exercise
or conversion of all then outstanding rights, warrants, options, convertible
securities or indebtedness, exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock whether at the time of issue or upon the passage of
time or the occurrence of some future event.
DISCLOSING PARTY. "Disclosing Party" shall have the meaning specified in
Section 7.1 of the Agreement.
ENTITY. "Entity" shall mean any corporation (including any non profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, cooperative, foundation, society,
political party, union, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
EXECUTIVE COMMITTEE. "Executive Committee" shall have the meaning specified
in Section 1.4 of the Agreement.
GOVERNMENTAL AUTHORITY. "Governmental Authority" means any nation or
government, any state or other political subdivision thereof and any Entity
properly exercising executive, legislative, judicial, regulatory or
administrative functions of government.
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<PAGE> 49
HOLDERS. "Holders" shall have the meaning specified in Section 4.1 of the
Agreement.
INITIATING HOLDERS. "Initiating Holders" shall have the meaning specified
in Section 4.2 of the Agreement.
IPO. "IPO" shall mean an underwritten initial public offering of Common
Stock pursuant to an effective registration statement filed by the Company under
the Securities Act.
JUNIOR PREFERRED STOCK. "Junior Preferred Stock" shall mean the Series X
Junior Convertible Preferred Stock of the Company.
LARGE SALE. "Large Sale" shall have the meaning specified in Section 3.3 of
the Agreement.
MARKET PRICE. "Market Price" shall have the meaning specified in Section
3.3 of the Agreement.
MASTER AGREEMENT. "Master Agreement" shall have the meaning specified in
the Recitals to the Agreement.
MEDIUM SALE. "Medium Sale" shall have the meaning specified in Section 3.3
of the Agreement.
NOTICE OF REQUEST FOR REGISTRATION. "Notice of Request for Registration"
shall have the meaning specified in Section 4.2 of the Agreement.
OPTION SHARES. "Option Shares" shall have the meaning specified in Section
3.3 of the Agreement.
OWNERSHIP THRESHOLD. "Ownership Threshold" shall have the meaning specified
in Section 1.1 of the Agreement.
PAYMENT DETERMINATION. "Payment Determination" shall have the meaning
specified in Section 10.3 of the Agreement.
PERCENTAGE LIMITATION. "Percentage Limitation" shall have the meaning
specified in Section 2.1 of the Agreement.
PERSON. "Person" shall mean any person, Governmental Authority or Entity.
PUBLIC DISTRIBUTION. "Public Distribution" shall mean an offering and sale
of Company Securities pursuant to an effective registration statement under the
Securities Act that is either: (i) a bona fide public offering that is effected
through an underwriter, provided, that no sales of Company Securities are made
to any Person who would immediately after such sales, to the knowledge of the
Purchaser, beneficially own more
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than two percent (2%) of the outstanding Common Stock, and provided, further,
that if any such Person (A) is a 13G Eligible Person and (B) is not otherwise
known to the Purchaser to be purchasing such securities with the intent of
gaining or exercising control over the Company, then the percentage limitation
described in the preceding proviso may be waived with the prior written consent
of the Company, which consent will not be unreasonably withheld (it being
understood that the Company may withhold consent to a Transfer to a 13G Eligible
Person where, among other things, such Person is of a type which is reasonably
likely to Transfer the Company Securities to a Person who may have the intent of
gaining or exercising control over the Company); or (ii) any other such offering
and sale pursuant to which, to the knowledge of the Purchaser, no Person is
purchasing more than one-half of one percent (0.5%) of the outstanding Common
Stock or will beneficially own more than one percent (1%) of the outstanding
Common Stock as a result of such distribution or otherwise is purchasing such
securities with the intent of gaining or exercising control over the Company.
PURCHASER BOARD DESIGNEE. "Purchaser Board Designee" shall have the meaning
specified in Section 1.1 of the Agreement.
PURCHASER BOARD NOMINEE. "Purchaser Board Nominee" shall have the meaning
specified in Section 1.2 of the Agreement.
PURCHASER BOARD OBSERVER. "Purchaser Board Observer" shall have the meaning
specified in Section 1.3 of the Agreement.
PURCHASER EXECUTIVE COMMITTEE OBSERVER. "Purchaser Executive Committee
Observer" shall have the meaning specified in Section 1.4.
PURCHASER PARTY AFFILIATE. "Purchaser Party Affiliate" shall mean any
Affiliate of the Purchaser that is a party to a Transactional Agreement.
PURCHASER SHARES. "Purchaser Shares" shall have the meaning specified in
Section 6.1 of the Agreement.
RECEIVING PARTY. "Receiving Party" shall have the meaning specified in
Section 7.1 of the Agreement.
REGISTRABLE SECURITIES. "Registrable Securities" shall have the meaning
specified in Section 4.1 of the Agreement.
REGISTRATION EXPENSES. "Registration Expenses" shall mean any and all
out-of-pocket expenses incident to the Company's performance of or compliance
with Section 4 of the Agreement, including, without limitation, (i) all SEC,
National Association of Securities Dealers, Inc. and securities exchange
registration and filing fees, (ii) all fees and expenses of complying with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel for any underwriters in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) all fees and expenses incurred in connection with the listing of the
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Registrable Securities on any securities exchange or automated quotation system,
(v) the fees and disbursements of counsel for the Company and of its independent
public accountants, (vi) the reasonable fees and expenses of any special experts
retained by the Company in connection with the requested registration, (vii) the
reasonable fees and expenses of a single counsel to the Holders and (viii)
out-of-pocket expenses of underwriters customarily paid by the issuer to the
extent provided for in any underwriting agreement, but excluding (x)
underwriting discounts and commissions, transfer taxes, if any, and documentary
stamp taxes, if any, and (y) any fees or disbursements of counsel to the Holders
or any Holder (other than a single counsel to the Holders).
REQUIREMENTS OF LAW. "Requirements of Law" shall mean, as to any Person,
the certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and all federal, state, local and foreign laws, rules
and regulations, including, without limitation, securities, antitrust,
communications, licensing, health, safety, labor and trade laws, rules and
regulations, and all orders, judgments, decrees and other determinations of any
Governmental Authority or arbitrator, applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
RESTRICTED EMPLOYEES. "Restricted Employees" shall have the meaning
specified in Section 8.1 of the Agreement.
RIGHT OF FIRST OFFER NOTICE. "Right of First Offer Notice" shall have the
meaning specified in Section 3.3 of the Agreement.
RULE 144. "Rule 144" shall have the meaning specified in Section 4.1 of the
Agreement.
RULE 144 TRANSACTION. "Rule 144 Transaction" shall mean a transfer of
Company Securities pursuant to Rule 144.
SALE NOTICE. "Sale Notice" shall have the meaning specified in Section 3.3
of the Agreement.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SEC. "SEC" shall mean the Securities and Exchange Commission.
SIGNIFICANT TRANSFER. "Significant Transfer" shall have the meaning
specified in Section 3.3 of the Agreement.
SMALL SALE. "Small Sale" shall have the meaning specified in Section 3.3 of
the Agreement.
STANDSTILL PERIOD. "Standstill Period" shall have the meaning specified in
Section 2.1 of the Agreement.
A-5
<PAGE> 52
THIRD PARTY OFFER. "Third Party Offer" shall have the meaning specified in
Section 2.2 of the Agreement.
13G ELIGIBLE PERSON. "13G Eligible Person" shall mean any Person (i) who is
eligible to report its beneficial ownership of (or will or would be eligible
upon acquisition of) equity securities of the Company (including Common Stock)
on Schedule 13G under the Exchange Act and (ii) without limiting the foregoing,
with respect to whom clause (i) of paragraph (b)(1) of Rule 13d-1 under the
Exchange Act is true and correct.
TRANSACTIONS. "Transactions" shall mean all of the transactions
contemplated by the respective Transactional Agreements, including, without
limitation, the issuance of the Purchased Shares by the Company to the Purchaser
in accordance with the Master Agreement.
TRANSFER. "Transfer" shall have the meaning specified in Section 3.1 of the
Agreement.
VIOLATION. "Violation" shall have the meaning specified in Section 4.8 of
the Agreement.
VOTING SECURITIES. "Voting Securities" shall mean (i) the Common Stock and
any other securities (including voting preferred stock) issued by a company
which are entitled to vote generally for the election of directors or other
governing body of the company, whether currently outstanding or hereafter
issued, and (ii) all rights, warrants, options, convertible securities or
indebtedness, exchangeable securities or indebtedness, or other rights,
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock or any such securities, whether at the time of issue or upon the
passage of time or the occurrence of some future event.
A-6
<PAGE> 53
SCHEDULE 1
CERTAIN ACTIVITIES OF THE EXECUTIVE COMMITTEE
Decisions on behalf of the Company or any Controlled Affiliate of the
Company with respect to:
1. Mergers and acquisitions (other than an Acquisition Transaction)
<PAGE> 54
THE INFORMATION BELOW MARKED (***) HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT MADE TO THE SECURITIES AND EXCHANGE COMMISSION. THE
OMITTED PORTION HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
SCHEDULE 2
CERTAIN TRANSFEREES
1) (***)
2) (***)
3) (***)
4) (***)
5) (***)
6) (***)
7) (***)
8) (***)
9) (***)
10) (***)
11) (***)
12) (***)
13) (***)
14) (***)
15) (***)
<PAGE> 1
EXHIBIT 3
NTT Rocky, Inc.
101 Park Avenue
41st Floor
New York, New York 10178
May 15, 1998
Smith Barney Inc.
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Re: Agreement not to sell or otherwise
dispose of securities of Verio Inc.
Ladies and Gentlemen:
The undersigned understands that Verio Inc. (the "Company") has filed
a registration statement on Form S-1 (No. 333-47099) with the Securities and
Exchange Commission in connection with the initial public offering (the
"Offering") of Common Stock ("Shares") of the Company. The undersigned further
understands that the Company proposes to enter into an underwriting agreement
(the "Underwriting Agreement") with Smith Barney Inc., Credit Suisse First
Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation
(collectively, the "Underwriters"), in connection with the Offering.
In recognition of the benefit that such Offering will confer upon the
undersigned, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce the Company
and the Underwriters to enter into the Underwriting Agreement and to proceed
with the Offering, the undersigned hereby agrees, that, should the Offering be
consummated, for a period of six months from the date of the Underwriting
Agreement relating to such Offering, the undersigned will not, without the prior
written consent of Smith Barney Inc., directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise dispose of or transfer any Shares of the Company or any securities
convertible into or
<PAGE> 2
exchangeable or exercisable for the Shares of the Company, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Shares,
whether any such swap transaction is to be settled by delivery of the Shares or
other securities, in cash or otherwise.
Notwithstanding the foregoing, nothing in this letter shall prohibit
or restrict the undersigned or any Affiliate of the undersigned from selling or
otherwise transferring any Shares of the Company to any Affiliate of the
undersigned, provided that each such Affiliate of the undersigned acquiring
Shares of the Company execute a lock-up agreement in the form of this letter
concurrently with the consummation of any such sale or transfer to such
Affiliate. For purposes of this letter, an "Affiliate" of the undersigned shall
mean Nippon Telegraph and Telephone Corporation, a company incorporated under
the laws of Japan ("NTT"), and each direct or indirect wholly-owned subsidiary
of NTT.
Sincerely,
NTT ROCKY, INC.
/s/ KEISUKE NAKASAKI
-------------------------
Name: Keisuke Nakasaki
Title: President
