FOCAL COMMUNICATIONS CORPORATION
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
July 1, 1998
Name
Address
City, State, PostalCode
Re: Focal Communications Corporation Amended and
Restated Nonqualified Stock Option Agreement
Dear First Name:
The Company is pleased to advise you that its Board of Directors (the "Board")
has granted to you stock options ("Options") under the Focal Communications
Corporation 1997 Nonqualified Stock Option Plan, as amended from time to time
(the "Plan"), subject to the following terms and conditions:
1. Definitions. For the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Change in Control" shall mean the occurrence of any of the following events:
(a) The Company is merged or consolidated or reorganized with or into another
corporation or other legal person, and as a result of such merger, consolidation
or reorganization less than a majority of the combined voting power of the then-
outstanding securities of such corporation or person immediately after such
transaction are held in the aggregate by the holders of securities entitled to
vote generally in the election of Directors immediately prior to such
transaction;
(b) The Company sells or otherwise transfers all or substantially all of its
assets to any other corporation or other legal person, and less than a majority
of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Stock immediately prior to such sale or
transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report), as promulgated in each case pursuant to the Exchange
Act, disclosing that any person (as the term "person" is used in Section
13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial
owner (as the term "beneficial owner" is defined in Rule 13d-3 promulgated under
the Exchange Act or any successor rule or regulation promulgated thereunder) of
securities representing 50% or more of the Voting Power; or
(d) If during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Directors and any new Directors
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the Directors then
still in office who either were Directors at the beginning of the period or
whose election was previously so approved cease for any reason to constitute a
majority of the Directors.
Notwithstanding the provisions of subparagraph (c) above, a "Change in Control"
shall not be deemed to have occurred for the purposes of this Agreement (i)
solely because MDCP either files or becomes obligated to file a report on
Schedule 13D (or any successor schedule or report), as promulgated pursuant to
the Exchange Act, disclosing beneficial ownership by it of securities
representing 50% or more of the Voting Power, (ii) solely because the Company or
any Company-sponsored employee stock ownership plan or other employee benefit
plan of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein), as
promulgated in each case pursuant to the Exchange Act, disclosing beneficial
ownership by it of securities representing 50% or more of the Voting Power or
otherwise, or because the Company reports that a change in control of the
Company has or may have occurred or will or may occur in the future by reason of
such beneficial ownership or (iii) solely because of a change in control of any
subsidiary (as the term "subsidiary" is defined in Section 424(f) of the Code)
of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Common Stock" shall mean the Company's Class A Common Stock, par value $.01 per
share, or in the event that the outstanding Common Stock is hereafter changed
into or exchanged for different stock or securities of the Company, such other
stock or securities.
"Company" shall mean Focal Communications Corporation, a Delaware corporation,
and (except to the extent the context requires otherwise) any subsidiary
corporation of Focal Communications Corporation, as the term "subsidiary" is
defined in Section 424(f) of the Code.
"Director" shall mean a member of the Board.
"Disability" shall mean your inability, due to illness, accident, injury,
physical or mental incapacity or other disability, to carry out effectively your
duties and obligations to the Company or to participate effectively and actively
in the management of the Company for a period anticipated to last at least 6
months, as determined by the Board in its good faith discretion.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and
any successor statute.
"Fair Market Value" of the Common Stock shall be the average, over a period of
21 days consisting of the day as of which Fair Market Value is being determined
and the 20 consecutive business days prior to such day, of the average of the
closing prices of the sales of the Common Stock on all securities exchanges on
which the Common Stock may at that time be listed, or, if there have been no
sales on any such exchange on any day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on any day the
Common Stock is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any
day the Common Stock is not quoted in the NASDAQ System, the average of the
highest bid and lowest asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau Incorporated or any similar
successor organization. If at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the Fair Market Value shall be the fair value of the Common Stock
determined in good faith by the Board.
"Grant Date" shall mean the date of this Option grant letter first written
above.
"Initial Public Offering" shall mean the initial underwritten offering of equity
securities of the Company to the general public pursuant to a registration
statement filed with, and declared effective by, the Securities and Exchange
Commission pursuant to the Securities Act, provided that neither of the
following shall constitute an Initial Public Offering: (i) any issuance of
Common Stock as consideration or financing for a merger or acquisition or (ii)
any issuance of Common Stock, or rights to acquire Common Stock, to employees of
the Company as part of an incentive or compensation plan.
"MDCP" shall mean Madison Dearborn Capital Partners, L.P., a Delaware limited
partnership.
"Option Shares" shall mean the shares of Common Stock issuable upon the exercise
of the Options and, until the consummation of the Initial Public Offering shall
occur, any and all shares of Common Stock that may be issued in respect of such
shares of Common Stock pursuant to a stock dividend, stock split,
reorganization, recapitalization, merger, consolidation, conversion or other
transaction or event effecting a change in the capital structure of the Company
or otherwise affecting the Common Stock. Until the consummation of the Initial
Public Offering shall occur, (i) all such shares of Common Stock shall continue
to be Option Shares in the hands of any holder thereof other than you (except
the Company and any purchaser of such shares of Common Stock pursuant to the
repurchase provisions of paragraph 12 below or the provisions of paragraphs
14(b), 14(c) and 16 below), and (ii) each such holder shall automatically
succeed to your rights and obligations hereunder as a holder of Option Shares.
"Registration Agreement" shall mean that certain Registration Agreement dated as
of November 27, 1996, by and among the Company and certain investors, as amended
from time to time.
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"Sale of the Company" shall mean a Change in Control pursuant to subparagraph
(a) or (b) of the definition of Change in Control above that occurs prior to the
consummation of the Initial Public Offering.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
successor statute.
"Successor Entity" shall mean a successor to the Company by merger,
consolidation or other business combination or a purchaser of all or
substantially all of the Company's assets or a majority of the Company's
outstanding voting securities, as the case may be.
"Voting Power" shall mean, at any time, the votes relating to the then-
outstanding securities entitled to vote generally in the election of Directors.
2. The Options.
(a) Exercise Price and Type of Options. The Company is granting to you (Option
Number) Options. Each of your Options is for the purchase of 1/500th of a share
of Common Stock at a price per share of $1,105.00 (the "Exercise Price"),
payable upon exercise as set forth in paragraph 2(b) below. Your Options are not
intended to be "incentive stock options" within the meaning of Section 422 of
the Code.
(b) Payment of Option Price. Subject to the provisions of paragraphs 3 and 4
below, your Options may be exercised in whole or in part upon payment of an
amount (the "Option Price") equal to the product of (i) the Exercise Price
multiplied by (ii) the number of Option Shares (including any fractional share)
to be acquired; provided, however, that following the consummation of the
Initial Public Offering, (i) the Exercise Price shall be multiplied by the
number of whole Option Shares to be acquired, and (ii) any fractional share
shall be settled in cash in accordance with the provisions of clause (b) of the
last sentence of paragraph 5 below. The Option Price shall be payable (i) in
cash (including check, bank draft, money order or, following the consummation of
the Initial Public Offering, from the proceeds of sale through a broker on a
date satisfactory to the Company of some or all of the Option Shares to which
the exercise relates), (ii) by transfer to the Company of shares of Common Stock
that, at the time of exercise, have been held by you for at least six months
and, by themselves or together with cash, have a Fair Market Value equal to the
Option Price, or (iii) in the discretion of the Board, by delivery of a
promissory note in accordance with policies approved by the Board.
3. Exercisability/Vesting.
(a) Vesting Schedule. Your Options may be exercised only to the extent that
they shall have become vested. Except as otherwise provided in paragraphs
3(b)(i) and 3(c) below, your options shall vest and become exercisable with
respect to the following percentages of your Option Shares (rounded to the
nearest whole share) on the following vesting dates, provided that you are then
employed by (or are then serving as a director of) the Company and shall have
been continuously employed by (or shall have continuously served as a director
of) the Company from the Grant Date through such vesting date:
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Cumulative Percentage of Options
Vesting Date Vested on such Vesting Date
12-month anniversary of the Grant Date 25%
18-month anniversary of the Grant Date 37.5%
24-month anniversary of the Grant Date 50%
30-month anniversary of the Grant Date 62.5%
36-month anniversary of the Grant Date 75%
42-month anniversary of the Grant Date 87.5%
48-month anniversary of the Grant Date 100%
(b) Treatment of Options upon a Change in Control. Upon the occurrence of a
Change in Control:
(i) Partial Acceleration of Vesting. Your Options shall automatically become
immediately vested and exercisable to the extent that they would have otherwise
become vested and exercisable 12 months from and after the date of the Change in
Control pursuant to paragraph 3(a) above, had you been continuously employed by
(or continuously served as a director of) the Company during such twelve-month
period (and any Options then remaining unvested and unexercisable shall continue
to vest and become exercisable on the anniversaries of the Grant Date set forth
in paragraph 3(a), less 12 months in the case of each such anniversary, so that
the vesting schedule set forth in paragraph 3(a) shall have been effectively
accelerated by 12 months, subject to your continuous employment by (or
continuous service as a director of) the Company as provided in paragraph 3(a));
and
(ii) Conversion of Options. Except as otherwise provided in paragraph 16(a)
with respect to an Approved Sale (as defined in Section 16(a)), if the
outstanding shares of Common Stock are converted into or exchanged for a
different number or kind of shares or other securities or other consideration,
your Options shall be exchanged for or otherwise converted into economically and
otherwise substantively equivalent (as determined by the Board in its good faith
discretion in accordance with the Plan) options to purchase shares of stock or
other equity securities of any Successor Entity.
(c) Acceleration of Vesting upon Discharge in Anticipation of or Following a
Change in Control. If your employment is terminated by the Company in connection
with or anticipation of a Change in Control, or if your employment is terminated
by the Company or a Successor Entity at any time during the two-year period
commencing on the date of a Change in Control, your Options shall automatically
become fully vested and immediately exercisable upon such termination of your
employment. For the purposes of this paragraph 3(c), your employment shall be
deemed to have been terminated by the Company or a Successor Entity, if your
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employment is actually terminated by the Company or a Successor Entity or is
terminated by you as a result of (i) a material reduction in your total
compensation without your consent (it being understood that a change in the form
or measure of compensation, including but not limited to a change from salary-
based compensation to commission-based compensation or a rearrangement of your
compensation package to include a different combination of salary, bonus,
commission, options or other equity incentives, etc., shall not in and of itself
constitute such a reduction) or (ii) a relocation of your place of employment to
a site that is at least 50 miles from your then-current place of employment
without your consent.
4. Expiration of Options.
(a) Normal Expiration. In no event shall any portion of your Options be
exercisable after the tenth anniversary of the Grant Date.
(b) Early Expiration upon Termination of Employment. Except as otherwise
provided in paragraph 3(c) above, any portion of your Options that shall not
have become vested and exercisable in accordance with the provisions of
paragraph 3(a) or 3(b)(i) above shall automatically expire and be forfeited
immediately upon the termination of your employment with the Company for any
reason. Subject to the provisions of paragraph 4(a) above, any unexercised
portion of your Options that shall have become vested and exercisable in
accordance with the provisions of paragraph 3 above on or prior to the date of
termination of your employment shall remain exercisable for a period of 60 days
from and after the date of termination of your employment.
5. Procedure for Exercise of Options. To the extent that your Options shall
have vested and become exercisable in accordance with the provisions of
paragraph 3 above, they may be exercised in whole or in part from time to time,
subject to the provisions of paragraph 4 above, by delivering to the Company (to
the attention of the Secretary of the Company) (a) written notice of exercise,
specifying (i) the number of Options being exercised and (ii) the number of
Option Shares (including any fractional share, if the exercise shall occur prior
to the consummation of the Initial Public Offering) being acquired, (b) payment
of the Option Price in accordance with the provisions of paragraph 2(b) above,
and (c) if the exercise shall occur prior to the consummation of the Initial
Public Offering, your written acknowledgment that you have read and been
afforded an opportunity to ask questions of the Company's management regarding
all financial and other information provided to you regarding the Company. As a
condition to any exercise of your options prior to the consummation of an
Initial Public Offering, (a) you shall permit the Company to deliver to you all
financial and other information regarding the Company that the Company shall
believe necessary to enable you to make an informed investment decision, and (b)
you shall make all customary investment representations that the Company shall
require. Following the consummation of the Initial Public Offering, (a) the
Company shall not be obligated to issue any fractional Option Share, and (b) any
fractional Option Share shall be settled in cash, based on the Fair Market Value
of the Common Stock on the date of exercise.
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6. Compliance with Securities Laws. You represent that, when you exercise any
of your Options, you shall be purchasing Option Shares for your own account and
not on behalf of others. You understand and acknowledge that federal and state
securities laws govern and restrict your right to offer, sell or otherwise
dispose of any Option Shares unless your offer, sale or other disposition
thereof is registered under the Securities Act and state securities laws or, in
the opinion of the Company's counsel, such offer, sale or other disposition is
exempt from registration or qualification thereunder. You agree that you shall
not offer, sell or otherwise dispose of any Option Shares in any manner that
would (a) require the Company to file any registration statement with the
Securities and Exchange Commission (or any similar filing under state law) or to
amend or supplement any such filing or (b) violate or cause the Company to
violate the Securities Act, the rules and regulations promulgated thereunder or
any other state or federal law. You further understand that the certificates
for any Option Shares you purchase shall bear such legends as the Company deems
necessary or desirable in connection with the Securities Act or other rules,
regulations or laws, and you agree that, at the time of such purchase, you shall
execute such documents necessary for the Company to perfect exemptions from
registration under federal and state securities laws as the Company may deem
necessary or advisable.
7. Non-Transferability of Options. Your Options are personal to you and are
not transferable by you other than by will or the laws of descent and
distribution. During your lifetime only you (or your guardian or legal
representative) may exercise your Options. In the event of your death, your
Options may be exercised only (a) by the executor or administrator of your
estate or the person or persons to whom your rights under the Options shall pass
by will or the laws of descent and distribution and (b) to the extent that you
were entitled hereunder at the date of your death.
8. Conformity with Plan. Your Options are intended to conform in all respects
with, and are subject to all applicable provisions of, the Plan (a copy of which
is attached hereto and incorporated herein by reference). Inconsistencies
between this Agreement and the Plan shall be resolved in accordance with the
terms of the Plan. By executing and returning the enclosed copy of this
Agreement, you acknowledge your receipt of this Agreement and the Plan and agree
to be bound by all of the terms of this Agreement and the Plan.
9. Rights of Participants. Nothing in this Agreement shall interfere with or
limit in any way the right of the Company to terminate your employment at any
time and for any reason or confer upon you any right to continue in the employ
of the Company for any period of time or to continue your present (or any other)
rate of compensation, and in the event of your termination of employment at any
time and for any reason, any portion of your Options that are not then vested
and exercisable in accordance with the provisions of paragraph 3 above shall
expire and be forfeited in accordance with the provisions of paragraph 4(b)
above. Nothing in this Agreement shall confer upon you any right to be selected
again as a Plan participant, and nothing in the Plan or this Agreement shall
provide for any adjustment to the number of Option Shares subject to your
Options upon the occurrence of subsequent events except as provided in paragraph
11 below.
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10. Withholding of Taxes. If the Company shall be required to withhold any
federal, state, local or foreign tax in connection with any exercise of your
Options, you shall pay the tax or make provisions that are satisfactory to the
Company for the payment thereof. Following the consummation of the Initial
Public Offering, you may elect to satisfy all or any part of any such
withholding obligation by surrendering to the Company a portion of the Option
Shares that are issued or transferred to you upon the exercise of your Options,
and the Option Shares so surrendered by you shall be credited against any such
withholding obligation at the Fair Market Value thereof on the date of exercise.
11. Adjustments. In the event of a reorganization, recapitalization, stock
dividend or stock split, or combination or other change in the shares of Common
Stock, the Board may make such adjustments in the number and type of shares
authorized by the Plan, the number and type of shares covered by your Options
and the Exercise Price specified herein as the Board may determine to be
appropriate and equitable in order to prevent the dilution or enlargement of
rights under your Option. The issuance by the Company of shares of stock of any
class, or options or securities exercisable or convertible into shares of stock
of any class, for cash or property or labor or services, upon direct sale, or
upon the exercise of rights or warrants to subscribe therefor, or upon the
exercise or conversion of other securities, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock then subject to any Options.
12. Right to Repurchase Option Shares upon Termination of Employment Prior to
Consummation of Initial Public Offering. Prior to the consummation of the
Initial Public Offering:
(a) Repurchase of Option Shares. If your employment with the Company shall
terminate for any reason (the date on which such termination shall occur being
referred to as the "Termination Date"), then the Company (or its assignee
pursuant to paragraph 12(c)) shall have the option to repurchase all or any
portion of your Option Shares issued or issuable upon exercise of your Options,
whether held by you or by one or more of your transferees, at the price
determined in accordance with the provisions of paragraph 13 (the "Repurchase
Option").
(b) Repurchase by Company. The Company may elect to purchase all or any
portion of the Option Shares by delivery of written notice (the "Repurchase
Notice") to you or any other holder(s) of the Option Shares within the 20 days
prior to and including, or within the 120 days following, the Termination Date.
The Repurchase Notice shall set forth the number of Option Shares to be acquired
from you and such other holder(s), the aggregate consideration to be paid for
such shares and the time and place for the closing of the transaction. The
number of Option Shares to be repurchased by the Company shall first be
satisfied to the extent possible from the Option Shares held by you at the time
of delivery of the Repurchase Notice. If the number of Option Shares then held
by you is less than the total number of Option Shares the Company has elected to
repurchase, the Company shall repurchase the remaining Option Shares elected to
be repurchased from the other holder(s) thereof, pro rata according to the
number of Option Shares held by each such holder at the time of delivery of the
Repurchase Notice (determined as closely as practicable to the nearest whole
share).
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(c) Assignment of Repurchase Option. By action of the Board, the Company may
assign all or any portion of its repurchase rights under this paragraph 12 to
any holder of Common Stock (an "Other Stockholder") or any executive officer of
the Company or any of its subsidiaries. Notwithstanding the foregoing sentence,
the Company may not assign its right under paragraph 13(b) to pay a portion of
the purchase price for any Option Shares repurchased hereunder in the form of a
promissory note or to offset such purchase price against obligations or
indebtedness owed by you to the Company.
(d) Closing of Repurchase of Option Shares. The repurchase of Option Shares
pursuant to this paragraph 12 shall be closed at the Company's executive offices
not less than 20 days after the giving of the Repurchase Notice but not more
than 20 days after the expiration of the 140-day period referred to in paragraph
12(b). At the closing, the purchaser or purchasers shall pay the purchase price
in the manner specified in paragraph 13(b), and you and any other holder(s) of
Option Shares being repurchased shall deliver the certificate or certificates
representing such shares to the purchaser or purchasers or their nominees,
accompanied by duly executed stock powers. (If any Option Shares issuable upon
exercise of your Options shall be repurchased hereunder, such Options shall be
deemed to have been exercised simultaneously with such repurchase.) Any
purchaser of Option Shares pursuant to this paragraph 12 shall be entitled to
receive customary representations and warranties from you and any other selling
holder(s) of Option Shares regarding the sale of such shares (including
representations and warranties regarding good title to such shares, free and
clear of any liens or encumbrances) and to require the signatures of all sellers
to be guaranteed by a national bank or reputable securities broker.
Upon the consummation of the Initial Public Offering, the provisions of this
paragraph 12 shall automatically become null and void and of no further force or
effect.
13. Purchase Price for Option Shares.
(a) Purchase Price. The purchase price to be paid for the Option Shares
repurchased by the Company and Other Stockholders pursuant to paragraph 12 shall
be equal to (i) in the case of Option Shares issued upon exercise of your
Options prior to such repurchase, the Fair Market Value of such Option Shares as
of the Termination Date, or (ii) in the case of Option Shares issuable upon
exercise of your Options (which shall be deemed to have been exercised
simultaneously with such repurchase), the Fair Market Value of such Option
Shares as of the Termination Date minus the Option Price for such Option Shares.
(b) Manner of Payment. If the Company elects to repurchase all or any portion
of the Option Shares, including Option Shares held by one or more transferees,
the Company shall pay for such shares by delivery of a cashier's or certified
check or wire transfer of immediately available funds in an amount equal to the
purchase price of the Option Shares to be repurchased; provided, however, in the
event that the Board determines in its good faith discretion that the Company is
not in a position to pay in immediately available funds any or all of such
repurchase price, the Company may pay a portion of the repurchase price for such
Option Shares (which portion shall not exceed the Fair Market Value of such
Option Shares (as of the date on which such Option
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Shares were originally issued to you) minus the Option Price for such Option
Shares) in the form of a subordinated promissory note of the Company. Such
subordinated promissory note shall bear interest at the rate paid on the
Company's senior debt obligations (or if the Company has no such senior debt, at
the prime rate announced or published by Citibank, N.A. from time to time),
shall have all principal and accrued interest due and payable on the fifth
anniversary of the date of issuance and shall be subordinated on terms and
conditions satisfactory to the holder(s) of the Company's indebtedness for
borrowed money. In addition, the Company may pay the purchase price for such
Option Shares by offsetting amounts outstanding under any indebtedness or
obligations owed by you to the Company. If the Company assigns any part of its
Repurchase Option, each such assignee shall pay for that portion of such Option
Shares with a cashier's or certified check or wire transfer of immediately
available funds in an amount equal to the purchase price for such Option Shares
to be purchased by the assignee.
(c) Termination of Purchase Price Provisions. Upon the consummation of the
Initial Public Offering, the provisions of this paragraph 13 shall automatically
become null and void and of no further force or effect.
14. Restrictions on Transfer of Option Shares Prior to Consummation of Initial
Public Offering. Prior to the consummation of the Initial Public Offering:
(a) Transfer of Option Shares. You shall not sell, assign, transfer, pledge or
otherwise dispose of or encumber any interest in any Option Shares (a
"Transfer") except pursuant to the provisions of paragraphs 12, 14(b) or 16
("Exempt Transfers").
(b) Certain Permitted Transfers. The restrictions contained in this paragraph
14 shall not apply with respect to transfers of Option Shares (i) pursuant to
applicable laws of descent and distribution or (ii) among your family group;
provided, however, that the restrictions contained in this paragraph shall
continue to be applicable to the Option Shares after any such transfer, and the
transferees of such Option Shares shall agree in writing to be bound by the
provisions of this Agreement. For the purposes of this paragraph 14(b), your
"family group" means (i) persons related to you by blood, marriage or adoption,
(ii) any trust solely for the benefit of you and/or the persons described in
clause (i) of this sentence, and (iii) any limited partnership, limited
liability partnership, limited liability company or similar entity, all of the
equity interests of which are held by you and/or the persons described in clause
(i) and/or clause (ii) of this sentence.
(c) Termination of Restrictions. The restrictions on the transfer of Option
Shares set forth in this paragraph 14 shall continue with respect to each Option
Share until the date on which such Option Share has been transferred in an
Exempt Transfer other than an Exempt Transfer contemplated by paragraph 14(b).
Upon the consummation of the Initial Public Offering, the provisions of this
paragraph 14 shall automatically become null and void and of no further force or
effect.
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15. Additional Restrictions on Transfer.
(a) Restrictive Legend. Unless and until the Option Shares shall be sold
pursuant to a transaction registered under the Securities Act or pursuant to a
transaction that complies with Rule 144 under the Securities Act, certificates
representing Option Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
, , HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN AN OPTION AGREEMENT BETWEEN THE COMPANY AND ONE OF
ITS EMPLOYEES, DATED AS OF [ , ] A COPY OF WHICH MAY BE
OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(b) Opinion of Counsel. You may not sell, assign, transfer, pledge or
otherwise dispose of or encumber any Option Shares (except pursuant to an
effective registration statement under the Securities Act or, 90 days after the
consummation of the Initial Public Offering, in compliance with Rule 701(c)(3)
under the Securities Act) without first delivering to the Company an opinion of
counsel reasonably acceptable in form and substance to the Company that
registration under the Securities Act or any applicable state securities law is
not required in connection with such transfer.
(c) Holdback. You agree not to effect any public sale or distribution of any
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for any equity securities of the Company, during the
seven days preceding, and the 180 days following, the effectiveness of any
underwritten Demand Registration (as defined in the Registration Agreement) or
any underwritten Piggyback Registration (as defined in the Registration
Agreement), except as part of any such underwritten registration if otherwise
permitted.
16. Sale of the Company Prior to Consummation of Initial Public Offering.
Prior to the consummation of the Initial Public Offering:
(a) Consent to Sale of the Company. If a Sale of the Company is approved by
the Company and the holders of at least 67% of the Institutional Investor Stock
(as defined in the Stock Purchase Agreement dated as of November 27, 1996, by
and among the Company, MDCP, Frontenac VI, L.P., Battery Ventures III, L.P.,
Xxxxx X. Xxxx, Xxxx X. Xxxxxxxx, Xxxxxx Xxxxxx and Xxxxxx X. Xxxxxx, Xx.) then
outstanding (the "Approved Sale"), you shall consent to and raise no objections
against the Approved Sale of the Company, and if the Approved Sale of the
Company is structured as a sale of stock, you shall agree to sell all of your
Option Shares then
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outstanding, and all of your Options then remaining unexercised hereunder
(regardless of whether such Options are then vested and exercisable), on such
terms and conditions as shall be approved by the Board and the holders of at
least 67% of the Institutional Investor Stock then outstanding, provided that
such terms and conditions (including price) shall be no less favorable than
those on which shares of Institutional Investor Stock are being sold in the
Approved Sale. Any of your unexercised Options to be purchased in the Approved
Sale shall be purchased at a price equal to (i) the price at which shares of
Institutional Investor Stock are being purchased in the Approved Sale minus (ii)
the Option Price. You shall take all necessary and desirable actions in
connection with the consummation of the Approved Sale of the Company.
(b) Purchaser Representative. If the Company or the holders of the Company's
securities enter into any negotiation or transaction for which Rule 506 (or any
successor rule then in effect) under the Securities Act may be available with
respect to such negotiation or transaction (including a merger, consolidation or
other reorganization), you shall at the request of the Company appoint a
"purchaser representative" (as such term is defined in Rule 501 under the
Securities Act) reasonably acceptable to the Company. If you appoint the
purchaser representative designated by the Company, the Company shall pay the
fees of such purchaser representative. If you decline to appoint the purchaser
representative designated by the Company, you shall appoint another purchaser
representative reasonably acceptable to the Company, and you shall be
responsible for the fees of the purchaser representative so appointed.
The provisions of this paragraph 16 shall automatically become null and void and
of no further force or effect upon the earlier of (i) the consummation of a Sale
of the Company or (ii) the consummation of the Initial Public Offering.
17. Remedies. The parties hereto (and prior to the consummation of the Initial
Public Offering, the Other Stockholders as third-party beneficiaries) shall be
entitled to enforce their rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in their favor. The parties hereto
acknowledge and agree that money damages would not be an adequate remedy for any
breach of the provisions of this Agreement and that any party hereto (and prior
to the consummation of the Initial Public Offering, any Other Stockholder as a
third-party beneficiary) may apply to any court of law or equity of competent
jurisdiction for specific performance or injunctive relief (without posting bond
or other security) in order to enforce or prevent any violation of the
provisions of this Agreement. All rights of the Other Stockholders as third-
party beneficiaries under this Agreement shall automatically terminate upon the
consummation of the Initial Public Offering.
18. Amendment. Any amendment to the Plan shall be deemed an amendment to this
Agreement to the extent that any such amendment is applicable to this Agreement;
provided, however, that (a) prior to the consummation of the Initial Public
Offering, no such amendment shall adversely affect your rights under this
Agreement without the prior written consent of a majority (based on the total
number of Option Shares subject to Options held) of the holders of then
outstanding Options granted under the Plan whose rights are similarly adversely
affected, and (b) following the consummation of the Initial Public Offering, no
such amendment shall
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adversely affect your rights under this Agreement without your prior written
consent. Prior to the consummation of the Initial Public Offering, this
Agreement may not otherwise be amended in any way that would adversely affect
your rights hereunder without the prior written consent of a majority (based on
the total number of Option Shares subject to Options held) of the holders of
then outstanding Options granted under the Plan whose Option agreements are to
be similarly amended, and following the consummation of the Initial Public
Offering, this Agreement may not otherwise be amended in any way that would
adversely affect your rights hereunder without your prior written; provided,
however, that prior to the consummation of the Initial Public Offering, no
provision of paragraph 12, 13, 14, 15, 16, 17 or 18 of this Agreement may be
amended or waived without the prior written consent of at least 67% of the
Institutional Investor Stock then outstanding, if such amendment or waiver would
have a detrimental effect on the Other Stockholders.
19. Successors and Assigns. Except as otherwise expressly provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and permitted assigns of the parties hereto whether so expressed or
not.
20. Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or any other provision of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts (including by facsimile), each of which shall constitute an
original, and all of which taken together shall constitute one and the same
Agreement.
22. Descriptive Headings. The descriptive paragraph headings in this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
23. Governing Law. The corporate law of Delaware shall govern all questions
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity and interpretation of this
Agreement shall be governed by the internal law, and not the law of conflicts,
of Illinois.
24. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally, one
business day after being sent by reputable overnight courier (charges prepaid)
or four business days after being mailed by certified or registered mail
(postage prepaid and return receipt requested), to the recipient. Such notices,
demands and other communications shall be sent to the addresses indicated below:
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(a) If to you:
Name
Address
City, State, Postal Code
(b) If to the Company:
Focal Communications Corporation
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: President
(c) If to the Other Stockholders, to the address listed in the Company's
records; or to such other address (or to the attention of such other person) as
the receiving party may hereafter specify by prior written notice to the sending
party.
25. Third-Party Beneficiaries. You and the Company hereby acknowledge that,
until the consummation of the Initial Public Offering, the Other Stockholders
are third-party beneficiaries under this Agreement.
26. Entire Agreement. This Agreement constitutes the entire understanding
between you and the Company and supersedes all prior oral and written agreements
with respect to the subject matter hereof.
* * * *
Please execute the enclosed copy of this Agreement in the space provided below
and return it to the Secretary of the Company at the executive offices of the
Company to confirm your receipt of copies of, and your understanding and
acceptance of the terms and conditions of, this Agreement and the Plan.
Very truly yours,
FOCAL COMMUNICATIONS CORPORATION
By
Its President and Chief Executive Officer
Enclosures: 1. Extra copy of this Agreement
2. Copy of the Plan
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The undersigned hereby acknowledges receipt of copies of, and his or her
understanding and acceptance of the terms and conditions of, this Agreement and
the Plan.
Dated as of: , 1998
(Signature)
Name (printed or typed)
15