USInternetworking - Stock Purchase Agreement

STOCK PURCHASE AGREEMENT











USinternetworking, Inc.





US WEST COMMUNICATIONS, INC.



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Dated as of June ____, 1998



















TABLE OF CONTENTS







PAGE

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ARTICLE 1. DEFINITIONS.......................................................1



1.1. DEFINITIONS.................................................1

1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS......................4

1.3. KNOWLEDGE STANDARD..........................................4

1.4. OTHER DEFINED TERMS.........................................4



ARTICLE 2. AUTHORIZATION OF PREFERRED SHARES; PURCHASE AND SALE OF PREFERRED

SHARES...........................................................5



2.1. PREFERRED SHARES............................................5

2.2. PURCHASE AND SALE OF PREFERRED SHARES.......................5

2.3. CLOSING.....................................................6

2.4. FEES AND EXPENSES...........................................6



ARTICLE 3. CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO PURCHASE THE

PREFERRED SHARES.................................................6



3.1. REPRESENTATIONS AND WARRANTIES..............................6

3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS

AGREEMENT..................................................6

3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES..............6

3.4. CLOSING CERTIFICATES........................................7

3.5. SECRETARY'S CERTIFICATES....................................7

3.6. DOCUMENTS...................................................7

3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.......................7

3.8. CONSENTS AND APPROVALS......................................7

3.9. AMENDMENT TO SHAREHOLDERS'AGREEMENT.........................7

3.10. NO MATERIAL JUDGMENT OR ORDER..............................8

3.11. LEGAL OPINION..............................................8

3.12. ISSUANCE OF SHARES.........................................8



ARTICLE 4. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE..............8



4.1. REPRESENTATIONS AND WARRANTIES..............................8

4.2. COMPLIANCE WITH THIS AGREEMENT..............................8

4.3. CLOSING CERTIFICATE.........................................8

4.4. ISSUANCE PERMITTED BY APPLICABLE LAWS.......................9

4.5. PAYMENT OF PURCHASE PRICE...................................9

4.6. CONSENTS AND APPROVALS......................................9

4.7. AMENDMENT TO SHAREHOLDERS'AGREEMENT.........................9













4.8. NO MATERIAL JUDGMENT OR ORDER...............................9



ARTICLE 5. REPRESENTATIONS AND WARRANTIESOF THE COMPANY......................9



5.1. CORPORATE EXISTENCE AND AUTHORITY..........................10

5.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION..................10

5.3. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS...........10

5.4. BINDING EFFECT.............................................10

5.5. CAPITALIZATION.............................................10

5.6. PRIVATE OFFERING...........................................11

5.7. LITIGATION.................................................12

5.8. FINANCIAL STATEMENTS.......................................12

5.9. TITLE AND CONDITION OF ASSETS..............................12

5.10. CONTRACTUAL OBLIGATIONS...................................12

5.11. TAX MATTERS...............................................12

5.12. SEVERANCE ARRANGEMENTS....................................12

5.13. INVESTMENT COMPANY/GOVERNMENT REGULATIONS.................13

5.14. BROKER'S, FINDER'S OR SIMILAR FEES........................13

5.15. LABOR RELATIONS AND EMPLOYEE MATTERS......................13

5.16. EMPLOYEE BENEFITS MATTERS.................................13

5.17. OUTSTANDING BORROWINGS....................................13

5.18. INSURANCE SCHEDULE........................................13

5.19. SOLVENCY..................................................14

5.20. NO OTHER AGREEMENTS TO SELL THE ASSETS OR

CAPITAL STOCK OF THE COMPANY..............................14

5.21. KEY EMPLOYEES.............................................14

5.22. COMPLIANCE WITH LAW.......................................14

5.23. DISCLOSURE................................................14



ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................15



6.1. LIMITED LIABILITY EXISTENCE AND AUTHORITY..................15

6.2. ORGANIZATION; AUTHORIZATION; NO CONTRAVENTION..............15

6.3. BINDING EFFECT.............................................15

6.4. PURCHASE FOR OWN ACCOUNT...................................15

6.5. FINANCIAL CONDITION........................................16

6.6. RECEIPT OF INFORMATION.....................................16

6.7. BROKER'S, FINDER'S OR SIMILAR FEES.........................16

6.8. GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENT............17

6.9. LITIGATION.................................................17



ARTICLE 7. COVENANTS WITH RESPECT TO THE PERIOD FOLLOWING THE CLOSING......17



7.1. RESERVATION OF SHARES......................................17















7.2. RIGHT OF FIRST OFFER.......................................17

7.3. RIGHT OF FIRST REFUSAL.....................................18

7.4. REGULATORY COMPLIANCE......................................18



ARTICLE 8. INDEMNIFICATION..................................................21



8.1. INDEMNIFICATION............................................21

8.2. NOTIFICATION...............................................22



ARTICLE 9. MISCELLANEOUS....................................................22



9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................22

9.2. NOTICES....................................................23

9.3. SUCCESSORS AND ASSIGNS.....................................24

9.4. AMENDMENT AND WAIVER.......................................24

9.5. COUNTERPARTS...............................................24

9.6. HEADINGS...................................................24

9.7. GOVERNING LAW..............................................24

9.8. JURISDICTION...............................................25

9.9. SEVERABILITY...............................................25

9.10. RULES OF CONSTRUCTION.....................................25

9.11. ENTIRE AGREEMENT..........................................25

9.12. PUBLICITY.................................................25

9.13. FURTHER ASSURANCES........................................26

9.14. WAIVER OF JURY TRIAL......................................26















STOCK PURCHASE AGREEMENT





THIS STOCK PURCHASE AGREEMENT (t he "Agreement") is entered into as of this _____ day of June, 1998, by and between USinternetworking, Inc., a Delaware corporation (the "Company") and US WEST Communications, Inc., a Colorado corporation (the "Purchaser").



RECITALS:





A. Upon the terms and subject to the conditions set forth in this Agreement, the Company proposes to issue and sell to the Purchaser, and the Purchaser desires to purchase and acquire from the Company, a total of 5,833.33 shares of the C ompany's Series A Preferred Stock (as defined below).



B. The Purchaser and the Company desire to set forth the objectives and agreements that will govern their relations and responsibilities with respect to each other by entering into concurrently wi th the sale and purchase of securities hereunder an amendment to the Shareholders' Agreement (as defined below) in the form attached hereto as Exhibit A (the "Amendment").



AGREEMENT:





NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto hereby agree as follows:



ARTICLE 1.



1.1. DEFINITIONS.



As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated:



"AFFILIATE" means, with respect to any specified Person, any Person that, directly or indire ctly, controls, is controlled by, or is under common control with, such specified Person, whether by contract, through one or more intermediaries, or otherwise.



"BUDGET" means a fiscal year operating budget, which shall include monthly capital and operating expense budgets, cash flow statements, capital expenditure budgets, profit and loss projections and employee hiring projections.



"BUSINESS DAY" shall mean a day other than a Saturday or Sunday or any federal holiday.





"COMMISSION" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act (as defined below).



"COMMON STOCK" means the common stock, par value $.001 per share, of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted.



"CONDITION OF THE COMPANY" means the assets, business, properties, operations, financial condition or prospects of the Company.



"EMPLOYEE PLANS" means all benefits arrangements, pensions plans or welfare plans adopted by the Company for its employees.



"EMPLOYEE STOCK OPTION PLAN" means an employee stock option plan adopted by the Compensation Committee of the Board of Directors of the Company providing for the issuance to c ertain employees of the Company of options to purchase a certain number of shares of Common Stock at a certain exercise price per share the total number of shares of Common Stock which may be issued under such plan shall not exceed 6.5% of the total numbe r of outstanding shares of common stock calculated on a fully diluted basis, not including the options and shares issuable or issued on exercise of options pursuant to the Employee Stock Option Plan.



"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder.



"GAAP" means United States generally accepted accounting principles, in effect from time to time, consistently applied.



"GOVERNMENTAL AUTHORITY" means the government of any nation, state, city, locality or other political subdivision of any thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned o r controlled, through stock or capital ownership or otherwise, by any of the foregoing.



"HOLDERS" means the Persons (other than the Purchaser) listed as "Shareholders" on the signature page to the Shareholders Agreement.



"INDEBTEDNESS" means, as to any Person: (a) all obligations, whether or not contingent, of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bank e rs' acceptances, whether or not matured), (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (c) all obligations of such Person representing the balance of deferred purchase price of property or services, exce p t trade accounts payable and accrued commercial or trade liabilities arising in the ordinary course of business, (d) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be mad e by such Person, whether periodically or upon the happening of a contingency, (e) all indebtedness created or arising under any conditional sale or other title







retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (f) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as cap i tal leases, (g) all indebtedness secured by any Lien (other than Liens in favor of lessors under leases other than leases included in clause (f)) on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person, and (h) all Indebtedness of any other Person referred to in clauses (a) through (f) above, guaranteed, directly or indirectly, by that Person.



"KEY EMPLOYEES" means the individuals listed on Schedule B.



"LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or other security interest of any kind or nature whatsoever (excluding preferred stock or equi ty related preferences) including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease obligation, or any financing lease having substa ntially the same economic effect as any of the foregoing.



"OUTSTANDING BORROWINGS" means all Indebtedness of the Company for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters o f credit and bankers' acceptances, whether or not matured).



"PERSON" means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity o f any kind, and shall include any successor (by merger or otherwise) of such entity.



"REGULATORY AFFILIATE" has the meaning set forth in Section 7.4.



"REQUIREMENTS OF LAW" means, as to any Person, the provisions of the Certificate of Incorporat ion and By-laws or other organizational or governing documents of such Person, and any law, treaty, rule, regulation, right, privilege, qualification, license or franchise, order, judgment, or determination of an arbitrator or a court or other Governmenta l Authority, in each case, applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject or applicable to any or all of the transactions contemplated by or referred to in the Transaction Agreements.



"SALE OF THE COMPANY" means (i) the sale or all or substantially all of the Company's assets in a single transaction or series of related transactions, or (ii) the sale of all or a controlling interest in the Company's capital stock in a single trans action or a series of related transactions pursuant to a sale or issuance of securities or a merger, consolidation, or other business combination.



"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.









"SERIES A PREFERRED STOCK" means the 8% Series A Convertible Preferred Stock, par value $.01 per share, of the Company, or any other capital stock of the Company into which such stock is reclassified or reconstituted.



"SHAREHOLDERS AGREEMENT" means the Shareholders Agreement dated May 28, 1998 among the Company, the purchasers of the Company's Series A Preferred Stock and other stockholders of the Company.



"TRANSACTION AGREEMENTS" means collectively, this Agreement, the Amendment and the Shareholders Agreement.



"TRANSACTION EXPENSES" means any and all reasonable out-of-pocket (i) legal expenses incurred by the Purchaser in connection with the nego tiation and preparation of the Transaction Agreements, the consummation of the transactions contemplated thereby and preparation for any of the foregoing, including, without limitation, travel expenses, reasonable fees, charges and disbursements of counse l and any similar or related legal costs and legal expenses, and (ii) other expenses incurred by the Purchaser in connection with the negotiation and preparation of the Transaction Agreements.



1.2. ACCOUNTING TERMS; FINANCIAL STATEMENTS.



All acc ounting terms used herein not expressly defined in this Agreement shall have the respective meanings given to them in accordance with sound accounting practice. The term "sound accounting practice" shall mean such accounting practice as, in the opinion of the independent certified public accountants regularly retained by the Company conforms at the time to GAAP applied on a consistent basis except for changes with which such accountants concur.



1.3. KNOWLEDGE STANDARD.



When used herein, the phra se "to the knowledge of" any Person, "to the best knowledge of" any Person or any similar phrase shall mean, (i) with respect to any individual, the actual knowledge of such Person, (ii) with respect to any corporation, the actual knowledge of the officer s and directors of such corporation and the knowledge of such facts that such persons should have in the exercise of their duties after reasonable inquiry, and (iii) with respect to a partnership, the actual knowledge of the officers and directors of the g eneral partner of such partnership and the knowledge of such facts that such persons should have in the exercise of their duties after reasonable inquiry.



1.4. Other Defined Terms.



The following terms shall have the meanings specified in the Sections set forth below:











TERM SECTION

---- -------



Actions 5.7

Certificate of Incorporation 2.1

Certificate 2.1

Certificate of Designation 2.1

Closing Date 2.2

Closing 2.3

Debt Documents 7.4

Indemnified Party 8.2

Indemnifying Party 8.2

Liabilities 8.1

Preferred Shares 2.1

Purchase Price 2.2

Purchasing Indemnified Party 9.1

Purchasing Indemnifying Party 9.1

Selling Indemnified Party 9.1

Selling Indemnifying Party 9.1





ARTICLE 2.

AUTHORIZATION OF PREFERRED SHARES;

PURCHASE AND SALE OF PREFERRED SHARES



2.1. PREFERRED SHARES.



On or before the Closing Date, the Board of Directors of the Company shall have authorized the issuance and sale of 5,833.33 shares of Series A Preferred Stock (the "Preferred Shares") to the Purchaser and has d uly adopted resolutions establishing the rights, preferences, privileges and restrictions of the Series A Preferred Stock. The Preferred Shares will have the respective rights, preferences and privileges set forth in the Company's Amended and Restated Cer t ificate of Incorporation, as it will be in effect on the Closing Date (the "Certificate of Incorporation") and the Certificate of Designations, Preferences, and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions There of attached as EXHIBIT C hereto (the "Certificate of Designation" and together with the Certificate of Incorporation, the "Certificate").



2.2. PURCHASE AND SALE OF PREFERRED SHARES.



Upon the terms and subject to the conditions herein contained, on the day two Business Days after all of the conditions to Closing set forth in Articles 3 and 4 have been satisfied or such other date as the parties may agree (the "Closing Date"), the Company shall issue to the Purchaser, and the Purchaser shall acqui re from the Company, a total of 5,833.33 Preferred Shares for a cash purchase price of $600 per Preferred Share (the "Purchase Price").







2.3. CLOSING.



The closing of the sale to and purchase by the Purchaser of the Preferred Shares (the "Closin g") shall occur at 11 o'clock A.M., local time on the Closing Date at the offices of the Company, 175 Admiral Cochrane Drive, Annapolis, Maryland. At the Closing, (i) the Company shall deliver to the Purchaser a certificate evidencing the Preferred Shares being purchased by the Purchaser, free and clear of any Liens of any nature whatsoever, other than those created by the Certificate or the Shareholders Agreement, registered in the Purchaser's name, and (ii) the Purchaser shall deliver to the Company the Purchase Price, by cashier's or certified check or wire transfer of immediately available funds.



2.4. FEES AND EXPENSES.



Concurrently with the Closing, the Company shall reimburse the Purchaser for the Transactio n Expenses, which payment shall be made by wire transfer of immediately available funds to an account or accounts designated by the Purchaser or, at the option of the Purchaser, may be deducted from the Purchase Price.



ARTICLE 3.

CONDITIONS TO THE OBLIGATION OF THE

PURCHASER TO PURCHASE THE PREFERRED SHARES



The obligation of the Purchaser to purchase the Preferred Shares, to pay the Purchase Price therefor and to perform any of its obligations hereunder on the Closing Date (unless otherwise specified) shall be subject to the satisfaction of the following conditions on or before the Closing Date:



3.1. REPRESENTATIONS AND WARRANTIES.



The representations and warranties of the Company contained in Section 5 hereof shall be true and correct in all material respects at and as of the Closing Date, as if made at and as of such date.



3.2. COMPLIANCE WITH TERMS AND CONDITIONS OF THIS AGREEMENT.



The Company shall have performed and complied with all of the agreements and conditions set forth herein that are required to be performed or complied with by the Company on or before the Closing Date.



3.3. DELIVERY OF CERTIFICATES EVIDENCING THE SHARES.



The Company shall have delivered to the Purchaser the certificates evidencing the Preferred Shares as set forth in Section 2.3.









3.4. CLOSING CERTIFICATES.



The Company shall have delivered to the Purchaser a certificate executed by an authorized officer of the Company, certifying that the representations and warranties of the Company are true and correct in all material respects on and as of the Closing Date, and that the conditions set forth in this Section 3 to be satisfied by the Company have been sa tisfied on and as of the Closing Date.



3.5. SECRETARY'S CERTIFICATES.



The Purchaser shall have received a certificate from the Co mpany, dated as of the Closing Date and signed by the Secretary or an Assistant Secretary of the Company, certifying that the attached copies of the Certificate of Incorporation, Certificate of Designation, By-laws of the Company, and resolutions of the B oard of Directors of the Company approving the Transaction Agreements and the transactions referred to therein, are all true, complete and correct and remain unamended and in full force and effect.



3.6. DOCUMENTS.



The Purchaser shall have receiv ed true, complete and correct copies of such documents and such other information as it may have reasonably requested in connection with or relating to the sale of the Preferred Shares and the transactions required to be performed by the Transaction Agree ments.



3.7. PURCHASE PERMITTED BY APPLICABLE LAWS.



The acquisition of and payment for the Preferred Shares to be acquired by the Purchaser hereunder and the consummation of this Agreement (a) shall not be prohibited by any Requirements of Law, a nd (b) shall not conflict with or be prohibited by any contractual obligation of the Company.



3.8. CONSENTS AND APPROVALS.



All consents, exemptions, authorizations, or other actions by, or notices to, or filings with, Governmental Authorities a nd other Persons in respect of all Requirements of Law and with respect to those material Contractual Obligations of the Company necessary or required in connection with the execution, delivery or performance (including, without limitation, the issuance o f the Preferred Shares and the issuance of the Common Stock upon conversion of the Preferred Shares) by the Company shall have been obtained and be in full force and effect and all waiting periods shall have lapsed without extension or the imposition o ...