Document:

Exhibit 4.1

 

FOURTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

 

THIS FOURTH AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT (this “Agreement”)
is made as of June 27, 2002 by and among:

 

(i)                                     Eschelon Telecom, Inc. (formerly known as
Advanced Telecommunications, Inc.), a Delaware corporation (the “Company”);

 

(ii)                                  the holders of the Company’s Series A
Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) identified on the Schedule of
Series A Holders and such other holders of Series A Preferred Stock
who from time to time become a party hereto by executing a counterpart
signature page (each individually a “Series A Holder” and together, the “Series A Holders”) with each Series A
Holder’s respective number of shares of Series A Preferred Stock (“Series A Shares”)
listed thereon;

 

(iii)                               the holders of the Company’s common stock, no par
value (the “Common Stock”)
(excluding the Common Stock held by the Minority Stockholders) identified on
the Schedule of Common Stock Holders  (each individually a “Common Stock Holder”
and together, the “Common Stock Holders”)
with each Common Stock Holder’s respective number of shares of Common Stock (“Common Shares”)
listed thereon; and

 

(iv)                              the individuals identified on the Schedule of
Minority Stockholders  hereof as “Minority Stockholders” and
such other Persons who from time to time become party hereto by executing a
counterpart signature page hereof and are designated by the Board and included
on the Schedule of Minority Stockholders as “Minority Stockholders”
(each individually a “Minority Stockholder” and together, the “Minority Stockholders”)  (the Minority Stockholders and together with
the Series A Holders and the Common Stock Holders, the “Stockholders”).

 

RECITALS:

 

1.                                       As of the date hereof, the Series A Preferred
Stock, the Existing Preferred Stock, the Common Stock, the Options, the
Convertible Securities and all other Equity Securities are held as set forth on
the Capitalization Schedule hereto;

 

2.                                       The parties believe that it is in the best
interests of the Company and the Stockholders to set forth their agreements on
certain matters;

 

3.                                       This Agreement amends and restates in its
entirety that certain Third Amended and Restated Stockholders Agreement, dated
as of July 27, 2000, by and among the Company and the investors named
therein, as amended and in effect on the date hereof (the “Third Amended and Restated Stockholders Agreement”);

 

 

AGREEMENT:

 

Therefore, in consideration of the promises and
mutual covenants contained in this Agreement the parties hereby agree as
follows:

 

SECTION 1.                                EFFECTIVENESS; DEFINITIONS

 

1.1                                 Closing.  This Agreement shall become
effective upon consummation of the closing (the “Closing”) under the Series A Purchase
Agreement.

 

1.2                                 Definitions.  Certain terms are used in this
Agreement as specifically defined herein. 
Except as otherwise indicated herein, these definitions are set forth or
referred to in Section 13 hereof.

 

SECTION 2.                                BOARD OF
DIRECTORS

 

2.1                                 Composition.  From and
after the date hereof and until the provisions of this Section 2 cease to
be effective, each holder of Shares shall vote all of such holder’s Shares and
any other voting securities of the Company over which such holder has voting
control and shall take all other reasonably necessary or desirable actions
within its control (whether in its capacity as a stockholder, director, member
of a board committee or officer of the Company or otherwise, and including,
without limitation, attendance at meetings in person or by proxy for purposes
of obtaining a quorum and execution of written consents in lieu of meetings),
and the Company shall take all reasonably necessary or desirable actions within
its control (including, without limitation, calling special Board and
stockholder meetings), so that:

 

(a)                                  the authorized number of directors on the Board
shall be established at eleven (11) directors;

 

(b)                                 the
following persons shall be elected to the Board:

 

(i)                                     the
Company’s chief executive officer (the “CEO Director”);

 

(ii)                                  the
Company’s president (the “President Director”);

 

(iii)                               one (1) representative designated by the Board
with the consent of the Majority Series A Holders (the “Independent Director”);

 

(iv)                              one
(1) representative that is a telecommunications industry expert, who has been
proposed by the Senior Management and approved by the Board (the “Expert Director”);

 

(v)                                 one
(1) representative designated by GECC, in its capacity as Administrative Agent,
during the term of the Term Notes (the “GECC Director”);

 

(vi)                              three
(3) representatives designated by the Bain Investors (each, a “Bain Director”);

 

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(vii)                           two (2)
representatives designated by the Wind Point Investors (each, a “Wind Point Director”);
and

 

(viii)                        one (1)
representative designated by the Stolberg Investors (the “Stolberg Director”).

 

(c)                                  the
composition of the board of directors of each of the Company’s Subsidiaries
(each, a “Sub Board”)
shall be the same as that of the Board;

 

(d)                                 any committees of the Board or a Sub Board shall
be created only upon the approval of a majority of the members of the Board and
the composition of each such committee (if any) shall include at least one (1)
Bain Director, one (1) Wind Point Director and one (1) Stolberg Director;

 

(e)                                  the
removal from the Board or a Sub Board (with or without cause) of the GECC
Director under Section 2(b)(v) above shall be at the written request of
GECC, but only upon such written request and, except as otherwise provided
hereunder, under no other circumstances;

 

(f)                                    in
the event that the GECC Director under Section 2(b)(v) above resigns, or
for any other reason ceases to serve as a member of the Board or any Sub Board
during his term of office, the resulting vacancy on the Board or such Sub Board
shall be filled by a representative designated by GECC as provided hereunder;

 

(g)                                 the
removal from the Board or a Sub Board (with or without cause) of any Bain
Director under Section 2(b)(vi) above shall be at the written request of
the Bain Investors, but only upon such written request and, except as otherwise
provided hereunder, under no other circumstances;

 

(h)                                 in
the event that any Bain Director under Section 2(b)(vi) above resigns, or
for any other reason ceases to serve as a member of the Board or any Sub Board
during his term of office, the resulting vacancy on the Board or such Sub Board
shall be filled by a representative designated by the Bain Investors as
provided hereunder;

 

(i)                                     the
removal from the Board or a Sub Board (with or without cause) of any Wind Point
Director under Section 2(b)(vii) above shall be at the written request of
the Wind Point Investors, but only upon such written request and, except as
otherwise provided hereunder, under no other circumstances;

 

(j)                                     in
the event that any Wind Point Director under Section 2(b)(vii) above
resigns, or for any other reason ceases to serve as a member of the Board or
any Sub Board during his term of office, the resulting vacancy on the Board or
such Sub Board shall be filled by a representative designated by the Wind Point
Investors as provided hereunder;

 

(k)                                  the
removal from the Board or a Sub Board (with or without cause) of the Stolberg
Director under Section 2(b)(viii) above shall be at the written request of
the Stolberg Investors, but only upon such written request and, except as
otherwise provided hereunder, under no other circumstances; and

 

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(l)                                     in
the event that the Stolberg Director under Section 2(b)(viii) above
resigns, or for any other reason ceases to serve as a member of the Board or a
Sub Board during his term of office, the resulting vacancy on the Board or such
Sub Board shall be filled by a representative designated by the Stolberg
Investors as provided hereunder.

 

2.2                                 Board
Observer.  The Stolberg Investors shall
have the right to have a representative (the “Stolberg Observer”) in addition to the
Stolberg Director present (in person or by telephone) at all meetings of the
Board, any Sub Board and any committee thereof.  The Stolberg Observer shall not be entitled to vote on any
matters submitted to the Board, any Sub Board and any committee thereof.

 

2.3                                 Expenses
and Indemnification.  The Company
shall pay all reasonable out-of-pocket expenses incurred by each director and
the Stolberg Observer in connection with attending the meetings of the Board,
any Sub Board and any committee thereof. 
The Company’s and its Subsidiary’s certificates of incorporation and
bylaws shall provide for indemnification and exculpation of directors to the
fullest extent permitted by applicable law.

 

2.4                                 Failure
to Designate.  If a party fails (but
is otherwise entitled) to designate a representative to fill any director
position pursuant to the terms of this Section 2, then the election of an
individual to such directorship shall be accomplished in accordance with the
Company’s bylaws and applicable law; provided, that the parties shall
take all necessary actions to remove such individual if and when the party
entitled to designate such representative pursuant to Section 2(a) above
so directs.

 

2.5                                 Major
Transactions.  The certificate of
incorporation or bylaws of the Company and each Subsidiary of the Company shall
at all times include a provision that the Company or such Subsidiary shall not
undertake a Major Transaction unless such Major Transaction has first been
approved by the Board.

 

2.6                                 Initial Public Offering.  The
Company shall not file a registration statement in connection with an Initial
Public Offering of securities of the Company pursuant to the Securities Act
without the prior written consent of the Majority Series A Holders.

 

2.7                                 Personnel Matters.  The
Company shall not approve the hiring or election of, promotion to, or demotion,
firing or removal of any member of the Senior Management without the prior
written consent of the Majority Series A Holders.

 

2.8                                 Certain Transactions.  Each
holder of Shares agrees to cast all votes to which such holder is entitled in
respect of the Shares, whether at any annual or special meeting, by written
consent or otherwise, in accordance with the votes casted by the Majority
Series A Holders to approve any sale, recapitalization, merger, consolidation,
reorganization or any other transaction or series of transactions involving the
Company or its Subsidiaries (or all or any portion of their respective assets)
in connection with, or in furtherance of, the exercise by the Majority Series A
Holders of their rights under Sections 3.2 and 3.4.

 

2.9                                 Grant of Proxy.  Each holder of Shares other
than the Series A Holders hereby grants to the Company an irrevocable proxy to
vote its Shares in accordance with its agreements

 

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contained
in this Section 2, which proxy shall be valid and remain in effect until
the provisions of this Section 2 terminate pursuant to Section 2.11.

 

2.10                           The Company.  The Company agrees not to give
effect to any action by any holder of Shares or any other Person which is in
contravention of this Section 2.

 

2.11                           Period.  The foregoing provisions of this
Section 2 shall terminate automatically and be of no further force and
effect upon the consummation of a Qualified Public Offering.

 

SECTION 3.                                “TAG ALONG” AND “DRAG ALONG” RIGHTS

 

3.1                                 Tag Along.  No holder of Series A
Shares  (each such holder, a “Prospective Series A Seller”)
shall Transfer for value (a “Sale”) any such Series A Shares to a Prospective Buyer
except in compliance with this Section 3.1.  Any attempted Transfer of Shares not in compliance with this
Section 3 shall be null and void, and the Company shall not in any way
give effect to any such impermissible Transfer.

 

(a)                                  A written notice (the “Tag Along Notice”) shall be furnished by the
Prospective Series A Seller to each other holder of Shares (each, a “Tag Along Holder”) at
least ten (10) business days prior to such Transfer.  The Tag Along Notice shall include:

 

(i)                                     the material terms and conditions of the proposed
Sale insofar as it relates to the sale of Shares, including the number and type
of Shares to be Transferred from the Prospective Series A Seller, the Tag Along
Sale Percentage, the maximum and minimum per share purchase price for each type
of Shares (if the Prospective Buyer fails to allocate or reasonably indicate a
per share purchase price for each type of Shares to be included in the proposed
Sale, the Board shall determine in good faith the per share purchase price for
each type of Share) and the name and address of the prospective transferee (the
“Prospective Buyer”);
and

 

(ii)                                  an invitation to each Tag Along Holder to make an
offer to include in the proposed Sale to the Prospective Buyer an additional
number of Shares (not in any event to exceed the Tag Along Sale Percentage of
the total number and type of Shares held by such Tag Along Holder) owned by
such Tag Along Holder, on the same terms and conditions, subject to
Section 3.3(d) in the case of Options, with respect to each type of Shares
to be sold in the Sale, as the Prospective Series A Seller shall Sell its
Shares.

 

(b)                                 Each Tag Along Holder’s “Tag Along Sale Percentage” shall represent
such Tag Along Holder’s percentage ownership (based on the relative value of
such Tag Along Holder’s number and type of Shares) of all Shares.

 

(c)                                  Within ten (10) business days after the
effectiveness of the Tag Along Notice, each Tag Along Holder desiring to make
an offer to include Shares in the proposed Sale (each a “Participating Tag Along Seller” and, together
with the Prospective Series A Seller, collectively, the “Tag Along Sellers”) shall send a written
offer (the “Tag Along Offer”)
to the Prospective Series A Seller specifying the number and type of Shares
(not in any event to exceed the Tag Along Sale Percentage of the total number
of Shares held by such Participating Tag Along Seller) which such Participating
Tag Along Seller desires to have included in the proposed Sale.  Each Tag Along Holder who does not accept
the Prospective Series A Seller’s invitation to

 

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make
an offer to include Shares in the proposed Sale shall be deemed to have waived
all of its rights with respect to such Sale, and the Tag Along Sellers shall
thereafter be free to Sell to the Prospective Buyer, at a per share price of
each type of Share no greater than the maximum per share price of such type of
Share set forth in the Tag Along Notice and on other principal terms which are
not materially more favorable to the Tag Along Sellers than those set forth in
the Tag Along Notice, without any further obligation to such non-accepting Tag
Along Holder.

 

(d)                                 Irrevocable Offer.  The
offer of each Participating Tag Along Seller contained in its Tag Along Offer
shall be irrevocable, and, to the extent such offer is accepted, such
Participating Tag Along Seller shall be bound and obligated to Sell in the
proposed Sale on the same terms and conditions, with respect to each type of
Shares sold in the Sale (subject to Section 3.3(d) in the case of
Options), as the Prospective Series A Seller, up to such number and type of
Shares as such Participating Tag Along Seller shall have specified in its Tag
Along Offer; provided, however, that if the principal terms of
the proposed Sale change with the result that the per share price of type of
Share shall be less than the minimum per share price of such type of Share set
forth in the Tag Along Notice or the other principal terms shall be materially
less favorable to the Tag Along Sellers than those set forth in the Tag Along
Notice, each Participating Tag Along Seller shall be permitted to withdraw the
offer contained in its Tag Along Offer and shall be released from its
obligations thereunder.

 

(e)                                  Reduction of Shares Sold.  The
Prospective Series A Seller shall attempt to obtain the inclusion in the
proposed Sale of the entire number and types of Shares which the Tag Along
Sellers requested to have included in the Sale (as evidenced in the case of the
Prospective Series A Seller by the Tag Along Notice and in the case of each
Participating Tag Along Seller by such Participating Tag Along Seller’s Tag
Along Offer).  In the event the
Prospective Series A Seller shall be unable to obtain the inclusion of such
entire number and types of Shares in the proposed Sale, the number and types of
Shares to be sold in the proposed Sale shall be allocated among the Tag Along
Sellers in proportion, as nearly as practicable, to the respective value of the
number and types of Shares which each Tag Along Seller requested to be included
in the proposed Sale.

 

(f)                                    Additional Compliance.  If (i)
prior to consummation, the terms of the proposed Sale shall change with the
result that the per share price of a type of Share to be paid in such proposed
Sale shall be greater than the maximum per share price of such type of Share
set forth in the Tag Along Notice or the other principal terms of such proposed
Sale shall be materially more favorable to the Tag Along Sellers than those set
forth in the Tag Along Notice, the Tag Along Notice shall be null and void, and
it shall be necessary for a separate Tag Along Notice to be furnished, and the
terms and provisions of this Section 3.1 separately complied with, in
order to consummate such proposed Sale pursuant to this Section 3.1; provided,
however, that in the case of such a separate Tag Along Notice, the
applicable period to which reference is made in Sections 3.1(a) and 3.1(b)
shall be five (5) business days and (ii) the Prospective Series A Seller has
not completed the proposed Sale by the end of the 180th day following the date
of the effectiveness of the Tag Along Notice, each Participating Tag Along
Seller shall be released from its obligations under its Tag Along Offer, the
Tag Along Notice shall be null and void, and it shall be necessary for a
separate Tag Along Notice to be furnished, and the terms and provisions of this
Section 3.1 separately complied with, in order to consummate such proposed

 

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Sale
pursuant to this Section 3.1, unless the failure to complete such proposed
Sale resulted from any failure by any Participating Tag Along Seller to comply
with the terms of this Section 3.1.

 

(g)                                 Excluded Transactions. 
Notwithstanding the foregoing, (i) a holder of Series A Shares shall not
be obligated to comply with the foregoing provisions of this Section 3.1
and (ii) no other holder of Shares shall have any right of participation pursuant
to the terms of this Section 3.1, or otherwise, in each case, with respect
to any Transfer of Series A Shares:

 

(A)                              subject to the provisions of Section 9
hereof, by a holder of Series A Shares to its partners or Affiliates;

 

(B)                                to the Company or its Subsidiaries;

 

(C)                                subject to the provisions of Section 7.3(d),
in a Public Offering or, after the closing of the Initial Public Offering,
pursuant to Rule 144; or

 

(D)                               in accordance with the exercise by the Majority
Series A Holders of their “drag along” rights pursuant to Section 3.2 of
this Agreement.

 

3.2                                 Series A Holders Drag Along.  Each
holder of Shares hereby agrees, if requested by the Majority Series A Holders
at any time, to Sell the Drag Along Sale Percentage of the total number of each
type of Shares held by such holder, directly or indirectly, to a Prospective
Buyer in the manner and on the terms set forth in this Section 3.2 in
connection with the Sale by the Majority Series A Holders (each such Majority
Series A Holder, a “Prospective Drag Along
Seller”) of the Drag Along Sale Percentage of the total number
of each type of Shares held by the Majority Series A Holders to the Prospective
Buyer.

 

(a)                                  “Drag Along Sale Percentage” shall mean such percentage
ownership amount as is specified by the Majority Series A Holders, which shall
be applied equally on a pro rata basis to all holders of Shares (including the
Series A Holders).

 

(b)                                 If the Majority Series A Holders elect to
exercise their rights under this Section 3.2, the Prospective Drag Along
Sellers shall furnish a written notice (the “Drag Along Notice”) to each other holder of
Shares and to the Company.  The Drag
Along Notice shall set forth the material terms and conditions of the proposed
Sale insofar as it relates to the sale of Shares including the number and type
of Shares to be acquired from the Drag Along Sellers, the Drag Along Sale
Percentage, the per share consideration to be received for each type of Share
(if the Prospective Buyer fails to allocate or reasonably indicate a per share
consideration for each type of Share to be included in the proposed Sale, the
Board shall determine in good faith the per share consideration for each type
of Share) in the proposed Sale and the name, address and any Affiliate
relationship to the Drag Along Sellers. 
If the Drag Along Sellers consummate the proposed Sale to which
reference is made in the Drag Along Notice, each other holder of Shares (each a
“Participating Drag Along Seller”,
and, together with the Prospective Drag Along Sellers, collectively, the “Drag Along Sellers”)
shall be bound and obligated to Sell the Drag Along Sale Percentage of the
number of each type of Shares in the proposed Sale on the same terms and
conditions, with respect to each type of Share sold in the proposed Sale
(subject to Section 3.3(d) in the case of Options), as the Prospective
Drag Along Sellers shall sell each type of Shares in the Sale (subject to
Section 3.3(d) in the case of Options). 
If at the end of the 180th

 

7

 

day
following the date of the effectiveness of the Drag Along Notice the
Prospective Drag Along Sellers have not completed the proposed Sale, each
Participating Drag Along Seller shall be released from its obligation under the
Drag Along Notice, the Drag Along Notice shall be null and void, and it shall
be necessary for a separate Drag Along Notice to be furnished and the terms and
provisions of this Section 3.2 separately complied with, in order to
consummate such proposed Sale pursuant to this Section 3.2.

 

(c)                                  Appraisal Process.  In the
case of a proposed Sale pursuant to Section 3.2 to a Prospective Buyer
which is an Affiliate of a Prospective Drag Along Seller, such proposed Sale
shall not be effected pursuant to the provisions of Section 3.2 unless the
Appraisal Process is followed.

 

3.3                                 Miscellaneous.  The following provisions shall
be applied to any prospective Sale to which Section 3.1 or 3.2 applies:

 

(a)                                  Certain Legal Requirements.  In the
event the consideration to be paid in exchange for Shares in a proposed Sale
pursuant to Section 3.1 or 3.2 includes any securities, and the receipt
thereof by a Participating Tag Along Seller or a Participating Drag Along
Seller (each, a “Participating
Transferor”) would require under applicable law (i) the
registration or qualification of such securities or of any person as a broker
or dealer or agent with respect to such securities or (ii) the provision to any
Tag Along Seller or Drag Along Seller of any information regarding such
securities or the issuer thereof that would not be required to be provided to
the Prospective Tag Along Seller or the Prospective Drag Along Seller (each, a
“Prospective Transferor”),
and the Prospective Transferors determine not to have the issuer register or
qualify such securities or person or have the issuer provide such information,
as the case may be, then in lieu of the receipt of securities in the proposed
Sale, against surrender of the Shares (in accordance with Section 3.3(f)
hereof) which are to be sold in such proposed Sale by such applicable
Participating Transferor, to the Prospective Buyer in the proposed Sale, the
Prospective Transferors shall, contemporaneously with such Sale, cause to be
paid to the Participating Transferors an amount in cash equal to the Fair
Market Value of such type and number of Shares as of the date of the issuance
of securities in exchange for Shares.

 

(b)                                 Further Assurances.  Each
Participating Transferor, whether in its capacity as a Participating
Transferor, Stockholder, officer or director of the Company, or otherwise,
shall take or cause to be taken all such actions as may be necessary or
reasonably desirable in order expeditiously to consummate each Sale pursuant to
Section 3.1 or 3.2 and any related transactions, including, without limitation,
executing, acknowledging and delivering consents, assignments, waivers and
other documents or instruments; furnishing information and copies of documents;
filing applications, reports, returns, filings and other documents or
instruments with governmental authorities; and otherwise cooperating with the
Prospective Transferors and the Prospective Buyer; provided,  however,
that Participating Transferors shall be obligated to become liable in respect
of any representations, warranties, covenants, indemnities or otherwise to the
Prospective Buyer solely to the extent provided in the immediately following
sentence.  Without limiting the
generality of the foregoing, each Participating Transferor agrees to execute
and deliver such agreements as may be reasonably specified by the Prospective
Transferors, to which such Prospective Transferors will also be party,
including, without limitation, agreements to make individual representations,
warranties, covenants and other agreements as to the

 

8

 

unencumbered
title to its Shares and the power, authority and legal right to Transfer such
Shares and the absence of any Adverse Claim with respect to such Shares; further
provided, however, that, except with respect to individual
representations, warranties, covenants, indemnities and other agreements of
Participating Transferors of the type described in clause (i) above, the
aggregate amount of such liability shall not exceed the lesser of (A) such
Participating Transferor’s pro rata portion of any such liability, to be
determined in accordance with such Participating Transferor’s portion of the
total number of Shares included in such Sale or (B) the proceeds to such
Participating Transferor in connection with such Sale.

 

(c)                                  Sale Process.  The Prospective Transferors
shall, in their sole discretion, decide whether or not to pursue, consummate,
postpone or abandon any proposed Sale and the terms and conditions thereof.  No Prospective Transferor or any Affiliate
of any Prospective Transferor shall have any liability to any other holder of
Shares arising from, relating to or in connection with the pursuit,
consummation, postponement, abandonment or terms and conditions of any proposed
Sale except to the extent such Prospective Transferor shall have failed to
comply with the provisions of this Section 3.

 

(d)                                 Treatment of Options.  If any
Participating Transferor shall Sell Options in any Sale pursuant to
Section 3.1 or 3.2, such Participating Transferor shall receive in exchange
for such Options consideration equal to the amount (if greater than zero)
determined by multiplying (i) the purchase price per share of Common Stock
received by the Prospective Transferors in such Sale less the exercise price
per share of such Option by (ii) the number of shares of Common Stock issuable
upon exercise of such Option (to the extent exercisable at the time of such
Sale), subject to reduction for any tax or other amounts required to be
withheld under applicable law.

 

(e)                                  Expenses.  All reasonable costs and
expenses incurred by the Prospective Transferors or the Company in connection
with any proposed Sale pursuant to this Section 3 (whether or not
consummated), including without limitation all attorneys fees and expenses, all
accounting fees and charges and all finders, brokerage or investment banking
fees, charges or commissions, shall be paid by the Company.  The reasonable fees and expenses of a single
legal counsel representing any or all of the other Tag Along Sellers or Drag
Along Sellers in connection with any proposed Sale pursuant to this
Section 3 (whether or not consummated) shall be paid by the Company.  Any other costs and expenses incurred by or
on behalf of any or all of the other Tag Along Sellers or Drag Along Sellers in
connection with any proposed Sale pursuant to this Section 3 (whether or
not consummated) shall be borne by such Tag Along Seller(s) or Drag Along
Seller(s).

 

(f)                                    Closing.  The closing of a Sale pursuant
to Section 3.1 or 3.2 shall occur at such time and place as the
Prospective Transferors shall specify by notice to each Participating
Transferor.  At the closing of any Sale
under this Section 3, each Participating Transferor shall deliver the
certificates evidencing the Shares to be Sold by such Participating Transferor,
duly endorsed, or with stock (or equivalent) powers duly endorsed, for transfer
with signature guaranteed, free and clear of any liens or encumbrances, with
any stock (or equivalent) transfer tax stamps affixed, against delivery of the
applicable consideration.

 

9

 

3.4                                 Initiation of Sale of Company or Subsidiaries.  Any
other provision of this Agreement to the contrary notwithstanding, the Majority
Series A Holders shall have the right at any time to control the initiation of
the sale of all or substantially all of the assets of the Company or the merger
of the Company with another Person (a “Liquidity Event”) and to control the timing and terms of
any Liquidity Event initiated by the Majority Series A Holders; provided,
however, that such Liquidity Event shall be subject, in the case of a
sale of Shares, to the applicable provisions of this Section 3.

 

3.5                                 Period.  The provisions of this
Section 3 shall terminate automatically and be of no further force and
effect upon the consummation of a Qualified Public Offering.

 

SECTION 4.                                TRANSFER RIGHTS

 

4.1                                 Transfer Restrictions.  No
holder of Minority Shares shall Transfer any such Minority Shares to any Person
except in the manner and on the terms set forth in this Section 4.  Any attempted Transfer of Minority Shares
not permitted by this Section 4 shall be null and void, and the Company
shall not in any way give effect to any such impermissible Transfer.

 

(a)                                  Right of First Refusal.  Except
as may be permitted under Section 4.2, or under any other provision of
this Agreement, if a Minority Stockholder or any of its Permitted Transferees
shall at any time propose to Transfer all or any portion of its Minority Shares
(a “Minority Sale”) or is
to be divested of its interest in all or a portion of its Minority Shares
through seizure or sale by legal process or any Transfer through operation of
law, such Minority Stockholder or Permitted Transferee (the “Minority Transferor”)
shall notify the Board and shall first offer such Minority Shares for sale in
writing to the Company.  Such written
offer (the “Offer”)  shall
state the number and type of Minority Shares to be Transferred, the name and
address of the proposed transferee, and the terms, conditions and third party
price of the proposed Transfer.

 

Upon receipt of such Offer, the Company (and the
Series A Holders, if a right to purchase is granted to the Series A Holders
pursuant to Section 4.1(b)(ii)) shall have the following rights and
options:

 

(i)                                     In the case of a proposed Minority Sale, the
Company (and the Series A Holders, if applicable) may purchase the Minority
Shares set forth in the Offer at the purchase price and upon such terms and
conditions as follows:

 

(A)                              The purchase price for the Minority Shares
offered for sale will be the lesser of (x) the purchase price proposed by the
third party as described in the Offer, and (y) an amount equal to one hundred
percent (100%) of the Contract Price (provided, however, that the
purchasing party may, at its option, elect to forego determination of the
Contract Price and set the purchase price at the third party offer price); and

 

(B)                                If the purchase price is that proposed by the
third party, the terms of payment shall be as proposed by the third party
(except that if the purchasing party elects to pay the lesser of the third
party sale price or the Contract Price, the “date of purchase” may be deferred
until a date which will be no later than twenty (20) days after determination
of the Contract Price); and

 

10

 

(C)                                If the purchase price is the Contract Price, the
terms of payment shall be the Contract Terms.

 

(ii)                                  If the Minority Transferor is to be divested of
its interest in said Minority Shares through seizure or sale by legal process
or by any Transfer through operation of law, including without limitation, a
Transfer in connection with a judgment lien or a proceeding under the
Bankruptcy Code, the purchase price of the Minority Shares shall be an amount
equal to the Contract Price and the terms of payment shall be the Contract
Terms.

 

(b)                                 Acceptance of Offer.

 

(i)                                     The Company may, by majority vote of the Board,
accept the Offer as to all or any portion of the Minority Shares proposed to be
Transferred, by giving written notice of such acceptance to the Minority
Transferor within fifteen (15) days after the making of the Offer.

 

(ii)                                  In the event the Company does not exercise its
option to purchase all of the Minority Shares being offered for sale, the Offer
shall be extended to the Series A Holders and the Board shall provide a copy of
the Offer to the Series A Holders, and the Series A Holders may purchase the
Minority Shares not being purchased by the Company in accordance with the
following procedure:

 

(A)                              The Series A Holders may purchase all or any
portion of the Minority Shares not being purchased by the Company by giving
written notice of such acceptance to the Minority Transferor, with a copy to
the Company, within fifteen (15) days after receiving the Offer from the
Company.  A Series A Holder that timely
submits a notice of acceptance hereunder will be conclusively deemed to have
exercised its option to purchase its pro rata portion of the Minority Shares
offered for sale hereunder or, if less, the number of Minority Shares specified
by such Series A Holder in its notice of acceptance or, if any one or more of
the other Series A Holders does not exercise its option to purchase its entire
pro rata portion of the Minority Shares, such greater number of Minority Shares
as specified by such Series A Holder in its notice of acceptance.

 

(B)                                The Minority Shares which are available for
purchase by the Series A Holders hereunder shall be allocated among the Series
A Holders that have timely submitted notices of acceptance on a pro rata basis.

 

(c)                                  Disposition to Third Party.  If the
Offer is not accepted by the Company and/or the Series A Holders (if
applicable) with respect to all of the Minority Shares offered for sale, then
none of the acceptances under Section 4.1(b) shall be effective and the
Minority Transferor shall have the right to Transfer all (but not less than
all) of its Minority Shares subject to the Offer to the third party designated
in the Offer, on the same terms, conditions and price specified in the Offer; provided,
however, that such Transfer is made within thirty (30) days after the
last date on which an Offer may be accepted under Section 4.1(b) and provided,
further, that the transferee agrees in writing to be bound by this
Agreement (other than the provisions of Section 4 hereof) to the same
extent as if such transferee had originally been a Minority Stockholder
hereunder.  In the event of a Transfer
to such third party in accordance with this

 

11

 

Section 4.1(c),
the Company and the Series A Holders shall provide the Minority Transferor with
such documents and instruments as may be reasonably necessary to permit the
Transfer free of the right of first refusal options granted to the Company and
the Series A Holders as set forth in this Section 4.1.

 

(d)                                 Failure of Sale.  If neither the Company, the
Series A Holders nor the third party purchases all of the Minority Shares
offered for sale within the periods provided in Sections 4.1(b) and 4.1(c), such
Minority Shares shall continue to be subject to the restrictions of this
Agreement.

 

(e)                                  Remedy for Violation.  Upon
any voluntary Transfer of Minority Shares by a Minority Stockholder or any of
its Permitted Transferees in violation of any of the provisions of this
Agreement, the Company and the Series A Holders shall have, in addition to such
other remedies and damages as may be available to them under applicable law,
the right and option to purchase all or any portion of such Minority Shares
from the holder or holders thereof at a price equal to ninety percent (90%) of
the price that would otherwise have been applicable if the Minority Stockholder
had complied with the terms hereof and the terms of payment shall be the
Contract Terms.  Such option shall be
exercisable in the manner and in accordance with the procedures set forth in
Sections 4.1(a) through 4.1(c), provided that, for purposes of applying such
procedures, the date of discovery of such violation shall be deemed to be the
date on which the Offer is made.

 

(f)                                    Sale Involving Non-Cash Consideration.  In the
case of a Minority Sale in which the prospective purchaser’s terms include
consideration other than cash or deferred payments, the Offer by the Minority
Transferor shall set forth as the proposed third party sale price an equivalent
value cash price; provided, however, that the Board may in good
faith dispute the equivalent value cash price set forth in the Offer by
providing a notice in writing (“Notice of Dispute”) to the Minority Transferor within
five (5) days of the giving of the Offer. 
In the event of such dispute, a determination of the equivalent value
cash price shall be made as soon as practicable after delivery of the Offer by
an Appraiser mutually agreeable to the Minority Transferor and the Board.  If the Minority Transferor and the Board are
unable to select an Appraiser by mutual agreement within five (5) days
following the date the Notice of Dispute is provided, the Board and the
Minority Transferor shall each select an Appraiser, and the two (2) Appraisers
so selected shall select the Appraiser who shall determine the equivalent value
cash price for purposes hereof.  The
Minority Transferor shall bear one-half (1⁄2) of the cost of any appraisal
required hereunder and the Company shall bear the balance of the cost of such
appraisal.  The equivalent value cash
price determined by the Appraiser finally selected hereunder shall be binding
and conclusive on the parties, and the Offer shall be deemed to have been made
as of the date such determination of the equivalent value cash price is final.

 

4.2                                 Transfers of Minority Shares. 
Notwithstanding anything to the contrary in Section 4.1, any holder
of Minority Shares may Transfer any or all of the Minority Shares held by such
holder as set forth below:

 

(a)                                  Company.  Any holder of Minority Shares
may, at any time during its lifetime, voluntarily Transfer any or all of such
Minority Shares, with the Board’s prior written approval, to the Company or any
Subsidiary of the Company.

 

12

 

(b)                                 Bain Investors and Stolberg Investors.  Any
holder of Minority Shares may Transfer any or all of such Minority Shares to
the Bain Investors and the Stolberg Investors, provided that (i) such Minority
Shares to be Transferred are offered to both the Bain Investors and the
Stolberg Investors and (ii) if both the Bain Investors and the Stolberg
Investors agree to accept such Minority Shares, then such Minority Shares shall
be allocated between the Bain Investors and the Stolberg Investors in
proportion to the number of Shares then held by the Bain Investors and the
Stolberg Investors.

 

(c)                                  Members of Immediate Family.  Subject
to the provisions of Section 9, with the prior written approval of the
Board which shall not be unreasonably withheld, any holder of Minority Shares
may Transfer any or all of such Minority Shares to a Member of the Immediate
Family of such holder.

 

(d)                                 Partners; Affiliates.  Subject
to the provisions of Section 9, with the prior written approval of the
Board which shall not be unreasonably withheld, any holder of Minority Shares
that is not a natural person may Transfer any or all of such Minority Shares to
a partner or Affiliate of such holder.

 

(e)                                  Calls.  Any holder of Minority Shares
may Transfer any or all of such Minority Shares in accordance with the
provisions, terms and conditions of Section 5 hereof.

 

(f)                                    Tag Alongs, Drag Alongs, etc.  Any
holder of Minority Shares may Transfer any or all of such Minority Shares in
accordance with the provisions, terms and conditions of Section 3 hereof.

 

(g)                                 Public.  Subject to the provisions of
Section 7.3(d), any holder of Minority Shares may Transfer any or all of
such Minority Shares in a Public Offering or, after the closing of an Initial
Public Offering, pursuant to Rule 144.

 

Any attempted Transfer of Minority Shares not in
compliance with this Section 4 shall be null and void, and the Company
shall not in any way give effect to any such impermissible Transfer.

 

4.3                                 Period. The foregoing provisions of this Section 4 shall terminate
automatically and be of no further force and effect upon the consummation of a
Qualified Public Offering.

 

 

SECTION 5.                            PURCHASES OF MINORITY SHARES

 

5.1                                 Purchases Upon Termination of Employment.  In the
event the employment of a Minority Stockholder with the Company terminates for
any reason whatsoever, whether such termination is voluntary or involuntary and
whether it is with or without Cause, the following shall apply:

 

(a)                                  In the event the employment of the Minority Stockholder,
is terminated by the Company by reason of Disability or terminates by reason of
death, the Company shall purchase all Shares owned by the Minority Stockholder
and his Permitted Transferees, and such

 

13

 

holders
shall sell all such Shares to the Company, at a price equal to the Contract
Price and on the Contract Terms.

 

(b)                                 In the event the Minority Stockholder voluntarily
terminates his employment with the Company, or the Company terminates his employment
other than by reason of Disability (and whether with or without Cause), the
Company shall have the right and option, exercisable by written notice to the
terminated Minority Stockholder at any time within four months following the
effective date of termination of employment, to purchase all (but not less than
all except as set forth in Section 5.2) Shares then owned by the
terminated Minority Stockholder and his Permitted Transferees at a price equal
to (i) the Base Price thereof, in the event of termination of employment with
Cause, or (ii) the Contract Price, in the event of termination of employment
without Cause or in the event of voluntary termination of employment.  The terms of payment shall be the Contract
Terms.  If the Company does not timely
exercise its option hereunder or cannot exercise any purchase under
Section 5.1(a) or 5.1(b) as described in Section 5.2, the Stolberg
Investors and the Bain Investors shall have the right and option, exercisable
by giving written notice to the terminated Minority Stockholder within thirty
(30) days following expiration of the Company’s option hereunder, to purchase
all Shares then owned by the Minority Stockholder and his Permitted Transferees
at the same price and on the same terms of payment as would have been
applicable had the Company timely exercised its option to purchase such
Shares.  Such Shares shall be allocated
among the Stolberg Investors and the Bain Investors so electing in the manner
set forth in Section 4.1(b) hereof.

 

(c)                                  In the event the Minority Stockholder voluntarily
terminates his employment with the Company, or the Company terminates his
employment, the Minority Stockholder shall have the right and option,
exercisable by written notice to the Company at any time within four (4) months
following the effective date of termination of employment, to require the
Company to purchase all (but not less than all) of the Shares then owned by the
terminated Minority Stockholder and his Permitted Transferees at a price equal
to (i) the Base Price thereof, in the event of termination of employment with
Cause, or (ii) the Contract Price, in the event of termination of employment
without Cause or in the event of voluntary termination of employment.  The terms of payment shall be the Contract
Terms.

 

(d)                                 In the event a Minority Stockholder disputes that
his employment has been terminated for Cause, such dispute shall be resolved
via arbitration conducted in accordance with the then current rules of the
American Arbitration Association (“AAA”).  Upon the
filing of a notice for demand for arbitration by a Minority Stockholder, the
dispute shall be referred to and decided by an arbitrator appointed by the AAA
in accordance with the then current rules of the AAA.  Except as set forth below, each party shall bear its own costs
incurred in connection with the arbitration proceeding.  A party shall have the right to conduct and
enforce prehearing discovery in accordance with the then current Federal Rules
of Civil Procedure.  Document discovery
and other discovery shall be under the control of and enforceable by the
arbitrator and the arbitrator shall permit and facilitate such discovery as it
shall determine is appropriate under the circumstances.  If the arbitrator rules against the Company,
any sale and purchase of Shares owned by such terminated Minority Stockholder
and his Permitted Transferees pursuant to the provisions of this Section 5
shall be at the Contract Price.  In
addition, if the arbitrator determines that the Company did not have a
reasonable basis for concluding that the actions or inactions of the Minority
Stockholder giving rise to his termination of employment constituted a

 

14

 

basis
for Cause, the arbitrator shall so state and, in such event, the Company shall
be required to reimburse the Minority Stockholder for all reasonable fees and
expenses incurred in connection with such arbitration hearing.

 

For purposes of this Section 5.1, Shares
subject to purchase and sale pursuant to the provisions of this
Section 5.1 shall also include any and all Shares which could be acquired
by a Minority Stockholder pursuant to any outstanding vested options and/or
warrants held by such Minority Stockholder as of the date of such purchase.

 

5.2                                 Inability to Purchase. 
Notwithstanding the provisions of this Section 5, if the Company is
the purchaser and it shall not have authority to permit it to lawfully purchase
all of the Shares which are subject to purchase under Sections 5.1(a), 5.1(b)
and 5.1(c) hereof, or if its Senior Lenders shall prohibit the cash payment
described in clause (b) of the definition of Contract Terms at such time, then
(i) the Company shall not be deemed to be in breach or violation hereof as a
result thereof, (ii) the Minority Stockholder shall not be required to sell his
Shares to the Company at that time, and (iii) the rights of the Minority
Stockholder and the Company to demand purchase and sale of Shares held by such
Minority Stockholder and his Permitted Transferees shall be deferred until such
time as the Company shall legally be able to purchase such Shares or the Senior
Lenders agree that such purchase may be made. 
The Company shall promptly give notice to the Minority Stockholder once
it is legally able to purchase such Shares or the Senior Lenders agree to the
cash payment (the “Waiver of Deferral
Notice”) and the purchase and sale obligations set forth in
Section 5.1(a) and the four-month period in which the Minority Stockholder
and the Company have the option to exercise put and call rights as described in
this Section 5 shall begin running from the date of such notice.  In the event of any Transfers of Shares held
by the Minority Stockholder and/or his Permitted Transferees in accordance with
this Agreement prior to the Waiver of Deferral Notice, the reinstated put and
call options described herein shall not apply to such Transferred Shares.  Notwithstanding the foregoing, if the seller
shall so request, the Company shall purchase as many of the Shares involved as
it legally shall be able to purchase or as its Senior Lenders may permit it to
purchase with the corresponding cash payment on the date the purchase is
otherwise to close hereunder.

 

5.3                                 Employment with Subsidiary.  For
purposes of this Section 5, a Minority Stockholder’s employment with any
Subsidiary of the Company shall be deemed to be employment with the
Company.  Any termination thereof shall
be deemed to be termination of such employment with the Company; provided,
however, that any termination of employment with the Company or any
Subsidiary when such employee is immediately employed by another Subsidiary of
the Company shall not be deemed termination for purposes here.

 

5.4                                 Contingent Put Option.  In the
event the Internal Revenue Service (“IRS”) determines that the transfer by any Cady
Stockholder of its shares of common stock of Cady Communications, Inc. (“CCI Stock”) to the
Company in exchange for the Preferred Stock of the Company held by a Cady
Stockholder on or before June 25, 2002 (the “Cady Preferred Stock”) does not satisfy the
requirements of Section 351 of the Internal Revenue Code of 1986, as
amended (the “Code”)
for tax-free exchange treatment and, therefore, determines that such Cady
Stockholder must recognize gain upon the exchange of CCI stock for Cady
Preferred Stock (the “Gain”), then the following shall apply:

 

15

 

(a)                                  The Cady Stockholder shall have the right and
option, exercisable by written notice to the Company delivered within thirty
(30) days after a final IRS determination, to require the Company to purchase
that number of Shares of the Company held by such Cady Stockholder as have an
aggregate Contract Price equal to the amount of federal and state capital gains
taxes required to be paid by the Cady Stockholder on the Gain.  For purposes hereof, an IRS determination
shall be “final” if no right of appeal exists or the time allowed for appeal
has expired without the Cady Stockholder appealing such determination.  In the event of a sale and purchase pursuant
to this Section 5.4, the purchase price for the Shares subject to the put
option shall be the Contract Price and the terms of payment shall be the
Contract Terms except that no promissory note shall be issued and the purchase
price shall be paid in full in cash at the closing of the purchase and sale of
such Shares.

 

(b)                                 Notwithstanding the provisions of
Section 5.4(a), if the Company’s Senior Lenders shall prohibit payment by
the Company with respect to the put option described herein, then the Company
shall not be required to purchase any Shares pursuant to this Section 5.4.

 

5.5                                 Period.  The provisions of
Section 5 (other than Section 5.4) shall terminate automatically and
be of no further force and effect upon the consummation of a Qualified Public
Offering.

 

SECTION 6.                                PREEMPTIVE RIGHTS.

 

The Company shall not issue or sell any shares of any of its capital
stock or any securities convertible into or exchangeable for any shares of its
capital stock, issue or grant any options or warrants for the purchase of, or
enter into any agreements providing for the issuance (contingent or otherwise)
of, any of its capital stock or any stock or securities convertible into or
exchangeable for any shares of its capital stock, in each case, to any Person (each
an “Issuance” of “Subject Securities”),
except in compliance with the provisions of this Section 6.

 

6.1                                 Right of Participation.

 

(a)                                  Offer.  Not fewer than fifteen (15)
days prior to the consummation of the Issuance, a notice (the “Participation Notice”)
shall be furnished by the Company to each of the Series A Holders, Clifford D.
Williams, Paul D. Cady, Daniel P. Cady, David G. Cady, Kim Cady, Susan E.
Rivera, Thomas Rivera, Steve M. Simon, Nortel Networks, Inc., Global Crossing
and Bandwith, Inc. (the “Participation Offerees”). The Participation Notice shall
include:

 

(i)                                     The principal terms of the proposed Issuance,
including, without limitation, the amount and kind of Subject Securities to be
included in the Issuance, the number of Equivalent Shares represented by such
Subject Securities (if applicable), the percentage of the total number of
Equivalent Shares outstanding as of immediately prior to giving effect to such
Issuance which the number of Equivalent Shares held by such Participation Offeree
constitutes (the “Participation Portion”),
the maximum and minimum price (including, without limitation, if applicable,
the maximum and minimum Price Per Equivalent Share) per unit of the Subject
Securities, and the name and address of the Person to whom the Subject
Securities will be Issued (the “Prospective Subscriber”); and

 

16

 

(ii)                                  An offer by the Company to issue, at the option
of each Participation Offeree, to such Participation Offeree such portion of
the Subject Securities to be included in the Issuance as may be requested by
such Participation Offeree (not to exceed the Participation Portion of the
total amount of Subject Securities to be included in the Issuance), on the same
economic terms and conditions, with respect to each unit of Subject Securities
issued to the Participation Offerees as each of the Prospective Subscribers
shall be Issued units of Subject Securities.

 

(b)                                 Exercise.

 

(i)                                     General.  Each Participation Offeree
desiring to accept the offer contained in the Participation Notice shall send a
written commitment to the Company within fifteen (15) days after the
effectiveness of the Participation Notice specifying the amount of Subject
Securities (not in any event to exceed its Participation Portion of the total
amount of Subject Securities to be included in the Issuance) which such
Participation Offeree desires to be issued (each a “Participating Buyer”).  Each Participation Offeree who has not so
accepted such offer shall be deemed to have waived all of its rights with
respect to the Issuance, and the Company shall thereafter be free to Issue
Subject Securities in the Issuance to the Prospective Subscriber and any
Participating Buyers, at a price no less than the minimum price set forth in
the Participation Notice and on other principal terms not substantially more
favorable to the Prospective Subscriber than those set forth in the
Participation Notice, without any further obligation to such non-accepting
Participation Offerees.  If, prior to
consummation, the terms of such proposed Issuance shall change with the result
that the price shall be less than the minimum price set forth in the
Participation Notice or the other principal terms shall be substantially more
favorable to the Prospective Subscriber than those set forth in the
Participation Notice, it shall be necessary for a separate Participation Notice
to be furnished, and the terms and provisions of this Section 6.1
separately complied with, in order to consummate such Issuance pursuant to this
Section 6.1.

 

(ii)                                  Irrevocable
Acceptance.  The acceptance of each
Participating Buyer shall be irrevocable except as hereinafter provided, and
each such Participating Buyer shall be bound and obligated to acquire in the
Issuance on the same terms and conditions, with respect to each unit of Subject
Securities Issued, as the Prospective Subscriber, such amount of Subject
Securities as such Participating Buyer shall have specified in such
Participating Buyer’s written commitment.

 

(iii)                               Time
Limitation.  If at the end of the
180th day following the date of the effectiveness of the Participation Notice
the Company has not completed the Issuance (for any reason other than the
failure by any Participating Buyer to pay the applicable purchase price), each
Participating Buyer shall be released from its obligations under the written
commitment, the Participation Notice shall be null and void, and it shall be
necessary for a separate Participation Notice to be furnished, and the terms
and provisions of this Section 6.1 separately complied with, in order to
consummate such Issuance pursuant to this Section 6.1.

 

(c)                                  Other
Securities.  The Company may
condition the participation of the Participation Offerees in an Issuance upon
the purchase by such Participation Offerees of any securities (including,
without limitation, debt securities) other than Subject Securities (“Other

 

17

 

Securities”) in the event that the
participation of the Prospective Subscriber in such Issuance is so
conditioned.  In such case, each
Participating Buyer shall acquire in the Issuance, together with the Subject
Securities to be acquired by it, Other Securities in the same proportion to the
Subject Securities to be acquired by it as the proportion of Other Securities
to Subject Securities being acquired by the Prospective Subscriber in the
Issuance, on the same terms and conditions, as to each unit of Subject
Securities and Other Securities issued to the Participating Buyers, as the Prospective
Subscriber shall be issued units of Subject Securities and Other Securities.

 

(d)                                 Certain
Legal Requirements.  In the event
that the participation in the Issuance by a Participation Offeree as a
Participating Buyer would require under applicable law (i) the registration or
qualification of such securities or of any person as a broker or dealer or
agent with respect to such securities or (ii) the provision to any participant
in the Sale of any information regarding the Company or the securities that
would not be required to be provided to the Series A Holders, then such holder
of Shares shall not have the right to participate in the Issuance.  Without limiting the generality of the
foregoing, it is understood and agreed that the Company shall not be under any
obligation to effect a registration of such securities under the Securities Act
or similar state statutes.

 

(e)                                  Further
Assurances.  Each Participation
Offeree and each Stockholder to whom the Shares held by such Participation
Offeree were originally issued, shall, whether in its capacity as a
Participating Buyer, Stockholder, officer or director of the Company, or
otherwise, take or cause to be taken all such reasonable actions as may be
necessary or reasonably desirable in order to expeditiously consummate each
Issuance pursuant to this Section 6.1 and any related transactions,
including, without limitation, executing, acknowledging and delivering
consents, assignments, waivers and other documents or instruments; filing
applications, reports, returns, filings and other documents or instruments with
governmental authorities; and otherwise cooperating with the Company and the
Prospective Subscriber.  Without
limiting the generality of the foregoing, each such Participating Buyer and
Stockholder agrees to execute and deliver such subscription and other
agreements specified by the Company to which the Prospective Subscriber will be
party.

 

(f)                                    Expenses.  All reasonable costs and expenses incurred
by the Participation Offerees or the Company in connection with any proposed
Issuance of Subject Securities (whether or not consummated), including without
limitation all accounting fees and charges, all finders, brokerage or
investment banking fees, charges or commissions, and the reasonable fees and
expenses of a single legal counsel representing any or all of the Participation
Offerees in connection with any proposed Issuance of Subject Securities
(whether or not consummated) shall be paid by the Company.

 

(g)                                 Closing.  The closing of an Issuance pursuant to Section 6.1
shall take place at such time and place as the Company shall specify by notice
to each Participating Buyer.  At the
closing of any Issuance under this Section 6.1(g), each Participating
Buyer shall be delivered the notes, certificates or other instruments
evidencing the Subject Securities (and, if applicable, Other Securities) to be
Issued to such Participating Buyer, registered in the name of such
Participating Buyer or its designated nominee, free and clear of any liens or
encumbrances, with any transfer tax stamps affixed, against delivery by such
Participating Buyer of the applicable consideration.

 

18

 

6.2                                 Excluded
Transactions.  Notwithstanding the
preceding provisions of this Section 6, the preceding provisions of this
Section 6 shall not restrict:

 

(a)                                  Any
Issuance of Common Stock upon the exercise or conversion of any of the
Company’s preferred stock, Options or Convertible Securities outstanding on the
date hereof or Issued after the date hereof in compliance with the provisions
of this Section 6;

 

(b)                                 Any
Issuance of Subject Securities in connection with the acquisition by the
Company or its Subsidiaries of the business, assets or stock of another entity;

 

(c)                                  Any
Issuance of Subject Securities to employees, directors or consultants of the
Company or its Subsidiaries pursuant to the Stock Option Plan;

 

(d)                                 Any
Issuance of Subject Securities in connection with the placement of debt;

 

(e)                                  Any
Issuance of Common Stock in connection with a Qualified Public Offering;

 

(f)                                    The
Issuance of Common Stock by reason of a dividend, stock split, split-up or
other distribution on Common Stock; or

 

(g)                                 The
Issuance of other Subject Securities upon the written consent of the Majority
Series A Holders (following a written notice to such Majority Series A Holders
requesting such exclusion, which notice shall include the type of security to
be issued, the number of shares of the security to be issued, and the
consideration to be received by the Company for such security(ies)).

 

6.3                                 Certain
Provisions Applicable to Options. 
In the event that the Issuance of Subject Securities shall result in any
increase in the number of shares of Common Stock issuable upon exercise of the
Options, the number of shares (or Equivalent Shares, if applicable) of Subject
Securities (and Other Securities, if applicable) which the holders of such
Options shall be entitled to purchase pursuant to Section 6.1, if any,
shall be reduced, share for share, by the amount of any such increase.

 

6.4                                 Period.  The foregoing provisions of this
Section 6 shall terminate automatically on the consummation of a Qualified
Public Offering.

 

SECTION 7.                                REGISTRATION RIGHTS

 

The Company will perform and comply, and cause each of its Subsidiaries
to perform and comply, with such of the following provisions as are applicable
to it.  Each holder of Shares will
perform and comply with such of the following provisions as are applicable to
such holder.

 

7.1                                 Demand
Registration Rights for Series A Shares.

 

(a)                                  General.  At any time, the Majority Series A Holders
(“Initiating Series A Holders”),
by notice to the Company specifying the intended method or methods of
disposition,

 

19

 

may request that the
Company effect the registration under the Securities Act for a Public Offering
of all or any portion of the Registrable Securities held by the Series A
Holders (“Registrable Series A
Securities”).  At any
time after the Company becomes eligible to file a registration statement on
Form S-3 (or any successor form relating to secondary offerings), the Majority
Series A Holders shall have the right to require the Company to effect a
registration on Form S-3 (or such successor form) of Registrable Series A
Securities.  The Company shall use its
best efforts to effect the registration under the Securities Act of the
Registrable Series A Securities which the Company has been requested to
register by such Initiating Series A Holders together with all other
Registrable Securities which the Company has been requested to register
pursuant to Section 7.2 hereof by notice delivered to the Company within
twenty (20) days after the Company has given the notice required by
Section 7.2(a) hereof (which request shall specify the intended method of
disposition of such Registrable Securities), all to the extent requisite to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities which the Company has been so
requested to register.

 

(b)                                 Number
of Registrations; Form.  The Company
shall be required to effect three (3) registrations on Form S-1 (or any
successor form) and an unlimited number of registrations on Forms S-2 and/or
S-3 (or any successor form) pursuant to this Section 7.1; provided,
however, that the Company shall not be required to effect any
registration (other than on Forms S-2 and/or S-3 or any successor form relating
to secondary offerings) within six (6) months after the effective date of any
other registration statement of the Company; provided  further
that the Company shall not be required to effect more than two (2)
registrations pursuant to this Section 7.1 in any twelve-month period.

 

(c)                                  Company
Delay.  If at the time of any
request to register Registrable Securities pursuant to this Section 7.1,
the Company is engaged or has fixed plans to engage within thirty (30) days of
the time of the request in a registered Public Offering as to which the holders
of Series A Shares may include Registrable Securities pursuant to Section 7.2
or is engaged in any other activity which, in the good faith determination of
the Board, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of ninety (90) days
from the effective date of such offering or the date of commencement of such
other material activity, as the case may be, such right to delay a request to
be exercised by the Company not more than once in any two-year period.

 

(d)                                 Effective
Demands.  Except as provided in
Section 7.1(e), no registrations of Registrable Securities which shall not
have become and remained effective in accordance with the provisions of this
Section 7, and no registrations of Registrable Securities pursuant to
which the Initiating Series A Holders and all other holders of Registrable
Series A Securities joining therein are not able to include at least ninety
percent (90%) of the Registrable Securities which they desired to include,
shall be included in the calculation of numbers of registrations contemplated
by this Section 7.1.

 

(e)                                  Payment
of Expenses.  The Company shall pay
all reasonable costs and expenses incurred by each Series A Holder, including,
without limitation, all registration and filing fees, fees and expenses of
compliance with securities or “blue sky” laws, printing expenses, messenger and
delivery expenses, fees and disbursements of custodians, fees and expenses of
certified public accountants and underwriters (excluding discounts and
commissions) and the reasonable fees and

 

20

 

expenses of a single
legal counsel representing any or all of the Initiating Series A Holders, in
connection with each registration of Registrable Securities requested pursuant
to this Section 7.1, other than applicable transfer taxes, if any.

 

(f)                                    Additional
Procedures.  In the case of a
registration pursuant to this Section 7.1, whenever the holders of at
least a majority of the Registrable Series A Securities to be included in the
proposed registration statement in question (the “Majority Participating Holders”) shall
request that such registration shall be effected pursuant to an underwritten
offering, the Company shall include such information in the written notices to
holders of Registrable Securities referred to in Section 7.2.  In such event, the right of any holder of
Registrable Securities to have securities owned by such holder included in such
registration pursuant to this Section 7.1 shall be conditioned upon such
holder’s participation in such underwriting and the inclusion of such holder’s
Registrable Securities in the underwriting (unless otherwise mutually agreed
upon by the Majority Participating Holders and such holder).  If requested by such underwriters, the
Company together with the holders of Registrable Securities proposing to
distribute their securities through such underwriting will enter into an
underwriting agreement with such underwriters for such offering containing such
representations and warranties by the Company and such holders and such other
terms and provisions as are customarily contained in underwriting agreements
with respect to secondary distributions, including, without limitation,
customary indemnity and contribution provisions (subject, in each case, to the
limitations on such liabilities set forth in this Agreement).

 

7.2                                 Piggyback
Registration Rights.

 

(a)                                  Piggyback
Registration.

 

(i)                                     General.  Each time the Company proposes to register
any shares of Common Stock under the Securities Act on a form which would
permit registration of Registrable Securities for sale to the public, for its
own account and/or for the account of the Series A Holders (pursuant to
Section 7.1) for sale in a Public Offering, the Company will give notice
to all holders of Registrable Securities of its intention to do so.  Any such holder may, by written response
delivered to the Company within twenty (20) days after the effectiveness of
such notice, request that all or a specified part of the Registrable Securities
held by such holder be included in such registration.  The Company thereupon will use its reasonable efforts to cause to
be included in such registration under the Securities Act all shares of Common
Stock which the Company has been so requested to register by such holders, to
the extent required to permit the disposition (in accordance with the methods
to be used by the Company or other holders of shares of Common Stock in such
Public Offering) of the Registrable Securities to be so registered.  No registration of Registrable Securities
effected under this Section 7.2 shall relieve the Company of any of its
obligations to effect registrations of Registrable Securities pursuant to
Section 7.1 hereof.

 

(ii)                                  Excluded
Transactions.  The Company shall not
be obligated to effect any registration of Registrable Securities under this
Section 7.2 incidental to the registration of any of its securities in
connection with:

 

21

 

(A)                              Any
Public Offering relating to employee benefit plans or dividend reinvestment
plans;

 

(B)                                Any
Public Offering relating to the acquisition or merger after the date hereof by
the Company or any of its Subsidiaries of or with any other businesses; or

 

(C)                                The
Initial Public Offering except as to Registrable Securities requested to be
included in such offering by the Series A Holders.

 

(b)                                 Payment
of Expenses.  The Company shall pay
all reasonable expenses of a single legal counsel representing any and all
holders of Registrable Securities incurred in connection with each registration
of Registrable Securities requested pursuant to this Section 7.2; provided,
however, that if the Company is paying the expenses of counsel to the
Initiating Series A Holders pursuant to Section 7.1(e), then the Company
shall not be required to pay expenses for any additional legal counsel to the
holders of Registrable Securities.

 

(c)                                  Additional
Procedures.  Holders of Shares
participating in any Public Offering pursuant to this Section 7.2 shall
take all such actions and execute all such documents and instruments that are
reasonably requested by the Company to effect the sale of their Shares in such
Public Offering, including, without limitation, being parties to the underwriting
agreement entered into by the Company and any other selling Stockholders in
connection therewith and being liable in respect of the representations and
warranties by, and the other agreements (including without limitation customary
selling stockholder representations, warranties, indemnifications and “lock-up”
agreements) for the benefit of the underwriters; provided, however,
that (i) with respect to individual representations, warranties, indemnities
and agreements of sellers of Shares in such Public Offering, the aggregate
amount of such liability shall not exceed such holder’s net proceeds from such
offering and (ii) to the extent selling Stockholders give further
representations, warranties and indemnities, then with respect to all other
representations, warranties and indemnities of sellers of Shares in such Public
Offering, the aggregate amount of such liability shall not exceed the lesser of
(A) such holder’s pro rata portion of any such liability, in accordance with
such holder’s portion of the total number of Shares included in the offering or
(B) such holder’s net proceeds from such offering.

 

7.3                                 Certain
Other Provisions.

 

(a)                                  Underwriter’s
Cutback.  In connection with any
registration of shares the underwriter may determine that marketing factors
(including, without limitation, an adverse effect on the per share offering
price) require a limitation of the number of shares to be underwritten.  Notwithstanding any contrary provision of
this Section 7 and subject to the terms of this Section 7.3(a), the
underwriter may limit the number of Shares which would otherwise be included in
such registration by excluding any or all Registrable Securities from such
registration (it being understood that the number of Shares which the Company
seeks to have registered in such registration shall not be subject to
exclusion, in whole or in part, under this Section 7.3(a)); provided,
however, that, in connection with a registration requested pursuant to
Section 7.1 or 7.2 hereof, the Initiating Series A Holders that demanded
the registration of shares shall not be deemed to have exercised one of its
demand registration rights on Form S-1 pursuant to this

 

22

 

Section 7 if the
Initiating Series A Holders are cut back by more than twenty-five percent (25%)
of the total number of Shares sought to be included by such Initiating Series A
Holder.  Upon receipt of notice from the
underwriter of the need to reduce the number of shares to be included in the
registration, the Company shall advise all holders of the Company’s securities
that would otherwise be registered and underwritten pursuant hereto, and the
number of shares of such securities, including Registrable Securities, that may
be included in the registration shall be allocated in the following manner,
unless the underwriter shall determine that marketing factors require a
different allocation:  Shares, other
than Registrable Securities, requested to be included in such registration by
Stockholders shall be excluded unless the Company has, with the consent of the
Majority Series A Holders, granted registration rights which are to be treated
on an equal basis with Registrable Securities for the purpose of the exercise
of the underwriter cutback; and, if a limitation on the number of Shares is
still required, the number of Registrable Securities and other shares of Common
Stock that may be included in such registration shall be allocated among
holders thereof in proportion, as nearly as practicable, to the respective amounts
of Common Stock which each Stockholder requested be registered in such
registration.  For purposes of any
underwriter cutback, all Common Stock held by any holder of Registrable
Securities which is a partnership or corporation shall also include any Common
Stock held by the partners, retired partners, shareholders or affiliated
entities of such holder, or the estates and family members of any such partners
and retired partners and any trusts for the benefit of any of the foregoing
persons, and such holder and other persons shall be deemed to be a single
selling holder, and any pro rata reduction with respect to such selling holder
shall be based upon the aggregate amount of Common Stock owned by all entities
and individuals included in such selling holder, as defined in this
sentence.  No securities excluded from
the underwriting by reason of the underwriter’s marketing limitation shall be
included in such registration.  If any
holder of Registrable Securities disapproves of the terms of the underwriting,
it may elect to withdraw therefrom by written notice to the Company and the
underwriter.  The Registrable Securities
so withdrawn shall also be withdrawn from registration.

 

(b)                                 Other
Actions.  If and in each case when
the Company is required to use its reasonable best efforts to effect a
registration of any Registrable Securities as provided in this Section 7,
the Company shall take appropriate and customary actions in furtherance
thereof, including, without limitation: 
(i) promptly preparing and filing with the Commission a registration
statement with respect to such Registrable Securities and using reasonable
efforts to cause such registration statement to become effective; (ii)
preparing and filing with the Commission such amendments and supplements to
such registration statement as may be required to comply with the Securities
Act and to keep such registration statement effective for a period not to
exceed 180 days from the date of effectiveness or such earlier time as the
Registrable Securities covered by such registration statement shall have been
disposed of in accordance with the intended method of distribution therefor or
the expiration of the time when a prospectus relating to such registration is
required to be delivered under the Securities Act; (iii) furnishing to the
holders of Registrable Securities such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them; (iv)
notifying each holder of Registrable Securities covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in
effect, includes an untrue statement

 

23

 

of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and, at the request of the majority of the holders of Registrable
Securities, preparing a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; (v) in the event of an underwritten Public
Offering, entering into and performing its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter(s) of
such offering; provided, however, that each holder of Registrable
Securities participating in such underwriting shall also enter into and perform
its obligations under such an agreement; (vi) using its reasonable best efforts
to furnish, on the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through underwriters,
(A) an opinion, dated as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten Public Offering and (B) a letter,
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten Public Offering; (vii)
using its reasonable best efforts to register or qualify such Registrable
Securities under the state securities or “blue sky” laws of such jurisdictions
as the holders of Registrable Securities shall reasonably request; provided,
however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified or to subject itself to taxation
in respect of doing business in any jurisdiction in which it would not
otherwise be so subject; (viii) causing all Registrable Securities to be listed
on each securities exchange on which similar securities issued by the Company
are then listed and, if not so listed, to be listed on the NASD automated
quotation system and, if listed on the NASD automated quotation system, using
its reasonable best efforts to secure designation of all Registrable Securities
covered by such registration statement as a NASDAQ “national market system
security” within the meaning of Rule 11Aa2-1 of the Commission or, failing
that, securing NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, arranging for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD; (ix) making available for inspection by any seller of
Registrable Series A Securities, any underwriter participating in any
disposition pursuant to such registration statement and any attorney,
accountant or other agent retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and properties of
the Company, and causing the Company’s officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement, in each case subject to the requirement that recipients
execute appropriate confidentiality agreements; and (x) otherwise cooperating
reasonably with, and take such customary actions as may reasonably be requested
by the holders of Registrable Securities in connection with, such registration.

 

(c)                                  Selection
of Underwriters and Counsel.  The
underwriters to be retained in connection with any Public Offering shall be
selected by the Board and the Majority Series A Holders.  The legal counsel to be retained in
connection with any Public Offering shall be selected by the Board or, in the
case of an offering following a request therefor under Section 7.1(a), the
Initiating Series A Holders.

 

24

 

(d)                                 Lock-Up.  Without the prior written consent of the
underwriters managing any Public Offering, for a period beginning seven
(7) days immediately preceding and ending on the 180th day
following the effective date of the registration statement used in connection
with such offering (or such other period agreed upon by the underwriters, the
Majority Series A Holders and the Company), no holder of Shares (whether or not
a selling shareholder pursuant to such registration statement) shall (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any Option, right or warrant to
purchase, lend, or otherwise Transfer, directly or indirectly, any shares of
Common Stock or any Convertible Security or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of such
Common Stock or such other securities, in cash or otherwise; provided, however,
that the foregoing restrictions shall not apply to (A) transactions relating to
shares of Common Stock or other securities acquired in open market transactions
after the completion of the Initial Public Offering, (B) Transfers to a
Permitted Transferee of such holder in accordance with the terms of this
Agreement or (C) conversions of shares of Common Stock into other classes of
Common Stock without change of holder; provided, further, that in
the event that the underwriter releases any holder(s) of Shares from the terms
and conditions of this Section 7.3(d), then the number of Shares subject
to such release shall be allocated proportionally among all of the holders of
Shares subject to this lock-up provision.

 

7.4                                 Indemnification
and Contribution.

 

(a)                                  Indemnities
of the Company.  In the event of any
registration of any Registrable Securities or other debt or Equity Securities
of the Company or any of its Subsidiaries under the Securities Act pursuant to
this Section 7 or otherwise, and in connection with any registration
statement or any other disclosure document produced by or on behalf of the
Company or any of its Subsidiaries including, without limitation, reports
required and other documents filed under the Exchange Act, and other documents pursuant
to which any debt or Equity Securities of the Company or any of its
Subsidiaries are sold (whether or not for the account of the Company or its
Subsidiaries), the Company will, and hereby does, and will cause each of its
Subsidiaries, jointly and severally, to indemnify and hold harmless each seller
of Registrable Securities, any Person who is or might be deemed to be a
controlling Person of the Company or any of its Subsidiaries within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange
Act, their respective direct and indirect partners, advisory board members,
directors, officers, trustees, members and shareholders, and each other Person,
if any, who controls any such seller or any such holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
(each such person being referred to herein as a “Covered Person”), against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof), joint or
several, to which such Covered Person may be or become subject under the
Securities Act, the Exchange Act, any other securities or other law of any
jurisdiction, the common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained or incorporated by reference in any registration
statement under the Securities Act, any preliminary prospectus or final prospectus
included therein, or any related summary prospectus, or any amendment or
supplement thereto, or any document incorporated by reference therein, or any
other such disclosure document (including

 

25

 

without limitation
reports and other documents filed under the Exchange Act and any document
incorporated by reference therein) or other document or report, (ii) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(iii) any violation or alleged violation by the Company or any of its of any
federal, state, foreign or common law rule or regulation applicable to the
Company or any of its Subsidiaries and relating to action or inaction in
connection with any such registration, disclosure document or other document or
report, and will reimburse such Covered Person for any legal or any other
expenses incurred by it in connection with investigating or defending any such
loss, claim, damage, liability, action or proceeding; provided, however,
that neither the Company nor any of its Subsidiaries shall be liable to any
Covered Person in any such case to the extent that any such loss, claim,
damage, liability, action or proceeding arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, incorporated document
or other such disclosure document or other document or report, in reliance upon
and in conformity with written information furnished to the Company or to any
of its Subsidiaries through an instrument duly executed by such Covered Person
specifically stating that it is for use in the preparation thereof or
specifically furnished for use in the preparation thereof.  The indemnities of the Company and of its
Subsidiaries contained in this Section 7.4(a) shall remain in full force
and effect regardless of any investigation made by or on behalf of such Covered
Person and shall survive any transfer of securities.

 

(b)                                 Indemnities
to the Company.  In the event of any
registration of any Registrable Securities under the Securities Act pursuant to
this Section 7, each seller of Registrable Securities, severally and not
jointly, shall indemnify and hold harmless the Company and any of its
Subsidiaries, each director of the Company or any of its Subsidiaries, each
officer of the Company or any of its Subsidiaries who shall sign such
registration statement and each other Person (other than such seller), if any,
who controls the Company and any of its Subsidiaries within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
and each other prospective seller of such securities with respect to any
statement in or omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus included therein, or any
amendment or supplement thereto, or any other disclosure document (including,
without limitation, reports and other documents filed under the Exchange Act or
any document incorporated therein) or other document or report, if such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company or any of its Subsidiaries through an
instrument executed by such seller specifically stating that it is for use in
the preparation or specifically furnished for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement, incorporated document or other document or report.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company, any of its Subsidiaries or
any such director, officer or controlling Person and shall survive any transfer
of securities.

 

(c)                                  Contribution.  If the indemnification provided for in
Section 7.4(a) or 7.4(b) hereof is unavailable to a party that would have
been entitled to indemnification pursuant to the foregoing provisions of this
Section 7.4 (an “Indemnitee”) in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each

 

26

 

party that would have
been an indemnifying party thereunder shall, in lieu of indemnifying such
Indemnitee, contribute to the amount paid or payable by such Indemnitee as a
result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative fault of such indemnifying party on the one hand and such
Indemnitee on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof).  The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or such Indemnitee and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.  The parties
agree that it would not be just or equitable if contribution pursuant to this
Section 7.4(c) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the preceding sentence.  The amount paid or payable by a contributing party as a result of
the losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 7.4(c) shall include
any legal or other expenses reasonably incurred by such Indemnitee in
connection with investigating or defending any such action or claim.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.

 

(d)                                 Limitation
on Liability of Holders of Registrable Securities.  The liability of each holder of Registrable
Securities in respect of any indemnification or contribution obligation of such
holder arising under this Section 7.4 shall not in any event exceed an
amount equal to the net proceeds to such holder (after deduction of all
underwriters’ discounts and commissions) from the disposition of the
Registrable Securities disposed of by such holder pursuant to such
registration.

 

7.5                                 Limitations
on Subsequent Registration Rights. 
From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Majority Series A Holders, voting
together as a single class, enter into any agreement with any holder or
prospective holder of any securities of the Company relating to registration
rights unless such agreement includes: 
(a) to the extent the agreement would allow such holder or prospective
holder to include such securities in any registration filed under
Section 7.1 or 7.2 hereof, a provision that such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of its securities will not reduce the amount of the
Registrable Series A Securities which would otherwise be included; and (b) no
provision which would allow such holder or prospective holder to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of the dates or events set forth in
Section 7.1.(a).

 

SECTION 8.                                REVALUATION OF SHARE
PRICES

 

8.1                                 Look-Back
by Company, etc.  Notwithstanding
anything contained in this Agreement to the contrary, if (i) Shares are
purchased pursuant to Section 4.1 or 5.1 from a Minority Stockholder or
its Permitted Transferees (the “Subject Minority Shares”) and such Minority Stockholder
is or was ever an employee of the Company or any of its Subsidiaries (or

 

27

 

related to such employee
or director), (ii) the purchaser of the Subject Minority Shares was the
Company, any of the Stolberg Investors or any of the Bain Investors, and (iii)
the purchase price paid for the Subject Minority Shares exceeded $100,000, then
the Stolberg Investors, the Bain Investors and/or the Company will have the
option (the “Look-Back Option”),
exercisable by written notice to such Minority Stockholder at anytime within
the one year period following the notice of exercise of an option to sell or
purchase the Subject Minority Shares pursuant to Section 4.1 or 5.1 (the
date of notice of exercise of the Look-Back Option is referred to herein as the
“Look-Back Date”), to
require that the Contract Price of the Subject Minority Shares be redetermined
as of the Look-Back Date (the “Look-Back Valuation”) by the same Appraiser who
determined the Contract Price of the Subject Minority Shares (or if no
Appraiser was used, such Appraiser shall be chosen in the manner described in
the definition of Contract Price in Section 13.2). The fees and expenses
of such Appraiser shall be borne by the purchaser. If the Look-Back Option is
exercised, the following shall apply:

 

(a)                                  If
the Look-Back Valuation is an amount which is less than ninety percent (90%) of
the purchase price paid by the Stolberg Investors, the Bain Investors and/or
the Company for the Subject Minority Shares, the purchase price paid to such
Minority Stockholder and/or any of his Permitted Transferees will be reduced to
an amount equal to the Look-Back Valuation. 
Any such reduction in the purchase price for the Subject Minority Shares
shall be deducted in equal installments over the remaining term of any
promissory note issued in connection with the purchase of the Subject Minority
Shares and, if no such promissory note was issued and remains outstanding, such
reduction shall be due and payable immediately by the Minority Stockholder
and/or his Permitted Transferees to the purchaser in cash.  Any amounts not paid by the Minority
Stockholder and/or his Permitted Transferees when due shall either (i) bear
interest at a fixed rate per annum from the due date to the date of payment at
the lesser of 12% or the Prime Rate in effect as of the due date or (ii) at the
option of the Stolberg Investors, the Bain Investors and/or the Company, as
applicable, be paid by surrendering a number of Shares with a value based on
the Look-Back Valuation equal to the amount due from the Minority Stockholders
and/or his Permitted Transferees.

 

(b)                                 If
the Look-Back Valuation equals or exceeds ninety percent (90%) of the purchase
price paid to such Minority Stockholder and/or his Permitted Transferees for
the Subject Minority Shares, the purchase price for the Subject Minority Shares
will not be changed and, in addition, the interest rate on any outstanding
promissory note issued to the Minority Stockholder and/or its Permitted
Transferees in connection with the purchase of such Subject Minority Shares
will be increased by one hundred (100) basis points effective as of the
Look-Back Date.

 

8.2                                 Look-Back
by Minority Stockholder. 
Notwithstanding anything contained in this Agreement to the contrary, if
(i) Shares are purchased from any Minority Stockholder and/or his Permitted
Transferees pursuant to Section 4.1(a) or 4.1(b) (such Shares purchased
pursuant to Section 4.1(a) or 4.1(b) (specifically excluding, however, any
Shares purchased upon termination of such Minority Stockholder’s employment for
Cause) are referred to herein as the “Employee Stock”), and (ii) there is a Sale of the
Company within the one year period following the date of notice of exercise of
such option to purchase, such Minority Stockholder shall have the right and
option, exercisable by written notice to the purchaser of the Employee Stock
within fifteen (15) days after notice of such Sale has been provided to the
Minority Stockholder, to require that the

 

28

 

Contract Price for the
Employee Stock be redetermined as of the date of Sale based on the
consideration received in the Sale and determined as if the Employee Stock were
issued and outstanding on the date of Sale. 
At the time notice of the Sale is provided to the Minority Stockholder,
the Minority Stockholder shall also be advised of the terms, conditions and
price received in connection with the Sale. 
The Minority Stockholder shall have the right to review those portions
of the Sale documentation relating to the determination, payment and any adjustment
of the consideration paid in connection with such Sale; provided, however,
that such Minority Stockholder shall first agree to treat all such information
as confidential information and shall sign such confidentiality agreement as
may be reasonably requested with respect thereto.  If the consideration in the Sale is for other than cash and the
parties cannot agree on the redetermined Contract Price, such redetermined
Contract Price shall be determined by the same Appraiser who originally
determined the Contract Price (or, if no Appraiser was used, such Appraiser
shall be chosen in the manner described in the definition of Contract Price in
Section 13.2).  In the event the
redetermined Contract price for the Employee Stock is higher than the price paid
to such Minority Stockholder and/or his Permitted Transferees for the Employee
Stock, then the excess shall be paid to such Minority Stockholder and/or his
Permitted Transferees on the same terms and conditions as the remaining
Stockholders of the Company receive amounts payable to them in connection with
the Sale.  The cost of any reappraisal
shall be borne by the Minority Stockholder.

 

8.3                                 Re-evaluation
Upon Initial Public Offering. 
Notwithstanding anything in this Agreement to the contrary, if (i) Employee
Stock is purchased, and (ii) there is an Initial Public Offering of the Company
within the one year period following the date of notice of exercise of the
option to purchase such Employee Stock, the Company shall give written notice
of the proposed Initial Public Offering to such Minority Stockholder not less
than thirty (30) days prior to the proposed effective date of such Initial
Public Offering.  Upon receipt of such
notice, such Minority Stockholder and/or his Permitted Transferees shall each
have the right and option, exercisable by written notice delivered to the
Company and the purchaser of the Employee Stock within fifteen (15) days after
receipt of notice of the proposed Initial Public Offering, to rescind the sale
of the Employee Stock.  If the Minority
Stockholder and his Permitted Transferees so elect to rescind the sale of the
Employee Stock, and contingent upon the effectiveness of the Initial Public
Offering, the Minority Stockholder and his Permitted Transferees shall remit to
the purchaser of the Employee Stock all consideration received for such
Employee Stock and, upon receipt of such funds, the Minority Stockholder and/or
his Permitted Transferees shall receive a return of the Employee Stock.  Notwithstanding the foregoing, if a Minority
Stockholder or his Permitted Transferee elects to rescind a sale of Employee
Stock to a Bain Investor or a Stolberg Investor pursuant to this
Section 8.3 and (i) such rescission would give rise to taxable income and
(ii) the Bain Investor or Stolberg Investor who is required to rescind the sale
of Employee Stock so notifies the Minority Stockholder (or Permitted
Transferee) electing to exercise the right of rescission prior to the time of
such rescission, which notice shall set forth the Make-Whole Amount, the
Minority Stockholder (or Permitted Transferee) in question shall have the
option either (a) of electing to rescind the notice of revision or (b)
proceeding with the revision so long as prior to such revision the Minority
Stockholder (or Permitted Transferee) in question pays to the Bain Investor or
Stolberg Investor in question an amount (the “Make-Whole Amount”) which after deducting all
taxes payable as a result of the receipt thereof would equal the taxes on the
taxable income referred to above (both such taxes to be calculated at the
maximum marginal rate applicable to individuals).

 

29

 

SECTION 9.                                CERTAIN ISSUANCES AND
TRANSFERS, ETC.

 

Notwithstanding any other provision of this Agreement, (a) Shares
Transferred in a Public Offering or, after the Initial Public Offering,
pursuant to Rule 144 shall be conclusively deemed thereafter not to be Series A
Shares, Common Shares  or Minority Shares, as applicable, under
this Agreement and not to be subject to any of the provisions hereof or
entitled to the benefit of any of the provisions hereof, and (b) any Shares
Transferred or acquired other than as contemplated in clause (a) shall upon
such Transfer or acquisition continue to be deemed for all purposes hereof to
be Series A Shares, Common Shares   or
Minority Shares, as applicable, under this Agreement and no such Transfer shall
be effective unless the transferee of such Shares has delivered to the Company
a written acknowledgment and agreement in form and substance reasonably
satisfactory to the Company that such Shares to be received by such transferee
shall remain Series A Shares, Common Shares  or Minority Shares hereunder, as the case
may be, and shall continue to be subject to all of the provisions of this
Agreement and that such transferee shall be bound by and a party to this
Agreement as the holder of Series A Shares, Common Shares  or Minority Shares, as the
case may be, hereunder.

 

SECTION 10.                          REMEDIES.

 

10.1                           Generally.  The Company and each holder of Shares shall
have all remedies available at law, in equity or otherwise in the event of any
breach or violation of this Agreement or any default hereunder by the Company
or any holder of Shares.  The parties
acknowledge and agree that in the event of any breach of this Agreement, in
addition to any other remedies which may be available, each of the parties
hereto shall be entitled to specific performance of the obligations of the
other parties hereto and, in addition, to such other equitable remedies (including,
without limitation, preliminary or temporary injunctive relief) as may be
appropriate in the circumstances.

 

10.2                           Deposit.  Without limiting the generality of
Section 10.1, if any holder of Shares fails to deliver to the purchaser
thereof the certificate or certificates evidencing Shares to be Sold pursuant
to Section 3 or 5 hereof, such purchaser may, at its option, in addition
to all other remedies it may have, deposit the purchase price (including any
promissory note constituting all or any portion thereof) for such Shares with
any national bank or trust company having combined capital, surplus and
undivided profits in excess of One Hundred Million Dollars ($100,000,000) (the
“Escrow Agent”) and
the Company shall cancel on its books the certificate or certificates
representing such Shares and thereupon all of such holder’s rights in and to
such Shares shall terminate. 
Thereafter, upon delivery to such purchaser by such holder of the
certificate or certificates evidencing such Shares (duly endorsed, or with
stock powers duly endorsed, for transfer, with signature guaranteed, free and
clear of any liens or encumbrances, and with any stock transfer tax stamps
affixed), such purchaser shall instruct the Escrow Agent to deliver the
purchase price (without any interest from the date of the closing to the date
of such delivery, any such interest to accrue to such purchaser) to such
holder.

 

30

 

SECTION 11.                          LEGENDS

 

11.1                           Restrictive
Legend.  Each certificate
representing Shares shall have the legend following:

 

“The voting of the shares of stock represented by this certificate, and
the sale, encumbrance or other disposition thereof, are subject to the
provisions of a Fourth Amended and Restated Stockholders Agreement dated as of
June 27, 2002, to which the issuer and certain of its stockholders are
party, as amended and modified from time to time.  A copy of which may be inspected at the principal office of the
issuer or obtained from the issuer without charge.”

 

Any person who acquires Shares which are not subject to all or part of
the terms of this Agreement shall have the right to have such legend (or the
applicable portion thereof) removed from certificates representing such Shares.

 

11.2                           1933
Act Legends. Each certificate representing Shares shall have the following
legend endorsed conspicuously thereupon:

 

“The securities represented by this certificate were issued in a
private placement, without registration under the Securities Act of 1933, as
amended (the “Act”),
and may not be sold, assigned, pledged or otherwise transferred in the absence
of an effective registration under the Act covering the transfer or an opinion
of counsel, satisfactory to the issuer, that registration under the Act is not
required.”

 

11.3                           Stop
Transfer Instruction. The Company will instruct any transfer agent not to
register the Transfer of any Shares until the conditions specified in the
foregoing legends are satisfied.

 

11.4                           Termination
of 1933 Act Legend. The requirement imposed by Section 11.2 hereof
shall cease and terminate as to any particular Shares (a) when, in the opinion
of Ropes & Gray, or other counsel reasonably acceptable to the Company,
such legend is no longer required in order to assure compliance by the Company
with the Securities Act or (b) when such Shares have been effectively
registered under the Securities Act or transferred pursuant to Rule 144.
Wherever (x) such requirement shall cease and terminate as to any Shares or (y)
such Shares shall be transferable under paragraph (k) of Rule 144, the holder
thereof shall be entitled to receive from the Company, without expense, new
certificates not bearing the legend set forth in Section 11.2 hereof.

 

SECTION 12.                          AMENDMENT, TERMINATION, ETC.

 

12.1                           Oral
Modifications.  This Agreement may
not be orally amended, modified, extended or terminated, nor shall any oral
waiver of any of its terms be effective.

 

31

 

12.2                           Written
Modifications.  This Agreement may
be amended, modified, extended or terminated, and the provisions hereof may be
waived, only by an agreement in writing signed by the Company and the Majority
Series A Holders; provided, however, that:

 

(a)                                  the
consent of the holders of a majority of the Minority Shares then outstanding
shall be required for (i) any amendment, modification, extension, termination
or waiver of Section 3.1 which would eliminate the rights of the holders
of Minority Shares to participate in a Sale under Section 3.1 or any
amendment, modification, extension, termination or waiver of Section 3.1
which would disproportionately materially adversely affect the rights of the
holders of Minority Shares vis-à-vis the rights of the holders of Shares other
than Minority Shares, (ii) any amendment, modification, extension, termination
or waiver of Section 7.2 which would eliminate the rights of the holders
of Minority Shares to participate in a registration under Section 7.2 or
any amendment, modification, extension, termination or waiver of Section 7.2
which would disproportionately materially adversely affect the rights of the
holders of Minority Shares vis-à-vis the rights of the holders of Shares other
than Minority Shares, (iii) any amendment, modification, extension, termination
or waiver of Section 3.2(c), which would disproportionately materially
adversely affect the rights of the holders of Minority Shares vis-à-vis the
rights of the holders of Shares other than Minority Shares, and (iv) any
amendment, modification, extension, termination or waiver of Section 4.2,
5 or 8; and

 

(b)                                 the
consent of the holders of a majority of the Shares held by the Cady
Stockholders shall be required for any amendment, modification, extension,
termination or waiver of Section 5.4.

 

Each such amendment, modification, extension, termination and waiver
shall be binding upon each party hereto and each holder of Shares subject
hereto.  In addition, each party hereto
and each holder of Shares subject hereto may waive any right hereunder by an
instrument in writing signed by such party or holder.

 

12.3                           Termination.  No termination under this Agreement shall
relieve any Person of liability for breach prior to termination.

 

SECTION 13.                          DEFINITIONS

 

For purposes of this Agreement:

 

13.1                           Certain
Matters of Construction.  In addition
to the definitions referred to or set forth below in this Section 13:

 

(a)                                  The
words “hereof”, “herein”, “hereunder” and words of similar import shall refer
to this Agreement as a whole and not to any particular Section or
provision of this Agreement, and reference to a particular Section of this
Agreement shall include all subsections thereof;

 

(b)                                 Definitions
shall be equally applicable to both nouns and verbs and the singular and plural
forms of the terms defined; and

 

(c)                                  The
masculine, feminine and neuter genders shall each include the other.

 

32

 

13.2                           Definitions.  The following terms shall have the following
meanings:

 

“AAA”
shall have the meaning set forth in Section 5.1(d).

 

“Administrative Agent”
shall have the meaning ascribed to it in the Credit Agreement.

 

“Adverse Claim”
shall have the meaning set forth in Section 8-302 of the applicable
Uniform Commercial Code.

 

“Affiliate”
shall mean, with respect to any specified Person, (a) any other Person which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person (for the
purposes of this definition, “control” (including, with correlative meanings,
the terms “controlling,” “controlled by” and “under common control with”), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise) and (b) each Person of which such specified Person or an
Affiliate (as defined in clause (a) above) thereof shall, directly or
indirectly, beneficially own at least five percent (5%) of the outstanding capital
stock or other evidence of beneficial interest at such time.  With respect to any natural Person,
“Affiliate” shall also include without limitation any Member of the Immediate
Family of such natural Person.

 

“Affiliated Fund”
shall mean each corporation, trust, limited liability company, general or
limited partnership or other entity under common control with any Series A
Holder or Common Stock Holder, as the case may be.

 

“Agreement”
shall have the meaning set forth in the Preamble.

 

“Appraisal Process”
shall mean the following process: within three (3) business days after the
effectiveness of the Drag Along Notice, the Participating Drag Along Sellers
shall, by Majority Series A Holder vote, select a representative (the “Representative”) to
meet with the Prospective Drag Along Sellers. 
If no such Representative has been selected within such three (3)
business day period, then the Board shall serve as the Representative.  The Prospective Drag Along Sellers shall
meet with the Representative to discuss the per share price for each type of
Share to be paid in the proposed Sale as set forth in the Drag Along
Notice.  If the Representative agrees to
the per share price for each type of Share set forth in the Drag Along Notice,
then the Prospective Drag Along Sellers may effect the proposed Sale pursuant
to Section 3.2.  If the
Representative does not agree to the per share price for each type of Share set
forth in the Drag Along Notice within three (3) business days after the first
meeting between the Prospective Drag Along Sellers and the Representative, then
the Representative and the Prospective Drag Along Sellers shall each select an
Appraiser within three (3) business days and the two (2) Appraisers shall each
make an independent appraisal as to the per share fair value of each type of
Share to be sold in the proposed Sale. 
If the average of the two (2) per share fair values for a type of Share
determined by the Appraisers is less than or equal to the per share price for
such type of Share as set forth in the Drag Along Notice, then the Prospective
Drag Along Sellers may effect the proposed Sale pursuant to Section 3.2,
as applicable, at the per share price for such type of

 

33

 

Share set forth in the Drag Along Notice.  If the average of the two (2) per share fair
values for a type of Share determined by the Appraisers is greater than the per
share price for such type of Share as set forth in the Drag Along Notice, then
the Prospective Drag Along Sellers may either effect the proposed Sale pursuant
to Section 3.2, as applicable, at such average per share fair value for
such type of Share or request that a third appraiser be selected, in which case
the Prospective Drag Along Sellers and the Representative shall attempt to
agree on a third Appraiser.  If, within
three (3) business days, the Prospective Drag Along Sellers and the
Representative cannot agree on a third Appraiser, then the two (2) Appraisers
selected by each of the Prospective Drag Along Sellers and the Representative
shall select a third Appraiser who shall make an independent appraisal as to
the per share fair value of such type of Shares to be sold in the proposed
Sale.  An average shall be taken of the
two out of three per share fair values for such type of Shares determined by
the Appraisers that are closest together, or, if the three per share fair
values are equidistant from one another, an average shall be taken of all three
per share fair values.  If such average
is less than or equal to the per share price as set forth in the Drag Along
Notice, then the Prospective Drag Along Sellers may effect the proposed Sale
pursuant to Section 3.2, as applicable, at such average per share fair
value.  If such average is greater than
the per share price for such type of Share as set forth in the Drag Along
Notice, then the Prospective Drag Along Sellers may either effect the proposed
Sale pursuant to Section 3.2, as applicable, at such average per share
fair value for such type of Share or elect not to proceed with the proposed
Sale pursuant to Section 3.2.  The
costs and expenses of each of the Appraisers shall be borne by the Company.

 

“Appraiser”
shall mean an independent business appraiser or investment banker of recognized
standing with knowledge and experience related to the industry in which the
Company operates.

 

“Bain Director”
shall have the meaning set forth in Section 2.1(b) hereof.

 

“Bain Investors”
shall mean Bain Capital Fund VI, L.P., BCIP Associates II, BCIP Associates
II-B, BCIP Associates II-C, BCIP Trust Associates II, BCIP Trust
Associates II-B, BCIP Associates II-C, PEP Investments PTY Ltd., RGIP,
LLC, Randolph Street Partners IV and Sankaty High Yield Asset Partners, L.P.

 

“Bankruptcy Code”
shall mean 11 U.S.C. §101 et  seq., or any successor provisions
thereto.

 

“Base Price”
of any Share, as of any date, shall mean an amount equal to the lesser of (i)
the Contract Price of such Share as of such date, or (ii) the amount originally
paid to the Company for such Share by the original holder upon issuance
thereof, increased from the date of issuance through the date in question at a
non-compounded per annum rate of six percent (6%).

 

“Board”
shall mean the board of directors of the Company.

 

“Cady Stockholder”
shall mean Paul D. Cady, Daniel P. Cady, David G. Cady and Kim Cady, Susan E.
Rivera and Thomas Rivera, and Steven M. Simon.

 

34

 

“Cause”
shall be deemed to exist if a Minority Stockholder:  (i) violates any federal, state or local law or commits any act
of dishonesty involving the Company or any of its Subsidiaries if such
violation or act (x) causes material damages to the Company or any of its
Subsidiaries, or (y) in the reasonable judgment of the Board, would materially
and adversely affect the Minority Stockholder’s ability to perform his duties
for the Company or any of its Subsidiaries; (ii) solicits or contacts customers
of the Company or any of its Subsidiaries, becomes employed by a competitor of
the Company or any of its Subsidiaries or actively and knowingly assists in the
establishment or operation of any competitive business in violation of any
agreement with the Company or any of its Subsidiaries concerning
noncompetition; (iii) breaches any agreement with the Company or any of its
Subsidiary concerning noncompetition in a manner other than as described in the
foregoing clause (ii) and fails to discontinue the offending conduct within ten
(10) days following receipt of notice thereof; (iv) knowingly or intentionally
breaches any confidentiality agreement with the Company or any of its
Subsidiaries; (v) unintentionally breaches any confidentiality agreement with
the Company or any of its Subsidiaries and continues to engage in behavior in
violation of such confidentiality agreement following receipt of notice of such
breach; (v) commits an act of willful misconduct in the course of his
employment with the Company or any of its Subsidiaries that causes material
damage to the Company or any of its Subsidiaries; (vi) commits any act of gross
negligence in the course of his employment or breaches in any material respect
any of the terms of his employment with the Company or any of its Subsidiaries
if the Minority Stockholder fails to discontinue the offending conduct within
ten days following receipt of notice thereof and such act of gross negligence
or breach has caused material damage to the Company or any of its
Subsidiaries.  Nothing contained in this
definition or this Agreement shall be deemed to affect the right of the Company
or any of its Subsidiaries to discipline or discharge a Minority Stockholder
and this Cause definition shall be used solely for purposes of determining the
price to be paid for Shares held by a Minority Stockholder upon termination of
his employment which are purchased in accordance with the terms of this
Agreement.

 

“CCI Stock”
shall have the meaning set forth in Section 5.4.

 

“CEO Director”
shall have the meaning set forth in Section 2.1(b).

 

“Change of Control”
shall mean (A) any sale or transfer of all or substantially all of the assets
of the Corporation and its Subsidiaries on a consolidated basis (measured
either by book value in accordance with generally accepted accounting
principles consistently applied or by fair market value determined in the reasonable
good faith judgment of the Board of the Directors) in any transaction or series
of transactions; and (B) any merger, consolidation to which the Corporation is
a party or other similar transaction or series of related transactions, and
after giving effect to such merger, consolidation to which the Corporation is a
party or other similar transaction or series of related transactions, the
holders of the Corporation’s outstanding capital stock possessing a majority of
the voting power immediately prior to such merger or consolidation or other
similar transaction or series of related transactions hold less than fifty
percent (50%) of the outstanding voting securities of the surviving corporation
following such merger or consolidation or other similar transaction or series
of related transactions..

 

“Code”
shall have the meaning set forth in Section 5.4.

 

35

 

“Commission”
shall mean the Securities and Exchange Commission.

 

“Common Shares”
shall have the meaning set forth in the Preamble.

 

“Common Stock”
shall have the meaning set forth in the Preamble.

 

“Common Stock Holder”
shall have the meaning set forth in the Preamble.

 

“Company”
shall have the meaning set forth in the Preamble.

 

“Contract Price,”
as of any date, of any Share subject to purchase hereunder, shall mean the
aggregate price at which a purchaser and seller would buy and sell such Share
on such date and shall be determined as follows:

 

(a)                                  The
seller and the purchaser(s) will attempt to agree on the Contract Price.  For those purchaser(s) with whom the seller
is able to agree on the Contract Price, the amount so agreed will be the
Contract Price.

 

(b)                                 If
the seller and any purchaser(s) are unable to agree on the Contract Price for
such Shares, the Contract Price shall be determined by an Appraiser mutually
acceptable to the seller and such purchaser(s).  If the parties cannot agree on an Appraiser, the purchaser(s) and
the seller shall each select an Appraiser and the two (2) Appraisers so selected
shall select the Appraiser who shall determine the Contract Price and the
determination of such Appraiser shall be binding and conclusive on such parties
for purposes hereof.  In appraising the
Shares subject to purchase, the Appraiser shall utilize a valuation method
based upon the market values of publicly-held companies which are comparable to
the Company.  The Appraiser shall apply
such discount as the Appraiser deems appropriate (but not to exceed 27.5%) for lack
of marketability but shall not apply any discount for minority interests.  The seller shall bear one-half (1⁄2) of the
costs and expenses of such Appraiser or, if less, an amount equal to ten
percent (10%) of the aggregate Contract Price (as determined by such Appraiser)
for all Shares available for purchase from the seller and the purchaser(s)
shall bear the balance of the costs and expenses of such Appraiser.

 

(c)                                  The
Contract Price of the Shares subject to repurchase hereunder shall be
determined as of (i) the date an Offer is made in the event of a purchase under
Section 5.1, or (ii) the date of notice of exercise of an option to
purchase or sell such Shares (as the case may be) in the event of a purchase
pursuant to Section 5; provided, however, that in the event
a purchase or sale option is deferred in accordance with Section 5.2, the
date of determination shall be the date of notice of exercise of an option on
or after the Waiver of Deferral Notice is delivered.

 

“Contract Terms”
with respect to Shares purchased pursuant hereto shall mean the following terms
of payment:

 

(a)                                  The
purchaser will be required to pay the purchase price for such Shares in cash or
other immediately available funds as of the date of purchase if the aggregate
purchase price for such Shares is $100,000 or less and, if the Company is the
purchaser, such cash payment is permitted by the Senior Lenders.

 

36

 

(b)                                 If
the purchase price for such Shares exceeds $100,000 or the Company is the
purchaser and is prohibited by its Senior Lenders from making such cash
payment, the purchaser will pay the purchase price for such Shares by
delivering to the seller on the date of purchase cash or other immediately
available funds in an amount equal to the greater of $75,000 or ten percent of
the purchase price and the balance of the purchase price shall be paid by
purchaser’s delivery to the seller on the date of purchase of a promissory note
with terms as follows:

 

(i)                                     The
remaining purchase price will be payable in twelve (12) equal consecutive
quarterly installments commencing ninety (90) days after the date of purchase;

 

(ii)                                  Interest
will accrue on the principal balance outstanding from time to time at a fixed
rate per annum equal to the lesser of (i) the Prime Rate in effect as of the
date of purchase, or (ii) twelve percent (12%) and will be payable together
with each installment of principal; and

 

(iii)                               The promissory note will
be subordinated to the Senior Lenders on such terms as may be requested by such
Senior Lenders.

 

(c)                                  The
“date of purchase” shall be such date as the seller and the purchaser(s) shall
agree but in no event shall such date of purchase be more than twenty (20) days
after the date of notification of the final determination of the Contract Price
(or, if applicable, the Base Price) of the Shares being sold.

 

(d)                                 On
the date of purchase, the seller shall deliver to the purchaser(s) certificates
evidencing ownership of the Shares being sold properly endorsed or with
properly executed stock powers, free and clear of all liens, claims,
restrictions and encumbrances other than this Agreement.

 

“Convertible Securities”
shall mean any evidence of indebtedness, Shares (other than shares of Common
Stock) or other securities (other than Options) which are directly or indirectly
convertible into or exchangeable or exercisable for shares of Common Stock.

 

“Covered Person”
shall have the meaning set forth in Section 7.4(a).

 

“Credit Agreement”
shall mean the Third Amended and Restated Loan and Security Agreement, dated as
of June 27, 2002 by among the Company and certain other parties thereto,
as in effect from time to time.

 

“Disability”
shall mean the inability of a Minority Stockholder to perform his regular
duties for the Company or any of its Subsidiaries on a full-time basis as a
result of a physical or mental illness or condition, regardless of the nature
or cause thereof, which continues for a period in excess of 180 consecutive
days or 210 days in any consecutive twelve-month period.

 

37

 

“Drag Along Notice”
shall have the meaning set forth in Section 3.2(b).

 

“Drag Along Sale
Percentage” shall have the meaning set forth in
Section 3.2(a).

 

“Drag Along Sellers”
shall have the meaning set forth in Section 3.2(b).

 

“Employee Stock”
shall have the meaning set forth in Section 8.2.

 

“Equity Securities”
shall mean any equity securities of the Company, including, without limitation,
the Series A Preferred Stock, the Common Stock, and any other securities or
instruments which have equity features or which are convertible into or
exercisable for any such securities or instruments.

 

“Equivalent Shares”
shall mean as to any outstanding shares of Common Stock, such number of shares
of Common Stock, and as to any outstanding Options or Convertible Securities,
the maximum number of shares of Common Stock for which or into which such
Options or Convertible Securities may at the time be exercised or converted.

 

“Escrow Agent”
shall have the meaning set forth in Section 10.2.

 

“Exchange Act”
shall mean the Securities Exchange Act of 1934, as in effect from time to time.

 

“Expert Director”
shall have the meaning set forth in Section 2.1(b).

 

“Fair Market Value”
shall mean, as of any date, as to any Equity Security, the Board’s good faith
determination of the fair value of such Equity Security as of the applicable
reference date.

 

“Gain”
shall have the meaning set forth in Section 5.4.

 

“GECC”
shall mean General Electric Capital Corporation.

 

“GECC Director”
shall have the meaning set forth in Section 2.1(b).

 

“Indemnitee”
shall have the meaning set forth in Section 7.4(c).

 

“Independent Director”
shall have the meaning set forth in Section 2.1(b).

 

“Initial Public
Offering” means the initial Public Offering registered on Form
S-1 (or any successor form under the Securities Act).

 

“Initiating Series A
Holders” shall have the meaning set forth in
Section 7.1(a).

 

“IRS”
shall have the meaning set forth in Section 5.4.

 

“Issuance”
shall have the meaning set forth in Section 6.

 

“Joining Parties”
shall have the meaning set forth in Section 14.7.

 

38

 

“Liquidity Event”
shall have the meaning set forth in Section 3.4.

 

“Look-Back Date”
shall have the meaning set forth in Section 8.1.

 

“Look-Back Option”
shall have the meaning set forth in Section 8.1.

 

“Look-Back Valuation”
shall have the meaning set forth in Section 8.1.

 

“Majority Participating
Holders” shall have the meanings set forth in
Section 7.1(f).

 

“Majority Series A
Holders” shall mean, as of any date, the holders of at least
sixty percent (60%) of the Series A Shares then outstanding on such date.

 

“Majority Stockholders”
shall mean, as of any date, the holders of a majority of the Shares outstanding
on such date.

 

“Major Transaction”
shall mean, with respect to any entity, (a) merger or consolidation, whether or
not such entity is the surviving entity (other than a merger effected solely
for the reincorporation of such entity), (b) disposition of properties (whether
effected by merger, sale of assets, lease, equity exchange or otherwise), other
than in any transaction or series of related transactions involving less than
$50,000, (c) acquisition of or lease of properties (whether effected by merger,
purchase of assets, lease, equity exchange or otherwise), other than in any
transaction or series of related transactions involving less than $50,000,
(d) any amendment, modification or waiver of any terms set forth in the
Credit Agreement and (e) except pursuant to the Credit Agreement, borrowing of
money (whether in the public or private markets), obtaining of credit (other
than trade credit in the ordinary course of business), issuance of notes,
debentures or securities, or the refinancing thereof, except to the extent that
the aggregate principal amount of indebtedness of the type described in this
clause (d) at any time outstanding and not approved according to the procedures
described in Section 2.3 hereof does not exceed $50,000.

 

“Make-Whole Amount”
shall have the meaning set forth in Section 8.3.

 

“Members of the
Immediate Family” shall mean, with respect to any individual,
each spouse, parent, sibling, child or other descendents of such individual,
each partnership or trust created for the primary benefit of one or more of the
aforementioned Persons and their spouses and each custodian or guardian of any
property of one or more of the aforementioned Persons in its capacity as such
custodian or guardian.

 

“Minority Sale”
shall have the meaning set forth in Section 4.1(a).

 

“Minority Shares”
shall mean (a) all shares of Common Stock originally issued to, or issued with
respect to shares originally issued to, or held by, a Minority Stockholder,
whenever issued, including, without limitation, all shares of Common Stock
issued pursuant to the exercise of any Options and all shares of Common Stock
issued upon conversion of any shares of Preferred Stock, (b) all shares of
Preferred Stock originally issued to, or issued with respect to shares
originally issued to, or held by, a Minority Stockholder, whenever issued

 

39

 

(treating such shares of Preferred Stock as a number
of Shares equal to the number of Equivalent Shares represented by such shares
of Preferred Stock for all purposes of this Agreement except as otherwise
specifically set forth herein), and (c) all Options originally granted or
issued to a Minority Stockholder (treating such Options as a number of Shares
equal to the number of Equivalent Shares represented by such Options for all
purposes of this Agreement except as otherwise specifically set forth herein).

 

“Minority Stockholders”
shall have the meaning set forth in the Preamble.

 

“Minority Transferor”
shall have the meaning set forth in Section 4.1(a).

 

“Offer”
shall have the meaning set forth in Section 4.1(a).

 

“Options”
shall mean any options or warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities.

 

“Other Securities”
shall have the meaning set forth in Section 6.1(c).

 

“Participating Buyer”
shall have the meaning set forth in Section 6.1(b)(i).

 

“Participating Drag
Along Seller” shall have the meanings set forth in
Section 3.2(b).

 

“Participating Tag
Along Seller” shall have the meaning set forth in
Section 3.1(c).

 

“Participating
Transferor” shall have the meaning set forth in
Section 3.3(a).

 

“Participation Notice”
shall have the meaning set forth in Section 6.1(a).

 

“Participation Portion”
shall have the meaning set forth in Section 6.1(a)(i).

 

“Permitted Transferee”
shall mean (a) as to each Series A Share, a transferee of such Series A Share
resulting from a Transfer to an Affiliated Fund, partner or Affiliate of a
holder of Series A Shares, (b) as to each Common Share, a transferee of such
Common Share an Affiliated Fund, partner or Affiliate of a holder of Common
Shares, and (c) as to each Minority Share, a transferee of such Minority Share
in compliance with Section 4 hereof.

 

“Person”
shall mean any individual, partnership, corporation, limited liability company,
company, association, trust, joint venture, unincorporated organization, entity
or division, or any government, governmental department or agency or political
subdivision thereof.

 

“PIK Interest”
shall mean interest on the Term Loan.

 

“Preferred Stock”
shall mean the Company’s preferred stock.

 

“President Director”
shall have the meaning set forth in Section 2.1(b).

 

40

 

“Price Per Equivalent
Share” shall mean the Board’s good faith determination of the
price per Equivalent Share of any Convertible Securities or Options which are
the subject of an Issuance pursuant to Section 8 hereof.

 

“Prime Rate”
shall mean the rate per annum published in the Wall Street Journal (or any
comparable successor publication) as the Prime Rate (i.e., the base rate
on corporate loans posted by at least seventy-five percent (75%) of the
nation’s thirty (30) largest banks).

 

“Prospective Buyer”
shall have the meaning set forth in Section 3.1(a)(i).

 

“Prospective Drag Along
Seller” shall have the meaning set forth in Section 3.2.

 

“Prospective Series A
Seller” shall have the meanings set forth in Sections 3.1.

 

“Prospective Subscriber”
shall have the meaning set forth in Section 6.1(a)(i).

 

“Prospective Transferor”
shall have the meaning set forth in Section 3.3(a).

 

“Public Offering”
shall mean a public offering and sale of Common Stock for cash pursuant to an
effective registration statement under the Securities Act.

 

“Qualified Public
Offering” shall mean a Public Offering, other than any Public
Offering or sale pursuant to a registration statement on Form S-8 or comparable
form, in which the aggregate price to the public of all such Common Stock sold
in such offering shall exceed the greater of (i) $50,000,000 or (ii) the
outstanding principal amount on the Term Note (including any PIK Interest).

 

“Registrable Securities”
shall mean (a) all shares of Common Stock, (b) all shares of Common Stock
issuable upon the conversion of the Series A Preferred Stock, (c) all shares of
Common Stock issuable upon the conversion of the Minority Shares (as
applicable), (d) all shares of Common Stock issuable upon exercise of any
Option or Convertible Security and (e) all shares of Common Stock directly or
indirectly issued or issuable with respect to the securities referred to in
clauses (a), (b), (c) or (d) above by way of stock dividend or stock split or
in connection with a combination of Shares, recapitalization, merger,
consolidation or other reorganization, in each case constituting Shares.  As to any particular Registrable Securities,
such shares shall cease to be Registrable Securities when (i) such shares shall
have been Transferred pursuant to Section 3.1 (other than
Section 3.1(g)(ii)(A), (B), (C) or (D)) or 3.2, (ii) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (iii) such securities shall
have been Transferred pursuant to Rule 144, (iv) subject to the provisions of
Section 12, such securities shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration of them under the Securities Act and such securities may
be distributed without volume limitation or other restrictions on transfer
under Rule 144 (including without application of paragraphs (c), (e) (f) and
(h) of Rule 144) or (v) such securities shall have ceased to be outstanding.

 

41

 

“Registrable Series A
Securities” shall have the meaning set forth in
Section 7.1(a).

 

“Representative”
shall have the meaning set forth in the definition of “Appraisal Process” in
this Section 13.2.

 

“Rule 144”
shall mean Rule 144 under the Securities Act (or any successor rule).

 

“Rule 145 Transaction”
shall mean a registration on Form S-4 pursuant to Rule 145 of the Securities
Act (or any successor Form or provision, as applicable).

 

“Sale”
shall have the meaning set forth in Section 3.1.  The terms “Sell” and “Sold” shall reference the sale of Shares pursuant to a
Sale.

 

“Securities Act”
shall mean the Securities Act of 1933, as in effect from time to time.

 

“Senior Lenders”  shall
mean any financial institution providing credit or financing to the Company
whether in the form of term loans, revolving lines of credit, letters of
credit, industrial revenue bonds or otherwise.

 

“Senior Management”
shall mean the Company’s chief executive officer, chief financial officer and
chief operating officer.

 

“Series A Holder”
shall have the meaning set forth in the Preamble.

 

“Series A Preferred
Stock” shall have the meaning set forth in the Preamble.

 

“Series A Purchase
Agreement” shall mean that certain Series A Preferred Stock
Purchase Agreement dated June 27, 2002 by and among the Company and
certain holders of Series A Preferred Stock.

 

“Series A Shares”
shall have the meaning set forth in the Preamble.

 

“Shares”
shall mean all Common Stock, all Series A Preferred Stock and Minority Shares
held by the parties hereto.

 

“Stockholders”
shall have the meaning set forth in the Preamble.

 

“Stock Option Plan”
shall mean the Company’s Fourth Amended and Restated Stock Option Plan of 1996
(as in effect from time to time).

 

“Stolberg Director”
shall have the meaning set forth in Section 2.1(b).

 

“Stolberg Investors”
shall mean Stolberg Partners, L.P., Stolberg Meehan & Scano II, L.P. and
SMS II-A, L.P.

 

“Stolberg Observer”
shall have the meaning set forth in Section 2.2.

 

42

 

“Sub Board”
shall have the meaning set forth in Section 2.1(c).

 

“Subject Minority
Shares” shall have the meaning set forth in Section 8.1.

 

“Subject Securities”
shall have the meaning set forth in Section 6.

 

“Subsidiary”
shall mean, with respect to any Person, any corporation, limited liability
company, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a limited liability
company, partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries
of that person or a combination thereof. 
For purposes hereof, a Person or Persons shall be deemed to have a
majority ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or control the managing
general partner of such limited liability company, partnership, association or
other business entity.

 

“Tag Along Notice”
shall have the meaning set forth in Section 3.1(a).

 

“Tag Along Offer”
shall have the meaning set forth in Section 3.1(c).

 

“Tag Along Sale
Percentage” shall have the meaning set forth in
Section 3.1(b).

 

“Tag Along Sellers”
shall have the meaning set forth in Section 3.1(c).

 

“Term Loan”
shall mean the Company’s seven-year amortizing term loan pursuant to the Credit
Agreement.

 

“Third Amended and
Restated Stockholders Agreement” shall have the meaning set
forth in the Recitals.

 

“Transfer”
shall mean any sale, transfer, pledge, assignment, encumbrance or other
disposition of any Shares to any other Person, whether directly, indirectly,
voluntarily, involuntarily, with consideration, without consideration, by
operation of law, pursuant to judicial process or otherwise of any interest in
a Share.

 

“Waiver of Deferral Notice” shall have the meaning set
forth in Section 5.2.

 

“Wind Point Director”
shall have the meaning set forth in Section 2.1(b).

 

“Wind Point Investors”
shall mean Wind Point Partners IV, L.P., Wind Point IV Executive Advisor
Partners, L.P. and Wind Point Associates IV, L.L.C.

 

43

 

SECTION 14.                          MISCELLANEOUS

 

14.1                           Authority: Effect.  Each
party hereto represents and warrants to and agrees with each other party that
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized on behalf of such
party and do not violate any agreement or other instrument applicable to such
party or by which its assets are bound. 
This Agreement does not, and shall not be construed to, give rise to the
creation of a partnership among any of the parties hereto, or to constitute any
of such parties members of a joint venture or other association.

 

14.2                           Notices.  Any notices and other
communications required or permitted in this Agreement shall be effective if in
writing and (a) delivered personally or (b) sent (i) by Federal Express, DHL or
UPS or (ii) by registered or certified mail, postage prepaid, in each case,
addressed as follows:

 

If to the Company, to it:

 

Eschelon
Telecom, Inc.

730
2nd Avenue South

Suite
1200

Minneapolis,
MN 55402

Attention:  Chief Executive Officer

 

with a copy to:

 

Piper
Marbury Rudnick & Wolfe LLP

1200
Nineteenth St., N.W.

Washington,
DC 20036-2430

Attention:  Edwin M. Martin, Esq.

 

and with a copy to:

 

Robins,
Kaplan, Miller & Ciresi L.L.P.

2800
LaSalle Plaza

800
LaSalle Avenue

Minneapolis,
MN 55402-2015

Attention:  David L. Mitchell, Esq.

 

If to a Series A Holder, to it at the address set
forth in the stock record book of the Company.

 

If to a Common Stock Holder, to it at the address
set forth in the stock record book of the Company.

 

If to a Minority Stockholder, to it at the
address set forth in the stock record book of the Company.

 

44

 

Notice to the holder of record of any Shares
shall be deemed to be notice to the holder of such Shares for all purposes
hereof.

 

Unless otherwise specified herein, such notices
or other communications shall be deemed effective (a) on the date received, if
personally delivered, (b) two (2) business days after being sent by Federal
Express, DHL or UPS and (c) three (3) business days after deposit with the U.S.
Postal Service, if sent by registered or certified mail.  Each of the parties hereto shall be entitled
to specify a different address by giving notice as aforesaid to each of the
other parties hereto.

 

14.3                           Binding Effect, etc.  Except
for restrictions on Transfer of Shares set forth in other agreements, plans or
other documents, this Agreement constitutes the entire agreement of the parties
with respect to its subject matter, supersedes all prior or contemporaneous
oral or written agreements or discussions with respect to such subject matter,
and shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, representatives, successors and assigns.

 

14.4                           Descriptive Headings.  The
descriptive headings of this Agreement are for convenience of reference only,
are not to be considered a part hereof and shall not be construed to define or
limit any of the terms or provisions hereof.

 

14.5                           Counterparts; Facsimile Signatures.  This
Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one
instrument.  Facsimile signatures shall
have the same binding effect as original signatures.

 

14.6                           Severability.  In the event that any provision
hereof would, under applicable law, be invalid or unenforceable in any respect,
such provision shall be construed by modifying or limiting it so as to be valid
and enforceable to the maximum extent compatible with, and possible under,
applicable law.  The provisions hereof
are severable, and in the event any provision hereof should be held invalid or
unenforceable in any respect, it shall not invalidate, render unenforceable or
otherwise affect any other provision hereof.

 

14.7                           Joinder.  The parties hereto intend that
(a) transferees of Shares hereunder, (b) holders of securities of the Company
that are not parties hereto and (c) future holders of securities of the Company
(collectively, the “Joining Parties”)
may become parties to this Agreement. 
The parties agree that the Joining Parties may become parties hereto by
executing a joinder agreement and upon execution of such joinder agreement
shall be entitled to rights and subject to obligations applicable to such
Joining Parties hereunder.

 

14.8                           Consent to Amendment and Restatement.  By
executing this Agreement, each party hereto consents to this amendment and
restatement of that certain Third Amended and Restated Stockholders Agreement,
dated as of July 27, 2000, pursuant to the terms of Section 12
thereof.

 

45

 

SECTION 15.                          GOVERNING LAW, ETC.

 

15.1                           Governing Law.  This Agreement shall be
governed by and construed in accordance with the domestic substantive laws of
the State of Delaware without giving effect to any choice or conflict of laws
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.

 

15.2                           Consent to Jurisdiction.  Each
party to this Agreement, by its execution hereof, (a) hereby irrevocably
submits to the exclusive jurisdiction of the state courts of the State of
Delaware sitting in the County of Wilmington or the United States District
Court for the District of Delaware for the purpose of any action, claim, cause
of action or suit (in contract, tort or otherwise), inquiry, proceeding or
investigation arising out of or based upon this Agreement or relating to the
subject matter hereof, (b) hereby waives to the extent not prohibited by
applicable law, and agrees not to assert, and agrees not to allow any of its
Subsidiaries to assert, by way of motion, as a defense or otherwise, in any
such action, any claim that it is not subject personally to the jurisdiction of
the above-named courts, that its property is exempt or immune from attachment
or execution, that any such proceeding brought in one of the above-named courts
is improper, or that this Agreement or the subject matter hereof or thereof may
not be enforced in or by such court and (c) hereby agrees not to commence or
maintain any action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry, proceeding or investigation arising out of or based upon
this Agreement or relating to the subject matter hereof or thereof other than
before one of the above-named courts nor to make any motion or take any other
action seeking or intending to cause the transfer or removal of any such
action, claim, cause of action or suit (in contract, tort or otherwise),
inquiry, proceeding or investigation to any court other than one of the
above-named courts whether on the grounds of inconvenient forum or
otherwise.  Notwithstanding the
foregoing, to the extent that any party hereto is or becomes a party in any
litigation in connection with which it may assert indemnification rights set
forth in this agreement, the court in which such litigation is being heard
shall be deemed to be included in clause (a) above.  Each party hereto hereby consents to service of process in any
such proceeding in any manner permitted by Delaware law, and agrees that
service of process by registered or certified mail, return receipt requested,
at its address specified pursuant to Section 14.2 hereof is reasonably
calculated to give actual notice.

 

15.3                           WAIVER OF JURY TRIAL.  TO THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY
HERETO HEREBY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN CONTRACT,
TORT OR OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR
BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. EACH PARTY HERETO ACKNOWLEDGES
THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THIS
SECTION 15.3 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARE RELYING
AND WILL RELY IN ENTERING INTO THIS AGREEMENT. 
ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION

 

46

 

15.3
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE
WAIVER OF ITS RIGHT TO TRIAL BY JURY.

 

15.4                           Exercise of Rights and Remedies.  No
delay of or omission in the exercise of any right, power or remedy accruing to
any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any such delay,
omission nor waiver of any single breach or default be deemed a waiver of any
other breach or default occurring before or after that waiver.

 

47

 

IN WITNESS WHEREOF, each of the undersigned has
duly executed this Agreement as of the date first above written.

 

THE
COMPANY:

 

	
   

  	
  ESCHELON TELECOM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Richard A. Smith

  	
   

  
	
   

  	
   

  	
  Name:  Richard A. Smith

  
	
   

  	
   

  	
  Title:  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  SERIES A INVESTORS:

  	
   

  
	
   

  	
   

  
	
   

  	
  BAIN CAPITAL FUND VI, L.P.

  
	
   

  	
  By:

  	
    Bain
  Capital Partners VI, L.P., its general partner

  
	
   

  	
  By:

  	
    Bain
  Capital Investors , LLC, its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Ian K. Loring

  	
   

  
	
   

  	
   

  	
  Name: Ian K.
  Loring

  
	
   

  	
   

  	
  Title:Managing
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BCIP ASSOCIATES II

  
	
   

  	
  BCIP TRUST ASSOCIATES II

  
	
   

  	
  BCIP ASSOCIATES II-B

  
	
   

  	
  BCIP TRUST ASSOCIATES II-B

  
	
   

  	
  BCIP ASSOCIATES II-C

  
	
   

  	
  By:

  	
  Bain Capital
  Investors, LLC, their managing partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Ian K. Loring

  	
   

  
	
   

  	
   

  	
  Name: Ian K.
  Loring

  
	
   

  	
   

  	
  Title:Managing
  Director

  

 

48

 

	
   

  	
  PEP INVESTMENTS PTY. LIMITED

  
	
   

  	
  By:

  	
    Bain
  Capital Investors, LLC, its attorney-in-fact

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Ian K. Loring

  	
   

  
	
   

  	
   

  	
  Name: Ian K.
  Loring

  
	
   

  	
   

  	
  Title:Managing
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RGIP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  R. Bradford Malt

  	
   

  
	
   

  	
   

  	
  Name:R. Bradford
  Malt

  
	
   

  	
   

  	
  Title:Managing
  Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RANDOLPH STREET PARTNERS IV

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Stephen D. Oetgen

  	
   

  
	
   

  	
   

  	
  Name: Stephen D.
  Oetgen

  
	
   

  	
   

  	
  Title:General
  Partner

  

 

49

 

	
   

  	
  WIND POINT PARTNERS IV, L.P.

  
	
   

  	
  By:

  	
    Wind
  Point Investor IV, L.P., as General Partner

  
	
   

  	
  By:

  	
    Wind
  Point Advisor, L.L.C., as General partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  James P. TenBroek

  	
   

  
	
   

  	
   

  	
  Name: James P.
  TenBroek

  
	
   

  	
   

  	
  Title:  Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WIND
  POINT IV EXECUTIVE ADVISOR

  PARTNERS, L.P.

  
	
   

  	
  By:

  	
    Wind
  Point Investor IV, L.P., as General Partner

  
	
   

  	
  By:

  	
    Wind
  Point Advisor, L.L.C., as General partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  James P. TenBroek

  	
   

  
	
   

  	
   

  	
  Name: James P.
  TenBroek

  
	
   

  	
   

  	
  Title: Managing
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WIND POINT ASSOCIATES IV, L.L.C.

  
	
   

  	
  By:

  	
    Wind
  Point Investor IV, L.P., as General Partner

  
	
   

  	
  By:

  	
    Wind
  Point Advisor, L.L.C., as General partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  James P. TenBroek

  	
   

  
	
   

  	
   

  	
  Name: James P.
  TenBroek

  
	
   

  	
   

  	
  Title: Managing
  Director

  

 

50

 

	
   

  	
  STOLBERG PARTNERS, L.P.

  
	
   

  	
  By:

  	
    SGMS,
  L.P., General Partner

  
	
   

  	
  By:

  	
    Stolberg
  Partners, Inc., General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Peter Van Genderen

  	
   

  
	
   

  	
   

  	
  Name: Peter Van
  Genderen

  
	
   

  	
   

  	
  Title:
  Authorized Representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  STOLBERG, MEEHAN & SCANO II,
  L.P.

  
	
   

  	
  By:

  	
    Stolberg,
  Meehan & Scano, L.L.C., General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Peter Van Genderen

  	
   

  
	
   

  	
   

  	
  Name: Peter Van
  Genderen

  
	
   

  	
   

  	
  Title:
  Authorized Representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SMS II-A, L.P.

  
	
   

  	
  By:

  	
    Stolberg,
  Meehan & Scano, L.L.C., General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Peter Van Genderen

  	
   

  
	
   

  	
   

  	
  Name: Peter Van
  Genderen

  
	
   

  	
   

  	
  Title:
  Authorized Representative

  

 

51

 

	
   

  	
  YALE UNIVERSITY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  David F. Swensen

  	
   

  
	
   

  	
   

  	
  Name: David F.
  Swensen

  
	
   

  	
   

  	
  Title: Chief
  Investment Officer

  

 

52

 

	
   

  	
  NTFC CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Henry Cruz

  	
   

  
	
   

  	
   

  	
  Name: Henry Cruz

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  David Kopolow

  	
   

  
	
   

  	
   

  	
  Name: David Y.
  Kopolow

  
	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WACHOVIA BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Ronald F. Bentien, Jr.

  	
   

  
	
   

  	
   

  	
  Name: Ronald F.
  Bentien, Jr.

  
	
   

  	
   

  	
  Title: Vice
  President

  

 

53

 

SCHEDULE OF
SERIES A HOLDERS

 

	
  Names and Addresses

  	
   

  	
  No. of
  Shares of

  Series A Preferred Stock

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bain
  Capital Fund VI, L.P.

  	
   

  	
  24,486,425

  	
   

  
	
  111
  Huntington Avenue

  	
   

  	
   

  	
   

  
	
  Boston,
  MA  02199

  	
   

  	
   

  	
   

  
	
  Attn:
  Mark Nunnelly

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BCIP
  Associates II

  	
   

  	
  3,226,314

  	
   

  
	
  111
  Huntington Avenue

  	
   

  	
   

  	
   

  
	
  Boston,
  MA  02199

  	
   

  	
   

  	
   

  
	
  Attn:
  Mark Nunnelly

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BCIP
  Associates II-B

  	
   

  	
  640,428

  	
   

  
	
  111
  Huntington Avenue

  	
   

  	
   

  	
   

  
	
  Boston,
  MA  02199

  	
   

  	
   

  	
   

  
	
  Attn:
  Mark Nunnelly

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BCIP
  Associates II-C

  	
   

  	
  1,272,097

  	
   

  
	
  111
  Huntington Avenue

  	
   

  	
   

  	
   

  
	
  Boston,
  MA  02199

  	
   

  	
   

  	
   

  
	
  Attn:
  Mark Nunnelly

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BCIP
  Trust Associates II

  	
   

  	
  722,140

  	
   

  
	
  111
  Huntington Avenue

  	
   

  	
   

  	
   

  
	
  Boston,
  MA  02199

  	
   

  	
   

  	
   

  
	
  Attn:
  Mark Nunnelly

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BCIP
  Trust Associates II-B

  	
   

  	
  441,420

  	
   

  
	
  111
  Huntington Avenue

  	
   

  	
   

  	
   

  
	
  Boston,
  MA  02199

  	
   

  	
   

  	
   

  
	
  Attn:
  Mark Nunnelly

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  RGIP,
  LLC

  	
   

  	
  315,005

  	
   

  
	
  111
  Huntington Avenue

  	
   

  	
   

  	
   

  
	
  Boston,
  MA  02199

  	
   

  	
   

  	
   

  
	
  Attn:
  Mark Nunnelly

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Randolph
  Street Partners IV

  	
   

  	
  315,005

  	
   

  
	
  200
  East Randolph Drive

  	
   

  	
   

  	
   

  
	
  Chicago,
  IL 60601

  	
   

  	
   

  	
   

  
	
  Attn:
  Matthew Steinmetz

  	
   

  	
   

  	
   

  

 

54

 

	
  PEP
  Investments PTY Ltd.

  	
   

  	
  81,622

  	
   

  
	
  111
  Huntington Avenue

  	
   

  	
   

  	
   

  
	
  Boston,
  MA  02199

  	
   

  	
   

  	
   

  
	
  Attn:
  Mark Nunnelly

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wind
  Point Partners IV, L.P.

  	
   

  	
  25,123,594

  	
   

  
	
  One
  Town Square Suite 780

  	
   

  	
   

  	
   

  
	
  Southfield,
  MI 48076

  	
   

  	
   

  	
   

  
	
  Attn:
  Jim TenBroek

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wind
  Point IV Executive Advisor Partners, L.P.

  	
   

  	
  188,780

  	
   

  
	
  One
  Town Square  Suite 780

  	
   

  	
   

  	
   

  
	
  Southfield,
  MI 48076

  	
   

  	
   

  	
   

  
	
  Attn:
  Jim TenBroek

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wind
  Point Associates IV, L.L.C.

  	
   

  	
  93,051

  	
   

  
	
  One
  Town Square  Suite 780

  	
   

  	
   

  	
   

  
	
  Southfield,
  MI 48076

  	
   

  	
   

  	
   

  
	
  Attn:
  Jim TenBroek

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Stolberg
  Partners, L.P.

  	
   

  	
  6,890,922

  	
   

  
	
  370
  17th Street  Suite 3650

  	
   

  	
   

  	
   

  
	
  Denver,
  CO 80202

  	
   

  	
   

  	
   

  
	
  Attn:
  Ted Stolberg

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Stolberg,
  Meehan & Scano II, L.P.

  	
   

  	
  1,673,466

  	
   

  
	
  370
  17th Street  Suite 3650

  	
   

  	
   

  	
   

  
	
  Denver,
  CO 80202

  	
   

  	
   

  	
   

  
	
  Attn:
  Ted Stolberg

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SMS
  II-A, L.P.

  	
   

  	
  5,020,397

  	
   

  
	
  370
  17th Street  Suite 3650

  	
   

  	
   

  	
   

  
	
  Denver,
  CO 80202

  	
   

  	
   

  	
   

  
	
  Attn:
  Ted Stolberg

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Yale
  University

  	
   

  	
  3,937,557

  	
   

  
	
  Yale
  Investments Office

  	
   

  	
   

  	
   

  
	
  230
  Prospect Street

  	
   

  	
   

  	
   

  
	
  New
  Haven, CT  06511

  	
   

  	
   

  	
   

  
	
  Attn:  David Swensen

  	
   

  	
   

  	
   

  

 

55

 

	
  NTFC
  Capital Corporation

  	
   

  	
  6,780,541

  	
   

  
	
  10
  Riverview Drive

  	
   

  	
   

  	
   

  
	
  Danbury,
  CT  06810

  	
   

  	
   

  	
   

  
	
  Attention:  Legal Department

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  U.S.
  Bank, N.A.

  	
   

  	
  2,288,432

  	
   

  
	
  U.S.
  Bancorp Center

  	
   

  	
   

  	
   

  
	
  BC-MN-H22A

  	
   

  	
   

  	
   

  
	
  800
  Nicolett Mall, 22nd Floor

  	
   

  	
   

  	
   

  
	
  Minneapolis,
  MN  55402-7020

  	
   

  	
   

  	
   

  
	
  Attention:  David Kopolow, Vice President

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wachovia
  Bank, N.A.

  	
   

  	
  423,784

  	
   

  
	
  201
  South College Street, 13th Floor (NC0130)

  	
   

  	
   

  	
   

  
	
  Charlotte,
  NC  28288-0130

  	
   

  	
   

  	
   

  
	
  Attention:  Fritz Bentien, Vice President

  	
   

  	
   

  	
   

  

 

56Exhibit 4.2

 

ESCHELON TELECOM, INC.

2002 STOCK INCENTIVE PLAN

 

1.                                      Establishment,
Purpose and Types of Awards

 

ESCHELON TELECOM, INC., a
Delaware corporation (the “Company”), hereby establishes the
ESCHELON TELECOM, INC., 2002 STOCK INCENTIVE PLAN (the “Plan”).  The purpose of the Plan is to promote the
long-term growth and profitability of the Company by (i) providing key
people with incentives to improve stockholder value and to contribute to the
growth and financial success of the Company through their future services, and
(ii) enabling the Company to attract, retain and reward the best-available
persons.

 

The Company (f/k/a
Advanced Telecommunications, Inc.) previously adopted and maintained the
Incentive Stock Option Plan of 1996 (the “1996 Plan”).  The 1996 Plan was amended and restated three times.  The first restatement was the Amended and
Restated Incentive Stock Option Plan of 1996. 
The second restatement was the Second Amended and Restated Stock Option
Plan of 1996.  The third restatement was
the Third Amended and Restated Stock Option Plan of 1996.  The Company terminated the 1996 Plan
effective June 27, 2002.

 

This Plan permits the
granting of stock options (including incentive stock options qualifying under
Code section 422 and nonstatutory stock options), stock appreciation
rights, restricted or unrestricted stock awards, phantom stock, performance
awards, other stock-based awards, or any combination of the foregoing.

 

2.                                      Definitions

 

Under this Plan, except
where the context otherwise indicates, the following definitions apply:

 

(a)                                  “Administrator”
means the Board or the committee(s) or officer(s) appointed by the Board that
have authority to administer the Plan as provided in Section 3 hereof.

 

(b)                                 “Affiliate”
means any entity, whether now or hereafter existing, which controls, is
controlled by, or is under common control with, the Company (including, but not
limited to, joint ventures, limited liability companies, and
partnerships).  For this purpose, “control”
shall mean ownership of 50% or more of the total combined voting power or value
of all classes of stock or interests of the entity.

 

(c)                                  “Award” means
any stock option, stock appreciation right, stock award, phantom stock award,
performance award, or other stock-based award.

 

(d)                                 “Board”
means the Board of Directors of the Company.

 

(e)                                  “Change in
Control” means the sale of all or substantially all the assets of
the Company and its subsidiaries on a consolidated basis (measured either by
book value in accordance with generally accepted accounting principles
consistently applied or by fair market value (as determined in good faith by
the Board)) in any transaction or series of related transactions, or any
merger, consolidation or reorganization of the Company into or with another
corporation or other similar transaction or series of related transactions in
which the stockholders of the Company immediately prior to such merger,
consolidation or reorganization of the Company into or with another corporation
or other similar transaction or series of related transactions (i) hold less
than fifty percent (50%) of the outstanding voting securities of the surviving
corporation following the merger, consolidation or reorganization or (ii) hold
less than fifty percent (50%) of the outstanding voting securities of an
affiliated entity of the surviving corporation (if such securities of an
affiliated entity are issued to the stockholders of the Company in such
transaction).

 

(f)                                    “Code” means
the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder.

 

(g)                                 “Common
Stock” means shares of common stock of the Company, par value of one
cent ($0.01) per share.

 

 

(h)                                 “Fair Market
Value” means, with respect to a share of the Company’s Common Stock
for any purpose on a particular date, the value determined by the Administrator
in good faith.  However, if the Common
Stock is registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and listed for trading on a national exchange
or market, “Fair
Market Value” means, as applicable, (i) either the closing
price or the average of the high and low sale price on the relevant date, as
determined in the Administrator’s discretion, quoted on the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq National Market;
(ii) the last sale price on the relevant date quoted on the Nasdaq
SmallCap Market; (iii) the average of the high bid and low asked prices on
the relevant date quoted on the Nasdaq OTC Bulletin Board Service or by the
National Quotation Bureau, Inc. or a comparable service as determined in the
Administrator’s discretion; or (iv) if the Common Stock is not quoted by
any of the above, the average of the closing bid and asked prices on the
relevant date furnished by a professional market maker for the Common Stock, or
by such other source, selected by the Administrator.  If no public trading of the Common Stock occurs on the relevant
date but the shares are so listed, then Fair Market Value shall be determined
as of the next preceding date on which trading of the Common Stock does
occur.  For all purposes under this
Plan, the term “relevant date” as used in this Section 2(h) means
either the date as of which Fair Market Value is to be determined or the next
preceding date on which public trading of the Common Stock occurs, as
determined in the Administrator’s discretion.

 

(i)                                     “Grant
Agreement” means a written document memorializing the terms and
conditions of an Award granted pursuant to the Plan and shall incorporate the
terms of the Plan.

 

3.                                      Administration

 

(a)                                  Administration
of the Plan.  The Plan shall
be administered by the Board or by such committee or committees as may be
appointed by the Board from time to time. 
To the extent allowed by applicable state law, the Board by resolution
may authorize an officer or officers to grant Awards (other than Stock Awards)
to other officers and employees of the Company and its Affiliates, and, to the
extent of such authorization, such officer or officers shall be the
Administrator.

 

(b)                                 Powers of
the Administrator.  The
Administrator shall have all the powers vested in it by the terms of the Plan,
such powers to include authority, in its sole and absolute discretion, to grant
Awards under the Plan, prescribe Grant Agreements evidencing such Awards and establish
programs for granting Awards.

 

The Administrator
shall have full power and authority to take all other actions necessary to
carry out the purpose and intent of the Plan, including, but not limited to,
the authority to:  (i) determine
the eligible persons to whom, and the time or times at which Awards shall be
granted; (ii) determine the types of Awards to be granted;
(iii) determine the number of shares to be covered by or used for
reference purposes for each Award; (iv) impose such terms, limitations,
restrictions and conditions upon any such Award as the Administrator shall deem
appropriate; (v) modify, amend, extend or renew outstanding Awards, or
accept the surrender of outstanding Awards and substitute new Awards (provided
however, that, except as provided in Section 6 or 7(d) of the Plan, any
modification that would materially adversely affect any outstanding Award shall
not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction
or condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an Award
following termination of any grantee’s employment or other relationship with
the Company; (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period; and (viii) for any purpose, including but not limited
to, qualifying for preferred tax treatment under foreign tax laws or otherwise
complying with the regulatory requirements of local or foreign jurisdictions,
to establish, amend, modify, administer or terminate sub-plans, and prescribe,
amend and rescind rules and regulations relating to such sub-plans.

 

The Administrator
shall have full power and authority, in its sole and absolute discretion, to
administer and interpret the Plan, Grant Agreements and all other documents
relevant to the Plan and Awards issued thereunder, and to adopt and interpret
such rules, regulations, agreements, guidelines

 

2

 

and instruments for the
administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.

 

(c)                                  Non-Uniform
Determinations.  The
Administrator’s determinations under the Plan (including without limitation,
determinations of the persons to receive Awards, the form, amount and timing of
such Awards, the terms and provisions of such Awards and the Grant Agreements
evidencing such Awards) need not be uniform and may be made by the
Administrator selectively among persons who receive, or are eligible to
receive, Awards under the Plan, whether or not such persons are similarly
situated.

 

(d)                                 Limited
Liability.  To the maximum
extent permitted by law, no member of the Administrator shall be liable for any
action taken or decision made in good faith relating to the Plan or any Award thereunder.

 

(e)                                  Indemnification.  To the maximum extent permitted by law and
by the Company’s charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.

 

(f)                                    Effect of
Administrator’s Decision. 
All actions taken and decisions and determinations made by the
Administrator on all matters relating to the Plan pursuant to the powers vested
in it hereunder shall be in the Administrator’s sole and absolute discretion
and shall be conclusive and binding on all parties concerned, including the
Company, its stockholders, any participants in the Plan and any other employee,
former employee, consultant, independent contractor, or director of the
Company, and their respective successors in interest.

 

4.                                      Shares
Available for the Plan

 

Subject to adjustments as
provided in  Section 7(d) of the Plan, the shares of Common Stock
that may be issued with respect to Awards granted under the Plan shall not
exceed an aggregate of 14,117,647 shares of Common Stock.  The Company shall reserve such number of
shares for Awards under the Plan, subject to adjustments as provided in  Section 7(d)
of the Plan.  If any Award, or portion
of an Award, under the Plan expires or terminates unexercised, becomes unexercisable
or is forfeited or otherwise terminated, surrendered or canceled as to any
shares, or if any shares of Common Stock are repurchased by or surrendered to
the Company in connection with any Award (whether or not such surrendered
shares were acquired pursuant to any Award), or if any shares are withheld by
the Company, the shares subject to such Award and the repurchased, surrendered
and withheld shares shall thereafter be available for further Awards under the
Plan; provided, however, that any such shares that are surrendered to or
repurchased or withheld by the Company in connection with any Award or that are
otherwise forfeited after issuance shall not be available for purchase pursuant
to incentive stock options intended to qualify under Code section 422.

 

5.                                      Participation

 

Participation in the Plan
shall be open to all employees, former employees, officers, and directors of,
and other individuals providing bona fide services to or for, the Company, or
of any Affiliate of the Company, as may be selected by the Administrator from
time to time.  The Administrator may
also grant Awards to individuals in connection with hiring, retention or
otherwise, prior to the date the individual first performs services for the
Company or an Affiliate, provided that such Awards shall not become vested or
exercisable prior to the date the individual first commences performance of
such services.

 

6.                                      Awards

 

The Administrator, in its
sole discretion, establishes the terms of all Awards granted under the
Plan.  Awards may be granted
individually or in tandem with other types of Awards.  All Awards are subject to the terms and conditions provided in
the Grant Agreement.  The Administrator
may permit or require a recipient of an Award to defer such individual’s
receipt of the payment of cash or the delivery of Common Stock that would
otherwise be due to such individual by virtue of the exercise of, payment of,
or lapse or waiver of restrictions respecting, any Award.  If any such payment deferral is required or
permitted, the Administrator shall, in its sole discretion, establish rules and
procedures for such payment deferrals.

 

3

 

(a)                                  Stock
Options.  The Administrator
may from time to time grant to eligible participants Awards of incentive stock
options as that term is defined in Code section 422 or nonstatutory stock
options; provided, however, that Awards of incentive stock
options shall be limited to employees of the Company or of any current or
hereafter existing “parent corporation” or “subsidiary
corporation,” as defined in Code sections 424(e) and (f),
respectively, of the Company.  Options
intended to qualify as incentive stock options under Code section 422 must
have an exercise price at least equal to Fair Market Value as of the date of
grant, but nonstatutory stock options may be granted with an exercise price
less than Fair Market Value.  No stock
option shall be an incentive stock option unless so designated by the
Administrator at the time of grant or in the Grant Agreement evidencing such
stock option.

 

(b)                                 Stock
Appreciation Rights.  The
Administrator may from time to time grant to eligible participants Awards of
Stock Appreciation Rights (“SAR”). 
An SAR entitles the grantee to receive, subject to the provisions of the
Plan and the Grant Agreement, a payment having an aggregate value equal to the
product of (i) the excess of (A) the Fair Market Value on the
exercise date of one share of Common Stock over (B) the base price per
share specified in the Grant Agreement, times (ii) the number of shares
specified by the SAR, or portion thereof, which is exercised.  Payment by the Company of the amount
receivable upon any exercise of an SAR may be made by the delivery of Common Stock
or cash, or any combination of Common Stock and cash, as determined in the sole
discretion of the Administrator.  If
upon settlement of the exercise of an SAR a grantee is to receive a portion of
such payment in shares of Common Stock, the number of shares shall be
determined by dividing such portion by the Fair Market Value of a share of
Common Stock on the exercise date.  No
fractional shares shall be used for such payment and the Administrator shall
determine whether cash shall be given in lieu of such fractional shares or
whether such fractional shares shall be eliminated.

 

(c)                                  Stock
Awards.  The Administrator
may from time to time grant restricted or unrestricted stock Awards to eligible
participants in such amounts, on such terms and conditions, and for such
consideration, including no consideration or such minimum consideration as may
be required by law, as it shall determine. 
A stock Award may be paid in Common Stock, in cash, or in a combination
of Common Stock and cash, as determined in the sole discretion of the
Administrator.

 

(d)                                 Phantom
Stock.  The Administrator may
from time to time grant Awards to eligible participants denominated in
stock-equivalent units (“phantom stock”) in such amounts and on
such terms and conditions as it shall determine.  Phantom stock units granted to a participant shall be credited to
a bookkeeping reserve account solely for accounting purposes and shall not
require a segregation of any of the Company’s assets.  An Award of phantom stock may be settled in Common Stock, in
cash, or in a combination of Common Stock and cash, as determined in the sole
discretion of the Administrator.  Except
as otherwise provided in the applicable Grant Agreement, the grantee shall not
have the rights of a stockholder with respect to any shares of Common Stock
represented by a phantom stock unit solely as a result of the grant of a
phantom stock unit to the grantee.

 

(e)                                  Performance
Awards.  The Administrator
may, in its discretion, grant performance awards which become payable on
account of attainment of one or more performance goals established by the
Administrator.  Performance awards may
be paid by the delivery of Common Stock or cash, or any combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.  Performance goals established by the Administrator
may be based on the Company’s or an Affiliate’s operating income or one or more
other business criteria selected by the Administrator that apply to an
individual or group of individuals, a business unit, or the Company or an
Affiliate as a whole, over such performance period as the Administrator may
designate.

 

(f)                                    Other
Stock-Based Awards.  The
Administrator may from time to time grant other stock-based awards to eligible
participants in such amounts, on such terms and conditions, and for such
consideration, including no consideration or such minimum consideration as may
be required by law, as it shall determine. 
Other stock-based awards may be denominated in cash, in Common Stock or
other securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into Common Stock, or in any combination
of the foregoing and may be paid in Common Stock or other

 

4

 

securities, in cash, or
in a combination of Common Stock or other securities and cash, all as
determined in the sole discretion of the Administrator.

 

7.                                      Miscellaneous

 

(a)                                  Withholding
of Taxes.  Grantees and
holders of Awards shall pay to the Company or its Affiliate, or make provision
satisfactory to the Administrator for payment of, any taxes required to be
withheld in respect of Awards under the Plan no later than the date of the
event creating the tax liability.  The
Company or its Affiliate may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the grantee or
holder of an Award.  In the event that
payment to the Company or its Affiliate of such tax obligations is made in
shares of Common Stock, such shares shall be valued at Fair Market Value on the
applicable date for such purposes and shall not exceed in amount the minimum
statutory tax withholding obligation.

 

(b)                                 Loans.  The Company or its Affiliate may make or
guarantee loans to grantees to assist grantees in exercising Awards and satisfying
any withholding tax obligations.

 

(c)                                  Transferability.  Except as otherwise determined by the
Administrator, and in any event in the case of an incentive stock option or a
stock appreciation right granted with respect to an incentive stock option, no
Award granted under the Plan shall be transferable by a grantee otherwise than
by will or the laws of descent and distribution.  Unless otherwise determined by the Administrator in accord with
the provisions of the immediately preceding sentence, an Award may be exercised
during the lifetime of the grantee, only by the grantee or, during the period
the grantee is under a legal disability, by the grantee’s guardian or legal
representative.

 

(d)                                 Adjustments
for Corporate Transactions and Other Events.

 

(i)                                     Stock
Dividend, Stock Split and Reverse Stock Split. 
In the event of a stock dividend of, or stock split or
reverse stock split affecting, the Common Stock, (A) the maximum number of
shares of such Common Stock as to which Awards may be granted under this Plan,
as provided in Section 4 of the Plan, and (B) the number of shares
covered by and the exercise price and other terms of outstanding Awards, shall,
without further action of the Board, be adjusted to reflect such event unless
the Board determines, at the time it approves such stock dividend, stock split
or reverse stock split, that no such adjustment shall be made.  The Administrator may make adjustments, in
its discretion, to address the treatment of fractional shares and fractional
cents that arise with respect to outstanding Awards as a result of the stock
dividend, stock split or reverse stock split.

 

(ii)                                  Non-Change
in Control Transactions.  Except
with respect to the transactions set forth in Section 7(d)(i), in the
event of any change affecting the Common Stock, the Company or its
capitalization, by reason of a spin-off, split-up, dividend, recapitalization,
merger, consolidation or share exchange, other than any such change that is
part of a transaction resulting in a Change in Control of the Company, the
Administrator, in its discretion and without the consent of the holders of the
Awards, may make (A) appropriate adjustments to the maximum number and
kind of shares reserved for issuance or with respect to which Awards may be
granted under the Plan, as provided in Section 4 of the Plan; and
(B) any adjustments in outstanding Awards, including but not limited to
modifying the number, kind and price of securities subject to Awards.

 

(iii)                               Change in Control Transactions.  In the event of any transaction
resulting in a Change in Control of the Company, outstanding stock options and
other Awards that are payable in or convertible into Common Stock under this
Plan will terminate upon the effective time of such Change in Control unless
provision is made in connection with the transaction for the continuation or
assumption of such Awards by, or for the substitution of the equivalent awards
of, the surviving

 

5

 

or successor entity or a parent thereof.  In the event of such termination, the
holders of stock options and other Awards under the Plan will be permitted,
immediately before the Change in Control, to exercise or convert all portions
of such stock options or other Awards under the Plan that are then exercisable
or convertible or which become exercisable or convertible upon or prior to the
effective time of the Change in Control.

 

(iv)                              Unusual or
Nonrecurring Events.  The
Administrator is authorized to make, in its discretion and without the consent
of holders of Awards, adjustments in the terms and conditions of, and the
criteria included in, Awards in recognition of unusual or nonrecurring events
affecting the Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.

 

(e)                                  Substitution
of Awards in Mergers and Acquisitions.  Awards
may be granted under the Plan from time to time in substitution for awards held
by employees, former employees, officers, consultants, independent contractors
or directors of entities who become or are about to become employees, officers,
consultants, independent contractors or directors of the Company or an
Affiliate as the result of a merger or consolidation of the employing entity
with the Company or an Affiliate, or the acquisition by the Company or an
Affiliate of the assets or stock of the employing entity.  The terms and conditions of any substitute
Awards so granted may vary from the terms and conditions set forth herein to
the extent that the Administrator deems appropriate at the time of grant to
conform the substitute Awards to the provisions of the awards for which they
are substituted.

 

(f)                                    Other
Agreements.  As a condition
precedent to the grant of any Award under the Plan, the exercise pursuant to
such an Award, or to the delivery of certificates for shares issued pursuant to
any Award, the Administrator may require the grantee or the grantee’s successor
or permitted transferee, as the case may be, to become a party to a stock
restriction agreement, shareholders’ agreement, voting trust agreement or other
agreements regarding the Common Stock of the Company in such form(s) as the
Administrator may determine from time to time.

 

(g)                                 Termination,
Amendment and Modification of the Plan.  The Board may terminate, amend or modify the Plan or any portion
thereof at any time.

 

(h)                                 Non-Guarantee
of Employment or Service. 
Nothing in the Plan or in any Grant Agreement thereunder shall confer
any right on an individual to continue in the service of the Company or shall
interfere in any way with the right of the Company to terminate such service at
any time with or without cause or notice and whether or not such termination
results in (i) the failure of any Award to vest; (ii) the forfeiture
of any unvested or vested portion of any Award; and/or (iii) any other
adverse effect on the individual’s interests under the Plan.

 

(i)                                     Compliance
with Securities Laws; Listing and Registration.  If at any time the Administrator determines that the delivery of
Common Stock under the Plan is or may be unlawful under the laws of any
applicable jurisdiction, or Federal, state or foreign securities laws, the
right to exercise an Award or receive shares of Common Stock pursuant to an
Award shall be suspended until the Administrator determines that such delivery
is lawful.  The Company shall have no
obligation to effect any registration or qualification of the Common Stock
under Federal, state or foreign laws.

 

The Company may
require that a grantee, as a condition to exercise of an Award, and as a
condition to the delivery of any share certificate, make such written
representations (including representations to the effect that such person will
not dispose of the Common Stock so acquired in violation of Federal, state or
foreign securities laws) and furnish such information as may, in the opinion of
counsel for the Company, be appropriate to permit the Company to issue the
Common Stock in compliance with applicable Federal, state or foreign securities
laws.  The stock certificates for any
shares of Common Stock issued pursuant to this Plan may bear a legend
restricting transferability of the

 

6

 

shares of Common Stock
unless such shares are registered or an exemption from registration is
available under the Securities Act of 1933, as amended, and applicable state or
foreign securities laws.

 

(j)                                     No Trust or
Fund Created.  Neither the
Plan nor any Award shall create or be construed to create a trust or separate
fund of any kind or a fiduciary relationship between the Company and a grantee
or any other person.  To the extent that
any grantee or other person acquires a right to receive payments from the
Company pursuant to an Award, such right shall be no greater than the right of
any unsecured general creditor of the Company.

 

(k)                                  Governing
Law.  The validity,
construction and effect of the Plan, of Grant Agreements entered into pursuant
to the Plan, and of any rules, regulations, determinations or decisions made by
the Administrator relating to the Plan or such Grant Agreements, and the rights
of any and all persons having or claiming to have any interest therein or
thereunder, shall be determined exclusively in accordance with applicable
federal laws and the laws of the State of Delaware, without regard to its
conflict of laws principles.

 

(l)                                     Effective
Date; Termination Date.  The
Plan is effective as of the date on which the Plan is adopted by the Board,
subject to approval of the stockholders within twelve months before or after
such date.  No Award shall be granted
under the Plan after the close of business on the day immediately preceding the
tenth anniversary of the effective date of the Plan, or if earlier, the tenth
anniversary of the date this Plan is approved by the stockholders.  Subject to other applicable provisions of the
Plan, all Awards made under the Plan prior to such termination of the Plan
shall remain in effect until such Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.

 

PLAN APPROVAL

 

	
  Date Approved by the
  Board:

  	
   November 21, 2002

  	
   

  
	
   

  
	
  Date Approved by the
  Stockholders:

  	
   December 19, 2002

  	
   

  
				

 

7

 

APPENDIX A

PROVISIONS FOR CALIFORNIA RESIDENTS

 

With respect to Awards
granted to California residents prior to a public offering of capital stock of
the Company that is effected pursuant to a registration statement filed with,
and declared effective by, the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and only to the extent required by applicable
law, the following provisions shall apply notwithstanding anything in the Plan
or a Grant Agreement to the contrary:

 

1.                                       Stock
appreciation rights Awards under Section 6(b) of the Plan or phantom stock
Awards under Section 6(d) of the Plan, which may be settled in shares of
Company stock, shall not be issued to California residents.

 

2.                                       With
respect to any Award granted in the form of a stock option pursuant to
Section 6(a) of the Plan:

 

(a)                                  The
Award shall provide an exercise price which is not less than 85% of the Fair
Market Value of the underlying security at the time the option is granted,
except that the price shall be not less than 110% of the Fair Market Value in
the case of any person who owns securities possessing more than 10% of the
total combined voting power (as defined in Section 194.5 of the California
Corporations Code) of all classes of securities of the issuer or its parent or
subsidiaries possessing voting power.

 

(b)                                 The
exercise period shall be no more than 120 months from the date the option is
granted.

 

(c)                                  The
options shall be non-transferable other than by will, by the laws of descent
and distribution, or, if and to the extent permitted under the Grant Agreement,
as permitted by Rule 701 of the Securities Act of 1933, as amended (17 C.F.R. 230.701).

 

(d)                                 The
Award recipient shall have the right to exercise at the rate of at least 20%
per year over 5 years from the date the option is granted, subject to
reasonable conditions such as continued employment.  However, in the case of an option granted to officers, directors,
managers or consultants of the Company or the issuer of the underlying security
or any of its affiliates, the option may become fully exercisable, subject to
reasonable conditions such as continued employment, at any time or during any
period established by the issuer of the option or the issuer of the underlying
security or any of its affiliates.

 

(e)                                  Unless
employment is terminated for “cause” as defined by applicable law, the terms of
the Plan or Grant Agreement, or a contract of employment, the right to exercise
the option in the event of termination of employment, to the extent that the
Award recipient is entitled to exercise on the date employment terminates, will
be as follows:

 

(1) At least 6 months
from the date of termination if termination was caused by death or disability.

 

(2) At least 30 days from
the date of termination if termination was caused by other than death or
disability.

 

3.                                       With
respect to an Award, granted pursuant to Section 6(c) of the Plan, that
provides the Award recipient the right to purchase stock:

 

(a)                                  The
Award shall provide a purchase price which is not less than 85% of the Fair
Market Value of the security at the time the Award recipient is granted the
right to purchase securities under the Grant Agreement, or at the time the
purchase is consummated; or, not less than 100% of the Fair Market Value of the
security either at the time the Award recipient is granted the right to
purchase securities under the Grant Agreement, or at the time the purchase is
consummated, in the case of any person who owns securities possessing more than
10% of the total combined voting power (as defined in Section 194.5 of the
California Corporations Code) of all classes of securities of the issuer or its
parent or subsidiaries possessing voting power.

 

A - 1

 

(b)                                 The
Award shall be non-transferable other than by will, by the laws of descent and
distribution, or, if and to the extent permitted under the Grant Agreement, as
permitted by Rule 701 of the Securities Act of 1933, as amended
(17 C.F.R. 230.701).

 

4.                                       The
Plan shall have a termination date of not more than 10 years from the date the
Plan is adopted by the Board or the date the Plan is approved by the security
holders, whichever is earlier.

 

5.                                       Security
holders representing a majority of the Company’s outstanding securities
entitled to vote must approve the Plan within 12 months before or after the
date the Plan is adopted.  Any option
exercised or any securities purchased before security holder approval is
obtained must be rescinded if security holder approval is not obtained within
12 months before or after the Plan is adopted. 
Such securities shall not be counted in determining whether such
approval is obtained.

 

6.                                       At
the discretion of the Administrator, the Company may reserve to itself and/or
its assignee(s) in the Grant Agreement or any applicable stock restriction
agreement a right to repurchase securities held by an Award recipient upon such
Award recipient’s termination of employment at any time within 90 days after
such Award recipient’s termination date (or in the case of securities issued
upon exercise of an option after the termination date, within 90 days after the
date of such exercise) for cash or cancellation of purchase money indebtedness,
at:

 

(A) no less than the
Fair Market Value of such securities as of the date of the Award recipient’s
termination of employment, provided, that such right to repurchase
securities terminates when the Company’s securities have become publicly
traded; or

 

(B) the Award
recipient’s original purchase price, provided, that such right to
repurchase securities at the original purchase price lapses at the rate of at
least 20% of the securities per year over 5 years from the date the option is
granted (without respect to the date the option was exercised or became
exercisable).

 

The securities held by an
officer, director, manager or consultant of the Company or an affiliate may be
subject to additional or greater restrictions.

 

7.                                       The
Company will provide financial statements to each Award recipient annually
during the period such individual has Awards outstanding, or as otherwise
required under Section 260.140.46 of Title 10 of the California Code of
Regulations.  Notwithstanding the
foregoing, the Company will not be required to provide such financial
statements to Award recipients when issuance is limited to key employees whose
services in connection with the Company assure them access to equivalent
information.

 

8.                                       The
Company will comply with Section 260.140.1 of Title 10 of the California
Code of Regulations with respect to the voting rights of Common Stock and
similar equity securities.

 

9.                                       The
Plan is intended to comply with Section 25102(o) of the California
Corporations Code.  Any provision of
this Plan which is inconsistent with Section 25102(o), including without
limitation any provision of this Plan that is more restrictive than would be
permitted by Section 25102(o) as amended from time to time, shall, without
further act or amendment by the Board, be reformed to comply with the
provisions of Section 25102(o).  If
at any time the Administrator determines that the delivery of Common Stock
under the Plan is or may be unlawful under the laws of any applicable
jurisdiction, or federal or state securities laws, the right to exercise an
Award or receive shares of Common Stock pursuant to an Award shall be suspended
until the Administrator determines that such delivery is lawful.  The Company shall have no obligation to
effect any registration or qualification of the Common Stock under federal or
state laws.

 

A - 2

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