-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PnghuNMM71Mr2Q4MZ0kK8K9r9N45P6hY3ZURTOWVvWyNvlal0Ois9M0/50HFwp4v p0rsTVpzAcws5w3zGVt11A== /in/edgar/work/0001045969-00-000887/0001045969-00-000887.txt : 20001116 0001045969-00-000887.hdr.sgml : 20001116 ACCESSION NUMBER: 0001045969-00-000887 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAM NET INC CENTRAL INDEX KEY: 0001060274 STANDARD INDUSTRIAL CLASSIFICATION: [7374 ] IRS NUMBER: 411795247 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-53841 FILM NUMBER: 768565 BUSINESS ADDRESS: STREET 1: 655 LOAN OAK DR CITY: EGAN STATE: MN ZIP: 55121 BUSINESS PHONE: 6512565100 MAIL ADDRESS: STREET 1: 6100 W 110TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55438 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ____________ Commission file number: 333-53841 WAM!NET Inc. (Exact name of registrant as specified in its charter) Minnesota 41-1795247 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 655 Lone Oak Dr Eagan, Minnesota 55121 (Address of principal executive offices) (Zip Code) (651) 256-5100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of October 31, 2000 there were 11,103,771 shares of the Corporation's Common Stock, par value $.01 per share, outstanding. Total number of pages in this report: 24 WAM!NET Inc. INDEX TO FORM 10-Q
Page No. -------- Part I--Financial Information Item 1--Financial Statements Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999............................................................................... 3 Consolidated Statements of Operations for the three and nine month periods ended September 30, 2000 and 1999 (unaudited)...................................... 5 Consolidated Statements of Cash Flows for the three and nine month periods ended September 30, 2000 and 1999 (unaudited)...................................... 6 Notes to Consolidated Financial Statements (unaudited)............................... 8 Item 2--Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 11 Item 3--Quantitative and Qualitative Disclosures About Market Risk.......................... 18 Part II--Other Information Item 2--Changes in Sercurities and Use of Proceeds........................................... 19 Item 6--Exhibits and Reports on Form 8-K..................................................... 19 Signature-- .................................................................................... 20 Exhibit Index-- .................................................................................... 21
-2- Part I--FINANCIAL INFORMATION Item 1--Financial Information WAM!NET Inc. Consolidated Balance Sheets (Dollars in thousands)
September 30, December 31, 2000 1999 ------------ ------------ (Unaudited) Assets Current assets: Cash and cash equivalents ............................................ $ 7,987 $ 27,180 Investment ........................................................... 4,982 -- Accounts receivable, net of allowance of $647 and $1,570, respectively 4,581 3,982 Inventory ............................................................ 569 1,254 Prepaid expenses and other current assets ............................ 4,309 4,018 -------- -------- Total current assets ...................................................... 22,428 36,434 Property, plant, and equipment, net ....................................... 365,193 358,336 Goodwill, net ............................................................. 17,315 21,421 Deferred financing charges, net ........................................... 13,542 18,300 Other assets .............................................................. 1,127 764 -------- -------- Total assets .............................................................. $419,605 $435,255 ======== ========
-3- WAM!NET Inc. Consolidated Balance Sheets (continued) (Dollars in thousands) September 30, December 31, 2000 1999 ------------ ----------- (Unaudited) Liabilities and shareholders' deficit Current liabilities: Accounts payable ......................... $ 14,505 $ 13,739 Accrued salaries and wages ............... 4,450 2,839 Accrued expenses ......................... 13,949 6,450 Deferred revenue ......................... 2,520 2,500 Current portion of long-term debt ........ 38,076 55,950 --------- --------- Total current liabilities ..................... 73,500 81,478 Deferred revenue .............................. 10,000 10,000 Network Facilities Financing .................. 236,962 239,603 Long-term debt, less current portion .......... 259,869 250,847 Class A Redeemable Preferred Stock ............ 1,279 1,212 Shareholders' deficit: Class B Convertible Preferred Stock ...... 57 57 Class C Convertible Preferred Stock ...... 9 9 Class D Convertible Preferred Stock ...... 22 22 Class E Convertible Preferred Stock ...... 1 -- Class F Convertible Preferred Stock ...... -- -- Class G Convertible Preferred Stock ...... -- -- Class H Convertible Preferred Stock ...... -- -- Common Stock ............................. 111 95 Additional paid-in capital ............... 282,933 156,680 Accumulated deficit ...................... (432,803) (303,614) Accumulated other comprehensive loss ..... (12,335) (1,134) --------- --------- Total shareholders' deficit ................... (162,005) (147,885) --------- --------- Total liabilities and shareholders' deficit ... $ 419,605 $ 435,255 ========= ========= See accompanying notes. -4- WAM!NET Inc. Consolidated Statements of Operations (Dollars in thousands, except share and per share data)
Three months ended Nine months ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- (Unaudited) Revenues: Net service revenue ........................................ $ 8,813 $ 4,787 $ 22,270 $ 11,861 Software and hardware sales ................................ 1,522 2,029 4,975 5,622 ------------ ------------ ------------ ------------ Total revenue .............................................. 10,335 6,816 27,245 17,483 Operating expenses: Network communications ..................................... 7,096 6,767 21,230 19,489 Cost of software and hardware .............................. 614 823 1,648 2,220 Network operations and development ......................... 5,825 6,447 16,616 17,222 Selling, general and administrative ........................ 13,336 9,281 38,375 30,552 Restructuring charge ....................................... 1,657 -- 1,657 -- Depreciation and amortization .............................. 10,831 8,850 29,295 24,908 ------------ ------------ ------------ ------------ 39,359 32,168 108,821 94,391 ------------ ------------ ------------ ------------ Loss from operations ....................................... (29,024) (25,352) (81,576) (76,908) Other income (expense): Loss on investment .................................... (14,697) -- (14,697) -- Interest income ....................................... 90 90 715 520 Interest expense ...................................... (10,145) (7,988) (35,465) (25,479) Other income .......................................... 565 208 1,834 383 ------------ ------------ ------------ ------------ Net loss ................................................... $ (53,211) $ (33,042) $ (129,189) $ (101,484) Less preferred dividends ................................... (3,974) (1,800) (10,075) (4,105) ------------ ------------ ------------ ------------ Net loss applicable to common stock ........................ $ (57,185) $ (34,842) $ (139,264) $ (105,589) ============ ============ ============ ============ Net loss applicable per common share - basic and diluted.... $ (5.28) $ (3.75) $ (13.66) $ (11.36) ============ ============ ============ ============ Weighted average number of common shares outstanding ....... 10,833,879 9,296,339 10,198,006 9,296,339 ============ ============ ============ ============
See accompanying notes. -5- WAM!NET Inc. Consolidated Statements of Cash Flows (Dollars in thousands)
Nine months ended September 30, 2000 1999 --------- --------- (Unaudited) Operating activities Net loss .................................................................. $(129,189) $(101,484) Adjustments to reconcile net loss to net cash used in operating activities: Loss on sale of investment ........................................... 14,697 -- Depreciation and amortization ........................................ 29,295 24,908 Minority Interest share of net loss .................................. (939) -- Noncash interest expense, including related warrants values .......... 22,872 21,864 Loss on disposal of property and equipment ........................... -- 1,354 Value of stock options issued to employees and consultants ........... 358 145 Changes in operating assets and liabilities: Accounts receivable ............................................. (698) (1,671) Prepaid expenses and other assets ............................... 6 (806) Accounts payable ................................................ (3,025) (3,151) Accrued expenses ................................................ 8,789 646 --------- --------- Net cash used in operating activities ..................................... (57,834) (58,195) Investing activities Purchases of property and equipment ....................................... (26,871) (18,846) Proceeds from sale of Winstar common stock ................................ 20,303 -- Business acquisitions (net of cash acquired) .............................. (353) (250) --------- --------- Net cash used in investing activities ..................................... (6,921) (19,096) Financing activities Proceeds from sale of preferred stock ..................................... 73,685 59,498 Proceeds from borrowings (net of financing costs) ......................... -- 58,509 Proceeds from exercise of stock options ................................... 1,380 5 Proceeds from investment in Joint Venture ................................. 1,285 -- Payments on borrowings .................................................... (29,605) (14,756) --------- --------- Net cash provided by financing activities ................................. 46,745 103,256 Effect of foreign currencies on cash ...................................... (1,183) (318) --------- --------- Net increase in cash and cash equivalents ................................. (19,193) 25,647 Cash and cash equivalents at beginning of period .......................... 27,180 6,272 --------- --------- Cash and cash equivalents at end of period ................................ $ 7,987 $ 31,919 ========= =========
See accompanying notes. -6- WAM!NET Inc. Consolidated Statements of Cash Flows (continued) (Dollars in thousands)
Nine months ended September 30, 2000 1999 ------- ------- (Unaudited) Supplemental schedule of noncash financing activities Conversion of accrued dividends to preferred stock ................... -- 152 Issuance of convertible preferred stock in exchange for land, building -- and furniture & fixtures .......................................... 40,000 Issuance of convertible preferred stock in exchange for Winstar ...... 50,000 -- Communications, Inc. common stock Value of interest cost assigned to warrants .......................... -- 4,297 Dividends declared but unpaid ..................................... 60 47 Issuance of common stock relating to acquisition ..................... 908 -- Purchase of property, plant and equipment in accounts payable ........ 3,791 3,763 Supplemental schedule of cash flow information Cash paid for interest ............................................... $17,505 $ 3,230
See accompanying notes. -7- WAM!NET INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share and per share data) 1. Consolidated Financial Statements The accompanying consolidated financial statements have been prepared by WAM!NET Inc. (the "Company") without audit and reflect all adjustments (consisting only of normal and recurring adjustments and accruals) which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of regulation S-X, but omit certain information and footnote disclosures necessary to present the statements in accordance with generally accepted accounting principles. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company's audited Consolidated Financial Statements for the year ended December 31, 1999. The December 31, 1999 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Certain amounts for the prior year have been reclassified to conform to current year presentation. 2. Consolidation Policy and Foreign Currency Translations The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its 60% owned joint venture. All significant intercompany accounts and transactions have been eliminated in consolidation. All assets and liabilities are translated to U.S. dollars at period-end exchange rates, while elements of the income statement are translated at average exchange rates in effect during the period. The functional currencies of the Company's foreign subsidiaries are considered to be the respective subsidiary's local currency. All translation gains and losses resulting from fluctuations in currency exchange rates of these subsidiaries are recorded in equity as a component of accumulated other comprehensive loss. 3. Short-Term Investments The short-term investment consists of Winstar Communications, Inc. common stock which we received as proceeds from the sale of preferred stock. This investment is classified as an available-for -sale security and is recorded at its fair value at September 30, 2000. The unrealized gains and losses are reflected as a component of accumulated other comprehensive loss. 4. Preferred Stock In March, 2000, the Company entered into a transaction whereby Winstar Communications, Inc. purchased a total of 85,000 shares of Class E convertible preferred stock for $85,000, of which $35,000 was paid in cash and $50,000 was paid in the form of 1,071,429 shares of Winstar common stock valued at $46.66 per share (as adjusted for the 3-for-2 Winstar stock split declared in February 2000). Other investors purchased 16,725 shares of Class E convertible preferred stock for an aggregate $16,725 in cash. The Class E convertible preferred stock accumulates dividends at an annual rate of 7%, which are added monthly to the accreted liquidation value of the stock. Each of the two largest purchasers of Class E convertible preferred stock has the right to elect one director, and vote on an as-converted basis, not to exceed 17.5% of the total voting power, on all matters submitted to the vote of common stock holders, including the election of directors. The Class E convertible preferred stock is currently convertible -8- into 19,714,147 shares of common stock at an initial conversion rate of $5.16 per share of common stock, subject to anti-dilution provisions. Holders of Class E convertible preferred stock may convert their shares into common stock at any time, and are required to convert their shares into common stock (beginning after the later to occur of (i) the closing of an underwritten public offering of common stock raising at least $50,000 of gross proceeds or (ii) the third anniversary of the date of issuance of the Class E convertible preferred stock) at the then applicable conversion rate, subject to adjustment for certain anti-dilution provisions, on the last trading day of the first period of 20 consecutive trading days during which the average (weighted by trading volume) closing price per share of common stock during such 20 consecutive trading day period is at least 155% of the then applicable conversion price. In February 2000, SGI purchased 10,000 shares of Class F convertible preferred stock for $10,000 in cash. The rights and preferences of the Class F convertible preferred stock, including its conversion provisions, are substantially the same as the rights and preferences of the Class E convertible preferred stock, except that the holders of Class F preferred stock do not have the right to separately elect directors and there is no cap on the voting power of that class. The Class F convertible preferred stock is initially convertible into a total of 1,937,984 shares of common stock, at an initial conversion rate of $5.16 per share, subject to anti-dilution provisions. In February 2000, the Company sold to Sumitomo and certain other investors 10,000 shares of Class G convertible preferred stock for an aggregate of $10,000 in cash. Holders of Class G convertible preferred stock have the right to vote, on an as-converted basis, with holders of common stock on all matters submitted to a vote of common stockholders. The Class G convertible preferred stock is initially convertible into 1,937,984 shares of common stock, at an initial conversion rate of $5.16 per share, subject to anti-dilution provisions. The shares of Class G convertible preferred stock will mandatorily convert into shares of common stock upon completion of an initial public offering. In September 2000, the Company and Winstar entered into a Securities Purchase Agreement (the "Agreement"), pursuant to which the Company has the right to sell to Winstar up to 60,000 shares of Class H Convertible Preferred Stock, par value $.01 per share, at a purchase price of $1,000 per share, at the Company's discretion, upon certain dates and in certain amounts pursuant to the terms of the Agreement, which right shall terminate on January 3, 2001. In connection with the execution of the Agreement, the Company issued a warrant to Winstar to purchase up to 3,000,000 shares of common stock of the Company at a price of $.01 per share, which warrant shall expire on December 31, 2005. The right to purchase 500,000 shares of Common Stock pursuant to the warrant became exercisable upon execution of the Agreement, and the right to purchase the remainder of the Common Stock shall become exercisable as the Company sells the Shares to Winstar pursuant to a schedule set forth in the Agreement. The rights and preferences of the Class H convertible preferred stock, including its conversion provisions, are substantially the same as the rights and preferences of the Class E convertible preferred stock. The Class H convertible preferred stock is convertible into shares of common stock at an initial conversion rate of $5.16 per share, subject to anti-dilution provisions. As of November 13, 2000, the Company sold 25,000 shares of Class H convertible preferred stock for an aggregate of $25 million in cash and the right to purchase 950,000 shares of common stock at $.01 per share is currently exercisable pursuant to the warrant. -9- 5. Comprehensive Income Comprehensive income for the Company includes net loss, the effects of currency translation which are charged or credited to the cumulative translation adjustment account within stockholders' equity, and the unrealized gain/loss on investments available for sale which is recorded within stockholders equity. Comprehensive loss for the three and nine months in the period ended September 30, 2000 and 1999 was as follows:
- ----------------------------------------------------------------------------------------------------------------------- For the three months ended September 30, For the nine months ended September 30, - ----------------------------- -------------------------------------------- -------------------------------------------- (Dollars in thousands) 2000 1999 2000 1999 ---- ---- ---- ---- - ----------------------------- ---------------------- --------------------- --------------------- ---------------------- - ----------------------------- ---------------------- --------------------- --------------------- ---------------------- Net loss $(53,211) $(33,042) $(129,189) $(101,484) - ----------------------------- ---------------------- --------------------- --------------------- ---------------------- Changes in cumulative (640) 993 (1,183) (619) translation adjustments - ----------------------------- ---------------------- --------------------- --------------------- ---------------------- Change in unrealized 3,687 -- (10,018) -- gain/loss on investments ----- -- -------- -- - ----------------------------- ---------------------- --------------------- --------------------- ---------------------- Comprehensive loss $(50,164) $(32,049) $(140,390) $(102,103) - -----------------------------------------------------------------------------------------------------------------------
-10- Item 2--Management's Discussion and Analysis of Results of Operations and Financial Condition MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is based on the historical results of WAM!NET Inc. (the "Company") and should be read in conjunction with the Company's Financial Statements included herein. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. OVERVIEW WAM!NET is a leading global provider of information technology services (IT services). Our services are sold on an outsourced transactional basis to businesses and government and enable organizations to convert to more efficient and cost-effective digital business processes. In the commercial arena we focus on companies that produce and distribute media-rich content including broadcast, film and other entertainment companies, as well as corporations that promote brands, advertising agencies, publishers and related businesses. Our services allow these firms to collaborate online with their supply chain partners to improve the process of creating and distributing media-rich content. We recently began offering services to departments and agencies of the United States Government that can be accessed under a General Services Administration contract. In addition, on Oct. 6, 2000, the Company was a member of a team, led by EDS, that was awarded the Navy Marine Corps Intranet (NMCI) Contract. The NMCI Contract is for delivery of comprehensive, end-to-end information services through a common computing and communications environment, for Navy and Marine Corps installations throughout the continental United States and other selected installations. The contract is an indefinite- quantity contract, with guaranteed minimum quantities. WAM!NET is a first tier subcontractor to EDS and was identified as the source for infrastructure and network management services, excluding desktop equipment, security systems and long-haul circuits. The NMCI Contract is in the start-up phase and WAM!NET and EDS are currently negotiating the terms of WAM!NET's subcontract. We own and operate a private, Internet Protocol (IP) based global network, hosting and storage infrastructure that we have integrated with the public Internet. We offer a wide array of IT services including: (1) managed data transport, (2) application hosting, (3) managed data storage, (4) computer animation rendering, (5) Internet-based services and (6) professional consulting services. Our services and network infrastructure provide businesses a common electronic platform to seamlessly integrate their digital business processes, accelerate the adoption of wholly digital workflow, and achieve measurable operating efficiencies, cost savings and productivity gains. Customers can access our network and services through our Direct Service, ISDN Tracked Service or Internet Gateway Service. We first launched the Direct service, our fastest, most secure and reliable digital transport service, providing direct, guaranteed access and transport over our managed network. To provide this service we install a Customer Point of Presence (CPOP) device on our customers' premises. Through the CPOP the customer has a direct connection to our network with a dedicated leased high-speed connection. In December 1999, we acquired a 20-year indefeasible right of use for backbone capacity and purchased wireless local loop facilities in the United States from Winstar Communications, Inc. We expect these facilities will allow us to offer our Direct Service customers greater bandwidth capacity and eliminate the need for a leased line to a customer's premise. In the first quarter of 1999 we began to provide access to our network through our ISDN Tracked Service. Our -11- ISDN Tracked Service offers the security and predictability of dial-up connectivity to our network at a slower transmission speed. This service does not require an on-premise CPOP or WAM!NET-provided leased line connection. In the third quarter of 1999, we introduced our Internet Gateway Service, which allows connection to our network over the Internet. We provide our customers hosted applications that integrate our service into the customers' digital workflow processes. These services include Transmission Manager, Info Center, Electronic Job Tickets, Remote Proofing and our most recently released Rendering On Demand (ROD) service. We commercially introduced our WAM!BASE Digital Storage Services in the first quarter of 2000. Also in the first quarter of 2000, we began to offer ROD, a hosted service that processes computer- generated animation into high resolution motion images such as motion picture special effects and broadcast advertisements. In the third quarter of 2000, we introduced WAM!NET Workspace, an online storage service that augments WAM!NET Digital Storage services. Workspace targets work-in-progress applications, while WAM!BASE is geared toward long-term storage of completed digitral assets for re-use and re-purposing. At September 30, 2000, we had over 15,500 commercial subscribers using our network and services. Subscribers are customer sites that access our electronic business-to-business services through our Direct Service, ISDN Tracked Service or Internet Gateway Service. REVENUES Service revenue Our service revenue is directly related to the number of customers, type of service, and volume of data moved, stored or processed. Service revenue is derived primarily from annual or multi-year service contracts, many of which have automatic renewal or extension provisions. These contracts generally include a minimum monthly fee and additional charges for usage that exceed a minimum monthly service level. We currently offer our transport services at scaled minimum usage fees on our network that typically range from $650 per month to $4,000 per month for Direct Service, and from $45 per month to $360 per month for ISDN Tracked Service. We record monthly service revenue for Direct Service and ISDN Tracked Service based upon contracts signed with customers, following installation of equipment and commencement of service at a customer's premise. Our Internet Gateway Service is priced primarily on a per-megabyte basis and is recognized as revenue in the month the service is provided. Our ROD service is billed per CPU hour and revenues are recognized as the service is provided to the customer. We began to earn service revenue from ISDN Tracked Service and Internet Gateway Service in March and September 1999, respectively, and from Render On Demand services in January 2000. Our WAM!BASE Archive Service is priced on the basis of megabytes stored per month. We began earning service revenue from WAM!BASE in the first quarter of 2000. Professional Services is priced by flat daily rates and on hourly rates determined by the specialized experts requested for the consulting engagement. WAM!NET began earning professional services revenue in the third quarter of 2000. Software and hardware sales Revenue from software and hardware sales has resulted primarily from the sale of 4-Sight ISDN Manager software and ISDN cards. Our ISDN Tracked Service customers may choose to make a single up-front payment to purchase our software or to pay a monthly service fee. In both cases these purchases appear as software and hardware revenue. We are in the process of shifting 4-Sight from a product sales focus to a service model. As a result, we expect software and hardware sales to decline in the future. OPERATING EXPENSES Network communication - --------------------- -12- Network communication expense represents the largest direct cost associated with providing our Managed Transport Service. Network communication expense includes the costs of providing local loop telephone circuits connecting our network access devices at a customer's premises to the nearest distribution hub as well as the costs of the high bandwidth backbone carrier services that connect the distribution hubs with our network operation, hosting and data storage centers. Local telephone circuit connections provided by local exchange carriers to deliver Direct Service account for the substantial majority of these charges. National and international service carrier charges account for the balance of these charges. Network communication expense is generally a fixed monthly cost per circuit. We believe that growing competition among telephony and communications providers may reduce the future costs of local telephone circuit and backbone connections. We actively seek to obtain and deploy technologies that will reduce the costs of local telephone circuit connections, such as wireless technologies and remote dial-up capabilities. We also intend to use our network management tools to optimize the use of existing and planned network capacity as volume increases and traffic patterns emerge. In December 1999, we purchased a 20-year indefeasible right of use for backbone capacity and purchased wireless local loop facilities from Winstar. When Winstar's wireless technology is deployed it will allow us to deliver increased bandwidth, at speeds ranging from 1.5mb to 155mb per second, to customers in most of the major U.S. metro areas, eliminating the need for leased local circuit connections. This increased bandwidth capability will also allow us to offer bandwidth-intensive services, such as ROD service, to new and existing customers. Software and hardware - --------------------- Software and hardware expense reflects the costs of software and hardware sold. Network operations and development - ---------------------------------- Network operations and development expense represents costs directly associated with developing, maintaining, managing and servicing our global private network and expanding our service offerings. These costs include direct labor, vendor service fees, point-of-presence charges and research and development charges, which are often incurred in advance of receiving revenue. Our currently installed network operation centers account for the substantial majority of these direct labor and operating costs. Most of the costs associated with the development of new services and applications, such as WAM!BASE Digital Storage Service, Remote Proofing, ISDN Tracked Service, Internet Gateway Service and ROD, are accounted for as network operations expenses and are incurred in advance of receiving revenue. Selling, general and administrative - ----------------------------------- Our selling expense consists primarily of the salaries and commissions of our direct sales force and our global marketing groups, commissions for channel partners, and the costs of ongoing marketing activities such as promotions and channel development. Our sales and marketing efforts are focused on expanding our customer base and increasing utilization on our network. Accordingly, we offer new and existing services and develop new channels to sell and support our services. We also seek to increase the utilization of our network with the assistance of our influential customers who encourage their supply chain partners to use our services. Our general and administrative expense includes administrative salaries, related overhead and professional service fees. These costs reflect expenditures related to the rapid growth and expansion of our administrative infrastructure necessary to manage our globally expanding operations, and professional service fees incurred in connection with financing activities, contract negotiations and business acquisitions. Depreciation and amortization - ----------------------------- -13- We generally retain ownership of the equipment located on customer premises and most of the hardware and software necessary for our customers to use our services on a turnkey basis. Depreciation and amortization expense includes depreciation of this hardware and software, as well as the equipment located in our distribution hubs and network operation, hosting and data storage centers. We also amortize certain costs relating to the acquisitions of 4-Sight and Freemail, which we acquired using the purchase method of accounting. We anticipate additional capital investments in our network, hosting and storage infrastructure commensurate with customer demand and market opportunity. RESULTS OF OPERATIONS Three and Nine Month Periods Ended September 30, 2000 Compared with Three and Nine Month Periods Ended September 30, 1999 REVENUES Total revenue for the three months ended September 30, 2000 was $10.3 million compared to $6.8 million for the three months ended September 30, 1999, an increase of $3.5 million or 51.5%. Total revenue for the nine months ended September 30, 2000 was $27.2 million compared to $17.5 million for the nine months ended September 30, 1999, an increase of $9.7 million or 55.4%. This increase in revenues was due to growth in the number of subscribers purchasing our services and from increased utilization of and demand for managed data services and for new services introduced during the current fiscal year, including ROD hosted services, WAM!BASE and professional consulting services. Net service revenue was $8.8 million for the three months ended September 30, 2000 compared to $4.8 million for the three months ended September 30, 1999, an increase of $4.0 million or 83.3%. Net service revenue was $22.3 million for the nine months ended September 30, 2000 compared to $11.9 million for the nine months ended September 30, 1999, an increase of $10.4 million or 87.4%. This increase in net service revenue resulted from the factors described above. Revenues from software and hardware sales were $1.5 million for the three months ended September 30, 2000 compared to $2.0 million for the three months ended September 30, 1999, a decrease of $0.5 million or 25.0%. Revenues from software and hardware sales were $5.0 million for the nine months ended September 30, 2000 compared to $5.6 million for the nine months ended September 30. 1999, a decrease of $0.6 million or 10.7%. The decrease in software and hardware sales is the direct result of our shifting from sales of 4-Sight software and hardware as stand-alone products to sales of service contracts, partially offset by software purchases associated with ISDN Tracked Service agreements. We expect that software and hardware sales will continue at approximately this same level for the foreseeable future. OPERATING EXPENSES Network Communication - --------------------- Network communication expense for the three months ended September 30, 2000 was $7.1 million compared to $6.8 million for the three months ended September 30, 1999, an increase of $0.3 million or 4.4%. Network communication expense for the nine months ended September 30, 2000 was $21.2 million compared to $19.5 million for the nine months ended September 30, 1999, an increase of $1.7 million or 8.7%. Network communication expenses increased as a result of increased local loop connections directly related to growth in the number of our Direct Service customers, and from expenses incurred as a result of expanding our domestic and foreign network operations through the installation of additional hubs. Average monthly communication expense per Direct Service customer has declined, and is expected to continue to decline, as a result of increased customer utilization of our backbone capacity and declining costs of North American local loop connections. These trends were partially offset by growth in our Direct Service customer base in Europe, where local loop costs are generally higher than in North America. We continue to incur substantial network communication expense as we deploy our network and related services and applications globally; however, we expect the network communications expense as -14- a percentage of revenue to decline. Software and Hardware - --------------------- The cost of software and hardware for the three months ended September 30, 2000 was $0.6 million compared to $0.8 million for the three months ended September 30, 1999, a decrease of $0.2 million or 25.0%. The cost of software and hardware for the nine months ended September 30, 2000 was $1.6 million compared to $2.2 million for the nine months ended September 30, 1999, a decrease of $0.6 million or 27.3%. This decrease reflects the decline in software and hardware sales as described above. Network Operations and Development - ---------------------------------- Network operations and development expense for the three months ended September 30, 2000 was $5.8 million compared to $6.4 million for the three months ended September 30, 1999, a decrease of $0.6 million or 9.4%. Network operations and development expense for the nine months ended September 30, 2000 was $16.6 million compared to $17.2 million for the nine months ended September 30, 1999, a decrease of $0.6 million or 3.5%. The decrease for the three months period ended September 30, 2000 compared to the same period in 1999 was primarily due to completion of development activities for new service offerings and from cost containment measures. We expect that network operations costs will increase as our network expands; however, the cost of network operations as a percentage of revenue is expected to decline. Selling, General and Administrative - ----------------------------------- Selling, general and administrative expense for the three months ended September 30, 2000 was $13.3 million compared to $9.3 million, an increase of $4.0 million or 43.0%. Selling, general and administrative expense for the nine months ended September 30, 2000 was $38.4 million compared to $30.5 million, an increase of $7.9 million or 25.9%. The increase reflects increased marketing expenses for the introduction of new services and for expansion of our customer base, as well as expenses associated with government service offerings. We expect to continue to incur significant selling, general and administrative expenses as we continue to increase market penetration and network utilization among existing customers. We expect selling, general and administrative expenses will continue to decline as a percentage of revenue. Restructuring Charge - -------------------- Restructuring charge reflects a one-time charge of approximately $1.7 million in September 2000 for severance payable for the termination of certain executives and employees in connection with a reorganization of our operations in Europe. The Company expects to pay out approximately $.8 million of this severance in the 4th quarter of 2000 and the remainder over 24 months. Depreciation and Amortization - ----------------------------- Depreciation and amortization for the three months ended September 30, 2000 was $10.8 million compared to $8.9 million for the three months ended September 30, 1999, an increase of $1.9 million or 21.3%. Depreciation and amortization for the nine months ended September 30, 2000 was $29.3 million compared to $24.9 million for the nine months ended September 30, 1999, an increase of $4.4 million or 17.7% . This increase was primarily due to depreciation of additional network and related equipment purchased for network expansion. Included in these totals for 2000 and 1999 was $5.4 million and $4.9 million of amortization expense relating to the goodwill recorded in connection with the 4-Sight and Freemail acquisitions, respectively. We anticipate that depreciation and amortization expense will increase in future periods as we continue to purchase equipment and expand operations and as we begin to depreciate the wireless network facilities purchased from Winstar. -15- Loss on Investment - ------------------ The Company sold a portion of the investment in Winstar common stock and realized a loss of $14.7 million for the three and nine-month periods ended September 30, 2000. Interest Expense - ---------------- Interest expense for the three months ended September 30, 2000 was $10.1 million compared to $8.0 million for the three months ended September 30, 1999, an increase of $2.1 million or 26.3%. Interest expense for the nine months ended September 30, 2000 was $35.5 million compared to $25.5 million for the nine months ended September 30, 1999, an increase of $10.0 million or 39.2%.The increase is related to the increase in long-term debt incurred to fund operations. Included in interest expense for the three months ended September 30, 2000 and 1999, are non-cash charges of $7.6 million and $6.8 million, and $15.2 million and $15.4 million for the nine months ended September 30, 2000 and 1999 related to the amortization of deferred financing charges and the value of warrants issued in connection with debt financing transactions. Other Income - ------------ Other income for the three months ended September 30, 2000 was $0.6 million compared to $0.2 million for the three months ended September 30, 1999, an increase of $0.4 million. Other income for the nine months ended September 30, 2000 was $1.8 million compared to $0.4 million for the nine months ended September 30, 1999, an increase of $1.4 million. Other income primarily relates to minority interest in losses of our joint venture in Japan and rental income received from SGI in connection with leasing a portion of our corporate campus facility in Eagan. Income Taxes and Net Loss - ------------------------- At September 30, 2000, we had approximately $317.9 million of net operating loss carryforwards. These carryforwards are available to offset future taxable income through the year 2020 and are subject to the limitations of Section 382 of the Internal Revenue Code of 1986. These limitations may result in the expiration of net operating loss carryforwards before they can be utilized. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have incurred net losses and experienced negative cash flow from operating activities. Net losses since inception have resulted in an accumulated deficit of $432.8 million as of September 30, 2000. We expect to continue to operate at a net loss and experience negative cash flow from operating activities for the foreseeable future. Through September 30, 2000, we have issued equity and debt securities and incurred other borrowings resulting in cash received by us of $437.0 million. We have used the majority of these proceeds to expand our global network, to build our customer base and to expand globally in new geographic markets. In addition, we expanded our operations in Europe through the acquisition of 4-Sight in 1998 for $16.4 million in cash and the issuance of equity securities. Our ability to achieve profitability and positive cash flow from operations will be dependent on substantially growing our revenues and realizing increased operating efficiencies. In March, 2000, the Company entered into a transaction whereby Winstar Communications, Inc. purchased a total of 85,000 shares of Class E convertible preferred stock for $85 million, of which $35 million was paid in cash and $50 million was paid in the form of 1,071,429 shares of Winstar common stock valued at $46.66 per share as adjusted for the Winstar 3-for-2 stock split declared in February 2000. Also in this transaction, other investors purchased 16,725 shares of Class E convertible preferred stock for an aggregate $16.7 million in cash. The Class E convertible preferred stock accumulates dividends at an annual rate of 7%, which are added monthly to the accreted liquidation value of the stock. Each of the two largest purchasers of Class E convertible preferred stock has the right -16- to designate one director, and vote on an as-converted basis on all matters submitted to the vote of common stockholders. However, no holder (based solely on its ownership of Class E convertible preferred stock) shall be entitled to more than the number of votes equal to 17.5% of the voting power outstanding on the record date for the vote being taken (and therefore to the extent that its ownership of Class E convertible preferred stock would entitle it to voting power in excess of 17.5%, the voting power shall be reduced to that percentage). Also, with respect to any holder of fewer than 50,000 shares of Class E convertible preferred stock, the maximum voting percentage any such holder may have is equal to 17.5% multiplied by a ratio, the numerator of which is the number of shares of Class E convertible preferred stock held by such stockholder and the denominator of which is 50,000 on all matters submitted to the vote of common stock holders, including the election of directors. The Class E convertible preferred stock is initially convertible into 19,714,147 shares of common stock at an initial conversion rate of $5.16 per share, subject to anti-dilution provisions. Holders of Class E convertible preferred shares may convert their shares into common stock at any time, and are required to convert their shares into common stock on the last trading day of the first 20 consecutive trading days during which the weighted average closing price (weighted by daily trading volume) of the common stock is at least $8.00 per share. In February 2000, SGI purchased 10,000 shares of our Class F convertible preferred stock from us for $10 million in cash. The rights and preferences of the Class F convertible preferred stock, including its conversion provisions, are substantially the same as the rights and preferences of our Class E convertible preferred stock, except that the holders of Class F convertible preferred stock do not have the right to separately elect directors and there is no cap on the voting power of that class. The Class F convertible preferred stock is initially convertible into a total of 1,937,984 shares of common stock at an initial conversion rate of $5.16 per share, subject to anti-dilution provisions. The shares of Class F convertible preferred stock will mandatorily convert into shares of common stock upon completion of an underwritten public offering of our common stock raising at least $50,000,000 of gross proceeds. In February and March 2000, we sold to Sumitomo and other investors 10,000 shares of our Class G convertible preferred stock for $10 million in cash. Holders of Class G convertible preferred stock have the right to vote, on an as-converted basis, on all matters submitted to a vote of the common stockholders. The Class G convertible preferred stock is initially convertible into 1,937,984 shares of common stock at an initial conversion rate of $5.16 per share, subject to anti-dilution provisions. The shares of Class G convertible preferred stock will mandatorily convert into shares of common stock upon completion of an underwritten initial public offering of our common stock raising at least $50,000 million of gross proceeds. In September 2000, the Company and Winstar entered into a Securities Purchase Agreement (the "Class H Preferred Stock Agreement"), pursuant to which the Company has the right to sell to Winstar up to 60,000 shares of Class H Convertible Preferred Stock, par value $.01 per share, at a purchase price of $1,000 per share, at the Company's discretion, upon certain dates and in certain amounts pursuant to the terms of the Class H Preferred Stock Agreement, which right shall terminate on January 3, 2001. In connection with the execution of the Class H Preferred Stock Agreement, the Company issued a warrant to Winstar to purchase up to 3,000,000 shares of common stock of the Company at a price of $.01 per share, which warrant shall expire on December 31, 2005. The right to purchase 500,000 shares of Common Stock became exercisable upon execution of the Class H Preferred Stock Agreement, and the right to purchase the remainder of the Common Stock shall become exercisable as the Company sells the Shares to Winstar pursuant to a schedule set forth in the Class H Preferred Stock Agreement. As of September 30, 2000, the Company sold 5,000 shares of Class H convertible preferred stock for an aggregate of $5 million in cash. In connection with the sale of the shares, 50,000 shares became exercisable pursuant to the warrant. The rights and preferences of the Class H convertible preferred stock, including its conversion provisions, are substantially the same as the rights and preferences of the Class E convertible preferred stock. The Class H convertible preferred stock is convertible into shares of common stock at an initial conversion rate of $5.16 per share, subject to anti-dilution provisions. As of November 13, 2000, the Company sold 25,000 shares of Class H convertible preferred stock and 950,000 shares of common stock are exercisable pursuant to the warrant. -17- We recently began offering services to departments and agencies of the United States Government that can be accessed under a General Services Administration contract. In addition, on Oct. 6, 2000, the Company was a member of a team, led by EDS, that was awarded the Navy Marine Corps Intranet (NMCI) Contract. The NMCI Contract is for delivery of comprehensive, end-to-end information services through a common computing and communications environment, for Navy and Marine Corps installations throughout the continental United States and other selected installations. The contract is an indefinite- quantity contract, with guaranteed minimum quantities. WAM!NET is a first tier subcontractor to EDS and was identified as the source for infrastructure and network management services, excluding desktop equipment, security systems and long-haul circuits. The NMCI Contract is in the start-up phase and WAM!NET and EDS are currently negotiating the terms of WAM!NET's subcontract. It is expected that the Company's provision of services under the NMCI contract will significantly impact both revenues and certain expense items, particularly selling, general and administrative and network operations in future periods. We believe the capital resources obtained from the foregoing transactions, together with other financing resources available to the Company, will be sufficient to fund our business plan through the end of the current fiscal year. Item 3--Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Exchange Rates - ------------------------------- During the nine months ended September 30, 2000, our revenue originating outside the U.S. was 31.2% of total revenue, substantially all of which was denominated in the local functional currency. Currently, we do not employ currency hedging strategies to reduce the risks associated with the fluctuation of foreign currency exchange rates. Our international operations are subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, foreign regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. Interest Rates - -------------- We invest cash in a variety of financial instruments, including bank time deposits and fixed rate obligations of governmental entities and agencies. These investments are denominated in U.S. dollars. Cash balances in foreign currencies overseas are operating balances and are invested in short-term deposits of the local operating bank. Investments in fixed rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we sell securities that have seen a decline in market value due to changes in interest rates. Our investment securities are held for purposes other than trading. We are exposed to market risk from changes in the interest rates on certain of our outstanding debt. The outstanding loan balance under our $25 million revolving credit facility bears interest at a variable rate based on prevailing short-term interest rates in the U.S. and Europe. Based on the average outstanding bank debt for the nine months ended September 30, 2000, a 100 basis point change in interest rates would not change interest expense by a material amount. For fixed rate debt such as our 13.25% senior discount notes, interest rate changes affect its fair market value, but do not impact earnings or cash flows. Cash Equivalents and Investments - -------------------------------- We account for cash equivalents and our investment in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Cash equivalents are short-term, highly liquid investments with original maturity dates of three months or less. Cash equivalents are carried at cost, which approximates fair market value. Our investment is classified as available-for-sale and is recorded at fair value with any unrealized gain or loss recorded as an element of stockholders' equity. The Company -18- sold a portion of the investment in Winstar common stock and realized a loss of $14.7 million for the three and nine month period ended September 30, 2000. Part II--OTHER INFORMATION Item 2 - Changes in Securities and Use of Proceeds (c) The information required by this Item 2 of Part II has been previously reported in Item 2 of Part I of this Form 10-Q, and is incorporated herein by reference. For a complete discussion of the transactions involving recent sales of unregistered securities of the Company please see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The sale of the Class E Preferred Stock, Class F Preferred Stock, Class G Preferred Stock and Class H Preferred Stock were exempt from the registration requirements of Section 5 of the Securities Act of 1933 (the "Securities Act") pursuant to the provisions of Section 4(2) of the Securities Act. Item 6--Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index (b) Reports on Form 8-K No reports on Form 8-K were filed on behalf of the Company during the three months period ending September 30, 2000. -19- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. WAM!NET Inc. Date: November 14, 2000 By: /s/ Terri F. Zimmerman ------------------------ Terri F. Zimmerman Chief Financial Officer -20- EXHIBIT INDEX Item Number Description - ------ ----------- 2.1 (1) Agreement for the Sale and Purchase of the entire issued share capital of WAM!NET U.K. Limited dated February 11, 1998, among the Company, WAM!NET (UK) Limited and the Selling Shareholders listed therein. 2.2 (1) Agreement and Plan of Reorganization dated December 17, 1997 by and among NetCo Communications Corporation, NetCo Acquiring Corporation, FreeMail, Inc. and the shareholders listed therein. 2.3 (4) June 1, 1999 Amendment to the Agreement and Plan of Reorganization, dated December 17, 1997, by and among the Company, NetCo Acquisition Corporation, FreeMail, Inc. and the shareholders listed therin. 3.1 (7) Amended and Restated Articles of Incorporation of the Company. 3.2 (1) By-Laws of the Company. 4.1 (1) Indenture dated as of March 5, 1998, between the Company, as Issuer, and First Trust National Association, as Trustee. 4.2a (1) Certificate for the Rule 144A Original Notes ($200.0 million). 4.2b (1) Certificate for the Rule 144A Original Notes ($8.0 million). 4.3 (1) Certificate for the Regulation S Original Notes. 4.4 (1) Certificate for the Rule 144A Warrants. 4.5 (1) Certificate for the Regulation S Warrants. 4.6a (1) Rule 144A Unit Certificate. (200,000 Units) 4.6b (1) Rule 144A Unit Certificate. (8,030 Units) 4.7 (1) Certificate for the Regulation S Units. 4.8 (1) Form of Certificate for the Exchange Notes (incorporated herein by reference and included in Exhibit 4.1 to the Company's Registration Statement on Form S-4 filed with Securities and Exchange Commission on May 28, 1998). 4.9 (1) Common Stock Certificate. 4.10 (1) Registration Rights Agreement, dated March 5, 1998, among the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation and First Chicago Capital Markets, Inc. 4.11 (1) Common Stock Registration Rights Agreement, dated as of March 5, 1998, among the Company, MCI WorldCom, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation and First Chicago Capital Markets, Inc. 4.12 (1) Warrant Agreement, dated as of March 5, 1998, by and between the Company and First Trust National Association, as Warrant Agent, to purchase Common Stock of the Company. 4.13 Intentionally omitted. 4.14 (2) Warrants to purchase 4,157,500 Shares of Common Stock of the Company exercisable on or before December 31, 2000, issued to MCI WorldCom, Inc. on December 16, 1996 (Incorporated herein by reference to exhibit 10.6 of the Company's Registration Statement on Form S-4 (File No. 333-53841) filed with the Securities and Exchange Commission on May 28, 1998). 4.15 (2) Certificate for 13.25% Subordinated Unsecured Convertible Note due August 28, 2005, ($25.0 million Note) issued to MCI WorldCom, Inc. on January 13, 1999. 4.16 (2) Certificate for 1,679,234 Class A Warrants and 2,840,967 Class B Warrants to purchase Common Stock of the Company, issued to MCI WorldCom Inc. on September 26, 1997 (Incorporated herein by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-4 (File No. 333-53841) filed with the Securities and Exchange Commission on May 28, 1998). 4.17 (2) Subordinate Unsecured Convertible Note and Warrant Purchase Agreement between the Company and MCI WorldCom, Inc. dated January 13, 1999. -21- 4.18 (2) Preferred Stock Purchase Agreement by and between the Company and Silicon Graphics, Inc. dated as of March 3, 1999. 4.19 (2) Certificate for 150,000 Warrants to purchase shares of Common Stock for the purchase price of $.01 per share dated January 13, 1999. 4.20 (2) Certificate of Designation of Rights and Preferences of Class A Preferred Stock of the Company filed with the Secretary of State of the State of Minnesota on March 4, 1999, as corrected and filed with the Secretary of State of the State of Minnesota on March 5, 1999. 4.21 (2) Certificate of Designation of Rights and Preferences of Class B Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Minnesota on March 4, 1999. 4.22 (2) Certificate of Designation of Rights and Preferences of Class C Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Minnesota on March 4, 1999. 4.23 (2) Certificate of Designation of Rights and Preferences of Class D Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Minnesota on March 4, 1999. 4.24 (2) Certificate representing 115,206 shares of Class A Preferred Stock of the Company issued to MCI WorldCom. Inc. on March 4, 1999. 4.25 (2) Certificate representing 5,710,425 shares of Class B Convertible Preferred Stock of the Company issued to Silicon Graphics, Inc. on March 4, 1999. 4.26 (2) Certificate representing 878,527 shares of Class C Convertible Preferred Stock of the Company issued to Silicon Graphics, Inc. on March 4, 1999. 4.27 (2) Certificate representing 2,196,317 shares of Class D Convertible Preferred Stock of the Company issued to MCI WorldCom. Inc. on March 4, 1999. 4.28 (2) Stockholders Agreement by and among the Company, Silicon Graphics, Inc. and MCI WorldCom, Inc. dated as of March 4, 1999. 4.29 (2) Class A Preferred Stock Exchange Agreement by and between the Company and MCI WorldCom, Inc. dated as of March 4, 1999. 4.30 (2) Class D Preferred Stock Conversion Agreement by and between the Company and MCI WorldCom, Inc. dated as of March 4, 1999. 4.31 (6) Certificate of Designation of Rights and Preferences of Class E Convertible Preferred Stock of the Company filed with tSecretary of State of the State of Minnesota on February 16, 2000, as corrected and filed with the Secretary of State of the State of Minnesota on March 1 and March 8, 2000. 4.32 (6) Certificate of Designation of Rights and Preferences of Class F Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Minnesota on February 11, 2000, as corrected and filed with the Secretary of State of the State of Minnesota on March 1 and March 9, 2000. 4.33 (6) Certificates of Designation of Rights and Preferences of Class G Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Minnesota on February 6, 2000. 4.34 (6) Securities Purchase Agreement, dated as of December 31, 1999, by and between the Company and Winstar Communications, Inc. 4.35 (6) Securities Purchase Agreement, dated as March 14, 2000, by and between the Company and Cerberus Partners, L.P. 4.36 (6) Securities Purchase Agreement, dated February 3, 2000, by and between the Company and Silicon Graphics, Inc. 4.37 (6) Preferred Stock Purchase Agreement, dated as of February 18, 2000, by and between the Company and the buyers listed on Schedule 1.1 thereto. 4.38 (6) Form of Certificate for Shares of Class E Convertible Preferred Stock of the Company. 4.39 (6) Form of Certificate for shares of Class F Convertible Preferred Stock of the Company. 4.40 (6) Form of Certificate for shares of Class G Convertible Preferred Stock of the Company. 4.41 (6) Certificate for 200,000 Warrants to purchase shares of Common Stock for the purchase price of $.01 per share issued to MCI WorldCom, Inc. in connection with the 13.25% subordinated unsecured convertible Note, dated January 13, 1999. 4.42 * Securities Purchase Agreement, dated as of March 14, 2000, by and between the Company and the buyers listed on Schedule 1.1 thereto. -22- 4.43 * Securities Purchase Agreement, dated as of September 29, 2000, by and between the Company, Winstar Communications, Inc. and Winstar Credit Corp. 4.44 * Certificate for 3,000,000 Warrants to purchase shares of Common Stock for the purchase price of $.01 per share issued to Winstar Communications, Inc. in connection with the Securities Purchase Agreement, dated September 29, 2000. 4.45 * Certificate of Designation of Rights and Preferences of Class H Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Minnesota on October 3, 2000. 4.46 * Form of Certificate for shares of Class H Convertible Preferred Stock of the Company. 10.1 (1) Credit Agreement among the Company, the Lending Institutions party thereto, as Lenders, The First National Bank of Chicago, as Agent, dated as of September 26, 1997. 10.2 (1) Ten Percent Convertible Note Purchase Agreement between the Company and MCI WorldCom, Inc., dated September 12, 1996 ($5.o million Note). 10.3 (1) Preferred Stock, Subordinated Note and Warrant Purchase Agreement between the Company and MCI WorldCom, Inc., dated November 14, 1996. 10.4 (1) $28.5 millioin Seven Percent Subordinated Note due December 31, 2003, payable to MCI WorldCom, Inc. 10.5 Intentionally omitted. 10.6 Intentionally omitted. 10.7 (1) Right of Refusal Agreement Among WorldCom Inc., Edward Driscoll III and Alan L. Witters dated December 16, 1996. 10.8 (1) Guaranty Agreement dated September 26, 1997, by and between the Company and MCI WorldCom, Inc. 10.9 Intentionally omitted. 10.10 (1) Sublease dated September 24, 1997 between the Company and 1250895 Ontario Limited, relating to the property located at 6100 110th Street West, Bloomington, Minnesota. 10.11 (1) Service Provision Agreement dated as of July 18, 1997, by and between the Company and Time Inc. 10.12 (1) Standby Agreement dated as of July 19, 1997 by and between MCI WorldCom, Inc. and Time Inc. 10.13 Intentionally omitted. 10.14 Intentionally omitted. 10.15 Intentionally omitted. 10.16 Intentionally omitted. 10.17 (1) Agreement dated February 11, 1998 between the Company and MCI WorldCom, Inc. modifying certain terms of the (i) 10% Convertible Subordinated Note, due September 30, 1999, (ii) 7% Subordinated Note, due December 31, 2003, and (iii) 100,000 shares of Series A Preferred Stock, all of which are held by MCI WorldCom, Inc. (incorporated herein by reference to exhibit No. 4.17 to the Company's Registration Statement on Form S-4 (File No. 333-53841) filed with the Securities and Exchange Commission on May 28, 1998) 10.18 (1) 1994 Stock Option Plan 10.19 (1) Amended and Restated 1994 Stock Option Plan 10.20 (1) 1998 Combined Stock Option Plan. 10.21 (1) Agreement dated June 5, 1997 between the Company and WorldCom, Inc. regarding data services provided by MCI WorldCom, Inc. to the Company. 10.22 (3) Preferred Provider Agreement by and between the Company and Silicon Graphics, Inc., dated as of March 4, 1999 (portions of this exhibit have been ommitted pursuant to a request for confidential treatment and have been filed with the Securities Commission under separate cover). 10.23 (2) Sale and Purchase Agreement by and between Silicon Graphics, Inc., on behalf of itself and its wholly-owned subsidiary, Cray Research, L.L.C., and the Company dated as of March 4, 1999. 10.24 (2) Lease by and between the Company and Silicon Graphics, Inc. on behalf of itself and its wholly-owned subsidiary, Cray Research, L.L.C., with respect to the Company's corporate campus facility located in Eagan, Minnesota dated as of March 4, 1999. 10.25 Intentionally omitted. 10.26 Intentionally omitted. -23- 10.27 (4) Loan and Security Agreement, dated July 16, 199, by and between Foothill Capital Corporation and the Company. 10.28 (5) Purchase and Sale Agreement and Escrow Instreuctins, dated September 30, 1999, between the Company and CCPRE-Eagan, LLC. 10.29 (5) Amendment No. 1 to the Purchase and Sale Agreement and Escrow Instructions, dated September 30, 1999 between the Company and CCPRE-Eagan, LLC. 10.30 (5) Net Lease, dated September 30, 1999 between the Company and CCPRE-Eagan, LLC. 10.31 (6) Master Agrement by and between Winstar Wireless, Inc. and the Company, dated December 31, 1999. 27.1 * Financial Data Schedule. - ---------------- (1) Incorporated herein by reference to our Registration Statement on Form S-4 (File No. 333-53841), filed with the SEC on May 28, 1998. (2) Incorporated herein by reference to our Annual Report on Form 10-K, filed with the SEC on March 31, 1999. (3) Incorporated herin by reference to our Quarterly Report on Form 10-Q, filed with the SEC on May 17, 1999. (4) Incorporated herin by reference to our Quarterly Report on Form 10-Q, filed with the SEC on August 4, 1999. (5) Incorporated herin by reference to our Quarterly Report on Form 10-Q, filed with the SEC on November 12, 1999. (6) Incorporated herin by reference to our Annual Report on Form 10-K, filed with the SEC on March 15, 2000. (7) Incorporated herin by reference to our Quarterly Report on Form 10-Q, filed with the SEC on May 15, 2000. * Filed herin. -24- EX-4.42 2 0002.txt SECURITIES PURCHASE AGREEMENT MARCH 14, 2000 Exhibit 4.42 ================================================================================ SECURITIES PURCHASE AGREEMENT dated as of March 14, 2000 among WAM!NET INC. AND BUYERS LISTED ON SCHEDULE 1.1 ================================================================================ Table of Contents ----------------- Page ---- SECTION 1. AUTHORIZATION....................................................1 SECTION 2. CLOSING..........................................................1 SECTION 3. SALE AND PURCHASE OF SHARES......................................1 3.1. Shares...........................................................1 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION................2 4.1. Organization; Subsidiaries.......................................2 4.2. Qualification; Good Standing.....................................3 4.3. Corporate Authorization; Enforceability..........................3 4.4. No Conflict......................................................3 4.5. Capitalization...................................................3 4.6. Securities Laws; Applicable Corporation Laws.....................6 4.7. Financial Information............................................6 4.8. Absence of Changes...............................................6 4.9. Reserved.........................................................8 4.10. Agreements.......................................................8 4.11. Title to Assets..................................................9 4.12. Real Property...................................................10 4.13. Intellectual Property Rights; Proprietary Information of Third Parties...................................................10 4.14. Compliance with Laws; Governmental Authorizations...............11 4.15. Litigation......................................................12 4.16. Environmental Matters...........................................12 4.17. Tax Matters.....................................................12 4.18. Employee Benefit Plans and Employment Matters...................13 4.19. Insurance.......................................................14 4.20. Related Transactions............................................15 4.21. Offering of the Shares..........................................15 4.22. Disclosure......................................................15 4.23. Reserved........................................................16 4.24. Reserved........................................................16 4.25. Brokers and Finders.............................................16 4.26. Year 2000 Compliance............................................16 4.27. Reserved........................................................16 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE BUYERS....................16 5.1. Due Authorization...............................................16 5.2. Investment Representations......................................17 5.3. Brokers and Finders.............................................17 5.4. Investor Sophistication.........................................18 5.5. Reserved........................................................18 SECTION 6. COVENANTS OF THE CORPORATION AND THE BUYERS.....................18 6.1. Regulatory Approvals; Reasonable Best Efforts; Further Assurances..............................................18 i Table of Contents ----------------- (continued) Page ---- 6.2. Certain Filings.................................................18 6.3. Confidentiality.................................................19 6.4. Public Announcements............................................19 SECTION 7. COVENANTS OF THE CORPORATION....................................19 7.1. Reserved........................................................19 7.2. Restrictions Pending the Closing................................19 7.3. Reservation of Shares...........................................20 7.4. Use of Proceeds.................................................20 7.5. Access to Records...............................................20 7.6. Reserved........................................................20 7.7. Financial Reporting and other Information.......................20 7.8. Payment of Obligations..........................................21 7.9. Insurance.......................................................21 7.10. Certain Notices.................................................21 7.11. Conduct of Business.............................................21 7.12. Related Transactions............................................21 7.13. Internal Controls...............................................22 7.14. Reserved........................................................22 7.15. Reserved........................................................22 7.16. Reserved........................................................22 7.17. Reserved........................................................22 7.18. Consents........................................................22 SECTION 8. REGISTRATION RIGHTS OF THE BUYERS...............................22 8.1. Demand Registration.............................................22 8.2. "Piggy-Back" Registration.......................................23 8.3. General Terms...................................................24 8.4. Underwriting Agreement..........................................25 8.5. Reserved........................................................25 8.6. Reserved........................................................25 SECTION 9. CONDITIONS TO EACH CLOSING......................................25 9.1. Conditions of Each Party........................................25 9.2. Conditions to Obligations of the Buyers.........................26 9.3. Conditions to Obligations of the Corporation....................27 SECTION 10. TERMINATION.....................................................27 10.1. Effect of Termination...........................................28 SECTION 11. MISCELLANEOUS...................................................28 11.1. Survival........................................................28 11.2. Indemnification.................................................28 ii Table of Contents ----------------- (continued) Page ---- 11.3. Reserved........................................................29 11.4. Assignment; Parties in Interest.................................29 11.5. Entire Agreement................................................29 11.6. Notices.........................................................29 11.7. Amendments......................................................30 11.8. Counterparts....................................................30 11.9. Headings........................................................30 11.10. Governing Law...................................................30 11.11. Jurisdiction....................................................30 11.12. No Waiver.......................................................31 11.13. Binding Effect..................................................31 11.14. Cumulative Powers...............................................31 iii SECURITIES PURCHASE AGREEMENT, dated as of March 14, 2000, among WAM!NET INC., a Minnesota corporation (the "Corporation"), and each several purchaser identified on Schedule 1.1 (individually "Buyer" and collectively "Buyers"). WHEREAS, the Corporation desires to sell to Buyers shares (the "Shares") of its Class E Convertible Preferred Stock, $.01 par value (the "Class E Preferred Stock"), and Buyers desire to severally subscribe for and severally purchase the Shares from the Corporation in the amounts set forth on Schedule 1.1., and the Corporation desires to issue and sell the Shares to the Buyers upon the terms and subject to the conditions set forth below. NOW THEREFORE, the parties hereto agree as follows: Section 1. Authorization. The Corporation has authorized the issuance and sale, upon the terms and subject to the conditions set forth in this Agreement, of the Shares for a purchase price of $1000 per Share ("Per Share Price") or $1,725,000 million in the aggregate (the "Purchase Price"). The powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations, and restrictions of the Class E Preferred Stock are set forth in the Statement of Rights and Preferences of Class E Preferred Stock ("Class E Certificate of Designation") attached hereto as Exhibit A. Section 2. Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned in accordance with this Agreement, the closing of the sale and purchase of the Shares and the other transactions contemplated hereby (the "Closing") shall be held at 10:00 a.m. on the date which is the third business day after the conditions in Section 9 have been satisfied or waived (other than those of such conditions which are customarily satisfied at a closing), at the office of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019 (or at such other time, date and place as the parties may mutually agree). The date on which the Closing actually occurs is hereinafter referred to as the "Closing Date." Section 3. Sale and Purchase of Shares. 3.1. Shares. At the Closing, each Buyer shall severally subscribe for and purchase from the Corporation, and the Corporation shall severally issue, sell and deliver to Buyers the number of Shares of Class E Preferred Stock set forth opposite their name on Schedule 1.1 and each buyer shall deliver to the Corporation, as full payment therefor, the purchase price set forth opposite their name on Schedule 1.1 in cash by check or by wire transfer of immediately available funds to such bank account or bank accounts designated by the Corporation. Each Buyer shall execute a separate signature page to this Agreement. A Buyer shall not be obligated for the purchase price of the Shares beyond the amount of the Buyer's several subscription. 1 Section 4. Representations and Warranties of the Corporation. The Corporation hereby represents and warrants to the Buyers as of the date hereof and as of the Closing Date that: 4.1. Organization; Subsidiaries. (a) Organization. The Corporation and each Subsidiary (as defined below) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate the assets used in its business, to carry on its business as presently conducted, to enter into the Documents (as hereinafter defined), to perform its obligations thereunder, and to consummate the transactions contemplated thereby. Attached as Schedule 4.1(a) are correct and complete copies of the Articles of Incorporation of the Corporation including all amendments and certificates of Designation, and the By-laws of the Corporation and each Subsidiary, each as in effect on the date hereof (collectively, the "Organizational Documents"). No amendments, revisions or waivers of any provisions of any Organizational Documents have occurred, are in the process of occurring or otherwise have been requested. For purposes of this Agreement, "Documents" collectively means (i) this Agreement and (ii) the Class E Certificate of Designation. (b) Subsidiaries. Set forth on Schedule 4.1(b) hereto is a complete list of all of the subsidiaries of the Corporation (each a "Subsidiary"). Except as set forth on Schedule 4.1(b) hereto, the Corporation does not own, directly or indirectly, any capital stock or other equity securities of any corporation, nor does the Corporation have any direct or indirect ownership interest, including interests in partnerships and joint ventures, in any other entity or business and there are no agreements to acquire such interests. Each Subsidiary has been duly organized, is validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is duly qualified and in good standing as a foreign corporation, and is authorized to do business, in all jurisdictions in which the character of its properties or the nature of its businesses requires such qualification or authorization, except for qualifications and authorizations the lack of which, individually or in the aggregate, would not reasonably be expected to result in a material adverse effect upon the business, prospects, properties, liabilities, assets, operations, results of operations, condition (financial or otherwise), or affairs of the Corporation or result in the loss from employment of any Principal Executive Officer as such term is defined on Schedule I (a "Material Adverse Effect"). Each Subsidiary has the requisite power and authority to own and hold its properties and to carry on its business as now being conducted. Except as disclosed on Schedule 4.1(b) hereto: (i) all of the outstanding shares of capital stock of each Subsidiary are owned beneficially and of record by the Corporation, another Subsidiary or any combination thereof, in each case free and clear of any liens, charges, restrictions, claims or encumbrances other than restrictions on transfer imposed by the Securities Act of 1933, as amended (the "Securities Act"); and (ii) there are no outstanding subscriptions, warrants, options, convertible securities or other rights (contingent or other) pursuant to which any Subsidiary is or may become obligated to issue any shares of its capital stock to any person other than the Corporation or a Subsidiary. 2 4.2. Qualification; Good Standing. Each of the Corporation and every Subsidiary is authorized to do business and is in good standing as a foreign corporation in each jurisdiction the laws of which require such respective entity to be so authorized, except where the failure to be so qualified or in good standing could not reasonably be expected to have a Material Adverse Effect. 4.3. Corporate Authorization; Enforceability. The Corporation has taken all corporate action necessary to authorize its execution and delivery of the Documents, the performance of its obligations thereunder, and its consummation of the transactions contemplated thereby. Each Document has been executed and delivered by an officer of the Corporation in accordance with such authorization. Each Document constitutes a valid and binding obligation of the Corporation, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, fraudulent conveyance, insolvency, moratorium, and similar laws now or hereafter in effect affecting creditors' rights generally and to general principles of equity. 4.4. No Conflict. The execution and delivery by the Corporation of the Documents, its consummation of the transactions contemplated thereby, and its compliance with the provisions thereof, will not other than in instances which could not reasonably be expected to have a Material Adverse Effect, (i) violate or conflict with any of the Organizational Documents, (ii) violate, conflict with, result in a breach of, constitute a default under, or give rise to any right of termination, cancellation, or acceleration (with or without notice or lapse of time, or both) under any agreement, lease, security, license, permit, or instrument to which the Corporation or any Subsidiary is a party, or to which it or any of them or any of their respective assets or businesses are subject, (iii) result in the imposition of any Encumbrance (as hereinafter defined) on any asset of the Corporation, (iv) violate or conflict with any Laws applicable to the Corporation or its properties or assets, or (v) require any consent, approval or other action of, notice to, or filing with any entity or person (governmental or private), except for those that have been obtained or made. For purposes of this Agreement, "Encumbrance" means any security interest, mortgage, lien, pledge, charge, easement, reservation, clouds, equities, rights of way, options, rights of first refusal and any other encumbrances, whether or not relating to the extension of credit or the borrowing of money. For purposes of this Agreement, "Laws" means all laws, statutes, rules, regulations, ordinances, bylaws, writs, Permits, Orders and other legislative, administrative or judicial restrictions. 4.5. Capitalization. (a) Capitalization. (i) As of the date hereof, the authorized capital stock of the Corporation consists of 500,000,000 shares, the designation and classes of which are set forth on Schedule 4.5(a) hereto. The Corporation does not hold any of its shares in treasury. 3 (ii) As of the date hereof, 9,494,797 shares of the Corporation's common stock, par value $.01 per share ("Common Stock"), 115,206 shares of the Corporation's Class A Preferred Stock, par value $10.00 per share (the "Class A Preferred Stock"), 5,710,425 shares of the Corporation's Class B Preferred Stock, par value $.01 per share (the "Class B Preferred Stock"), 878,527 shares of the Corporation's Class C Preferred Stock, par value $.01 per share (the "Class C Preferred Stock"), 2,196,317 shares of the Corporation's Class D Preferred Stock, par value $.01 per share (the "Class D Preferred Stock"), 10,000 shares of the Corporation's Class F Preferred Stock, par value $.01 per share (the "Class F Preferred Stock") and 10,000 shares of the Corporation's Class G Preferred Stock, par value $.01 per share (the "Class G Preferred Stock") are issued and outstanding and have been validly issued and are fully paid and nonassessable and are not subject to preemptive rights. Except as set forth herein, there are no other shares of capital stock of the Corporation outstanding. As of the date hereof, the Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class F Preferred Stock and Class G Preferred Stock are convertible into 5,710,425, 878,527, 2,196,317, 1,937,984 and 1,618,217 shares of Common Stock, respectively. The Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock are subject to anti- dilution. The Corporation has also entered into an agreement, dated as of December 31, 1999, with Winstar Communications, Inc. with respect to the sale of 50,000 shares of the Corporation's Class E Preferred Stock, and an option to acquire an additional 50,000 shares of Class E Preferred Stock. The 100,000 shares of such Class E Preferred Stock are convertible into 19,379,844 shares of Common Stock, representing an initial conversion price of $5.16 per share of Common Stock. (b) Options, Warrants, Convertible Securities. Except as set forth on Schedule 4.5(a) hereto, as of the date hereof there are no outstanding subscriptions, options, warrants or other agreements or rights of any kind to acquire any additional shares of capital stock of the Corporation or other instruments or securities convertible into or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any such additional shares of capital stock, nor is the Corporation or any Subsidiary committed to issue any such option, warrant, right or security. Except as set forth on Schedule 4.5(b) hereto, the Corporation has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Schedule 4.5(a) additionally sets forth (i) all of the outstanding warrants of the Corporation, specifying the exercise prices and periods of such warrants and amount of Common Stock issuable upon exercise of such warrants; and (ii) stock options of the Corporation, specifying the exercise prices and periods of such options and the amount of Common Stock issuable upon exercise of the stock option held by each such holder. As of the date hereof, 66,035,493 shares of Common Stock are issuable upon exercise or conversion of all of the Corporation's outstanding options, warrants, and other rights of any kind to acquire shares of the Corporation's Common Stock (not including Class B Warrants issued in September 1997 to MCI WorldCom, Inc.). (c) Agreements. (i) Except as set forth in Schedule 4.5(c)(i), as of the date hereof, there are no agreements relating to the purchase or sale of capital stock between the 4 Corporation and any of its shareholders or affiliates, and to the best of the Corporation's knowledge, there are no such agreements among any of its shareholders and other parties. (ii) Except as contemplated hereby and as set forth in Schedule 4.5(c)(ii), there are no agreements or understandings granting to any person or entity any right to cause the Corporation or any Subsidiary to effect a registration under the Securities Act of 1933, as amended ("Securities Act"), of any shares of the Corporation's capital stock. (iii) Except as set forth on Schedule 4.5(c)(iii), there are no voting trusts, voting agreements, proxies or other agreements, instruments or understandings with respect to the voting of the capital stock of the Corporation between the Corporation and any of its shareholders or affiliates and to the best of the Corporation's knowledge, there are no such agreements among any of its shareholders and any other parties. (d) Due Authorization. The Shares are duly authorized and, when issued and paid for pursuant to the terms of this Agreement, will be validly issued, fully paid and nonassessable and will have the rights, preferences and privileges specified in the Class E Certificate of Designation. The shares of the Corporation's Common Stock issuable upon conversion of the Shares ("Conversion Shares") are duly authorized and have been reserved for issuance and, when issued upon conversion in accordance with the terms of the Class E Certificate of Designation, will be validly issued, fully paid and nonassessable, and will be free and clear of all liens, encumbrances and restrictions (other than the restrictions on transfer imposed by the Securities Act or any other applicable federal or state securities laws, and the rules and regulations promulgated thereunder). Neither the issuance, sale or delivery of the Shares nor the contemplated issuance or delivery of the Conversion Shares is subject to or will trigger any preemptive or other similar right of shareholders of the Corporation, any anti-dilution right or right of first refusal or other preemptive or similar right in favor of any person, in each case except for rights that have been listed on Schedule 4.5(d). (e) Security holders. Schedule 4.5(a) sets forth the name and address of each record holder of more than five-percent of the outstanding shares of any of the Common Stock, the Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class E Preferred Stock, the Class F Preferred Stock and the Class G Preferred Stock and the number of such shares of Common Stock or Preferred Stock held by each such holder. (f) Reservation of Shares. The Corporation has reserved, and at all times from and after the date hereof will keep reserved, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of all shares of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock, sufficient shares to provide for the conversion of all such shares of Preferred Stock. 5 4.6. Securities Laws; Applicable Corporation Laws. (a) The sale of the Shares contemplated hereby is exempt from registration under the Securities Act. The issuance of all other shares of capital stock of the Corporation on or before the date hereof has been made in compliance with the Securities Act and all applicable state securities or blue sky laws. (b) The sale of the Shares contemplated hereby and the other transactions contemplated hereby are in compliance with all applicable laws, including the Minnesota Business Corporation Act, and any consents which are required to be obtained pursuant to such laws have either been obtained or waived in writing. 4.7. Financial Information. (a) Schedule 4.7 sets forth (i) the audited consolidated balance sheet of the Corporation at December 31, 1998 (the "Balance Sheet") and the related statements of operations, shareholders' equity and cash flows of the Corporation for the 12 months then ended and (ii) the unaudited consolidated balance sheet of the Corporation at September 30, 1999 (the "Interim Balance Sheet") and the related unaudited consolidated statements of operations, shareholders' equity and cash flows for the Corporation for the 9 months then ended (collectively, the "Financial Statements"). (b) The Financial Statements: (i) present fairly the financial position of the Corporation and the results of operations, shareholders' equity and cash flows of the Corporation at the dates and for the periods indicated, (ii) are in accordance with the books and records of the Corporation which books and records are complete and correct and fairly reflect all material transactions of the Corporation's business, and (iii) have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied (except as set forth in the notes thereto and subject, in the case of unaudited Financial Statements, to normal year-end adjustments, and the absence of notes thereto). Except as incurred under agreements on Schedule 4.10(a) or as set forth on Schedule 4.7, at the date of the Interim Balance Sheet, the Corporation did not have any material Liability of any nature or any loss contingency (as such term is used in the Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) that was not adequately disclosed or provided for on the Interim Balance Sheet, including the notes thereto. For purposes of this Agreement, "Liability" means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted. 4.8. Absence of Changes. (a) Since the date of the Interim Balance Sheet, and except as provided in the Agreements (as defined in Section 4.10), there has not been: (i) any change in the assets, liabilities or financial condition of the Corporation (on a consolidated basis), except for changes (i) in the ordinary course of business or (ii) which in the aggregate have not resulted in and would not reasonably be expected to result in a Material Adverse Effect; 6 (ii) any event or change that would reasonably be expected to result in a Material Adverse Effect, individually or in the aggregate, whether or not insured against; (iii) to the best of the Corporation's knowledge, any damage, destruction or loss (whether or not covered by insurance) affecting any asset of the Corporation in excess of $100,000; (iv) any liability or loss contingency incurred by the Corporation that would have to be disclosed on financial statements (including the notes thereto) (on a consolidated basis) in accordance with GAAP, other than liabilities incurred in the ordinary course of business consistent with past practice; (v) to the best of the Corporation's knowledge, any commitment to borrow money from or provide financial support to any person or entity entered into by the Corporation; (vi) any payment or discharge of any Liability by the Corporation outside the ordinary course of business consistent with past practice to the best of the Corporation's knowledge; (vii) any sale, assignment, license, or other disposition of any asset or right of the Corporation or any Subsidiary outside the ordinary course of business consistent with past practice; (viii) any declaration or payment of any dividend or other distribution with respect to any shares of capital stock of the Corporation, or the direct or indirect acquisition of any equity securities by the Corporation; (ix) any labor trouble, problem or grievance affecting the business of the Corporation other than such matters which would not reasonably be expected to have a Material Adverse Effect; (x) any write-down of the value of any inventory of the Corporation, or any write-off as uncollectible of any accounts or notes receivable of the Corporation, which could reasonably be expected to result in a Material Adverse Effect; (xi) any capital expenditure or commitment therefor by the Corporation or any Subsidiary for additions to property, plant or equipment in excess of $250,000; (xii) any change in the accounting or tax methods, practices, or assumptions followed by the Corporation or any Subsidiary; or (xiii) any other transaction or event not in the ordinary course of business consistent with past practice. (b) The Corporation's independent accountants have not advised the Corporation that the Interim Balance Sheet and the related unaudited financial statements (i) do 7 not comply in all material respects with the applicable accounting requirements of the Securities Act and the related published rules and regulations thereunder and (ii) are not in conformity with GAAP. 4.9. Reserved. 4.10. Agreements. (a) Schedule 4.10(a) sets forth a list of all material written and oral contracts, agreements, licenses, commitments, instruments and understandings ("Agreements"), and all Agreements of the following types regardless of materiality, to which the Corporation or any Subsidiary is a party ("Disclosed Agreements"): (i) individually provide for the future purchase by the Corporation or any Subsidiary of products or services in excess of $50,000 or call for expenditures of the Corporation or any Subsidiary in excess of $50,000, which expenditures or commitments have not been disclosed in the Initial Budget; (ii) provide for the employment by the Corporation or any Subsidiary of any director or officer or consultant (other than for legal or accounting services) earning $100,000 or more for any engagement or provide for any payments or benefits (including severance payments or benefits) to any director, officer or employee; (iii) provide for the borrowing of money or a line of credit by the Corporation or any Subsidiary, or a leasing transaction of a type required to be capitalized by the Corporation in accordance with GAAP; (iv) provide for a strategic relationship regarding the Corporation or any Subsidiary and a third party, including any joint venture, partnership or similar arrangement; (v) provide for the sale, assignment, license, or other disposition of any asset or any material right of the Corporation with a value in excess of $30,000; (vi) provide for the lease by the Corporation or any Subsidiary of any real property; (vii) provide for the lease by the Corporation or any Subsidiary of any personal property with a value, or reflecting replacement costs, in excess of $30,000 or involving lease payments in excess of $30,000 per year; (viii) were entered into with any labor union; (ix) provide for a tax sharing; (x) provide for any distribution, agency, or licensing arrangement with the Corporation or any Subsidiary; 8 (xi) require the Corporation to issue dividends or shares of its Common Stock upon exercise of warrants; (xii) restrict the Corporation or any Subsidiary, or any of the officers or employees listed on Schedule 4.10(a)(ii), from engaging in any business activity in any way related to the business of the Corporation anywhere in the world, restrict any such person in the performance of his or her obligations and responsibilities to the Corporation or any Subsidiary, or create any other obligation or liability of any such person, in any way related to the business of the Corporation, arising from his or her prior employment; (xiii) grant to any person or entity, other than the Corporation or any Subsidiary, any right, title, or interest in any invention or know-how conceived by employees of the Corporation or any Subsidiary and related to the business of the Corporation; (xiv) provide for a loan guaranty, surety, indemnity, or other financial support by the Corporation or any Subsidiary to any person or entity; or (xv) grant to any person or entity a security interest in any asset or right of the Corporation or any Subsidiary. (b) Each Disclosed Agreement or understanding required to be set forth on Schedule 4.10(a) is in full force and effect and constitutes a valid and binding obligation of all parties thereto. Except as set forth on Schedule 4.10(a), the Corporation and, to the extent a Subsidiary is a party, the Subsidiary has performed in all material respects the obligations required to be performed by it and is not in material default and has not received notice alleging it to be in default under any such Disclosed Agreement. To the knowledge of the Corporation, there exists no event or condition which, after notice or lapse of time, or both, would constitute such a material default under any Disclosed Agreement. To the knowledge of the Corporation, there are no material defaults by any other party to any such Disclosed Agreement. The Corporation has made available to the Buyers correct and complete copies of all Disclosed Agreements set forth on Schedule 4.10(a). 4.11. Title to Assets. Except for properties leased by the Corporation or any Subsidiary, the Corporation and each Subsidiary has good and marketable title to all assets reflected on the Interim Balance Sheet as being owned by it, or acquired by it after the date of the Interim Balance Sheet (except for inventory sold or otherwise disposed of in the ordinary course of business, and accounts and notes receivable paid in full, since the date of the Interim Balance Sheet), free and clear of all Encumbrances, other than Permitted Liens and other than those which would not reasonably be expected to result in a Material Adverse Effect. Such assets are in good operating condition and repair, are adequate and suitable for their intended use in the business of the Corporation and are sufficient for the conduct of the business except as would not reasonably be expected to result in a Material Adverse Effect. There does not exist any condition which interferes with the economic value or use of such assets except as would not reasonably be expected to result in a Material Adverse Effect. The term "Permitted Liens" means (i) liens arising by operation of law 9 in the ordinary course of business that, individually and in the aggregate, do not in any respect interfere with the use or value of any of the assets subject thereto, (ii) minor imperfections of title which do not detract from the value of the property affected or impair the operations of the Corporation, (iii) liens for taxes not yet due and payable, (iv) liens arising in connection with debt incurred pursuant to and in accordance with the covenant section, and (v) liens relating to monies borrowed by the Corporation or any Subsidiary. Any property held under lease by the Corporation and each Subsidiary is held by them under a valid, subsisting and enforceable lease with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property by the Corporation and each Subsidiary. 4.12. Real Property. Except as disclosed on Schedule 4.12, neither the Corporation nor any Subsidiary owns or holds, directly or indirectly, any real property. Neither the Corporation nor any Subsidiary leases, directly or indirectly, any real property other than as listed on Schedule 4.12. Any real property or facility held under lease by the Corporation and each Subsidiary is held by them under a valid, subsisting and enforceable lease with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Corporation and each Subsidiary. 4.13. Intellectual Property Rights; Proprietary Information of Third Parties. (a) Each of the Corporation and each Subsidiary owns or is licensed to use all patents, trademarks, copyrights, service marks, and applications and registrations therefor, and all trade names (including WAM!NET, WAM!BASE and WAM!PROOF), domain names, URLs, customer lists, trade secrets, proprietary processes and formulae, inventions, know-how, other confidential and proprietary information, and other industrial, intellectual property and/or proprietary rights and all goodwill of the business associated therewith and represented thereby (collectively "Intellectual Property") necessary to permit such entities to carry on their respective business as presently conducted and as currently contemplated to be conducted. All such rights are free of all Encumbrances and are fully assignable by the Corporation and each Subsidiary to any third party, without payment, consent of any third party or other condition or restriction. Schedule 4.13 sets forth a list of all patents, trademarks, copyrights, service marks, and applications and registrations therefor, and all trade names, domain names or URLs held or owned by the Corporation and each Subsidiary and all other Intellectual Property rights of the Corporation and each Subsidiary. All registered and/or material patents, copyrights, trademarks, domain name and URL rights and service marks listed on Schedule 4.13 are valid, in full force and effect and are not subject to any taxes or maintenance fees and the Corporation or a Subsidiary has the right and standing to bring infringement Proceedings with respect thereto. Neither the Corporation nor any Subsidiary (i) licenses or grants to anyone other than to the Corporation or any Subsidiary rights of any nature to use any Intellectual Property right that is material to its business, other than certain software and equipment which is provided to the Corporation's clients which enable them to access the Corporation's network solely in order to avail themselves of the Corporation's services, (ii) is not obligated to and does not pay royalties to anyone for use of its Intellectual Property rights, and (iii) does not market or sell any product or service that violates any Intellectual Property right of a third party. Except as set forth on such Schedule, there is no pending or, to the knowledge of the Corporation and each Subsidiary 10 threatened claim or litigation against the Corporation or any Subsidiary contesting the right to use its Intellectual Property rights, asserting the misuse of any thereof, or asserting the infringement or other violation of any Intellectual Property rights of a third party. (b) All Intellectual Property conceived or developed by employees of the Corporation and each Subsidiary, while in the employ of the Corporation or such Subsidiary, and related to the business of the Corporation or any Subsidiary were either "works for hire," owned exclusively by the Corporation or a Subsidiary and/or all right, title, and interest therein was transferred and assigned to the Corporation or a Subsidiary and the Corporation or a Subsidiary has maintained all exclusive right, title and interest therein without any Encumbrances thereon. The Corporation has taken all reasonable security measures to protect the secrecy, confidentiality, and value of its trade secrets, proprietary processes and formulae, inventions, know-how and other confidential and proprietary information (including without limitation entering into appropriate non-disclosure and non-use agreements with all officer, directors, employees, independent contractors and other person with access to such information). (c) No third party has claimed or, to the Company's knowledge, has reason to claim that the Corporation or any Subsidiary has (i) violated or may be violating any of the terms or conditions of any non-competition or non-disclosure agreement with such third party, (ii) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or (iii) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. Neither the Corporation or any Subsidiary has utilized nor proposes to utilize any trade secret or any information or documentation proprietary to any other person in violation of existing arrangements with such person, and neither the Corporation or any Subsidiary has violated any confidential relationship which any such person may have had with any third party, in connection with the development, manufacture, or sale or other use or exploitation of any product of any service of the Corporation or any Subsidiary. (d) There exists no event, condition or occurrence which, with the giving of notice or lapse of time, or both, would constitute a breach or default by the Corporation or a Subsidiary under any Agreement concerning Intellectual Property. No party to any Agreement concerning Intellectual Property has given the Corporation or any Subsidiary notice of its intention to cancel, terminate or fail to renew any such Agreement. (e) To the knowledge of the Corporation and the Subsidiaries, no third party is violating any material Intellectual Property right of the Corporation or a Subsidiary. 4.14. Compliance with Laws; Governmental Authorizations. The Corporation and each Subsidiary is in compliance in all respects with all Laws, except for such instances where non-compliance would not result in a Material Adverse Effect. Each of the Corporation and each Subsidiary has all permits, licenses, authorizations, registrations, franchises, approvals, certificates or variances (collectively, "Permits") from each Governmental Authority that is necessary or advisable in the conduct of its business as presently conducted except in such cases which would not reasonably be expected to result in a Material Adverse Effect. For purposes of this Agreement, "Governmental Authority" means any federal, 11 state, municipal, local or foreign government and any court, tribunal, administrative agency, commission, board, agency or other governmental or regulatory authority or agency, whether domestic or foreign. Neither the Corporation nor any Subsidiary is licensed to provide communication services under any state, federal or foreign laws nor is any one of them required to be so licensed. 4.15. Litigation. Except as set forth on Schedule 4.15, there are no (i) actions, suits, claims, investigations or other proceedings (collectively, "Proceedings") by or before any Governmental Authority or other arbitration or mediation body, pending or, to the knowledge of the Corporation, threatened against the Corporation or any Subsidiary, or (ii) judgments, writs, decrees, injunctions, compliance agreements, or orders of any Governmental Authority or other arbitration or mediation body, against the Corporation or any Subsidiary. 4.16. Environmental Matters. Each of the Corporation and each Subsidiary is in compliance with all Laws relating to the protection of the environment (the "Environmental Laws"). Except for the operation of machinery and equipment in the ordinary course of business in compliance with applicable Environmental Laws, neither the Corporation nor any Subsidiary has handled, stored or released, or exposed any person to, any hazardous substance, as defined in 42 U.S.C.A. Section 9601(14) or any other applicable Environmental Laws (a "Hazardous Substance"). Neither the Corporation nor any Subsidiary is liable or responsible for clean-up costs, remedial work or damages in connection with the handling, storage, release, or exposure by it of any Hazardous Substance except in cases which would not reasonably be expected to result in a Material Adverse Effect. No claims for clean-up costs, remedial work or damages have been made by any person or entity in connection with the handling, storage, release, or exposure by the Corporation and/or any Subsidiary of any Hazardous Substance. 4.17. Tax Matters. (a) (i) The Corporation has timely filed or been included in all required returns, declarations of estimated tax, reports, and statements relating to any Taxes due and payable by it (collectively, the "Returns"); (ii) all Returns were correct and complete as of the time of filing; (iii) the Corporation has timely paid all Taxes required to be paid by it through the date hereof; (iv) the Corporation has made provision on its most recent interim balance sheet for all Taxes payable by it for all periods prior to the date of such interim balance sheet for which no Returns have yet been filed; (v) the Corporation has made provision on its books for all Taxes payable by it for all periods beginning on or after the date of its most recent interim balance sheet for which no Returns have yet been filed; (vi) the Corporation has no knowledge of any pending tax audits of any Returns; (vii) the Corporation has no knowledge that any deficiency or addition to any Taxes has been proposed, asserted or assessed in writing against the Corporation; and (viii) the Corporation has not granted any extension of the statute of limitations applicable to any Return or other claim for Taxes. 12 (b) "Taxes" means, with respect to any person or entity, (i) all material Federal, state, local, and foreign taxes, including, without limitation, all taxes on or based upon net income, gross income, income as specially defined, earnings, profits or selected items of income, earnings, or profits, and all gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, or windfall profits taxes, alternative or add-on minimum taxes, customs duties, or other taxes, fees, assessments or charges of any kind, together with any interest, penalties, additions to tax or additional amounts imposed by any taxing authority on such person or entity, and (ii) any material liability for the payment of any amount of the type described in the preceding clause (i) as a result of being a "transferee" (within the meaning of Section 6901 of the Internal Revenue Code of 1986, as amended (the "Code"), or any other applicable Laws) of another person or entity. 4.18. Employee Benefit Plans and Employment Matters. (a) Schedule 4.18 sets forth a list of all "employee pension benefit plans" and "employee benefit plans," as defined in Section 3(2) and (3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), and other written or formal plans or group arrangements involving direct or indirect compensation (not including any government-mandated programs) currently or previously maintained or contributed by the Corporation or any ERISA Affiliate for the benefit of any employee or former employee thereof under which the Corporation and/or any Subsidiary has or may have any present or future obligation or liability (collectively, the "Employee Plans"). "ERISA Affiliate" means any entity which is a member of (i) a "controlled group of corporations," as defined in Section 414(b) of the Code, (ii) a group of entities under "common control," as defined in Section 414(c) of the Code, or (iii) an "affiliated service group," as defined in Section 414(m) of the Code, any of which includes the Corporation. (b) Schedule 4.18 further sets forth a list of all plans, trusts, or arrangements (written or oral) providing for insurance coverage (including any self-insured arrangements), workers' compensation, medical benefits, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock appreciation, or other forms of incentive compensation, insurance or benefits (collectively, the "Benefit Arrangements") that (i) are not Employee Plans, (ii) are maintained or contributed to by the Corporation or any Subsidiary, and (iii) cover any director, officer, employee, consultant, or former employee of the Corporation or any Subsidiary. (c) Each Employee Plan and Benefit Arrangement has been maintained in substantial compliance with its terms and with the requirements prescribed by applicable Laws. There has not been any "accumulated funding deficiency," as defined in Section 412 of the Code, with respect to any Employee Plan. There has not been any partial or complete withdrawal by the Corporation or any Subsidiary with respect to any Employee Plan which is a "multiemployer plan," as defined in Section 3(37) of ERISA, and the Corporation does not have any current plans to withdraw from any such Employee Plan. There has been no "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code involving any Employee Plan. There are no pending or threatened investigations or claims by the Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation or any other governmental agency or any individual relating to any of the Employee Plans or Benefit 13 Arrangements. Except as required under Section 4980B of the Code, the Company has no obligation to provide post-retirement health or life benefits. Except as set forth on Schedule 4.18, neither the Corporation or any Subsidiary is in default or alleged to be in default in the payment or other provision of any benefit under any Employee Plan or Benefit Arrangement. Except as set forth on Schedule 4.18, no actions have been taken or are currently planned with respect to any Employee Plan or Benefit Arrangement that would increase the expense of maintaining or the benefits provided under such Employee Plan or Benefit Arrangement above the level of the expense incurred or benefits provided in respect thereof for each of the years 1999 and 1998. (d) The execution and delivery by the Corporation of the Documents and its consummation of the transactions contemplated thereby will not constitute a triggering event under any Employee Plan or Benefit Arrangement that will, or upon the occurrence of subsequent events would, accelerate the time of payment or vesting, or increase the amount of compensation or benefits, for any director, officer, employee, or former employee of the Corporation. (e) Neither the Corporation nor any Subsidiary is a party to any employment, labor or collective bargaining agreement and there are no employee, labor or collective bargaining agreements which pertain to employees, consultants, officers or directors of the Corporation or any Subsidiary and no labor union or employee organization has been certified or recognized as the collective bargaining representative of any employees of the Corporation or any Subsidiary and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed with the National Labor Relations Board. There are no existing or threatened labor strikes, work stoppages, slowdowns, disputes, grievances, unfair labor practice charges, labor arbitration proceedings or other disturbances affecting any employee of the Corporation or and Subsidiary. There are no complaints, charges, or claims against the Corporation or any Subsidiary pending or threatened in writing to be brought or filed with any governmental entity or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of any individual by the Corporation or any Subsidiary. The Corporation and its Subsidiaries are in compliance with all laws governing the employment of labor, including, but not limited to, all such laws relating to wages, hours, collective bargaining, discrimination, civil rights, safety and health, workers' compensation and the collection and payment of withholding and/or Social Security taxes and similar taxes. 4.19. Insurance. The Corporation maintains valid and effective insurance policies, issued by financially sound and reputable insurers, to insure it against all risks usually insured against by persons or entities conducting businesses similar to that of the Corporation or such Subsidiary in the locality in which such businesses are conducted. The Corporation has paid all due premiums with respect to all policies of insurance currently maintained by the Corporation. 14 4.20. Related Transactions. (a) Except as set forth on Schedule 4.20, and except for compensation to regular employees, since January 1, 1998, no current director or executive officer of the Corporation or holder of at least 5% of the outstanding capital stock of the Corporation has been (i) a party to any transaction with the Corporation valued in excess of $60,000 during any twelve-month period, or (ii) the direct or indirect owner of an interest in any business organization that is or was a competitor, supplier or customer of the Corporation (other than interests in non-affiliated publicly held companies). 4.21. Offering of the Shares. The Corporation has not, directly or indirectly, solicited any other offer to buy or offer to sell, and will not, directly or indirectly, solicit any other offer to buy or offer to sell, any security which is or would be integrated with the sale of the Shares in a manner that would require the Shares to be registered under the Securities Act. 4.22. Disclosure. The Corporation has filed all required registration statements, reports and proxy statements with the Securities and Exchange Commission ("SEC Reports") when due (or within permitted extension periods) in accordance with the Securities Act and the Securities Exchange Act of 1934, as amended ("Exchange Act"), as the case may be. As of their respective dates (or, in the case of any amended SEC Report, as of the date of the amendment), the SEC Reports complied in all material respects with all applicable requirements of the Securities Act or the Exchange Act, as the case may be. As of their respective dates (or, in the case of any amended SEC Report, as of the date of the amendment), none of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. This Agreement does not contain an untrue statement of a material fact nor does it omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. None of the statements, documents, certificates or other items prepared by the Corporation and supplied to Buyers or their respective counsel in connection with the transactions contemplated hereby (other than those relating to (i) projected financial information, (ii) plans and objectives regarding the Corporation's future operations, (iii) future economic performance and (iv) assumptions underlying any of the matters described in (i) through (iii), each as to which no representation or warranty is given other than, however, that such representations are reasonable in light of existing or known facts or trends and were prepared in good faith) contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. 15 4.23. Reserved. 4.24. Reserved. 4.25. Brokers and Finders. No person or entity acting on behalf or under the authority of the Corporation is or will be entitled to any broker's, finder's, or similar fee or commission in connection with the sale of the Shares. 4.26. Year 2000 Compliance. (a) The Corporation and each Subsidiary has used (or is in the process of using) appropriate procedures to verify that its software which is licensed or otherwise provided to its customers and the software used in its business will recognize and process date fields after the turn of the century, and perform date-dependent calculations and operations (including sorting, comparing and reporting) after the turn of the century correctly, and the Corporation and each Subsidiary has used (or is in the process of using) reasonable efforts to ensure that such software will not produce invalid and incorrect results as a result of the change of century (all without human intervention, other than original data entry of valid dates). (b) Based upon responses to its inquiries to its suppliers and vendors, the Corporation reasonably believes any suppliers and vendors that are material to the operations of the Corporation and the Subsidiaries are or will be Year 2000 compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 4.27. Reserved. Section 5. Representations and Warranties of the Buyers. Each Buyer represents and warrants to the Corporation on behalf of itself (and not any other Buyer) as of the date hereof and the Closing Date that: 5.1. Due Authorization. The Buyer has taken all action necessary to authorize its execution and delivery of the Documents to which it is a party, the performance of its obligations thereunder, and its consummation of the transactions contemplated thereby. Each Document to which the Buyer is a party has been executed and delivered by an officer of the Buyer in accordance with such authorization or by the Buyer. Each Document to which the Buyer is a party constitutes a valid and binding obligation of the Buyer, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity. 16 5.2. Investment Representations. (a) The Buyer is acquiring the Shares for its own account, for investment and not with a view to the distribution thereof, nor with any present intention of distributing the same. (b) The Buyer understands that the Shares have not been, and the Conversion Shares will not be, registered under the Securities Act or applicable state securities laws, by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act, and such shares must be held indefinitely unless subsequent disposition thereof is registered under applicable securities laws or is exempt from registration. (c) The Buyer understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to the Buyer) promulgated under the Securities Act depends on the satisfaction of various conditions and that, if applicable, Rule 144 may only afford the basis for sales under certain circumstances and only in limited amounts. (d) The Buyer is an "accredited investor," as such term is defined in Rule 501 (the provisions of which are known to the Buyer) promulgated under the Securities Act. (e) The Buyer has such knowledge and experience in financial, tax and business matters so as to enable the Buyer to utilize the information made available to the Buyer in connection with the investment in the Shares to evaluate the merits and risks of an investment in the Shares and to make an informed investment decision with respect thereto; provided, however, that the foregoing shall in no way affect, diminish or derogate from the representations and warranties made by the Corporation hereunder or the right of the Buyer to rely thereon and to seek indemnification hereunder. (f) The Buyer has not been formed for the specific purpose of acquiring the Shares. (g) The Buyer hereby acknowledges that the purchase and sale of the Shares is intended to be exempt from registration under the Securities Act by virtue of Section 4(2) and/or Section 3(b) of the Securities Act and, if applicable, in the sole judgment of the Corporation, the provisions of Regulation D thereunder, which exemption is dependent upon the truth, completeness and accuracy of the statements made by the Buyer herein and in any other documents furnished by the Buyer to the Corporation. (h) The Buyer hereby acknowledges that the representations given in Section 4.6(a) are dependent in part upon the Buyer's representations given in this section and in Section 5.4. 5.3. Brokers and Finders. No person or entity acting on behalf or under the authority of the Buyer is or will be entitled to any broker's, finder's, or similar fee or commission in connection with the transactions contemplated hereby. 17 5.4. Investor Sophistication. Buyer has sufficient knowledge and experience and is capable of evaluating the merit and risks of its investment in the Corporation as contemplated by this Agreement and is able to bear the economic risk of such investment for an indefinite period of time. Buyer has been given access to SEC Reports. Buyer has had the opportunity to ask questions of and receive answers from representatives of the Corporation concerning the terms and conditions of this Agreement, to discuss the Corporation's business, management and financial affairs with the Corporation's management and to obtain any other additional information Buyer desires or deems relevant. 5.5. Reserved. Section 6. Covenants of the Corporation and the Buyers. 6.1. Regulatory Approvals; Reasonable Best Efforts; Further Assurances. The Corporation and the Buyer acknowledge that certain regulatory or governmental approvals may be required to lawfully consummate the transactions contemplated by this Agreement. Subject to the terms and conditions of this Agreement, the Corporation and the Buyer will, and will cause their Affiliates to, use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. The Corporation and the Buyer agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement. 6.2. Certain Filings. The Corporation and the Buyer will, and will cause their Affiliates to, cooperate with one another (i) in determining whether any action by or in respect of, or filing with, any governmental body, agency, official or authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement or the conversion by such Buyer of such Buyer's Shares and (ii) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers. Without limiting the generality of the foregoing, the Corporation and the Buyer obligated to file a notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act") shall promptly after the date of this Agreement prepare and file the notifications required under the HSR Act in connection with the transactions contemplated by this Agreement. The Corporation and the Buyer shall (A) give the other parties prompt notice of the commencement of any action, suit, litigation, arbitration, preceding or investigation by or before any governmental body with respect to the transactions contemplated by this Agreement, (B) keep the other parties informed as to the status of any such action, suit, litigation, arbitration, preceding or investigation, and (C) promptly inform the other parties of any communication to or from the Federal Trade Commission, the Department of 18 Justice or any other governmental body regarding the transactions contemplated by this Agreement. 6.3. Confidentiality. Except as set forth in Section 6.4 below and as required by applicable securities laws upon the advice of counsel, without the consent of the other party, neither the Corporation nor any Buyer shall make any public comment, statement or communication with respect to, or otherwise disclose or permit the disclosure of the terms of this Agreement and the transactions contemplated hereby, and each party shall cause its authorized officers, directors, partners, employees, counsel, accountants, agents and other representatives to strictly comply with the foregoing. 6.4. Public Announcements. Neither party to this Agreement may publicly disseminate a press release or file a public report (on Form 8-K or otherwise) with the Securities and Exchange Commission or otherwise publicly announce the transactions contemplated by this Agreement, unless the other parties consent. Such parties shall not unreasonably withhold or delay their approval to any such proposed announcements. Section 7. Covenants of the Corporation. Unless otherwise indicated, and as long as any of the Shares or Conversion Shares remain outstanding, the Corporation shall and shall cause each Subsidiary to abide and perform with respect to the following covenants: 7.1. Reserved. 7.2. Restrictions Pending the Closing. After the date hereof and prior to the Closing Date, except as expressly provided for in this Agreement or as consented to in writing by the Buyers, the Corporation will not: (i) amend its certificate of incorporation or bylaws; (ii) split, combine or reclassify any shares of its capital stock without appropriately adjusting the conversion price and/or ratio applicable to the Shares prior to their issuance at the Closing; (iii) declare or pay any dividend or distribution (whether in cash, stock or property) in respect of its Common Stock; (iv) take any action, or knowingly omit to take any action, that could reasonably be expected to result in (A) any of the representations and warranties of the Corporation set forth in Article 4 becoming untrue or (B) any of the conditions to the obligations of the Buyers set forth in Section 8.1 or 8.2 not being satisfied; or 19 (v) enter into any agreement or commitment to do any of the foregoing. 7.3. Reservation of Shares. For so long as any of the Shares are outstanding, the Corporation shall keep reserved for issuance a sufficient number of shares of Common Stock to satisfy its conversion obligations under the Class E Certificate of Designation. 7.4. Use of Proceeds. The Corporation shall use the cash proceeds received by it upon the sale of the Shares for general working capital purposes. 7.5. Access to Records. The Corporation shall, and shall cause each Subsidiary to, afford to the Buyer and its authorized employees, counsel, accountants and other representatives, upon reasonable notice and during ordinary business hours, (i) full access to all books, records and properties of the Corporation and such Subsidiary, and (ii) the opportunity to interview any officer of the Corporation or such Subsidiary regarding its affairs; any investigation pursuant to this Section shall be conducted in a manner that does not interfere unreasonably with the conduct of the business of the Corporation and such Subsidiary. 7.6. Reserved. 7.7. Financial Reporting and other Information. (a) So long as the Buyer beneficially owns Shares or Conversion Shares, the Corporation shall deliver to such Buyer the following: (i) within 45 days after the end of each fiscal quarter, commencing with the quarterly period ending March 31, 2000, (A) the unaudited balance sheet of the Corporation at the end of such fiscal quarter, (B) the unaudited statements of income and cash flows of the Corporation for such fiscal quarter, and (C) comparative statements of income of the Corporation for such fiscal quarter and the year to date, the comparable figures for the corresponding fiscal quarter and the year to date period of the prior year and the current Budget for such fiscal quarter and for the year to date; and (ii) within 90 days after the end of each fiscal year commencing with the current fiscal year of the Corporation, (A) the audited balance sheet of the Corporation at the end of such fiscal year, together with comparisons to the balance sheet of the Corporation at the end of the prior fiscal year and to the current Budget, (B) the audited statements of income and cash flows of the Corporation for such fiscal year, together with comparisons to the statements of income and cash flows of the Corporation for the prior fiscal year and to the current Budget, and (C) an audit report of Ernst & Young, independent certified public accountants, on such balance sheets and statements; and 20 (iii) all information made available to the Corporation's shareholders or directors, at the same time as such information is delivered to such persons. (b) All financial information to be delivered under this Section shall be in accordance with the books and records of the Corporation and shall have been prepared in accordance with GAAP, subject to year-end and audit adjustments. 7.8. Payment of Obligations. The Corporation shall, and shall cause each Subsidiary to, pay or discharge or cause to be paid or discharged all material claims or demands, and all Taxes levied or imposed upon the Corporation or its Subsidiaries or upon the income, profits or property of the Corporation or its Subsidiaries; provided, however, that the Corporation or such Subsidiary shall not be required to pay or discharge or cause to be paid or discharged any such claim, demand, or Tax the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision has been made. 7.9. Insurance. The Corporation shall, and shall cause each Subsidiary to, maintain with financially sound and reputable insurers such insurance as may be required by law and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated and exercising sound business practice. 7.10. Certain Notices. The Corporation shall promptly notify the Buyers of (i) the commencement or notice of any threat of any Proceeding, dispute or grievance against or affecting the Corporation, which, if adversely determined, might reasonably be expected to have a Material Adverse Effect, (ii) any material default under any indebtedness of the Corporation and (iii) any material default or breach under any of the items required to be listed on Schedule 4.10(a) or any of the items which would have been required to be listed on Schedule 4.10(a) if such item were effective prior to the date hereof. 7.11. Conduct of Business. The Corporation shall (i) take all actions required to assure that the Corporation remains duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) take all actions required to assure that the Corporation maintains all Permits to conduct its business, and (iii) conduct its business in compliance with all Laws. 7.12. Related Transactions. Excluding any existing arrangements between Winstar Communications, Inc. and MCI WorldCom, Inc., the Corporation shall not directly or indirectly enter into any transaction with any Related Party, other than any transaction entered into in the ordinary course of business and on terms and conditions not less favorable to the Corporation as the terms and conditions which would apply in a similar transaction negotiated on an arms-length basis with a party that is not a 21 Related Party. "Related Party" means (a) each current or future director or executive officer of the Corporation, (b) each parent, sibling, spouse, or descendant of any of the foregoing, (c) each entity of which any of the foregoing is a director, officer, partner or holder of more than 10% of the outstanding voting power of any class of capital stock and (d) any person or entity which is the beneficial owner of 5% or more of the outstanding voting power of the Corporation. 7.13. Internal Controls. (a) Internal Controls. The Corporation maintains and will continue to maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain accountability for assets and (iii) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 7.14. Reserved. 7.15. Reserved. 7.16. Reserved. 7.17. Reserved. 7.18. Consents. Prior to the Closing, the Corporation shall use its commercially reasonable best efforts to obtain all consents and approvals of third parties, if any, required to consummate the transactions contemplated by this Agreement so that such consummation shall not conflict with or cause a breach of or default under any agreement or other obligation binding upon the Corporation, including without limitation all such consents and approvals required with respect to its obligations for borrowed money and under its Articles of Incorporation and Certificates of Designation. Section 8. Registration Rights of the Buyers. 8.1. Demand Registration. (a) Grant of Right. The Corporation agrees to register on two occasions, upon written demand ("Initial Demand Notice") of a the holders of a majority of the voting rights represented by the Class E Preferred Stock and the Conversion Shares, regardless of whether the Shares have been converted (the "Registrable Securities"). The Corporation will file a registration statement covering the Registrable Securities within 60 days after receipt of the Initial Demand Notice and use its best efforts to have such registration statement declared effective promptly thereafter. The demand for registration may be made at any time during a period commencing on the earlier of (i) the six month anniversary of the consummation of the 22 Corporation's initial public offering of its Common Stock, and (ii) the one year anniversary of the date Shares are first issued. (b) Terms. The Corporation shall bear all fees and expenses attendant to registering the Registrable Securities, including, but not limited to legal fees to in connection with the sale of the Registrable Securities but not including any and all underwriting commissions and discounts which will be the responsibility of the Buyer participating in the underwriting. The Corporation will qualify or register the Registrable Securities in such states as are reasonably requested by the Buyer. The Corporation shall cause any registration statement filed pursuant to the demand rights granted under this Section to remain effective with respect to the Registrable Securities covered by such registration statement until all such securities have been sold. 8.2. "Piggy-Back" Registration. (a) Grant of Right. Each Buyer shall have the right at any time and from time to time to include the Registrable Securities as part of any other registration of securities filed by the Corporation (other than pursuant to Form S-4, Form S-8 or any equivalent forms or in connection with the Corporation's initial public offering to the extent that no other selling shareholder is included in the registration statement). Notwithstanding the foregoing, if, in the written opinion of the managing underwriter or underwriters of a public offering by the Corporation of its shares of Common Stock, the inclusion of the Registrable Securities, when added to the securities being registered by the Corporation, will exceed the maximum amount of the Corporation's securities that can be marketed without materially and adversely affecting the entire offering, then (i) the Corporation will include in such registration first, only those securities, the holders of which as of the date hereof have piggy-back registration rights (as listed on Schedule 8.2), second, the Registrable Securities allocated (if necessary) among the holders thereof on a pro rata basis based on the number of Registrable Securities requested to be included in such registration statement, and third, capital stock of the Corporation to be sold for the account of others with applicable piggy-back registration rights, with such priorities among them as the Corporation shall decide. If, subsequent to the exercise of all of the demand registration rights referred to in Section 8.1, any Registrable Securities requested to be included in an offering ("Other Offering") pursuant to the "piggy-back" rights described in this Section 8.2. are not so included because of the operation of the first proviso of the preceding sentence, then the holders of the Registrable Securities shall have the right to require the Corporation, at its expense, to prepare and file a registration statement under the Securities Act covering such Registrable Securities. (b) Terms. The Corporation shall bear all fees and expenses attendant to registering the Registrable Securities, including the reasonable expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities, but a Buyer participating in the registration shall pay any and all discounts and underwriting commissions. In the event of such a proposed registration, the Corporation shall furnish the owners of the Registrable Securities with not less than 30 days written notice prior to the proposed date of filing of such registration statement. Such notice shall continue to be given for each registration statement filed by the Corporation until such time as all of the Registrable Securities have been sold by the Buyers. The owners of the Registrable Securities shall exercise 23 the "piggy-back" rights provided for herein by giving written notice within 15 days of the receipt of the Corporation's notice of its intention to file a registration statement. The Corporation shall cause any registration statement filed pursuant to the "piggyback" rights granted under this Section to remain effective with respect to the Registrable Securities covered by such registration statement until all of the such securities have been sold by the Buyer. Notwithstanding the foregoing, in no event shall the Corporation be obligated to maintain the effectiveness of any registration statement filed pursuant to Sections 8.1 and 8.2 for a period in excess of three years from the initial date of issuance of the Shares. 8.3. General Terms. (a) Indemnification. The Corporation shall indemnify the owner(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such person within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement, except to the extent that any loss, claim, damage, expense or liability arises out of or relates to written information furnished by or on behalf of the Buyer, for inclusion in such registration statement ("Buyer Information"). The owner(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Corporation against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which it may become subject under the Securities Act, the Exchange Act or otherwise, arising from Buyer Information furnished by or on behalf of such owner(s). (b) Exercise of Shares. Nothing contained in this Section 8 shall be construed as requiring a Buyer to convert the Shares prior to or after the filing of any registration statement or the effectiveness thereof. (c) Documents Delivered to Holders. The Corporation shall deliver promptly to each Buyer participating in any of the foregoing offerings who requests it, all correspondence between the Securities and Exchange Commission and the Corporation, its counsel or auditors and all memoranda relating to discussions with the Securities and Exchange Commission or its staff with respect to the registration statement. The Corporation also shall furnish to each Buyer participating in any of the foregoing offerings that are underwritten, and to each underwriter of any such offering, a signed counterpart, addressed to such Buyer and underwriter, of (i) an opinion of counsel to the Corporation, dated the effective date of such registration statement (and an opinion dated the date of the closing under the underwriting agreement relating to such offering), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Corporation's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such 24 financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. In the event that the Buyer requests information pursuant to this Section (c), then, prior to furnishing such information, the Corporation shall have the right to require such Buyer to enter into a confidentiality agreement with the Corporation with respect to any information to be provided to the Buyer that the Corporation reasonably considers to be proprietary, non-public or otherwise confidential. 8.4. Underwriting Agreement. In the event that the demand registration filed by a Buyer pursuant to Section 8.1(a) is for an underwritten offering, then such Buyer shall have the right to select the underwriters of the offering, which underwriters shall be reasonably acceptable to the Corporation. The Corporation shall enter into an underwriting agreement with the managing underwriter selected by such Buyer whose Registrable Securities are being registered pursuant to Section 8.1. Such agreement shall be reasonably satisfactory in form and substance to the Corporation, each such person and such managing underwriter, and shall contain such representations, warranties and covenants by the Corporation and such other terms as are customarily contained in agreements of that type used by the underwriter. Such persons shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all of the representations, warranties and covenants of the Corporation to or for the benefit of such underwriter shall also be made to and for the benefit of such persons. Such persons shall not be required to make any representations or warranties to or agreements with the Corporation or the underwriter except as they may relate to such persons, their shares and their intended methods of distribution. 8.5. Reserved. 8.6. Reserved. Section 9. Conditions to Each Closing. 9.1. Conditions of Each Party. The respective obligations of each of the Corporation and the Buyers to consummate the transactions contemplated hereby are subject to the fulfillment, at or prior to the Closing, of each of the following conditions, any or all of which may be waived in whole or in part to the extent permitted by applicable law; (a) All filings required to be made, and all consents, approvals, permits and authorizations required to be obtained, prior to the Closing, from any Governmental Authorities in connection with the execution and delivery by the parties of the Documents and the consummation of the transactions contemplated thereby shall have been made or obtained; and (b) No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) or taken any action that prohibits the consummation of the transactions contemplated by this 25 Agreement; provided, however, that any party invoking this condition shall use its reasonable best efforts to have any such judgment, decree, injunction or order vacated. 9.2. Conditions to Obligations of the Buyers. The obligations to be performed by each Buyers under this Agreement at or after the Closing are subject to the satisfaction at or prior to each of the Closing of the following conditions, unless waived by the Buyers: (a) Material Adverse Effect. There shall not have been any event which has or is reasonably likely to have a Material Adverse Effect. (b) Accuracy of Representations and Warranties. Each of the representations and warranties of the Corporation contained in this Agreement and in any certificate or other writing delivered by the Corporation pursuant hereto qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case at and as of the Closing Date as if made at and as of such respective times (except to the extent it relates to a particular date). (c) Performance of Covenants. The Corporation shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement and each other Document. (d) Class E Certificate of Designation. Prior to the Closing, the Class E Certificate of Designation shall have been filed with and accepted by the Secretary of State of the State of Minnesota and shall have become effective. (e) Stock Certificates. At the Closing Stock certificates representing the Class E Preferred Stock sold at such closing shall have been delivered by the Corporation to the Buyers. (f) Reserved. (g) Officer's Certificate. At the Closing the Buyers shall receive a certificate from an officer of the Corporation to the effect that all conditions set forth in this Section 9.2 shall have been satisfied. (h) Required Consents and Approvals. Prior to the Closing Date, the Corporation shall have received all consents and approvals of third parties, if any, required to consummate the transactions contemplated by this Agreement so that such consummation shall not conflict with or cause a breach of or default under any agreement or other obligation binding upon the Corporation, including without limitation all such consents and approvals required with respect to its obligations for borrowed money and under its Articles of Incorporation and Certificates of Designation. 26 9.3. Conditions to Obligations of the Corporation. The obligations to be performed by the Corporation under this Agreement at or after the Closing are subject to the satisfaction at or prior to the Closing and the Option Closing, if any, of the following conditions, unless waived by the Corporation: (a) Accuracy of Representations and Warranties. Each of the representations and warranties of the Buyers contained in this Agreement and in any certificate or other writing delivered by the Buyers pursuant hereto qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case at and as of the Closing Date as if made at and as of such respective times (except to the extent it relates to a particular date); (b) Performance of Covenants. Each Buyer shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement and each other Document to which it is a party. Section 10. Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by joint written agreement of the Corporation and the Buyers; (b) by the Corporation, if any Buyer has breached any representation, warranty, covenant or agreement contained in this Agreement and has not cured such breach within ten (10) business days after written notice to such Buyer (provided that the Corporation is not then in material breach of the terms of this Agreement; and provided further that no cure period shall be required for a breach which by its nature cannot be cured); (c) by the Buyers, if the Corporation has breached any representation, warranty, covenant or agreement contained in this Agreement and has not cured such breach within ten (10) business days after written notice to the Corporation (provided that a Buyer is not then in material breach of the terms of this Agreement; and provided further that no cure period shall be required for a breach which by its nature cannot be cured); (d) by any party, if the Closing has not occurred on or before March 31, 2000; provided, however, that a party may not terminate this Agreement pursuant to this Section if the failure of such party to fulfill any of its obligations hereunder shall have been the principal reason that the Closing shall not have occurred on or before said date; (e) by any party if there shall be a change of law or regulation that makes consummation of the transactions contemplated hereby illegal or otherwise prohibited or if consummation of the transactions contemplated hereby would violate any nonappealable, final order, decree or judgment of any court or governmental body having competent jurisdiction; or The party desiring to terminate this Agreement pursuant to the above- referenced clauses shall give notice of such termination to the other parties hereto. 27 10.1. Effect of Termination. (a) If this Agreement is terminated, such termination shall be without liability of either party (or any shareholder, director, officer, employee, agent, consultant or representative of such party) to the other parties to this Agreement; provided that if such termination shall result from the (i) willful failure by any party to fulfill a condition to the performance of the obligations of the other parties, (ii) failure by any party to perform a covenant of this Agreement, (iii) breach by any party hereto of any representation, warranty, covenant or agreement contained herein, or (iv) a Closing Failure by any party, such party shall be fully liable for any and all damages incurred or suffered by the other parties as a result of such failure or breach. Section 11. Miscellaneous 11.1. Survival. The representations, warranties, covenants and other agreements contained herein, shall survive the Closing and the consummation of the transactions contemplated hereby. No right of a Buyer for indemnification hereunder shall be affected by any examination made for or on behalf of a Buyer, the knowledge of any of a Buyer's officers, directors, shareholders, employees or agents, or the acceptance by a Buyer of any certificate or opinion. 11.2. Indemnification. (a) The Corporation shall indemnify, defend and hold the Buyers and its officers, directors, employees, shareholders, partners, members, affiliates and agents harmless against all Liability, loss or damage, together with all reasonable costs and expenses related thereto (including reasonable legal fees and expenses), relating to or arising from the untruth, inaccuracy or breach of any of the representations, warranties or agreements of the Corporation contained in this Agreement. (b) Reserved. (c) Promptly after receipt by any party entitled to indemnification under either Section 11.2(a) or Section 11.2(b) (an "indemnified party") of notice of the commencement of any action involving a claim which may give rise to a claim for indemnity under the preceding paragraphs of this Section, the indemnified party will give written notice to the party against whom indemnification is sought (the "indemnifying party") of the commencement of such action. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided, however, that if any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to it which are additional to or conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the 28 indemnity agreement provided in this Section, the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party and the indemnifying party shall reimburse the indemnified party and any person controlling the indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity agreement provided in this Section. (d) If the indemnification provided for in this Section is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying the indemnified party hereunder, shall contribute to the amounts paid or payable by the indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage or liability as well as any other relevant equitable considerations. The amount paid or payable to an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to above shall be deemed to include any legal or other expenses reasonably incurred in connection with investigating or defending the same. (e) The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of the indemnified party and will survive the transfer of securities. 11.3. Reserved. 11.4. Assignment; Parties in Interest. This Agreement shall bind and inure to the benefit of the parties and each of their respective successors and permitted assigns. 11.5. Entire Agreement. This Agreement (including all Schedules and Exhibits hereby) together with the other Documents contain the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties with respect to such subject matter. 11.6. Notices. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows: (a) if to the Corporation: WAM!NET INC. 655 Lone Oak Drive, Building A 29 Eagan, Minnesota 55121 Attention: Edward J. Driscoll, III, President Telephone: (651) 256-2165 Facsimile: (651) 994-9591 (b) if to the a Buyer, to the name and address for notice appearing on the signature page to this Agreement for such Buyer to such other address as the party to whom notice is to be given may have furnished to the other parties in writing in accordance herewith. Any such notice or communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of nationally-recognized overnight courier, on the next business day after the date when sent, (c) in the case of telecopy transmission, when received, and (d) in the case of mailing, on the date of receipt. 11.7. Amendments. The terms and provisions of this Agreement may only be modified or amended pursuant to an instrument signed by all of the parties hereto. 11.8. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 11.9. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.10. Governing Law. Except as to matters governed by the MBCA, this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any law or rule that would cause the laws of any jurisdiction other than the State of New York to be applied. 11.11. Jurisdiction. The parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may only be brought in the United States District Court for the Southern District of New York or any New York State court sitting in New York City, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the 30 world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in the Section entitled "Notices" shall be deemed effective service of process on such party. 11.12. No Waiver. No delay by or on behalf of a Buyer in exercising any rights conferred hereunder, and no course of dealing between a Buyer and the Corporation shall operate as a waiver of any right granted hereunder, unless expressly waived in writing by the party whose waiver is alleged. 11.13. Binding Effect All covenants, representations, warranties and other stipulations in this Agreement and other documents referred to herein, given by or on behalf of any of the parties hereto, shall bind and inure to the benefit of the respective successors, heirs, personal representatives and assigns of the parties hereto. 11.14. Cumulative Powers. No remedy herein conferred upon a Buyer or any holder of the Class E Preferred Stock is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter existing at law, or in equity or by statue or otherwise. 31 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the date first above written. WAM!NET INC. By: /s/ Edward J. Driscoll III --------------------------------------- Name: Edward J. Driscoll III Title: Chairman & CEO Address: 655 Lone Oak Drive Building A Eagan, Minnesota 55121 By: /s/ Daniel D. Rubino --------------------------------------- Name: Daniel D. Rubino By: /s/ Neil Mellen --------------------------------------- Name: Neil Mellen By: /s/ Jack H. Nusbaum --------------------------------------- Name: Jack H. Nusbaum By: /s/ Tonny K. Ho --------------------------------------- Name: Tonny K. Ho By: /s/ Mitchell G. Leibovitz --------------------------------------- Name: Mitchell G. Leibovitz By: /s/ Joseph T. Baio --------------------------------------- Name: Joseph T. Baio By: /s/ Richard L. Posen --------------------------------------- Name: Richard L. Posen By: /s/ Daniel Schloendorn --------------------------------------- Name: Daniel Schloendorn By: /s/ Mario M. Cuomo --------------------------------------- Name: Mario M. Cuomo By: /s/ Daniel Hurstel --------------------------------------- Name: Daniel Hurstel By: /s/ Roger D. Netzer --------------------------------------- Name: Roger D. Netzer THE MONEY GAME, G.P. By: /s/ Matthew F. Herman --------------------------------------- Name: Matthew F. Herman Title: General Partner 32 Index Exhibit A Statements of Rights and Preferences of Class E Preferred Stock Schedule 1.1 Schedule of Buyers Schedule I Certain Management Schedule 4.1(a) Articles of Incorporation and Bylaws Schedule 4.1(b) List of Subsidiaries Schedule 4.5(a) Designation and Classes of Capital Stock Schedule 4.5(a)(vi) Right of First Refusal Agreements Schedule 4.5(b) Options, Warrants and Convertible Securities Schedule 4.5(c)(i) Purchase Agreements Schedule 4.5(c)(ii) Registration Rights Agreements Schedule 4.5(e) Record Holders Schedule 4.7 Financial Statements Schedule 4.10(a) Material Contracts Schedule 4.12 Real Property Schedule 4.13 Intellectual Property Schedule 4.14 License to Provide Communications Services Schedule 4.15 Litigation Schedule 4.18 Employee Pension Benefit Plans Schedule 4.20 Related Transactions Schedule 8.2 Piggy-back Registration Rights EXHIBIT A --------- Statement of Rights and Preferences of Class E Preferred Stock SCHEDULE 1.1 ------------ Buyers and Purchase Price - ------------------------------ ------------------------- --------------------- Number of Shares Buyer Severally Purchased Purchase Price - ------------------------------ ------------------------- --------------------- Daniel D. Rubino 250 $ 250,000 - -------------------------------------------------------------------------------- Neil Mellen 250 $ 250,000 - -------------------------------------------------------------------------------- Jack H. Nusbaum 250 $ 250,000 - -------------------------------------------------------------------------------- Tonny K. Ho 250 $ 250,000 - -------------------------------------------------------------------------------- Mitchell G. Leibovitz 150 $ 150,000 - -------------------------------------------------------------------------------- Joseph T. Baio 125 $ 125,000 - -------------------------------------------------------------------------------- Richard L. Posen 125 $ 125,000 - -------------------------------------------------------------------------------- Daniel Schloendorn 125 $ 125,000 - -------------------------------------------------------------------------------- Mario M. Cuomo 50 $ 50,000 - -------------------------------------------------------------------------------- Daniel Hurstel 50 $ 50,000 - -------------------------------------------------------------------------------- Roger D. Netzer 50 $ 50,000 - -------------------------------------------------------------------------------- The Money Game, G.P. 50 $ 50,000 ========== - -------------------------------------------------------------------------------- Total $1,725,000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SCHEDULE I ---------- Edward J. Driscoll III Allen L. Witters Gary L. Hokkanen Denice Y. Gibson Lisa A. Gray EX-4.43 3 0003.txt SECURITIES PURCHASE AGREEMENT SEPTEMBER 29, 2000 Exhibit 4.43 ================================================================================ SECURITIES PURCHASE AGREEMENT dated as of September 29, 2000, among WAM!NET INC., WINSTAR COMMUNICATIONS, INC., and WINSTAR CREDIT CORP. ================================================================================ TABLE OF CONTENTS Page ---- SECTION 1. AUTHORIZATION......................................................1 SECTION 2. CLOSING............................................................1 SECTION 3. SALE AND PURCHASE OF SHARES........................................1 3.1. Number of Shares..........................................1 3.2. Exercise of Sale Right....................................2 3.3. Warrants..................................................2 3.4. Assignment................................................3 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION..................3 4.1. Organization; Subsidiaries................................3 4.2. [Intentionally Omitted.]..................................4 4.3. Corporate Authorization; Enforceability...................4 4.4. No Conflict...............................................4 4.5. Capitalization............................................4 4.6. Securities Laws; Applicable Corporation Laws..............7 4.7. Financial Information.....................................7 4.8. Absence of Changes; Review of Interim Financials..........7 4.9. Initial Budget............................................9 4.10. Agreements................................................9 4.11. Title to Assets..........................................11 4.12. Real Property............................................11 4.13. Intellectual Property Rights; Proprietary Information of Third Parties.........................................11 4.14. Compliance with Laws; Governmental Authorizations........12 4.15. Litigation...............................................13 4.16. Environmental Matters....................................13 4.17. Tax Matters..............................................13 4.18. Employee Benefit Plans...................................14 4.19. Insurance................................................15 4.20. Related Transactions.....................................15 4.21. Offering of the Shares...................................15 4.22. Disclosure...............................................15 4.23. [Intentionally Omitted.].................................16 4.24. [Intentionally Omitted.].................................16 4.25. Brokers and Finders......................................16 4.26. Year 2000 Compliance.....................................16 4.27. Minnesota Business Corporation Act.......................17 SECTION 5. REPRESENTATIONS AND WARRANTIES OF WINSTAR AND WINSTAR SUB AND ANY ASSIGNEE THEREOF......................................17 5.1. Due Authorization........................................17 Page ---- 5.2. Investment Representations...............................18 5.3. Brokers and Finders......................................19 5.4. Investor Sophistication..................................19 SECTION 6. COVENANTS OF THE CORPORATION AND WINSTAR SUB......................19 6.1. Regulatory Approvals; Reasonable Best Efforts; Further Assurances.......................................19 6.2. Certain Filings..........................................19 6.3. Confidentiality..........................................20 6.4. Public Announcements.....................................20 SECTION 7. COVENANTS OF THE CORPORATION......................................20 7.1. Certificate of Designation...............................20 7.2. Restrictions Pending the Last Closing....................20 7.3. Reservation of Shares....................................21 7.4. Use of Proceeds..........................................21 7.5. Access to Records........................................21 7.6. Budget...................................................21 7.7. Financial Reporting and other Information................22 7.8. Payment of Obligations...................................23 7.9. Insurance................................................23 7.10. Certain Notices..........................................23 7.11. Conduct of Business......................................23 7.12. Related Transactions.....................................23 7.13. Internal Controls........................................24 7.14. Winstar Directors........................................24 7.15. Assignee Director........................................25 7.16. Indenture................................................26 7.17. Tag-Along Agreements.....................................26 7.18. Board of Directors.......................................26 7.19. Consents.................................................26 7.20. Use of Proceeds..........................................26 7.21. Corporate Documents......................................26 7.22. Sale of Winstar Shares...................................27 SECTION 8. REGISTRATION RIGHTS OF WINSTAR AND WINSTAR SUB....................27 8.1. Demand Registration......................................27 8.2. "Piggy-Back" Registration................................27 8.3. General Terms............................................28 8.4. Underwriting Agreement...................................29 8.5. Road Show................................................30 8.6. Rights and Obligations of Assignee.......................30 SECTION 9. CONDITIONS TO EACH CLOSING........................................30 9.1. Conditions of Each Party.................................30 9.2. Conditions to Obligations of Winstar and Winstar Sub.....31 9.3. Conditions to Obligations of the Corporation.............33 (ii) Page ---- SECTION 10. TERMINATION.......................................................33 10.1. Effect of Termination....................................34 SECTION 11. MISCELLANEOUS.....................................................34 11.1. Survival.................................................34 11.2. Indemnification..........................................34 11.3. Fees and Expenses........................................35 11.4. Assignment; Parties in Interest..........................35 11.5. Entire Agreement.........................................36 11.6. Notices..................................................36 11.7. Amendments...............................................37 11.8. Counterparts.............................................37 11.9. Headings.................................................37 11.10. Governing Law............................................37 11.11. Jurisdiction.............................................37 11.12. No Waiver................................................38 11.13. Binding Effect...........................................38 11.14. Cumulative Powers........................................38 (iii) SECURITIES PURCHASE AGREEMENT, dated as of September 29, 2000, among WAM!NET INC., a Minnesota corporation (the "Corporation"), Winstar Communications, Inc., a Delaware corporation ("Winstar"), and Winstar Credit Corp., a Delaware corporation and a wholly-owned subsidiary of Winstar ("Winstar Sub"). WHEREAS, the Corporation desires to have the ability to require Winstar Sub to purchase up to 60,000 shares (the "Shares") of its Class H Convertible Preferred Stock, $.01 par value (the "Class H Preferred Stock"), from the Corporation and Winstar and Winstar Sub are willing to commit to such arrangement, all upon the terms and subject to the conditions set forth below. NOW THEREFORE, the parties hereto agree as follows: Section 1. Authorization. The Corporation has authorized the issuance and sale, at the option of the Corporation and upon the terms and subject to the conditions set forth in this Agreement, of the Shares for a purchase price of $1,000 per Share ("Per Share Price"). The Class H Preferred Stock shall have the powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations, and restrictions set forth in the Certificate of Designation of Rights and Preferences of Class H Preferred Stock ("Class H Certificate of Designation") attached hereto as Exhibit A, which shall be filed by the Corporation in the office of the Secretary of State of the State of Minnesota promptly after the execution of this Agreement. Section 2. Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned in accordance with this Agreement, and subject to the prior fulfillment of the conditions specified in Section 9, closings of sales and purchases of Shares and the other transactions contemplated hereby (each a "Closing") shall be held at 10:00 a.m. on the dates and with respect to the number of Shares determined pursuant to Section 3.2 at the office of Graubard Mollen & Miller, 600 Third Avenue, New York, New York 10016 (or at such other time, date and place as the parties may mutually agree). The date on which a Closing actually occurs is hereinafter referred to as a "Closing Date." Section 3. Sale and Purchase of Shares. 3.1. Number of Shares. Subject to the other provisions of this Section 3, the Corporation shall have the right to sell 60,000 Shares to Winstar Sub pursuant to this Agreement. Notwithstanding anything to the contrary in this Agreement, in no event shall Winstar Sub be required to purchase Shares in the event of any of the following: (a) if such purchase would, in Winstar's reasonable good faith determination, upon consultation with Winstar's independent auditors, require Winstar to include the assets, liabilities, shareholders' equity and results of operations of the Corporation in Winstar's financial statements on a consolidated basis in accordance with generally accepted accounting principles; (b) if the Corporation has raised $100,000,000 from the sale of its securities after the date hereof, not including the investment contemplated hereby ("Qualified Financing"); and (c) an event contemplated by subsection 9.2(p). 3.2. Exercise of Sale Right. If the Corporation desires to sell Shares to Winstar Sub on a Closing Date the following procedure must be followed: (a) it shall deliver to Winstar and Winstar Sub written notice thereof no later than ten Business Days prior to such Closing Date, which notice shall state the desired Closing Date and the number of Shares it desires to sell (in increments of 1,000 Shares or whole number multiples thereof), which number shall not exceed the aggregate number of Shares as indicated on Schedule I for such Closing Date; and (b) an officer of the Corporation shall present a certificate to Winstar and Winstar Sub that all conditions set forth in Section 9.2 hereof shall have been satisfied. At the Closing scheduled for such Closing Date, the Corporation shall issue and deliver to Winstar Sub the number of Shares stated in the notice for such Closing (registered in the name of Winstar Sub or its designee) and Winstar Sub shall deliver to the Corporation, as payment therefor, cash equal to the aggregate purchase price of such Shares (by wire transfer to an account specified by the Corporation in the notice). The Corporation's right to sell Shares to Winstar Sub shall terminate on the earlier of January 31, 2001 and the date on which the Corporation consummates an offering of its common stock or other equity securities resulting in aggregate gross proceeds of $100,000,000 or more to the Corporation. 3.3. Warrants. (a) Upon execution of this Agreement, the Corporation shall issue and deliver to Winstar Sub, for no additional consideration, a warrant ("Warrant") to purchase 3,000,000 shares of common stock of the Corporation ("Warrant Shares") at a price of $.01 per share during the period from the date of this Agreement until December 31, 2005; provided, however, that to the extent that the Corporation does not sell Shares to Winstar Sub in the amounts set forth in Schedule I, the right of Winstar Sub to exercise Warrants corresponding to the number of Shares not so sold as set forth in Schedule I (prorated within the specified amounts in any case in which the total number of Shares sold is less than a whole multiple of 10,000 Shares) shall terminate and be cancelled. The Warrant shall be in the form of Exhibit B attached hereto. (b) Upon the occurrence of an event giving rise to an adjustment in the number of shares of common stock of the Corporation into which the Shares sold to Winstar Sub are convertible pursuant to Section 7 of the Series H Certificate of Designation and in which the shares of common stock or other securities issued or sold by the Corporation are issued or sold at a price equivalent to less than $2.50 per share of common stock, the Corporation shall promptly issue to Winstar Sub additional Warrants in an amount which bears the same proportion to the number of Warrants theretofore issued to Winstar Sub (including any Warrants issued pursuant to this Section 3.3(b)) as the number of additional shares of common stock of the Corporation issuable upon conversion of the Shares as a result of such event bears to the number of shares of common stock of the Corporation into which the Shares are convertible immediately before the occurrence of such event. -2- 3.4. Assignment. Winstar Sub may assign all or any part of its obligation to purchase Shares ("Assigned Shares") to one or more third parties and such assignment shall relieve Winstar Sub of its obligations with respect to such purchase to the extent that an assignee has made an actual purchase of Shares or has tendered to the Corporation the cash amount equal to the purchase price. No Voting Limitation (as described in Section 5 of the Class H Certificate of Designation) shall apply to any Assigned Shares. Section 4. Representations and Warranties of the Corporation. The Corporation hereby represents and warrants to Winstar and Winstar Sub as of the date hereof and as of each Closing Date, if any, that: 4.1. Organization; Subsidiaries. (a) Organization. The Corporation and each Subsidiary (as defined below) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation, is duly qualified and in good standing as a foreign corporation, and is authorized to do business, in all jurisdictions in which the character of its properties or the nature of its businesses requires such qualification or authorization, except for qualifications and authorizations the lack of which, individually or in the aggregate, would not reasonably be expected to result in a material adverse effect upon the business, prospects, properties, liabilities, assets, operations, results of operations, condition (financial or otherwise), or affairs of the Corporation or result in the loss of employment of any Principal Executive Officer as such term is defined on Schedule II (a "Material Adverse Effect"), and has all requisite corporate power and authority to own, lease and operate the assets used in its business, to carry on its business as presently conducted, to enter into the Documents (as hereinafter defined), to perform its obligations thereunder, and to consummate the transactions contemplated thereby. Attached as Schedule 4.1(a) are correct and complete copies of the Articles of Incorporation of the Corporation, including all amendments and Certificates of Designation, and the By-laws of the Corporation, each as in effect on the date hereof (collectively, the "Organizational Documents"). For purposes of this Agreement, "Documents" collectively means (i) this Agreement and (ii) the Class H Certificate of Designation. (b) Subsidiaries. Set forth on Schedule 4.1(b) hereto is a complete list of all of the subsidiaries of the Corporation (each a "Subsidiary"). Except as set forth on Schedule 4.1(b) hereto, the Corporation does not own, directly or indirectly, any capital stock or other equity securities of any corporation, nor does the Corporation have any direct or indirect ownership interest, including interests in limited liability companies, partnerships and joint ventures, in any other entity or business and there are no agreements to acquire such interests. Except as disclosed on Schedule 4.1(b) hereto: (i) all of the outstanding shares of capital stock of each Subsidiary are owned beneficially and of record by the Corporation, another Subsidiary or any combination thereof, in each case free and clear of any liens, charges, restrictions, claims or encumbrances other than restrictions on transfer imposed by the Securities Act of 1933, as amended (the "Securities Act"); and (ii) there are no outstanding subscriptions, warrants, -3- options, convertible securities or other rights (contingent or other) pursuant to which any Subsidiary is or may become obligated to issue any shares of its capital stock to any person other than the Corporation or a Subsidiary. 4.2. [Intentionally Omitted.] 4.3. Corporate Authorization; Enforceability. The Corporation has taken all corporate action necessary to authorize its execution and delivery of the Documents, the performance of its obligations thereunder, and its consummation of the transactions contemplated thereby. Each Document has been executed and delivered by an officer of the Corporation in accordance with such authorization. Each Document constitutes a valid and binding obligation of the Corporation, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, fraudulent conveyance, insolvency, moratorium, and similar laws now or hereafter in effect affecting creditors' rights generally and to general principles of equity. 4.4. No Conflict. The execution and delivery by the Corporation of the Documents, its consummation of the transactions contemplated thereby, and its compliance with the provisions thereof, will not, other than in instances which could not reasonably be expected to have a Material Adverse Effect, (i) violate or conflict with any of the Organizational Documents, (ii) violate, conflict with, result in a breach of, constitute a default under, or give rise to any right of termination, cancellation, or acceleration (with or without notice or lapse of time, or both) under any agreement, lease, security, license, permit, or instrument to which the Corporation or any Subsidiary is a party, or to which it or any of them or any of their respective assets or businesses are subject, (iii) result in the imposition of any Encumbrance (as hereinafter defined) on any asset of the Corporation, (iv) violate or conflict with any Laws applicable to the Corporation or its properties or assets, or (v) require any consent, approval or other action of, notice to, or filing with any entity or person (governmental or private), except for the filing of the Class H Certificate of Designation and those that have been obtained or made. For purposes of this Agreement, "Encumbrance" means any security interest, mortgage, lien, pledge, charge, easement, reservation, clouds, equities, rights of way, options, rights of first refusal and any other encumbrances, whether or not relating to the extension of credit or the borrowing of money. For purposes of this Agreement, "Laws" means all laws, statutes, rules, regulations, ordinances, bylaws, writs, Permits, Orders and other legislative, administrative or judicial restrictions. 4.5. Capitalization. (a) Capitalization. (i) As of the date hereof, the authorized capital stock of the Corporation consists of 500,000,000 shares, the designations and classes of which are set forth on Schedule 4.5(a)(i) hereto. The Corporation does not hold any of its shares in treasury. -4- (ii) As of the date hereof, 10,869,905 shares of the Corporation's common stock, par value $.01 per share ("Common Stock"), 115,206 shares of the Corporation's Class A Preferred Stock par value $10.00 per share (the "Class A Preferred Stock"), 5,710,428 shares of the Corporation's Class B Preferred Stock par value $.01 per share (the "Class B Preferred Stock"), 878,527 shares of the Corporation's Class C Preferred Stock, par value $.01 per share (the "Class C Preferred Stock"), 2,196,317 shares of the Corporation's Class D Preferred Stock, par value $.01 per share (the "Class D Preferred Stock"), 101,725 shares of the Corporation's Class E Preferred Stock, par value $.01 per share (the "Class E Preferred Stock"), 10,000 shares of the Corporation's Class F Preferred Stock, par value $.01 per share (the "Class F Preferred Stock") and 10,000 shares of the Corporation's Class G Preferred Stock, par value $.01 per share (the "Class G Preferred Stock") are issued and outstanding and have been validly issued and are fully paid and non-assessable and are not subject to preemptive rights. Except as set forth above, there are no other shares of capital stock of the Corporation outstanding. As of the date hereof, the Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock and Class G Preferred Stock are convertible into 5,710,428, 878,527, 2,196,317, 101,725, 10,000 and 10,000 shares of Common Stock, respectively. Upon issuance of the Common Stock underlying such preferred shares, in accordance with their respective certificates of designations, preferences and rights, such Common Stock will be validly issued, fully paid and non-assessable. Schedule 4.5(a)(ii) sets forth, for the Common Stock and each class of Preferred Stock, the names of all holders thereof and the number of shares and voting power thereof held by each such holder and, to the extent that voting power is held by a person who is not a holder of shares of capital stock, also sets forth the name and address of each such person and the voting power held by such person. (b) Options, Warrants, Convertible Securities. Except as set forth on Schedule 4.5(b) hereto, as of the date hereof there are no outstanding subscriptions, options, warrants or other agreements or rights of any kind to acquire any additional shares of capital stock of the Corporation or other instruments or securities convertible into or exchangeable for, or which otherwise confer on the holder thereof any right to acquire, any such additional shares of capital stock, nor is the Corporation committed to issue any such option, warrant, right or security. Except as set forth on Schedule 4.5(b) hereto, the Corporation has no obligation (contingent or other) to purchase, redeem or otherwise acquire any of its equity securities or any interest therein or to pay any dividend or make any other distribution in respect thereof. Schedule 4.5(b) additionally sets forth for each subscription, option, warrant, agreement and other right listed therein, the name of each holder thereof, the number of securities held by such holder, the number of shares of common stock or other class of capital stock into which such securities are convertible or exchangeable and the exercise periods and exercise prices thereof. As of August 31, 2000, 116,001,542 shares of Common Stock are issuable upon exercise or conversion of all of the Corporation's outstanding options, warrants, and other rights of any kind to acquire shares of the Corporation's Common Stock including additional shares of common stock issuable to the holders of the Class B, Class C and Class D Preferred Stock of the Corporation as a result of anti-dilution adjustments. (c) Agreements. -5- (i) Except as set forth in Schedule 4.5(c)(i), as of the date hereof, there are no agreements relating to the purchase or sale of capital stock between the Corporation and any of its shareholders or affiliates, and to the best of the Corporation's knowledge, there are no such agreements among any of its shareholders and other parties. (ii) Except as contemplated hereby and as set forth in Schedule 4.5(c)(ii), there are no agreements or understandings granting to any person or entity any right to cause the Corporation or any Subsidiary to effect a registration under the Securities Act of 1933, as amended ("Securities Act"), of any shares of the Corporation's capital stock. (iii) Except as set forth on Schedule 4.5(c)(iii), there are no (A) voting trusts, voting agreements, proxies or other agreements, instruments or understandings with respect to the voting of the capital stock of the Corporation between the Corporation and any of its shareholders or affiliates or (B) forfeitures or waivers of voting rights by any of the Corporation's shareholders or agreements to provide any such forfeiture or waiver, and to the best of the Corporation's knowledge, there are no such agreements among any of its shareholders and any other parties. (d) Due Authorization. Upon filing of the Class H Certificate of Designation, the Shares and Warrant Shares will be duly authorized and, when issued and paid for pursuant to the terms of this Agreement, will be validly issued, fully paid and non-assessable and will have the rights, preferences and privileges specified in the Class H Certificate of Designation. The shares of the Corporation's Common Stock issuable upon conversion of the Shares ("Conversion Shares") and the Warrant Shares are duly authorized and have been reserved for issuance and, when issued upon conversion in accordance with the terms of the Class H Certificate of Designation or the exercise of the Warrants, as the case may be, will be validly issued, fully paid and non-assessable, and will be free and clear of all liens, encumbrances and restrictions (other than the restrictions on transfer imposed by the Securities Act or any other applicable federal or state securities laws, and the rules and regulations promulgated thereunder). Neither the issuance, sale or delivery of the Shares or Warrant Shares nor the contemplated issuance or delivery of the Conversion Shares is subject to or will effectuate any preemptive or other similar right of shareholders of the Corporation, any anti-dilution right or right of first refusal or other preemptive or similar right in favor of any person, in each case except for rights that have been listed on Schedule 4.5(d). (e) Reservation of Shares. The Corporation has reserved, and at all times from and after the date hereof will keep reserved, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of all shares of Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E Preferred Stock, Class F Preferred Stock, Class G Preferred Stock and Class H Preferred Stock, sufficient shares of Common Stock to provide for the conversion of all such shares of Preferred Stock. -6- 4.6. Securities Laws; Applicable Corporation Laws. (a) The sale of the Shares and Warrant Shares contemplated hereby is exempt from registration under the Securities Act. The issuance of all other shares of capital stock of the Corporation on or before the date hereof has been made in compliance with the Securities Act and all applicable state securities or blue sky laws. (b) The sale of the Shares and Warrant Shares contemplated hereby and the other transactions contemplated hereby are in compliance with all applicable laws, including the Minnesota Business Corporation Act, and any consents which are required to be obtained pursuant to such laws have either been obtained or waived in writing. 4.7. Financial Information. (a) Schedule 4.7. sets forth (i) the Corporation's Report on Form 10-K for the year ended December 31, 1999, which includes the audited consolidated balance sheet of the Corporation at December 31, 1999 (the "Balance Sheet") and the related statements of operations, shareholders' equity and cash flows of the Corporation for the 12 months then ended and (ii) the Corporation's Report on Form 10-Q for the six months ended June 30, 2000, which includes the unaudited consolidated balance sheet of the Corporation at June 30, 2000 (the "Interim Balance Sheet") and the related unaudited consolidated statements of operations, shareholders' equity and cash flows for the Corporation for the 6 months then ended (collectively, with the Balance Sheet and the Interim Balance Sheet, the "Financial Statements"). (b) The Financial Statements: (i) present fairly the financial position of the Corporation and the results of operations, shareholders' equity and cash flows of the Corporation at the dates and for the periods indicated, (ii) are in accordance with the books and records of the Corporation which books and records are complete and correct and fairly reflect all material transactions of the Corporation's business, and (iii) have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied (except as set forth in the notes thereto and subject, in the case of unaudited Financial Statements, to normal year-end adjustments, and the absence of notes thereto). Except as incurred under agreements listed on Schedule 4.10(a) or as set forth on Schedule 4.7, at the date of the Interim Balance Sheet, the Corporation did not have any material Liability of any nature or any loss contingency (as such term is used in the Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) that was not adequately disclosed or provided for on the Interim Balance Sheet, including the notes thereto. For purposes of this Agreement, "Liability" means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted. 4.8. Absence of Changes; Review of Interim Financials. (a) Since the date of the Interim Balance Sheet there has not been: (i) any change in the assets, liabilities or financial condition of the Corporation (on a consolidated basis), except for changes (i) in the ordinary course of -7- business or (ii) which in the aggregate have not resulted in and would not reasonably be expected to result in a Material Adverse Effect; (ii) any event or change that would reasonably be expected to result in a Material Adverse Effect, individually or in the aggregate, whether or not insured against; (iii) to the best of the Corporation's knowledge, any damage, destruction or loss (whether or not covered by insurance) affecting any asset of the Corporation in excess of $100,000; (iv) any liability or loss contingency incurred by the Corporation that would have to be disclosed on financial statements (including the notes thereto) (on a consolidated basis) in accordance with GAAP, other than liabilities incurred in the ordinary course of business consistent with past practice; (v) to the best of the Corporation's knowledge, any commitment to borrow money from or provide financial support to any person or entity entered into by the Corporation; (vi) any payment or discharge of any Liability by the Corporation outside the ordinary course of business consistent with past practice to the best of the Corporation's knowledge; (vii) any sale, assignment, license, or other disposition of any asset or right of the Corporation or any Subsidiary outside the ordinary course of business consistent with past practice; (viii) any declaration or payment of any dividend or other distribution with respect to any shares of capital stock of the Corporation, or the direct or indirect acquisition of any equity securities by the Corporation; (ix) any labor trouble, problem or grievance affecting the business of the Corporation other than such matters which would not reasonably be expected to have a Material Adverse Effect; (x) any write-down of the value of any inventory, fixed assets or intangibles of the Corporation, or any write-off as uncollectible of any accounts or notes receivable of the Corporation, which could reasonably be expected to result in a Material Adverse Effect; (xi) any increase in the direct or indirect compensation of senior officers of the Corporation or any Subsidiary (including, without limitation, any increase pursuant to any bonus, pension, profit-sharing, deferred compensation, or other plan or commitment), in excess of 20% above the prior year, except as set forth on Schedule 4.8(a)(xi); -8- (xii) any capital expenditure or commitment therefor by the Corporation or any Subsidiary for additions to property, plant or equipment in excess of $250,000, except as set forth on Schedule 4.8(a)(xii); (xiii) any change in the accounting or tax methods, practices, or assumptions followed by the Corporation or any Subsidiary; or (xiv) any other transaction or event not in the ordinary course of business consistent with past practice. (b) The Corporation's independent accountants have not advised the Corporation that the Interim Balance Sheet and the related unaudited financial statements (i) do not comply in all material respects with the applicable accounting requirements of the Securities Act and the related published rules and regulations thereunder and (ii) are not in conformity with GAAP. 4.9. Initial Budget. The Corporation has delivered to Winstar a copy of the Corporation's current budget for the twelve month period beginning July 1, 2000 (the "Initial Budget"). The projections of future financial and operating performance contained in the Initial Budget, and the assumptions upon which such projections are based, are believed by the Corporation to be reasonable as of the date hereof. In addition, the Corporation is not aware of any facts or circumstances which would render such projections or assumptions unreasonable or unattainable. Without limiting the generality of the foregoing, Winstar and Winstar Sub acknowledge that no assurances can be given that the Corporation will achieve the projections set forth in the Initial Budget. If, at the time of a Closing, there have been material changes to any item reflected in the Initial Budget, the Corporation shall deliver to Winstar at such closing a revised budget and detailed description of such changes. 4.10. Agreements. (a) Schedule 4.10(a) sets forth a list of all material written and oral contracts, agreements, licenses, commitments, instruments and understandings ("Agreements"), and all Agreements of the following types regardless of materiality, to which the Corporation or any Subsidiary is a party ("Disclosed Agreements"), which: (i) individually provide for the future purchase by the Corporation or any Subsidiary of products or services in excess of $100,000 or call for expenditures of the Corporation or any Subsidiary in excess of $100,000, which expenditures or commitments have not been disclosed in the Initial Budget; (ii) provide for the employment by the Corporation or any Subsidiary of any director or officer or consultant (other than for legal or accounting services) earning $100,000 or more for any engagement or provide for any payments or benefits (including severance payments or benefits) to any director, officer or employee; -9- (iii) provide for the borrowing of money or a line of credit by the Corporation or any Subsidiary, or a leasing transaction of a type required to be capitalized by the Corporation in accordance with GAAP; (iv) provide for a significant strategic relationship regarding the Corporation or any Subsidiary and a third party, including any joint venture, partnership or similar arrangement; (v) provide for the sale, assignment, license, or other disposition of any asset or any material right of the Corporation with a value in excess of $100,000; (vi) provide for the lease by the Corporation or any Subsidiary of any real property; (vii) provide for the lease by the Corporation or any Subsidiary of any personal property with a value, or reflecting replacement costs, in excess of $100,000 or involving lease payments in excess of $100,000 per year; (viii) were entered into with any labor union; (ix) provide for a tax sharing; (x) provide for any significant distribution, agency, or licensing arrangement with the Corporation or any Subsidiary; (xi) require the Corporation to issue dividends or shares of its Common Stock upon exercise of warrants; (xii) restrict the Corporation or any Subsidiary, or any of the officers or employees listed on Schedule 4.10(a)(ii), from engaging in any business activity in any way related to the business of the Corporation anywhere in the world, restrict any such person in the performance of his or her obligations and responsibilities to the Corporation or any Subsidiary, or create any other obligation or liability of any such person, in any way related to the business of the Corporation, arising from his or her prior employment; (xiii) grant to any person or entity, other than the Corporation or any Subsidiary, any right, title, or interest in any invention or know-how conceived by employees of the Corporation or any Subsidiary and related to the business of the Corporation; (xiv) provide for a loan guaranty, surety, indemnity, or other financial support by the Corporation or any Subsidiary to any person or entity; or (xv) grant to any person or entity a security interest in any asset or right of the Corporation or any Subsidiary. -10- (b) Each Disclosed Agreement or understanding required to be set forth on Schedule 4.10. (a) is in full force and effect and constitutes a valid and binding obligation of all parties thereto. Except as set forth on Schedule 4.10. (a), the Corporation and, to the extent a Subsidiary is a party, the Subsidiary has performed in all material respects the obligations required to be performed by it and is not in material default and has not received notice alleging it to be in default under any such Disclosed Agreement. To the knowledge of the Corporation, there exists no event or condition which, after notice or lapse of time, or both, would constitute such a material default under any Disclosed Agreement. To the knowledge of the Corporation, there are no material defaults by any other party to any such Disclosed Agreement. The Corporation has made available to Winstar and Winstar Sub correct and complete copies of all Disclosed Agreements set forth on Schedule 4.10(a). 4.11. Title to Assets. Except for properties leased by the Corporation or any Subsidiary, the Corporation and each Subsidiary has good and marketable title to all assets reflected on the Interim Balance Sheet as being owned by it, or acquired by it after the date of the Interim Balance Sheet (except for inventory sold or otherwise disposed of in the ordinary course of business, and accounts and notes receivable paid in full, since the date of the Interim Balance Sheet), free and clear of all Encumbrances, other than Permitted Liens (as defined below) and other than those which would not reasonably be expected to result in a Material Adverse Effect. Such assets are in good operating condition and repair, are adequate and suitable for their intended use in the business of the Corporation and are sufficient for the conduct of the business except as would not reasonably be expected to result in a Material Adverse Effect. There does not exist any condition which interferes with the economic value or use of such assets except as would not reasonably be expected to result in a Material Adverse Effect. The term "Permitted Liens" means (i) liens arising by operation of law in the ordinary course of business that, individually and in the aggregate, do not in any respect interfere with the use or value of any of the assets subject thereto, (ii) minor imperfections of title which do not detract from the value of the property affected or impair the operations of the Corporation, (iii) liens for taxes not yet due and payable, (iv) liens arising in connection with debt incurred pursuant to and in accordance with the covenant section, and (v) liens relating to monies borrowed by the Corporation or any Subsidiary. 4.12. Real Property. Except as disclosed on Schedule 4.12, neither the Corporation nor any Subsidiary owns or holds, directly or indirectly, any real property. Neither the Corporation nor any Subsidiary leases, directly or indirectly, any real property other than as listed on Schedule 4.12. 4.13. Intellectual Property Rights; Proprietary Information of Third Parties. (a) Each of the Corporation and each Subsidiary owns or is licensed to use all patents, trademarks, copyrights, service marks, and applications and registrations therefor, and all trade names (including WAM!NET, WAM!BASE and WAM!PROOF), domain names, URLs, customer lists, trade secrets, proprietary processes and formulae, inventions, know-how, -11- other confidential and proprietary information, and other industrial and intellectual property rights necessary to permit such entities to carry on their respective business as presently conducted. Schedule 4.13. sets forth a list of all patents, trademarks, copyrights, service marks, and applications and registrations therefor, and all trade names, domain names or URLs held or owned by the Corporation and each Subsidiary and all other proprietary intellectual property rights of the Corporation and each Subsidiary. All registered patents, copyrights, trademarks, domain name and URL rights and service marks listed on Schedule 4.13. are in full force and effect and are not subject to any taxes or maintenance fees and the Corporation or a Subsidiary has the right to bring infringement Proceedings with respect thereto. Neither the Corporation nor any Subsidiary (i) licenses or grants to anyone other than to the Corporation or any Subsidiary rights of any nature to use any intellectual property right that is material to its business, other than certain software and equipment which is provided to the Corporation's clients which enable them to access the Corporation's network and avail themselves of the Corporation's services, (ii) is not obligated to and does not pay royalties to anyone for use of its intellectual property rights, and (iii) does not market or sell any product or service that violates any intellectual property right of a third party. Except as set forth on such Schedule, there is no pending or, to the knowledge of the Corporation, threatened claim or litigation against the Corporation or any Subsidiary contesting the right to use its intellectual property rights, asserting the misuse of any thereof, or asserting the infringement or other violation of any intellectual property rights of a third party. (b) All inventions and know-how conceived by employees of the Corporation and each Subsidiary, while in the employ of the Corporation or such Subsidiary, and related to the business of the Corporation or any Subsidiary were "works for hire," and all right, title, and interest therein were transferred and assigned to the Corporation or a Subsidiary and the Corporation or a Subsidiary has maintained all right, title and interest therein without any Encumbrances thereon. The Corporation has taken all reasonable security measures to protect the secrecy, confidentiality, and value of its trade secrets, proprietary processes and formulae, inventions, know-how and other confidential and proprietary information. (c) No third party has claimed or, to the Company's knowledge, has reason to claim that the Corporation or any Subsidiary has (i) violated or may be violating any of the terms or conditions of any non-competition or non-disclosure agreement with such third party, (ii) disclosed or may be disclosing or utilized or may be utilizing any trade secret or proprietary information or documentation of such third party or (iii) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees. Neither the Corporation or any Subsidiary has utilized nor proposes to utilize any trade secret or any information or documentation proprietary to any other person in violation of existing arrangements with such person, and neither the Corporation or any Subsidiary has violated any confidential relationship which any such person may have had with any third party, in connection with the development, manufacture or sale of any product or the development or sale of any service of the Corporation or any Subsidiary. 4.14. Compliance with Laws; Governmental Authorizations. Each of the Corporation and each Subsidiary is in compliance in all respects with all Laws, except for such instances where non-compliance would not result in a Material -12- Adverse Effect. Each of the Corporation and each Subsidiary has all permits, licenses, authorizations, registrations, franchises, approvals, certificates or variances (collectively, "Permits") from each Governmental Authority that is necessary or advisable in the conduct of its business as presently conducted and as contemplated in the Initial Budget and no further Permits are necessary except in such cases where not having such Permits would not reasonably be expected to result in a Material Adverse Effect. No action by Governmental Authority is required for the Corporation to enter into this Agreement or to perform its obligations hereunder. For purposes of this Agreement, "Governmental Authority" means any federal, state, municipal, local or foreign government and any court, tribunal, administrative agency, commission, board, agency or other governmental or regulatory authority or agency, whether domestic or foreign. Neither the Corporation nor any Subsidiary is licensed to provide communication services under any state, federal or foreign laws nor is any one of them required to be so licensed. 4.15. Litigation. Except as set forth on Schedule 4.15, there are no (i) actions, suits, claims, investigations or other proceedings (collectively, "Proceedings") by or before any Governmental Authority or other arbitration or mediation body, pending or, to the knowledge of the Corporation, threatened against the Corporation or any Subsidiary or any of the five most senior executive officers of the Corporation (the "Senior Officers"), or (ii) judgments, writs, decrees, injunctions, compliance agreements, or orders of any Governmental Authority or other arbitration or mediation body, against the Corporation or any Subsidiary or any of the Senior Officers. 4.16. Environmental Matters. Each of the Corporation and each Subsidiary is in compliance with all Laws relating to the protection of the environment (the "Environmental Laws"). Except for the operation of machinery and equipment in the ordinary course of business in compliance with applicable Environmental Laws, neither the Corporation nor any Subsidiary has handled, stored or released, or exposed any person to, any hazardous substance, as defined in 42 U.S.C.A. Section 9601(14) or any other applicable Environmental Laws (a "Hazardous Substance"). Neither the Corporation nor any Subsidiary is liable or responsible for clean-up costs, remedial work or damages in connection with the handling, storage, release, or exposure by it of any Hazardous Substance except in cases which would not reasonably be expected to result in a Material Adverse Effect. No claims for clean-up costs, remedial work or damages have been made by any person or entity in connection with the handling, storage, release, or exposure by the Corporation and/or any Subsidiary of any Hazardous Substance. 4.17. Tax Matters. (a) (i) The Corporation has timely filed or been included in all required returns, declarations of estimated tax, reports, and statements relating to any Taxes due and payable by it (collectively, the "Returns"); (ii) all Returns were correct and complete as of the time of filing; (iii) the Corporation has timely paid all Taxes required to be paid by it through the date hereof; (iv) the Corporation has made provision on its most recent interim balance sheet for -13- all Taxes payable by it for all periods prior to the date of such interim balance sheet for which no Returns have yet been filed; (v) the Corporation has made provision on its books for all Taxes payable by it for all periods beginning on or after the date of its most recent interim balance sheet for which no Returns have yet been filed; (vi) the Corporation has no knowledge of any pending tax audits of any Returns; (vii) the Corporation has no knowledge that any deficiency or addition to any Taxes has been proposed, asserted or assessed in writing against the Corporation; and (viii) the Corporation has not granted any extension of the statute of limitations applicable to any Return or other claim for Taxes. (b) "Taxes" means, with respect to any person or entity, (i) all material Federal, state, local, and foreign taxes, including, without limitation, all taxes on or based upon net income, gross income, income as specially defined, earnings, profits or selected items of income, earnings, or profits, and all gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, or windfall profits taxes, alternative or add-on minimum taxes, customs duties, or other taxes, fees, assessments or charges of any kind, together with any interest, penalties, additions to tax or additional amounts imposed by any taxing authority on such person or entity, and (ii) any material liability for the payment of any amount of the type described in the preceding clause (i) as a result of being a "transferee" (within the meaning of Section 6901 of the Internal Revenue Code of 1986, as amended (the "Code"), or any other applicable Laws) of another person or entity. 4.18. Employee Benefit Plans. (a) Schedule 4.18 sets forth a list of all "employee pension benefit plans" and "employee benefit plans," as defined in Section 3(2) and (3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), and other written or formal plans or group arrangements involving direct or indirect compensation (not including any government-mandated programs) currently or previously maintained or contributed by the Corporation or any ERISA Affiliate for the benefit of any employee or former employee thereof under which the Corporation and/or any Subsidiary has or may have any present or future obligation or liability (collectively, the "Employee Plans"). "ERISA Affiliate" means any entity which is a member of (i) a "controlled group of corporations," as defined in Section 414(b) of the Code, (ii) a group of entities under "common control," as defined in Section 414(c) of the Code, or (iii) an "affiliated service group," as defined in Section 414(m) of the Code, any of which includes the Corporation. (b) Schedule 4.18 further sets forth a list of all plans, trusts, or arrangements (written or oral) providing for insurance coverage (including any self-insured arrangements), workers' compensation, medical benefits, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock appreciation, or other forms of incentive compensation, insurance or benefits (collectively, the "Benefit Arrangements") that (i) are not Employee Plans, (ii) are maintained or contributed to by the Corporation or any Subsidiary, and (iii) cover any director, officer, employee, or former employee of the Corporation or any Subsidiary. -14- (c) Each Employee Plan and Benefit Arrangement has been maintained in substantial compliance with its terms and with the requirements prescribed by applicable Laws. There has not been any "accumulated funding deficiency," as defined in Section 412 of the Code, with respect to any Employee Plan. There has not been any partial or complete withdrawal by the Corporation or any Subsidiary with respect to any Employee Plan which is a "multiemployer plan," as defined in Section 3(37) of ERISA, and the Corporation has any current plans to withdraw from any such Employee Plan. Except as set forth on Schedule 4.18, neither the Corporation or any Subsidiary is in default or alleged to be in default in the payment or other provision of any benefit under any Employee Plan or Benefit Arrangement. Except as set forth on Schedule 4.18, no actions have been taken or are currently planned with respect to any Employee Plan or Benefit Arrangement that would increase the expense of maintaining or the benefits provided under such Employee Plan or Benefit Arrangement above the level of the expense incurred or benefits provided in respect thereof for each of the years 1999 and 1998. (d) The execution and delivery by the Corporation of the Documents and its consummation of the transactions contemplated thereby will not constitute a triggering event under any Employee Plan or Benefit Arrangement that will, or upon the occurrence of subsequent events would, accelerate the time of payment or vesting, or increase the amount of compensation or benefits, for any director, officer, employee, or former employee of the Corporation. 4.19. Insurance. The Corporation maintains valid and effective insurance policies, issued by financially sound and reputable insurers, to insure it against all risks usually insured against by persons or entities conducting businesses similar to that of the Corporation or such Subsidiary in the locality in which such businesses are conducted. The Corporation has paid all due premiums with respect to all policies of insurance currently maintained by the Corporation. 4.20. Related Transactions. (a) Except as set forth on Schedule 4.20, and except for compensation to regular employees, since January 1, 1998, no current director or executive officer of the Corporation or holder of at least 5% of the outstanding capital stock of the Corporation has been (i) a party to any transaction with the Corporation valued in excess of $60,000 during any twelve-month period, or (ii) the direct or indirect owner of an interest in any business organization that is or was a competitor, supplier or customer of the Corporation (other than interests in non-affiliated publicly held companies). (b) The Corporation acknowledges and agrees that Winstar Sub and Winstar, by reason of, being a purchaser or holder of Shares or, appointing a director to the Corporation's Board of Directors, is not prohibited from, nor is any Winstar Affiliate prohibited from, engaging, investing or otherwise being involved in any activity, including businesses, investments or other activities which may be competitive or in conflict with the Corporation. 4.21. Offering of the Shares. The Corporation has not, directly or indirectly, solicited any other offer to buy or offer to sell, and will not, directly or indirectly, solicit any other offer to -15- buy or offer to sell, any security which is or would be integrated with the sale of the Shares or Warrant Shares in a manner that would require the Shares or Warrant Shares to be registered under the Securities Act. 4.22. Disclosure. The Corporation has filed all required registration statements, reports and proxy statements with the Securities and Exchange Commission ("SEC Reports") when due (or within permitted extension periods) in accordance with the Securities Act and the Securities Exchange Act of 1934, as amended ("Exchange Act"), as the case may be. As of their respective dates (or, in the case of any amended SEC Report, as of the date of the amendment), the SEC Reports complied in all material respects with all applicable requirements of the Securities Act or the Exchange Act, as the case may be. As of their respective dates (or, in the case of any amended SEC Report, as of the date of the amendment), none of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. This Agreement does not contain an untrue statement of a material fact nor does it omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. None of the statements, documents, certificates or other items prepared by the Corporation and supplied to Winstar or its counsel in connection with the transactions contemplated hereby (other than those relating to (i) projected financial information, (ii) plans and objectives regarding the Corporation's future operations, (iii) future economic performance and (iv) assumptions underlying any of the matters described in (i) through (iii), each as to which no representation or warranty is given other than, however, that such representations are reasonable in light of existing or known facts or trends and were prepared in good faith) contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. 4.23. [Intentionally Omitted.] 4.24. [Intentionally Omitted.] 4.25. Brokers and Finders. No person or entity acting on behalf or under the authority of the Corporation is or will be entitled to any broker's, finder's, or similar fee or commission in connection with the sale of the Shares. 4.26. Year 2000 Compliance. All electronic data, communications and other systems utilizing computer hardware, computer software, computer firmware and other similar or related items including source codes, operating coders, programs, utilities and other software (collectively, "Information Technology") utilized by the Corporation records, stores, processes and presents date/time data (including without limitation, calculating, comparing and sequencing) from, into and between the -16- twentieth and twenty-first centuries, including the years 1999 and 2000 and leap year calculations, and is designed not to malfunction, cease to function or provide invalid or incorrect results or degrade in performance as a result of date/time data, including to the extent that other Information Technology, when used in combination with the Corporation's Information Technology, properly exchanges date/time data with it. 4.27. Minnesota Business Corporation Act. (a) A committee of all "disinterested members" of the Corporation's Board of Directors (as such term is defined for purposes of Section 302A.673 of the Minnesota Business Corporation Act ("MBCA")) has approved this Agreement and the transactions contemplated hereby and the Corporation has completed all other actions and satisfied all other conditions necessary and sufficient to negate any application of Section 302A.673 to Winstar or any of its affiliates (as such term is defined by Rule 13(e)-3(a)(1) of the Securities Exchange Act of 1934, as amended ("Affiliate")). (b) Sections 302A.671 and 302A.673 of the MBCA do not and will not apply to the Corporation or Winstar or any of its Affiliates as a result of the transactions contemplated by this Agreement. Both Winstar and the Corporation are excluded from such Sections, and accordingly, Winstar and its Affiliates may purchase more than 10% of the Corporation's voting stock pursuant to this Agreement and will not further be restricted from purchasing additional capital stock of the Corporation thereafter by virtue of such provisions. In addition, an exception applies to Section 302A.671 of the MBCA such that the acquisition of twenty percent or more of the outstanding voting stock of the Corporation by Winstar Sub (or any other purchaser) in this transaction and in the transaction pursuant to which an Affiliate of Winstar acquired Shares of Class E Preferred Stock may be accomplished without approval of the shareholders of the Corporation. Section 5. Representations and Warranties of Winstar and Winstar Sub and any Assignee thereof. Winstar, Winstar Sub and any assignee thereof represent and warrant to the Corporation as of the date hereof and as of each Closing Date, if any, that for itself only: 5.1. Due Authorization. Each of Winstar, Winstar Sub and any assignee thereof have taken all action necessary to authorize its execution and delivery of this Agreement, the performance of its obligations hereunder, and its consummation of the transactions contemplated hereby. This Agreement has been executed and delivered by an officer of the Winstar, Winstar Sub and any assignee thereof in accordance with such authorization or by Winstar or Winstar Sub. This Agreement constitutes the valid and binding obligation of each of Winstar, Winstar Sub and any assignee thereof, enforceable in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity. -17- 5.2. Investment Representations. (a) Each of Winstar Sub and any assignee thereof is acquiring the Shares or Warrant Shares, as the case may be, for its own account, for investment and not with a view to the distribution thereof, nor with any present intention of distributing the same in the absence of an effective registration statement or a suitable exemption from the applicable registration requirements. (b) Each of Winstar Sub and any assignee thereof understands that the Shares or Warrant Shares, as the case may be, have not been, and the Conversion Shares will not be, registered under the Securities Act or applicable state securities laws, by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act, and such shares must be held indefinitely unless subsequent disposition thereof is registered under applicable securities laws or is exempt from registration. (c) Each of Winstar Sub and any assignee thereof understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to Winstar Sub) promulgated under the Securities Act depends on the satisfaction of various conditions and that, if applicable, Rule 144 may only afford the basis for sales under certain circumstances and only in limited amounts. (d) Each of Winstar Sub and any assignee thereof is an "accredited investor," as such term is defined in Rule 501 (the provisions of which are known to Winstar and Winstar Sub) promulgated under the Securities Act. (e) Each of Winstar Sub and any assignee thereof has such knowledge and experience in financial, tax and business matters so as to enable Winstar, Winstar Sub and any assignee thereof to utilize the information made available to Winstar, Winstar Sub and any assignee thereof in connection with the investment in the Shares or the Warrant Shares, as the case may be, to evaluate the merits and risks of an investment in the Shares or the Warrant Shares, as the case may be, and to make an informed investment decision with respect thereto; provided, however, that the foregoing shall in no way affect, diminish or derogate from the representations and warranties made by the Corporation hereunder or the right of Winstar, Winstar Sub and any assignee thereof to rely thereon and to seek indemnification hereunder. (f) Each of Winstar Sub and any assignee thereof has not been formed for the specific purpose of acquiring the Shares or the Warrant Shares, as the case may be. (g) Winstar, Winstar Sub and any assignee thereof hereby acknowledge that the purchase and sale of the Shares and the Warrant Shares, if any, is intended to be exempt from registration under the Securities Act by virtue of Section 4(2) and/or Section 3(b) of the Securities Act and, if applicable, in the sole judgment of the Corporation, the provisions of Regulation D thereunder, which exemption is dependent upon the truth, completeness and accuracy of the statements made by Winstar, Winstar Sub and any assignee thereof herein and in any other documents furnished by Winstar and Winstar Sub to the Corporation. -18- 5.3. Brokers and Finders. No person or entity acting on behalf or under the authority of Winstar Sub or any assignee thereof is or will be entitled to any broker's, finder's, or similar fee or commission in connection with the transactions contemplated hereby. 5.4. Investor Sophistication. Each of Winstar Sub and any assignee thereof has sufficient knowledge and experience and is capable of evaluating the merit and risks of its investment in the Corporation as contemplated by this Agreement and is able to bear the economic risk of such investment for an indefinite period of time. Winstar Sub has been given access to SEC Reports. Winstar, Winstar Sub and any assignee thereof have had the opportunity to ask questions of and receive answers from representatives of the Corporation concerning the terms and conditions of this Agreement, to discuss the Corporation's business, management and financial affairs with the Corporation's management and to obtain any other additional information they desire or deem relevant. Section 6. Covenants of the Corporation and Winstar Sub. 6.1. Regulatory Approvals; Reasonable Best Efforts; Further Assurances. Subject to the terms and conditions of this Agreement, each of the Corporation, Winstar and Winstar Sub will, and will cause its Affiliates to, use its reasonable best efforts, to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. Each of the Corporation, Winstar and Winstar Sub agrees to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement. 6.2. Certain Filings. Subject to the terms and conditions of this Agreement, each of the Corporation, Winstar and Winstar Sub will, and will cause its Affiliates to, (i) in determine whether any action by or in respect of, or filing with, any governmental body, agency, official or authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement or the conversion by Winstar Sub and any assignee thereof of the Shares or Warrant Shares, as the case may be, and (ii) in taking any of such actions contemplated by the preceding subsection (i), furnish information required in connection therewith and seeking, in a timely manner, to obtain any such actions, consents, approvals or waivers. Each of the Corporation, Winstar and Winstar Sub shall (a) give the other parties hereto prompt notice of the commencement of any action, suit, litigation, arbitration, preceding or investigation by or before any governmental body with respect to the transactions contemplated by this Agreement, (b) keep the other parties hereto informed as to the status of any such action, suit, litigation, arbitration, preceding or investigation, and (c) promptly inform the other parties hereto of any -19- communication to or from the Federal Trade Commission, the Department of Justice or any other governmental body regarding the transactions contemplated by this Agreement. 6.3. Confidentiality. Except as set forth in Section 6.4 below and as required by applicable securities laws upon the advice of counsel, without the consent of the other party, neither the Corporation nor Winstar, Winstar Sub and any assignee thereof shall make any public comment, statement or communication with respect to, or otherwise disclose or permit the disclosure of the terms of this Agreement and the transactions contemplated hereby, and each party shall cause its authorized officers, directors, partners, employees, counsel, accountants, agents and other representatives to strictly comply with the foregoing. 6.4. Public Announcements. Neither party to this Agreement may publicly disseminate a press release or file a public report (on Form 8-K or otherwise) with the Securities and Exchange Commission or otherwise publicly announce the transactions contemplated by this Agreement, unless the other parties consent, except as otherwise required by applicable securities law, upon the opinion of counsel, and upon reasonable notice to the other parties to afford them time to comment. Such parties shall not unreasonably withhold or delay their approval to any such proposed announcements. Section 7. Covenants of the Corporation. Unless otherwise indicated, and as long as any of the Shares, Warrant Shares or Conversion Shares remain outstanding, the Corporation shall and shall cause each Subsidiary to abide and perform with respect to the following covenants: 7.1. Certificate of Designation. Immediately after the execution of this Agreement, the Corporation shall cause to be filed the Class H Certificate of Designation as required pursuant to the law of the State of Minnesota. 7.2. Restrictions Pending the Last Closing Without limiting the rights set forth in the Class H Preferred Stock Certificate of Designation, after the date hereof and prior to the last Closing Date, except as expressly provided for in this Agreement, or as consented to in writing by Winstar and Winstar Sub, the Corporation will not: (i) amend its certificate of incorporation or bylaws, except to file the Class H Certificate of Designation; (ii) split, combine or reclassify any shares of its capital stock without appropriately adjusting the conversion price and/or ratio applicable to the Shares prior to -20- their issuance at the Closing; (iii) declare or pay any dividend or distribution (whether in cash, stock or property) in respect of its Common Stock; (iv) take any action, or knowingly omit to take any action, that could reasonably be expected to result in (A) any of the representations and warranties of the Corporation set forth in Article 4 becoming untrue or (B) any of the conditions to the obligations of Winstar Sub set forth in Section 8.1 or 8.2 not being satisfied; or (v) enter into any agreement or commitment to do any of the foregoing. 7.3. Reservation of Shares. For so long as any of the Shares or Warrants are outstanding, the Corporation shall keep reserved for issuance a sufficient number of shares of Common Stock to satisfy its conversion obligations under the Class H Certificate of Designation and its obligation to issue Warrant Shares upon exercise of the Warrants.. 7.4. Use of Proceeds. The Corporation shall use the cash proceeds received by it upon the sale of the Shares for general working capital purposes, including regularly scheduled debt payments, except that if the Corporation advises Winstar of its intention to repay Indebtedness to Bank One pursuant to the last sentence of Section 3.2, it shall use such proceeds to pay such Indebtedness. 7.5. Access to Records. The Corporation shall, and shall cause each Subsidiary to, afford to Winstar and Winstar Sub and its authorized employees, counsel, accountants and other representatives, upon reasonable notice and during ordinary business hours, (i) full access to all books, records and properties of the Corporation and such Subsidiary, and (ii) the opportunity to interview any officer of the Corporation or such Subsidiary regarding its affairs; any investigation pursuant to this Section shall be conducted in a manner that does not interfere unreasonably with the conduct of the business of the Corporation and such Subsidiary. 7.6. Budget. Promptly following final preparation thereof, the Corporation shall deliver to Winstar and Winstar Sub all budgets and revisions thereof prepared by the Corporation, all of which shall be consistent with the Initial Budget in form, methodology, and level of detail. Each of the Initial Budget and the budgets referred to in this Section 7.6 is referred to herein as a "Budget." -21- 7.7. Financial Reporting and other Information. (a) So long as Winstar Sub or any of its Affiliates beneficially owns Shares, Warrants, Warrant Shares or Conversion Shares, the Corporation shall deliver to Winstar the following: (i) within 30 days after the end of each month, commencing with the month of September 2000, (A) the unaudited balance sheet of the Corporation at the end of such month, (B) the unaudited statements of income and cash flows of the Corporation for such month, (C) comparative statements of income of the Corporation for the year to date, the comparable figures for the prior year, the current Budget for the year to date and projected figures for the year, (D) textual discussion describing changes from prior periods and describing operating trends and (E) a report consisting of a beginning balance of the outstanding securities by type from the prior monthly period, adding to that beginning balance all securities that have been issued, sold or exercised and deleting all securities that have expired, been redeemed, cancelled, etc., during that month; (ii) within 15 days after the end of each fiscal quarter, such information as is reasonably required to enable Winstar to make calculations under its then current level of accounting; (iii) within 45 days after the end of each fiscal quarter, commencing with the quarterly period ending September 30, 2000, its Report on Form 10-Q for such quarter, including (A) an unaudited balance sheet of the Corporation at the end of such fiscal quarter, (B) the unaudited statements of income and cash flows of the Corporation for such fiscal quarter, (C) comparative statements of income of the Corporation for such fiscal quarter and the year to date, the comparable figures for the corresponding fiscal quarter and the year to date period of the prior year and also the current Budget for such fiscal quarter and for the year to date; and (D) updated Schedules 4.5(a)(i), 4.5(a)(ii) and 4.5(b) (which shall reflect all shares, options and other rights issued, exercised and expired since the date of the last submission of Schedule 4.5(b)); (iv) within 90 days after the end of each fiscal year commencing with the current fiscal year of the Corporation, its Report on Form 10-K for such fiscal year, including (A) the audited balance sheet of the Corporation at the end of such fiscal year, together with comparisons to the balance sheet of the Corporation at the end of the prior fiscal year and to the current Budget, (B) the audited statements of income and cash flows of the Corporation for such fiscal year, together with comparisons to the statements of income and cash flows of the Corporation for the prior fiscal year and to the current Budget, and (C) an audit report of Ernst & Young, independent certified public accountants, on such balance sheets and statements; and (v) any other financial and operating data and other information relating to the Corporation and each Subsidiary as Winstar may reasonably request; (vi) all information made available to the Corporation's shareholders or directors, at the same time as such information is delivered to such persons; and -22- (vii) monthly management reports in a form reasonably acceptable to Winstar. (b) All financial information to be delivered under this Section shall be in accordance with the books and records of the Corporation and shall have been prepared in accordance with GAAP, subject to year-end and audit adjustments. 7.8. Payment of Obligations. The Corporation shall, and shall cause each Subsidiary to, pay or discharge or cause to be paid or discharged all material claims or demands, and all Taxes levied or imposed upon the Corporation or its Subsidiaries or upon the income, profits or property of the Corporation or its Subsidiaries; provided, however, that the Corporation or such Subsidiary shall not be required to pay or discharge or cause to be paid or discharged any such claim, demand, or Tax the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision has been made. 7.9. Insurance. The Corporation shall, and shall cause each Subsidiary to, maintain with financially sound and reputable insurers such insurance as may be required by law and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated and exercising sound business practice. 7.10. Certain Notices. The Corporation shall promptly notify Winstar and Winstar Sub of (i) the commencement or notice of any threat of any Proceeding, dispute or grievance against or affecting the Corporation, which, if adversely determined, might reasonably be expected to have a Material Adverse Effect, (ii) any material default under any indebtedness of the Corporation and (iii) any material default or breach under any of the items required to be listed on Schedule 4.10. (a) or any of the items which would have been required to be listed on Schedule 4.10. (a) if such item were effective prior to the date hereof. 7.11. Conduct of Business. The Corporation shall (i) take all actions required to assure that the Corporation remains duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) take all actions required to assure that the Corporation maintains all Permits to conduct its business, and (iii) conduct its business in compliance with all Laws. 7.12. Related Transactions. Excluding any existing arrangements between Silicon Graphics, Inc. and MCI WorldCom, Inc., the Corporation shall not directly or indirectly enter into any transaction with any Related Party, other than (a) any transaction with Winstar or any of its Affiliates and (b) any transaction entered into in the ordinary course of business and on terms and conditions not less -23- favorable to the Corporation as the terms and conditions which would apply in a similar transaction negotiated on an arms-length basis with a party that is not a Related Party. "Related Party" means (a) each current or future director or executive officer of the Corporation, (b) each parent, sibling, spouse, or descendant of any of the foregoing, (c) each entity of which any of the foregoing is a director, officer, partner or holder of more than 10% of the outstanding voting power of any class of capital stock and (d) any person or entity which is the beneficial owner of 5% or more of the outstanding voting power of the Corporation. 7.13. Internal Controls. The Corporation maintains and will continue to maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization, (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain accountability for assets and (iii) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 7.14. Winstar Directors. (a) Subject to subsection 7.15 below, so long as Winstar or any of its subsidiaries (collectively, "Winstar Holders") continues to own at least 24,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares of Class H Preferred Stock are convertible, Winstar Holders shall collectively have the right to appoint two persons to serve as directors of the Corporation ("Winstar Directors") which may, individually or collectively, at the sole discretion of the Winstar Holders serve as a non-voting observer of the Corporation; provided, however, (i) that so long as the Voting Limitation is in effect pursuant to Section 5(a) of the Class H Certificate of Designation, the Winstar Holders of the Class H Preferred Stock and Class E Preferred Stock shall collectively be entitled to appoint only one person to serve as a Winstar Director who, at the sole discretion of the Winstar Holders, may be a non-voting observer and (ii) if the Corporation consummates an initial public offering of its securities, the Winstar Holders shall collectively only be entitled to appoint one person to serve as a Winstar Director, who at the sole discretion of the Winstar Holders, may be a non-voting observer. Notwithstanding the foregoing, in the event the Winstar Holders own collectively less than 24,000 but more than 12,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares of Class H Preferred Stock are convertible, the Winstar Holders shall collectively have the right to appoint only one person to serve as a director of the Corporation who may, at the sole discretion of Winstar, serve as a non-voting observer of the Corporation. In the event the Winstar Holders own collectively, 12,000 or less than 12,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares of Class H Preferred Stock are convertible, the Winstar Holders shall have no right to appoint anyone to serve as a director of the Corporation and no right to appoint anyone as a non-voting observer. Any vacancy in the position of a Winstar Director or the observer may be filled by and only by the Winstar Holders. Any Winstar Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the Winstar Holders. -24- (b) One of the Winstar Directors, or if no Winstar Director has been designated, an observer designated by the Winstar Holders, shall be entitled to serve on, or observe meetings of, each of the Audit, Compensation and Nominating Committees and any other committee created by the Board of Directors of the Corporation ("Board"); provided, however, that in the event any such committee fails to satisfy specific requirements under the rules and regulations of the Securities and Exchange Commission any exchange or trading system due to such persons affiliations, such person, if a director will agree to serve solely as an observer of such committee. The Winstar Directors or an observer appointed by the Winstar Holders shall be entitled to receive the same compensation that is paid to other non-management Board members and committee members and shall be entitled to receive reimbursement for all reasonable costs incurred in attending such meetings, including, but not limited to, food, lodging and transportation. To the extent permitted by law, the Corporation will indemnify each person serving as a Winstar Director, Winstar and Winstar Sub for the actions of such persons as members of the Board and/or any committee thereof, unless such actions are found by a court of law to have been grossly and intentionally negligent. As long as any such person remains as a member of the Board, the Corporation will maintain director and officer insurance policies in amounts and on terms which are reasonable for companies similarly situated to the Corporation and reasonably acceptable to Winstar. (c) The Corporation shall give written notice to the Winstar Directors and Winstar of each Board and committee meeting and shall provide them with an agenda and minutes of each such meeting no later than it gives such notice and provides such items to the other Board members. 7.15. Assignee Director. Winstar Sub may transfer its right to appoint Winstar Director(s) to any assignee of Winstar Sub pursuant to Section 3.4 who purchases at least 15,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible pursuant to this Agreement (an "Assignee Director"). No more than one director seat may be assigned to any one assignee unless such assignee purchased at least 30,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible. Winstar Sub also has the right to provide up to two observer rights to the Corporation's Board of Directors. Observer rights may only be granted to assignees who have purchased at least 15,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible. Any vacancy in the position of the Assignee Director or observer may be filled by and only by such assignee. Any Assignee Director may, during his or her term in office, be removed at any time, with or without cause, by and only by such assignee. Any Assignee who has been granted the right to appoint director(s) and/or observer(s) to the Corporation shall only be able to exercise such right if (i) with respect to the right to appoint an Assignee Director, only if such assignee owns at least 15,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible and (ii) with respect to the right to appoint an observer to the Company's Board of Directors, only if such assignee owns at least 10,000 shares of the Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible. The -25- provisions of subsections 7.14(b) and (c) above shall apply with respect to the Assignee Director or observer to the same extent that they apply to any Winstar Director. 7.16. Indenture. The Corporation will not amend, waive, or modify, or seek to amend, waive, or modify, any provision of the Indenture dated as of March 5, 1998, which regards the Corporation's 13 1/4% Senior Discount Notes due 2005, without the prior written consent of Winstar which consent will not be unreasonably withheld. 7.17. Tag-Along Agreements. The Corporation will use its best efforts to cause Winstar and Winstar Sub to be joined as parties to, or the Class H Preferred Stock to be included in, as appropriate, (i) the Tag-Along Rights Agreements entered into among the Corporation, Silicon Graphics, Inc. and MCI WorldCom, Inc. dated March 4, 1999 and (ii) the Stockholders Agreement, dated March 4, 1999, as amended on March 14, 2000 (collectively "Restricted Stock Agreements"). 7.18. Board of Directors. Without the consent of Winstar, so long as any Affiliate of Winstar is entitled to appoint a member to the Corporation's Board of Directors pursuant to this Agreement, the Corporation will not change the number of members that comprise the Board of Directors of the Corporation to fewer than six nor more than thirteen. 7.19. Consents. Prior to the Closing, the Corporation shall use its commercially reasonable best efforts to obtain all consents and approvals of third parties, if any, required to consummate the transactions contemplated by this Agreement so that such consummation shall not conflict with or cause a breach of or default under any agreement or other obligation binding upon the Corporation, including without limitation all such consents and approvals required with respect to its obligations for borrowed money and under its Articles of Incorporation and Certificates of Designation.. 7.20. Use of Proceeds. The Corporation covenants that the proceeds it will receive from the sale of the Shares will be applied in the manner described with respect to such proceeds indicated on Schedule I attached hereto. 7.21. Corporate Documents. Within sixty-days of the date hereof, the Corporation shall deliver to Winstar, attention Charles Persing, correct and complete copies of the Articles of Incorporation of each Subsidiary of the Corporation, including all amendments and Certificates of Designation, and the By-laws of each Subsidiary of the Corporation each as in effect on the date of delivery. -26- 7.22. Sale of Winstar Shares. The Corporation covenants to sell the shares of common stock of Winstar acquired by the Corporation pursuant to the Securities Purchase Agreement dated as of December 31, 1999 among the Corporation, Winstar and Winstar Sub in a manner consistent with an orderly market. Section 8. Registration Rights of Winstar and Winstar Sub. 8.1. Demand Registration. (a) Grant of Right. The Corporation agrees to register on three occasions, upon written demand ("Initial Demand Notice") of Winstar or Winstar Sub, all or any portion of the Conversion Shares, the Warrant Shares and Shares of the Corporation's Common Stock issuable upon conversion of the Class E Preferred Stock, regardless of whether the Shares, Warrants or shares of Class E Preferred Stock have been converted or exercised (the "Registrable Securities"). The Corporation will file a registration statement covering the Registrable Securities within 60 days after receipt of the Initial Demand Notice and use its best efforts to have such registration statement declared effective promptly thereafter. The demand for registration may be made at any time during a period commencing on the earlier of (i) the six month anniversary of the consummation of the Corporation's initial public offering of its Common Stock, and (ii) the one year anniversary of the date Shares are first issued. The provisions of this Section 8.1(a) shall supersede the provisions of Section 8.1(a) of the Securities Purchase Agreement dated December 31, 1999 among the Corporation, Winstar and Winstar Credit Corp. (b) Terms. The Corporation shall bear all reasonable fees and expenses attendant to registering the Registrable Securities, including the expenses of one legal counsel selected by Winstar and Winstar Sub to represent them in connection with the sale of the Registrable Securities but not including any and all underwriting commissions and discounts which will be the responsibility of Winstar and Winstar Sub to the extent they participate in the underwriting. The Corporation will qualify or register the Registrable Securities in such states as are reasonably requested by Winstar and Winstar Sub. The Corporation shall cause any registration statement filed pursuant to the demand rights granted under this Section to remain effective with respect to the Registrable Securities covered by such registration statement until all such securities have been sold. 8.2. "Piggy-Back" Registration. (a) Grant of Right. Winstar Sub shall have the right at any time and from time to time to include the Registrable Securities as part of any other registration of securities filed by the Corporation (other than pursuant to Form S-4, Form S-8 or any equivalent forms or in connection with the Corporation's initial public offering to the extent that no other selling shareholder is included in the registration statement). Notwithstanding the foregoing, if, in the written opinion of the managing underwriter or underwriters of a public offering by the Corporation of its shares of Common Stock, the inclusion of the Registrable Securities, when added to the securities being registered by the Corporation, will exceed the maximum amount of -27- the Corporation's securities that can be marketed without materially and adversely affecting the entire offering, then (i) the Corporation will include in such registration first, only those securities, the holders of which as of the date hereof have priority piggy-back registration rights (as listed on Schedule 8.2), second, the Registrable Securities allocated (if necessary) among the holders thereof on a pro rata basis based on the number of Registrable Securities requested to be included in such registration statement, and third, capital stock of the Corporation to be sold for the account of others with applicable piggy-back registration rights, with such priorities among them as the Corporation shall decide. If, subsequent to the exercise of all of the demand registration rights referred to in Section 8.1, any Registrable Securities requested to be included in an offering ("Other Offering") pursuant to the "piggy-back" rights described in this Section 8.2. are not so included because of the operation of the first proviso of the preceding sentence, then the holders of the Registrable Securities shall have the right to require the Corporation, at its expense, to prepare and file a registration statement under the Securities Act covering such Registrable Securities. (b) Terms. The Corporation shall bear all reasonable fees and expenses attendant to registering the Registrable Securities, including the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities, but Winstar Sub shall pay any and all discounts and underwriting commissions. In the event of such a proposed registration, the Corporation shall furnish the owners of the Registrable Securities with not less than 30 days written notice prior to the proposed date of filing of such registration statement. Such notice shall continue to be given for each registration statement filed by the Corporation until such time as all of the Registrable Securities have been sold by Winstar and Winstar Sub. The owners of the Registrable Securities shall exercise the "piggy-back" rights provided for herein by giving written notice within 15 days of the receipt of the Corporation's notice of its intention to file a registration statement. The Corporation shall cause any registration statement filed pursuant to the "piggyback" rights granted under this Section to remain effective with respect to the Registrable Securities covered by such registration statement until all of such securities have been sold by Winstar Sub. Notwithstanding the foregoing, in no event shall the Corporation be obligated to maintain the effectiveness of any registration statement filed pursuant to Sections 8.1 and 8.2 for a period in excess of seven years from the initial date of issuance of the Shares. 8.3. General Terms. (a) Indemnification. The Corporation shall indemnify the owner(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such person within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement, except to the extent that any loss, claim, damage, expense or liability arises out of or relates to written information furnished by or on behalf of Winstar or any of its Affiliates for inclusion in such registration statement ("Winstar Information"). The owner(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and -28- not jointly, indemnify the Corporation against all loss, claim, damage, expense or liability (including all reasonable attorneys' fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which it may become subject under the Securities Act, the Exchange Act or otherwise, arising from Winstar Information furnished by or on behalf of such owner(s). (b) Exercise of Shares. Nothing contained in this Section 8 shall be construed as requiring Winstar, Winstar Sub or any of their Affiliates to convert their Shares or Warrant Shares, as the case may be, prior to or after the filing of any registration statement or the effectiveness thereof. (c) Documents Delivered to Holders. The Corporation shall deliver promptly to Winstar and Winstar Sub upon request, all correspondence between the Securities and Exchange Commission and the Corporation, its counsel or auditors and all memoranda relating to discussions with the Securities and Exchange Commission or its staff with respect to the registration statement. The Corporation also shall furnish to Winstar and Winstar Sub and to each underwriter of any such offering, a signed counterpart, addressed to Winstar and Winstar Sub and underwriter, of (i) an opinion of counsel to the Corporation, dated the effective date of such registration statement (and an opinion dated the date of the closing under the underwriting agreement relating to such offering), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Corporation's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. In the event that Winstar or Winstar Sub requests information pursuant to this Section (c), then, prior to furnishing such information, the Corporation shall have the right to require Winstar and Winstar Sub to enter into a confidentiality agreement with the Corporation with respect to any information to be provided to Winstar and Winstar Sub that the Corporation reasonably considers to be proprietary, non-public or otherwise confidential. 8.4. Underwriting Agreement. In the event that the demand registration filed by Winstar Sub pursuant to Section 8.1(a) is for an underwritten offering, the Corporation shall have the right to select the underwriters of the offering, which underwriters shall be acceptable to Winstar in its sole and absolute discretion. The Corporation shall enter into an underwriting agreement with the managing underwriter selected by Winstar Sub. Such agreement shall be reasonably satisfactory in form and substance to the Corporation, each such person and such managing underwriter, and shall contain such representations, warranties and covenants by the Corporation and such other terms as are customarily contained in agreements of that type used by the underwriter. Such persons shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all of the representations, warranties and covenants of the Corporation to or for the benefit of such underwriter shall also -29- be made to and for the benefit of such persons. Such persons shall not be required to make any representations or warranties to or agreements with the Corporation or the underwriter except as they may relate to such persons, their shares and their intended methods of distribution. 8.5. Road Show. In connection with any underwritten public offering in which Registrable Securities are included, the Corporation and the Senior Officers will participate in person or via telephone, as requested by Winstar, in road-shows regarding such offering and attendance at due diligence meetings. 8.6. Rights and Obligations of Assignee. In addition to the foregoing registration rights granted to Winstar and Winstar Sub hereunder (i) one demand registration right as contemplated by Section 8.1 shall be granted to each of (a) the holders of the Assigned Shares as a group and (b) the holders of the largest portion of the Assigned Shares, if any, and (ii) the holders of the Assigned Shares shall be entitled to the same "piggy back" registration rights under Section 8.2 with respect to such Assigned Shares as Winstar Sub has with respect to the Shares purchased by it, including a "piggy back" right with respect to one of the registrations that Winstar or Winstar Sub may demand pursuant to Section 8.1. The provisions of Section 8 shall apply to such assignee in all respects and the Shares purchased by such assignee shall be deemed to be Registrable Securities for all purposes of Section 8. In addition, any assignee of Winstar Sub shall be required to make all representations and warranties as provided in Section 5 and shall be obligated to perform all of the covenants required to be preformed as provided in Section 6. Section 9. Conditions to Each Closing. 9.1. Conditions of Each Party. The respective obligations of each of the Corporation and Winstar and Winstar Sub to consummate the transactions contemplated hereby are subject to the fulfillment, at or prior to each Closing, of each of the following conditions, any or all of which may be waived in whole or in part to the extent permitted by applicable law; (a) All filings required to be made, and all consents, approvals, permits and authorizations required to be obtained, prior to each of the Closing, if any, from any Governmental Authorities in connection with the execution and delivery by the parties of the Documents and the consummation of the transactions contemplated thereby shall have been made or obtained; and (b) No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) or taken any action that prohibits the consummation of the transactions contemplated by this Agreement; provided, however, that any party invoking this condition shall use its reasonable best efforts to have any such judgment, decree, injunction or order vacated. -30- 9.2. Conditions to Obligations of Winstar and Winstar Sub. The obligations to be performed by Winstar and Winstar Sub under this Agreement at each Closing are subject to the satisfaction, at or prior to each such Closing, of the following conditions, unless waived in writing by Winstar and Winstar Sub: (a) Intentionally omitted. (b) Material Adverse Effect. There shall not have been any event which has or is reasonably likely to have a Material Adverse Effect. (c) Accuracy of Representations and Warranties. Each of the representations and warranties of the Corporation contained in this Agreement and in any certificate or other writing delivered by the Corporation pursuant hereto qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case at and as of the Closing Date, as if made at and as of such respective times (except to the extent it relates to a particular date). (d) Performance of Covenants. The Corporation shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement and the Class H Certificate of Designation. (e) Class H Certificate of Designation. Prior to the Closing, the Class H Certificate of Designation shall have been filed with and accepted by the Secretary of State of the State of Minnesota and shall have become effective. (f) Stock Certificates. At each of the Closings, Stock certificates representing the Class H Preferred Stock sold at such closing shall have been delivered by the Corporation to Winstar Sub. (g) Use of Proceeds. At each of the Closings, Winstar and Winstar Sub shall have received a certificate of the Corporation describing in reasonable detail the proposed use of proceeds received by the Corporation upon the sale of the Shares. (h) Legal Opinion. Winstar shall have received an opinion dated as of the Closing Date, of Willkie Farr & Gallagher, in a form and substance attached hereto as Exhibit C. (i) Officer's Certificate. At each of the Closings, Winstar and Winstar Sub shall receive a certificate from an officer of the Corporation to the effect that all conditions set forth in this Section 9.2. shall have been satisfied and that no material changes have occurred with respect to the disclosures set forth in the Schedules attached to this Agreement. (j) Required Consents and Approvals. Prior to the Closing Date, the Corporation shall have received all consents and approvals of third parties, if any, required to consummate the transactions contemplated by this Agreement so that such consummation shall not conflict with or cause a breach of or default under any agreement or other obligation binding upon the Corporation, including without limitation all such consents and approvals required with -31- respect to its obligations for borrowed money and under its Articles of Incorporation and Certificates of Designation. (k) Commercial Agreements. The Corporation shall not be in material default of any of its obligations under any material agreement to which it or any of its Affiliates is a party, and shall not have failed to make any timely payment under any agreement between the Corporation and Winstar or any of Winstar's Affiliates. Timely payments for purposes of this subsection 9.2(k) shall be exclusive of any grace periods in excess of fifteen days. Without limiting the foregoing, the Corporation shall have paid (i) the $5,000,000 payable to Winstar or its Affiliates due September 15, 2000, by October 22, 2000 and (ii) the $5,000,000 payable to Winstar or its Affiliates due December 15, 2000, by December 27, 2000. (l) Bank One. The maturity of the Corporation's indebtedness to Bank One shall have been extended to no earlier than January 10, 2001. (m) No Consolidation. Winstar shall not have determined, in its reasonable good faith, upon consultation with its independent auditors, that the transactions contemplated by such Closing would require Winstar to include the assets, liabilities, shareholders' equity and results of operations of the Corporation in Winstar's financial statements on a consolidated basis in accordance with generally accepted accounting principles. (n) Initial Budget. The Chief Financial Officer of the Corporation shall furnish to Winstar Sub a certification that the Corporation's operating results as of the end of most recent monthly period are in material compliance with the Initial Budget and such certification shall contain a reaffirmation by such officer on behalf of the Corporation that it can and will continue to operate in material compliance with the Initial Budget. Alternatively, upon the furnishing to Winstar Sub by the Corporation of a description of any material change to the Initial Budget, Winstar Sub and Winstar may waive this condition. (o) Current Schedules. At each of the Initial Closing and as of the first Closing in December 2000, Winstar and Winstar Sub shall receive complete schedules to this Agreement, true and correct as of that respective Closing date. Without limiting the foregoing, at each of the Closings, Winstar and Winstar Sub shall receive a list of any change to the Certificate of Incorporation, Certificate of Designations and/or by-laws of the Corporation as compared to the prior Closing date. (p) No Bankruptcy. None of the following shall have occurred: the entry of an order for relief under Title 11 of the United States Code amended ("Bankruptcy Code"), (ii) the admission by the Corporation of its inability to pay its debts as they mature, (iii) the making by the Corporation of an assignment for the benefit of creditors, (iv) the filing by the Corporation of a petition in bankruptcy or a petition for relief under the Bankruptcy Code or any other applicable federal or state bankruptcy or insolvency statute or any similar law, (v) the expiration of sixty (60) days after the filing of an involuntary petition by the Corporation for the appointment of a receiver for the assets of the Corporation, (vii) the expiration of sixty (60) days after the filing of an involuntary petition seeking liquidation, reorganization, arrangement or readjustment of the Corporation's debts under any -32- other federal or state insolvency law, provided that the same shall not have been vacated, set aside or stayed within sixty-day period or (viii) the imposition of a judicial or statutory lien on all or a substantial part of the Corporation's assets unless such lien is discharged or vacated or the enforcement thereof stayed within sixty (60) days after its effective date. 9.3. Conditions to Obligations of the Corporation. The obligations to be performed by the Corporation under this Agreement at each Closing are subject to the satisfaction, at or prior to such Closing, of the following conditions, unless waived in writing by the Corporation: (a) Accuracy of Representations and Warranties. Each of the representations and warranties of Winstar, Winstar Sub and any assignee thereof contained in this Agreement and in any certificate or other writing delivered by Winstar, Winstar Sub or any assignee thereof pursuant hereto qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case at and as of the Closing Date, if any, as if made at and as of such respective times (except to the extent it relates to a particular date); (b) Performance of Covenants. Winstar, Winstar Sub and any assignee thereof shall have performed in all material respects all covenants and agreements required to be performed by it under this Agreement. Section 10. Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by joint written agreement of the Corporation and Winstar; (b) by the Corporation, if Winstar or Winstar Sub has breached any representation, warranty, covenant or agreement contained in this Agreement and has not cured such breach within ten (10) business days after written notice to Winstar (provided that the Corporation is not then in material breach of the terms of this Agreement; and provided further that no cure period shall be required for a breach which by its nature cannot be cured); (c) by Winstar, if the Corporation has breached any representation, warranty, covenant or agreement contained in this Agreement and has not cured such breach within ten (10) business days after written notice to the Corporation (provided that Winstar and Winstar Sub are not then in material breach of the terms of this Agreement; and provided further that no cure period shall be required for a breach which by its nature cannot be cured); or (d) by any party if there shall be a change of law or regulation that makes consummation of the transactions contemplated hereby illegal or otherwise prohibited or if consummation of the transactions contemplated hereby would violate any nonappealable, final order, decree or judgment of any court or governmental body having competent jurisdiction. -33- The party desiring to terminate this Agreement pursuant to the above-referenced clauses shall give notice of such termination to the other parties hereto. 10.1. Effect of Termination. If this Agreement is terminated, such termination shall be without liability of either party (or any shareholder, director, officer, employee, agent, consultant or representative of such party) to the other parties to this Agreement; provided that if such termination shall result from the (i) willful failure by any party to fulfill a condition to the performance of the obligations of the other parties, (ii) failure by any party to perform a covenant of this Agreement, or (iii) breach by any party hereto of any representation, warranty, covenant or agreement contained herein. Section 11. Miscellaneous 11.1. Survival. The representations, warranties, covenants and other agreements contained herein, shall survive each Closing, and the consummation of the transactions contemplated hereby. No right of Winstar and Winstar Sub for indemnification hereunder shall be affected by any examination made for or on behalf of Winstar and Winstar Sub, the knowledge of any of Winstar and Winstar Sub's officers, directors, shareholders, employees or agents, or the acceptance by Winstar and Winstar Sub of any certificate or opinion. 11.2. Indemnification. (a) The Corporation shall indemnify, defend and hold Winstar and Winstar Sub and their officers, directors, employees, shareholders, partners, members, affiliates and agents harmless against all Liability, loss or damage, together with all reasonable costs and expenses related thereto (including reasonable legal fees and expenses), relating to or arising from the untruth, inaccuracy or breach of any of the representations, warranties or agreements of the Corporation contained in this Agreement. (b) Winstar and Winstar Sub shall indemnify, defend and hold the Corporation and their respective officers, directors, employees, shareholders, partners, members, affiliates and agents harmless against all Liability, loss or damage, together with all reasonable costs and expenses related thereto (including reasonable legal fees and expenses), relating to or arising from the untruth, inaccuracy or breach of any of the representations, warranties or agreements of Winstar and Winstar Sub contained in the Agreement. (c) Promptly after receipt by any party entitled to indemnification under either Section 11.2(a) or Section 11.2(b) (an "indemnified party") of notice of the commencement of any action involving a claim which may give rise to a claim for indemnity under the preceding paragraphs of this Section, the indemnified party will give written notice to the party against whom indemnification is sought (the "indemnifying party") of the commencement of such action. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such -34- indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided, however, that if any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to it which are additional to or conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Section, the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party and the indemnifying party shall reimburse the indemnified party and any person controlling the indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity agreement provided in this Section. (d) If the indemnification provided for in this Section is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying the indemnified party hereunder, shall contribute to the amounts paid or payable by the indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage or liability as well as any other relevant equitable considerations. The amount paid or payable to an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to above shall be deemed to include any legal or other expenses reasonably incurred in connection with investigating or defending the same. (e) The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of the indemnified party and will survive the transfer of securities. 11.3. Fees and Expenses. The Corporation shall pay or reimburse Winstar and Winstar Sub for all out-of-pocket fees and expenses incurred by them in connection with the transactions contemplated by this Agreement, including reasonable fees and charges of Winstar's legal counsel and accountants. Such payment or reimbursement shall be made at each Closing. The Corporation shall pay all fees of any party with respect to the filing of notifications under the HSR Act. 11.4. Assignment; Parties in Interest. This Agreement shall bind and inure to the benefit of the parties and each of their respective successors and permitted assigns (it being understood that this Agreement may be assigned by Winstar and Winstar Sub without the consent of any person solely in connection with the transfer of Shares). -35- 11.5. Entire Agreement. This Agreement (including all Schedules and Exhibits hereby) together with the other Documents contain the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties with respect to such subject matter. 11.6. Notices. All notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows: (a) if to the Corporation: WAM!NET INC. 655 Lone Oak Drive, Building A Eagan, Minnesota 55121 Attention: Lisa A. Gray, Esq., General Counsel Telephone: (651) 256-2165 Facsimile: (651) 994-9591 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10019-6099 Attention: Daniel D. Rubino, Esq. Telephone: (212) 728-8000 Facsimile: (212) 728-8111 (b) if to Winstar and Winstar Sub: Winstar Communications, Inc. Winstar Credit Corp. 685 Third Avenue New York, NY 10017 Telephone: (212) 792-9800 Telecopier: (212) 792-9348 Attention: Timothy R. Graham, Executive Vice President In any case, with a copy to: Graubard, Mollen & Miller 600 Third Avenue New York, NY 10016 -36- Telephone: (212) 818-8661 Telecopier: (212) 818-8881 Attention: David Alan Miller, Esq. or to such other address as the party to whom notice is to be given may have furnished to the other parties in writing in accordance herewith. Any such notice or communication shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of nationally-recognized overnight courier, on the next business day after the date when sent, (c) in the case of telecopy transmission, when received, and (d) in the case of mailing, on the date of receipt. 11.7. Amendments. The terms and provisions of this Agreement may only be modified or amended pursuant to an instrument signed by all of the parties hereto. 11.8. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 11.9. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.10. Governing Law. Except as to matters governed by the MBCA, this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any law or rule that would cause the laws of any jurisdiction other than the State of New York to be applied. 11.11. Jurisdiction. The parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may only be brought in the United States District Court for the Southern District of New York or any New York State court sitting in New York City, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the -37- foregoing, each party agrees that service of process on such party as provided in the Section entitled "Notices" shall be deemed effective service of process on such party. 11.12. No Waiver. No delay by or on behalf of Winstar and Winstar Sub in exercising any rights conferred hereunder, and no course of dealing between Winstar and Winstar Sub and the Corporation shall operate as a waiver of any right granted hereunder, unless expressly waived in writing by the party whose waiver is alleged. 11.13. Binding Effect All covenants, representations, warranties and other stipulations in this Agreement and other documents referred to herein, given by or on behalf of any of the parties hereto, shall bind and inure to the benefit of the respective successors, heirs, personal representatives and assigns of the parties hereto. 11.14. Cumulative Powers. No remedy herein conferred upon Winstar, Winstar Sub or any holder of the Class H Preferred Stock is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter existing at law, or in equity or by statue or otherwise. -38- IN WITNESS WHEREOF, the parties have executed and delivered this Securities Purchase Agreement on the date first above written. WAM!NET INC. By: /s/ Edward J. Driscoll III --------------------------------------- Name: Edward J. Driscoll III Title: Chairman & CEO Address: 655 Lone Oak Drive Building A Eagen, Minnesota 55121 WINSTAR COMMUNICATIONS, INC. By: /s/ William J. Rouhana --------------------------------------- Name: William J. Rouhana Title: Chairman, CEO Address: 685 Third Avenue New York, New York 10017 WINSTAR CREDIT CORP. By: /s/ Timothy R. Graham --------------------------------------- Name: Timothy R. Graham Title: President Address: 685 Third Avenue New York, New York 10017 -39- SCHEDULE I Allowable Purchases -------------------
Use of Purchase Cum Price Date Amount Warrants cum $ Warrants H shares Cum H shares Proceeds - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- Signing of the -- 500,000 $0 500,000 -- -- -- Agreement - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- General working 10/02/2000 $5,000,000 50,000 $5,000,000 550,000 5,000 5,000 capital ("WC") - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 10/13/2000 $5,000,000 50,000 $10,000,000 600,000 5,000 10,000 WC - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 11/01/2000 $5,000,000 100,000 $15,000,000 700,000 5,000 15,000 WC - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 11/10/2000 $5,000,000 100,000 $20,000,000 800,000 5,000 20,000 Repay Bank One - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 11/13/2000 $5,000,000 150,000 $25,000,000 950,000 5,000 25,000 WC - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 12/01/2000 $5,000,000 150,000 $30,000,000 1,100,000 5,000 30,000 WC - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 12/11/2000 $5,000,000 225,000 $35,000,000 1,325,000 5,000 35,000 WC - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 12/15/2000 $5,000,000 225,000 $40,000,000 1,550,000 5,000 40,000 Repay Bank One - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 01/05/2001 $5,000,000 312,500 $45,000,000 1,862,500 5,000 45,000 WC - ----------------- -------------- ------------- --------------- ------------- ----------- -------------- -------------- 01/10/2001 $15,000,000 1,137,500 $60,000,000 3,000,000 15,000 60,000 Repay aggregate amount owed to Bank One
-40- EX-4.44 4 0004.txt CERTIFICATE FOR 3,000,000 WARRANTS EXHIBIT 4.44 EXERCISABLE ON OR BEFORE, AND VOID AFTER P.M. MINNEAPOLIS TIME, DECEMBER 31, 2005 WARRANTS TO PURCHASE 3,000,000 SHARES OF COMMON STOCK OF WAM!NET, INC. (Incorporated under the laws of the State of Minnesota) THIS CERTIFIES that Winstar Credit Corp., a Delaware corporation ("Holder") or assigns, is the owner of the number of Warrants set forth above, each of which represents the right to purchase from WAM!NET, Inc., a Minnesota corporation ("Company"), at any time after September 29, 2000 and on or before 5:00 Minneapolis time, December 31, 2005, upon compliance with and subject to the conditions set forth herein, one share (subject to adjustments referred to below) of the Common Stock of the Company, par value $.01 per share, for $.01 per share (such Common Stock (as defined below) or other securities or property purchasable upon exercise of the Warrants being herein called the "Shares"). This Warrant is subject to the following provisions, terms and conditions: 1. Vesting. The rights of the Holder to the Shares underlying the Warrants shall vest in the Holder in accordance with Schedule I of the Securities Purchase Agreement dated as of September 29, 2000 ("Securities Purchase Agreement"), among the Company, Winstar Communications, Inc. and Winstar Credit Corp. ("Winstar Sub"). Without limiting the foregoing, to the extent that the Company does not sell shares of its Class H Convertible Preferred Stock, $.01 par value ("Class H Preferred Shares") to Winstar Sub in the amounts set forth in Schedule I to the Securities Purchase Agreement, the right of Holder to exercise Warrants corresponding to the number of Class H Preferred Shares not so sold as set forth in such Schedule I (prorated within the specified amounts in any case in which the total number of Class H Preferred Shares sold is less than a whole multiple of 10,000 shares of Class H Preferred Shares) shall terminate and be cancelled. 2. Exercise; Transferability. Subject to Section 1 above, the rights represented by this Warrant may be exercised by the Holder hereof, in whole or in part (but not as to a fractional share of Common Stock), by written notice of exercise delivered to the Company ten (10) days prior to the intended date of exercise and by the surrender of this Warrant (properly endorsed if required) at the principal office of the Company and by paying in full, as provided herein, the purchase price of $.01 per share ("Exercise Price"). Payment upon exercise of the rights represented by this Warrant may be made at the option of the Holder (a) in cash or by certified or official bank check payable to the order of the Company, (b) by surrendering to the Company for cancellation and retirement any number Class H Preferred Shares, which shares shall each be valued for purposes hereof at their Accreted Value (as defined in the Certificate of Designations for the Class H Preferred Shares) plus the sum of any then accumulated and unpaid dividends thereon, (c) by cancellation and discharge of all or any portion of any debt then owed by the Company to the Holder on a dollar for dollar basis, including principal whether or not then due and payable together with any interest accrued and unpaid thereon, or (d) by any combination of any or all of the foregoing. This Warrant may not be transferred or divided into two or more Warrants of smaller denominations, nor may any Common Stock issued pursuant to exercise of this Warrant be transferred unless this Warrant or shares have been registered under the Securities Act of 1933, as amended ("Securities Act"), and applicable state laws, or unless the Holder of the certificate obtains an opinion of counsel satisfactory to the Company and its counsel that the proposed transfer may be effected without registration pursuant to exemptions under the Securities Act and applicable state laws. 3. Issuance of Shares/Warrants. The Company agrees that the Shares purchased hereby shall be deemed to be issued to the Holder as of the close of business on the date on which this Warrant shall have been surrendered and the payment shall have been tendered for such Shares as aforesaid. Subject to the provisions of the next succeeding paragraph, certificates for the Shares so purchased shall be delivered to the Holder hereof within a reasonable time, not exceeding five (5) days after the rights relating to those Shares shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of Shares with respect to which this Warrant shall not then have been exercised and the exercise right shall not have been cancelled in accordance with Section 1 above, shall also be delivered to the Holder hereof within such time. Notwithstanding the foregoing, however, the Company shall not be required to deliver any certificate for Shares which may be issued upon exercise of this Warrant, except in accordance with the provisions, and subject to the limitations, of Sections 1, 3 and 8 hereof. Subject to Sections 1, 3 and 8 herein, upon any exercise of less than all the Warrants evidenced by this Warrant Certificate, there shall additionally be issued to the Holder a new Warrant Certificate in respect of the Warrants as to which this Warrant Certificate was not exercised and the exercise right was not cancelled in accordance with Section 1 above. -2- 4. Covenants of Company. The Company covenants and agrees that all Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized and issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and without limiting the generality of the foregoing, the Company covenants and agrees that it will from time to time take all such action as may be required to assure that the par value per share of the Common Stock is at all times equal to or less than the then effective purchase price per share of the Common Stock issuable pursuant to this Warrant. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 5. Adjustments. The above provisions are, however, subject to the following provisions: (a) No fractional shares of Common Stock are to be issued upon the exercise of the Warrant, but the Company shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable in an amount equal to the same fraction of the market price per share of Common Stock on the date of exercise as determined in good faith by the Company. (b) If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the Holder hereof shall hereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, securities or assets as may be issued and payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including without limitation provisions for adjustments of the number of Shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation, merger, or the corporation purchasing such assets shall assume by written instrument executed and mailed to the registered Holder hereof at the last address of such holder appearing on the books of the Company, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase. -3- (c) If the Company shall at any time or from time to time (i) distribute (otherwise than as a dividend in cash or in Common Stock or securities convertible into or exchangeable for Common Stock) to the holders of Common Stock any property or other securities, or (ii) declare a dividend upon the Common Stock (to the extent payable otherwise than out of earnings or earned surplus, as indicated by the accounting treatment of such dividend in the books of the Company, and otherwise than in Common Stock or securities convertible into or exchangeable for Common Stock), the Company shall reserve and the Holder of this Warrant shall thereafter upon exercise hereof be entitled to receive, with respect to each Share of Common Stock purchased hereunder, without any change in, or payment in addition to, the Exercise Price, the amount of any property or other securities which would have been distributable to such Holder had such Holder been a Holder of one share of Common Stock on the record date of such distribution or dividend (or if no record date was established by the Company, the date such distribution or dividend was paid). (d) Upon the occurrence of an event giving rise to an adjustment in the number of shares of Common Stock of the Company into which the Class H Preferred Shares are convertible pursuant to Section 7 of the Class H Preferred Shares Certificate of Designation, and in which the shares of Common Stock or other securities issued or sold by the Company are issued or sold at a price equivalent to less than $2.50 per share of Common Stock, additional Warrants shall promptly be issued by the Company to the Holder, or Holders on a pro-rata basis, in an amount in accordance with subsection 3.3 (b) of the Securities Purchase Agreement. 6. Common Stock. As used herein, the term "Common Stock" means the Company's presently authorized shares of Common Stock and shall also include any capital stock of any class of the Company hereafter authorized which shall not be limited to fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company. 7. No Voting Rights. This Warrant shall not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. 8. Notice of Transfer of Warrant or Resale of Shares. The Holder of this Warrant, by acceptance hereof, agrees to give written notice to the Company before transferring this Warrant, or transferring any Common Stock issued upon the exercise hereof, of such holder's intention to do so, describing briefly the manner of any proposed transfer. Promptly upon receiving such written notice the Company shall present copies thereof to the Company counsel and if in the opinion of such counsel the proposed transfer complies with federal and state securities laws and may be effected without registration or qualification (under any Federal or State law), the Company, as promptly as practicable, shall notify such holder of such opinion, whereupon such holder shall be entitled to transfer this Warrant or to dispose of shares of Common Stock received upon the previous exercise of this Warrant, provided that an appropriate legend may be endorsed on this Warrant or the certificates for such shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act of 1933. -4- If in the opinion of Company's counsel referred to in this Section 8 hereof, the proposed transfer or disposition of shares described in the written notice given pursuant to this Section 8 may not be effected without registration or qualification of this Warrant or the shares of Common Stock issued on the exercise hereof, the Company shall promptly give written notice thereof to the Holder hereof, and the Holder will limit its activities in respect to such as, in the opinion of such counsel, are permitted by law. 9. Registration Rights. The Holder shall have the registration rights with respect to shares of Common Stock underlying the Warrants, regardless of whether the Warrants have been exercised, as are set forth in Section 8 of the Securities Purchase Agreement. IN WITNESS WHEREOF, WAM!NET, Inc. has caused this Warrant to be signed by its duly authorized officer and this Warrant to be dated September 29, 2000. WAM!NET, Inc. By: /s/ Terri F. Zimmerman ------------------------------ Terri F. Zimmerman Chief Financial Officer -5- EX-4.45 5 0005.txt CERTIFICATES OF DESIGNATION OF RIGHTS CLASS H EXHIBIT 4.45 CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES OF CLASS H CONVERTIBLE PREFERRED STOCK OF WAM!NET INC. - -------------------------------------------------------------------------------- The undersigned, Edward J. Driscoll, Jr., hereby certifies that: A. He is the duly elected and acting Secretary of WAM!NET Inc. (the "Company"), a Minnesota corporation. B. The Articles of Incorporation of this Company provide for a class of up to 9,900,000 shares known as Undesignated Stock, par value $.01 per share, which shares may be issued from time to time in one or more classes or series. C. The Board of Directors of the Company is authorized, pursuant to Article 6 of the Company's Articles of Incorporation and Minnesota Statutes, Section 302A.401, to fix or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Undesignated Stock, to fix the number of shares constituting the series, and to determine the designation thereof. D. It is the desire of the Board of Directors of the Company, pursuant to its authority, to fix the rights, preferences, restrictions and other matters relating to the Undesignated Stock and the number of shares of Undesignated Stock. E. Pursuant to authority given by Article 6 of the Company's Articles of Incorporation, the Company's Board of Directors has adopted the following resolutions as of September 29, 2000: RESOLVED, that, pursuant to Article 6 of the Articles of Incorporation of WAM!NET Inc. (the "Company"), the Board of Directors of the Company (the "Board") hereby creates and designates a series of Convertible Preferred Stock, par value $0.01 per share, and authorizes the issuance of up to 60,000 of such shares, and hereby fixes the designations, powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions, of such shares, as follows: 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated "Class H Convertible Preferred Stock" (the "Class H Preferred Stock") and the number of shares constituting such series shall be 60,000. 2. RANK. The Class H Preferred Stock shall rank, with respect to dividend rights and distribution of assets on any Liquidation of the Company (as defined herein) (a) junior to any other class or series of the Company's preferred stock which shall specifically provide that such class or series shall rank senior to the Class H Preferred Stock (the "Senior Stock"); (b) on parity with (i) the Company's Class A Preferred Stock, par value $10.00 per share (the "Class A Preferred Stock") (except with respect to a Liquidation of the Company resulting from the merger or consolidation of the Company into or with another corporation, the merger or consolidation of any other corporation into or with the Company or the sale of all or substantially all the assets of the Company, which events do not give rise to a right of the holders of the Class A Preferred Stock to receive distributions), (ii) the Company's Class B Convertible Preferred Stock, par value $0.01 per share (the "Class B Preferred Stock"), (iii) the Company's Class C Convertible Preferred Stock, par value $0.01 per share (the "Class C Preferred Stock"), (iv) the Company's Class D Convertible Preferred Stock, par value $0.01 per share (the "Class D Preferred Stock"), (v) the Company's Class E Convertible Preferred Stock, par value $0.01 per share (the "Class E Preferred Stock"), (vi) the Company's Class F Convertible Preferred Stock, par value $0.01 per share (the "Class F Preferred Stock"), (vii) the Company's Class G Convertible Preferred Stock, par value $0.01 per share (the "Class G Preferred Stock"), and (viii) any other class or series of the Company's preferred stock which shall specifically provide that such class or series shall rank on parity with the Class H Preferred Stock ((i) through (vii) collectively, the "Parity Stock"); and (c) prior to (i) the Company's common stock, par value $0.01 per share (the "Common Stock"), and (ii) any other class or series of the Company's Undesignated Stock except for any class or series which is Senior Stock or Parity Stock ((i) and (ii) together, the "Junior Stock"). 3. DIVIDENDS. (a) Each holder of Class H Preferred Stock shall be entitled to receive, in respect of each Dividend Period, when, as and if declared by the Board of Directors of the -2- Company, out of funds legally available for the payment of dividends, cumulative dividends in an amount per share equal to the Applicable Percentage of the Accreted Value as of the immediately preceding Dividend Payment Date (or, for the initial Dividend Period, as of the date of issuance). Dividends paid pursuant to this paragraph 3(a) shall be payable in arrears monthly on the last day of each month (each of such dates being a "Dividend Payment Date" and each such monthly period being a "Dividend Period"). Such dividends shall accrue from the date of issue (except that dividends on any amounts added to Accreted Value pursuant to Section 3(b) shall accrue from the date such amounts are added to Accreted Value), whether or not in any Dividend Period or Periods there shall be funds of the Company legally available for the payment of such dividends. Each such dividend shall be payable to the holders of record of shares of the Class H Preferred Stock on the 25th day of each month, as they appear on the stock records of the Company at the close of business on such record dates. (b) At the Company's option, dividends may be paid in cash. If dividends are not paid in cash on any Dividend Payment Date for the immediately preceding Dividend Period (or portion thereof if less than a full Dividend Period), the unpaid amount shall be added to the Accreted Value for purposes of calculating succeeding periods' dividends. Notwithstanding anything else contained herein, once any dividends for the immediately preceding Dividend Period (or portion thereof if less than a full Dividend Period) are so added to Accreted Value, such dividends will no longer be payable in cash. (c) The Applicable Percentage for each full Dividend Period for the Class H Preferred Stock shall be 0.5834%. The Applicable Percentage for the initial Dividend Period, or any other period shorter or longer than a full Dividend Period, on the Class H Preferred Stock shall be computed on the basis of a per annum rate of 7.0008% and the actual number of days elapsed over 12 30-day months and a 360-day year. (d) So long as any shares of the Class H Preferred Stock are outstanding, no dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on Parity Stock for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Class H Preferred Stock (or the unpaid amount shall have been added to the Accreted Value pursuant to Section 3(b)) for all Dividend Periods terminating on or prior to the date of payment of the dividend on such class or series of Parity Stock. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon shares of the Class H Preferred Stock and all dividends declared upon any other class or series of Parity Stock shall be declared ratably in proportion to the respective amounts of dividends accrued on the Class H Preferred Stock and accrued and unpaid on such Parity Stock. (e) Limit on Junior Dividends and Redemption. For so long as the Class H Preferred Stock remains outstanding, the Company shall not pay any dividend upon the Junior Stock, whether in cash or other property (other than in shares of Junior Stock with respect to Junior Stock existing as of the date of the filing of the Certificate of Designation of the Class H Preferred Stock (the "Filing Date")), or purchase, redeem or otherwise acquire any such Junior -3- Stock other than as required with respect to written agreements existing as of the Filing Date, but in no event prior to September 29, 2003. 4. LIQUIDATION, DISSOLUTION OR WINDING-UP. (a) Liquidation Preference. In the event of any Liquidation of the Company, the holders of shares of Class H Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of Senior Stock upon such Liquidation of the Company and before any payment shall be made to the holders of Junior Stock, the Liquidation Amount (as defined herein) per share of Class H Preferred Stock. If upon any such Liquidation of the Company, the remaining assets of the Company available for the distribution to its stockholders after payment in full of amounts required to be paid or distributed to holders of Senior Stock shall be insufficient to pay the holders of shares of Parity Stock the full amount to which they shall be entitled, the holders of the Class H Preferred Stock shall share ratably with the holders of Parity Stock in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. After the payment of all preferential amounts required to be paid to the holders of Senior Stock and Parity Stock and any other series of the Company's preferred stock upon any Liquidation of the Company, the holders of shares of Junior Stock then outstanding shall be entitled to receive the remaining assets and funds of the Company available for distribution to its stockholders in accordance with the terms thereof. (b) Certain Definitions. (i) The term "Liquidation of the Company" shall mean any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Company. (ii) The term "Liquidation Amount" shall mean an amount per share of Class H Preferred Stock equal to the greater of: (A) the Accreted Value plus any per share dividends accrued on the Class H Preferred Stock (whether or not earned or declared) since the most recent Dividend Payment Date and (B) the per share amount that holders of the Class H Preferred Stock would have received had they exercised their right to convert the Class H Preferred Stock to Common Stock immediately prior to a Liquidation of the Company. 5. VOTING. (a) Number of Votes. (i) Each issued and outstanding share of Class H Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which each such share of Class H Preferred Stock is then convertible (as adjusted from time to time), at each meeting of holders of the Common Stock of the Company (or any written consent without a meeting in accordance with the Minnesota Business Corporation Act) with respect to any and all matters presented to such shareholders for their action or consideration, provided that no Winstar Holder, as defined in Section (b) (based solely on its ownership of Class E Preferred Stock, Class H -4- Preferred Stock and shares of Common Stock issued upon exercise of warrants issued in connection with the issuance of the Class H Preferred Stock ("Warrant Shares")) shall be entitled to more than the number of votes equal to 17.5% of the votes cast at any meeting for which a vote is being taken ("Maximum Percentage") (and therefore to the extent that its ownership of Class E Preferred Stock, Class H Preferred Stock and Warrant Shares could entitle it to voting power in excess of 17.5%, the voting power with respect to votes cast shall be reduced to the Maximum Percentage). Notwithstanding the foregoing, effective as of any April 1 on or after April 1, 2002, upon written notice to the Corporation given to it by any holder whose voting power has been limited to the Maximum Percentage provided for in the previous sentence (the "Voting Limitation") no later than the March 31 prior thereto, the Voting Limitation shall be terminated and cease to have further effect for such security holder. Except as provided by law, by the provisions of this Section 5 or by the provisions establishing any other series of the Company's preferred stock, holders of Class H Preferred Stock and of any other outstanding preferred stock then entitled to vote shall vote together with the holders of Common Stock as a single class. (ii) Notwithstanding anything to the contrary, no Voting Limitation shall apply to any shares of Class H Preferred Stock assigned pursuant to Section 3.4 of the Securities Purchase Agreement among the Company, Winstar Communications, Inc., and Winstar Credit Corp. dated September 29, 2000 ("Purchase Agreement"). (b) Winstar Director. So long as Winstar Communications, Inc. or any of its subsidiaries (collectively, "Winstar Holders") continues to own at least 24,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares of Class H Preferred Stock are convertible, and to the extent Winstar has not assigned such right pursuant to subsection 5(c) below, such Winstar Holders shall have the right to appoint two persons to serve as directors of the Company (the "Winstar Directors") which may, individually or collectively, at the sole discretion of the Winstar Holders serve as non-voting observers of the Company; provided that (i) so long as the Voting Limitation is in effect, the Winstar Holders of the Class E Preferred Stock and Class H Preferred Stock shall collectively be entitled to appoint only one person to serve as a Winstar Director who, at the sole discretion of the Winstar Holders, may be a non-voting observer and (ii) if the Corporation consummates an initial public offering of its securities, the Winstar Holders shall collectively only be entitled to appoint one person to serve as a Winstar Director, who at the sole discretion of the Winstar Holders, may be a non-voting observer. Notwithstanding the foregoing, in the event the Winstar Holders own collectively less than 24,000 but more than 12,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares of Class H Preferred Stock are convertible, the Winstar Holders shall collectively have the right to appoint only one person to serve as a director of the Corporation who may, at the sole discretion of Winstar, serve as a non-voting observer of the Corporation. In the event the Winstar Holders own collectively, 12,000 or less than 12,000 shares of Class H Convertible Preferred Stock and/or such number of Shares of Common Stock into which such shares of Class H Preferred Stock are convertible, the Winstar Holders shall have no right to appoint anyone to serve as a director of the Corporation and no right to appoint anyone as a non-voting observer. Any vacancy in the position of a Winstar Director or the observer may be filled by and only by the Winstar Holders. Any Winstar Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the Winstar Holders. -5- (c) Assignee Director. Winstar Credit Corp. ("Winstar Sub") may transfer its right to appoint Winstar Director(s) to any assignee of Winstar Sub pursuant to Section 3.4 of the Purchase Agreement who purchases at least 15,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible pursuant to the Purchase Agreement (an "Assignee Director"). No more than one director seat may be assigned to any one assignee unless such assignee purchased at least 30,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible. Winstar Sub also has the right to provide up to two observer rights to the Company's Board of Directors. Observer rights may only be granted to assignees who have purchased at least 15,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible. Any vacancy in the position of the Assignee Director or observer may be filled by and only by such assignee. Any Assignee Director may, during his or her term in office, be removed at any time, with or without cause, by and only by such assignee. Any assignee who has been granted the right to appoint director(s) and/or observer(s) to the Company shall only be able to exercise such right if and only if (i) with respect to the right to appoint an Assignee Director, such assignee owns at least 15,000 shares of Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible and (ii) with respect to the right to appoint an observer to the Company's Board of Directors, if such assignee owns at least 10,000 shares of the Class H Preferred Stock and/or such number of shares of Common Stock into which such shares are convertible. The provisions of Sections 7.14(b) and (c) of the Purchase Agreement shall apply with respect to the Assignee Director or observer to the same extent that they apply to any Winstar Director. (d) Protective Provisions. In addition to any other rights provided by law, the Company shall not (i) without first obtaining the affirmative vote or written consent of a majority of the holders of the Class H Preferred Stock, voting separately as a class, (A) amend, alter or repeal any provision of the Company's Articles of Incorporation or By-Laws in a manner that is adverse to the holders of the Class H Preferred Stock, or (B) authorize the issuance of a Senior Stock or a class or series of capital stock having preferences or rights with respect to voting, dividends or dissolution or the distribution of assets that would be superior to the preferences or rights of the Class H Preferred Stock, and (ii) without first obtaining the affirmative vote or written consent of a majority of the holders of the Company's Voting Securities other than MCI WORLDCOM, Inc. (together with its majority-owned subsidiaries and other controlled affiliates, "MCI WCOM"), (A) authorize any transaction of a type referred to in clause (i) or clause (ii) of the definition of "Change of Control," (B) authorize or consent to any liquidation, dissolution or winding-up of the affairs of the Company, or (C) enter into any merger or consolidation into or with MCI WCOM or enter into any other contract or arrangement involving the sale or license of the Company's material assets with MCI WCOM (excluding contractual arrangements with MCI WCOM existing as of the Filing Date). 6. OPTIONAL CONVERSION. At any time and from time to time, each share of Class H Preferred Stock may be converted, at the option of the holder thereof, into the number of fully paid and nonassessable shares of Common Stock obtained by dividing the amount determined pursuant to clause (A) of the definition of Liquidation Amount by the Conversion Price then in effect (the "Conversion Rate"); provided, however, that upon any Liquidation of the Company, the right of conversion shall terminate at the close of business on the full business day -6- next preceding the date fixed for such redemption or for the payment of any amounts distributable on liquidation to the holders of Class H Preferred Stock. No notice delivered by the Company of any proposed redemption, change of control or other event will limit in any way the holders' rights to convert Class H Preferred Stock into Common Stock of the Company. (a) Initial Conversion Rate. The initial Conversion Rate for the Class H Preferred Stock shall be 193.7984 shares of Common Stock for each one share of Class H Preferred Stock surrendered for conversion representing an initial Conversion Price of $5.16 per share of Common Stock. The applicable Conversion Rate and Conversion Price from time to time in effect is subject to adjustment as hereinafter provided. (b) No Fractional Shares. If any fraction of a share of Common Stock would be issuable upon conversion of any Class H Preferred Stock, the Company shall round up to the next whole share the number of shares of Class H Preferred Stock to be issued upon such conversion. (c) Adjustment. Whenever the Conversion Rate and Conversion Price shall be adjusted as provided herein, the Company shall forthwith file at each office designated for the conversion of Class H Preferred Stock, a statement, signed by the President, any Vice President or Treasurer of the Company, showing in reasonable detail the facts requiring such adjustment and the Conversion Rate that will be effective after such adjustment. The Company shall also cause a notice setting forth any such adjustments to be sent by mail, first class, postage prepaid, to each record holder of Class H Preferred Stock at his or its address appearing on the stock register. If such notice relates to an adjustment resulting from an event referred to in Section 7(g), such notice shall be included as part of the notice required to be mailed and published under the provisions of such Section 7(g). (d) Exercise. In order to exercise the conversion privilege, the holder of any Class H Preferred Stock to be converted shall surrender his or its certificate or certificates therefore to the principal office of the transfer agent for the Class H Preferred Stock (or if no transfer agent be at the time appointed, then the Company at its principal office), and shall give written notice to the Company at such office that the holder elects to convert the Class H Preferred Stock represented by such certificates, or any number thereof. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued, subject to any restrictions on transfer relating to shares of the Class H Preferred Stock or shares of Common Stock upon conversion thereof. If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Company, duly authorized in writing. The date of receipt by the transfer agent (or by the Company if the Company serves as its own transfer agent) of the certificates and notice shall be the conversion date. Within three Market Days after receipt of such notice and the surrender of the certificate or certificates for Class H Preferred Stock as set forth herein, the Company shall cause to be issued and delivered at such office to such holder, or on his or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Section -7- 6(b) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion. (e) Reservation of Shares of Common Stock. The Company shall at all times while any shares of Class H Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purposes of effecting the conversion of the Class H Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Class H Preferred Stock. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Class H Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Conversion Price. (f) Surrender. All shares of Class H Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall forthwith cease and terminate except only the right of the holder thereof to receive shares of Common Stock in exchange therefor and payment of any accrued and unpaid dividends on such shares of Common Stock. Any shares of Class H Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Company may from time to time take such appropriate action as may be necessary to reduce the authorized Class H Preferred Stock accordingly. 7. ANTI-DILUTION PROVISIONS. (a) General. In order to prevent dilution of the rights granted hereunder, the Conversion Price shall be subject to adjustment from time to time in accordance with this Section 7. Upon each adjustment of the Conversion Price pursuant to this Section 7, the registered holder of shares of Class H Preferred Stock shall thereafter be entitled to acquire upon conversion, at the Conversion Price resulting from such adjustment, the number of shares of Common Stock obtainable by multiplying the Conversion Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable immediately prior to such adjustment and dividing the product thereof by the Conversion Price resulting from such adjustment. (b) Adjustment of Conversion Price. Except as provided in Sections 7(c) or 7(f) below, if and whenever on or after the Filing Date, the Company shall issue or sell, or shall pursuant to Section 7(b)(1) through (9) inclusive, be deemed to have issued or sold any shares of its Common Stock for a consideration per share that is (i) at any time prior to the closing of a Qualified Initial Public Offering, less than the per share Conversion Price in effect immediately prior to the time of such issue or sale or (ii) at any time during the three-year period after the closing of a Qualified Initial Public Offering, less than 90% of the Current Market Price Per Common Share calculated as of the date of such issue or sale, then forthwith upon such issue or sale (the "Triggering Transaction"), the Conversion Price shall, subject to Section 7(b)(1) through (9) inclusive, be reduced to the Conversion Price (calculated to the nearest one- -8- hundredth of a cent) determined by dividing: (A) an amount equal to the sum of the product derived by multiplying the Number of Common Shares Deemed Outstanding immediately prior to such Triggering Transaction by the Conversion Price then in effect, plus the consideration, if any, received by the Company upon consummation of such Triggering Transaction by (B) an amount equal to the sum of the Number of Common Shares Deemed Outstanding immediately prior to such Triggering Transaction plus the number of shares of Common Stock issued (or deemed to be issued in accordance with Section 7(b)(1) through (9) inclusive) in connection with the Triggering Transaction. The term "Number of Common Shares Deemed Outstanding" at any given time shall mean the sum of (i) the number of shares of Common Stock outstanding at such time, (ii) the number of shares of Common Stock issuable upon conversion or exchange at such time of all of the Company's outstanding securities that are then convertible into, or exchangeable for, Common Stock and (iii) the number of shares of the Company's Common Stock deemed to be outstanding under Section 7(b)(1) through (9) inclusive, at such time. For purposes of determining the adjusted Conversion Price under this Section 7(b), the following provisions shall be applicable: (1) In case the Company at any time shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable and the price per share for which the Common Stock is issuable upon exercise, conversion or exchange (determined by dividing (Y) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (Z) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such Option, then the total maximum amount of Common Stock issuable upon the exercise of such Options or in the case of Options for Convertible Securities, upon the conversion or exchange of such Convertible Securities shall (as of the date of granting of such Options) be deemed to be outstanding and to have been issued and sold by the Company for such price per share. No further adjustment of the Conversion Price shall be made upon the actual issue of such shares of Common Stock or such Convertible Securities upon the exercise of such Options, except as otherwise provided in Section 7(b)(3). (2) In case the Company at any time shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such -9- conversion or exchange (determined by dividing (Y) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (Z) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued and sold by the Company for such price per share. No further adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon exercise of the rights to exchange or convert under such Convertible Securities, except as otherwise provided in Section (7)(b)(3). (3) If the purchase price provided for in any Options referred to in Section 7(b)(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Sections 7(b)(1) or (2), or the rate at which any Convertible Securities referred to in Sections 7(b)(1) or (2) are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution of the type set forth in Sections 7(b) or 7(d)), the Conversion Price in effect at the time of such change shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. If the purchase price provided for in any Option referred to in Section 7(b)(1) or the rate at which any Convertible Securities referred to in Sections 7(b)(1) or (2) are convertible into or exchangeable for Common Stock, shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then in case of the delivery of Common Stock upon the exercise of any such Option or upon conversion or exchange of any such Convertible Security, the Conversion Price then in effect hereunder shall forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Security never been issued as to such Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered as set forth herein, but only if as a result of such adjustment the Conversion Price then in effect hereunder is hereby reduced. (4) On the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities, the Conversion Price then in effect hereunder shall forthwith be increased to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (5) In case any Options shall be issued in connection with the issue or sale of other securities of the Company, together comprising one integral transaction in -10- which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration. (6) In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration as determined in good faith by the Board. In case any shares of Common Stock, Options or Convertible Securities shall be issued in connection with any merger in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving corporation as shall be attributable to such Common Stock, Options or Convertible Securities, as the case may be. (7) The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock for the purpose of this Section 7(b). (8) In case the Company shall declare a dividend or make any other distribution upon the stock of the Company payable in Options or Convertible Securities, then in such case any Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. (9) For purposes of this Section 7(b), in case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right or subscription or purchase, as the case may be. (c) Liquidating Dividends. In the event the Company shall declare a dividend upon the Common Stock (other than a dividend payable in Common Stock) payable otherwise than out of earnings or earned surplus, determined in accordance with generally accepted accounting principles, including the making of appropriate deductions for minority interests, if any, in subsidiaries (herein referred to as "Liquidating Dividends"), then the Company shall pay to the person converting such Class H Preferred Stock an amount equal to the aggregate value of such Liquidating Dividends (including but not limited to the Common Stock which would have been issued at the time of such earlier exercise and all other securities which would have been issued with respect to such Common Stock by reason of stock splits, stock dividends, mergers or reorganizations, or for any other reason). For the purposes of this Section 7(c), a dividend other -11- than in cash shall be considered payable out of earnings or earned surplus only to the extent that such earnings or earned surplus are charged an amount equal to the fair value of such dividend as determined in good faith by the Board. (d) Subdivisions and Dividends; Combinations. In case the Company shall at any time (i) subdivide the outstanding Common Stock or (ii) issue a stock dividend on its outstanding Common Stock, the number of shares of Common Stock issuable upon conversion of the Class H Preferred Stock shall be proportionately increased by the same ratio as the subdivision or dividend (with appropriate adjustments to the Conversion Price in effect immediately prior to such subdivision or dividend). In case the Company shall at any time combine its outstanding Common Stock, the number of shares issuable upon conversion of the Class H Preferred Stock immediately prior to such combination shall be proportionately decreased by the same ratio as the combination (with appropriate adjustments to the Conversion Price in effect immediately prior to such combination). (e) Reorganizations, etc. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash or other property with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of the Class H Preferred Stock shall have the right to acquire and receive upon conversion of the Class H Preferred Stock, which right shall be prior to the rights of the holders of Junior Stock, equal to the rights of the holders of Parity Stock and after and subject to the rights of holders of Senior Stock, such shares of stock, securities, cash or other property issuable or payable (as part of the reorganization, reclassification, consolidation, merger or sale) with respect to or in exchange for such number of outstanding shares of Common Stock as would have been received upon conversion of the Class H Preferred Stock at the Conversion Price then in effect. (f) Exceptions to Antidilution. The provisions of this Section 7 shall not apply to any Common Stock issued, issuable or deemed outstanding under Section 7(b)(1) through (9) inclusive (and no such transaction shall constitute a Triggering Transaction): (i) to any person pursuant to any stock option, stock purchase or similar plan or arrangement for the benefit of employees, consultants or other representatives of the Company or its subsidiaries (A) in effect on the Filing Date or (B) thereafter adopted by the Board and approved by the holders of the Voting Securities, (ii) pursuant to options, warrants and conversion rights in existence on the Filing Date (other than as provided for in Section 7(b)(9)) or (iii) on conversion of the Class B Preferred Stock, the Class C Preferred Stock or the Class D Preferred Stock. (g) Procedures. In the event that (i) the Company shall declare any cash dividend upon its Common Stock, (ii) the Company shall declare any dividend upon its Common Stock payable in stock or make any special dividend or other distribution to the holders of its Common Stock, (iii) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights, (iv) there shall be any capital reorganization or reclassification of the capital stock of the Company, including any -12- subdivision or combination of its outstanding shares of Common Stock, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation, (v) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, in connection with any such event, the Company shall give to the holders of the Class H Preferred Stock (A) at least twenty (20) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up; and (B) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, at least twenty (20) days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (A) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (B) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification consolidation, merger, sale, dissolution, liquidation or winding-up, as the case may be. Each such written notice shall be given by first class mail, postage prepaid, addressed to the holders of the Class H Preferred Stock at the address of each such holder as shown on the books of the Company. (h) Intended Effect. If any event occurs as to which, in the opinion of the Board, the provisions of this Section 7 are not strictly applicable or if strictly applicable would not fairly protect the rights of the holders of the Class H Preferred Stock in accordance with the essential intent and principles of such provisions, then the Board shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such rights as set forth herein, but in no event shall any adjustment have the effect of increasing the Conversion Price as otherwise determined pursuant to any of the provisions of this Section 7 except in the case of a combination of shares of a type contemplated in Section 7(d) and then in no event to an amount greater than the Conversion Price as adjusted pursuant to Section 7(d). 8. MANDATORY CONVERSION. (a) Mandatory Conversion. Each share of Class H Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price in effect on the last Market Day of the first consecutive period of twenty Market Days during which the Current Market Price Per Common Share is at least 155% of the Conversion Price beginning after the later to occur of the closing of an underwritten offering which is a "Qualified Initial Public Offering" pursuant to an effective registration statement under the Securities Act or the third anniversary of the date of issuance of the Class H Preferred Stock ("Initial Issuance Date"). (b) A "Qualified Initial Public Offering" shall mean an initial public offering of the Company's Common Stock raising not less than $50,000,000 of gross proceeds. (c) Procedures. All holders of record of shares of Class H Preferred Stock will be given prompt written notice of the occurrence of mandatory conversion and at least sixty -13- (60) days prior written notice of the date fixed for any optional conversion and also of the place designated for conversion of all of such shares of Class H Preferred Stock. Such notice will be sent by mail, first class, postage prepaid, to each record holder of shares of Class H Preferred Stock at such holder's address appearing on the stock register. Each holder of shares of Class H Preferred Stock shall surrender his or its certificates or certificates for all such shares to the Company at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section 8. On the date of occurrence of mandatory conversion or the date fixed for any optional conversion, all rights with respect to the Class H Preferred Stock so converted will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefore, to receive certificates for the number of shares of Common Stock into which such Class H Preferred Stock has been converted and payment of any accrued and unpaid dividends thereon. If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by his attorneys duly authorized in writing. All certificates evidencing shares of Class H Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the date such certificates are so required to be surrendered, be deemed to have been retired and canceled and the shares of Class H Preferred Stock represented thereby converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates. As soon as practicable after the surrender of the certificate or certificates for Class H Preferred Stock as set forth herein, the Company shall cause to be issued and delivered to such holder, or on his or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and as provided in Section 6(b) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion. 9. CHANGE OF CONTROL OFFER. (a) Promptly after the occurrence of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Company shall commence (or cause to be commenced) an offer to purchase all outstanding shares of Class H Preferred Stock pursuant to the terms described in Section 9(d) (the "Change of Control Offer") at a purchase price equal to the Change of Control Amount on the Change of Control Payment Date, and shall purchase (or cause the purchase of) any shares of Class H Preferred Stock tendered in the Change of Control Offer pursuant to the terms hereof. (b) At the Company's option, the Change of Control Amount shall be payable in cash or in shares of Common Stock (or the securities of the entity into which the Common Stock became converted in connection with the Change of Control), which shares shall be valued for purposes of this Section 9(b) at 97% of the Current Market Price Per Common Share on the Change of Control Payment Date. (c) If the Company elects to pay the Change of Control Amount in cash, prior to the mailing of the notice referred to in Section 9(d), but in any event within 30 days following the date on which a Change of Control has occurred, the Company shall (A) promptly determine -14- if the purchase of the Class H Preferred Stock for cash would violate or constitute a default under the indebtedness of the Company or the terms of any other series of the Company's outstanding preferred stock and (B) either shall repay to the extent necessary all such indebtedness or preferred stock of the Company that would prohibit the repurchase of the Class H Preferred Stock pursuant to a Change of Control Offer or obtain any requisite consents or approvals under instruments governing any indebtedness or preferred stock of the Company to permit the repurchase of the Class H Preferred Stock for cash. The Company shall first comply with this Section 9(c) before it shall repurchase for cash any Class H Preferred Stock pursuant to this Section 9. (d) Within 30 days following the date on which a Change in Control has occurred, the Company shall send, by first-class mail, postage prepaid, a notice to each holder of Class H Preferred Stock. If applicable, such notice shall contain all instructions and materials necessary to enable such holders to tender Class H Preferred Stock pursuant to the Change of Control Offer. Such notice shall state: (i) that a Change of Control has occurred, that a Change of Control Offer is being made pursuant to this Section 9 and that all Class H Preferred Stock validly tendered and not withdrawn will be accepted for payment; (ii) the purchase price (including the amount of accrued dividends, if any) and the purchase date (which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (iii) that any shares of Class H Preferred Stock not tendered will continue to accrue dividends; (iv) that, unless the Company defaults in making payment therefor, any share of Class H Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accrue dividends after the Change of Control Payment Date; (v) that holders electing to have any share of Class H Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender stock certificates representing such shares of Class H Preferred Stock, properly endorsed for transfer, together with such other customary documents as the Company and the Transfer Agent may reasonably request to the Transfer Agent and registrar for the Class H Preferred Stock at the address specified in the notice prior to the close of business on the business day prior to the Change of Control Payment Date; (vi) that holders will be entitled to withdraw their election if the Company receives, not later than five business days prior to the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of the holder, the number of shares of Class H Preferred Stock the holder delivered for purchase and a statement that such holder is withdrawing its election to have such shares of Class H Preferred Stock purchased; -15- (vii) that holders who tender only a portion of the shares of Class H Preferred Stock represented by a certificate delivered will, upon purchase of the shares tendered, be issued a new certificate representing the unpurchased shares of Class H Preferred Stock; and (viii) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control). (e) The Company will comply with any tender offer rules under the Exchange Act which then may be applicable in connection with any offer made by the Company to repurchase the shares of Class H Preferred Stock as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Certificate of Designation, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligation under this Certificate of Designation by virtue thereof. (f) On the Change of Control Payment Date, the Company shall (i) accept for payment the shares of Class H Preferred Stock validly tendered pursuant to the Change of Control Offer, (ii) pay to the holders of shares so accepted the purchase price therefor in cash or Common Stock (or the securities of the entity into which the Common Stock became converted in connection with the Change of Control) as provided above and (iii) cancel each surrendered certificate and retire the shares represented thereby. Unless the Company defaults in the payment for the shares of Class H Preferred Stock tendered pursuant to the Change of Control Offer, dividends will cease to accrue with respect to the shares of Class H Preferred Stock tendered and all rights of holders of such tendered shares will terminate, except for the right to receive payment therefor on the Change of Control Payment Date. (g) To accept the Change of Control Offer, the holder of a share of Class H Preferred Stock shall deliver, prior to the close of business on the business day prior to the Change of Control Payment Date, written notice to the Company (or an agent designated by the Company for such purpose) of such holder's acceptance, together with certificates evidencing the shares of Class H Preferred Stock with respect to which the Change of Control Offer is being accepted, duly endorsed for transfer. (h) For the avoidance of doubt, nothing in this Section 9 shall restrict the right of the holders of Class H Preferred Stock, in connection with a Change of Control, to convert and to receive the kind and amount of consideration payable to holders of Common Stock in respect of the Common Stock into which the Class H Preferred Stock may be converted. 10. CERTAIN MERGERS. In connection with any consolidation with or merger with or into, any person in a transaction where the Common Stock is converted into or exchanged for securities of such person or an affiliate of such person, the Company covenants that the person issuing such securities will be organized and existing under the laws of a jurisdiction which allows for the issuance of preference stock and that the Class H Preferred Stock shall be converted into or exchanged for and shall become shares of such person having in respect of such person substantially the same powers, preference and relative participating, -16- optional or other special rights and the qualifications, limitations or restrictions thereon that the Class H Preferred Stock had immediately prior to such transaction. -17- 11. REDEMPTION. (a) Mandatory Redemption. On December 31, 2008, the Company will be required to redeem all of the outstanding shares of Class H Preferred Stock at a redemption price per share equal to the Liquidation Amount on such date. (b) Optional Redemption. At any time after the third anniversary of the Initial Issuance Date, the Company may, at its option, redeem all (but not less than all) of the shares of Class H Preferred Stock at a cash redemption price equal to 155% of the Liquidation Amount on the date specified for redemption plus accrued dividends thereon from such date to the date of payment of the redemption price. (c) Notice. Notice of such redemption shall be given by the Company by first class mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Company; provided that neither the failure to give such notice nor any defect therein shall affect the validity of the giving of notice for the redemption of any share of Class H Preferred Stock to be redeemed except as to the holder to whom the Company has failed to give said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the redemption date; (ii) the redemption price; (iii) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (iv) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (d) Dividends; Payment. Notice having been mailed as aforesaid, from and after the redemption date (unless default shall be made by the Company in providing money for the payment of the redemption price of the shares called for redemption), dividends on the shares of Class H Preferred Stock so called for redemption shall cease to accrue, and all rights of the holders thereof as shareholders of the Company (except the right to receive from the Company the redemption price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Company shall so require and the notice shall so state), such share shall be redeemed by the Company at the redemption price aforesaid. 12. CONVERTED AND REACQUIRED SHARES. Any shares of Class H Preferred Stock converted into Common Stock, redeemed, purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of undesignated stock of the Company and may be reissued subject to the conditions and restrictions on issuance in the Articles of Incorporation, in any other Certificate of Designation creating a series of preferred stock or any similar stock or as otherwise required by law. 13. PRE-EMPTIVE RIGHTS. Until the closing of a Qualified Initial Public Offering, the holders of the Class H Preferred Stock shall have pre-emptive rights to the extent set forth in Section 302A.413 of the Minnesota Business Corporation Act as in effect on the Filing Date, except that the provisions of subdivision 4, clause (e) thereof shall not apply. -18- 14. AMENDMENT. If any proposed amendment to the Articles of Incorporation, including this Certificate of Designation, would alter or change the preferences, special rights or powers given to the holders of the Class H Preferred Stock so as to affect such holders adversely, or would authorize the issuance of a class or classes of stock having preferences or rights with respect to dividends or dissolution or the distribution of assets that would be superior to the preferences or rights of the Class H Preferred Stock, then the holders of the Class H Preferred Stock shall be entitled to vote as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of Class H Preferred Stock shall be necessary for the adoption thereof, in addition to such other vote as may be required by law. 15. MISCELLANEOUS. If, in connection with a Change of Control Offer pursuant to Section 9 or a redemption pursuant to Section 11, the Company determines to pay the Change of Control Amount or the redemption price in shares of Common Stock, the Company will (a) file a registration statement to register such shares of Common Stock under the Securities Act, (b) cause such registration statement to be effective at or prior to the time that the Company will deliver such shares to the holders of Class H Preferred Stock, (c) have such shares listed on the principal trading market for the Common Stock and (d) take such other actions as may reasonably be required to register the issuance (or, as appropriate, the re-sale) of the shares of Common Stock to be delivered to the holders of the Class H Preferred Stock to enable such shares of Common Stock to be sold without restriction. 16. DEFINITIONS. The following terms, as used herein, shall have the following meanings: "Accreted Value" equals, with respect to one share of Class H Preferred Stock, $1,000 plus the amount of any dividends added to Accreted Value in accordance with Section 3(b) (which aggregate amount shall be subject to adjustment whenever there shall occur a stock split, combination, re-classification or other similar event involving the Class H Preferred Stock). "Change of Control" means: (i) the sale, lease, transfer, conveyance other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act, other than a holder of Class H Preferred Stock on the Initial Issuance Date, (ii) the consummation of any transaction (including any merger or consolidation) the result of which is that (A) any "person" (as defined above) other than a holder of Class H Preferred Stock on the Initial Issuance Date becomes the beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act except that a person will be deemed to have beneficial ownership of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the Voting Securities of the Company, other than in connection with an underwritten public offering of securities of the Company or (B) the holders of Voting Securities become entitled to receive less than 50% of the voting power of holders of the equity securities of the surviving entity, or (iii) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. -19- "Change of Control Amount" means, with respect to one share of Class H Preferred Stock, the greater of (i) 125% of the Liquidation Amount per share on the Change of Control Payment Date or (ii) the per share amount a holder of Class H Preferred Stock would have received had he exercised his right to convert a share of Class H Preferred Stock into shares of Common Stock immediately prior to the issuance of a Change of Control. "Continuing Directors" means individuals who constituted the Board of Directors of the Company on the Filing Date (the "Incumbent Directors"); provided that any individual becoming a director during any year shall be considered to be an Incumbent Director if such individual's election, appointment or nomination was recommended or approved by at least two-thirds of the other Incumbent Directors continuing in office following such election, appointment or nomination present, in person or by telephone, at any meeting of the Board of Directors of the Company, after the giving of a sufficient notice to each Incumbent Director so as to provide a reasonable opportunity for such Incumbent Directors to be present at such meeting. "Current Market Price Per Common Share" means, as of any date, the average (weighted by daily trading volume) of the Daily Prices per share of Common Stock for the 20 consecutive Market Days immediately prior to such date. "Daily Price" means, as of any date, (i) if the shares of such class of Common Stock then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"), the closing price on such date as reported on the NYSE Composite Transactions Tape; (ii) if the shares of such class of Common Stock then are not listed and traded on the NYSE, the closing price on such date as reported by the principal national securities exchange on which the shares are listed and traded; (iii) if the shares of such class of Common Stock then are not listed and traded on any such securities exchange, the last reported sale price on such date on Nasdaq National Market; or (iv) if the shares of such class of Common Stock then are not traded on the Nasdaq National Market, the average of the highest reported bid and lowest reported asked price on such date as reported by Nasdaq. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Market Day" means a day on which the principal national securities market or exchange on which the Common Stock is listed or admitted for trading is open for the transaction of business. "Securities Act" means the Securities Act of 1933, as amended. "Voting Securities" means securities of the Company ordinarily having the power to vote for the election of directors of the Company, including but not limited to the Common Stock and all classes and series of Undesignated Stock the holders of which have the right to vote with holders of the Common Stock as a class. RESOLVED FURTHER, that the officers of this Company be, and each of them acting alone is, hereby authorized and instructed to take all steps necessary to execute, deliver and file, for and on behalf of this Company and in its name, any and all documents required in connection with the establishment and authorization of the Company's Class H Preferred Stock, including -20- but not limited to filing the Statement of Rights and Preferences with the Minnesota Secretary of State in accordance with Minnesota Statutes, Section 302A.401. F. The undersigned further declares under penalty of perjury that the matters set out in the foregoing Certificate are true and correct of his own knowledge. -21- IN WITNESS WHEREOF, the undersigned has executed this certificate as of the 2nd day of October, 2000. /s/ Edward J. Driscoll, Jr. ----------------------------------- Edward J. Driscoll, Jr. Secretary -22- EX-4.46 6 0006.txt FORM OF CERTIFICATE FOR SHARES OF CLASS H EXHIBIT 4.46 [Form of Class H Preferred Stock Certificate] WAM!NET INC. A Minnesota Corporation No. __ ______ Shares of Class H Convertible Preferred Stock This certifies that Winstar Credit Corp. is the registered holder of Five Thousand (5,000) Shares of Class H Convertible Preferred Stock, par value $0.01 per share (see reverse side), transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers this ____ day of _______, 2000. ----------------------------------------------- Edward J. Driscoll III, Chief Executive Officer ----------------------------------------------- Edward J. Driscoll, Jr., Secretary [REVERSE SIDE OF CERTIFICATE] The Class H Convertible Preferred Stock has the rights and preferences as set forth in the Certificate of Designations of Class H Preferred Stock as filed of record with the Minnesota Secretary of State on October 2, 2000, as amended, a copy of which may be obtained from the Company with no charge. The securities evidenced hereby are subject to the terms of that certain Stockholder's Agreement, dated as of March 4, 1999, as amended from time to time, by and among the Company, Silicon Graphics, Inc., MCI WorldCom, Inc., Winstar Communications, Inc., Winstar Credit Corp. and Cerberus Partners, L.P. A copy of this Agreement has been filed with the Secretary of the Company and is available upon request. The securities evidenced hereby have not been registered under the Securities Act of 1933, as amended (the "Act") and may not be resold, transferred or otherwise disposed of other than in a transaction exempt from, or not subject to, the registration requirements of the Act or pursuant to an effective registration statement thereunder. For value received, _____________________________ does hereby sell, assign and transfer unto _________________________________________ Shares represented by the within Certificate and does hereby irrevocably constitute and appoint ___________________________________ Attorney to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises. Dated: ---------------------------- ------------------------------------------- Note: The signature on this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration or enlargement or any change whatever. EX-27.1 7 0007.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 7,987 4,982 5,228 647 569 22,428 426,790 61,597 419,605 73,500 496,831 1,279 89 111 (162,205) 419,605 4,975 27,245 1,648 22,878 56,648 647 35,465 (129,189) 0 (129,189) 0 0 0 (139,264) (13.66) (13.66)
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