Exhibit 10.6
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AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
BETWEEN
CABLETRON SYSTEMS, INC.
AND
SILVER LAKE PARTNERS, L.P.
DATED AS OF AUGUST 29, 2000
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TABLE OF CONTENTS
Page
ARTICLE I AGREEMENT TO SELL AND PURCHASE 3
SECTION 1.1. Authorization and Issuance of Shares,
Warrants and Purchase Rights 3
SECTION 1.2. Sale and Purchase 5
SECTION 1.3. Working Capital; Certain Distributions 5
SECTION 1.4. Investor Right to Participate in
Third-Party Investments
in Operating Subsidiaries; Certain
Adjustments 9
SECTION 1.5. Flip-Up Events; Issuance of
Replacement Warrants 14
SECTION 1.6. IPO Valuation Warrants 16
SECTION 1.7. Subsidiary Warrants 17
SECTION 1.8. Dispute Resolution Mechanism 18
SECTION 1.9. Allocation of Purchase Price 19
SECTION 1.10. No Obligation to Engage in Spin-Offs 19
ARTICLE II CLOSING, DELIVERY AND PAYMENT 20
SECTION 2.1. Closing 20
SECTION 2.2. Delivery 20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY 21
SECTION 3.1. Organization, Good Standing and
Qualification 21
SECTION 3.2. Capitalization 21
SECTION 3.3. Authorization; Binding Obligations;
Consents 23
SECTION 3.4. SEC Reports; Financial Statements 24
SECTION 3.5. Agreements; Action 26
SECTION 3.6. Changes 26
SECTION 3.7. Intellectual Property 27
SECTION 3.8. Compliance with Law; Other Instruments 27
SECTION 3.9. Litigation 28
SECTION 3.10. Tax Matters 28
SECTION 3.11. Employment Matters 29
SECTION 3.12. Environmental Matters 29
SECTION 3.13. Offering Valid 29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
INVESTORS 30
SECTION 4.1. Requisite Power and Authority 30
SECTION 4.2. Investment Representations 30
SECTION 4.3. Litigation 31
ARTICLE V COVENANTS OF THE COMPANY 31
SECTION 5.1. Ordinary Course of Business 31
SECTION 5.2. Access 32
SECTION 5.3. Efforts 32
SECTION 5.4. Notification of Certain Matters 32
SECTION 5.5. Reservation of Shares 32
SECTION 5.6. Regulatory and Other Authorizations;
Notices and
Consents 32
SECTION 5.7. Boards of Directors 33
SECTION 5.8. Transaction Fees 36
ARTICLE VI COVENANTS OF THE INVESTORS 38
SECTION 6.1. Regulatory and Other Authorizations;
Notices and
Consents 38
ARTICLE VII CONDITIONS TO CLOSING 38
SECTION 7.1. Conditions to the Investors'
Obligations 38
SECTION 7.2. Conditions to Obligations of the
Company 40
ARTICLE VIII INDEMNIFICATION 41
SECTION 8.1. Survival of Representations,
Warranties and Covenants 41
SECTION 8.2. Indemnification 42
SECTION 8.3. Indemnification Amounts 43
SECTION 8.4. Exclusive Remedy 43
SECTION 8.5. Certain Limitations 43
SECTION 8.6. Callable Subsidiary Stock Purchase
Rights 43
ARTICLE IX MISCELLANEOUS 44
SECTION 9.1. Other Definitions 44
SECTION 9.2. Governing Law; Jurisdiction; Waiver of
Jury Trial 46
SECTION 9.3. Public Announcements 46
SECTION 9.4. Successors and Assigns; Assignment 46
SECTION 9.5. Entire Agreement; Supersedes Prior Agreement 47
SECTION 9.6. Severability 47
SECTION 9.7. Amendment and Waiver 47
SECTION 9.8. Delays or Omissions 47
SECTION 9.9. Notices 48
SECTION 9.10. Expenses 49
SECTION 9.11. Titles and Subtitles 49
SECTION 9.12. Termination 49
SECTION 9.13. Counterparts; Execution by Facsimile
Signature 50
EXHIBITS
Exhibit A -- Form of Parent Registration Rights Agreement
Exhibit B -- Standstill Agreement
Exhibit C -- Certificate of Designation
Exhibit D -- Form of Parent Warrant/Subsidiary Warrant/IPO
Valuation Warrant
Exhibit E -- Forms of Subsidiary Stock Purchase Rights
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (this
"Agreement") is entered into as of August 29, 2000 between CABLETRON SYSTEMS,
INC., a Delaware corporation (the "Company"), and SILVER LAKE PARTNERS, L.P., a
Delaware limited partnership ("Silver Lake"; together with its permitted pre-
closing assigns, the "Investors").
RECITALS
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WHEREAS, (i) the Company has four wholly-owned Subsidiaries (each, an
"Operating Subsidiary") named Aprisma Management Technologies, Inc. ("Aprisma"),
Riverstone Networks, Inc. ("Riverstone"), GlobalNetwork Technology Services,
Inc. ("GNTS") and Enterasys Networks, Inc. ("Enterasys"), and the Company has
agreed to contribute to such Subsidiaries (collectively, the "Transformation")
through the contribution of the Company's four business divisions known as
"Aprisma", "Riverstone", "GNTS" and "Enterasys", respectively (to the extent
that the assets and liabilities relating to such business divisions do not
already reside in the applicable Operating Subsidiary), pursuant to a
Transformation Agreement, dated as of June 3, 2000 (the "Transformation
Agreement"), and (ii) as publicly announced, it is the present intention of the
Company following consummation of the Transformation (a) to cause each such
Operating Subsidiary to engage in an underwritten initial public offering of its
common stock (each such offering, a "Pre-Spin-Off IPO") and (b) following a
particular Operating Subsidiary's Pre-Spin-Off IPO, to distribute to the holders
of the Company's common stock, par value $.01 per share (the "Common Stock") all
of the capital stock of such Operating Subsidiary then held by the Company (each
such distribution, a "Spin-Off"), all as more fully described herein;
WHEREAS, (i) the Company has authorized the sale and issuance to the
Investors of (a) an aggregate of 65,000 shares of its 4% Series A Participating
Convertible Preferred Stock, par value $1.00 per share (the "Series A Preferred
Stock"), (b) an aggregate of 25,000 shares of its 4% Series B Participating
Convertible Preferred Stock, par value $1.00 per share (the "Series B Preferred
Stock," and together with the Series A Preferred Stock, the "Preferred Stock"),
(c) warrants (the "Class A Parent Warrants") to purchase initially up to 250,000
shares of Common Stock at an exercise price of $45.00 per share (subject to
adjustments as provided in the warrant certificates relating thereto), and (d)
warrants (the "Class B Parent Warrants," and, together with the Class A Parent
Warrants, the "Parent Warrants") to purchase initially up to 200,000 additional
shares of Common Stock at an initial purchase price of $35.00 per share
(subject to adjustments as provided in the warrant certificates relating
thereto), (ii) the Company has authorized the sale and issuance to the Investors
of the Replacement Warrants (if any) (as defined
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herein), and (iii) the Company and each such Operating Subsidiary has authorized
the sale and issuance to the Investors of (a) stock purchase rights (with
respect to each Operating Subsidiary, its "Callable Subsidiary Stock Purchase
Rights") to purchase initially up to those respective numbers and percentages of
shares, and at the respective per-share and aggregate purchase prices, set forth
with respect to such rights on Schedule A hereto, (b) additional stock purchase
rights (with respect to each Operating Subsidiary, its "First-Tier Optional
Subsidiary Stock Purchase Rights") to purchase initially up to those respective
numbers and percentages of shares, and at the respective per-share and aggregate
purchase prices, set forth with respect to such rights on Schedule A hereto, (c)
additional stock purchase rights (with respect to each Operating Subsidiary, its
"Second-Tier Optional Subsidiary Stock Purchase Rights") to purchase initially
up to those respective numbers and percentages of shares, and at the respective
per-share and aggregate purchase prices, set forth with respect to such rights
on Schedule A hereto, (d) additional stock purchase rights (with respect to each
Operating Subsidiary, its "Third-Tier Optional Subsidiary Stock Purchase
Rights"; together with its First-Tier Optional Subsidiary Stock Purchase Rights
and its Second-Tier Optional Subsidiary Stock Purchase Rights, its "Optional
Subsidiary Stock Purchase Rights"; its Callable Subsidiary Stock Purchase Rights
and its Optional Subsidiary Stock Purchase Rights, collectively, its "Subsidiary
Stock Purchase Rights") to purchase initially up to those respective numbers and
percentages of shares, and at the respective per-share and aggregate purchase
prices, set forth with respect to such rights on Schedule A hereto, (e) the IPO
Valuation Warrants (as defined herein) and (f) the Subsidiary Warrants (as
defined herein);
WHEREAS, the Investors desire to purchase the Preferred Stock, the
Parent Warrants, the Subsidiary Stock Purchase Rights, the Replacement Warrants
(if any), the IPO Valuation Warrants (if any) and the Subsidiary Warrants (if
any), in each case on the terms and conditions set forth herein, and the Company
desires to issue and sell the Preferred Stock, the Parent Warrants and the
Replacement Warrants (if any) to the Investors, and to cause the respective
Operating Subsidiaries to issue and sell the Subsidiary Stock Purchase Rights,
the IPO Valuation Warrants (if any) and the Subsidiary Warrants (if any) to the
Investors, all on the terms and conditions set forth herein;
WHEREAS, the Company has agreed to grant to the holders of the
Preferred Stock and Common Stock received upon the conversion of the Preferred
Stock or exercise of Parent Warrants or Replacement Warrants certain
registration rights, as set forth in the form of Parent Registration Rights
Agreement attached hereto as Exhibit A (the "Parent Registration Rights
Agreement") to be entered into among the Company and the Investors at the
Closing;
WHEREAS, the Company has agreed to cause each of the Operating
Subsidiaries to grant to the holders of the common stock received upon the
purchase of common stock pursuant to the Subsidiary Stock Purchase Rights, the
IPO Valuation Warrants and the
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Subsidiary Warrants relating to such Operating Subsidiary certain registration
rights, and to cause each Operating Subsidiary to enter into at the Closing with
the Investors a Registration Rights Agreement substantially in the form of the
Parent Registration Rights Agreement (except with respect to the names of the
parties thereto and the fact that such Registration Rights Agreements shall
include as "Registrable Securities" only the common stock of the Operating
Subsidiaries) (each, an "Operating Subsidiary Registration Rights Agreement");
WHEREAS, the Company and the Investors are entering into the
Standstill Agreement attached hereto as Exhibit B (the "Standstill Agreement")
simultaneously with the execution and delivery of this Agreement; and
WHEREAS, the parties hereto have entered into that certain Securities
Purchase Agreement, dated as of July 26, 2000, and now desire to amend and
restate said Securities Purchase Agreement in its entirety in the manner herein
set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree to amend and
restate the Securities Purchase Agreement in its entirety to read as follows:
ARTICLE I
AGREEMENT TO SELL AND PURCHASE
SECTION 1.1. Authorization and Issuance of Shares, Warrants and
Purchase Rights. (a) The Company (and each Operating Subsidiary, as applicable)
has authorized (i) the issuance to the Investors at the Closing of 65,000 shares
of the Series A Preferred Stock and 25,000 shares of the Series B Preferred
Stock (collectively, the "Shares"), (ii) the issuance of the shares of Common
Stock to be issued upon conversion of the Shares and upon exercise of the Parent
Warrants and Replacement Warrants (if any) (together with the shares of common
stock described in clause (vi) below, the "Conversion Shares") at the time of
such conversion or exercise, as applicable, (iii) the issuance to the Investors
at the Closing of the Parent Warrants, (iv) the issuance of the Replacement
Warrants (if any), the IPO Valuation Warrants (if any) and the Subsidiary
Warrants (if any) in the circumstances and at the times hereinafter set forth,
(v) the issuance to the Investors at the Closing of the Callable Subsidiary
Stock Purchase Rights and the Optional Subsidiary Stock Purchase Rights,
relating to each Operating Subsidiary (and the Company shall cause each such
Operating Subsidiary to effect such issuance at the Closing) and (vi) the
issuance of the shares of common stock of each Operating Subsidiary to be issued
upon the purchase of shares of common stock pursuant to the related Subsidiary
Stock Purchase Rights, IPO Valuation Warrants (if any) and Subsidiary Warrants
(if any) (and the Company
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shall cause each such Operating Subsidiary to effect each such issuance at the
time of such purchase).
(b) The Shares shall be issued by the Company at the Closing and
shall have the rights, preferences, privileges and restrictions set forth with
respect to Series A Preferred Stock or Series B Preferred Stock, as applicable,
in the Certificate of Designation of the Company in the form attached hereto as
Exhibit C (the "Certificate of Designation"), such certificate of designation to
be filed by the Company with and certified by the Secretary of State of the
State of Delaware at or prior to the Closing.
(c) The Parent Warrants shall be issued by the Company in the form
attached hereto as Exhibit D and shall have the rights and be subject to the
adjustments set forth in such warrant certificate, such warrants to be issued to
the Investors at the Closing and be dated the Closing Date.
(d) The Replacement Warrants, if issued, shall be issued by the
Company in the form described in Section 1.5 below and shall have the rights and
be subject to the adjustments set forth herein and in the warrant certificate
for such warrants, such warrants to be issued to the holders of the related
Subsidiary Stock Purchase Rights at the time of the issuance of such Replacement
Warrants as provided herein and be dated the date of such issuance.
(e) The Callable Subsidiary Stock Purchase Rights and the Optional
Subsidiary Stock Purchase Rights relating to each Operating Subsidiary shall be
issued by such Operating Subsidiary in the forms attached hereto as Exhibit E,
and shall have the rights and be subject to the adjustments set forth in such
respective certificates, such rights to be issued at the Closing to the
Investors and to be dated the Closing Date.
(f) The IPO Valuation Warrants relating to each Operating Subsidiary,
if issued, shall be issued by such Operating Subsidiary in the form described in
Section 1.6 hereof, and shall have the rights and be subject to the adjustments
set forth herein and in the warrant certificate relating thereto, such warrants
to be issued to the holders of the related Subsidiary Stock Purchase Rights (or
such other transferees as the Investors identify to the Company in writing,
subject to the transfer restrictions contained in the Standstill Agreement) at
the time of the issuance of such IPO Valuation Warrants as provided herein and
be dated the date of such issuance.
(g) The Subsidiary Warrants relating to each Operating Subsidiary, if
issued, shall be issued by such Operating Subsidiary in the form described in
Section 1.7 hereof, and shall have the rights and be subject to the adjustments
set forth herein and in the warrant certificate relating thereto, such warrants
to be issued to the holders of the related Parent Warrants (or to
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holding entities established by such holders, if so elected by such holders) at
the time of the issuance of such Subsidiary Warrants and be dated the date of
such issuance.
SECTION 1.2. Sale and Purchase. Subject to the terms and conditions
hereof (including without limitation the previous consummation of the
Transformation), the Company hereby agrees (a) to issue and sell to the
Investors, at the Closing, the Shares and the Parent Warrants, and to enter into
the Parent Registration Rights Agreement with the Investors at the Closing, (b)
to issue to the holders of the related Subsidiary Stock Purchase Rights, in the
circumstances and at the times hereinafter set forth, the Replacement Warrants
(if any), (c) to cause each Operating Subsidiary to issue and sell to the
Investors, at the Closing, the Callable Subsidiary Stock Purchase Rights and the
Optional Subsidiary Stock Purchase Rights relating to such Operating Subsidiary,
(d) to cause each Operating Subsidiary to enter into an Operating Subsidiary
Registration Rights Agreement with the Investors at the Closing, (e) to cause
each Operating Subsidiary to issue to the holders of the related Subsidiary
Stock Purchase Rights (or such other transferees as the Investors identify to
the Company in writing, subject to the provisions of the Standstill Agreement),
in the circumstances and at the times hereinafter set forth, the IPO Valuation
Warrants (if any) and (f) to cause each Operating Subsidiary to issue to the
holders of the related Parent Warrants) (or to holding entities established by
such holders, if so elected by such holders) in the circumstances and at the
times hereinafter set forth, the Subsidiary Warrants (if any), for an aggregate
purchase price of $90,000,000 with respect to the purchase of all the foregoing
securities (the "Purchase Price"), payable to the Company at the Closing (on its
own behalf with respect to its sale of Shares, Parent Warrants and Replacement
Warrants (if any), and as agent for each Operating Subsidiary with respect to
such Operating Subsidiary's sale of its Subsidiary Stock Purchase Rights,
Subsidiary Warrants (if any) and IPO Valuation Warrants (if any), in the
respective amounts determined pursuant to the Allocation), and, subject to the
terms and conditions hereof, the Investors agree to pay the Purchase Price to
the Company at the Closing (with respect to the purchase of Shares, Parent
Warrants, Replacement Warrants (if any), Subsidiary Stock Purchase Rights,
Subsidiary Warrants (if any) and IPO Valuation Warrants (if any), in the
respective amounts determined pursuant to the Allocation), in each case in
consideration of the present or future receipt, as applicable, of the foregoing
securities. No later than two business days prior to the Closing, the Company
and Silver Lake will inform each other of their respective bank accounts to be
used for the making of payments at the Closing.
SECTION 1.3. Working Capital; Certain Distributions. (a) Following
the date hereof and prior to the earliest to occur with respect to an Operating
Subsidiary of (i) the consummation of its Pre-Spin-Off IPO, (ii) the
consummation of its Spin-Off, (iii) the consummation of the sale (whether by
issuance or sale of stock, by sale of assets, by merger or by another
transaction) to a Person or Persons, other than the Company, any of its
Subsidiaries, Silver Lake or any of its Affiliates controlled by or under common
control with Silver Lake, of a
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majority of the assets of such Operating Subsidiary or a majority of the
outstanding voting stock of an Operating Subsidiary in a single transaction or
series of related transactions (a "Third-Party Sale") and (iv) the date of the
issuance of Replacement Warrants in respect of such Operating Subsidiary's
Subsidiary Stock Purchase Rights (the earliest to occur of the events specified
in clauses (i), (ii), (iii) and (iv) above being referred to herein as the
"Specified Date"), none of the Company or any of its other Subsidiaries or other
controlled Affiliates will enter into any transaction, contract, agreement or
other arrangement (including, without limitation, the acquisition of any
securities or modification to the terms of any existing securities, but
excluding transactions provided for in the Transformation Agreement and any
other transactions, contracts, agreements or arrangements which are,
individually and in the aggregate, de minimis in nature) with such Operating
Subsidiary unless such transaction, contract, agreement or other arrangement is
effected on an arms'-length basis (from the applicable Operating Subsidiary's
perspective) and on terms and conditions which are consistent with those
transactions, contracts, agreements or other arrangements generally entered into
by similarly situated subsidiaries having third-party investors; provided,
however, that nothing contained in this Section 1.3(a) shall apply to any
transaction to which Section 1.3(c) applies.
(b) The Company may, subject to the following provision, invest cash
or other assets in an Operating Subsidiary (in addition to the contributions
provided for in the Transformation Documents) to fund its working capital needs
or for such other bona fide business reasons (e.g., to fund acquisitions or meet
spinoff regulatory ruling requirements) as the Board of Directors of the Company
(the "Board") determines in good faith. To the extent that the value of such
investments made by the Company (or any of its other Subsidiaries) following the
Closing Date exceeds $5,000,000 in the aggregate with respect to an Operating
Subsidiary, (the amount of any such excess, a "Working Capital Contribution"),
such Operating Subsidiary may, in exchange for such Working Capital
Contribution, issue debt or equity to the Company. Prior to the Specified Date
with respect to an Operating Subsidiary, the Company agrees to consult with
Silver Lake prior to making a Working Capital Contribution to an Operating
Subsidiary concerning whether the Operating Subsidiary will issue equity or
debt; the Company acknowledges that Silver Lake would prefer (i) that each
Operating Subsidiary fund its working capital and other financing needs from its
own cash and cash-equivalents rather than receiving a Working Capital
Contribution, and (ii) that in the event a Working Capital Contribution is made,
that the Operating Subsidiary to which it is made issue debt that is not
convertible into common stock of the Operating Subsidiary (rather than such
Operating Subsidiary issuing equity or debt convertible into equity). The
parties agree that the principal consideration in making the decision whether an
Operating Subsidiary will issue debt or equity will be the interests of the
Operating Subsidiary. In the event that, prior to the Specified Date with
respect to an Operating Subsidiary, equity is issued by such Operating
Subsidiary to the Company or any of its other Subsidiaries in exchange for a
Working Capital Contribution, the Company agrees that the equity will be in the
form of additional securities (rather than in the form of a modification to the
conversion price or
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other terms of existing securities held by the Company in such Operating
Subsidiary). In the event that an Operating Subsidiary issues common stock or
securities convertible into common stock to the Company or any of its other
Subsidiaries prior to the Specified Date applicable to such Operating
Subsidiary, the Company will deliver written notice thereof to the holders of
the Subsidiary Stock Purchase Rights relating to such Operating Subsidiary
(including the terms of such Working Capital Contribution and the purpose
therefor, and the terms of the securities to be issued), and the Company shall,
upon the request of the Investor Representative on behalf of the holders of the
Subsidiary Stock Purchase Rights relating to such Operating Subsidiary (made
within five business days following the receipt by such holders of such written
notice), amend the terms of the Subsidiary Stock Purchase Rights to permit the
holders thereof to purchase the same percentage of the common stock of the
Operating Subsidiary (calculated assuming the conversion of any securities
convertible into common stock) following such issuance as prior to such
issuance. In connection with such an amendment, the aggregate purchase price
under the Subsidiary Stock Purchase Rights relating to such Operating Subsidiary
shall be increased ratably by an amount equal to the product of (i) the value of
the Working Capital Contribution, multiplied by (ii) a fraction the numerator of
which is the number of additional shares of common stock issuable under such
Subsidiary Stock Purchase Rights as amended (the "New Shares") and the
denominator of which is the number of shares of common stock issued to the
Company or its other Subsidiary (calculated assuming the conversion of any
securities convertible into common stock). The Company will provide the holders
of such Subsidiary Stock Purchase Rights with reasonable advance notice of any
such issuance. Any disagreements between the Company and the Investor
Representative (on behalf of the holders of such Subsidiary Stock Purchase
Rights) concerning the value of any Working Capital Contribution (other than
cash and marketable securities) or the other calculations provided for in this
Section 1.3(b) shall be determined pursuant to the Dispute Resolution Mechanism.
Except as provided in this Section 1.3(b), following the date hereof and prior
to the Specified Date applicable to an Operating Subsidiary, the Company shall
not, directly or indirectly (including through its Affiliates), (i) acquire
additional securities of such Operating Subsidiary, (ii) or modify the terms and
conditions of existing securities of such Operating Subsidiary that it holds in
any manner that dilutes the holders of such Operating Subsidiary's Subsidiary
Stock Purchase Rights, in each case without the consent of the Majority
Investors.
(c) In the event that, following the date hereof and prior to the
consummation of an Operating Subsidiary's Pre-Spin-Off IPO, such Operating
Subsidiary distributes to the Company or any other Subsidiary of the Company any
cash or other assets of such Operating Subsidiary (other than any such
distributions constituting a Purchase Right Flip-Up Event hereunder) (i)
comprised of any lines of business, product lines, or material contracts
(defined for this purpose as the distribution or termination with replacement at
the Company or another Subsidiary of a contract or group of related contracts
under which more than $500,000 of revenues were obtained during the preceding
twelve-month period), or (ii) otherwise constituting
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in excess of $5,000,000 of distributed value in the aggregate with respect to
any Operating Subsidiary from the date hereof through the consummation of its
Pre-Spin-Off IPO, in either case without payment of fair value (provided that
the repayment of indebtedness in accordance with its terms shall constitute fair
value) therefore, (A) the Company will deliver written notice thereof to the
holders of the Subsidiary Stock Purchase Rights and IPO Valuation Warrants
relating to such Operating Subsidiary (including the terms of such distribution
and the reason therefor), and the Company shall, upon the request of the
Investor Representative on behalf of the holders of the Subsidiary Stock
Purchase Rights and IPO Valuation Warrants relating to such Operating Subsidiary
(made within five business days following the receipt by such holders of such
written notice), amend such Subsidiary Stock Purchase Rights and IPO Valuation
Warrants to reduce ratably the aggregate purchase prices payable thereunder (but
not the number of shares issuable thereunder) to reflect the amount by which the
value (if any) paid by the Company or such other Subsidiary of the Company for
the cash or assets so distributed falls short of the fair value of such cash or
other assets distributed, and (B) in the event that such distribution materially
affects the valuation of such Operating Subsidiary (as initially reasonably
determined by the Company in good faith as notified by the Company to the
Investors in writing in connection therewith, provided that such determination
shall be made pursuant to the Dispute Resolution Mechanism if the holders of a
majority of the Subsidiary Stock Purchase Rights relating to such Operating
Subsidiary do not agree with such determination), new warrants for the purchase
of Common Stock shall be issued to the holders of the applicable Subsidiary
Stock Purchase Rights and IPO Valuation Warrants (or to additional holding
entities established by such holders for the purpose of holding such new
warrants, if so elected by such holders) by the Company if such assets have been
distributed to the Company, or the Company shall cause new subsidiary stock
purchase rights to be issued to the holders of the applicable Subsidiary Stock
Purchase Rights and IPO Valuation Warrants (or to additional holding entities
established by such holders for the purpose of holding such new warrants, if so
elected by such holders) by the Subsidiary of the Company to which such business
has been distributed or contributed (and such subsidiary stock purchase rights
Subsidiary thereafter shall be deemed an "Operating Subsidiary" for purposes of
this Agreement), if such business has been distributed to a Subsidiary of the
Company or contributed by the Company to another Subsidiary (provided that such
Subsidiary is not itself an Operating Subsidiary). The terms of any such new
stock purchase rights or warrants (including the purchase prices thereunder and
the number of shares issuable thereunder) shall initially be reasonably
determined by the Company in good faith on a equitable basis designed to provide
the same aggregate value for the applicable remaining Subsidiary Stock Purchase
Rights and IPO Valuation Warrants and the new stock purchase rights or warrants
issued by the Company or one of its Subsidiaries (as applicable) immediately
following such distribution and/or contribution as the value of the Subsidiary
Stock Purchase Rights and IPO Valuation Warrants immediately prior to such
distribution. The Company shall notify the holders of the applicable Subsidiary
Stock Purchase Rights and IPO Valuation Warrants in writing of an initial
determination made by the Company under the immediately preceding two sentences
(including
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all calculations relating to such determination set forth in reasonable detail
and any material underlying documentation relating to such calculations), and if
the Investor Representative on behalf of the holders of a majority of such
Subsidiary Stock Purchase Rights and IPO Valuation Warrants does not object to
such determination by providing written notice to the Company of such objection
within five business days following the receipt of the Company's notice
containing such determination, such determination shall be final and conclusive
for all purposes and be binding on all holders of such Subsidiary Stock Purchase
Rights and IPO Valuation Warrants. If holders of a majority of such Operating
Subsidiary's Stock Purchase Rights and IPO Valuation Warrants do so object in a
timely fashion, the terms of any adjustment to such Subsidiary Stock Purchase
Rights IPO Valuation Warrants and any newly issued warrants or stock purchase
rights to be issued by the Company or one of its Subsidiaries as contemplated by
this Section 1.3 (c) shall be determined pursuant to the Dispute Resolution
Mechanism.
(d) In the event that, prior to the consummation of an Operating
Subsidiary's Pre-Spin-Off IPO (i) with respect to any securities held by the
Company which are convertible into common stock of such Operating Subsidiary
(e.g., the convertible preferred stock described in Section 3.2(b), (c), (d) or
(e) hereof, as applicable), the number of shares of common stock into which such
convertible securities are convertible shall increase following the date of
issuance of such securities (by reason of "pay-in-kind" dividends, accruals to
the conversion value or similar events which dilute the holders of such
Operating Subsidiary's Subsidiary Stock Purchase Rights), then the shares of
common stock of such Operating Subsidiary issuable pursuant to each of its
Subsidiary Stock Purchase Rights and IPO Valuation Warrants shall be increased
(by amendment to the terms of such securities) by a number of shares of common
stock sufficient to prevent the dilution that would otherwise result to the
holders thereof (without an increase to the aggregate purchase price payable
thereunder).
SECTION 1.4. Investor Right to Participate in Third-Party Investments
in Operating Subsidiaries; Certain Adjustments. (a) In the event that, prior
to the Specified Date applicable to any Operating Subsidiary, (i) any investment
is to be made in such Operating Subsidiary (whether through the purchase of
equity securities, debt securities or otherwise, but excluding the investment by
Compaq Computer Corporation or one of its Affiliates of $14 million in the Class
B Convertible Preferred Stock of Aprisma pursuant to documentation substantially
in the form provided to Silver Lake prior to the date of this Agreement (the
"Compaq Investment"), and excluding any bona fide credit facilities established
by such Operating Subsidiary with third-party lenders) by a Person or Persons
(the "Third-Party Investors") (excluding the Company and its Subsidiaries, and
excluding Silver Lake or any of its Affiliates controlled by or under common
control with Silver Lake), (ii) any agreement is entered into between the
Company or any of its Affiliates and any Third Party Investor to make such an
investment (or any such investment is otherwise effected) prior to the second
anniversary of the Closing Date and (iii) Silver Lake or any of its Affiliates
(including without limitation any of the
9
members thereof) has materially assisted the Company or any of its Affiliates in
connection with the sourcing or execution of such third-party investment (an
"Applicable Third-Party Investment"), then in such event each of the Investors
will have the right (but not the obligation) to participate (or to permit one or
more of its Affiliates to participate) in such investment as provided in this
Section 1.4; provided, however, that the provisions of this Section 1.4 shall
not apply to (A) the issuance of stock options to directors, officers, employees
or consultants of the Company or any of its Subsidiaries or any subsequent
issuances of capital stock pursuant to the exercise thereof, or the issuance of
restricted stock to directors, officers, employees or consultants of the Company
or any of its Subsidiaries, in each case pursuant to any compensation or
incentive plans or arrangements approved by the board of directors of the
applicable Operating Subsidiary, (B) the issuance of capital stock of an
Operating Subsidiary pursuant to its Pre-Spin-Off IPO or (C) the issuance of
capital stock by an Operating Subsidiary pursuant to its acquisition of a
business or product line (excluding an acquisition solely of assets).
(b) In connection with each Applicable Third-Party Investment, at the
time the anticipated material terms and conditions of such investment are known
to the Company, the Company shall give an initial written notice to the Investor
Representative with respect to its intent to enter into such investment,
including (i) the identities of the Third-Party Investors and the size and
nature of the investment and (ii) the anticipated material terms and conditions
of such investment (including the date on which definitive documentation is
anticipated to be executed), and within five business days following the receipt
of such notice, the Investor Representative shall inform the Company as to which
Investors (if any) have agreed to participate in such investment (and any
Investor not so indicating its agreement to participate shall thereafter have no
right to participate in such Applicable Third-Party Investment pursuant hereto).
Thereafter, the Company shall cause the applicable Operating Subsidiary at least
two business days prior to the execution of definitive documentation relating to
such Third-Party Investment and ten days prior to the consummation thereof to
give written notice to the Investor Representative (the "Investment Notice")
setting forth the definitive material terms and conditions of such investment
(including a statement as to whether the terms and conditions differ materially
from those described in the initial written notice described above) and
attaching definitive copies of each of the agreements and other documents to be
entered into between the Company and any of its Affiliates and the Third-Party
Investors in connection with such Third-Party Investment (which agreements and
other documents shall include appropriate provisions relating to the
participation of the Investors who have previously agreed to participate in the
investment), such that such agreements and other documents may be executed by
the Investors who agreed to participate in such investment, and provided that
any representations, warranties and covenants of such Investors (or their
investment Affiliates) shall be made severally in proportion to their respective
actual participation in such investment). In the event that any of the
consideration to be paid by the Third-Party Investors in connection with such
Applicable Third-Party Investment consists of property other than cash, such
notice also shall
10
also include such Operating Subsidiary's good faith and reasonable determination
of the fair market value of such property, including the calculations (in
reasonable detail) used in making such determination. The Company promptly shall
cause the applicable Operating Subsidiary to provide to the Investor
Representative such additional information as they may reasonably request (which
information previously has been provided or was otherwise available to the
Third-Party Investors) in connection with evaluating the proposed Third-Party
Investment, including without limitation information relating to the valuation
of any non-cash consideration to be paid by the Third-Party Investors.
(c) In connection with each Applicable Third-Party Investment, any
Investors who agreed to participate in a timely fashion following the Investor
Representative's receipt of the first written notice described in Section 1.4(b)
above) shall in the aggregate invest (or cause their respective Affiliates to
invest) in the applicable Operating Subsidiary, on the same terms and conditions
as the investment to be made by the Third-Party Investors (except as provided
below), an amount equal to the lesser of (i) 10% of the total value to be
invested in connection with such Applicable Third-Party Investment (including
the amount to be invested by the Investors and their Affiliates) or (ii) the
aggregate purchase price under the Subsidiary Stock Purchase Rights relating to
the applicable Operating Subsidiary, with each such Investor investing (or
causing its Affiliates to invest) its pro rata share of such amount (based upon
the relative ownership by such Investors making (or causing their Affiliates to
make) such investment of the Subsidiary Stock Purchase Rights relating to such
Operating Subsidiary at the time of execution of the definitive documentation
relating to such Applicable Third-Party Investment), provided that, in the event
that the definitive terms and conditions included in the Investment Notice and
the definitive documentation for such investment differ in any material respect
from the anticipated terms and conditions set forth in the first written notice
described in Section 1.4(b) above, each Investor originally agreeing to
participate (or to cause its Affiliates to participate) in such investment shall
have the right to opt out of such investment within two business days following
its receipt of the Investment Notice; provided, however, that, in the event the
Third-Party Investors are to invest any property other than cash, such property
will be valued (A) at the value set forth in the Investment Notice, in the case
of non-cash consideration having an aggregate value of $1 million or less, (B)
at the price at which such non-cash consideration is valued by the Third-Party
Investors for purposes of cash sales to third-parties in the ordinary course of
their businesses (if applicable), or in the case of other property that has an
independent third-party valuation, at such valuation (provided in each case that
such valuation is the valuation being used by the Company for purposes of
valuing such consideration), or (C) otherwise at its fair market value as set
forth in the Investment Notice, if the Investor Representative on behalf of the
Investors does not object within five business days of its receipt of the
written notice of such valuation from the Company, or as determined pursuant to
the Dispute Resolution Mechanism, in the case of such an objection, and in each
case the Investors (or their Affiliates designated by such Investors) will have
the right to make their allocable
11
portion of such investment in cash; and provided, further, that, in the event
that any Investor elects not to participate (or to permit its Affiliates to
participate) in such Third-Party Investment, the other Investors shall have the
right to make an additional investment (in addition to their respective pro rata
original shares of such investment) equal to their respective pro rata shares of
such declined portion of the investment (such that the investing Investors (and
their Affiliates) as a group shall have the right to invest the entire aggregate
investment amount originally available to the Investors); and provided, further,
that the rights described in this Section 1.4 shall be incremental to, and not
in replacement of, the right of the Investors subsequently to purchase common
stock pursuant to the Subsidiary Stock Purchase Rights relating to such
Operating Subsidiary.
(d) If one or more of the Investors elects to participate (or to
permit one or more of its Affiliates to participate) in the Third-Party
Investment by delivery to the Company of an irrevocable written notice not less
than two business days prior to the date set forth in the Investment Notice for
the execution of definitive documentation indicating such Person's exercise of
its rights under this Section 1.4 and setting forth the dollar amount of its
investment commitment (including whether it desires to make any additional
investment to the extent that other Investors decline to participate (or permit
their Affiliates to participate) in such investment), then the Company shall
cause the applicable Operating Subsidiary to enter into with such electing
Investors (or their Affiliates designated by such Investors) the definitive
agreements and other documents relating to such Applicable Third-Party
Investment at the time such agreements and other documents are entered into with
the Third-Party Investors (provided that any material changes to such agreements
and other documents from the forms thereof attached to the Investment Notice
shall result in the Investors having an additional two business days from their
receipt of a supplemental written notice setting forth such changes to determine
whether to continue to participate in such investment); provided, however, that
the Company shall cause the applicable Operating Subsidiary to make such changes
to the agreements and other documents relating to such Third-Party Investment
(solely for purposes of the investment to be made by the Investors or their
Affiliates) as may be reasonably requested in good faith in writing by any of
the Investors (or Affiliates thereof) participating in such investment prior to
execution thereof to the extent that such changes are required for regulatory
reasons particular to such investors (e.g, venture capital operating company
considerations) or otherwise to reflect factual circumstances particular to such
investors (e.g., required time periods for capital drawdowns or "phantom income"
considerations), provided that any such changes are not materially adverse to
the Company or its Subsidiaries.
(e) The Company agrees that, in the event that prior to the Specified
Date applicable to an Operating Subsidiary, any shares of capital stock or
securities exercisable or exchangeable for or convertible into shares of capital
stock of such Operating Subsidiary are
12
issued or granted to any Person (other than (i) pursuant to a Working Capital
Contribution, (ii) securities issued to Silver Lake or any of its Affiliates
controlled by or under common control with Silver Lake and (iii) grants of
employee options and issuances of shares upon the exercise of such employee
options), such issuance or grant shall be dilutive to the Company with respect
to its ownership of capital stock in such Operating Subsidiary on a pro rata
basis with the dilution to the holders of such Operating Subsidiary's Subsidiary
Stock Purchase Rights and IPO Valuation Warrants (unless the Majority Investors
shall otherwise consent in writing).
(f) The parties hereto acknowledge and agree that the aggregate
number of shares of common stock of each Operating Subsidiary that will be
issuable as of the Closing pursuant to the Subsidiary Stock Purchase Rights
relating to such Operating Subsidiary (as set forth on Schedule A hereto) has
been determined based upon a number of outstanding employee options as of the
Closing equal to 20.0% of the diluted capital stock of such Operating Subsidiary
(counting for such purpose all capital stock of such Operating Subsidiary to be
owned as of the Closing by the Company, to be issued in connection with the
Compaq Investment (in the case of Aprisma), issuable pursuant to the exercise of
such employee options and issuable pursuant to such Subsidiary Stock Purchase
Rights), and the aggregate number of shares of common stock of such Operating
Subsidiary issuable pursuant to its Subsidiary Stock Purchase Rights shall not
be reduced in the event that any or all of such employee options, shares
issuable pursuant to the exercise thereof or shares issuable to Compaq (in the
case of Aprisma) have not been issued as of or at any time following the
Closing. The parties hereto further agree that, in the event that as of
immediately prior to the purchase of common stock under the Subsidiary Stock
Purchase Rights relating to an Operating Subsidiary, the number of shares of
capital stock issuable pursuant to outstanding options, warrants or other
securities or rights convertible into or exercisable for capital stock or other
securities of such Operating Subsidiary (whether or not then vested or otherwise
exercisable) that are then held by directors, officers, employees or consultants
of the Company or any of its Affiliates, together with all shares of capital
stock previously issued upon the exercise of any such securities or rights or
otherwise previously granted or issued to directors, officers, employees or
consultants of the Company or any of its Affiliates, exceeds 20.0% of the then-
existing diluted capital stock of such Operating Subsidiary (the total number of
such shares of capital stock, the "Outstanding Employee Shares" of such
Operating Subsidiary, and the number of such shares of capital stock in excess
of such 20.0% level, the "Outstanding Incremental Employee Shares" of such
Operating Subsidiary), the number of shares of such Operating Subsidiary's
common stock issuable pursuant to the purchase of common stock under its
Subsidiary Stock Purchase Rights shall be increased (ratably among its Callable,
First-Tier, Second-Tier and Third-Tier Optional Subsidiary Stock Purchase Rights
based upon the number of shares of common stock previously issuable pursuant
thereto, and without any increase in the aggregate exercise prices under any of
such Subsidiary Stock Purchase Rights) as follows:
13
(i) With respect to Outstanding Incremental Employee Shares which cause the
total number of Outstanding Employee Shares to be in excess of 20.0% but less
than or equal to 23.0% of the diluted capital stock of such Operating Subsidiary
(taking into account the additional shares issuable pursuant to this Section
1.4(f)), the number of shares of such Operating Subsidiary's common stock
issuable pursuant to the purchase of common stock under its Subsidiary Stock
Purchase Rights shall be increased by the number of shares equal to the product
of (A) .50, multiplied by (B) the number of shares of common stock required to
prevent the shares of common stock issuable under such Operating Subsidiary's
Subsidiary Stock Purchase Rights from decreasing as a percentage of the diluted
capital stock of such Operating Subsidiary as a consequence of the Outstanding
Incremental Employee Shares of such Operating Subsidiary described in this
subsection (i); and
(ii) With respect to Outstanding Incremental Employee Shares which cause
the total number of Outstanding Employee Shares to be in excess of 23.0% of the
diluted capital stock of such Operating Subsidiary (taking into account the
additional shares issuable pursuant to this Section 1.4(f)), the number of
shares of such Operating Subsidiary's common stock issuable pursuant to the
purchase of common stock under its Subsidiary Stock Purchase Rights shall be
further increased by the number of shares of common stock required to prevent
the shares of common stock issuable under such Operating Subsidiary's Subsidiary
Stock Purchase Rights from decreasing as a percentage of the diluted capital
stock of such Operating Subsidiary as a consequence of the Outstanding
Incremental Employee Shares of such Operating Subsidiary described in this
subsection (ii)
Schedule 1.4(f) hereto sets forth examples that illustrate the anti-dilution
calculations described above in Sections 1.4(f)(i) and (ii). The examples
contain assumptions concerning the number of Outstanding Incremental Employee
Shares at the time calculations are to be made under this Section 1.4(f) and the
number of additional shares previously issued to the Company, the Investors and
third parties. The actual number of Outstanding Incremental Employee Shares and
the number of additional shares issued to the Company, the Investors and third
parties after the date hereof would be used in performing the calculations
described above.
SECTION 1.5. Flip-Up Events; Issuance of Replacement Warrants. (a)
In the event that, prior to the time an Operating Subsidiary consummates the
earlier of a Pre-Spin-Off IPO, Spin-Off or Third-Party Sale, (i) the Company
determines to recombine a majority of the assets of such Operating Subsidiary
with the Company in a single transaction or series of related transactions, (ii)
the Company (A) informs the holders of such Operating Subsidiary's Subsidiary
Stock Purchase Rights in writing that such Operating Subsidiary no longer has a
present intention to engage in a Pre-Spin-Off IPO, a Spin-Off or a Third-Party
Sale or (B) the Company
14
grants or otherwise issues to the employees of such Operating Subsidiary options
or other rights to acquire capital stock of the Company in consideration
(directly or indirectly) of the cancellation or other relinquishment of
substantially all of such employees' options to acquire capital stock of such
Operating Subsidiary (and the Company shall notify the holders of an Operating
Subsidiary's Subsidiary Stock Purchase Rights in writing in such event), or
(iii) a third party acquires all or substantially all of the capital stock or
assets of the Company (whether by equity purchase, asset purchase, merger,
exchange offer or otherwise, and including without limitation a merger where the
Company is the survivor but the stockholders of the Company immediately prior to
such event do not own a majority of the outstanding voting power of the Company
immediately following such event) (a "Company Sale") (any event described in
clause (i), (ii) or (iii), a "Purchase Right Flip-Up Event" with respect to such
Operating Subsidiary (or, in the case of clause (iii), with respect to all
Operating Subsidiaries not having previously engaged in a Pre-Spin-Off IPO,
Spin-
Off or Third-Party Sale), the Subsidiary Stock Purchase Rights relating to such
Operating Subsidiary shall be canceled and in replacement therefor, the holders
of such Subsidiary Stock Purchase Rights shall at that time be issued by the
Company additional warrants to purchase Common Stock (the "Replacement
Warrants") having the terms described below and otherwise in the form of the
Parent Warrants; provided, however, that if, following a Purchase Right Flip-Up
Event of the type described in clause (i) or (ii) above and prior to the third
anniversary of the Closing, the Company again determines to transfer any of such
Operating Subsidiary's former businesses into a Subsidiary and engage in an
initial public offering and/or spin-off or third-party sale of such Subsidiary's
capital stock (in the case of clause (i) above), or to cause such Operating
Subsidiary to engage in a Pre-Spin-Off IPO, Spin-Off or Third-Party Sale (in the
case of clause (ii) above), the applicable Holding Partnership(s) shall be
issued new Subsidiary Stock Purchase Rights with respect to such Subsidiary on
terms equivalent to those of the Subsidiary Stock Purchase Rights previously
canceled (and any outstanding Replacement Warrants previously issued in
replacement therefor will be canceled in consideration of such issuance). The
Company agrees to use reasonable efforts in connection with any Purchase Right
Flip-Up Event to effect such event in a manner that is tax-efficient for the
recipients of Replacement Warrants (to the extent practicable).
(b) In connection with any Purchase Right Flip-Up Event, the Company
shall inform the holders of the related Subsidiary Stock Purchase Rights in
writing of the valuation being assigned by the Company to the Operating
Subsidiary or Operating Subsidiaries involved in such Purchase Right Flip-Up
Event (including all calculations relating to such valuation set forth in
reasonable detail and any material underlying documentation relating to such
calculations) for purposes of valuing employee options issued by such Operating
Subsidiary or Operating Subsidiaries in connection with replacing such options
with new Company employee options, if applicable, and if the Company is not
preparing a valuation for such purpose, the Company shall in good faith prepare
and deliver to such holders a reasonable valuation for the purposes of this
Section 1.5 of the applicable Operating Subsidiary or Operating Subsidiaries
16
(any valuation delivered by the Company under this sentence being referred to as
the "Company Valuation"). In the event that holders representing a majority of
the related Subsidiary Stock Purchase Rights notify the Company in writing
within five business days of the receipt of the Company Valuation that they do
not believe the Company's Valuation to be a reasonable valuation of the fair
market value of such Operating Subsidiary or Operating Subsidiaries then such
valuation shall be determined pursuant to the Dispute Resolution Mechanism;
provided, however, that the Company may inform the Investor Representative prior
to the preparation of a Company Valuation that the Company has determined to
retain an Investment Bank to render a Flip-Up Valuation, in which event the
Company and the Investor Representative shall together select an Investment Bank
pursuant to the Dispute Resolution Mechanism (and submit information to such
bank, to the extent applicable), and such Investment Bank's determination of the
Flip-Up Valuation shall be binding on all parties hereunder. Subject to the
immediately preceding proviso, the Company Valuation, if uncontested by the
holders of such rights, or the valuation determined through the Dispute
Resolution Mechanism, if the Company Valuation was contested, is hereinafter
referred to as the "Flip-Up Valuation".
(c) The Replacement Warrants (i) will be immediately exercisable upon
issuance (provided that they shall in any event become exercisable no later than
immediately prior to the consummation of the triggering third-party acquisition,
in the case of an event described in Section 1.5(a)(iii) above), and will remain
exercisable until the later of (a) the fourth anniversary of the Closing or (b)
the first anniversary of the consummation of the Purchase Right Flip-Up Event
giving rise to the issuance of such Replacement Warrants, (ii) will have an
initial aggregate exercise price equal to the product of (A) 5, multiplied by
(B) the exercise price in effect for the related Callable Subsidiary Stock
Purchase Rights immediately prior to such Purchase Right Flip-Up Event (subject
to the following proviso), (iii) will initially be exercisable for that
percentage of the Company's diluted Common Stock equal to the product of (A)
that percentage of the diluted common stock of the Operating Subsidiary for
which the related Subsidiary Stock Purchase Rights were (or when issued, would
have been) exercisable immediately prior to the consummation of such Purchase
Right Flip-Up Event multiplied by (B) a fraction the numerator of which is the
Flip-Up Valuation and the denominator of which is the sum of the market
capitalization of the Company immediately preceding such Purchase Right Flip-Up
Event and the Flip-Up Valuation, and (iv) otherwise will be on the terms and
conditions set forth in the form of Parent Warrant; provided, however, that, in
the case of a Purchase Right Flip-Up Event described in clause (i) or clause
(ii) of the definition thereof occurring prior to the second anniversary of the
Closing, the initial aggregate exercise price of the Replacement Warrants shall
be discounted, and shall equal the product of (A) 5, multiplied by (B) the
exercise price in effect for the related Callable Subsidiary Stock Purchase
Rights immediately prior to such Purchase Right Flip-Up Event, multiplied by (C)
0.9.
16
SECTION 1.6. IPO Valuation Warrants. (a) In the event that, at the
time an Operating Subsidiary consummates a Pre-Spin-Off IPO, the IPO Valuation
(as defined below) of such Operating Subsidiary exceeds the product of (i) the
Target Valuation for such Operating Subsidiary set forth on Schedule 1.6(a),
multiplied by (ii) 1.1, then such Operating Subsidiary shall issue (and the
Company shall cause such Operating Subsidiary to issue) to the holders of the
Subsidiary Stock Purchase Rights issued by such Operating Subsidiary (or to such
other transferees as the Investors identify to the Company in writing, subject
to the provisions of the Standstill Agreement) at the consummation of such Pre-
Spin-Off IPO additional warrants (the "IPO Valuation Warrants") to purchase
common stock of such Operating Subsidiary having the terms described below and
otherwise in the form attached hereto as Exhibit D.
(b) As used in this Agreement, "IPO Valuation" means, with respect to
any Operating Subsidiary, the product of (i) the gross price per share of common
stock of such Operating Subsidiary paid by the public in such Operating
Subsidiary's Pre-Spin-Off IPO (such Operating Subsidiary's "IPO Price"),
multiplied by (ii) the number of shares of common stock of such Operating
Subsidiary outstanding immediately following such Pre-Spin-Off IPO on a fully
diluted basis.
(c) The IPO Valuation Warrants issued by an Operating Subsidiary (i)
will be exercisable from the date of issuance until the third anniversary of the
date of issuance by the applicable Operating Subsidiary, (ii) will have an
initial exercise price per share equal to the IPO Price with respect to such
Operating Subsidiary, (iii) will be exercisable for that number of shares of
common stock of such Operating Subsidiary equal to (A) the Aggregate Exercise
Price for such Operating Subsidiary set forth on Schedule 1.6(c), divided by (B)
the IPO Price with respect to such Operating Subsidiary and (iv) will otherwise
be on the terms and conditions set forth in Exhibit D hereto.
SECTION 1.7. Subsidiary Warrants. (a) Upon each consummation of a
Spin-Off with respect to an Operating Subsidiary, (i) the exercise price per
share of Common Stock under each of the Class A Parent Warrants, the Class B
Parent Warrants and the Replacement Warrants then outstanding (if any) will be
adjusted downward (but not to less than $.01 per share of Common Stock) pursuant
to the provisions relating thereto contained in the warrant certificates
relating to such warrants (the amount of such downward adjustment with respect
to the exercise price for one share of Common Stock under each such warrant, its
"Strike Price Reduction"), and (ii) the holders of Parent Warrants and
Replacement Warrants (if any) (or holding entities established by such holders,
if so elected by such holders) shall be issued by the applicable Operating
Subsidiary (and the Company shall cause such issuance), in respect of each share
of Common Stock for which a Parent or Replacement Warrant (as applicable) is
exercisable, an additional warrant having the terms described below and
otherwise in the form attached as
17
Exhibit D hereto (the "Subsidiary Warrants") to purchase that number of shares
of common stock of such Operating Subsidiary which would have been received in
such Spin-Off in respect of such share of Common Stock underlying such Parent or
Replacement Warrant if such Parent or Replacement Warrant had been exercised in
full immediately prior to the record date for determining holders of Common
Stock entitled to participate in such Spin-Off.
(b) The Subsidiary Warrants issued in respect of the shares of Common
Stock for which a Parent Warrant or Replacement Warrant (as applicable) is
exercisable (i) shall be exercisable from the date of issuance until the later
of (A) the seventh anniversary of the Closing or (B) the third anniversary of
the Spin-Off in connection with which they were issued, (ii) shall have an
aggregate initial exercise price equal to the Strike Price Reduction with
respect to such Parent Warrant (in the case of Subsidiary Warrants issued in
respect of a Parent Warrant) or a Replacement Warrant (in the case of Subsidiary
Warrants issued in respect of Replacement Warrants) multiplied by the number of
shares of Common Stock for which such Parent Warrant or Replacement Warrant (as
applicable) is exercisable, (iii) shall have a per-share exercise price equal to
the aggregate exercise price for each such Subsidiary Warrant divided by the
number of shares for which such Subsidiary Warrant is exercisable and (iv)
otherwise will be on the terms and conditions set forth in Exhibit D hereto.
SECTION 1.8. Dispute Resolution Mechanism. (a) The parties hereto
acknowledge the need to resolve any disputes arising hereunder that become
subject to the following dispute resolution mechanism quickly and expeditiously,
and agree to work toward such a resolution. In the event that any valuation or
equitable adjustment of rights relating to the procedures and transactions
described in this Article I becomes a subject of disagreement between the
holders of a majority of the rights depending upon such determination and the
Company or one of its Operating Subsidiaries, as applicable, (i) such majority
holders and the Company or such Operating Subsidiary, as applicable, promptly
(and in any event within three business days) shall provide each other with
their respective written proposed valuations or equitable adjustments of rights
(including any supporting documentation and the basis for such position), and
the Company or such Operating Subsidiary (as applicable) and Silver Lake (if it
or its Affiliates hold any such rights), or another representative appointed by
such majority holders (if Silver Lake and its Affiliates do not hold any of such
rights) (in either such case, the "Investor Representative") shall promptly (and
in any event within three business days after the receipt of the other's
respective proposed valuation or equitable adjustment) commence negotiating in
good faith to reach agreement as to an agreed-upon valuation or equitable
adjustment of rights (and any such agreement shall be binding upon the Company
or such Operating Subsidiary, as applicable, and all of the holders of the
rights depending upon such determination), and (ii) in the event that they fail
to reach agreement within five business days following commencement of such
negotiations, such valuation or equitable adjustment of rights shall be
determined as follows: (A) the Company or Operating Subsidiary, as applicable,
and the Investor
18
Representative promptly (and in any event within three business days thereafter)
shall together retain a nationally recognized investment banking firm (the
"Investment Bank") that has had no material business relationships with the
Company or the majority holders of the rights depending upon such determination
during the preceding one-year period (unless they shall at the time mutually
agree to select an Investment Bank having such business relationships), (B) the
Company or Operating Subsidiary, as applicable, promptly shall submit to such
Investment Bank the proposed valuation or equitable adjustment of rights that it
first provided to such majority holders (including any supporting documentation
provided to such majority holders), (C) the Investor Representative shall submit
to such Investment Bank the proposed valuation or equitable adjustment of rights
that the majority holders first provided to the Company or Operating Subsidiary,
as applicable (including any supporting documentation provided by such majority
holders), and (D) such Investment Bank promptly (but in the case of any event
described in clause (iii) of the definition of Purchase Right Flip-Up Event, no
later than two business days prior to the consummation of such event, and in any
event within ten business days, in each case to the extent reasonably achievable
by such Investment Bank) shall select whichever of such two proposed valuations
or equitable adjustments of rights is closer to its determination of the correct
valuation or equitable adjustment of rights, which selected valuation or
equitable adjustment of rights shall be binding upon the Company or such
Operating Subsidiary, as applicable, and all of the holders of the rights
depending upon such determination (with the Company or such Operating
Subsidiary, as applicable, paying the fees and expenses of the Investment Bank
if the majority holders' valuation or equitable adjustment of rights is selected
and the majority holders of such rights paying such fees and expenses if the
Company's or Operating Subsidiary's, as applicable, valuation or equitable
adjustment of rights is selected (and the other holders of such rights shall
reimburse the majority holders therefore pro rata based upon their respective
ownership of such rights)).
(b) In the event that the Dispute Resolution Mechanism is required to
determine any valuation or equitable adjustment of rights under this Article I,
or in the event that regulatory or other third-party approvals are required to
be obtained by any holder of rights under this Article I in connection with any
transaction, if the action to be taken by the Company that has given rise to
such dispute or need for such approvals is scheduled to be consummated prior to
completion of the resolution of such dispute pursuant to the Dispute Resolution
Mechanism or receipt of such approvals, as applicable, such action may be taken
by the Company in its discretion prior to such resolution or receipt, and the
rights of such holders under this Article I shall be preserved and shall be
effected following the consummation of such action by the Company when such
dispute has been resolved pursuant to the Dispute Resolution Mechanism or such
approvals have been obtained, as applicable.
SECTION 1.9. Allocation of Purchase Price. Within forty-five days
following the Closing, the Company and Silver Lake shall cooperate in all
commercially reasonable
19
respects to together determine in writing the appropriate allocation of the
Purchase Price among the securities described in Section 1.2 hereof for tax
purposes (the "Allocation"). Upon completion of the Allocation, the Company
shall pay over in cash to each Operating Subsidiary (as agent for such Operating
Subsidiary, and not as a capital contribution to, or in respect of the issuance
of additional securities by, such Operating Subsidiary) that portion of the
Purchase Price that the Company received pursuant to Section 1.2 hereof as agent
for such Operating Subsidiary in respect of the sale by such Operating
Subsidiary to the Investors of such Operating Subsidiary's Subsidiary Stock
Purchase Rights, Subsidiary Warrants (if any) and IPO Valuation Warrants (if
any) hereunder.
SECTION 1.10. No Obligation to Engage in Spin-Offs. The parties
hereto acknowledge and agree that the Company has no obligation to engage in any
of the Pre-Spin-Off IPOs or Spin-Offs. The parties hereto further acknowledge
and agree that the Company shall continue to have the full right to deal with
the Operating Subsidiaries as it shall determine in its sole discretion, subject
to the express provisions of this Agreement relating to such dealings (including
Section 1.3(a) and Section 1.3(b) hereof); provided, however, that the rights of
the Investors (including the right to participate in any such transaction or
other dealing) shall be as expressly set forth herein; and provided, further,
that the Company agrees that all decisions concerning the timing of each of the
Pre-Spin-Off IPOs and Spin-Offs shall require the approval of the Board.
ARTICLE II
CLOSING, DELIVERY AND PAYMENT
SECTION 2.1. Closing. Subject to the prior satisfaction or waiver of
the conditions set forth in Section 7, the closing of the sale and purchase of
the Shares, the Parent Warrants, the Subsidiary Stock Purchase Rights and the
right to receive Replacement Warrants (if any), IPO Valuation Warrants (if any)
and Subsidiary Warrants (if any) (the "Closing") shall take place on August 29,
2000 at the offices of Xxxxxxx Xxxxxxx & Xxxxxxxx, 000 Xxxxxxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, or at such other time or place as the Company and the
Majority Investors may mutually agree (such date is referred to herein as the
"Closing Date").
SECTION 2.2. Delivery. (a) At the Closing, subject to the terms
and conditions hereof, (i) the Company shall deliver to the Investors all of the
Shares and all of the Parent Warrants to be purchased in accordance with Section
1.2 by delivery of certificates evidencing the Shares and the Parent Warrants
and (ii) the Company shall cause each Operating Subsidiary to deliver to the
Investors all of the Subsidiary Stock Purchase Rights to be purchased in
accordance with Section 1.2 by delivery of certificates evidencing such
Subsidiary Stock
20
Purchase Rights, in each case free and clear of any Encumbrances (as hereinafter
defined) other than those imposed by federal or state securities laws or created
by the Standstill Agreement or otherwise placed thereon by or on behalf of the
Investors, and the Investors shall make payment to the Company and the
applicable Operating Subsidiaries, as applicable, of the aggregate purchase
price therefor by wire transfer of immediately available funds to an account
designated by the Company to the Investors at least two busiess days prior to
the Closing Date.
(b) In the circumstances and at the times herein set forth, subject to
the terms and conditions hereof, (i) the Company shall deliver to the holders of
the related Subsidiary Stock Purchase Rights all of the Replacement Warrants (if
any) to be issued in accordance with Section 1.2, by delivery of certificates
evidencing the Replacement Warrants, (ii) the Company shall cause each Operating
Subsidiary to deliver to the holders of the related Subsidiary Stock Purchase
Rights (or their transferees, subject to the transfer restrictions contained in
the Standstill Agreement), the IPO Valuation Warrants (if any) to be issued in
accordance with Section 1.2, by delivery of certificates evidencing the IPO
Valuation Warrants and (iii) the Company shall cause each Operating Subsidiary
to deliver to the holders of the Shares (or to holding entities established by
such holders, if so elected by such holders) all of the Subsidiary Warrants (if
any) to be issued in accordance with Section 1.2, by delivery of certificates
evidencing such Subsidiary Warrants, in each case free and clear of any
Encumbrances (as hereinafter defined) other than those imposed by federal or
state securities laws or created by the Standstill Agreement or otherwise placed
thereon by or on behalf of the Investors.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investors, as of the
date hereof and as of the Closing Date (except to the extent otherwise expressly
stated herein), as follows:
SECTION 3.1. Organization, Good Standing and Qualification. Each of
the Company and each of its Subsidiaries is a corporation or other entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or formation, as the case may be, and has all
requisite corporate (or other applicable) power and authority to own, lease and
operate its properties and assets and to carry on its business as currently
conducted. The Company and each of the Operating Subsidiaries has all requisite
corporate power and authority (including without limitation the approval of its
shareholders) to execute and deliver this Agreement and each of the other
Transaction Documents to which it is a party, to consummate the transactions
contemplated hereby and thereby and to perform its obligations
21
hereunder and thereunder (subject, in the case of consummation of the Pre-Spin-
Off IPOs and Spin-Offs, to such additional Board and/or shareholder approvals as
may be required to be obtained in connection therewith). Each of the Company and
its Subsidiaries is duly qualified and authorized to do business and in good
standing as a foreign corporation or other entity in all jurisdictions in which
the character or location of its activities and of the properties owned or
operated by it makes such qualification necessary, other than any failures
which, individually or in the aggregate, would not have a Material Adverse
Effect. The Company has made available to the Investors a complete and correct
copy of the Company's and each Operating Subsidiary's Certificate of
Incorporation and By-Laws, in each case as amended through the date hereof.
SECTION 3.2. Capitalization. (a) The capitalization of the Company
consists solely of the following: (i) As of the date hereof, 240,000,000
authorized shares of Common Stock, and as of the Closing, 450,000,000 authorized
shares of Common Stock; (ii) 184,191,181 shares of Common Stock were issued and
outstanding as of June 30, 2000; (iii) as of the date of this Agreement,
6,609,836 shares of Common Stock are reserved for future issuance to employees
pursuant to stock options under stock option plans of the Company, and
13,700,798 employee stock options are outstanding; (iv) 2,908,333 shares of
Common Stock are reserved for future issuance upon the conversion of the
convertible securities issuable pursuant to this Agreement; (v) 1,910,000
authorized shares of "blank check" preferred stock, par value $1.00 per share,
none of which are issued and outstanding; (vi) upon filing of the Certificate of
Designation, 65,000 authorized shares of Series A Participating Convertible
Preferred Stock, none of which are issued and outstanding prior to issuance
under this Agreement; and (vii) upon filing the Certificate of Designation,
25,000 authorized shares of Series B Participating Convertible Preferred Stock,
none of which are issued and outstanding prior to issuance under this Agreement.
Except as described in the preceding sentence, the Company has outstanding no
options, warrants or other securities or rights convertible into or exercisable
for Common Stock or other securities of the Company. Since February 23, 2000,
the Company has not paid any dividends or made any other distributions of cash
or other property in respect of its outstanding capital stock.
(b) As of the Closing, the capitalization of Aprisma will consist
solely of the following: (i) 160,334,333 authorized shares of common stock, of
which 1,000 shares will be issued and outstanding; (ii) 785,556 authorized
shares of Series B Convertible Preferred Stock, all of which will be issued in
connection with the Compaq Investment (either prior to or following the Closing)
and convertible into 785,556 shares of common stock of Aprisma as of such
issuance (and as of the Closing, if such issuance occurs prior to the Closing)
and thereafter (subject to adjustment following the Closing upon the adjustment
events (if any) set forth in the documentation relating thereto provided to
Silver Lake prior to the date of this Agreement); and (iii) 38,491,222
authorized shares of Series A Convertible Preferred Stock, all of which will be
issued and outstanding, owned of record and beneficially by the Company and
convertible into
20
38,491,222 shares of common stock of Aprisma as of the Closing. As of August 25,
2000, there were issued and outstanding employee options to acquire 8,230,614
shares of common stock of Aprisma. Except as described in the preceding two
sentences and any employee options issued after August 25, 2000, Aprisma has
outstanding no options, warrants or other securities or rights convertible into
or exercisable for common stock or other securities of Aprisma.
(c) As of the Closing, the capitalization of Riverstone will consist
solely of the following: (i) 157,000,100 authorized shares of common stock, of
which 100 shares will be issued and outstanding; and (ii) 92,088,135 authorized
shares of Series A Convertible Preferred Stock, all of which will be issued and
outstanding, owned of record and beneficially by the Company and convertible
into 92,088,135 shares of common stock of Riverstone as of the Closing. As of
August 25, 2000, there were issued and outstanding employee options to acquire
28,320,800 shares of common stock of Riverstone. Except as described in the
preceding two sentences and any employee options issued after August 25, 2000,
Riverstone has outstanding no options, warrants or other securities or rights
convertible into or exercisable for common stock or other securities of
Riverstone.
(d) As of the Closing, the capitalization of GNTS will consist solely
of the following: (i) 164,667,667 authorized shares of common stock, of which
1,000 shares will be issued and outstanding; and (ii) 34,985,928 authorized
shares of Series A Convertible Preferred Stock, all of which will be issued and
outstanding, owned of record and beneficially by the Company and convertible
into 34,985,928 shares of common stock of GNTS as of the Closing. As of August
25, 2000, there were issued and outstanding employee options to acquire
11,159,634 shares of common stock of GNTS. Except as described in the preceding
two sentences and any employee options issued after August 25, 2000, GNTS has
outstanding no options, warrants or other securities or rights convertible into
or exercisable for common stock or other securities of GNTS.
(e) As of the Closing, the capitalization of Enterasys will consist
solely of the following: (i) 129,834,833 authorized shares of common stock, of
which 1,000 shares will be issued and outstanding; and (ii) 79,379,224
authorized shares of Series A Convertible Preferred Stock, all of which will be
issued and outstanding, owned of record and beneficially by the Company and
convertible into 79,379,224 shares of common stock of Enterasys as of the
Closing. As of August 25, 2000, there were issued and outstanding employee
options to acquire 25,442,550 shares of common stock of Enterasys. Except as
described in the preceding two sentences and any employee options issued after
August 25, 2000, Enterasys has outstanding no options, warrants or other
securities or rights convertible into or exercisable for common stock or other
securities of Enterasys.
23
(f) The Shares, the Parent Warrants and the Replacement Warrants have
been duly and validly authorized by the Company, the Conversion Shares to be
issued by the Company have been duly and validly reserved for issuance by the
Company, and the Subsidiary Stock Purchase Rights, the IPO Valuation Warrants
and the Subsidiary Warrants relating to each Operating Subsidiary and the
Conversion Shares to be issued by such Operating Subsidiary upon the purchase of
common stock thereunder have been duly and validly authorized by the Company and
such Operating Subsidiary, and when the Shares, the Parent Warrants, the
Replacement Warrants, the Subsidiary Stock Purchase Rights, the IPO Valuation
Warrants and the Subsidiary Warrants and the Conversion Shares are issued in
accordance with the provisions of this Agreement, such shares and warrants will
be duly authorized, validly issued, fully paid and nonassessable and will be
delivered to the Investors free and clear of all Encumbrances (other than those
imposed by federal or state securities laws or created by the Standstill
Agreement or otherwise placed thereon by or on behalf of the Investors) and will
have the rights, preferences, privileges and restrictions set forth in the
Certificate of Designation, this Agreement, the Parent Warrants, the Replacement
Warrants, the Subsidiary Stock Purchase Rights, the IPO Valuation Warrants, the
Subsidiary Warrants and the Company's Certificate of Incorporation, as
applicable.
SECTION 3.3. Authorization; Binding Obligations; Consents. (a) All
corporate action on the part of the Company, each of the Operating Subsidiaries
and their respective officers, directors and stockholders necessary for the
execution and delivery of this Agreement and each of the other Transaction
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby to be effected at or prior to the Closing
(including without limitation the Transformation, except in the case of the Pre-
Spin-Off IPOs and Spin-Offs, for such internal corporate approvals as may be
required for consummation (provided that no further approvals of the
stockholders of the Company will be required for the consummation of the Pre-
Spin-Off IPOs) and the performance of all obligations of the Company and the
Operating Subsidiaries hereunder and thereunder has been taken. This Agreement
and each of the other Transaction Documents to which it is a party have been, or
when executed at or prior to the Closing will be, as applicable, duly executed
and delivered by the Company and each Operating Subsidiary that is a party
thereto. This Agreement and each of the other Transaction Documents to which
the Company or any Operating Subsidiary is a party (assuming in each case due
execution and delivery by the Investors, if applicable) is, or when executed at
or prior to the Closing will be, as applicable, a legal, valid and binding
obligation of the Company and each Operating Subsidiary that is a party thereto,
enforceable against the Company and each such Operating Subsidiary, as
applicable, in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
24
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Federal, state or local government
or any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign, or other governmental entity, is
required by or with respect to the Company or any of its Subsidiaries (including
without limitation the Operating Subsidiaries) in connection with the execution
and delivery of this Agreement and each of the other Transaction Documents to
which it is a party or the consummation by the Company and each of the Operating
Subsidiaries of the transactions contemplated hereby and thereby (including
without limitation the Transformation), except for (i) the filing of a premerger
notification and report form by the Company under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing
by the Company and the Operating Subsidiaries with the SEC of such reports under
the Exchange Act as may be required in connection with this Agreement and the
other Transaction Documents and the transactions contemplated hereby and thereby
to be effected at or prior to the Closing, and filings required to be made
pursuant to the rules of The New York Stock Exchange, and (iii) filings by the
Company and the Operating Subsidiaries with the SEC under the Securities Act and
the Exchange Act, and such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices as may be required to be
obtained or made by the Company and the Operating Subsidiaries, in connection
with their respective Pre-Spin-Off IPOs and Spin-Offs (all of which shall have
been obtained prior to the consummation thereof, except to the extent the
failure to obtain any of them would not, individually or in the aggregate, have
a Material Adverse Effect).
SECTION 3.4. SEC Reports; Financial Statements. (a) The Company has
filed with the Securities and Exchange Commission (the "SEC") all forms,
reports, schedules, proxy statements (collectively, and in each case including
all exhibits and schedules thereto and documents incorporated by reference
therein and including all registration statements and prospectuses filed with
the SEC in connection with the Company's initial public offering, the "SEC
Reports") required to be filed by the Company with the SEC since March 1, 1999.
As of its date of filing, except to the extent otherwise disclosed in
subsequently filed SEC Reports, each SEC Report complied in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or the Securities Act of 1933, as amended (the
"Securities Act"), as applicable, and the rules and regulations promulgated
thereunder, and, except to the extent revised or superseded by a subsequent
filing with the SEC prior to the date hereof, none of such SEC Reports
(including any and all financial statements included therein) contained when
filed or contains any untrue statement of a material fact or omitted or omits to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
25
(b) Except to the extent otherwise disclosed in subsequently filed
SEC Reports filed and publicly available prior to the date of this Agreement,
each of the consolidated financial statements (including the notes thereto)
included in the SEC Reports complied as to form, as of its date of filing with
the SEC, in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, has been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly presents, in all material
respects, the consolidated financial position of Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited financial statements, to (i) normal year-end adjustments and (ii) the
absence of footnote disclosure required to be included in audited financial
statements, which together are not in the aggregate material).
(c) With respect to each of Aprisma, Riverstone, GNTS and Enterasys,
the information contained with respect to such Operating Subsidiary in its
statements of operations attached as Schedule 3.4(c) hereto for the quarter
ended June 3, 2000, the year ended February 29, 2000 and the quarters ended on
or about May 31, 1999, August 31, 1999, November 30, 1999 and February 29, 2000,
in each case has been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly presents, in all material respects, the results of
operations of the business of such Operating Subsidiary (consolidated with its
Subsidiaries, if any) for the periods then ended (subject to (i) normal year-end
adjustments and, in the case of the quarters ending on or about August 31, 1999,
November 30, 1999 and February 29, 2000, SAS 71 reviews, and (ii) the absence of
footnote disclosure required to be included in audited financial statements,
which together are not in the aggregate material with respect to any such
Operating Subsidiary) (the financial statements and other financial information
described in this Section 3.4(c) with respect to each Operating Subsidiary, its
"Break-Out Financials").
(d) With respect to each Operating Subsidiary, the statements of
operations (consolidated with its Subsidiaries, if any) for the periods covered
by its Break-Out Financials required to be included in the financial statements
included in its Registration Statement on Form S-1 filed under the Securities
Act with respect to an initial public offering, or in its Form 10 filed under
the Exchange Act with respect to the spin-off of its capital stock by the
Company, as applicable, will not be required to be materially restated with
respect to the financial information included in its Break-Out Financials for
any such period.
(e) Except for liabilities included or reserved for in the audited
consolidated balance sheet of the Company for the quarter ended June 3, 2000
(the "Balance Sheet") included in the Company's quarterly report on Form 10-Q
filed for the quarter ended June 3, 2000, at June 3, 2000 neither the Company
nor any of its Subsidiaries had, and since such date none of them
26
has incurred, any liabilities or any other obligations required to be included
on or reserved against on a balance sheet prepared in accordance with GAAP,
except liabilities incurred in the ordinary course of business or in connection
with the Transformation subsequent to June 3, 2000 which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
SECTION 3.5. Agreements; Action. (a) Neither the Company nor any of
its Subsidiaries is, nor to the Company's knowledge is any other party thereto,
in material default under, or in material breach or material violation of, any
of the Company's and its Subsidiaries' "material contracts" within the meaning
of Item 601 of Regulation S-K of the SEC (which shall, solely for purposes of
this Agreement, be deemed to include the Transformation Documents (as defined
below)) ("Material Contracts"), and, to the knowledge of the Company, no event
has occurred which, with the giving of notice or passage of time or both would
constitute a material default by the Company or any other party under any
Material Contract. Each of the Material Contracts is in full force and effect.
(b) Neither the Company nor any of its Subsidiaries is bound by any
agreement that materially would restrict its ability to honor the terms of the
Shares, the Parent Warrants, the Replacement Warrants, the Subsidiary Stock
Purchase Rights, the IPO Valuation Warrants or the Subsidiary Warrants or to
engage in the Pre-Spin-Off IPOs or the Spin-Offs.
(c) The Company has delivered to the Investors prior to the date of
this Agreement true and correct copies of the Transformation Agreement and each
of the other material contracts or other agreements between or among the Company
and/or any of the Operating Subsidiaries (collectively, the "Transformation
Documents").
SECTION 3.6. Changes. (a) Except as set forth in the SEC Reports
filed and publicly available prior to the date hereof, since June 3, 2000, no
event, change or circumstance has occurred which has had, or would reasonably be
expected to result in, a Material Adverse Effect.
(b) Since June 3, 2000, neither the Company nor any of its
Subsidiaries has taken any action or omitted to take any action, and there has
not occurred any event which, if it had taken place following the date hereof
and prior to the Closing, would not have been permitted by Sections 5.1(b)(i),
5.1(b)(ii) or 5.1(b)(iii) of this Agreement without the prior consent of the
Investors.
SECTION 3.7. Intellectual Property. Except in each case for
exceptions which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect or as described in Schedule 3.7
hereto: (i) The Company and its Subsidiaries own or have
27
the valid right to use all the Intellectual Property necessary or desirable to
conduct their businesses as currently conducted and consistent with past
practice, free of all known Encumbrances; (ii) all of the Company's and its
Subsidiaries' Intellectual Property is, in the case of registered Intellectual
Property, valid and enforceable, and to the Company's knowledge, in all cases
does not infringe, impair or make unauthorized use of the Intellectual Property
of any third party and is not being infringed, impaired or used without
authorization by any third party; and (iii) no Order or claim, action, suit,
audit, assessment, arbitration or inquiry, or any proceeding or, to the
Company's knowledge, investigation, by or before any governmental authority
(other than patent prosecutions before the U.S. Patent and Trademark Office) (an
"Action") is outstanding or pending, or to the Company's knowledge, threatened
or imminent, that would limit or challenge the ownership, use, value, validity
or enforceability of any of the Company's or its Subsidiaries' Intellectual
Property.
SECTION 3.8. Compliance with Law; Other Instruments. (a) Neither the
Company nor any of the Operating Subsidiaries is in violation or default under
the Certificate of Incorporation or By-Laws of the Company or the organizational
documents of any Operating Subsidiary. Neither the Company nor any of its
Subsidiaries is, or since March 1, 1999 has been, in violation or default under
(i) the Certificate of Incorporation or By-Laws of the Company or the
organizational documents of any Subsidiary or (ii) of any judicial or
administrative judgment, decision, decree, order, settlement, injunction, writ,
stipulation, determination or award (each, an "Order") or any statute, law,
ordinance, rule or regulation (each, a "Law") (in each case including without
limitation with respect to the Transformation and the steps previously taken and
to be taken in connection therewith), and to the knowledge of the Company, no
investigation or review is in process or threatened by any governmental
authority with respect to, any violation or alleged violation of any Order or
Law, other than (in the case of all of the matters described in this sentence)
where such violation or default would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(b) The execution, delivery and performance of this Agreement and each
of the other Transaction Documents by the Company and each of the Operating
Subsidiaries, as applicable, and the consummation of the transactions
contemplated hereby and thereby, will not (a) result in (i) any violation, or
be in conflict with or constitute a default (with or without notice or lapse of
time or both) under the Company's Certificate of Incorporation or By-Laws or the
organizational documents of any Operating Subsidiary or any other material
Subsidiary, (ii) any violation, or be in conflict with or constitute a default
(with or without notice or lapse of time or both) under, any term or provision
of, or any right of termination, cancellation or acceleration arising under any
lease, indenture, license, contract or other agreement to which any of them are
parties or cause any liabilities or additional fees to be due thereunder, except
any such violation, conflict or right that would not reasonably be expected to
have a Material Adverse Effect, or (iii) any violation under any Order or Law
applicable to the Company or any of its Subsidiaries, its
28
business or operations or any of its assets or properties, except any such
violation that would not reasonably be expected to have a Material Adverse
Effect, or (b) result in the imposition of any Encumbrance on the business or
material properties or assets of the Company or any of its Subsidiaries (in the
case of clauses (i), (ii) and (iii) of this sentence with respect to the
consummation of any Pre-Spin-Off IPO or Spin-Off, subject to the making of
necessary filings by the Company and the Operating Subsidiaries with the SEC
under the Securities Act and the Exchange Act, and the obtaining of such other
consents, approvals, orders and authorizations, and the filing of such
registrations, declarations or filings, or the making of such notices, as may be
required to be obtained by the Company and the Operating Subsidiaries (provided
that no further approvals of the stockholders of the Company will be required
for the consummation of the Pre-Spin-Off IPOs), all of which shall have been
made and obtained prior to the consummation thereof except to the extent the
failure to obtain any of them would not, individually or in the aggregate, have
a Material Adverse Effect).
SECTION 3.9. Litigation. Except as set forth in the SEC Reports
filed and publicly available prior to the date hereof, there is no Action
pending, or to the Company's knowledge (except as described in Schedule 3.7
hereto), currently threatened against the Company or any of its Subsidiaries
which would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party or subject to the provisions of any Order of any court or governmental
authority which would, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
SECTION 3.10. Tax Matters. In each case except for any failures
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect: (a) all material Tax Returns that are required
to be filed by or with respect to the Company and its Subsidiaries have been
duly filed and such Tax Returns are true, complete and correct, (b) all material
Taxes of the Company and its Subsidiaries due and payable, whether or not shown
on the Tax Returns referred to in clause (a), have been paid in full and each of
the Company and its Subsidiaries have made adequate provision for all Taxes not
yet due and payable, and (c) except with respect to which adequate provision has
been made in the Company's financial statements, no material issues that have
been raised by any relevant taxing authority in connection with the examination
of any of the Tax Returns referred to in clause (a) are currently pending. For
purposes of this Agreement, the term (i) "Taxes" means all taxes, charges, fees,
levies, penalties or other assessments imposed by any United States federal,
state, local or foreign taxing authority, including, but not limited to, income,
excise, property, sales and use, transfer, franchise, payroll, withholding,
social security or other taxes, including any interest, penalties or additions
attributable thereto, and (ii) "Tax Return" means any return, report,
information return or other document (including any related or supporting
information) filed or required to be filed with any taxing authority with
respect to Taxes.
29
SECTION 3.11. Employment Matters. Neither the Company nor any of its
Subsidiaries has any collective bargaining agreements with or relating to any of
its employees. There is no labor union organizing activity pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened with respect to
the Company or any of its Subsidiaries.
SECTION 3.12. Environmental Matters. In each case except for any
failures which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect: (i) Neither the Company nor any of
its Subsidiaries has violated any environmental, safety or similar law or
regulation applicable to it or its business or property relating to the
protection of human health and safety, the environment or Hazardous Substances
or wastes, pollutants or contaminants ("Environmental Laws"), (ii) lacks any
permit, license or other approval required of it under applicable Environmental
Laws, (iii) has released, generated or disposed of any pollutant, contaminant,
toxic substance, hazardous waste, hazardous material or hazardous substance, or
any oil, petroleum or petroleum product, each as defined or listed in, or
classified pursuant to, any Environmental Laws in any manner which could
reasonably be expected to give rise to a liability under or relating to any
Environmental Laws or (iv) is violating any term or condition of any such
permit, license or approval.
SECTION 3.13. Offering Valid. Assuming (i) the accuracy of the
representations and warranties of the Investors contained in Section 4.2 hereof
and (ii) with respect to the Conversion Shares, that at the time of the purchase
of common stock under any Parent Warrants, Replacement Warrants, IPO Valuation
Warrants or Subsidiary Warrants for cash, the holder of such Parent Warrants,
Replacement Warrants, IPO Valuation Warrants or Subsidiary Warrants could
accurately make the representations and warranties set forth in Section 4.2 of
this Agreement, the offer, sale and issuance of the Shares, the Parent Warrants,
the Replacement Warrants, the Subsidiary Stock Purchase Rights, the IPO
Valuation Warrants, the Subsidiary Warrants and the Conversion Shares will be
exempt from the registration requirements of the Securities Act and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of the state
securities laws of the State of New York and the State of California.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants to the Company, severally
with respect solely to itself (and not jointly with the other Investors), as of
the date hereof and as of the Closing Date (except to the extent otherwise
expressly stated herein), as follows:
30
SECTION 4.1. Requisite Power and Authority. Such Investor has all
requisite power and authority to execute and deliver this Agreement and each of
the other Transaction Documents to which it is a party, to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. All action on such Investor's part necessary for the
execution and delivery of this Agreement and each of the other Transaction
Documents to which it is a party, the consummation of the transactions
contemplated hereby and thereby and the performance of all obligations of such
Investor hereunder and thereunder has been taken. This Agreement and each of
the other Transaction Documents to which such Investor is a party have been or
will be duly executed and delivered by such Investor. This Agreement and each
of the other Transaction Documents to which such Investor is a party (assuming
due execution and delivery by the Company) will be a legal, valid and binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
SECTION 4.2. Investment Representations. Such Investor acknowledges
that the Shares, the Parent Warrants, the Replacement Warrants, the Subsidiary
Stock Purchase Rights, the IPO Valuation Warrants, the Subsidiary Warrants and
the Conversion Shares have not been registered under the Securities Act or under
any state securities laws. Such Investor (a) is acquiring the Shares, the
Parent Warrants, the Replacement Warrants, the Subsidiary Stock Purchase Rights,
the IPO Valuation Warrants, the Subsidiary Warrants and the Conversion Shares
for investment for its own account, not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution thereof, (b) is an
"accredited investor" within the meaning of Regulation D, Rule 501(a),
promulgated by the SEC, (c) acknowledges that the Shares, the Parent Warrants,
the Replacement Warrants, the Subsidiary Stock Purchase Rights, the IPO
Valuation Warrants, the Subsidiary Warrants and the Conversion Shares must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from the registration requirements of the Securities Act is
available and (d) represents that by reason of its business or financial
experience, such Investor has the capacity to protect its own interests in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents. Such Investor has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management.
SECTION 4.3. Litigation. There is no Action pending, or to such
Investor's knowledge, currently threatened against such Investor which
challenges the consummation by such Investor of this Agreement or the
transactions contemplated hereby or would, individually or in the aggregate,
otherwise reasonably be expected to have a material adverse effect on the
ability of such Investor to perform its obligations under this Agreement or the
other Transaction
31
Documents to which it is a party or to consummate the transactions contemplated
hereby and thereby.
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.1. Ordinary Course of Business.
(a) Except as otherwise contemplated by the terms of this Agreement
(including without limitation actions to be taken pursuant to the Transformation
Documents), during the period from the date of this Agreement to the Closing
Date (the "Pre-Closing Period"), the Company shall use commercially reasonable
efforts to preserve intact its and its Subsidiaries' current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees, advertisers, distributors and others having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired.
(b) Without limiting the generality of the foregoing, during the Pre-
Closing Period, each of the Company and its Subsidiaries shall not, without the
prior consent of the Majority Investors (such consent not to be unreasonably
withheld or delayed):
(i) Except to the extent required to comply with the Company's obligations
hereunder, required by law or required by the rules and regulations of the New
York Stock Exchange, make any amendment to the Company's Certificate of
Incorporation or the constituent documents of any Operating Subsidiary that
would adversely affect in any material respect the rights and preferences of the
holders of the Shares, Parent Warrants, Replacement Warrants, Subsidiary Stock
Purchase Rights, IPO Valuation Warrants or Subsidiary Warrants when issued;
(ii) make, declare or pay any extraordinary cash dividend, other than
dividends between the Company and a Subsidiary of the Company;
(iii) agree in writing or otherwise to take any of the foregoing actions.
SECTION 5.2. Access. During the Pre-Closing Period, the Company
shall, and shall cause its Subsidiaries, officers, directors, employees,
auditors and other agents to, (a) afford the officers, employees, auditors and
other agents of the Investors, during normal business hours, reasonable access
at reasonable times to their officers, employees, auditors, legal counsel,
32
properties, offices, plants and other facilities and to all books and records,
(b) furnish the Investors with such financial, operating and other data and
information as the Investors, through their officers, employees or agents, may
from time to time reasonably request, and (c) afford the Investors the
opportunity to discuss the Company's affairs, finances and accounts with the
Company's officers with reasonable frequency.
SECTION 5.3. Efforts. Each party hereto agrees to use its reasonable
best efforts to take such actions as are required in order to consummate the
transactions contemplated by this Agreement and the other Transaction Documents
as promptly as practicable.
SECTION 5.4. Notification of Certain Matters. During the Pre-Closing
Period, the Company shall give prompt notice to the Investors of the occurrence
or non-occurrence of any event known to the Company the occurrence or non-
occurrence of which would reasonably be expected to cause any representation or
warranty contained in Section 3 to be untrue, or the failure of the Company to
comply with or satisfy any covenant or agreement under this Agreement.
SECTION 5.5. Reservation of Shares. From and after the Closing, the
Company shall (a) at all times reserve and keep available for issuance such
number of its authorized but unissued shares of Common Stock as shall be
sufficient to permit the conversion of all of the Shares and the exercise of all
of the outstanding Parent Warrants and all of the Replacement Warrants which may
be issued pursuant to the terms of this Agreement and (b) cause each Operating
Subsidiary to at all times reserve and keep available for issuance such number
of its authorized but unissued shares of common stock as shall be sufficient to
permit the purchase of common stock pursuant to all outstanding Subsidiary Stock
Purchase Rights relating to such Operating Subsidiary and any Subsidiary
Warrants and IPO Valuation Warrants relating to such Operating Subsidiary which
may be issued pursuant to the terms of this Agreement.
SECTION 5.6. Regulatory and Other Authorizations; Notices and
Consents. (a) The Company shall promptly make any and all filings which it is
required to make under the HSR Act for the sale of the Shares, the Parent
Warrants, the Replacement Warrants, the Subsidiary Stock Purchase Rights, the
IPO Valuation Warrants, the Subsidiary Warrants and the Conversion Shares, and
the Company shall furnish the Investors with such necessary information and
reasonable assistance as the Investors may reasonably request in connection with
their preparation of any necessary filings or submissions to the Federal Trade
Commission ("FTC") or the Antitrust Division of the U.S. Department of Justice
(the "Antitrust Division"), including, without limitation, any filings or
notices necessary under the HSR Act. The Company shall use its reasonable best
efforts to respond to any request for additional information, or other formal or
informal request for information, witnesses or documents which may be made by
any governmental authority pertaining to the Company with respect to the sale of
the Shares, the
33
Parent Warrants, the Replacement Warrants, the Subsidiary Stock Purchase Rights,
the IPO Valuation Warrants, the Subsidiary Warrants and the Conversion Shares
and shall keep the Investors fully apprised of its actions with respect thereto.
(b) The Company shall use its reasonable best efforts to give any
notices and obtain any other authorizations, consents, orders and approvals of
any governmental authorities and other third parties that may be or become
necessary for its execution and delivery of, and the performance of its
obligations pursuant to, this Agreement and the other Transaction Documents.
SECTION 5.7. Boards of Directors. (a) For so long as Silver Lake
and its Affiliates own in the aggregate not less than thirty-five (35%) of the
aggregate number of Shares issued to the Investors by the Company on the Closing
Date, Silver Lake shall have the right (but in no event the obligation) to
nominate for election to the Board one nominee who is a member of the general
partner or investment advisor of Silver Lake (the "Investor Company Nominee")
upon each regular election of the class of directors whose current term expires
in 2003 ("Class II"). To this end, the Company and the Investors agree to take
the following actions (unless Silver Lake shall have determined in its sole
discretion not to nominate a nominee for election to the Board or to replace an
Investor Company Nominee who has left the Board):
(i) As of the Closing Date, Xxxxx Xxxx (or, in the event that Xxxxx
Xxxx is unable to serve as the Investor Company Nominee and subject to the
standards set forth in paragraph (c) below, such other Investor Company Nominee
as Silver Lake shall notify to the Company in writing not less than five
business days prior to the Closing Date) shall be appointed to the Board as the
initial Investor Company Nominee. Thereafter, Silver Lake shall notify the
Company in writing of the identity of the Investor Company Nominee by no later
than the same time shareholder proposals are due as set forth in the Company's
annual proxy statement filed the year preceding the year of election of Class II
members of the Board, which notice shall be conclusive evidence of the consent
of the Investor Company Nominee to serve as a director of the Company. In the
event Silver Lake fails to provide such notice, the active director most
recently nominated by the Investors shall be deemed to be the Investor Company
Nominee. The notice shall include all information with respect to the Investor
Company Nominee as is required to be included in a proxy statement soliciting
proxies for the election of directors pursuant to Regulation 14A under the
Exchange Act. In the event of any vacancy on the Board arising by reason of the
Investor Company Nominee's resignation, death, removal or inability to serve,
Silver Lake shall notify the Company of their nominee to fill such vacancy, and,
subject to clause (iii) below, the Company shall use its reasonable best efforts
to cause the vacancy created thereby to be filled as soon as reasonably
possible, and to elect such nominee to serve until the next meeting of the
stockholders for the election of Class II directors of the Company.
34
(ii) Subject to clause (iii) below, the Company shall use its
reasonable best efforts to cause the Investor Company Nominee to be included in
the slate of nominees presented by the Board to the stockholders of the Company
for election as directors at each relevant annual meeting of the stockholders,
and shall use its reasonable best efforts to cause the election of the Investor
Company Nominee, including soliciting proxies in favor of the election of the
Investor Company Nominee. Subject to clause (iii) below, the Company shall not
solicit proxies of the stockholders of the Company to vote against the Investor
Company Nominee or for the approval of any stockholder or other proposals that
are inconsistent with the rights afforded the Investors pursuant to this Section
5.7(a), and shall use its reasonable best efforts to oppose the removal of the
Investor Company Nominee from the Board.
(iii) As a condition precedent to election of any individual to fill
a vacancy as contemplated by the last sentence of clause (i) above and to the
inclusion of any proposed Investor Nominee to be presented to stockholders by
the Board pursuant to clause (ii) above, the Board or, if established, the
nominating committee of the Board, may review the information provided pursuant
to this Section 5.7(a) and such other information as the Board or such committee
may reasonably request in order to evaluate the Investor Company Nominee's
character and fitness to serve as a director. If the Board or the nominating
committee, as the case may be, reasonably determines in good faith that any
Investor Company Nominee lacks the character or fitness to serve as a director
based on applicable legal and reasonable commercial standards, the Board or the
nominating committee, as the case may be, shall inform Silver Lake of such
determination, and Silver Lake shall then have the right to nominate a
substitute Investor Company Nominee (and the provisions of this Section 5.7(a)
shall apply to such subsequent Investor Company Nominee, provided that any time
periods provided for herein shall be shortened such that the subsequent Investor
Company Nominee becomes a member of the Board as soon as reasonably possible).
(b) Commencing at the time of the purchase of a sufficient number of
shares of common stock pursuant to (other than in connection with a Third-Party
Sale) the Subsidiary Stock Purchase Rights relating to Aprisma to result in
ownership by Silver Lake and its Affiliates of at least 2.25% of the diluted
capital stock of Aprisma (the "Designation Event") (disregarding for purposes of
measuring such percentage any issuances of Aprisma capital stock or other
securities exercisable therefor subsequent to the initial formation and
capitalization of Aprisma), and continuing until the earlier of (i) the first
anniversary of a Spin-Off of Aprisma or (ii) such time as Silver Lake and its
Affiliates no longer hold at least at least 2.25% of the diluted capital stock
of Aprisma (disregarding for purposes of measuring such percentage any issuances
of Aprisma capital stock or other securities exercisable therefor subsequent to
the initial formation and capitalization of Aprisma), Silver Lake shall have the
right (but in no event the obligation) to nominate for election to the Board of
Directors of Aprisma (the "Aprisma Board"), and the Company shall cause Aprisma
(and shall obtain Aprisma's written agreement prior to a Spin-Off
35
of Aprisma) to comply with the provisions of this Section 5.7(b), one nominee
who is a member of the general partner or investment advisor of Silver Lake (the
"Investor Aprisma Nominee") upon each regular election of directors of Aprisma.
To this end, the Company and the Investors agree to take the following actions
(and the Company shall cause Aprisma to take such actions) (unless Silver Lake
shall have determined in their sole discretion not to nominate a nominee for
election to the Aprisma Board or to replace an Investor Aprisma Nominee who has
left the Board):
(i) As of the Designation Event, such Investor Aprisma Nominee as
Silver Lake shall notify to the Company and Aprisma in writing (the person so
designated to be subject to the approval of Xxxxxx Xxxxx (or any successor
thereto) which approval shall not be unreasonably withheld) shall be appointed
to the Aprisma Board as the initial Investor Aprisma Nominee. Thereafter, Silver
Lake shall notify Aprisma in writing of the identity of the Investor Aprisma
Nominee by no later than the same time shareholder proposals are due as set
forth in Aprisma's annual proxy statement filed the year preceding the year of
the applicable election of members of the Aprisma Board, which notice shall be
conclusive evidence of the consent of the initial Investor Aprisma Nominee to
serve as a director of Aprisma. In the event Silver Lake fails to provide such
notice, the active director most recently nominated by the Investors shall be
deemed to be the Investor Aprisma Nominee. The notice shall include all
information with respect to the Investor Aprisma Nominee as is required to be
included in a proxy statement soliciting proxies for the election of directors
pursuant to Regulation 14A under the Exchange Act. In the event of any vacancy
on the Aprisma Board arising by reason of the Investor Aprisma Nominee's
resignation, death, removal or inability to serve, Silver Lake shall notify
Aprisma of their nominee to fill such vacancy, and, subject to clause (iii)
below, the Company shall cause Aprisma to use its reasonable best efforts to
cause the vacancy created thereby to be filled as soon as reasonably possible,
and to elect such nominee to serve until the next meeting of the stockholders
for the election of directors of Aprisma.
(ii) Subject to clause (iii) below, the Company shall cause Aprisma
to use its reasonable best efforts to cause the Investor Aprisma Nominee to be
included in the slate of nominees presented by the Aprisma Board to the
stockholders of Aprisma for election as directors at each relevant annual
meeting of the stockholders, and shall cause Aprisma to use its reasonable best
efforts to cause the election of the Investor Aprisma Nominee, including
soliciting proxies in favor of the election of the Investor Aprisma Nominee.
Subject to clause (iii) below, the Company shall cause Aprisma to not solicit
proxies of the stockholders of Aprisma to vote against the Investor Aprisma
Nominee or for the approval of any stockholder or other proposals that are
inconsistent with the rights afforded the Investors pursuant to this Section
5.7(b), and shall use its reasonable best efforts to oppose the removal of the
Investor Aprisma Nominee from the Aprisma Board.
36
(iii) As a condition precedent to election of any individual to fill
a vacancy as contemplated by clause (i) above and to the inclusion of any
proposed Investor Aprisma Nominee to be presented to stockholders by the Aprisma
Board pursuant to clause (ii) above, the Aprisma Board may review the
information provided pursuant to this Section 5.7(b) and such other information
as it may reasonably request in order to evaluate the Investor Aprisma Nominee's
character and fitness to serve as a director. If the Aprisma Board reasonably
determines not to approve any Investor Aprisma Nominee, the Aprisma Board shall
inform Silver Lake of such determination, and Silver Lake shall then have the
right to nominate a substitute Investor Aprisma Nominee (and the provisions of
this Section 5.7(b) shall apply to such subsequent Investor Aprisma Nominee,
provided that any time periods provided for herein shall be shortened such that
the subsequent Investor Aprisma Nominee becomes a member of the Aprisma Board as
soon as reasonably possible).
(c) With respect to each Operating Subsidiary, commencing at the
later of (i) the formation of such Operating Subsidiary or (ii) the Closing, and
continuing until the consummation of a Spin-Off of such Operating Subsidiary,
Silver Lake shall have the right to designate one non-voting observer to the
Board of Directors of such Operating Subsidiary who is a member of the general
partner or investment advisor of Silver Lake; provided, however, that such right
shall not be applicable with respect to Aprisma for so long as a director
designated by Silver Lake is serving on the Aprisma Board. Such non-voting
observers shall be entitled to participate in any meetings of such Boards of
Directors, and shall receive the same notices thereof and materials distributed
in connection therewith as are provided to the directors, and shall be provided
with visibility into, and the right to comment upon, any significant decisions
made by such Boards of Directors (including without limitation decisions with
respect to the lines of business to be pursued by each such Operating
Subsidiary, the timing and structure of its initial public offering and spin-
off, and any significant acquisitions).
SECTION 5.8. Transaction Fees. (a) The Company shall pay to Silver
Lake Technology Management, L.L.C. ("SLTM") a transaction fee of $1,500,000 with
respect to the transactions contemplated hereby by wire transfer not later than
the close of business on the Closing Date.
(b) In the event that, at any time prior to the second anniversary of
the Closing, the Total Market Valuation (as defined below) exceeds
$12,000,000,000 and remains above such level as of the close of trading on ten
consecutive New York Stock Exchange (or such other primary market on which the
Company is then traded) trading days, the Company shall pay to SLTM a further
transaction fee of $2,000,000 (in addition to the transaction fees described in
Sections 5.8(a) and 5.8(c)) with respect to the transactions contemplated hereby
by wire transfer not later than the close of business on the second business day
following the end of such ten trading-day period; provided, however, that, in
the event that any Person acquires all or
substantially all of the capital stock or assets of the Company prior to the
second anniversary of the Closing, the Total Market Valuation shall be measured
and become payable as of the date of the consummation of such acquisition (and
shall not thereafter be payable if not payable based upon such measurement).
(c) In the event that, at any time prior to the second anniversary of
the Closing, the Total Market Valuation (as defined below) exceeds
$15,000,000,000 and remains above such level as of the close of trading on ten
consecutive New York Stock Exchange (or such other primary market on which the
Company is then traded) trading days, the Company shall pay to SLTM a further
additional transaction fee of $3,000,000 (in addition to the transaction fees
described in Sections 5.8(a) and 5.8(b)) with respect to the transactions
contemplated hereby by wire transfer not later than the close of business on the
second business day following the end of such ten trading-day period; provided,
however, that, in the event that any Person acquires all or substantially all of
the capital stock or assets of the Company prior to the second anniversary of
the Closing, the Total Market Valuation shall be measured and become payable as
of the date of the consummation of such acquisition (and shall not thereafter be
payable if not payable based upon such measurement).
(d) As used in this Agreement, "Total Market Valuation" shall mean an
amount equal to the sum of (i) the Total Equity Value of the Company, (ii) the
aggregate Total Equity Values of each Operating Subsidiary that has undergone a
Spin-Off, (iii) the sum of the value at the time of distribution of all
dividends and distributions of cash, securities or other property (other than a
distribution by the Company of shares of an Operating Subsidiary in a Spin-Off,
and other than dividends or distributions to the extent paid to the Company or a
Subsidiary of the Company) paid or otherwise made after the date hereof in
respect of the capital stock of the Company, any Subsidiary of the Company or
any Operating Subsidiary that has undergone a Spin-Off and (iv) until the time
of a Spin-Off of an Operating Subsidiary, the equity value of the shares of such
Operating Subsidiary issued in its Pre-Spin-Off IPO and the shares of such
Operating Subsidiary issued to the Investors or their transferees.
As used in this Agreement, the "Total Equity Value" for an entity at
any time means the total equity value of the entity based upon the closing
prices of the entity's shares of capital stock on The New York Stock Exchange or
on any other exchange, market or system on which such shares are then traded, in
the case of publicly traded shares of capital stock, and based on fair market
value in the case of any other shares of capital stock, provided that in the
event that any Person acquires all or substantially all of the capital stock or
assets of such entity prior to the second anniversary of the Closing, the Total
Equity Value of such entity thereafter shall be the value of the consideration
paid by such Person in such acquisition; provided, however, that in the event
that any Person (other than Silver Lake, any of its Affiliates or employees of
the Company or any of its Subsidiaries) has purchased from any such entity
38
following the date hereof shares of its capital stock (other than issuances in
consideration of the cancellation or exchange of outstanding shares of capital
stock of such entity), the calculation of Total Equity Value thereafter (for so
long as such shares remain outstanding) shall be reduced by the consideration
paid by such Person to such entity for such purchase.
ARTICLE VI
COVENANTS OF THE INVESTORS
SECTION 6.1. Regulatory and Other Authorizations; Notices and
Consents. (a) Each Investor shall promptly make any and all filings which it is
required to make under the HSR Act with respect to the purchase of the Shares,
the Parent Warrants, the Replacement Warrants, the Subsidiary Stock Purchase
Rights, the IPO Valuation Warrants, the Subsidiary Warrants and the Conversion
Shares, and each Investor agrees to furnish the Company with such necessary
information and reasonable assistance as it may request in connection with its
preparation of any necessary filings or submissions to the FTC or the Antitrust
Division, including, without limitation, any filings or notices necessary under
the HSR Act. Each Investor shall use its reasonable best efforts to respond
promptly to any request for additional information, or other formal or informal
request for information, witnesses or documents which may be made by any
governmental authority pertaining to such Investor with respect to its purchase
of the Shares, the Parent Warrants, the Replacement Warrants, the Subsidiary
Stock Purchase Rights, the IPO Valuation Warrants, the Subsidiary Warrants and
the Conversion Shares and shall keep the Company fully apprised of its actions
with respect thereto.
(b) Each Investor shall use its reasonable best efforts to give any
notices and obtain any other authorizations, consents, orders and approvals of
any governmental authorities that may be or become necessary for its execution
and delivery of, and the performance of its obligations pursuant to, this
Agreement and the other Transaction Documents.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.1. Conditions to the Investors' Obligations. The
Investors' obligations to purchase the Shares, the Parent Warrants, the
Replacement Warrants, the Subsidiary Stock Purchase Rights, the IPO Valuation
Warrants and the Subsidiary Warrants at the Closing are subject to the
satisfaction (or waiver by the Majority Investors) of the following conditions:
39
(a) Representations and Warranties True; Performance of Obligations. Each
of the representations and warranties of the Company (i) contained in this
Agreement (other than in Section 3.2 hereof) shall have been true and correct
when made and shall be true and correct as of the Closing Date (except for those
representations and warranties which address matters only as of a particular
date, which shall have been true and correct as of that date) (disregarding for
such purpose any qualifications contained therein with respect to "materiality"
or "Material Adverse Effect"), except for such failures to be true and correct
which, individually or in the aggregate, have not had and would not reasonably
be expected to have a Material Adverse Effect and (ii) each of the
representations and warranties of the Company contained in Section 3.2 hereof
shall have been true and correct in all material respects when made and shall be
true and correct in all material respects as of the Closing Date. The Company
shall have performed in all material respects all agreements, obligations and
covenants herein required to be performed or observed by it on or prior to the
Closing Date.
(b) Legal Investment. On the Closing Date, there shall not be in effect
any Law or Order directing that the purchase and sale of the Shares, the Parent
Warrants, the Replacement Warrants, the Subsidiary Stock Purchase Rights, the
IPO Valuation Warrants, the Subsidiary Warrants or the Conversion Shares, or any
of the other transactions contemplated by this Agreement and the other
Transaction Documents, not be consummated or which has the effect of rendering
it unlawful to consummate any such transaction.
(c) Proceedings and Litigation. No Action shall have been commenced by
any governmental authority against any party hereto seeking to restrain or delay
the purchase and sale of the Shares, the Parent Warrants, the Replacement
Warrants, the Subsidiary Stock Purchase Rights, the IPO Valuation Warrants, the
Subsidiary Warrants or the Conversion Shares, or any of the other transactions
contemplated by this Agreement and the other Transaction Documents.
(d) Certificate. The Company shall have delivered to the Investors a
certificate, executed by a duly authorized executive officer of the Company and
dated the Closing Date, to the effect that the conditions specified in Section
7.1(a) have been satisfied.
(e) Legal Opinion. The Investors shall have received from internal or
outside legal counsel to the Company an opinion addressed to them, dated as of
the Closing Date, with respect to customary matters addressed in legal opinions
delivered in connection with transactions of the type contemplated hereby and in
a form reasonably acceptable to the Majority Investors.
40
(f) HSR Compliance. All waiting periods applicable to the purchase of the
Shares, the Parent Warrants, the Replacement Warrants, the Subsidiary Stock
Purchase Rights, the IPO Valuation Warrants, the Subsidiary Warrants (to the
extent such waiting periods are required to have expired prior to the Closing)
and the Conversion Shares under the HSR Act shall have been terminated or
expired.
(g) Certificate of Designation. The Certificate of Designation shall have
been filed with and certified by the Secretary of State of the State of
Delaware.
(h) Board of Directors. The initial Investor Nominee shall have been
appointed to the Board, effective as of the Closing.
(i) Consummation of Transformation. The Transformation shall have been
consummated in accordance with the terms and conditions of the Transformation
Documents (without any material amendment or modification thereto or waiver
thereof that has not been consented to in advance in writing by Silver Lake).
SECTION 7.2. Conditions to Obligations of the Company. The Company's
obligation to issue and sell the Shares, the Parent Warrants and the Replacement
Warrants, and to cause the Operating Subsidiaries to issue and sell the
Subsidiary Stock Purchase Rights, the IPO Valuation Warrants and the Subsidiary
Warrants at the Closing is subject to the satisfaction (or waiver by the
Company) of the following conditions:
(a) Representations and Warranties True. Each of the representations and
warranties of the Investors contained in this Agreement shall be true and
correct in all material respects when made and as of the Closing Date. The
Investors shall have performed in all material respects all agreements,
obligations and covenants herein required to be performed or observed by it on
or prior to such Closing Date (including without limitation the payment in full
of the Purchase Price).
(b) Legal Investment. On the Closing Date, there shall not be in effect
any Law or Order directing that the purchase and sale of the Shares, the Parent
Warrants, the Replacement Warrants, the Subsidiary Stock Purchase Rights, the
IPO Valuation Warrants, the Subsidiary Warrants or the Conversion Shares, or any
of the other transactions contemplated by this Agreement and the other
Transaction Documents, not be consummated or which has the effect of rendering
it unlawful to consummate any such transaction.
(c) Proceedings and Litigation. No Action shall have been commenced by
any governmental authority against any party hereto seeking to restrain or delay
the purchase
41
and sale of the Shares, the Parent Warrants, the Replacement Warrants, the
Subsidiary Stock Purchase Rights, the IPO Valuation Warrants, the Subsidiary
Warrants or the Conversion Shares, or any of the other transactions contemplated
by this Agreement and the other Transaction Documents.
(d) Certificate. Each Investor shall have delivered to the Company a
certificate, executed by a duly authorized Person and dated the Closing Date, to
the effect that the conditions specified in Section 7.2(a) have been satisfied.
(e) HSR Compliance. All waiting periods applicable to the purchase of the
Shares, the Parent Warrants, the Replacement Warrants, the Subsidiary Stock
Purchase Rights, the IPO Valuation Warrants, the Subsidiary Warrants (to the
extent such waiting periods are required to have expired prior to the Closing)
and the Conversion Shares under the HSR Act shall have been terminated or
expired.
(f) Consummation of Transformation. The Transformation shall have been
consummated in accordance with the terms and conditions of the Transformation
Documents.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. Survival of Representations, Warranties and Covenants.
(a) (i) The representations and warranties contained in Section 3.2, 3.3(a), 4.1
and 4.2 of this Agreement shall survive indefinitely.
(ii) All other representations and warranties contained in Articles III
and IV of this Agreement shall survive until the earlier of (A) 30 days after
the filing by the Company of its Annual Report on Form 10-K for the year ended
February 28, 2002 and (B) the consummation of the Pre-Spin-Off IPOs of three
Operating Subsidiaries.
(iii) The representations and warranties contained in Article III of this
Agreement, and the rights and remedies that may be exercised by any Person
seeking indemnification hereunder, shall not be limited or otherwise affected by
or as a result of any information furnished to, or any investigation made by,
any such Person or its representatives.
42
(b) All covenants herein shall survive the Closing and continue
thereafter as provided herein, except to the extent such covenants are
contemplated to be performed solely prior to Closing or performance thereof is
waived in conjunction with the Closing.
SECTION 8.2. Indemnification. (a) From and after the Closing Date
and subject to Sections 8.1, 8.3 and 8.5, the Company (the "Investor
Indemnitor") shall defend, indemnify and hold harmless the Investors and their
Affiliates and each director, officer, member, partner, employee and agent of
such Persons (the "Investor Indemnitees") against any loss, damage, Tax, claim,
liability, judgment or settlement of any nature or kind, including all costs and
expenses relating thereto, including without limitation, interest, penalties,
reasonable attorneys' and experts' fees and costs of investigation and
settlement relating thereto (collectively "Damages"), arising out of, resulting
from or relating to:
(i) the breach of any representation or warranty contained in Article
III; or
(ii) the breach by the Company of any covenant or agreement (whether to be
performed prior to or after the Closing) contained in this Agreement.
(b) From and after the Closing Date and subject to Sections 8.1, 8.3
and 8.5, each Investor, severally solely with respect to its own obligations and
in proportion to the portion of the Shares acquired by such Investor (and not
jointly with the other Investors) (each, a "Company Indemnitor" and collectively
with the other Company Indemnitors and the Investor Indemnitor, the
"Indemnitors") shall defend, indemnify and hold harmless the Company and its
Affiliates and each director, officer, member, partner, employee and agent of
such Persons (the "Company Indemnitees" and collectively with the Investor
Indemnitees, the "Indemnitees") against any Damages arising out of, resulting
from or relating to:
(i) the breach by such Investor of any representation or warranty
contained in Article IV; or
(ii) the breach by such Investor of any covenant or agreement (whether to
be performed prior to or after the Closing) of such Investor contained in this
Agreement.
(c) The term "Damages" as used in this Article VIII is not limited to
matters asserted by third parties against any Person entitled to be indemnified
under this Article VIII, but
includes Damages incurred or sustained by any such Person in the absence of
third party claims, and shall take into account such Person's ownership or
investment in the Company (in the case of Damages suffered by the Investor
Indemnitees). In the case of the measurement of Damages resulting from any
breach of the representation and warranty contained in Section 3.4(d) hereof,
the reference to "materially" in such representation and warranty shall be
disregarded.
43
SECTION 8.3. Indemnification Amounts. (a) An Indemnitor shall not
have liability under Section 8.2 until the aggregate amount of Damages
theretofore incurred by the Investor Indemnitees or the Company Indemnitees, as
applicable, exceeds an amount equal to $12,500,000 (the "Damage Threshold"), in
which case the Investor Indemnitees or the Company Indemnitees, as applicable,
shall be entitled to all Damages they have incurred (including without
limitation Damages falling below the Damage Threshold), subject to Section
8.3(b) below.
(b) No indemnification shall be payable by the Company to the
Investor Indemnitees under Section 8.2(a) in amounts in the aggregate in excess
of $90,000,000.
(c) No indemnification shall be payable by an Investor to the Company
Indemnitees under Section 8.2 in amounts in the aggregate in excess of the
product of (i) $90,000,000 and (ii) a fraction the numerator of which is the
number of Shares acquired by such Investor at the Closing, and the denominator
of which is the aggregate number of shares acquired by the Investors at the
Closing.
(d) The limitations on indemnification obligations set forth in this
Section 8.3 shall not apply to Damages resulting from breaches of any covenants
or agreements of the parties contained in this Agreement or in any of the other
Transaction Documents. In addition, notwithstanding the provisions of
paragraphs (a) and (b) above, the limitations on the indemnification obligations
of the parties set forth therein shall not apply to breaches by the Company of
the representations and warranties made in Section 3.2.
SECTION 8.4. Exclusive Remedy. From and after the Closing,
indemnification pursuant to this Article VIII shall be the exclusive remedy for
monetary damages available to the Indemnitees hereunder, other than for claims
with respect to common law fraud.
SECTION 8.5. Certain Limitations. The indemnification obligations of
the parties hereto for any breach of a representation and warranty described in
Articles III and IV of this Agreement shall survive for only the period
applicable to such representations and warranties as set forth in Section 8.1 of
this Agreement, and thereafter all such representations and warranties of the
applicable Indemnitor under this Agreement shall expire; provided, however, that
such expiration shall not affect any claim with respect to which written notice
was given to an Indemnitor prior to the end of the period applicable to such
representations and warranties as set forth in Section 8.1 of this Agreement
(and such representations and warranties shall continue to survive for purposes
of any such claim).
SECTION 8.6. Callable Subsidiary Stock Purchase Rights. In the event
that the Investor Indemnitees shall have incurred aggregate Damages in excess of
$3,125,000 arising out of, resulting from or relating to (i) the breach by the
Company of any representation or warranty
44
contained in Article III, to the extent relating to facts, circumstances or
other matters involving a particular Operating Subsidiary (e.g., the
representations and warranties contained in Article III with respect to a
particular Operating Subsidiary's financial statements, legal compliance, etc.),
or (ii) the breach by the Company of any covenant or agreement (whether to be
performed prior to or after the Closing) contained in this Agreement to the
extent relating to such Operating Subsidiary (e.g., agreements relating to the
consummation of the Transformation with respect to such Operating Subsidiary in
accordance with the terms and conditions of the Transformation Agreement), then
upon written notice thereof delivered to the Company by the Investor
Representative, such Operating Subsidiary shall not be entitled to require the
holders of the Callable Subsidiary Stock Purchase Rights relating to such
Operating Subsidiary to purchase shares of common stock pursuant to such
Callable Subsidiary Stock Purchase Rights under Section 1.4 ("Mandatory
Purchase") of such Callable Subsidiary Stock Purchase Rights (whether or not
such Operating Subsidiary previously has delivered notice of mandatory purchase
to the holders thereof); provided, however, that, in the event that the holders
of the Callable Subsidiary Stock Purchase Rights relating to a particular
Operating Subsidiary are not required to purchase common stock pursuant to such
Callable Subsidiary Stock Purchase Rights by operation of this Section 8.6, they
also shall not be entitled to purchase common stock pursuant to the Optional
Subsidiary Stock Purchase Rights or IPO Valuation Warrants relating to such
Operating Subsidiary.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Other Definitions. The following terms as used in this
Agreement shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common
control with, such specified Person, for so long as such Person remains so
associated to the specified Person.
(b) "control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly, of the power to direct or
cause the direction of the affairs or management of a Person, whether through
the ownership of voting securities, as trustee or executor, by contract or
otherwise.
45
(c) "Encumbrance" means any security interest, pledge, mortgage, lien
(statutory or other), charge, option to purchase, lease or otherwise acquire any
interest or any claim, restriction, covenant, title defect, hypothecation,
assignment, deposit arrangement or other encumbrance of any kind or any
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement).
(d) "Intellectual Property" means all U.S. and foreign intellectual
property, including without limitation (i) patents, inventions, discoveries,
processes, designs, techniques, developments, technology, and related
improvements, know-how and show-how, whether or not patented or patentable; (ii)
copyrights and works of authorship in any media, including computer hardware,
software, applications, systems, networks, databases, documentation and Internet
site content; (iii) trademarks, service marks, trade names, brand names,
corporate names, domain names, logos and trade dress; (iv) trade secrets,
drawings, blueprints and all non-public, confidential or proprietary
information, documents or materials; and (v) all registrations, applications and
recordings related thereto.
(e) "Majority Investors" means Investors holding a majority of the
Shares then held by the Investors as a group (or to be held upon issuance, in
the case of determinations made prior to the Closing).
(f) "Material Adverse Effect" means a material adverse effect on the
business, operations, properties, assets, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole, or a material
adverse effect on the ability of the Company or any Operating Subsidiary to
perform their respective covenants and agreements under this Agreement and the
other Transaction Documents and to consummate the transactions contemplated
hereby and thereby.
(g) "Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivisions thereof.
(h) "Subsidiary" of a Person means (i) any corporation of which a
majority of the securities entitled to vote generally in the election of
directors thereof, at the time as of which any determination is being made, are
owned by such Person, either directly or indirectly, and (ii) any joint venture,
general or limited partnership, limited liability company or other legal entity
in which such Person is the record or beneficial owner, directly or indirectly,
of a majority of the voting interests or the general partner.
46
(i) "Transaction Documents" means this Agreement, the Parent
Registration Rights Agreement, each Operating Subsidiary Registration Rights
Agreement, the Transformation Agreement, each of the other Transformation
Documents and the Standstill Agreement, in each case including all exhibits and
schedules thereto.
SECTION 9.2. Governing Law; Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed in all respects by the laws of the State of
Delaware, exclusive of its conflict-of-law principles. The Company hereby
submits to the non-exclusive jurisdiction of the courts of the State of New
York, and the Investors hereby submit to the non-exclusive jurisdiction of the
courts of the State of New Hampshire, in each case for the purpose of any suit,
proceeding or judgment with respect to this Agreement. Each of the parties
hereto hereby irrevocably and unconditionally waives trial by jury in any legal
action or proceeding in relation to this Agreement and for any counterclaim
therein.
SECTION 9.3. Public Announcements. The Company and the Majority
Investors shall consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any such
public statement prior to such consultation and review by the other party of a
copy of such release or statement, and then only with such other party's prior
consent (not to be unreasonably withheld) except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with a national securities exchange (but in any case following such
consultation with and review by such other party).
SECTION 9.4. Successors and Assigns; Assignment. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, permitted assigns, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each Person who shall be a holder of the Shares, Parent Warrants,
Replacement Warrants (if any), Subsidiary Stock Purchase Rights, IPO Valuation
Warrants (if any) and/or Subsidiary Warrants (if any) from time to time. This
Agreement may not be assigned by a party hereto without the prior written
consent of the other party hereto; provided that Silver Lake may, upon written
notice thereof to the Company and without the consent of the Company or any
other party hereto, but subject to any such assignee agreeing in writing in a
form reasonably acceptable to the Company to be bound by the terms and
conditions of this Agreement as an "Investor", assign its rights and obligations
hereunder (i) to any of its Affiliates and/or (ii) with respect to the purchase
at the Closing of up to 8,000 Shares (and up to a pro rata portion of the Parent
Warrants, Replacement Warrants (if any), Subsidiary Stock Purchase Rights, IPO
Valuation Warrants (if any) and Subsidiary Warrants (if any) to any other Person
who is reasonably acceptable to the Company; and provided, further, that,
following the Closing, the provisions of Articles I, II and IX hereof shall be
assignable by any holder of Shares, Parent Warrants, Replacement Warrants,
Subsidiary Stock Purchase
47
Rights, IPO Valuation Warrants and/or Subsidiary Warrants (without the consent
of any other party hereto) to any Person who shall from time to time become a
holder of any such securities in accordance with the provisions of the
Standstill Agreement. For the avoidance of doubt, Silver Lake's rights under
Section 5.7 hereof shall in any event not be assignable by Silver Lake (other
than to its controlled Affiliates).
SECTION 9.5. Entire Agreement; Supersedes Prior Agreement. This
Agreement and the other Transaction Documents (in each case including all the
exhibits and schedules hereto and thereto) 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. This Agreement supersedes the Letter Agreement dated
February 23, 2000 between the Company and Silver Lake, the Letter Agreement
dated April 11, 2000 between the Company and Silver Lake, the Letter Agreement
dated May 1, 2000 between the Company and Silver Lake, and the Securities
Purchase Agreement dated as of July 26, 2000 between the parties hereto. Other
than the representations, warranties, covenants and agreements set forth herein
and in the other Transaction Documents to which they are parties, neither the
Company, on the one hand, nor the Investors, on the other hand, has made or is
making any representation, warranty, covenant or agreement, express or implied,
with respect to the matters contained in this Agreement and the other
Transaction Documents, and no promise or inducement for this Agreement or the
other Transaction Documents has been made by the Company to the Investors, or by
the Investors to the Company, other than as set forth in this Agreement and the
other Transaction Documents to which they are parties. This Agreement is
executed by the Company and each of the Investors freely and voluntarily, and
without reliance upon any statement or representation by the Company to the
Investors or any of their Affiliates, attorneys or agents, or by the Investors
to the Company or any of its Affiliates, attorneys or agents, except as set
forth herein and in the other Transaction Documents to which they are parties.
SECTION 9.6. Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 9.7. Amendment and Waiver. This Agreement may be amended or
modified, and the rights of the Company or the Investors hereunder may only be
waived, upon the written consent of the Company and the Majority Investors.
SECTION 9.8. Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement or any of
the other Transaction Documents shall impair any such right, power or remedy,
nor shall it be construed to be a waiver
48
of any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent or approval of any kind or
character on the Investors' part of any breach, default or noncompliance under
this Agreement or any other Transaction Document or any waiver on such party's
part of any provisions or conditions of this Agreement or any other Transaction
Document must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or any other Transaction Document, by law, or otherwise afforded to
any party, shall be cumulative and not alternative.
SECTION 9.9. Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified; (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) one (1)
business day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications to the parties set forth below shall be sent to the addresses set
forth below, or to such other address as such party shall have notified to the
other party hereto in writing, and all communications to any Investor other than
Silver Lake shall be sent to the address such Investor shall have notified to
the parties hereto in writing (or, in the absence of such written notice, to
Silver Lake):
If to the Company:
Cabletron Systems, Inc.
00 Xxxxxxxxxx Xxx -- Xxxx. 00
X.X. Xxx 0000
Xxxxxxxxx, XX 00000-0000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxx Xxxxxx
with a copy to:
Ropes & Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxx X. Xxxx, Esq.
If to Silver Lake:
Silver Lake Partners, L.P.
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxx Xxxxxxxx
with a copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, X.X. 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
SECTION 9.10. Expenses. The Company shall pay all costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement and the other Transaction Documents. In addition
to any fee to be paid in accordance with Section 5.12, the Company shall, at the
Closing by wire transfer of immediately available funds, reimburse all out-of-
pocket expenses of the Investors incurred in connection with the transactions
contemplated by this Agreement and the other Transaction Documents (whether
incurred prior to, on or after the date hereof), including the payment of the
reasonable fees, disbursements and expenses payable to consultants, accountants,
advisors and counsel to the Investors, provided that the Company shall not be
required to reimburse expenses exceeding $750,000 in the aggregate. The
Investors may, at their option, net any such amounts against amounts payable to
the Company at the Closing.
SECTION 9.11. Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
SECTION 9.12. Termination. This Agreement may be terminated by (i)
mutual agreement of the parties hereto, (ii) by the Majority Investors or the
Company in the event that, prior to the Closing, any governmental or regulatory
authority shall have issued an order, decree or ruling or taken any other action
which has the effect of restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable, or (iii) by the
Majority Investors or the
50
Company in the event the Closing has not occurred by August 31, 2000; provided,
that, in the case of clauses (ii) and (iii), such termination right may not be
exercised by a party whose material nonperformance of its covenants under this
Agreement has delayed the Closing. Upon termination of this Agreement pursuant
to this Section 9.12, this Agreement shall be void and of no further force and
effect and no party shall have any liability to any other party under this
Agreement, except that nothing herein shall relieve any party from any liability
for the existing or prior breach of any of the representations, warranties,
covenants and agreements set forth in this Agreement, and provided that Section
9.2 shall survive any such termination.
SECTION 9.13. Counterparts; Execution by Facsimile Signature. 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. This
Agreement may be executed by facsimile signature(s).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
CABLETRON SYSTEMS, INC.
By: /s/ Xxxxxx Xxxxx
-------------------------------------
Name: Xxxxxx Xxxxx
Title: Chief Executive Officer
SILVER LAKE PARTNERS, L.P.
By: Silver Lake Technology
Associates, L.L.C., its general partner
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------
An Authorized Signatory
Exhibit C
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
of the
SERIES A AND SERIES B PARTICIPATING CONVERTIBLE PREFERRED STOCK
of
CABLETRON SYSTEMS, INC.
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
We, Xxxxxx Xxxxx, Chief Executive Officer, President and Chairman, and
Xxxx Xxxxxx, Assistant Secretary, of Cabletron Systems, Inc. (the
"Corporation"), a corporation organized and existing under the laws of the State
of Delaware, in accordance with Section 151 of the Delaware General Corporation
Law, certify:
FIRST: The Restated Certificate of Incorporation of the Corporation
authorizes the issuance of up to 2,000,000 shares of preferred stock, par value
$1.00 per share, in one or more series, with such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as may be stated and expressed in a
resolution or resolutions providing for the issuance of any such series adopted
by the Board of Directors of the Corporation, pursuant to authority expressly
vested in the Board of Directors by the Restated Certificate of Incorporation of
the Corporation.
SECOND: The Board of Directors of the Corporation duly adopted the
following resolution authorizing the creation of two new series of such
preferred stock, to be known as "Series A Participating Convertible Preferred
Stock", stating that 65,000 shares of the authorized and unissued preferred
stock shall constitute such series, and "Series B Participating Convertible
Preferred Stock", stating that 25,000 shares of the authorized and unissued
preferred stock shall constitute such series, and setting forth a statement of
the voting powers, designation, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof as follows:
BE IT RESOLVED, that the terms of the Series A Participating
Convertible Preferred Stock and the Series B Participating Convertible Preferred
Stock shall be as follows:
1. Designation of Preferred Stock. The rights, preferences, privileges and
restrictions granted to and imposed on the Series A Participating Convertible
Preferred Stock, $1.00 par value per share (the "Series A Preferred Stock"), and
the Series B Participating Convertible Preferred Stock, $1.00 par value per
share (the "Series B Preferred Stock" and, together with the Series A Preferred
Stock, the "Preferred Stock"), are set forth below. The number of shares of
Series A Preferred Stock shall initially be 65,000 and the number of shares of
Series B Preferred Stock shall initially be 25,000, subject in the case of each
series to decrease (but not below the number of shares of such series (i)
required to be issued pursuant to the Purchase Agreement or (ii) then
outstanding) from time to time by action of the Board of Directors.
2. Rank. The Preferred Stock shall rank senior to the Common Stock, senior to
any other class or series of capital stock of the Corporation the terms of which
do not expressly provide that it ranks on a parity with the Preferred Stock
(collectively and together with the Common Stock, the "Junior Stock"), and pari
passu with any other class or series of capital stock of the Corporation the
terms of which expressly provide that it ranks on a parity with the Preferred
Stock (collectively, the "Parity Stock"), in each case as to receipt of amounts
distributable upon any liquidation, dissolution or winding up of the Corporation
(a "Liquidation"); provided, that at any such time that fewer than fifty percent
(50%) of the aggregate number of shares of Preferred Stock originally issued
pursuant to the Purchase Agreement remain outstanding, the Corporation shall
have the right, in its sole discretion, to issue shares of capital stock ranking
senior to the Preferred Stock, including without limitation, as to receipt of
amounts distributable upon Liquidation and as to dividends. Nothing in this
Certificate shall prevent or otherwise affect the declaration or payment of any
dividend or distribution on the Common Stock or any other class or series of
capital stock of the Corporation outstanding from time to time other than upon a
Liquidation, as long as the dividends are accruing on the Preferred Stock as
provided in Section 3. The Series A Preferred Stock and the Series B Preferred
Stock shall rank on a parity with each other.
3. Dividends and Distributions. The holder of each share of Preferred Stock
shall be entitled to receive dividends on such share of Preferred Stock from and
including the date of issuance of such share to but excluding the date of the
redemption or conversion of such share or the date of Liquidation. Such
dividends shall accrue on a daily basis from the date of issuance (computed on
the basis of a 360-day year of twelve 30-day months) on the Preference Amount of
such share, compounded as of the end of each of the Corporation's fiscal
quarters at a rate per annum equal to the greater of (i) the Accumulation Rate
and (ii) the Common Equivalent Rate with respect to such fiscal quarter, and
such dividends shall accrue whether or not they have been declared and whether
or not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. The Corporation shall not pay any cash
dividends on the Preferred Stock to any holder of shares of the Preferred Stock
pursuant to this Section 3 without the written consent or affirmative vote of
the holders of a majority of the then issued and outstanding shares of Preferred
Stock. The holders of shares of Preferred Stock shall not be entitled to receive
or participate in any dividends or other distributions made by the Corporation
that are not provided for in this Section 2 except upon Liquidation as provided
in Section 4 of this Certificate or following conversion as provided in Section
6.8 of this Certificate.
2
4. Liquidation, Dissolution or Winding Up.
4.1. Liquidation Preference. In the event of any Liquidation, either
voluntary or involuntary, distributions to the holders of the Preferred Stock
shall be made in the following manner:
4.1.1. Each holder of Preferred Stock shall be entitled to receive, after
distribution of any of the assets of the Corporation to the holders of any other
series or class of capital stock of the Corporation ranking senior to the
Preferred Stock with respect to the Liquidation ("Senior Stock"), pro rata with
any shares of Parity Stock (in proportion to their respective liquidation
preferences) and prior and in preference to any distribution of any of the
assets of the Corporation to the holders of any shares of Junior Stock, by
reason of their ownership of such stock, an amount per share of Preferred Stock
held by such holder (the "Liquidation Amount") equal to the greater of (i) the
Preference Amount as of the date of the Liquidation and (ii) the amount such
holder would be entitled to receive with respect to the Liquidation if such
share had been converted immediately prior to the effectiveness of the
Liquidation into shares of Common Stock pursuant to the provisions of Section 6
hereof. If after distribution of any of the assets of the Corporation to the
holders of any shares of Senior Stock, the assets of the Corporation shall be
insufficient to permit the payment in full to the holders of the Preferred Stock
of the full Liquidation Amount and the payment in full to the holders of any
shares of Parity Stock of the liquidation preference applicable to such Parity
Stock, then the entire remaining assets of the Corporation legally available for
distribution shall be distributed ratably among the holders of Preferred Stock
and Parity Stock, to the exclusion of any Junior Stock, in accordance with the
respective amounts which would be payable in respect of the shares held by each
of them upon such distribution if all amounts payable on or in respect of such
shares were paid in full.
4.1.2. After payment has been made to the holders of Preferred Stock of the
full amount to which they are entitled pursuant to Section 4.1.1, the holders of
Preferred Stock shall not be entitled to any further distributions of the assets
of the Corporation with respect to the Liquidation.
4.1.3. The Corporation shall give written notice of a Liquidation to each
holder of record of Preferred Stock at least 30 days prior to the date for
payment or distribution to stockholders stated in the Corporation's notice.
4.2. Change of Control. A Change of Control of the Corporation shall not be
deemed a Liquidation for purposes of this Section 4.
4.3. Distributions Other Than Cash. Whenever any distribution provided for in
this Section 4 shall be payable in property other than cash, the value of such
distribution shall be the Current Market Price of such property as of the record
date for holders entitled to participate in the Liquidation.
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5. Voting Rights; Amendments.
5.1. Voting Rights. Except as otherwise required by law, the holders of
Preferred Stock shall vote together with the holders of Common Stock (and any
other shares of the Corporation's capital stock which, by their terms, are
entitled to vote together with the Common Stock as a single class) as a single
class on any matter submitted to the holders of Common Stock. Each holder of
Preferred Stock shall have, on any matter submitted to the holders of Common
Stock, the number of votes in respect of its shares of Preferred Stock equal to
the number of shares of Common Stock into which the shares of Preferred Stock
held by such holder may be converted pursuant to Section 6 hereof on the record
date for holders entitled to participate in such vote. Record holders of
Preferred Stock shall be entitled to notice of any stockholders' meeting or
solicitation of stockholders' consents to the same extent as the holders of
Common Stock.
5.2. Amendments. The Corporation shall not amend or restate this Certificate
of Designation or any other provision of its Certificate of Incorporation (other
than insofar as any such amendment or restatement applies to Section 1 or
Section 6.3 of this Certificate of Designation or the second sentence of this
Section 5.2 and such amendment or restatement is subject to the requirements of
the next succeeding sentence) in any manner that adversely affects the powers,
preferences and rights of the Preferred Stock without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Preferred Stock. The Corporation shall not amend or restate this Certificate of
Designation or any other provision of its Certificate of Incorporation insofar
as any such amendment or restatement applies to Section 1 or Section 6.3 of this
Certificate of Designation or to this sentence in any manner that adversely
affects (i) the powers, preferences and rights of the Series A Preferred Stock
without the written consent or affirmative vote of the holders of a majority of
the then outstanding shares of Series A Preferred Stock or (ii) the powers,
preferences and rights of the Series B Preferred Stock without the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series B Preferred Stock.
6. Conversion Rights. The holders of Preferred Stock shall have the following
rights with respect to the conversion of the Preferred Stock into shares of
Common Stock:
6.1. General. Subject to and in compliance with the provisions of this
Section 6, shares of Preferred Stock may, at the option of the holder thereof,
be converted at any time and from time to time into the number of validly
issued, fully-paid and non-assessable shares of Common Stock equal to the
product obtained by multiplying the Applicable Conversion Rate (determined as
provided in Section 6.2) by the number of shares of Preferred Stock held by such
holder being converted.
6.2. Applicable Conversion Rate. The conversion rate in effect at any time
for shares of the Preferred Stock to be converted (the "Applicable Conversion
Rate") shall be the quotient obtained by dividing the Preference Amount of the
shares of Preferred Stock to be converted by the Applicable Conversion Value
then in effect for such shares.
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6.3. Applicable Conversion Value. The Applicable Conversion Value shall
initially be $40.00 per share of Common Stock in the case of the Series A
Preferred Stock and $30.00 per share of Common Stock in the case of the Series B
Preferred Stock, and shall be adjusted in the case of each series from time to
time in accordance with Sections 6.4 and 7.4(c) hereof (as so adjusted in either
such case, the "Applicable Conversion Value" for such series).
6.4. Adjustments to Applicable Conversion Value. In the event at any time of
(A) a subdivision (by a stock split, stock dividend, recapitalization or
otherwise) by the Corporation of outstanding shares of Common Stock into a
greater number of shares of Common Stock, or (B) a combination (by a reverse
stock split or otherwise) of the Corporation of outstanding shares of Common
Stock into a smaller number of shares of Common Stock (any of the foregoing
being referred to as an "Extraordinary Common Stock Event"), the Applicable
Conversion Value of each series of Preferred Stock shall, effective as of the
time such Extraordinary Common Stock Event becomes effective, be adjusted to
equal the product of (i) the Applicable Conversion Value for such series in
effect immediately prior to the effectiveness of such Extraordinary Common Stock
Event, multiplied by (ii) a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the effectiveness of such
Extraordinary Common Stock Event.
6.5 Corporate Change. Prior to the consummation of any Corporate Change, the
Corporation shall make appropriate provisions to ensure that each holder of
Preferred Stock shall have the right to receive, upon conversion of the holder"s
Preferred Stock into shares of Common Stock, in lieu of the shares of Common
Stock that the holder otherwise would have been entitled to receive upon
conversion, the stock, securities or assets that the holder would have received
in connection with the Corporate Change if the holder had converted the holder"s
Preferred Stock immediately prior to the close of business on the record date
for holders of Common Stock entitled to receive the stock, securities or assets
delivered to such holders as a result of the Corporate Change (assuming such
holder failed to exercise any rights of election and received per share the kind
and amount of consideration receivable per share by a plurality of the non-
electing shares of Common Stock). The Corporation shall not effect any Corporate
Change unless, prior to the consummation of the Corporate Change, the successor
corporation (if other than the Corporation) or the purchasing corporation
assumes by written instrument the obligation to deliver to each holder of
Preferred Stock such shares of stock, securities or assets that the holder is
entitled to receive in accordance with this Section 6.5.
6.6 Conversion Procedure.
(a) To exercise its conversion rights pursuant to this Section 6, a
holder of Preferred Stock shall surrender the certificate or certificates
representing the shares being converted to the Corporation at its principal
office or, if the Corporation has appointed an agent and provided the holders of
Preferred Stock notice thereof, at the office of the agent designated by the
Corporation for such purpose, together with written notice (a "Conversion
Notice") to the Corporation that such
5
holder elects to convert such shares, or if fewer than all the shares
represented by a single share certificate are to be converted, the number of
shares represented thereby to be converted. The certificate or certificates for
shares of Preferred Stock surrendered for conversion shall be accompanied by
proper assignment thereof to the Corporation or in blank.
(b) Each conversion of Preferred Stock shall be deemed to have been
effected as of the close of business on the effective date of such conversion as
specified in the Conversion Notice (the "Conversion Date"); provided, however,
that the Conversion Date shall not be a date earlier than the date such
Conversion Notice is received by the Corporation (or its designated agent), and
if such Conversion Notice does not specify a conversion date, the Conversion
Date shall be deemed to be the date such Conversion Notice is received by the
Corporation (or its designated agent). On the Conversion Date, the rights as a
holder of the holder of the Preferred Stock to be converted (including the right
to receive dividends thereon, except as provided in Section 6.8 hereof) shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby
(c) Promptly after the Conversion Date (and in any event within two
Business Days), the Corporation shall deliver to the converting holder at the
address set forth in the conversion notice (i) a certificate or certificates
representing, in the aggregate, the number of shares of Common Stock issued upon
such conversion, in the same name or names as the certificates representing the
converted shares or in such other name or names as the converting holder shall
specify (subject to any applicable legal, contractual or other restrictions on
transfer) and in such denomination or denominations as the converting holder
shall specify and a check for cash with respect to any fractional interest in a
share of Common Stock as provided in Section 6.7, and (ii) a certificate
representing any shares of Preferred Stock that were represented by the
certificate or certificates delivered to the Corporation in connection with such
conversion but that were not converted.
(d) The issuance of certificates for shares of Common Stock upon the
conversion of Preferred Stock shall be made without charge to the holder of such
Preferred Stock for any issuance tax in respect thereof if issued in the name of
such holder, and otherwise any certificates shall not be issued until payment of
any applicable transfer tax has been made by such holder.
6.7 Cash in Lieu of Fractional Shares. No fractional share of Common Stock or
scrip representing a fractional share shall be issued upon the conversion of any
shares of Preferred Stock, provided, that if more than one share of Preferred
Stock shall be surrendered for conversion at any one time by the same holder,
the number of full shares of Common Stock issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of Preferred Stock so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any shares of Preferred Stock, the
Corporation shall pay to the holder of the converted shares of Preferred Stock
cash in respect of any such fractional share of Common Stock in an amount equal
to the same fraction of the Current Market Price per share of Common Stock on
the Conversion Date.
6
6.8 Certain Distributions. Upon the conversion by any holder of Preferred
Stock of shares of Preferred Stock into Common Stock pursuant to this Section 6,
such holder shall have the right to receive, and shall be paid promptly
thereafter (and in any event within two Business Days), any dividends or
distributions as shall have been declared and paid or made by the Corporation on
or with respect to the Common Stock as a class during the period commencing on
the date on which the shares of Preferred Stock being converted were issued and
ending on the Conversion Date in such amounts as such holder would have received
had such holder converted such shares of Preferred Stock immediately prior to
the close of business on the record date established for holders of Common Stock
entitled to receive such dividends or distributions; provided, however, that the
terms of this Section 6.8 shall not apply to ordinary cash dividends
(specifically excluding any extraordinary dividends or distributions) declared
during a fiscal quarter with respect to shares of Common Stock to the extent
that such dividends resulted in the Common Equivalent Rate being in excess of
the Accumulation Rate. Upon effecting any dividend or distribution in which a
holder of shares of Preferred Stock shall be entitled to participate following
conversion as contemplated by this Section 6.8, the Corporation shall place in
escrow on customary business terms at the Corporation's expense, for the benefit
of the holders of the Preferred Stock, the property to which such holders shall
be entitled upon conversion as contemplated by this Section 6.8, and such
property shall be maintained in escrow at the Corporation's expense until such
time as the related shares of Preferred Stock have been converted or redeemed;
provided, however, that the Corporation may, at its expense, substitute another
arrangement for such escrow arrangement to the extent advisable based upon of
consultation with the Corporation's outside counsel in connection with any tax
treatment desired to be achieved in connection with any distribution of property
by the Corporation, provided, that such other arrangement does not adversely
affect the rights of the holders of Preferred Stock to receive any property upon
conversion as compared to the escrow arrangement described above.
6.9 Notice to Holders. In the event the Corporation shall propose to take or
otherwise undergo any action of the type described in Section 6.4 (but only if
the action of the type described in Section 6.4 would result in an adjustment in
the Applicable Conversion Value), engage in a Corporate Change as contemplated
by Section 6.5 or pay or make a dividend or distribution of the type described
in Section 6.8, the Corporation shall give notice to each holder of shares of
Preferred Stock in the manner set forth in Section 11, which notice shall
specify the record date, if any, with respect to any such action and the
approximate date on which such action is to take place. Such notice shall also
set forth such facts as are reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Applicable Conversion Value and the number, kind or class of shares or other
securities or property which shall be deliverable upon conversion of shares of
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least ten days prior to such record
date, and in case of all other action, such notice shall be given at least
fifteen days prior to the taking of such proposed action. Failure to give such
notice, or any defect therein, shall not affect the legality or validity or any
such action.
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6.10 Listing of Common Stock. If, and so long as, any Common Stock into which
the shares of Preferred Stock are then convertible is listed or admitted to
trading on any national securities exchange or designated as a National Market
Security by the NASD, the Corporation will, at its expense, list and have
admitted to trading, and keep listed and admitted to trading (as applicable), on
each such exchange, upon official notice of issuance, all shares of Common Stock
issuable upon conversion of the Preferred Stock.
6.11 Valid Issuance. All shares of Common Stock which may be issued upon
conversion of the shares of Preferred Stock shall upon issuance by the
Corporation be duly and validly issued, fully paid and nonassessable and shall
not be issued in violation of any preemptive rights arising under law or
contract, and the Corporation shall take no action which will cause a contrary
result (including without limitation, any action which would cause the
Applicable Conversion Value to be less than the par value, if any, of the Common
Stock).
7. Redemptions
7.1. Redemptions At Holder's Option.
(a) Subject to Section 7.4, at any time on or after February 23, 2003,
each holder of Preferred Stock shall have the right to require the Corporation
to redeem all (but not less than all) of the holder's Preferred Stock at a
redemption price equal to the aggregate Preference Amount of the shares to be
redeemed on the date set for redemption. Any holder of Preferred Stock may
exercise its redemption right under this Section 7.1(a) by delivering to the
Corporation a written notice stating the holder's intention to exercise its
redemption right. Following the receipt of any such notice, the Corporation
shall set a date for the payment of the redemption price, which date shall be a
Business Day not later than the 30th day following its receipt of the holder's
notice.
(b) In the event the Corporation enters into any agreement providing
for a transaction which if consummated would result in a Change of Control, the
Corporation shall give written notice of such event to the holders of Preferred
Stock within ten Business Days following entering into any such agreement.
Subject to Section 7.4 and subject to the consummation of the transaction
provided for in such agreement resulting in a Change of Control, each holder of
Preferred Stock shall have the right to require the Corporation, to redeem all
(but not less than all) of such holder's shares of Preferred Stock at a
redemption price (the "Change of Control Amount") equal to the greater of (i)
101% of the aggregate Preference Amount of the shares to be redeemed on the date
of redemption (the "Change of Control Preference Amount"), and (ii) the
aggregate Market Price of the shares of Common Stock into which such shares of
Preferred Stock could then be converted pursuant to the provisions of Section 6
hereof upon the consummation of such Change of Control (the "Change of Control
Market Price"). Any holder of Preferred Stock may exercise its redemption right
under this Section 7.1(b) by giving, within five Business Days following written
notice from the Corporation or public announcement of the Corporation's having
obtained stockholder approval for the transaction that will result in a Change
of Control (or, in the event that stockholder approval is not required for such
transaction, five Business Days prior to the consummation of such Change of
8
Control, and the Company shall provide the holders written notice of such five
Business Day period), a written notice to the Corporation stating the holder's
intention to exercise its redemption right under this Section 7.1(b). Following
receipt of any such notice, the Corporation shall set a date (the "Change of
Control Payment Date") for the payment of the Change of Control Amount, which
date shall be a Business Day not later than the later of (i) the first Business
Day following consummation of the applicable Change of Control and (ii) the date
which is the 10th day following its receipt of the holder's notice.
7.2. Redemption At Corporation's Option. At any time on or after February 23,
2004, the Corporation shall have the right to redeem on a Business Day set forth
in such notice all (but not less than all) of the outstanding shares of
Preferred Stock at a redemption price equal to the aggregate Preference Amount
of the shares to be redeemed, upon written notice of the redemption to all
holders of Preferred Stock given at least 30 days prior to the redemption date.
The Corporation's exercise of its redemption rights under this Section 7.2 shall
be subject to the conversion rights under Section 6 of each holder of Preferred
Stock, who may exercise those rights at any time prior to the close of business
on the redemption date.
7.3. Payment of Redemption Price. For each share of Preferred Stock which is
to be redeemed pursuant to Section 7.1 or 7.2, the Corporation shall be
obligated on the redemption date to pay to the holder, upon the holder's
surrender at the Corporation's principal office of the certificate(s)
representing the shares to be redeemed, the full redemption price of the shares
in immediately available funds; provided, however, that in the case of any
redemption pursuant to Section 7.1(b), in the event (i) the Change of Control
Amount of any shares of Preferred Stock of any holder shall be equal to the
Change of Control Market Price applicable to such shares and (ii) the relevant
Change of Control results from a transaction in which the holders of Common
Stock are entitled to receive, as all or any portion of the consideration in
such transaction, securities ("Change of Control Property"), the Company (or any
successor to the Company) may elect, in its sole discretion, to pay (a) that
portion of the applicable Change of Control Amount of such shares equal to the
Change of Control Preference Amount of such shares in immediately available
funds, and (b) that portion of the applicable Change of Control Amount of such
shares equal to the excess (the "Payment Differential") of the total Change of
Control Amount of such shares, over the Change of Control Preference Amount of
such shares, by issuing or paying to the holder of such shares that amount of
Change of Control Property as shall have an aggregate Market Price as of the
consummation of the Change of Control equal to the Payment Differential.
7.4. Redemption Restrictions.
(a) In the case of a redemption pursuant to Section 7.1, if the funds
of the Corporation legally available for the redemption of Preferred Stock on
the redemption date are insufficient to redeem the total number of shares of
Preferred Stock that the Corporation is required to redeem, those funds which
are legally available shall be used to redeem the maximum possible number of
shares of Preferred Stock pro rata among the holders of the shares to be
redeemed on the basis of the number of shares held by each holder. As and when
following the redemption date additional funds of the Corporation become legally
available for the redemption of Preferred Stock,
9
the Corporation shall immediately use such funds to redeem the balance of the
shares of Preferred Stock which the Corporation became obligated to redeem on
any prior redemption date but which it has not redeemed as may be redeemed at a
redemption price equal to the aggregate Preference Amount of such shares of
Preferred Stock on the actual date of redemption (and, if such funds are
insufficient to effect a redemption of all such shares at such redemption price,
such funds shall be used to redeem the maximum number of shares of Preferred
Stock pro rata among the holders of the shares to be redeemed on the basis of
the number of shares held by each holder, and any shares which cannot then be
redeemed by reason of the insufficiency of such funds shall remain subject to
the provisions of this sentence requiring later redemption). In the case of a
redemption pursuant to Section 7.2, the Corporation may not redeem any shares of
Preferred Stock unless the funds of the Corporation legally available for the
redemption of Preferred Stock are sufficient to affect the redemption of all
shares of Preferred Stock set for redemption.
(b) In the event that the Corporation on the date set for any
redemption under this Section 7 is prohibited under the terms of any agreement
by which it is bound from redeeming the shares of Preferred Stock held by such
holder, the Corporation shall not be required to effect any such redemption
until each such prohibition is no longer in effect. The Corporation shall not
enter into any agreement while any shares of Preferred Stock are outstanding
solely for the purpose of avoiding the redemption of shares of Preferred Stock
under this Section 7.
(c) In the event the Corporation does not redeem any shares of
Preferred Stock on the date specified therefor pursuant to Section 7.1 or 7.2 by
reason of the existence of any circumstance set forth in paragraphs (a) or (b)
of this Section 7.4, the Applicable Conversion Value of any shares of Preferred
Stock not so redeemed shall be immediately adjusted to equal the product of (i)
ninety percent (90%) multiplied by (ii) the Market Price of the Common Stock on
the date specified for such redemption (or, if no such date was specified, on
the date of receipt of notice of such impediment by the holders of the Preferred
Stock); provided, however, that such adjustment shall not be the exclusive
remedy of the holders of the Preferred Stock.
8. Capital Stock.
8.1. No Reissuance of Preferred Stock. No share or shares of Preferred Stock
acquired by the Corporation by reason of purchase, redemption, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Corporation shall be authorized to issue.
The Corporation may from time to time take such appropriate corporate action as
may be necessary to reduce the authorized number of shares of the Preferred
Stock accordingly.
8.2. Reservation of Stock. The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock (or out
of its authorized shares of Common Stock held in the treasury of the
Corporation), for the purpose of effecting the conversion of the Preferred
Stock, the full number of shares of Common Stock then issuable upon conversion
pursuant to Section 6 of all outstanding shares of Preferred Stock.
10
9. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of shares of Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at the Corporation's principal office accompanied
by proper assignment thereof to the Corporation or in blank, the Corporation
shall, at the request of the record holder of the certificate, execute and
deliver a new certificate or certificates in exchange representing in the
aggregate the number of shares of Preferred Stock represented by the surrendered
certificate. Each new certificate shall be registered in the name and represent
the number of shares of Preferred Stock requested by the holder of the
surrendered certificate and shall be substantially identical in form to the
surrendered certificate. Any transfer of Preferred Stock shall be subject to any
applicable legal, contractual or other restrictions on transfer and the payment
of any applicable transfer taxes by the transferring holder.
10. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity and a surety bond satisfactory to the
Corporation, or, in the case of any such mutilation, upon surrender of the
mutilated certificate, the Corporation shall execute and deliver in replacement
a new certificate of like kind representing the number of shares of Preferred
Stock represented by the lost, stolen, destroyed or mutilated certificate and
dated the date of the lost, stolen, destroyed or mutilated certificate.
11. Notices.
All notices under this Certificate of Designation shall be in writing and
sent by (i) certified or registered mail, return receipt requested, (ii) a
recognized overnight courier service, (iii) telecopier or (iv) personal
delivery. Notices to the Corporation shall be addressed to the Corporation's
chief executive officer and secretary at the Corporation's principal executive
offices, and notices to any holder shall be addressed to such holder's address
in the records of the Company. Any notice shall be deemed duly given (i) in the
case of a notice sent other than by mail, on the date actually delivered at such
addressed (evidenced, in the case of delivery by courier or other delivery
service, by confirmation of delivery from the service making the delivery or, in
the case of a notice sent by telecopier, by receipt of a transmission
confirmation form or the addressee's confirmation of receipt), and (ii) in the
case of any notice sent by mail, on the third Business Day following deposit in
the U.S. mails with first-class postage prepaid.
12. Definitions.
12.1. "Accumulation Rate" means four percent (4%).
12.2. "Business Day" means any day other than a Saturday or Sunday or a day
on which commercial banking institutions in Boston, Massachusetts or New York,
New York are authorized by law to be closed. Any reference to "days" (unless
Business Days are specified) shall mean calendar days.
11
12.3. "Change of Control" shall mean any consolidation, merger, issuance of
capital stock, sale of all or substantially all the assets of the Corporation or
similar transaction to which the Corporation is a party (whether in a single
transaction or series of related transactions) in which the stockholders of the
Corporation immediately prior to such event do not own, directly or indirectly,
a majority of the outstanding voting power of the surviving corporation or
acquiring entity, as the case may be, received in respect of their Corporation
shares, immediately after such event.
12.4. "Common Equivalent Rate" means, with respect to any fiscal quarter of
the Corporation, the quotient of (i) the product of (a) all ordinary cash
dividends (specifically excluding any extraordinary dividends or distributions)
declared during such fiscal quarter with respect to a share of Common Stock, (b)
four and (c) the number of shares of Common Stock issuable upon conversion of a
share of Preferred Stock on the first day of such fiscal quarter, divided by
(ii) the Preference Amount of a share of Preferred Stock on the first day of
such fiscal quarter.
12.5. "Corporate Change" shall mean any capital reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
the Corporation's assets to another Person which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon a
subsequent liquidation of the Corporation) securities or assets in respect of or
in exchange for Common Stock.
12.6. "Current Market Price" shall mean on any date specified herein (a) with
respect to any securities, the average daily Market Price during the period of
the most recent 10 trading days, ending on such date, except that if such
securities are not then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date, and (b) with respect to any property
other than securities, the fair value thereof on such date as reasonably
determined in good faith by the Board of Directors of the Corporation as of the
date on which the determination is to be made; provided, however, that a holder
of Preferred Stock shall have no right to object to such determination unless
such holder submits an objection in good faith to the Board of Directors within
10 days of notice thereof.
12.7. "Market Price" shall mean on any date specified herein with respect to
securities issued by any Person, the amount per share or other applicable unit
of such securities equal to (a) the last sale price of such securities, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
securities are then listed or admitted to trading; or (b) if such securities are
not then listed or admitted to trading on any national securities exchange but
are designated as a national market system security by the NASD, the last
trading price of such securities on such date, or (c) if there shall have been
no trading on such date or if such securities are not so designated, the average
of the closing bid and asked prices of such securities on such date as shown by
the NASD automated quotation system, or (d) if such securities are not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter
12
market, the fair value thereof on such date as reasonably determined in good
faith by the Board of Directors of the Corporation as of the date on which the
determination is to be made; provided, however, that the holders of the
Preferred Stock shall have no right to object to such determination unless such
holder submits an objection in good faith to the Board of Directors within 10
days of notice thereof.
12.8. "NASD" shall mean the National Association of Securities Dealers, Inc.
12.9. "Person" shall mean an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization or other
entity.
12.10. "Preference Amount" shall mean with respect to each share of Preferred
Stock the sum of (i) $1,000.00 plus (ii) all accrued and unpaid dividends on
such share.
12.11. "Purchase Agreement" shall mean the Securities Purchase Agreement
among the Corporation and the initial purchasers of the Preferred Stock, dated
as of July 26, 2000, as amended and in effect from time to time. 1.1.
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CABLETRON SYSTEMS, INC. has caused this Certificate of Designation to
be signed by Xxxxxx Xxxxx, its Chairman, and attested by Xxxx Xxxxxx, its
Assistant Secretary, this 29th day of August, 2000.
/s/ Xxxxxx Xxxxx
-------------------------
Chairman
ATTEST:
/s/ Xxxx Xxxxxx
-----------------------------
Assistant Secretary
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