SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

Exhibit 10.1

 

SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT

 

THIS SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (this “ Agreement ”), dated as of December 29, 2004, which amends and restates in its entirety, that certain Amended and Restated Shareholders Agreement, dated as of November 1, 2002, is entered into by and among Cbeyond Communications, Inc., a Delaware corporation (the “ Company ”), and the other parties hereto, including the holders of Common Stock (as defined below) set forth on Schedule A and the holders of Preferred Stock (as defined below) set forth on Schedule A (collectively, the “ Shareholders ” and individually a “ Shareholder ”). Capitalized terms used but not otherwise defined herein are defined in Section 9 hereof.

 

RECITALS

 

A. The holders of common stock of the Company, par value $0.01 per share (“ Common Stock ”), the holders of Series B Participating Preferred Stock of the Company, par value $0.01 per share (the “ Series B Preferred Stock ”), and the Company are signatories to that certain Amended and Restated Shareholders Agreement, dated as of November 1, 2002 (the “ Prior Agreement ”).

 

B. The Company wishes to issue and sell to certain investors (the “ Series C Investors ”) 5,573,770 shares of Series C Participating Preferred Stock of the Company, par value $0.01 per share (the “ Series C Preferred Stock ”, and, together with Series B Preferred Stock, the “ Preferred Stock ”) pursuant to a that certain Stock Purchase Agreement by and among the Company and the Series C Investors, dated as of the date hereof (the “ Stock Purchase Agreement ”).

 

C. In connection with the purchase of Series C Preferred Stock by the Series C Investors, the parties wish to amend and restate the Prior Agreement effective upon consummation of the transactions contemplated by the Stock Purchase Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree that the Prior Agreement is hereby amended and restated in its entirety as follows:

 

1. Representations and Warranties . Each Shareholder represents and warrants that (i) immediately after consummation of the transactions contemplated by the Stock Purchase Agreement, such Shareholder is the beneficial owner of that number and class of Restricted Securities set forth opposite its name on the Schedule of Shareholders attached hereto and (ii) this Agreement has been duly authorized, executed and delivered by such Shareholder and constitutes the valid and binding obligation of such Shareholder, enforceable in accordance with its terms.

2. Restrictions on Transfer of Restricted Securities .

 

(a) Retention of Restricted Securities .

 

No Shareholder shall Transfer (whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any interest in any Restricted Securities except pursuant to (A) an Exempt Transfer, (B) a Public Sale or (C) the provisions of Sections 2(b) and 2(c) or Section 4 hereof.

 

(b) Right of First Refusal .

 

(i) At least 30 days prior to any Transfer of Restricted Securities other than Cisco Common Stock (except pursuant to (A) an Exempt Transfer, (B) a Public Sale or (C) Section 4 hereof), any Shareholder desiring to make such Transfer (the “ Transferring Shareholder ”) shall deliver a written notice (the “ Offer Notice ”) to the Company and each other holder of Preferred Securities, specifying in reasonable detail the identity of the prospective Transferee(s), the number and type of Restricted Securities to be Transferred (the “ Offered Securities ”) and the price and other material terms and conditions of the proposed Transfer. The Transferring Shareholder shall not consummate such proposed Transfer until at least forty (40) days after the delivery of the Offer Notice, unless the parties to the Transfer have been finally determined pursuant to this Section 2 prior to the expiration of such 40-day period (the “ Election Period ”).

 

(ii) First, the Company may elect to purchase all or any portion of the Offered Securities at the price and on the terms and conditions specified in the Offer Notice by delivering written notice of such election to the Transferring Shareholder and each other holder of Preferred Securities as soon as practical but in any event within ten (10) days after the delivery of the Offer Notice. If the Company has not elected to purchase all of the Offered Securities within such ten-day period, each other holder of Preferred Securities may elect to purchase all of his, her or its Pro Rata Share (as defined below) of the Restricted Securities specified in the Offer Notice that the Company has not elected to purchase at the price and on the terms and conditions specified therein by delivering written notice of such election to the Transferring Shareholder and the Company as soon as practical but in any event within twenty (20) days after delivery of the Offer Notice. Any Offered Securities not elected to be purchased by the end of such 20-day period shall be reoffered (and reoffered, until they are fully subscribed) for the ten-day period prior to the expiration of the Election Period by the Transferring Shareholder on a pro rata basis to the holders of Preferred Securities who have elected to purchase their Pro Rata Share. The “ Pro Rata Share ” of each holder of Preferred Securities shall be based upon such holder’s proportionate ownership of all Restricted Securities owned by holders of Preferred Securities other than the Transferring Shareholder.

 

(iii) If the Company and/or any other holders of Preferred Securities have elected to purchase all of the Offered Securities from the Transferring Shareholder, the Transfer of such securities shall be consummated as soon as practical after the delivery of the election notice(s) to the Transferring Shareholder, but in any event within fifteen (15) business days after the expiration of the Election Period; provided that the Company or any purchasing holder may elect to require such Transfer to be consummated effective as of the first day of the next succeeding month. Notwithstanding any other provision hereof, in the event that the sale price, or any portion thereof, for the Offered Securities is not payable in the form of cash at

 

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closing or cash payable on a defined basis (such as pursuant to simple promissory notes issued by the prospective Transferee(s) described in the Offer Notice), the Company and/or each holder of Preferred Securities electing to purchase Offered Securities pursuant to this subsection shall be required to pay only such portion, if any, of the sale price described in the Offer Notice that consists of such cash consideration, and delivery of such consideration to the Transferring Shareholder shall be payment in full for such Offered Securities.

 

(iv) If the Company and the holders of Preferred Securities (collectively) have not elected to purchase all of the Offered Securities, all elections to purchase such Offered Securities shall be null and void and the Transferring Shareholder shall have the right, within 90 days after the expiration of the Election Period and subject to the provisions of subsection (c) below, to Transfer all (but not fewer than all) of the Offered Securities to the Transferee(s) specified in the Offer Notice in the amount(s) specified in the Offer Notice at a price not less than the price per security and on other terms and conditions specified in the Offer Notice. Any Offered Securities not Transferred within such 90-day period shall be reoffered to the Company and the other holders of Preferred Securities under this Section 2(b) prior to any subsequent Transfer (other than an Exempt Transfer, a Public Sale or pursuant to Section 4 hereof).

 

(c) Tag-Along Rights .

 

(i) Except pursuant to (A) an Exempt Transfer, (B) a Public Sale or (C) Section 4 hereof, any holder of Preferred Securities may elect to participate in any sale of Offered Securities by a holder of Restricted Securities (other than Cisco Common Stock) to one or more third parties or to any other Shareholder (each a “ Purchaser ”) at the same price and on the same other terms and conditions applicable to the Transferring Shareholder by giving written notice of such election to the Transferring Shareholder within 30 days after delivery of the Offer Notice. In the event that the number of Offered Securities proposed to be Transferred as described in the Offer Notice (or, if such transaction is part of a group of related transactions, the aggregate number of Offered Securities to be Transferred to one or more Purchasers in all such related transactions) is equal to at least 30% of the aggregate number of the Common Stock then outstanding (on an as converted basis) and the price for the Offered Securities specified in the Offer Notice is greater than the sum of the aggregate purchase price paid to the Company for such Offered Securities at their initial issuance plus the accrued and unpaid dividends thereon, if any (such a Transfer being a “ Common-Eligible Transfer ”), then, (A) the Offer Notice shall promptly be delivered to the holders of Common Securities, and (B) each holder of Common Securities may elect to participate in such sale of Offered Securities to one or more Purchasers by giving written notice of such election to the Transferring Shareholder within 30 days after such delivery of the Offer Notice. In any such sale to one or more Purchasers, each holder of Restricted Securities shall receive in consideration of the Restricted Securities to be sold to such Purchaser(s) by such holder the same portion of the aggregate consideration from such transaction that such holder of Restricted Securities would have received in respect of such Restricted Securities if such aggregate consideration had been distributed in a dissolution and liquidation of the Company in accordance with the Certificate of Incorporation.

 

(ii) In any Common-Eligible Transfer, “ Eligible Securities ” means all Preferred Securities and all Common Securities then outstanding on an as converted basis and in

 

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the case of Common Securities subject to an Executive Purchase Agreement, then fully vested, and in any other sale pursuant to Section 2(c)(i), “Eligible Securities” means all Preferred Securities then outstanding on an as converted basis. In any contemplated sale pursuant to Section 2(c)(i), the Transferring Shareholder and any holder that elects to participate in such sale will be entitled to include in such sale that number of Eligible Securities equal to the product of (x) the quotient determined by dividing the percentage of Eligible Securities held by such Shareholder by the aggregate percentage of Eligible Securities held by all participating Shareholders (including the Transferring Shareholder) times (y) the number of Offered Securities to be sold in such sale; provided that if any holder of Eligible Securities elects to include part, but not all, of such holder’s pro rata share, then the number of Eligible Securities that any electing holder is eligible to include, but does not elect to include, in such sale may be sold in such sale by the Transferring Shareholder.

 

For example, if the Offer Notice contemplated a sale of 1,000 shares of Preferred Stock by the Transferring Shareholder, and if the Transferring Shareholder at such time owns 55% of all Eligible Securities and if one other holder elects to participate and such holder owns 20% of all Eligible Securities, the Transferring Shareholder would be entitled to sell 733 Eligible Securities (55% divided by 75% (i.e., .55 ÷ .75) x 1,000 securities) and the other holder would be entitled to sell 267 Eligible Securities (20% divided by 75% (i.e., .20 ÷ .75) x 1,000 securities).

 

If a Shareholder holds both Preferred Securities and Common Securities and elects to participate in a Common-Eligible Transfer, then the ratio of the number of Common Securities included in such sale by such holder to the number of Preferred Securities included in such sale by such holder may not exceed the ratio of the total number of Common Securities held by such holder to the total number of Preferred Securities on an as converted basis held by such holder. For example, if such holder holds 500 Preferred Securities and 250 Common Securities, then no more than one-third (1/3) of the Eligible Securities to be included in such sale by such holder may be Common Securities.

 

(iii) Each Transferring Shareholder shall use best efforts to obtain the agreement of the prospective Transferee(s) to the participation of the electing Shareholders in any contemplated sale and to the inclusion (if requested by any such holder) of any Restricted Securities held by such holder in the contemplated sale, and no Transferring Shareholder shall Transfer any of its Restricted Securities to any prospective Transferee(s) unless (A) such prospective Transferee(s) agree to allow the participation of all electing Shareholders and to the inclusion of the Restricted Securities held by such holders, or (B) the Transferring Shareholder purchases from each electing Shareholder the same number and type of securities (at the same price and on the same terms) that such participating Shareholder would have been entitled to sell had the prospective Transferee(s) so agreed.

 

(iv) Each Shareholder Transferring securities pursuant to this Section 2(c) shall pay its pro rata share (based on the aggregate amount of the purchase price received in respect of the Restricted Securities to be Transferred by such Shareholder) of the expenses incurred by all of the Shareholders in connection with such Transfer and shall be obligated to participate severally on a pro rata basis (based on the aggregate amount of the purchase price

 

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received in respect of the Restricted Securities to be Transferred by such Shareholder) in any indemnification or other obligations that the Transferring Shareholder agrees to provide in connection with such Transfer (other than any such obligations that relate solely to a particular Shareholder, such as indemnification with respect to representations and warranties given by a Shareholder regarding such Shareholder’s title to and ownership of Restricted Securities, in respect of which only such Shareholder shall be liable); provided that no holder shall be obligated in connection with such Transfer to agree to indemnify or hold harmless the Transferee(s) with respect to an amount in excess of the net cash proceeds paid to such holder in connection with such Transfer.

 

(d) Permitted Transfers . For purposes of this Agreement, a “ Permitted Transfer ” shall mean any Transfer of Restricted Securities (i) to an Affiliate of the Transferor, (ii) to any Person acquiring all or substantially all of the Transferor’s portfolio investments, (iii) in the case of any Shareholder that is a partnership or a limited liability company, to such Person’s partners or members or Affiliates of such partners or members, (iv) in the case of any Shareholder who is an individual, to such Shareholder’s Family Group, (v) to any Person whose association with the Company Parties would, in the good faith judgment of the holders of a majority of the Preferred Securities then outstanding, be beneficial to the Company Parties by virtue of such Person’s experience, expertise, or knowledge in the telecommunications services industry or related industries or (vi) to another Shareholder, but only of the Common Stock issued in the Merger and to the extent that such Common Stock does not exceed, in the aggregate during the term of this Agreement, 1% of the total Restricted Securities held by all Shareholders on the date thereof; provided that in each case the restrictions, conditions, and obligations contained in this Agreement and the Stock Purchase Agreement shall continue to be applicable to such Restricted Securities after any such Permitted Transfer, and the Transferee(s) of such Restricted Securities shall have agreed in writing to be bound by the provisions of such agreements; and provided further that the Restricted Securities Transferred pursuant to clause (v) hereof shall not exceed, in the aggregate, 10% of the total Restricted Securities held by all Shareholders on the date hereof; and provided further that each Shareholder shall have the right to participate (subject to the proviso set forth below) in any Transfer pursuant to clause (v) hereof pro rata, based on the number of Preferred Securities held by each such Preferred Shareholder on the date of such Transfer. For purposes of this Agreement, “ Family Group ” means a Shareholder’s spouse, descendants (whether natural or adopted), parents, spouse’s parents, siblings, nieces and nephews, any spouse of the foregoing (collectively, the “ Family ”), any trust which at the time of such Transfer and at all times thereafter is and remains solely for the benefit of such Shareholder and/or such Shareholder’s Family and any family partnership the partners of which consist solely of such Shareholder, such Shareholder’s Family or such trusts.

 

(e) Termination of Restrictions . The restrictions on the Transfer of Restricted Securities set forth in this Section 2 shall continue with respect to each such security (and shall survive any Transfer thereof) until the earliest to occur of (A) the completion of a Sale of the Company, or (B) the consummation of a Public Offering.

 

3. Sale of the Company .

 

(a) Obligation of Shareholders . If the holders of a majority of the Preferred Securities then outstanding approve a Sale of the Company (an “ Approved Sale ”), each holder of

 

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Restricted Securities shall vote for, consent to and raise no objections against such Approved Sale. If the Approved Sale is structured (i) as a merger or consolidation, each holder of Restricted Securities (as applicable) shall waive any dissenters rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) as a sale of securities, each holder of Restricted Securities (as applicable) shall agree to sell all of its shares of the Company’s capital stock on the terms and conditions approved by the holders of a majority of the Preferred Securities. Each holder of Restricted Securities shall take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the holders of a majority of Preferred Securities then outstanding.

 

(b) Conditions to Obligation . The obligations of the Shareholders with respect to an Approved Sale are subject to the satisfaction of the following conditions: (i) upon the consummation of the Approved Sale, each holder of a class of securities shall receive the same form of consideration and the same amount of consideration for each security of such class to be sold in such Approved Sale, (ii) if any holders of Restricted Securities are given an option as to the form and amount of consideration to be received, each holder of Restricted Securities shall be given the same option, (iii) no holder of Restricted Securities shall be subject to any obligation or liabilities which adversely affect such holder relative to its effect on other holders of the same class or type of Restricted Securities without such holder’s consent and (iv) if the Approved Sale consists of a transaction which would be a Liquidation Event (as defined in the Certificate of Incorporation), each holder of Restricted Securities shall receive the amounts and form of consideration required under the Certificate of Incorporation.

 

(c) Public Offering . In the event that holders of a majority of the Preferred Securities approve an initial Public Offering, the holders of the Restricted Securities shall take all reasonable actions in connection with the consummation of such Public Offering as requested by the Company.

 

(d) Termination . The provisions of this Section 3 shall terminate upon the earlier to occur of (i) the consummation of a Public Offering and (ii) the completion of a Sale of the Company.

 

4. Put Provisions .

 

(a) Put Right .

 

(i) At any time and from time to time on or after November 1, 2007 (so long as it is not prohibited by, or would not otherwise result in a default under, the Amended Credit Agreement (as such term is defined in Section 2.12 of the Stock Purchase Agreement)) but not after the consummation of a Public Offering or a Sale of the Company, upon the affirmative vote or written consent of the holders of a majority of the Preferred Securities then outstanding, the Company shall be required to repurchase all (but not less than all) of the outstanding Preferred Securities at the Repurchase Price (as defined below). Within 5 days following the affirmative vote or written consent referenced above, the holders of a majority of the Preferred Stock then outstanding shall give written notice to the Company of the exercise of this right (an “ Exercise Notice ”) and promptly after receipt of the Exercise Notice, the Company shall send written notice thereof to all other Shareholders holding Preferred Stock.

 

 

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(ii) Within thirty (30) days after receipt of any Exercise Notice, the Company shall give written notice (the “ Repurchase Notice ”) to the holders of Preferred Securities, setting forth a reasonable approximation of the Fair Market Value of the Company at the time of such Repurchase Notice. Each holder of Preferred Securities shall be required to join in such repurchase on the same terms and conditions as set forth in the Exercise Notice.

 

(iii) Promptly (but in any event within five (5) business days after the end of this 30-day period), the Company and the holders of a majority of the Preferred Securities to be repurchased shall determine the Repurchase Price as provided in Section 4(c) below, and (subject to the provisions hereof) within ten (10) days after the determination of the Repurchase Price, the Company shall purchase and the holders of Preferred Securities shall sell all outstanding Preferred Securities at a mutually agreeable time and place; provided that the Company may, at its option, require that such purchase and sale of Preferred Securities occur effective as of the first day of the next succeeding month.

 

(iv) Subject to applicable law, in the event the Company does not have adequate funds available to fully repurchase all of the Preferred Securities pursuant to this Section 4 at the time scheduled for the closing of such purchase, the Company shall repurchase from each holder of Preferred Securities to be repurchased, their pro rata share of all Preferred Securities to be repurchased. The Company shall then use its best efforts (but subject to the fiduciary duties of the Board and applicable law) to obtain adequate funds to satisfy the remainder of its repurchase obligation under this Section 4.

 

(b) Duties of the Company . Subject to applicable law and the fiduciary duties of the Board, the Company shall use its best efforts (including (i) the Company assuming or refinancing debt, obtaining waivers or consents from its lenders, and (ii) causing a Public Offering, recapitalization, or Sale of the Company to occur) in order to satisfy its repurchase obligations under this Section 4.

 

(c) Repurchase Price .

 

(i) The repurchase price for each Preferred Security repurchased by the Company under this Section 4 (the “ Repurchase Price ”) shall be equal to the greater of the Original Cost of such security or the amount such Preferred Security would be entitled to receive under the Certificate of Incorporation in the event the then Fair Market Value of the Company at the time of repurchase was distributed in a Liquidation Event.

 

(ii) The “ Original Cost ” of any Preferred Securities to be repurchased pursuant to this Section 4 shall be equal to the Liquidation Value (as defined in the Certificate of Incorporation) of such Preferred Securities.

 

(iii) The “ Fair Market Value ” of the Company shall be determined as follows:

 

(A) The Company and the holders of a majority of the Preferred Securities shall attempt in good faith to agree on the Fair Market Value of the Company. Any agreement reached by such Persons shall be final and binding on the Company and all holders of Preferred Securities.

 

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(B) If such Persons are unable to reach agreement pursuant to Section 4(c)(iii)(A) within twenty (20) days:

 

1) Each of the Company, on the one hand, and the holders of a majority of the Preferred Securities, on the other hand, shall, within fifteen (15) days thereafter, choose one investment banker or other appraiser experienced in analyzing and making determinations concerning matters relating to the telecommunications industry and in valuing entities like the Company, and the two investment bankers/appraisers so selected shall together select a third investment/banker appraiser similarly qualified.

 

2) The three investment bankers/appraisers so selected shall each appraise the fair market value of the Company (based on the assumption of an orderly, arm’s length sale to a willing unaffiliated buyer). Each of the three investment bankers/appraisers shall, within thirty days of its retention, provide the written results of such appraisals to the Company to each holder of Preferred Securities.

 

3) For purposes of this Section 4(c), the “ Fair Market Value ” of the Company shall be the amount agreed upon, as described in Section 4(iii)(A) or, if no such agreement was reached, the average of the two appraisals thereof closest in amount to each other (or the appraisal which is neither the greatest nor the least in amount, if no two appraisals are closest in amount), and such determination shall be final and binding on the Company and all holders of Preferred Securities.

 

4) The costs of the appraisal shall be borne by the Company.

 

5. Covenants of the Company .

 

(a) Financial Statements and Other Information . The Company shall deliver to each holder of at least 3% of the outstanding Preferred Stock (each such holder, a “ Qualified Holder ”), all of the information described in this Section 5(a) (provided that any holder who holds at least 500,000 shares of Preferred Stock shall at all times be entitled to receive the items listed in subsections (i), (ii) and (iii) below):

 

(i) as soon as available but in any event within 30 days after the end of each monthly accounting period in each fiscal year: (A) unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such monthly period and for the period from the beginning of the fiscal year to the end of such month, and unaudited consolidated balance sheets of the Company and its Subsidiaries as of the end of such monthly period, setting forth in each case comparisons to the Company’s annual budget and to the corresponding period in the preceding fiscal year, and all such statements shall be prepared in accordance with generally accepted accounting principles, consistently applied (subject to the absence of footnote disclosures and to changes resulting from normal year-end adjustments for recurring accruals), and

 

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shall be certified by the Company’s chief financial officer, and (B) a status report prepared by the Company’s chief financial officer, indicating whether the Company has met its budgeted financial goals (including those specified in any business plan approved by the Board of Directors (an “ Approved Business Plan ”) and those delivered pursuant to subsection 5(a)(iv) below), discussing the reasons for any variation from such goals, and describing what actions the Company and its Subsidiaries have taken and propose to take in order to meet budgeted financial targets in the future;

 

(ii) within 45 days after the end of each quarterly accounting period in each fiscal year, consolidated statements of income and cash flows of the Company and its Subsidiaries for such fiscal quarter, and consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal quarter, setting forth in each case comparisons to the Company’s annual budget and to the corresponding period in the preceding fiscal year, all prepared in accordance with generally accepted accounting principles, consistently applied, together with an Officer’s Certificate stating that the Company is not in default under this Agreement, the Stock Purchase Agreement or the Registration Rights Agreement, and that neither the Company nor any of its Subsidiaries is in material default under any of its other material agreements or, if such default exists, specifying the nature and period of existence thereof and what actions the Company and its Subsidiaries have taken and propose to take with respect thereto;

 

(iii) within 90 days after the end of each fiscal year, consolidated statements of income and cash flows of the Company and its Subsidiaries for such fiscal year, and consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year, setting forth in each case comparisons to the Company’s annual budget and to the preceding fiscal year, all prepared in accordance with generally accepted accounting principles, consistently applied, and accompanied by (A) with respect to the consolidated portions of such statements, an opinion containing no material exceptions or qualifications (except for qualifications regarding specified contingent liabilities) of an independent accounting firm of recognized national standing acceptable to the Board, and (B) a copy of such firm’s annual management letter to the Board;

 

(iv) promptly upon receipt thereof, any additional reports, management letters or other detailed information concerning significant aspects of the Company’s and its Subsidiaries’ operations or financial affairs given to the Company by its independent accountants (and not otherwise contained in other materials provided hereunder);

 

(v) at the beginning of each fiscal year, an annual budget prepared on a monthly basis for the Company and its Subsidiaries for such fiscal year (displaying anticipated statements of income and cash flows and balance sheets and budgeted capital expenditures), which annual budget shall have been approved by the Board (as approved, an “ Approved Budget ”), and promptly upon preparation thereof any other significant budgets prepared by the Company and any revisions of such annual or other budgets (it being understood that any revisions of any Approved Budget must be approved by the Board);

 

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(vi) promptly (but in any event within five (5) business days) after the discovery or receipt of notice of any material default by the Company under any material agreement to which the Company or any of its Subsidiaries is a party, any condition or event which is reasonably likely to result in any material liability under any federal, state or local statute or regulation relating to public health and safety, worker health and safety or pollution or protection of the environment or any other material adverse change, event or circumstance affecting the Company or any of its Subsidiaries (including the filing of any material litigation against the Company or any of its Subsidiaries or the existence of any dispute with any Person which involves a reasonable likelihood of such litigation being commenced), an Officer’s Certificate specifying the nature and period of existence thereof and what actions the Company and its Subsidiaries have taken and propose to take with respect thereto;

 

(vii) within ten days after transmission thereof, copies of all financial statements, proxy statements, reports and any other general written communications which the Company sends to its stockholders and copies of all registration statements and all regular, special or periodic reports which it files, or (to its knowledge) any of its officers or directors file with respect to the Company, with the Securities and Exchange Commission or with any securities exchange on which any of its securities are then listed, and copies of all press releases and other statements made available generally by the Company to the public concerning material developments in the Company’s and its Subsidiaries’ businesses; and

 

(viii) with reasonable promptness, such other information and financial data concerning the Company and its Subsidiaries as any Qualified Holder may reasonably request.

 

Each of the financial statements referred to in Sections 5(a)(i), (ii) and (iii) shall fairly present the financial condition and operations of the Company and its Subsidiaries as of the dates and for the periods stated therein, subject in the case of the unaudited financial statements to changes resulting from normal year-end adjustments for recurring accruals (none of which would, alone or in the aggregate, be materially adverse to the financial condition, operating results, value, assets, operations or business prospects of the Company and its Subsidiaries taken as a whole).

 

Notwithstanding the foregoing, the provisions of this Section 5(a) shall cease to be effective so long as the Company (a) is subject to the periodic reporting requirements of the Securities Exchange Act and continues to comply with such requirements and (b) promptly provides to each Qualified Holder all reports and other materials filed by the Company with the Securities and Exchange Commission pursuant to the periodic reporting requirements of the Securities Exchange Act.

 

Except as otherwise required by law or judicial order or decree or requested by any governmental agency or authority, or as specified in the immediately following proviso, each Person entitled to receive information regarding the Company and its Subsidiaries under Sections 5(a) or (b) shall not disclose any such information to any third party (other than such Person’s advisors or representatives); provided that such a Person may disclose such information (i) in connection with the actual or proposed sale or transfer of any Investor Equity, Preferred Stock,

 

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or Underlying Common Stock if the Person to whom the information is so disclosed agrees in writing to be bound by the provisions hereof, (ii) if such Person is a partnership, limited liability company or corporation, to such Person’s partners, members and shareholders, as the case may be, in the ordinary course of its business, but upon notice to such other Persons of the confidential nature thereof, (iii) as required by applicable law or by subpoena or other legal process, (iv) if such information is available to the public other than by reason of such Person’s breach of this provision or (v) to a nationally recognized statistical rating organization in the ordinary course of business provided that such rating organization is advised of the confidential nature of such information.

 

For purposes of this Agreement, the Stock Purchase Agreement and the Registration Rights Agreement, all holdings of Investor Equity, Preferred Stock and Underlying Common Stock by Persons who are Affiliates shall be aggregated for purposes of meeting any threshold tests under this Agreement, the Stock Purchase Agreement or the Registration Rights Agreement.

 

(b) Inspection of Property . To the extent not otherwise prohibited by law or regulation, the Company shall permit any representatives designated by any Qualified Holder upon reasonable notice and during normal business hours and at such other times as any such Qualified Holder may reasonably request to (A) visit and inspect any of the properties of the Company and its Subsidiaries, (B) examine the corporate and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom and (C) discuss the affairs, finances and accounts of any such corporations with the directors, officers, key employees and independent accountants of the Company and its Subsidiaries. The presentation of an executed copy of this Agreement (or photocopy thereof) by any Qualified Holder or representative thereof to the Company’s independent accountants shall constitute the Company’s permission to its independent accountants to participate in discussions with such Persons notwithstanding the fact that such Qualified Holder is not a party hereto.

 

(c) Restrictions . Prior to the consummation of a Public Offering, the Company shall not so long as at least twenty percent (20%) of the shares of Preferred Stock outstanding immediately after consummation of the transactions contemplated by the Stock Purchase Agreement (as proportionally adjusted for stock splits, stock dividends, and similar events after the date hereof) are then outstanding, without the prior written consent of the holders of a majority of Preferred Stock then outstanding, voting together as a single class:

 

(i) make, or permit any of its Subsidiaries to make, any loans or advances to, guarantees for the benefit of, or Investments in, any Person (other than a Wholly-Owned Subsidiary established under the laws of a jurisdiction of the United States or any of its territorial possessions), except for (A) reasonable advances to employees or customers in the ordinary course of business, (B) acquisitions permitted under subsection (viii) below, and (C) Investments having a stated maturity no greater than one year from the date the Company makes such Investment in (1) obligations of the United States government or any agency thereof or obligations guaranteed by the United States government, (2) certificates of deposit of commercial banks having combined capital and surplus of at least $500 million or (3) commercial paper with a rating of at least “Prime-1” by Moody’s Investors Service, Inc. or (4) loans of up to $100,000 to any executive (or prospective executive) of the Company or any of its Subsidiaries under any purchase agreement for capital stock of the Company;

 

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(ii) merge or consolidate with any Person or, except as permitted under subsection (iv) below, permit any of its Subsidiaries to merge or consolidate with any Person (other than a merger between Wholly-Owned Subsidiaries);

 

(iii) sell, lease or otherwise dispose of, or permit any of its Subsidiaries to sell, lease or otherwise dispose of, more than 15% of the consolidated assets of the Company and its Subsidiaries (computed on the basis of book value, determined in accordance with generally accepted accounting principles consistently applied, or fair market value, determined by the Board in its reasonable good faith judgment) in any transaction or series of related transactions, or sell or permanently dispose of any of its or any Subsidiary’s material Intellectual Property Rights;

 

(iv) acquire, or permit any of its Subsidiaries to acquire, any interest in any company or business (whether by a purchase of assets, purchase of stock, merger or otherwise), or enter into any joint venture (in each case, other than as may be expressly permitted by Section 5(c)(ii) or expressly specified in any Approved Business Plan or Approved Budget);

 

(v) enter into, or permit any of its Subsidiaries to enter into, the ownership, active management or operation of any business other than the provision of telecommunications services or such other business activities as may be identified in any Approved Business Plan;

 

(vi) become subject to, or permit any of its Subsidiaries to become subject to (including by way of amendment to or modification of) any agreement or instrument which by its terms would (under any circumstances) restrict (A) the right of any of its Subsidiaries to make loans or advances or pay dividends to, transfer property to, or repay any Indebtedness owed to, the Company or another Subsidiary or (B) the Company’s and any Subsidiary’s performance of its respective obligations under the provisions of this Agreement, the Stock Purchase Agreement, the Registration Rights Agreement, the Company’s or any Subsidiary’s Certificate of Incorporation, the Bylaws or similar organizational documents (including provisions relating to the declaration and payment of dividends on, and the conversion of, any Preferred Stock);

 

(vii) except as expressly contemplated by this Agreement, make any amendment to the Bylaws or the Certificate of Incorporation, or file any resolution of the Board with the Secretary of State of the State of Delaware;

 

(viii) enter into, amend, modify or supplement, or permit any of its Subsidiaries to enter into, amend, modify or supplement, any agreement, transaction, benefit plan, commitment or arrangement with any of its or any of its Subsidiaries’ executive officers, directors or Affiliates or with any individual related by blood, marriage or adoption to any such individual or with any entity in which any such Person or individual owns a beneficial interest, except for customary and reasonable employment arrangements and except as otherwise expressly contemplated by this Agreement;

 

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(ix) establish or acquire any Subsidiaries other than Wholly-Owned Subsidiaries organized within the United States and its territorial possessions;

 

(x) create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, Indebtedness on a consolidated basis in an aggregate outstanding principal amount in excess of $500,000 at any time (other than Indebtedness expressly specified in any Approved Business Plan or Approved Budget);

 

(xi) create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Liens other than Permitted Liens (other than Liens expressly specified in any Approved Business Plan or Approved Budget);

 

(xii) make any capital expenditures or permit any of its Subsidiaries to make any capital expenditures (including payments with respect to capitalized leases, as determined in accordance with generally accepted accounting principles consistently applied) exceeding $100,000 in the aggregate on a consolidated basis during any 12-month period (other than capital expenditures expressly specified in any Approved Business Plan or Approved Budget);

 

(xiii) enter into, or permit any of its Subsidiaries to enter into, any leases or other rental agreements (excluding capitalized leases, as determined in accordance with generally accepted accounting principles consistently applied) under which the amount of the aggregate lease payments for all such agreements exceeds $100,000 on a consolidated basis for any 12-month period, provided that the Company and its Subsidiaries shall be allowed to enter into any leasing arrangements that are expressly specified in any Approved Business Plan or Approved Budget;

 

(xiv) change its fiscal year or permit any of its Subsidiaries to change its fiscal year;

 

(xv) [intentionally omitted];

 

(xvi) adopt any stock option plan or employee stock ownership plan or issue any shares of Common Stock to its or its Subsidiaries’ employees other than pursuant to one or more option plans or other option arrangements, the terms of which shall be approved by a majority of the Board under which employees of the Company and its Subsidiaries and others may be granted options to acquire shares of the Company’s Common Stock, which number shall be equitably adjusted for subsequent splits, dividends, distributions, combinations and recapitalizations in order to prevent the dilution or enlargement of rights (the “ Option Shares, ” and any such plan and any other option arrangement so approved within the Option Shares limit, the “ Permitted Stock Option Plan ”).

 

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(xvii) create, issue or sell any shares of the capital stock or other equity securities (including any warrants, options, and other rights to acquire such capital stock or other equity securities) of any of its Subsidiaries to any Person other than the Company or a Wholly-Owned Subsidiary;

 

(xviii) terminate the employment of, hire, or enter into, amend or modify any employment agreement or arrangement with, any executive employee of the Company or any of its Subsidiaries who would serve as, or would report directly to, the Company’s chief executive officer;

 

(xix) grant, or permit any of its Subsidiaries to grant, any registration rights (including any demand or piggyback registration rights) with respect to any of its capital stock, other than pursuant to the Registration Rights Agreement as in effect on the date hereof;

 

(xx) use the proceeds from the sale of the Preferred Stock hereunder other than for working capital and budgeted general corporate purposes reflected in any Approved Business Plan or Approved Budget, or for such other purposes as are contemplated by any Approved Business Plan or Approved Budget;

 

(xxi) select, retain, or amend, terminate, or modify any retention arrangement with any underwriter, manager, or financial advisor to advise the Company and its Subsidiaries with respect to any proposed Sale of the Company or to underwrite, or advise the Company with respect to, a Public Offering or any acquisitions;

 

(xxii) change any of the accounting principles or practices utilized by the Company or its Subsidiaries except for such changes as would not have a material impact on the Company’s or its Subsidiaries’ financial statements, or select, retain, or amend, terminate, or modify any retention arrangement with any accounting firm engaged to audit the Company’s or its Subsidiaries’ financial statements; or

 

(xxiii) agree or commit to any of the foregoing.

 

(d) Affirmative Covenants . Unless holders of a majority of the Preferred Stock, voting together as a single class, have specifically waived performance by the Company (and only to the extent of such waiver), for so long as any Preferred Stock remains outstanding, the Company shall, and shall cause each of its Subsidiaries to:

 

(i) at all times cause to be done all things necessary to maintain, preserve and renew its corporate e