Exhibit 10.1

 

$50,000,000

 

COVAD COMMUNICATIONS GROUP, INC.
COVAD COMMUNICATIONS COMPANY

 

12% SENIOR SECURED CONVERTIBLE NOTES DUE 2011

 

6,134,969 SHARES OF COMMON STOCK, PAR VALUE $0.001

 

PURCHASE AGREEMENT

 

 

March 15, 2006

 

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March 15, 2006

 

EarthLink, Inc.

1375 Peachtree Street, NW

Atlanta, Georgia 30309

 

Dear Sirs and Mesdames:

 

Covad Communications Group, Inc., a Delaware corporation (the “Company”),
proposes to issue and sell to EarthLink, Inc., a Delaware corporation (the
“Purchaser”) (i) together with Covad Communications Company, a California
corporation (“Operating”), $40,000,000 aggregate principal amount of a 12%
Senior Secured Convertible Note due 2011 (the “Note”) in the form attached
hereto as Exhibit A and (ii) 6,134,969 shares (the “Primary Shares”) of Common
Stock, par value $0.001 (the “Common Stock”). The Note will be convertible into
shares (the “Underlying Shares”) of Common Stock.

 

The Note, the Underlying Shares and the Primary Shares will be offered without
being registered under the Securities Act of 1933, as amended (the “Securities
Act”), to the Purchaser in compliance with the exemption from registration
provided by Section 4(2) under the Securities Act.

 

This Purchase Agreement (this “Agreement”), the Note, the Registration Rights
Agreement attached hereto as Exhibit B, the Security Agreement attached hereto
as Exhibit C, and the Agreement for XGDSL Services attached hereto as Exhibit D
(the “Services Agreement”) are collectively referred to herein as (the
“Transaction Documents”).

 

1.                                       REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND OPERATING. THE COMPANY AND OPERATING, JOINTLY AND SEVERALLY,
REPRESENT AND WARRANT TO, AND AGREE WITH THE PURCHASER THAT:

 

(A)                                  THE COMPANY (I) IS A CORPORATION DULY
ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE STATE OF
DELAWARE, (II) HAS THE CORPORATE POWER AND AUTHORITY TO OWN ITS PROPERTY AND TO
CONDUCT ITS BUSINESS AS NOW CONDUCTED AND PROPOSED TO BE CONDUCTED AND (III) IS
DULY QUALIFIED TO TRANSACT BUSINESS AND IS IN GOOD STANDING IN EACH JURISDICTION
IN WHICH THE CONDUCT OF ITS BUSINESS OR ITS OWNERSHIP OR LEASING OF PROPERTY
REQUIRES SUCH QUALIFICATION, EXCEPT TO THE EXTENT THAT THE FAILURE TO BE SO
QUALIFIED OR BE IN GOOD STANDING WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON THE
PROPERTIES, ASSETS, OPERATIONS, BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL
CONDITION OF THE COMPANY AND ITS SUBSIDIARIES, TAKEN AS A WHOLE, OR THE ABILITY
OF THE COMPANY OR OPERATING TO PERFORM ANY OF THEIR RESPECTIVE OBLIGATIONS UNDER
THE TRANSACTION DOCUMENTS TO WHICH THEY ARE A PARTY, OTHER THAN: (I) CHANGES OR
CONDITIONS IN THE INDUSTRY OR THE INDUSTRY SECTOR IN WHICH THE COMPANY AND ITS
SUBSIDIARIES OPERATE THAT DO NOT DISPROPORTIONATELY AFFECT THE COMPANY AND ITS
SUBSIDIARIES OR (II) THE EFFECT OF THE PENDENCY OR CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (A “MATERIAL ADVERSE EFFECT”).

 

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(B)                                 EACH SUBSIDIARY OF THE COMPANY (I) IS A
CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP DULY ORGANIZED, VALIDLY
EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE JURISDICTION OF ITS
ORGANIZATION, (II) HAS THE CORPORATE, LIMITED LIABILITY COMPANY OR PARTNERSHIP
POWER AND AUTHORITY TO OWN ITS PROPERTY AND TO CONDUCT ITS BUSINESS AS NOW
CONDUCTED AND PROPOSED TO BE CONDUCTED AND (III) IS DULY QUALIFIED TO TRANSACT
BUSINESS AND IS IN GOOD STANDING IN EACH JURISDICTION IN WHICH THE CONDUCT OF
ITS BUSINESS OR ITS OWNERSHIP OR LEASING OF PROPERTY REQUIRES SUCH
QUALIFICATION, EXCEPT TO THE EXTENT THAT THE FAILURE TO BE SO QUALIFIED OR BE IN
GOOD STANDING WOULD NOT HAVE A MATERIAL ADVERSE EFFECT.

 

(C)                                  EXCEPT AS SET FORTH ON SCHEDULE 1(C)
ATTACHED HERETO, ALL OF THE ISSUED SHARES OF CAPITAL STOCK, MEMBERSHIP INTERESTS
OR PARTNERSHIP INTERESTS, AS APPLICABLE, OF EACH SUBSIDIARY OF THE COMPANY HAVE
BEEN DULY AND VALIDLY AUTHORIZED AND ISSUED, ARE FULLY PAID AND NON-ASSESSABLE
AND ARE OWNED BY THE COMPANY OR ONE OR MORE OF ITS OTHER SUBSIDIARIES, FREE AND
CLEAR OF ALL LIENS, ENCUMBRANCES, EQUITIES OR CLAIMS.

 

(D)                                 THE EXECUTION, DELIVERY AND PERFORMANCE BY
THE COMPANY AND OPERATING OF EACH OF THE TRANSACTION DOCUMENTS TO WHICH THEY ARE
A PARTY, AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY SHALL
HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY CORPORATE ACTION.

 

(E)                                  THE AUTHORIZED CAPITAL STOCK OF THE COMPANY
CONSISTS OF 600,000,000 SHARES OF COMMON STOCK (OF WHICH 10,000,000 ARE
DESIGNATED AS CLASS B COMMON STOCK) AND 5,000,000 SHARES OF PREFERRED STOCK, PAR
VALUE $0.001 PER SHARE (“PREFERRED STOCK”). AS OF MARCH 13, 2006, 283,381,574
SHARES OF COMMON STOCK WERE ISSUED AND OUTSTANDING, AND NO SHARES OF PREFERRED
STOCK WERE ISSUED AND OUTSTANDING. AS OF MARCH 13, 2006, THERE WERE OUTSTANDING
THE FOLLOWING SUBSCRIPTION RIGHTS, OPTIONS, WARRANTS, CONVERTIBLE OR
EXCHANGEABLE SECURITIES OR OTHER RIGHTS: (A) WARRANTS TO PURCHASE UP TO
6,514,487 SHARES OF COMMON STOCK, (B) OPTIONS TO PURCHASE UP TO 26,214,538
SHARES OF COMMON STOCK, (C) 3% CONVERTIBLE DEBENTURES DUE 2024 IN THE AMOUNT OF
$125,000,000 AND (D) UP TO 16,067,077 SHARES OF COMMON STOCK TO BE ISSUED IN
CONNECTION WITH THE COMPANY’S ACQUISITION OF NEXTWEB, INC. EXCEPT AS SET FORTH
IN THIS PARAGRAPH (E), NO SHARES OF CAPITAL STOCK OF THE COMPANY ARE AUTHORIZED,
ISSUED, RESERVED FOR ISSUANCE OR OUTSTANDING. SINCE MARCH 13, 2006, THE COMPANY
HAS NOT ISSUED ANY SHARES OF CAPITAL STOCK (EXCEPT UPON EXERCISE OR CONVERSION
OF THE SECURITIES SET FORTH ABOVE OR OTHERWISE PURSUANT TO THE RIGHTS AND
OBLIGATIONS SET FORTH ABOVE), NOR ANY SECURITIES EXCHANGEABLE FOR OR CONVERTIBLE
INTO ANY SHARES OF CAPITAL STOCK OF THE COMPANY. ALL OF THE OUTSTANDING SHARES
OF COMMON STOCK HAVE BEEN VALIDLY ISSUED, DULY AUTHORIZED, ARE FULLY PAID AND
NONASSESSABLE AND HAVE BEEN ISSUED IN COMPLIANCE WITH FEDERAL AND STATE
SECURITIES LAWS.

 

(F)                                    THE PRIMARY SHARES, WHEN ISSUED, SOLD AND
DELIVERED IN ACCORDANCE WITH THE TERMS SET FORTH IN THIS AGREEMENT, WILL BE
VALIDLY ISSUED, FULLY PAID AND NON-ASSESSABLE, ISSUED IN COMPLIANCE WITH FEDERAL
AND STATE SECURITIES LAWS AND NOT SUBJECT TO ANY PREEMPTIVE OR SIMILAR RIGHTS.

 

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(G)                                 THE UNDERLYING SHARES ISSUABLE UPON
CONVERSION OF THE NOTE SHALL HAVE BEEN DULY AUTHORIZED AND RESERVED AND, WHEN
ISSUED UPON CONVERSION OF THE NOTE IN ACCORDANCE WITH THE TERMS OF THE NOTE,
WILL BE VALIDLY ISSUED, FULLY PAID AND NON-ASSESSABLE, AND THE ISSUANCE OF THE
UNDERLYING SHARES WILL NOT BE SUBJECT TO ANY PREEMPTIVE OR SIMILAR RIGHTS.

 

(H)                                 THIS AGREEMENT HAS BEEN, AND EACH OF THE
OTHER TRANSACTION DOCUMENTS WHEN EXECUTED AND DELIVERED WILL HAVE BEEN, DULY
EXECUTED AND DELIVERED BY, AND, ASSUMING DUE AUTHORIZATION, EXECUTION AND
DELIVERY BY THE PURCHASER OF THE TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY,
SHALL BE VALID AND BINDING AGREEMENTS OF EACH OF THE COMPANY AND OPERATING (WITH
RESPECT TO SUCH TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY), ENFORCEABLE IN
ACCORDANCE WITH THEIR RESPECTIVE TERMS, SUBJECT TO APPLICABLE BANKRUPTCY,
INSOLVENCY AND SIMILAR LAWS AFFECTING CREDITORS’ RIGHTS GENERALLY AND EQUITABLE
PRINCIPLES OF GENERAL APPLICABILITY.

 

(I)                                     THE EXECUTION, DELIVERY AND PERFORMANCE
BY EACH OF THE COMPANY AND OPERATING, AS APPLICABLE, OF EACH OF THE TRANSACTION
DOCUMENTS TO WHICH IT IS PARTY, AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY WILL NOT (I) VIOLATE ANY PROVISION OF ANY APPLICABLE LAW
MATERIAL TO THE COMPANY OR OPERATING, (II) CONTRAVENE THE CERTIFICATE OF
INCORPORATION OR BYLAWS OF THE COMPANY OR OPERATING, (III) CONFLICT WITH OR
RESULT IN THE BREACH OF, OR CONSTITUTE A DEFAULT OR REQUIRE ANY PAYMENT TO BE
MADE UNDER, ANY AGREEMENT OR OTHER INSTRUMENT BINDING UPON THE COMPANY OR ANY OF
ITS SUBSIDIARIES THAT WOULD HAVE A MATERIAL ADVERSE EFFECT, (IV) VIOLATE ANY
JUDGMENT, ORDER OR DECREE OF ANY GOVERNMENTAL BODY, AGENCY OR COURT HAVING
JURISDICTION OVER THE COMPANY OR ANY SUBSIDIARY, OR (V) RESULT IN OR REQUIRE THE
CREATION OR IMPOSITION OF ANY MATERIAL LIENS, ENCUMBRANCES, EQUITIES OR CLAIMS
UPON OR WITH RESPECT TO ANY OF THE PROPERTIES OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES, AND NO CONSENT, APPROVAL, AUTHORIZATION OR ORDER OF, NOTICE TO OR
FILING OR QUALIFICATION WITH, ANY GOVERNMENTAL OR REGULATORY BODY OR AGENCY OR
ANY OTHER THIRD PARTY IS REQUIRED FOR THE EXECUTION, DELIVERY AND PERFORMANCE BY
EACH OF THE COMPANY AND OPERATING OF EACH OF THE TRANSACTION DOCUMENTS TO WHICH
IT IS A PARTY AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
EXCEPT SUCH AS MAY BE REQUIRED BY (W) THE AMERICAN STOCK EXCHANGE, (X) THE
SECURITIES OR BLUE SKY LAWS OF THE VARIOUS STATES IN CONNECTION WITH THE OFFER
AND SALE OF THE NOTE AND THE PRIMARY SHARES AND (Y) FEDERAL AND STATE SECURITIES
LAWS WITH RESPECT TO THE COMPANY’S OBLIGATIONS UNDER REGISTRATION RIGHTS GRANTED
UNDER THE REGISTRATION RIGHTS AGREEMENT, AND EXCEPT AS SET FORTH ON SCHEDULE
1(I).

 

(J)                                     NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS (I) IN VIOLATION OF ANY PROVISION OF APPLICABLE LAW, (II) IN
BREACH OF OR DEFAULT UNDER ANY AGREEMENT OR OTHER INSTRUMENT BINDING UPON THE
COMPANY OR ANY OF ITS SUBSIDIARIES, OR (III) IN VIOLATION OF ANY JUDGMENT, ORDER
OR DECREE OF ANY GOVERNMENTAL BODY, AGENCY OR COURT HAVING JURISDICTION OVER THE
COMPANY OR ANY SUBSIDIARY, EXCEPT, IN EACH CASE, TO THE EXTENT THAT THE
VIOLATION OR BREACH OF, OR DEFAULT UNDER, WOULD NOT HAVE A MATERIAL ADVERSE
EFFECT.

 

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(K)                                  SINCE JANUARY 1, 2005, THERE HAS NOT
OCCURRED ANY EVENT, THERE DOES NOT EXIST ANY CONDITION OR SET OF CIRCUMSTANCES
AND THERE HAS BEEN NO DAMAGE TO OR DESTRUCTION OR LOSS OF ANY PROPERTY OR ASSET
OF THE COMPANY AND ITS SUBSIDIARIES THAT, INDIVIDUALLY OR IN THE AGGREGATE, HAS
HAD OR WOULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.

 

(L)                                     EXCEPT AS SET FORTH ON SCHEDULE 1(L)
ATTACHED HERETO, THERE ARE NO LEGAL OR GOVERNMENTAL PROCEEDINGS PENDING OR, TO
THE KNOWLEDGE OF THE COMPANY, THREATENED, TO WHICH THE COMPANY OR ANY OF ITS
SUBSIDIARIES IS A PARTY OR TO WHICH ANY OF THE PROPERTIES OF THE COMPANY OR ANY
OF ITS SUBSIDIARIES IS SUBJECT BY OR BEFORE ANY COURT, ARBITRATOR OR OTHER
GOVERNMENTAL ENTITY OTHER THAN PROCEEDINGS THAT WOULD NOT HAVE A MATERIAL
ADVERSE EFFECT.

 

(M)                               THE COMPANY AND ITS SUBSIDIARIES POSSESS ALL
CERTIFICATES, AUTHORIZATIONS AND PERMITS ISSUED BY THE APPROPRIATE FEDERAL,
STATE OR FOREIGN REGULATORY AUTHORITIES NECESSARY TO CONDUCT THEIR RESPECTIVE
BUSINESSES, EXCEPT TO THE EXTENT THAT THE FAILURE TO SO POSSESS WOULD NOT RESULT
IN A MATERIAL ADVERSE EFFECT, AND NEITHER THE COMPANY NOR ANY SUCH SUBSIDIARY
HAS RECEIVED ANY NOTICE OF PROCEEDINGS RELATING TO THE REVOCATION OR
MODIFICATION OF ANY SUCH CERTIFICATE, AUTHORIZATION OR PERMIT, WHICH, SINGLY OR
IN THE AGGREGATE, IF THE SUBJECT OF AN UNFAVORABLE DECISION, RULING OR FINDING,
WOULD RESULT IN A MATERIAL ADVERSE EFFECT.

 

(N)                                 THE COMPANY AND ITS SUBSIDIARIES MAINTAIN A
SYSTEM OF INTERNAL ACCOUNTING CONTROLS SUFFICIENT, IN ALL MATERIAL RESPECTS, TO
PROVIDE REASONABLE ASSURANCE THAT (I) TRANSACTIONS ARE EXECUTED IN ACCORDANCE
WITH MANAGEMENT’S GENERAL OR SPECIFIC AUTHORIZATIONS; (II) TRANSACTIONS ARE
RECORDED AS NECESSARY TO PERMIT PREPARATION OF FINANCIAL STATEMENTS IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND TO MAINTAIN ASSET
ACCOUNTABILITY; (III) ACCESS TO ASSETS IS PERMITTED ONLY IN ACCORDANCE WITH
MANAGEMENT’S GENERAL OR SPECIFIC AUTHORIZATION; AND (IV) THE RECORDED
ACCOUNTABILITY FOR ASSETS IS COMPARED WITH THE EXISTING ASSETS AT REASONABLE
INTERVALS AND APPROPRIATE ACTION IS TAKEN WITH RESPECT TO ANY DIFFERENCES.

 

(O)                                 THE COMPANY AND ITS SUBSIDIARIES (I) ARE IN
COMPLIANCE WITH ANY AND ALL APPLICABLE FOREIGN, FEDERAL, STATE AND LOCAL LAWS
AND REGULATIONS RELATING TO THE PROTECTION OF HUMAN HEALTH AND SAFETY, THE
ENVIRONMENT OR HAZARDOUS OR TOXIC SUBSTANCES OR WASTES, POLLUTANTS OR
CONTAMINANTS (“ENVIRONMENTAL LAWS”), (II) HAVE RECEIVED ALL PERMITS, LICENSES OR
OTHER APPROVALS REQUIRED OF THEM UNDER APPLICABLE ENVIRONMENTAL LAWS TO CONDUCT
THEIR RESPECTIVE BUSINESSES AND (III) ARE IN COMPLIANCE WITH ALL TERMS AND
CONDITIONS OF ANY SUCH PERMIT, LICENSE OR APPROVAL, EXCEPT, IN EACH CASE, WHERE
SUCH NONCOMPLIANCE WITH ENVIRONMENTAL LAWS, FAILURE TO RECEIVE REQUIRED PERMITS,
LICENSES OR OTHER APPROVALS OR FAILURE TO COMPLY WITH THE TERMS AND CONDITIONS
OF SUCH PERMITS, LICENSES OR APPROVALS WOULD NOT HAVE A MATERIAL ADVERSE EFFECT.

 

(P)                                 THERE ARE NO COSTS OR LIABILITIES ASSOCIATED
WITH ENVIRONMENTAL LAWS (INCLUDING, WITHOUT LIMITATION, ANY CAPITAL OR OPERATING
EXPENDITURES

 

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REQUIRED FOR CLEAN-UP, CLOSURE OF PROPERTIES OR COMPLIANCE WITH ENVIRONMENTAL
LAWS OR ANY PERMIT, LICENSE OR APPROVAL, ANY RELATED CONSTRAINTS ON OPERATING
ACTIVITIES AND ANY POTENTIAL LIABILITIES TO THIRD PARTIES) WHICH WOULD HAVE A
MATERIAL ADVERSE EFFECT.

 

(Q)                                 NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS AN “INVESTMENT COMPANY”, OR AN “AFFILIATED PERSON” OF, OR
“PROMOTER” OR “PRINCIPAL UNDERWRITER” FOR, AN “INVESTMENT COMPANY”, AS SUCH
TERMS ARE DEFINED IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED. NEITHER THE
SALE OF ANY NOTE, NOR THE APPLICATION OF THE PROCEEDS OR REPAYMENT THEREOF BY
THE COMPANY, NOR THE CONSUMMATION OF THE OTHER TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS, WILL VIOLATE ANY PROVISION OF SUCH ACT OR ANY RULE,
REGULATION OR ORDER OF THE COMMISSION THEREUNDER.

 

(R)                                    NEITHER THE COMPANY NOR ANY AFFILIATE (AS
DEFINED IN RULE 501(B) OF REGULATION D UNDER THE SECURITIES ACT, AN “AFFILIATE”)
OF THE COMPANY HAS DIRECTLY, OR THROUGH ANY AGENT, (I) SOLD, OFFERED FOR SALE,
SOLICITED OFFERS TO BUY OR OTHERWISE NEGOTIATED IN RESPECT OF, ANY SECURITY (AS
DEFINED IN THE SECURITIES ACT) WHICH IS OR WILL BE INTEGRATED WITH THE SALE OF
THE NOTE OR THE PRIMARY SHARES IN A MANNER THAT WOULD REQUIRE THE REGISTRATION
UNDER THE SECURITIES ACT OF THE NOTE OR THE PRIMARY SHARES OR (II) OFFERED,
SOLICITED OFFERS TO BUY OR SOLD THE NOTE OR THE PRIMARY SHARES BY ANY FORM OF
“GENERAL SOLICITATION” OR “GENERAL ADVERTISING” (AS THOSE TERMS ARE USED IN
REGULATION D UNDER THE SECURITIES ACT) OR IN ANY MANNER INVOLVING A “PUBLIC
OFFERING” WITHIN THE MEANING OF SECTION 4(2) OF THE SECURITIES ACT.

 

(S)                                  ASSUMING THE ACCURACY OF THE
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER SET FORTH IN SECTION 7, IT IS
NOT NECESSARY IN CONNECTION WITH THE OFFER, SALE AND DELIVERY OF THE NOTE AND
THE PRIMARY SHARES TO THE PURCHASER IN THE MANNER CONTEMPLATED BY THIS AGREEMENT
TO REGISTER THE NOTE OR THE PRIMARY SHARES UNDER THE SECURITIES ACT OR TO
QUALIFY AN INDENTURE UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED.

 

(T)                                    THE COMPANY’S FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION MADE ON OR AFTER JANUARY 1, 2004 DID NOT, AT THE TIME OF
FILING, CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A
MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS THEREIN, IN THE LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING, EXCEPT TO THE EXTENT
INFORMATION WAS CORRECTED IN OR SUPERSEDED BY SUBSEQUENT FILINGS.

 

(U)                                 THE CONSOLIDATED BALANCE SHEETS OF THE
COMPANY AND ITS SUBSIDIARIES AT DECEMBER 31, 2005, AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS, CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(DEFICIT) AND CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND ITS
SUBSIDIARIES FOR THE FISCAL YEAR THEN ENDED, ACCOMPANIED BY AN OPINION OF
PRICEWATERHOUSECOOPERS, LLP, INDEPENDENT PUBLIC ACCOUNTANTS (TOGETHER WITH ANY
RELATED SCHEDULES AND NOTES, THE “FINANCIAL STATEMENTS”), FAIRLY PRESENT IN ALL
MATERIAL RESPECTS THE

 

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CONSOLIDATED FINANCIAL CONDITION OF THE COMPANY AND ITS SUBSIDIARIES AS AT SUCH
DATE AND THE CONSOLIDATED RESULTS OF OPERATIONS OF THE COMPANY AND ITS
SUBSIDIARIES FOR THE PERIOD ENDED ON SUCH DATE, ALL IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (“GAAP”) APPLIED ON A CONSISTENT BASIS.

 

(V)                                 EACH EMPLOYEE BENEFIT PLAN, WITHIN THE
MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974,
AS AMENDED (“ERISA”), THAT IS MAINTAINED, ADMINISTERED OR CONTRIBUTED TO BY THE
COMPANY OR ANY OF ITS AFFILIATES FOR EMPLOYEES OR FORMER EMPLOYEES OF THE
COMPANY AND ITS AFFILIATES HAS BEEN MAINTAINED IN COMPLIANCE WITH ITS TERMS AND
THE REQUIREMENTS OF ANY APPLICABLE STATUTES, ORDERS, RULES AND REGULATIONS,
INCLUDING BUT NOT LIMITED TO ERISA AND THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE “CODE”); NO PROHIBITED TRANSACTION, WITHIN THE MEANING OF SECTION
406 OF ERISA OR SECTION 4975 OF THE CODE, HAS OCCURRED WITH RESPECT TO ANY SUCH
PLAN EXCLUDING TRANSACTIONS EFFECTED PURSUANT TO A STATUTORY OR ADMINISTRATIVE
EXEMPTION; AND, FOR EACH SUCH PLAN THAT IS SUBJECT TO THE FUNDING RULES OF
SECTION 412 OF THE CODE OR SECTION 302 OR ERISA, NO “ACCUMULATED FUNDING
DEFICIENCY” AS DEFINED IN SECTION 412 OF THE CODE HAS BEEN INCURRED, WHETHER OR
NOT WAIVED, AND THE FAIR MARKET VALUE OF THE ASSETS OF SUCH PLAN (EXCLUDING FOR
THESE PURPOSES ACCRUED BUT UNPAID CONTRIBUTIONS) EXCEEDS THE PRESENT VALUE OF
ALL BENEFITS ACCRUED UNDER SUCH PLAN DETERMINED USING REASONABLE ACTUARIAL
ASSUMPTIONS.

 

(W)                               ALL TAX RETURNS REQUIRED TO BE FILED BY THE
COMPANY OR ANY SUBSIDIARY HAVE BEEN FILED IN ALL JURISDICTIONS WHERE SUCH
RETURNS ARE REQUIRED TO BE FILED; AND ALL TAXES, INCLUDING WITHHOLDING TAXES,
VALUE ADDED AND FRANCHISE TAXES, PENALTIES AND INTEREST, ASSESSMENTS, FEES AND
OTHER CHARGES DUE OR CLAIMED TO BE DUE FROM SUCH ENTITIES OR THAT ARE DUE AND
PAYABLE HAVE BEEN PAID, OTHER THAN THOSE BEING CONTESTED IN GOOD FAITH AND FOR
WHICH RESERVES HAVE BEEN PROVIDED IN ACCORDANCE WITH GAAP OR THOSE CURRENTLY
PAYABLE WITHOUT PENALTY OR INTEREST AND EXCEPT WHERE THE FAILURE TO MAKE SUCH
REQUIRED FILINGS OR PAYMENTS WOULD NOT, INDIVIDUALLY OR IN THE AGGREGATE,
REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.

 

(X)                                   (I) THE FAIR VALUE OF THE PROPERTY AND
ASSETS OF THE COMPANY, INDIVIDUALLY AND ON A CONSOLIDATED BASIS WITH ITS
SUBSIDIARIES, IS GREATER THAN THE TOTAL AMOUNT OF LIABILITIES (INCLUDING,
WITHOUT LIMITATION, CONTINGENT LIABILITIES) OF THE COMPANY, INDIVIDUALLY AND ON
A CONSOLIDATED BASIS WITH ITS SUBSIDIARIES; (II) THE PRESENT FAIR SALEABLE VALUE
OF THE PROPERTY AND ASSETS OF THE COMPANY, INDIVIDUALLY AND ON A CONSOLIDATED
BASIS WITH ITS SUBSIDIARIES, IS NOT LESS THAN THE AMOUNT THAT WILL BE REQUIRED
TO PAY THE PROBABLE LIABILITIES OF THE COMPANY, INDIVIDUALLY AND ON A
CONSOLIDATED BASIS WITH ITS SUBSIDIARIES, ON ITS DEBTS AS THEY BECOME ABSOLUTE
AND MATURED; (III) THE COMPANY, INDIVIDUALLY AND ON A CONSOLIDATED BASIS WITH
ITS SUBSIDIARIES, DOES NOT INTEND TO, AND DOES NOT BELIEVE THAT IT WILL, INCUR
DEBTS OR LIABILITIES BEYOND ITS ABILITY TO PAY SUCH DEBTS AND LIABILITIES AS
THEY MATURE; AND (IV) THE COMPANY, INDIVIDUALLY AND ON A CONSOLIDATED BASIS WITH
ITS SUBSIDIARIES, IS NOT ENGAGED IN BUSINESS OR IN A TRANSACTION FOR WHICH THE
PROPERTY AND ASSETS OF THE COMPANY, INDIVIDUALLY AND ON

 

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A CONSOLIDATED BASIS WITH ITS SUBSIDIARIES, WOULD CONSTITUTE AN UNREASONABLY
SMALL CAPITAL.

 

(Y)                                 SET FORTH ON SCHEDULE 1(Y) HERETO IS A
COMPLETE AND ACCURATE LIST OF ALL LIABILITIES OF THE COMPANY ON A CONSOLIDATED
BASIS TO BE OUTSTANDING AS OF FEBRUARY 28, 2006, SHOWING AS OF FEBRUARY 28, 2006
THE OBLIGOR AND THE PRINCIPAL AMOUNT OUTSTANDING THEREUNDER, (I) FOR BORROWED
MONEY; (II) EVIDENCED BY BONDS, DEBENTURES, NOTES OR SIMILAR INSTRUMENTS;
(III) IN RESPECT OF LETTERS OF CREDIT OR BANKERS ACCEPTANCES OR SIMILAR
INSTRUMENTS (OR REIMBURSEMENT OBLIGATIONS WITH RESPECT THERETO); (IV) TO PAY THE
DEFERRED PURCHASE PRICE OF PROPERTY OR SERVICES, EXCEPT TRADE ACCOUNTS PAYABLE
OR ACCRUED EXPENSES ARISING IN THE ORDINARY COURSE OF BUSINESS; (V) AS LESSEE,
THE OBLIGATIONS OF WHICH ARE CAPITALIZED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES; (VI) SECURED BY A LIEN ON ANY ASSET OF THE COMPANY OR ANY
SUBSIDIARY, WHETHER OR NOT THE OBLIGATION GIVING RISE TO SUCH LIEN IS ASSUMED BY
THE COMPANY OR SUCH SUBSIDIARY; AND (VII) FOR INDEBTEDNESS OF OTHERS GUARANTEED
BY THE COMPANY OR ANY SUBSIDIARY OR FOR WHICH THE COMPANY OR SUCH SUBSIDIARY IS
LEGALLY RESPONSIBLE OR LIABLE (WHETHER BY AGREEMENT TO PURCHASE INDEBTEDNESS OF,
OR TO SUPPLY FUNDS OR TO INVEST IN, OTHERS) (“INDEBTEDNESS”). SINCE FEBRUARY 28,
2006, THE COMPANY ON A CONSOLIDATED BASIS HAS NOT INCURRED ANY MATERIAL
INDEBTEDNESS.

 

(Z)                                   (I) THE COMPANY AND EACH OF ITS
SUBSIDIARIES HAVE ESTABLISHED AND MAINTAIN DISCLOSURE CONTROLS AND PROCEDURES
(AS SUCH TERM IS DEFINED IN RULE 13A-15 UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (“EXCHANGE ACT”)), (II) SUCH DISCLOSURE CONTROLS AND PROCEDURES
ARE DESIGNED TO ENSURE THAT THE INFORMATION REQUIRED TO BE DISCLOSED BY THE
COMPANY AND ITS SUBSIDIARIES IN THE REPORTS THEY FILE OR SUBMIT UNDER THE
EXCHANGE ACT IS ACCUMULATED AND COMMUNICATED TO MANAGEMENT OF THE COMPANY AND
ITS SUBSIDIARIES, INCLUDING THEIR RESPECTIVE PRINCIPAL EXECUTIVE OFFICERS AND
PRINCIPAL FINANCIAL OFFICERS, AS APPROPRIATE, TO ALLOW TIMELY DECISIONS
REGARDING REQUIRED DISCLOSURE TO BE MADE AND (III) SUCH DISCLOSURE CONTROLS AND
PROCEDURES ARE EFFECTIVE IN ALL MATERIAL RESPECTS TO PERFORM THE FUNCTIONS FOR
WHICH THEY WERE ESTABLISHED.

 

(AA)                            EXCEPT AS SET FORTH IN THE COMPANY’S MOST
RECENTLY FILED ANNUAL OR QUARTERLY EXCHANGE ACT REPORT OR AS PREVIOUSLY
DISCLOSED TO THE PURCHASER IN WRITING, SINCE THE DATE OF THE MOST RECENT BALANCE
SHEET OF THE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES REVIEWED OR AUDITED BY
PRICEWATERHOUSECOOPERS, LLP AND THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF
THE COMPANY, (I) THE COMPANY HAS NOT BEEN ADVISED OF (A) ANY SIGNIFICANT
DEFICIENCIES IN THE DESIGN OR OPERATION OF INTERNAL CONTROLS THAT COULD
ADVERSELY AFFECT THE ABILITY OF THE COMPANY AND EACH OF ITS SUBSIDIARIES TO
RECORD, PROCESS, SUMMARIZE AND REPORT FINANCIAL DATA, OR ANY MATERIAL WEAKNESSES
IN INTERNAL CONTROLS AND (B) ANY FRAUD, WHETHER OR NOT MATERIAL, THAT INVOLVES
MANAGEMENT OR OTHER EMPLOYEES WHO HAVE A SIGNIFICANT ROLE IN THE INTERNAL
CONTROLS OF THE COMPANY AND EACH OF ITS SUBSIDIARIES, AND (II) THERE HAVE BEEN
NO SIGNIFICANT CHANGES IN INTERNAL CONTROLS OR IN OTHER FACTORS THAT COULD
SIGNIFICANTLY AFFECT INTERNAL CONTROLS, INCLUDING ANY CORRECTIVE ACTIONS WITH
REGARD TO SIGNIFICANT DEFICIENCIES AND MATERIAL WEAKNESSES.

 

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(BB)                          THE COMPANY AND ITS SUBSIDIARIES MAINTAIN
INSURANCE IN SUCH AMOUNTS AND COVERING SUCH RISKS AS THE COMPANY REASONABLY
CONSIDERS ADEQUATE FOR THE CONDUCT OF ITS BUSINESS AND THE VALUE OF ITS
PROPERTIES AND AS IS CUSTOMARY FOR COMPANIES ENGAGED IN SIMILAR BUSINESSES IN
SIMILAR INDUSTRIES. AS OF THE DATE HEREOF, THE COMPANY HAS NOT RECEIVED NOTICE
FROM ANY INSURER REGARDING THE TERMINATION OF ANY OF SUCH POLICIES OF INSURANCE.

 

2.                                       AGREEMENTS TO SELL AND PURCHASE.
SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT:  (I) THE COMPANY AND
OPERATING HEREBY AGREE TO ISSUE AND SELL TO THE PURCHASER, AND THE PURCHASER
UPON THE BASIS OF THE REPRESENTATIONS AND WARRANTIES HEREIN CONTAINED, BUT
SUBJECT TO THE CONDITIONS HEREINAFTER STATED, AGREES TO PURCHASE FROM THE
COMPANY AND OPERATING, THE NOTE WITH AN AGGREGATE PRINCIPAL AMOUNT OF
$40,000,000 FOR A PURCHASE PRICE EQUAL TO $40,000,000; AND (II) THE COMPANY
HEREBY AGREES TO ISSUE AND SELL TO THE PURCHASER, AND THE PURCHASER UPON THE
BASIS OF THE REPRESENTATIONS AND WARRANTIES HEREIN CONTAINED, BUT SUBJECT TO THE
CONDITIONS HEREINAFTER STATED, AGREES TO PURCHASE FROM THE COMPANY, THE PRIMARY
SHARES FOR AN AGGREGATE PURCHASE PRICE EQUAL TO $10,000,000 (COLLECTIVELY, THE
“PURCHASE PRICE”).

 

3.                                       PAYMENT AND DELIVERY. PAYMENT OF THE
PURCHASE PRICE FOR THE NOTE AND THE PRIMARY SHARES SHALL BE MADE TO THE COMPANY,
ON BEHALF OF ITSELF AND OPERATING, BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE
FUNDS TO AN ACCOUNT DESIGNATED BY THE COMPANY IN WRITING AGAINST DELIVERY OF
SUCH NOTE AND SUCH PRIMARY SHARES FOR THE ACCOUNT OF THE PURCHASER ON THE
CLOSING DATE. “CLOSING DATE” MEANS THE SECOND BUSINESS DAY FOLLOWING THE
SATISFACTION OF THE CONDITIONS SET FORTH IN SECTION 4 OR ON SUCH OTHER DATE AS
THE COMPANY AND THE PURCHASER SHALL AGREE.

 

The Note and the Primary Shares shall be delivered to the Purchaser on the
Closing Date, for the account of the Purchaser, with any transfer taxes payable
in connection with the transfer of the Note and the Primary Shares to the
Purchaser duly paid, against payment of the Purchase Price therefor.

 

4.                                       CONDITIONS TO THE PURCHASER’S
OBLIGATIONS. THE OBLIGATIONS OF THE PURCHASER TO PURCHASE AND PAY FOR THE NOTE
AND THE PRIMARY SHARES ON THE CLOSING DATE ARE SUBJECT TO THE SATISFACTION OR
WAIVER OF THE FOLLOWING CONDITIONS:

 

(A)                                  THE PURCHASER SHALL HAVE RECEIVED THE
FOLLOWING DOCUMENTS ON THE CLOSING DATE:

 

(I)                                     THE REGISTRATION RIGHTS AGREEMENT DULY
EXECUTED BY THE COMPANY.

 

(II)                                  THE SECURITY AGREEMENT DULY EXECUTED BY
THE COMPANY AND OPERATING.

 

(III)                               THE NOTE DULY EXECUTED BY THE COMPANY AND
OPERATING.

 

(IV)                              THE SERVICES AGREEMENT DULY EXECUTED BY
OPERATING.

 

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(V)                                 THE LPV PRICE REDUCTION ADDENDUM, IN THE
FORM ATTACHED HERETO AS EXHIBIT E (THE “LPV ADDENDUM”), DULY EXECUTED BY
OPERATING.

 

(VI)                              A STOCK CERTIFICATE FOR THE PRIMARY SHARES.

 

(VII)                           A CERTIFICATE, DATED THE CLOSING DATE AND SIGNED
BY AN EXECUTIVE OFFICER OF EACH OF THE COMPANY AND OPERATING, TO THE EFFECT THAT
THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND OPERATING CONTAINED IN
THIS AGREEMENT THAT ARE QUALIFIED BY A MATERIALITY THRESHOLD OR BY REFERENCE TO
A MATERIAL ADVERSE EFFECT ARE TRUE AND CORRECT IN ALL RESPECTS, AND THAT ARE NOT
QUALIFIED BY A MATERIALITY THRESHOLD OR BY REFERENCE TO A MATERIAL ADVERSE
EFFECT ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS, IN EACH CASE, ON THE
CLOSING DATE (UNLESS ANY SUCH REPRESENTATIONS AND WARRANTIES ARE STATED TO BE
MADE AS OF A SPECIFIC DATE, IN WHICH CASE THEY SHALL BE TRUE AND CORRECT IN ALL
RESPECTS OR IN ALL MATERIAL RESPECTS, AS APPLICABLE, AS OF SUCH DATE), AFTER
GIVING EFFECT TO THE ISSUE AND SALE OF THE NOTE AND THE PRIMARY SHARES AND THE
APPLICATION OF THE PROCEEDS THEREFROM AS CONTEMPLATED HEREBY, AND THAT EACH OF
THE COMPANY AND OPERATING HAVE COMPLIED WITH ALL OF THE AGREEMENTS AND SATISFIED
ALL OF THE CONDITIONS ON ITS PART TO BE PERFORMED OR SATISFIED HEREUNDER ON OR
BEFORE THE CLOSING DATE.

 

(B)                                 THE PURCHASER SHALL HAVE RECEIVED ON THE
CLOSING DATE AN OPINION OF WEIL GOTSHAL & MANGES LLP, OUTSIDE COUNSEL FOR THE
COMPANY, DATED THE CLOSING DATE, TO THE EFFECT SET FORTH IN EXHIBIT F AND AN
OPINION OF THE SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY OF THE
COMPANY TO THE EFFECT SET FORTH IN EXHIBIT G. SUCH OPINIONS SHALL BE RENDERED TO
THE PURCHASER AT THE REQUEST OF THE COMPANY AND SHALL SO STATE THEREIN.

 

(C)                                  THERE SHALL NOT BE IN EFFECT ANY JUDGMENT,
ORDER OR DECREE OF A GOVERNMENTAL BODY OF COMPETENT JURISDICTION RESTRAINING,
ENJOINING OR OTHERWISE PROHIBITING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.

 

(D)                                 ALL NECESSARY OR REQUIRED CONSENTS, ORDERS,
APPROVALS OR AUTHORIZATIONS OF, NOTIFICATIONS OR SUBMISSIONS TO, FILINGS WITH,
LICENSES OR PERMITS FROM, OR EXEMPTIONS OR WAIVERS BY, ANY GOVERNMENTAL ENTITY,
STOCK EXCHANGE OR OTHER PERSON SHALL HAVE BEEN MADE OR OBTAINED, EXCEPT WHERE
THE FAILURE BY A PARTY TO MAKE OR OBTAIN ANY OF THE FOREGOING WOULD NOT HAVE A
MATERIAL ADVERSE EFFECT.

 

(E)                                  THE PRIMARY SHARES AND THE UNDERLYING
SHARES SHALL HAVE BEEN APPROVED FOR LISTING ON THE AMERICAN STOCK EXCHANGE.

 

(F)                                    THE AMENDED AND RESTATED STOCKHOLDER
PROTECTION RIGHTS AGREEMENT DATED AS OF NOVEMBER 1, 2001 (THE “RIGHTS
AGREEMENT”) SHALL BE AMENDED TO PROVIDE THAT THE PURCHASER IS NOT AN “ACQUIRING
PERSON” SOLELY AS A RESULT OF THE TRANSACTIONS PROVIDED FOR IN THE TRANSACTION
DOCUMENTS; PROVIDED,

 

10

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HOWEVER, THAT THE PURCHASER SHALL BE SUBJECT TO THE PROVISIONS OF SECTION 18
HEREOF.

 

5.                                       CONDITIONS TO THE COMPANY’S
OBLIGATIONS. THE OBLIGATIONS OF THE COMPANY AND OPERATING TO ISSUE THE NOTE AND
THE COMPANY TO ISSUE THE PRIMARY SHARES ON THE CLOSING DATE ARE SUBJECT TO THE
SATISFACTION OR WAIVER OF THE FOLLOWING CONDITIONS:

 

(A)                                  THE COMPANY AND OPERATING SHALL HAVE
RECEIVED THE FOLLOWING ON THE CLOSING DATE:

 

(I)                                     THE REGISTRATION RIGHTS AGREEMENT DULY
EXECUTED BY THE PURCHASER.

 

(II)                                  THE SECURITY AGREEMENT DULY EXECUTED BY
THE PURCHASER.

 

(III)                               THE SERVICES AGREEMENT DULY EXECUTED BY THE
PURCHASER.

 

(IV)                              THE LPV ADDENDUM DULY EXECUTED BY THE
PURCHASER.

 

(V)                                 THE PURCHASE PRICE OF THE NOTE AND THE
PRIMARY SHARES PURCHASED HEREUNDER IN IMMEDIATELY AVAILABLE FUNDS AS PROVIDED IN
SECTION 3 HEREOF.

 

(B)                                 A CERTIFICATE DATED THE CLOSING DATE AND
SIGNED BY AN EXECUTIVE OFFICER OF THE PURCHASER, TO THE EFFECT THAT THE
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER CONTAINED IN THIS AGREEMENT THAT
ARE QUALIFIED BY A MATERIALITY THRESHOLD OR BY REFERENCE TO A MATERIAL ADVERSE
EFFECT SHALL BE TRUE AND CORRECT IN ALL RESPECTS, AND THAT ARE NOT QUALIFIED BY
A MATERIALITY THRESHOLD OR BY REFERENCE TO A MATERIAL ADVERSE EFFECT SHALL BE
TRUE AND CORRECT IN ALL MATERIAL RESPECTS, IN EACH CASE, ON THE CLOSING DATE
(UNLESS ANY SUCH REPRESENTATIONS AND WARRANTIES ARE STATED TO BE MADE AS OF A
SPECIFIC DATE, IN WHICH CASE THEY SHALL BE TRUE AND CORRECT IN ALL RESPECTS OR
ALL MATERIAL RESPECTS, AS APPLICABLE, AS OF SUCH DATE), AND THAT THE PURCHASER
HAS COMPLIED IN ALL MATERIAL RESPECTS WITH ALL OF THE AGREEMENTS AND SATISFIED
ALL OF THE CONDITIONS ON ITS PART TO BE PERFORMED OR SATISFIED HEREUNDER ON OR
BEFORE THE CLOSING DATE.

 

(C)                                  THE PURCHASER SHALL DELIVER TO THE COMPANY
A COMPLETED IRS FORM W-9 OR OTHERWISE ESTABLISH, TO THE COMPANY’S REASONABLE
SATISFACTION, THAT THE PURCHASER IS NOT SUBJECT TO BACKUP WITHHOLDING UNDER
SECTION 3406 OF THE CODE.

 

(D)                                 THERE SHALL NOT BE IN EFFECT ANY JUDGMENT,
ORDER OR DECREE OF A GOVERNMENTAL BODY OF COMPETENT JURISDICTION RESTRAINING,
ENJOINING OR OTHERWISE PROHIBITING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.

 

6.                                       COVENANTS OF THE COMPANY. IN FURTHER
CONSIDERATION OF THE AGREEMENTS OF THE PURCHASER CONTAINED IN THIS AGREEMENT,
THE COMPANY AND OPERATING COVENANT WITH THE PURCHASER AS FOLLOWS:

 

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(A)                                  WHETHER OR NOT THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT ARE CONSUMMATED OR THIS AGREEMENT IS TERMINATED,
TO PAY OR CAUSE TO BE PAID ALL EXPENSES INCIDENT TO THE PERFORMANCE OF ITS
OBLIGATIONS UNDER THIS AGREEMENT, INCLUDING: (I) ALL COSTS AND EXPENSES RELATED
TO THE TRANSFER AND DELIVERY OF THE NOTE AND THE PRIMARY SHARES TO THE
PURCHASER, INCLUDING ANY TRANSFER OR OTHER TAXES PAYABLE THEREON, (II) THE FEES
AND EXPENSES, IF ANY, INCURRED IN CONNECTION WITH THE LISTING OF THE PRIMARY
SHARES AND THE UNDERLYING SHARES ON THE AMERICAN STOCK EXCHANGE, (III) THE COSTS
AND CHARGES OF ANY TRANSFER AGENT, REGISTRAR OR DEPOSITARY, (IV) THE COST OF THE
PREPARATION, ISSUANCE AND DELIVERY OF THE NOTE AND THE PRIMARY SHARES AND (V)
THE DOCUMENT PRODUCTION CHARGES AND EXPENSES ASSOCIATED WITH PRINTING THIS
AGREEMENT. FOR THE AVOIDANCE OF DOUBT, EACH PARTY SHALL BEAR ITS OWN COSTS AND
EXPENSES (INCLUDING ATTORNEYS’ FEES) ASSOCIATED WITH THE PREPARATION,
NEGOTIATION AND EXECUTION OF THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS.

 

(B)                                 NOT TO, AND NOT PERMIT ANY OF ITS AFFILIATES
TO, SELL, OFFER FOR SALE OR SOLICIT OFFERS TO BUY OR OTHERWISE NEGOTIATE IN
RESPECT OF ANY SECURITY (AS DEFINED IN THE SECURITIES ACT) WHICH COULD BE
INTEGRATED WITH THE SALE OF THE NOTE OR THE PRIMARY SHARES IN A MANNER WHICH
WOULD REQUIRE THE REGISTRATION UNDER THE SECURITIES ACT OF THE NOTE OR THE
PRIMARY SHARES.

 

(C)                                  NOT TO SOLICIT ANY OFFER TO BUY OR OFFER OR
SELL THE NOTE, THE PRIMARY SHARES OR THE UNDERLYING SHARES BY MEANS OF ANY FORM
OF “GENERAL SOLICITATION” OR “GENERAL ADVERTISING” (AS THOSE TERMS ARE USED IN
REGULATION D UNDER THE SECURITIES ACT) OR IN ANY MANNER INVOLVING A “PUBLIC
OFFERING” WITHIN THE MEANING OF SECTION 4(2) OF THE SECURITIES ACT.

 

(D)                                 TO USE THE PROCEEDS FROM THE NOTES AND THE
PRIMARY SHARES AS PROVIDED FOR IN THE SERVICES AGREEMENT.

 

(E)                                  TO USE REASONABLE BEST EFFORTS TO OBTAIN
ANY AND ALL REGULATORY APPROVALS NECESSARY IN CONNECTION WITH THE CONVERSION OF
THE NOTES, AS CONTEMPLATED THEREIN, AS SOON AS REASONABLY PRACTICABLE AND
COMMENCING NO LATER THAN TWELVE (12) MONTHS AFTER THE DATE OF THIS AGREEMENT.

 

(F)                                    NOT TO PHYSICALLY LOCATE AND/OR PUT INTO
SERVICE ANY OF THE COLLATERAL (AS DEFINED IN THE SECURITY AGREEMENT) IN ANY
STATE UNTIL THE PURCHASER IS REASONABLY SATISFIED THAT ALL REQUIRED STATE
REGULATORY APPROVALS HAVE BEEN OBTAINED AND NOT TO TRANSFER ANY OF THE
COLLATERAL TO ANY OTHER SUBSIDIARY OF THE COMPANY UNTIL THE PURCHASER IS
REASONABLY SATISFIED THAT ALL REQUIRED REGULATORY APPROVALS HAVE BEEN OBTAINED.

 

(G)                                 TO PROMPTLY MAKE ALL FILINGS AND FILE ALL
APPLICATIONS TO OBTAIN ANY STATE REGULATORY APPROVALS, INCLUDING BUT NOT LIMITED
TO, FILINGS AND APPLICATIONS IN NEW YORK, REQUIRED FOR THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS AND TO USE REASONABLE BEST EFFORTS TO
OBTAIN SUCH APPROVALS AS PROMPTLY AS PRACTICABLE.

 

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7.                                       REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER. THE PURCHASER REPRESENTS AND WARRANTS TO THE COMPANY THAT:

 

(A)                                  THE PURCHASER IS AN “ACCREDITED INVESTOR”
WITHIN THE MEANING OF RULE 501(A) OF REGULATION D PROMULGATED UNDER THE
SECURITIES ACT.

 

(B)                                 THE PURCHASER WILL ACQUIRE THE NOTE, THE
PRIMARY SHARES AND THE UNDERLYING SHARES SOLELY FOR ITS OWN ACCOUNT AND FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE
DISTRIBUTION OF THE NOTE, THE PRIMARY SHARES AND THE UNDERLYING SHARES IN ANY
TRANSACTION THAT WOULD BE IN VIOLATION OF THE SECURITIES ACT OR ANY APPLICABLE
STATE SECURITIES LAWS.

 

(C)                                  THE PURCHASER UNDERSTANDS THAT THE NOTE,
THE PRIMARY SHARES AND THE UNDERLYING SHARES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS AND THAT THE NOTE, THE
PRIMARY SHARES AND THE UNDERLYING SHARES MAY BE RESOLD, PLEDGED, HYPOTHECATED,
TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IF REGISTERED UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS IS AVAILABLE, AND SUBJECT, NEVERTHELESS, TO THE DISPOSITION OF ITS
PROPERTY BEING AT ALL TIMES WITHIN ITS CONTROL, AND SUBJECT TO SECTION 9 HEREOF.

 

(D)                                 THE PURCHASER UNDERSTANDS THAT NO
GOVERNMENTAL ENTITY HAS PASSED UPON OR MADE ANY RECOMMENDATION OR ENDORSEMENT OF
THE NOTE, THE PRIMARY SHARES AND THE UNDERLYING SHARES.

 

(E)                                  THE PURCHASER HAS THE REQUISITE CORPORATE
POWER AND AUTHORITY TO ENTER INTO THIS AGREEMENT AND EACH OF THE OTHER
TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY AND TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY TO BE CONSUMMATED BY THE PURCHASER.

 

(F)                                    THE EXECUTION AND DELIVERY BY THE
PURCHASER OF THIS AGREEMENT AND EACH OF THE OTHER TRANSACTION DOCUMENTS TO WHICH
IT IS A PARTY AND THE CONSUMMATION BY THE PURCHASER OF THE TRANSACTIONS
CONTEMPLATED HEREBY TO BE CONSUMMATED BY THE PURCHASER HAVE BEEN DULY AUTHORIZED
BY ALL NECESSARY CORPORATE ACTION OF THE PURCHASER.

 

(G)                                 THIS AGREEMENT HAS BEEN, AND EACH OF THE
OTHER TRANSACTION DOCUMENTS TO WHICH THE PURCHASER IS A PARTY WHEN DELIVERED
WILL HAVE BEEN, DULY AND VALIDLY EXECUTED AND DELIVERED BY THE PURCHASER.

 

(H)                                 THIS AGREEMENT CONSTITUTES, AND EACH OF THE
OTHER TRANSACTION DOCUMENTS TO WHICH THE PURCHASER IS A PARTY WHEN EXECUTED AND
DELIVERED WILL CONSTITUTE, VALID AND BINDING AGREEMENTS OF THE PURCHASER
ENFORCEABLE AGAINST THE PURCHASER IN ACCORDANCE WITH ITS TERMS, SUBJECT TO
APPLICABLE BANKRUPTCY, INSOLVENCY AND SIMILAR LAWS AFFECTING CREDITORS’ RIGHTS
GENERALLY AND EQUITABLE PRINCIPLES OF GENERAL APPLICABILITY.

 

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(I)                                     THE EXECUTION AND DELIVERY BY THE
PURCHASER OF THIS AGREEMENT DO NOT, AND OF EACH OF THE OTHER TRANSACTION
DOCUMENTS TO WHICH THE PURCHASER IS A PARTY WHEN DELIVERED WILL NOT, AND, THE
CONSUMMATION BY THE PURCHASER OF THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY WILL NOT (I) VIOLATE ANY PROVISION OF LAW, RULE OR REGULATION APPLICABLE
TO IT OR ANY OF ITS SUBSIDIARIES, EXCEPT FOR ANY SUCH VIOLATION THAT WOULD NOT
HAVE A MATERIAL ADVERSE EFFECT ON THE PURCHASER’S ABILITY TO PERFORM ITS
OBLIGATIONS HEREUNDER AND THEREUNDER, (II) VIOLATE ITS CERTIFICATE OF
INCORPORATION, BYLAWS, OR OTHER ORGANIZATIONAL DOCUMENTS OR THOSE OF ANY OF ITS
SUBSIDIARIES, OR (III) CONFLICT WITH, RESULT IN A BREACH OF OR CONSTITUTE A
DEFAULT UNDER ANY CONTRACTUAL OBLIGATION TO WHICH IT IS A PARTY, EXCEPT FOR ANY
SUCH CONFLICT, BREACH OR DEFAULT THAT WOULD NOT HAVE A MATERIAL ADVERSE EFFECT
ON THE PURCHASER’S ABILITY TO PERFORM ITS OBLIGATIONS HEREUNDER AND THEREUNDER.

 

(J)                                     THERE IS NO LEGAL OR GOVERNMENTAL
PROCEEDING PENDING OR, TO THE KNOWLEDGE OF THE PURCHASER, THREATENED, TO WHICH
THE PURCHASER IS A PARTY OR TO WHICH ANY OF THE PROPERTIES OR ASSETS OF THE
PURCHASER IS SUBJECT BY OR BEFORE ANY COURT, ARBITRATOR OR OTHER GOVERNMENTAL
ENTITY WHICH IN ANY MANNER CHALLENGES OR SEEKS TO PREVENT, ENJOIN, ALTER OR
MATERIALLY DELAY THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

8.                                       BOARD OF DIRECTORS OBSERVER RIGHTS. SO
LONG AS THE PURCHASER HOLDS AT LEAST 33% OF THE TOTAL NUMBER OF PRIMARY SHARES
AND UNDERLYING SHARES (DIRECTLY OR THROUGH ASSUMED CONVERSION OF THE NOTE), (I)
THE PURCHASER SHALL BE GIVEN REASONABLE ADVANCE WRITTEN NOTICE OF EACH SUCH
MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY, AND (II) THE PURCHASER SHALL
BE ENTITLED TO HAVE ONE PERSON, WHO INITIALLY SHALL BE MICHAEL C. LUNSFORD OR
LINDA W. BECK OR SUCH OTHER PERSON REASONABLY ACCEPTABLE TO THE COMPANY, ATTEND
SUCH MEETINGS AS AN INVITEE, WHO SHALL HAVE ALL OF THE PRIVILEGES AND BENEFITS
OF A DIRECTOR OF THE COMPANY (INCLUDING RECEIVING ALL MATERIALS PROVIDED TO THE
BOARD OF DIRECTORS), EXCEPT VOTING RIGHTS; PROVIDED, HOWEVER, (I) THAT SUCH
PERSON SHALL MAINTAIN THE CONFIDENTIALITY OF ALL FINANCIAL AND OTHER PROPRIETARY
INFORMATION DISCUSSED AT SUCH MEETINGS OR MADE KNOWN TO SUCH PERSON IN
CONNECTION WITH SUCH MEETINGS; AND (II) THAT THE COMPANY RESERVES THE RIGHT TO
WITHHOLD ANY INFORMATION AND TO EXCLUDE SUCH PERSON FROM ANY MEETING OR PORTION
THEREOF IF THE BOARD OF DIRECTORS BELIEVES, IN GOOD FAITH, THAT PROVIDING SUCH
INFORMATION OR ATTENDING SUCH MEETING OR PORTION THEREOF (A)  COULD ADVERSELY
AFFECT A MATERIAL BUSINESS RELATIONSHIP BETWEEN THE COMPANY AND ANY THIRD PARTY,
(B) WOULD POSE A CONFLICT OF INTEREST FOR THE PURCHASER, OR (C) COULD ADVERSELY
AFFECT THE ATTORNEY-CLIENT PRIVILEGE BETWEEN THE COMPANY AND ITS COUNSEL,
PROVIDED THAT IF ONLY A PORTION OF THE INFORMATION OR MEETING WOULD BE SUBJECT
TO THIS CLAUSE (II), THE OBSERVER SHALL RECEIVE ALL SUCH OTHER INFORMATION AND
BE ENTITLED TO ATTEND ALL REMAINING PORTIONS OF SUCH MEETING. NEITHER THE
PURCHASER OR ANY SUCH DESIGNEE, HOWEVER, SHALL HAVE ANY DUTIES, RESPONSIBILITIES
OR LIABILITIES AS A DIRECTOR OF THE COMPANY BY VIRTUE OF ATTENDANCE AT SUCH
MEETINGS OR THE FAILURE TO ATTEND THE SAME OTHER THAN THE DUTY TO MAINTAIN THE
CONFIDENTIALITY OF ANY MATERIAL NON-PUBLIC INFORMATION IT RECEIVES AT OR IN
CONNECTION WITH SUCH MEETING.

 

9.                                       LOCK UP PERIOD. DURING THE PERIOD
BEGINNING FROM THE DATE HEREOF AND CONTINUING TO AND INCLUDING THE DATE THAT IS
180 DAYS AFTER THE CLOSING DATE (THE “LOCK-

 

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UP PERIOD”), THE PURCHASER AGREES TO NOT, DIRECTLY OR INDIRECTLY, OFFER, SELL,
OFFER TO SELL, CONTRACT TO SELL, PLEDGE, GRANT ANY OPTION TO PURCHASE OR
OTHERWISE SELL OR DISPOSE OF THE NOTES, THE PRIMARY SHARES OR THE UNDERLYING
SHARES WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY; PROVIDED, HOWEVER, THAT
THE LOCK-UP PERIOD SHALL EXPIRE UPON THE COMPANY’S ENTRY INTO AN AGREEMENT THAT
WOULD RESULT IN A CHANGE IN CONTROL (AS DEFINED IN THE NOTE) OR THE TERMINATION
OF THE SERVICES AGREEMENT.

 

10.                                 INDEMNITY.

 

(A)                                  THE COMPANY AND OPERATING, JOINTLY AND
SEVERALLY, AGREE TO INDEMNIFY, DEFEND AND SAVE AND HOLD HARMLESS THE PURCHASER
AND EACH OF ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS AND ADVISORS (EACH, “PURCHASER INDEMNIFIED PARTY”) FROM AND AGAINST, AND
SHALL PAY ON DEMAND, ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES AND
EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE FEES AND EXPENSES OF
COUNSEL) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY PURCHASER
INDEMNIFIED PARTY BY A THIRD PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION
WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY
INVESTIGATION, LITIGATION OR PROCEEDING OR PREPARATION OF A DEFENSE IN
CONNECTION THEREWITH) ANY BREACH OF ANY REPRESENTATION, WARRANTY, COVENANT OR
AGREEMENT OF THE COMPANY OR OPERATING UNDER THIS AGREEMENT.

 

(B)                                 THE PURCHASER AGREES TO INDEMNIFY, DEFEND
AND SAVE AND HOLD HARMLESS THE COMPANY AND OPERATING AND EACH OF THEIR
AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
ADVISORS (EACH, A “COMPANY INDEMNIFIED PARTY”) FROM AND AGAINST, AND SHALL PAY
ON DEMAND, ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES AND EXPENSES
(INCLUDING, WITHOUT LIMITATION, REASONABLE FEES AND EXPENSES OF COUNSEL) THAT
MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY COMPANY INDEMNIFIED PARTY
BY A THIRD PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH OR BY REASON
OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY INVESTIGATION,
LITIGATION OR PROCEEDING OR PREPARATION OF A DEFENSE IN CONNECTION THEREWITH)
ANY BREACH OF ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT OF THE
PURCHASER UNDER THIS AGREEMENT WITH RESPECT TO THE SERVICES AGREEMENT.

 

(C)                                  THE INDEMNIFYING PARTY WILL NOT, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE APPLICABLE INDEMNIFIED PARTY, AS APPLICABLE,
SETTLE, COMPROMISE, CONSENT TO THE ENTRY OF ANY JUDGMENT IN OR OTHERWISE SEEK TO
TERMINATE ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF WHICH
INDEMNIFICATION OF SUCH INDEMNIFIED PARTY MAY BE SOUGHT UNDER SUBSECTION (A) OF
THIS SECTION 9 UNLESS SUCH SETTLEMENT, COMPROMISE, CONSENT OR TERMINATION
INCLUDES A FULL AND UNCONDITIONAL RELEASE OF SUCH INDEMNIFIED PARTY FROM ANY AND
ALL CLAIMS AGAINST SUCH INDEMNIFIED PARTY AND ANY AND ALL LIABILITIES THEREOF
ARISING OUT OF OR RELATING TO SUCH ACTION, CLAIM, SUIT OR PROCEEDING.

 

11.                                 AMENDMENTS; WAIVERS. THE PROVISIONS OF THIS
AGREEMENT, INCLUDING THE PROVISIONS OF THIS SECTION, MAY NOT BE AMENDED,
MODIFIED OR SUPPLEMENTED, AND WAIVERS

 

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OR CONSENTS TO DEPARTURES FROM THE PROVISIONS HEREOF MAY NOT BE GIVEN, WITHOUT
THE PRIOR WRITTEN CONSENT THERETO OF THE COMPANY, OPERATING AND THE PURCHASER.

 

12.                                 GOVERNING LAW. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS TO PROCESS BEING SERVED IN ANY ACTION, SUIT OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

 

13.                                 INTERPRETATION. THE DESCRIPTIVE HEADINGS IN
THIS AGREEMENT ARE FOR CONVENIENCE OF REFERENCE ONLY AND SHALL NOT BE DEEMED TO
ALTER OR AFFECT THE MEANING OR INTERPRETATION OF ANY PROVISION OF THIS
AGREEMENT. THE PARTIES TO THIS AGREEMENT HAVE PARTICIPATED JOINTLY IN THE
NEGOTIATION AND DRAFTING OF THIS AGREEMENT. IF AN AMBIGUITY OR QUESTION OF
INTENT OR INTERPRETATION ARISES, THIS AGREEMENT SHALL BE CONSTRUED AS IF DRAFTED
JOINTLY BY THE PARTIES HERETO, AND NO PRESUMPTION OR BURDEN OF PROOF SHALL ARISE
FAVORING OR DISFAVORING ANY PARTY BY VIRTUE OF THE AUTHORSHIP OF ANY OF THE
PROVISIONS OF THIS AGREEMENT.

 

14.                                 PRONOUNS, ETC. WHENEVER REQUIRED BY THE
CONTEXT, ANY PRONOUN USED IN THIS AGREEMENT SHALL INCLUDE THE CORRESPONDING
MASCULINE, FEMININE OR NEUTER FORMS, AND THE SINGULAR FORMS OF NOUNS, PRONOUNS
AND VERBS SHALL INCLUDE THE PLURAL, AND VICE VERSA.

 

15.                                 ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER
WITH THE OTHER TRANSACTION DOCUMENTS, CONTAINS THE ENTIRE AGREEMENT OF THE
PARTIES WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT, AND NO PARTY SHALL
BE LIABLE OR BOUND TO THE OTHER PARTY IN ANY MANNER BY ANY REPRESENTATIONS,
WARRANTIES, COVENANTS AND AGREEMENTS EXCEPT AS SPECIFICALLY SET FORTH HEREIN AND
IN THE CONFIDENTIALITY AGREEMENT BETWEEN THE COMPANY AND THE PURCHASER DATED
FEBRUARY 21, 2006.

 

16.                                 SEVERABILITY. WHENEVER POSSIBLE, EACH
PROVISION OF THIS AGREEMENT SHALL BE INTERPRETED IN SUCH MANNER AS TO BE
EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS AGREEMENT
IS HELD TO BE INVALID OR UNENFORCEABLE IN ANY RESPECT, SUCH INVALIDITY OR
UNENFORCEABILITY SHALL NOT RENDER INVALID OR UNENFORCEABLE ANY OTHER PROVISION
OF THIS AGREEMENT.

 

17.                                 FACSIMILE COPIES. THIS AGREEMENT, THE
AGREEMENTS REFERRED TO HEREIN, AND EACH OTHER AGREEMENT OR INSTRUMENT ENTERED
INTO IN CONNECTION HEREWITH OR THEREWITH OR CONTEMPLATED HEREBY OR THEREBY, AND
ANY AMENDMENTS HERETO OR THERETO, TO THE EXTENT SIGNED AND DELIVERED BY MEANS OF
A FACSIMILE MACHINE, SHALL BE TREATED IN ALL MANNER AND

 

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RESPECTS AS AN ORIGINAL AGREEMENT OR INSTRUMENT AND SHALL BE CONSIDERED TO HAVE
THE SAME BINDING LEGAL EFFECT AS IF IT WERE THE ORIGINAL SIGNED VERSION THEREOF
DELIVERED IN PERSON. AT THE REQUEST OF ANY PARTY HERETO OR TO ANY SUCH AGREEMENT
OR INSTRUMENT, THE OTHER PARTIES HERETO OR THERETO SHALL RE-EXECUTE ORIGINAL
FORMS THEREOF AND DELIVER THEM TO THE OTHER PARTY. NO PARTY HERETO OR TO ANY
SUCH AGREEMENT OR INSTRUMENT SHALL RAISE THE USE OF A FACSIMILE MACHINE TO
DELIVER A SIGNATURE OR THE FACT THAT ANY SIGNATURE OR AGREEMENT OR INSTRUMENT
WAS TRANSMITTED OR COMMUNICATED THROUGH THE USE OF A FACSIMILE MACHINE AS A
DEFENSE TO THE FORMATION OR ENFORCEABILITY OF A CONTRACT, AND EACH PARTY FOREVER
WAIVES ANY SUCH DEFENSE.

 

18.                                 STANDSTILL.

 

(A)                                  THE PURCHASER AGREES THAT AFTER CLOSING AND
UNTIL SUCH TIME AS THE PURCHASER WOULD NO LONGER BE REQUIRED TO FILE A REPORT ON
SCHEDULE 13D OR 13G (ASSUMING FOR PURPOSES OF THIS SECTION 18 THAT THE NOTES
HAVE BEEN CONVERTED IN FULL AND THE PURCHASER OWNS AN AMOUNT OF COMMON STOCK
SUCH THAT THE PURCHASER WOULD NOT BE DEEMED AN “ACQUIRING PERSON” UNDER THE
RIGHTS AGREEMENT), UNLESS THE PURCHASER SHALL HAVE BEEN SPECIFICALLY AUTHORIZED
IN WRITING BY THE COMPANY OR A COMMITTEE OF THE BOARD OF DIRECTORS OF THE
COMPANY, NEITHER THE PURCHASER NOR ANY OF ITS AFFILIATES WILL, AND PURCHASER AND
AFFILIATES WILL DIRECT THEIR REPRESENTATIVES, AGENTS, DIRECTORS, OFFICERS AND
EMPLOYEES NOT TO, DIRECTLY OR INDIRECTLY, (A) EFFECT OR SEEK, OFFER, OR PROPOSE
(WHETHER PUBLICLY OR OTHERWISE) TO EFFECT, OR CAUSE OR PARTICIPATE IN, (I) ANY
ACQUISITION OF ANY SECURITIES (OR OF BENEFICIAL OWNERSHIP THEREOF) OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES (EXCEPT AS CONTEMPLATED BY THE TRANSACTION
DOCUMENTS); (II) ANY TENDER OR EXCHANGE OFFER, MERGER, OR OTHER BUSINESS
COMBINATION INVOLVING THE COMPANY OR ANY OF ITS SUBSIDIARIES; (III) ANY
RECAPITALIZATION, RESTRUCTURING, LIQUIDATION OR DISSOLUTION OF THE COMPANY OR
ANY OF ITS SUBSIDIARIES; OR (IV) ANY SOLICITATION OF PROXIES OR CONSENTS TO VOTE
ANY VOTING SECURITIES OF THE COMPANY; (B) FORM, JOIN OR IN ANY WAY PARTICIPATE
IN A “GROUP” (AS DEFINED IN THE EXCHANGE ACT); (C) TAKE ANY ACTION WHICH MIGHT
FORCE THE COMPANY TO MAKE A PUBLIC ANNOUNCEMENT REGARDING ANY OF THE TYPES OF
MATTERS SET FORTH IN (A) ABOVE; OR (D) ENTER INTO ANY DISCUSSIONS OR
ARRANGEMENTS WITH ANY THIRD PARTY WITH RESPECT TO ANY OF THE FOREGOING.

 

(B)                                 THE PARTIES ACKNOWLEDGE AND AGREE THAT THE
COMPANY’S REMEDIES AT LAW FOR A BREACH OF THIS SECTION 18 WOULD BE INADEQUATE
AND THAT IRREPARABLE DAMAGE WILL RESULT TO THE COMPANY FROM ANY VIOLATION OF
THIS SECTION 18 BY THE PURCHASER. THE PARTIES EXPRESSLY AGREE THAT THE COMPANY
SHALL HAVE THE REMEDY OF A RESTRAINING ORDER AND INJUNCTION AND ANY SUCH
EQUITABLE RELIEF AS MAY BE DECLARED OR ISSUED TO ENFORCE THE PROVISIONS OF THIS
SECTION 18.

 

19.                                 COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED
IN ONE OR MORE COUNTERPARTS, EACH OF WHICH SHALL BE DEEMED AN ORIGINAL AND ALL
OF WHICH TAKEN TOGETHER SHALL CONSTITUTE ONE AND THE SAME INSTRUMENT

 

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Very truly yours,

 

 

 

COVAD COMMUNICATIONS GROUP, INC.

 

 

 

 

 

 

By:

/s/ Charles Hoffman

 

 

 

  Name: Charles Hoffman

 

 

 

  Title:   President and CEO

 

 

 

 

 

 

COVAD COMMUNICATIONS COMPANY

 

 

 

 

 

 

 

 

 

 

By:

/s/ Charles Hoffman

 

 

 

  Name: Charles Hoffman

 

 

 

  Title:    President and CEO

 

 

 

 

 

Accepted as of the date hereof

 

EARTHLINK, INC.

 

 

By:

/s/ Kevin M. Dotts

 

 

  Name: Kevin M. Dotts

 

 

  Title: CFO

 

 

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