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EXHIBIT 10.5.1
STATE COMMUNICATIONS, INC.
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PREFERRED STOCK PURCHASE AGREEMENT
4,166,668 SHARES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
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Dated: October 28, 1998
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TABLE OF CONTENTS
PAGE
ARTICLE I -- SUBSCRIPTION FOR THE PREFERRED SHARES............................1
1.1 Purchase and Sale...............................................1
1.2 Closing.........................................................2
1.3 Separate Agreements.............................................2
1.4 Use of Proceeds.................................................3
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................3
2.1 Organization and Standing.......................................3
2.2 Corporate Power.................................................3
2.3 Validity; Binding Obligation....................................3
2.4 Financial Statements............................................4
2.5 Consents........................................................4
2.6 Capitalization..................................................5
2.7 Validity and Rights of Preferred Shares.........................5
2.8 Registration Rights.............................................6
2.9 Securities Laws.................................................6
2.10 Absence of Undisclosed Liabilities.............................6
2.11 Subsidiaries...................................................6
2.12 Litigation and Claims..........................................6
2.13 Title to Properties............................................6
2.14 Intellectual Property Rights...................................7
2.15 Compliance with Other Instruments..............................7
2.16 Compliance with Law............................................8
2.17 Employees......................................................8
2.18 Employee Benefit Plans.........................................8
2.19 Compliance with Environmental Laws.............................8
2.20 Insurance......................................................9
2.21 Material Contracts and Agreements..............................9
2.22 Taxes..........................................................11
2.23 Investment Company.............................................11
2.24 Labor Relations................................................11
2.25 No Conflict of Interest........................................12
2.26 Small Business Matters.........................................12
2.27 Full Disclosure................................................12
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...............13
3.1 Organization....................................................13
3.2 Power...........................................................13
3.3 Binding Obligation..............................................13
3.4 Consents........................................................13
3.5 Investment Purposes.............................................13
3.6 Accredited Investor.............................................14
3.7 Legend on Certificates..........................................14
ARTICLE IV -- CONDITIONS TO THE PURCHASERS' OBLIGATIONS.......................14
4.1 Delivery of Certificates........................................14
4.2 Representations and Warranties, Performance of Obligations......14
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4.3 No Material Effect..............................................15
4.4 Litigation......................................................15
4.5 Applicable Law..................................................15
4.6 Articles of Amendment...........................................15
4.7 Stockholders' Agreement; Registration Rights Agreement..........15
4.8 Consents........................................................15
4.9 Certification of Satisfaction of Conditions.....................15
4.10 Opinion of Counsel.............................................15
4.11 Performance of Obligations.....................................15
4.12 Taxes..........................................................15
4.13 Fees and Disbursements of Purchasers' Counsel..................16
4.14 Board of Directors.............................................16
4.15 Good Standing Certificates.....................................16
4.16 No Liens.......................................................16
4.17 Key Person Life Insurance......................................16
4.18 Non-Competition Agreement......................................16
4.19 SBA Documents and Information..................................16
ARTICLE V -- CONDITIONS TO THE COMPANY'S OBLIGATION...........................16
5.1 Tender by Purchasers............................................16
5.2 Representations and Warranties; Performance of Covenants........16
5.3 Stockholders' Agreement; Registration Rights Agreement.........17
5.4 Applicable Law..................................................17
5.5 Consents........................................................17
5.6 Performance of Obligations......................................17
5.7 Articles of Amendment...........................................17
ARTICLE VI -- ADDITIONAL COVENANTS OF THE COMPANY.............................17
6.1 Securities Law Filings..........................................17
6.2 Transactions with Substantial Holders...........................17
6.3 Business and Financial Covenants................................18
6.4 Corporate Existence, Business, Maintenance, Insurance...........20
6.5 Payment of Taxes; ERISA.........................................20
6.6 Books and Records, Compliance...................................21
6.7 Directors' and Officers' Liability Insurance....................21
6.8 Repurchase of Preferred Shares..................................21
6.9 Compensation....................................................21
6.10 Key Person Life Insurance......................................21
6.11 SBA Requirements...............................................21
ARTICLE VII -- INFORMATION....................................................22
7.1 Audited Annual Financial Statements.............................22
7.2 Quarterly Unaudited Financial Statements........................22
7.3 Monthly Unaudited Financial Statements..........................22
7.4 Management's Analysis...........................................23
7.5 Budgets.........................................................23
7.6 Inspection......................................................23
7.7 Other Information...............................................23
ARTICLE VIII -- EXPENSES......................................................24
8.1 Expenses of Directors...........................................24
8.2 Legal Fees and Other Expenses...................................25
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8.3 Finder's Fee....................................................25
8.4 Other Expenses..................................................25
ARTICLE IX -- MISCELLANEOUS...................................................25
9.1 Survival........................................................25
9.2 Indemnification.................................................25
9.3 Transfer and Termination of Rights..............................26
9.4 Binding Effect..................................................26
9.5 Amendment.......................................................26
9.6 Governing Law...................................................26
9.7 Notices.........................................................26
9.8 Headings........................................................27
9.9 Regulatory Requirements.........................................27
9.10 Counterparts...................................................27
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LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A Articles of Amendment
EXHIBIT B Stockholders' Agreement
EXHIBIT C Registration Rights Agreement
EXHIBIT D Non-Disclosure and Non-Competition Agreement
SCHEDULE I List of Purchasers
SCHEDULE 2.1(b) Jurisdictions Where Company is Qualified
SCHEDULE 2.4(a) Financial Statements
SCHEDULE 2.4(b) Changes Since Last Financial Statements
SCHEDULE 2.6(b) Stock Ledger
SCHEDULE 2.10 Liabilities
SCHEDULE 2.13 Title to Properties
SCHEDULE 2.14 Intellectual Property
SCHEDULE 2.18 Employee Benefit Plans
SCHEDULE 2.20 Insurance
SCHEDULE 2.21 Material Contracts and Agreements
SCHEDULE 2.24 Labor Relations
SCHEDULE 2.25 No Conflict of Interest
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PREFERRED STOCK PURCHASE AGREEMENT
4,166,668 SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK OF
STATE COMMUNICATIONS, INC.
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into on this 28th day of October, 1998 by and among STATE
COMMUNICATIONS, INC., a South Carolina corporation (the "Company"), and each of
the purchasers named in Schedule I attached hereto (collectively, the
"Purchasers" and each, individually, a "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchasers desire to purchase from the Company, and the
Company desires to issue and sell to the Purchasers, 4,166,668 shares of Series
A Convertible Preferred Stock of the Company (the "Preferred Shares") on the
terms and conditions hereinafter set forth for a purchase price of $2.40 per
share, constituting an aggregate purchase price of $10,000,003.20.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties agree as follows:
ARTICLE I
SUBSCRIPTION FOR THE PREFERRED SHARES
1.1 Purchase and Sale. (a) Subject to the terms and conditions set
forth herein, each Purchaser hereby subscribes for and agrees to purchase from
the Company, and the Company hereby agrees to issue and sell to each Purchaser,
on the Closing Date (as hereinafter defined), the number of Preferred Shares set
forth opposite such Purchaser's name on Schedule I, for a purchase price of
$2.40 per share to be paid $6,000,003.20 in cash at Closing (as hereinafter
defined) with the balance of $4,000,000 (the "Subscription Proceeds") to be paid
as set forth below.
(b) After the Closing the Company, through its Chairman and
CEO, acting in unison, will determine the timing and amount of Subscription
Proceeds to be called by the Company. All Subscription Proceeds committed by the
Purchasers may be called by the Company at any time the Preferred Shares remain
outstanding. Subscription Proceeds shall be subject to call by the Company upon
fifteen (15) days written notice to the Purchasers, on a pro rata basis up to
the full amount of each Purchaser's commitment set forth on Schedule I hereto.
Notice shall be deemed delivered in accordance with Section 9.7 hereof. Such
notice shall state the aggregate Subscription Proceeds to be delivered by the
Purchasers and the pro rata amount to be delivered by each Purchaser. In
addition, at any time Preferred Shares remain outstanding each Purchaser, by
providing written notice to the Company, may put to the Company (in one or more
installments) any Subscription Proceeds payable by such Purchaser and not
previously funded. The Subscription Proceeds shall be deemed received by
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the Company upon physical delivery by wire transfer, certified or cashier's
check or other method mutually acceptable to the Company and such Purchaser.
Upon request by either Purchaser, the Company shall provide written confirmation
to such Purchaser of its receipt of any of the Subscription Proceeds.
(c) Purchasers are permitted, but not required, to cover the
pro rata call of any other Purchaser. In addition, should any Purchaser fail to
timely provide the Subscription Proceeds properly called by the Company or
should the remaining Purchaser(s) fail to cover the call of any other
Purchaser(s) on or before the 15th day following proper notice of a capital
call, the remaining Purchasers may (by written notice delivered on or before the
end of such 15th day) notify the Company of their intent to fund such call
through proceeds obtained from a new investor(s), acceptable to the Company (as
reasonably determined by the Chairman and CEO, collectively). In such event, the
Purchasers and the new investor(s) will be provided an additional forty-five
(45) day cure period to obtain the funds necessary to meet the capital call. The
new investor(s) shall be subject to all of the terms and conditions of the
Purchasers as set forth in this Agreement and shall be required to execute a
Stockholders' Agreement in the form executed by the Purchasers in connection
with this transaction and become as signatory to this Agreement. Shares
previously issued or certificated to an original Purchaser which have not been
duly funded as a result of a failure to meet the capital call or calls as set
forth herein shall be automatically cancelled and all other shares of Preferred
Stock previously issued and certificated shall remain outstanding. New
certificates shall be issued to the new investor(s) or to the remaining
Purchaser(s) that cover the call of any defaulting Purchaser. If more than one
remaining Purchaser desires to cover the call of the defaulting Purchaser, such
Purchasers shall be entitled to acquire such shares of Preferred Stock in
proportion to their pro rata ownership of the Preferred Stock issued to the
participating Purchasers.
(d) Should the Purchasers (or any Purchaser) fail to fund the
call or calls in the manner provided for herein, the Company shall maintain the
right to ▇▇▇ such defaulting Purchaser (or Purchasers) for breach of their
payment obligation(s) (and to collect reasonable costs and expenses of legal
counsel) under this Section 1.1.
1.2 Closing. The closing of the purchase and sale of the Preferred
Shares (the "Closing") shall be held on October 28, 1998 or such other date as
the parties shall mutually agree upon (the "Closing Date"), at the offices of
▇▇▇▇▇▇ & Bird LLP, 1201 West Peachtree Street, Atlanta, Georgia, or at such
other mutually acceptable place. On the Closing Date, the Company shall deliver
to each Purchaser duly issued stock certificates representing the number of
Preferred Shares to be purchased by such Purchaser. The Purchasers shall pay the
cash purchase price for the Preferred Shares by wire transfer of immediately
available funds to an account designated by the Company.
1.3 Separate Agreements. The purchases by the Purchasers hereunder
shall be separate and several transactions. The obligations of each Purchaser
hereunder shall be several and not joint, and this Agreement shall for all
purposes be construed and deemed to be a separate agreement between the Company
and each Purchaser, acting severally and not jointly, with the same effect as
though a separate agreement with each Purchaser to the effect herein provided
were hereby entered into between the Company and each Purchaser.
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1.4 Use of Proceeds. The proceeds of the sale of the Preferred Shares
will be used by the Company for general corporate purposes as determined
appropriate by the Board of Directors of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows:
2.1 Organization and Standing.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of South Carolina.
(b) The Company is currently engaged in the business of
providing local exchange and long distance telecommunication services to
residential customers and the small business market (the "Business"). The
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of the Company to conduct the Business or which
would impair the Company's ability to perform its obligations in any material
respect under the Documents, as such term is defined in Section 2.2 hereof (a
"Material Adverse Effect"). Schedule 2.1(b) identifies each jurisdiction in
which the Company is currently qualified to do business as a foreign
corporation.
(c) The Company has delivered to Purchasers' counsel true and
complete copies of the Articles of Incorporation and Bylaws of the Company,
including all amendments thereto, as presently in effect. On the Closing Date,
but prior to the Closing, the Company shall cause to be filed with the Secretary
of State of South Carolina its Articles of Amendment in substantially the form
annexed hereto as Exhibit A (the " Articles of Amendment"). Except for the
Articles of Amendment and except for the amendment of the Bylaws to reflect the
terms of the Documents, the Articles of Incorporation and Bylaws of the Company
will not be amended prior to the Closing Date.
(d) The Company has all corporate power and all governmental
licenses, authorizations, consents and approvals required to carry on the
Business as now being conducted and necessary to own, operate and lease its
properties and assets.
2.2 Corporate Power. The Company has the requisite corporate power to
execute and deliver this Agreement, the Stockholders' Agreement, in
substantially the form attached hereto as Exhibit B (the "Stockholders'
Agreement"), the Registration Rights Agreement in substantially the form
attached hereto as Exhibit C (the "Registration Rights Agreement") (this
Agreement, the Stockholders' Agreement and the Registration Rights Agreement
shall be collectively referred to herein as the "Documents") and to perform its
obligations hereunder and thereunder.
2.3 Validity; Binding Obligation. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable
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against it in accordance with its terms. The other Documents have each been duly
authorized by the Company and, when executed and delivered by the Company and
the other parties named therein, will constitute valid and binding agreements of
the Company, enforceable against the Company in accordance with their respective
terms. The issuance, sale and delivery of the Preferred Shares have been, or
prior to the Closing Date will be, duly authorized by all necessary corporate
action by the Company.
2.4 Financial Statements. (a) Schedule 2.4(a) contains a true and
complete copy of:
(i) the unaudited balance sheet of the Company for
the year ended December 31, 1997 and the related unaudited
statements of operations, stockholders' equity and cash flows
of the Company for the year ended December 31, 1997; and
(ii) the unaudited balance sheet of the Company for
the eight-month period ended August 31, 1998 and the related
unaudited statements of operations, stockholders' equity and
cash flows of the Company for such period (the financial
statements referred to in clauses (i) and (ii) of this Section
2.4(a) being collectively referred to as the "Financial
Statements").
(b) The Financial Statements have been prepared in accordance
with generally accepted accounting principles (except that such unaudited
financial statements do not contain all of the required footnotes or normal
recurring year-end adjustments) applied on a consistent basis during the
respective periods covered thereby. The Financial Statements are correct and
complete and present fairly the financial position of the Company at the date of
the balance sheets included therein and the results of operations and cash flows
of the Company for the respective periods covered by the statements of
operations and cash flows included therein. Except as set forth on Schedule 2.4
(b), since the date of the Financial Statements (i) there has been no change in
the assets, liabilities or financial condition of the Company from that
reflected in the Financial Statements, other than changes in the ordinary course
of business which in the aggregate have not been materially adverse, and (ii)
none of the business, prospects, financial condition, operations, property or
affairs of the Company has been materially and adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
covered by insurance.
2.5 Consents. No consent, approval or authorization of, or
qualification, designation, declaration or filing with, or notice to any
governmental authority on the part of the Company is required in connection with
(i) the valid execution and delivery of the Documents, and (ii) the offer, sale
or issuance of the Preferred Shares (and the Common Stock issuable upon
conversion of the Preferred Shares), except (A) the filing of the Articles of
Amendment in the Office of the Secretary of State of South Carolina, which
filing will be accomplished on or prior to the Closing Date, (B) the filing of a
Form D with the Securities and Exchange Commission, (C) the qualification (or
taking such action as may be necessary to secure an exemption from
qualification, if available) of the offer and sale of the Preferred Shares (and
the Common Stock issuable upon conversion of the Preferred Shares) under any
applicable state securities laws, which qualification, if required, will be
accomplished in a
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timely manner prior to or promptly upon completion of the Closing, as required
by such laws and (D) such consents, approvals and authorizations as have been
obtained by the Company prior to Closing.
2.6 Capitalization. (a) The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $.001 par value (the "Common
Stock"), and 10,000,000 shares of Preferred Stock, $.01 par value (the
"Preferred Stock"), 4,166,668 of which have been designated as Series A
Convertible Preferred Stock. Immediately after the Closing, (i) 10,324,462
shares of Common Stock will be issued and outstanding, (ii) 4,166,668 shares of
Preferred Stock will be issued and outstanding, (iii) 3,155,860 options,
warrants or other rights to purchase or otherwise acquire shares of Common Stock
will be outstanding, and (v) such number of shares of Common Stock as shall be
necessary to effect the conversion of the Preferred Stock will be reserved for
future issuance upon conversion of Preferred Stock. Immediately after the
Closing upon receipt of the Purchase Price, all such issued and outstanding
shares of capital stock of the Company will be duly authorized and validly
issued and outstanding, fully paid and nonassessable.
(b) Schedule 2.6(b) contains a true and correct copy of the
Company's current stock transfer ledger reflecting the record holders of the
Company's equity securities and the number of shares held of each. Each of
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (individually, a "Founder" and
collectively, the "Founders") is the lawful owner, of record and beneficially,
of the number of shares of Common Stock set forth opposite the name of each
Founder on Schedule 2.6(b). Each Founder has good and marketable title to, and
all other incidents of record and beneficial ownership of, such shares, free and
clear of any liens, claims and encumbrances, other than the restrictions set
forth in the Stockholders' Agreement or the Liquidation Proceeds Agreements
attached to Schedule 2.6(b) (the "Liquidation Agreements").
(c) Except as set forth in paragraph (a) above or as disclosed
on Schedule 2.6(b), immediately after the Closing, there will be no outstanding
(i) securities convertible into or exchangeable for shares of capital stock of
the Company, (ii) options, warrants or other rights to purchase or otherwise
acquire from the Company shares of such capital stock, or securities convertible
into or exchangeable for shares of such capital stock, or (iii) contracts,
agreements or commitments relating to the issuance by the Company of any shares
of such capital stock, any such convertible or exchangeable securities, or any
such options, warrants or other rights. Except for the Stockholders' Agreement
or the Liquidation Agreements there are no voting trusts, voting agreements,
proxies or other agreements, instruments or understandings with respect to the
voting of the capital stock of the Company to which the Company or, to the
Company's knowledge, any of its stockholders is a party.
(d) The Company has reserved, and at all times from and after
the date hereof will keep reserved, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, sufficient shares of Common
Stock to provide for the conversion of all Preferred Shares.
2.7 Validity and Rights of Preferred Shares. The Preferred Shares, when
issued to the Purchasers pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and will have the designations, preferences,
limitations, and relative rights set forth in the Articles of
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Amendment. Any and all shares of Common Stock issued upon conversion of the
Preferred Shares (the "Conversion Shares"), when issued, will be validly issued,
fully paid and nonassessable.
2.8 Registration Rights. Except for the rights granted under the
Registration Rights Agreement and except as set forth in that certain
Registration Rights Agreement dated between the Company and Seruus Telecom Fund,
L.P., no person or entity has any right to cause the Company to effect the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of any shares of its capital stock.
2.9 Securities Laws. Subject to the accuracy of the representations and
warranties of the Purchasers contained in Article III hereof, the offering, sale
and purchase of the Preferred Shares contemplated hereby are exempt from
registration under the Securities Act. The issuance of all other shares of
capital stock of the Company on or before the date hereof is being or has been
made in compliance with the Securities Act and all applicable state securities
or blue sky laws. All offering documents used and oral disclosure made in
connection with the offer or sale of any of the Company's securities prior to
the date hereof have been correct in all material respects and have not
contained any untrue statements of a material fact or omitted to state a
material fact necessary in order to make the statements contained therein not
misleading.
2.10 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.10, as of the date hereof, the Company has no material liability or
obligation of any nature (whether accrued, contingent, absolute or otherwise) or
any material loss contingency (as such term is used in the Statement of
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975), which was not adequately disclosed or provided for in the Financial
Statements.
2.11 Subsidiaries. The Company has no Subsidiaries (as hereinafter
defined). The Company does not own, or have the right to acquire, any securities
or other equity or ownership interest in any corporation, partnership, limited
liability company, association or other entity. "Subsidiary" means a
corporation, partnership, limited liability company or any other form of legal
entity of which the Company, at the time in respect of which such term is used,
owns directly, or controls with power to vote, directly or indirectly through
one or more Subsidiaries, more than fifty percent (50%) of the voting
securities.
2.12 Litigation and Claims. There are no actions at law, suits in
equity or other proceedings or investigations in any court, tribunal or by or
before any other governmental or public authority or agency or any arbitrator or
arbitration panel or any governmental or private third-party insurance agency,
pending or, to the knowledge of the Company, threatened against or affecting the
Company or that would question the validity or enforceability of this Agreement,
the Documents, or any of the transactions contemplated hereby and thereby. The
Company is not in default with respect to any order, writ, injunction, judgment
or decree of any court or other governmental or public authority or agency or
arbitrator or arbitration panel.
2.13 Title to Properties. The Company has good and marketable title to
its properties and assets and has good title to all its respective leasehold
interests, in each case subject to no mortgage,
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pledge, lien, encumbrance or charge, other than as set forth on Schedule 2.13
hereto. Schedule 2.13 accurately lists with respect to the personal property
owned (or purported to be owned) by the Company (i) each financing statement,
deed, agreement or other instrument which has been filed, recorded or registered
pursuant to any United States federal, state or local law or regulation that
names the Company as debtor or lessee or as the grantor or the transferor of the
interest created thereby, and (ii) as to each such financing statement, deed,
agreement or other instrument, the names of the debtor, lessee, grantor or
transferor and the secured party, lessor, grantee or transferee and the name of
the jurisdiction in which such financing statement, deed, agreement or other
instrument has been filed, recorded or registered. Except as set forth on
Schedule 2.13, the Company has not signed any agreement or instrument
authorizing any secured party thereunder to file any such financing statement,
deed, agreement or other instrument.
2.14 Intellectual Property Rights. The Company owns or possesses the
rights to use, free from any restrictions or conflicts with the rights of others
claiming through the Company, all copyrights, trademarks, service marks, trade
names, patents and intellectual property licenses, and all rights with respect
to the foregoing, necessary for the conduct of the Business as now conducted and
as proposed to be conducted, and is in compliance in all material respects with
the terms and conditions, if any, of all such copyrights, trademarks, service
marks, trade names, patents and intellectual property licenses and the terms and
conditions of any agreements relating thereto. Except as set forth on Schedule
2.14, there are no outstanding options, licenses, or material agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that it has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. To the Company's knowledge,
none of its employees are obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of their best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. It is not currently and will not in the future be necessary for the
Company to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
2.15 Compliance with Other Instruments. The Company is not in violation
of or in default under any term of its organizational documents, any term or
provision of any mortgage, indenture, contract, agreement, instrument, judgment
or decree, and is not in violation of any applicable order, statute, rule or
regulation except for such violations or defaults as are not expected to have a
Material Adverse Effect, and to the Company's knowledge there is no state of
facts which, with the passage of time or giving of notice or both, would
constitute any such violation or default that would in the aggregate have a
Material Adverse Effect. The execution, delivery and performance of and
compliance with the Documents, the issuance of the Preferred Shares (and the
Conversion Shares) and the
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consummation of any other transaction contemplated by the Documents have not
resulted and will not result in any such violation, or be in conflict with, or
constitute a default under any of the foregoing, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company.
2.16 Compliance with Law. The Company is in compliance with all
statutes, laws and ordinances and all governmental rules and regulations to
which it is subject, the violation of which, either individually or in the
aggregate, would have a Material Adverse Effect. Neither the execution, delivery
or performance of this Agreement or the other Documents nor the consummation of
the transactions contemplated by the Documents will cause the Company to be in
violation of any law or ordinance, or any order, rule or regulation, of any
federal, state, municipal or other governmental or public authority or agency.
2.17 Employees. To the knowledge of the Company, no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
intellectual property of the Company or the relationship of any such employee
with such entity or any other party.
2.18 Employee Benefit Plans. (a) The Company has not since inception,
nor does it currently sponsor, maintain, contribute to or participate in a
Multiemployer Plan or a "defined benefit plan" within the meaning of Section
3(35) of ERISA covering employees of the Company; (b) except as set forth on
Schedule 2.18, none of the Employee Benefit Plans is an "employee pension
benefit plan", or an "employee welfare benefit plan", within the meaning of
Section 3(3) of ERISA; (c) there are no pending or, to the best of the Company's
knowledge, threatened claims, lawsuits, or arbitrations against any Employee
Benefit Plan or any fiduciary thereof; (d) each Employee Benefit Plan is, and
has been, operated in compliance in all material respects with the applicable
provisions of federal and state law; (e) the Company has, or prior to the
Closing Date will have, paid in full all insurance premiums or otherwise met all
other funding obligations with regard to all Employee Benefit Plans for policy
years or other applicable policy funding periods ending on or before the Closing
Date; and (f) upon termination of employment of any employee, neither the
Company nor any employee will incur any liability for any severance or
termination pay, pension, profit-sharing or other post-retirement benefit,
including but not limited to life, health and welfare benefits, or other similar
payment, except as set forth on Schedule 2.18. For purposes of this
representation, "Employee Benefit Plans" shall mean bonus, pension, benefit,
welfare, profit-sharing, retirement, disability, insurance, incentive, deferred
compensation and other similar fringe or employee benefit plans, funds, programs
or arrangements, and any employment contracts or executive compensation
agreements, written or oral, in each of the foregoing cases, which cover or
covered, are or were maintained for the benefit of, or relate or related to, any
or all current or former employees of the Company.
2.19 Compliance with Environmental Laws. (a) The Company is, and will
continue to be, in compliance with all applicable federal, state and local
environmental laws, regulations and ordinances governing the Business with
respect to all discharges into the ground and surface water, emissions into the
ambient air and generation, accumulation, storage, treatment, recycling,
transportation, labeling or disposal of waste materials or process by-products
except for noncompliance as is not expected to have a Material Adverse Effect.
The Company is not liable for any penalties, fines or forfeitures for failure
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to comply with any of the foregoing. All material licenses, permits or
registrations required for the Business as presently conducted and proposed to
be conducted, under any federal, state, or local environmental laws, regulations
or ordinances have been or will, in a timely manner, be obtained or made.
(b) No release, emission or discharge into the environment of
hazardous substances, as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, or hazardous waste, as defined
under the Resource Conservation and Recovery Act, or air pollutants as defined
under the Clean Air Act, or pollutants, as defined under the Clean Water Act, by
the Company has occurred or is presently occurring on or from any property owned
or leased by the Company in excess of federal, state or local permitted releases
or reportable quantities, or other concentrations, standards or limitations
under the foregoing laws or any state or local law governing the protection of
health and the environment or under any other federal, state or local laws or
regulations (then or now applicable, as the case may be).
(c) The Company has never (1) owned, operated or, to its
knowledge, occupied a site or structure on or in which any hazardous substance
was or is stored, transported or disposed of in violation of any federal, state
or local environmental laws, regulations or ordinances at such time as such site
or structure was owned, occupied or operated by the Company or at any other
time, or (2) transported or arranged for the transportation of any hazardous
substance other than in full compliance with all applicable federal, state and
local environmental laws, regulations and ordinances governing the Business or
the storage, transportation or disposal of hazardous substances. The Company has
never caused or been held legally responsible for any release or threatened
release of any hazardous substance, or received notification from any federal,
state or other governmental authority of any such release or threatened release,
or that the Company may be required to pay any costs or expenses incurred or to
be incurred in connection with any efforts to mitigate the environmental impact
of any release or threatened release, of any hazardous substance from any site
or structure owned, occupied or operated by the Company.
2.20 Insurance. The Business has fire, casualty, liability, and
business interruption insurance policies with recognized insurers, in such
amounts and with such coverage as set forth on Schedule 2.20.
2.21 Material Contracts and Agreements. (a) Schedule 2.21 sets forth
all written and oral agreements or understandings of the Company, either
existing or pending, which:
(i) provide for the future purchase by the Company of
products or services in excess of $100,000;
(ii) involve the Company and any director, officer,
or employee of the Company;
(iii) provide for the borrowing of money or a line of
credit by the Company or a leasing transaction of a type
required to be capitalized by the Company in accordance with
generally accepted accounting principles;
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15
(iv) provide for the sale, assignment, or other
disposition of any asset with a value in excess of $100,000 or
any material right of the Company or any Subsidiary;
(v) provide for the licensing or distribution of the
Company's products and services by, or establish an agency
relationship with, any other party;
(vi) provide for the lease by the Company of any real
or personal property involving lease payments in excess of
$100,000 per year;
(vii) restrict the Company from engaging in any
business activity, restrict either Founder in the performance
of his obligations and responsibilities to the Company, or
create any other obligation or liability of either Founder
arising from any prior employment;
(viii) to the knowledge of the Company, restrict any
other officer or key employee of the Company from engaging in
any business activity, restrict any such officer or key
employee in the performance of his or her obligations and
responsibilities to the Company, or create any other
obligation or liability of any such officer or key employee
arising from his employment with the Company or any prior
employment;
(ix) provide for a guaranty, surety, indemnity, or
other financial support by the Company to any person or
entity;
(x) grant to any person or entity a right to acquire
the assets, business or operations of the Company or grant a
security interest in or lien on any asset or right of the
Company; or
(xi) are otherwise material to the Company or its
business or assets.
(b) Each agreement or understanding set forth on Schedule 2.21
is in full force and effect and constitutes a valid and binding obligation of
the Company (except as enforceability may be affected by bankruptcy or other
similar laws relating to or affecting the rights of creditors generally) and, to
the knowledge of the Company, all other parties thereto. Each of the Company
and, where applicable, each Founder has in all respects performed the
obligations required to be performed by it or him and is not in default or
alleged to be in default in any material respect under any such agreement or
understanding. There exists no event or condition which, after notice or lapse
of time, or both, would constitute such a default. To the knowledge of the
Company, there are no material defaults by any other party to any such agreement
or understanding. The Company has delivered to the Purchasers correct and
complete copies of all documents set forth on Schedule 2.21.
(c) No agreement or understanding to which the Company is a
party (i) restricts the Company from engaging in the Company's business as now
being conducted and as proposed to be
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conducted, or (ii) grants to any person or entity, other than the Company, any
right, title, or interest in any invention or know-how conceived by the
employees of the Company and related to the business of the Company.
2.22 Taxes. All federal, state and other tax returns of the Company
required by law to be filed have been duly filed and all federal, state and
other taxes, assessments, fees and other federal governmental charges upon the
Company or any of the properties, incomes or assets of the Company that are due
and payable have been paid. No extensions of the time for the assessment of
deficiencies have been granted to the Company in connection with any federal
tax, assessment, fee or other federal governmental charge. There are no liens,
claims or encumbrances on any properties or assets of the Business imposed or
arising as a result of the delinquent payment or the non-payment of any tax,
assessment, fee or other governmental charge. The Company:
(i) has not assumed and is not liable for any
federal, state or other income tax liability of any other
person, including any predecessor corporation, as a result of
any purchase of assets or other business acquisition
transaction; and
(ii) has not indemnified any other person or
otherwise agreed to pay on behalf of any other person tax
liability growing out of or which may be asserted on the basis
of any tax treatment adopted with respect to all or any aspect
of such a business acquisition transaction.
The charges, accruals and reserves, if any, on the books of the Company in
respect of federal, state and local corporate franchise and income taxes for all
fiscal periods to date are adequate in accordance with generally accepted
accounting principles, and the Company knows of no additional unpaid assessments
for such periods or other governmental charges payable by the Company in
connection with the execution and delivery of this Agreement, the Documents or
the offer, issuance, sale or delivery of the Preferred Shares by the Company,
other than stock transfer taxes, recording fees and filing fees in connection
with state securities or "blue sky" filings.
2.23 Investment Company. The Company is not an "investment company", or
an "affiliated person" of an "investment company", or a company "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended, and the Company is not an "investment adviser" or an
"affiliated person" of an "investment adviser" as such terms are defined in the
Investment Advisers Act of 1940, as amended.
2.24 Labor Relations. The Company is not engaged in any unfair labor
practices. Except as set forth on Schedule 2.24, there is:
(i) no unfair labor practice complaint pending or, to
the best of the Company's knowledge, threatened against the
Company before the National Labor Relations Board or any court
or labor board, and no grievance or arbitration proceedings
arising out of or under collective bargaining agreements is so
pending or, to the best of the Company's knowledge,
threatened,
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(ii) no strike, lock-out, labor dispute, slowdown or
work stoppage pending or, to the best of the Company's
knowledge, threatened against the Company, and
(iii) no union representation or certification
question existing or pending with respect to the employees of
the Company, and, to the best knowledge of the Company, no
union organization activity taking place.
2.25 No Conflict of Interest. Except as set forth in Schedule 2.25, the
Company is not indebted, directly or indirectly, to any of its officers or
employees who is the beneficial owner of one percent or more of the outstanding
voting power or the outstanding common equity (on a fully diluted basis) of the
Company (a "Substantial Holder"), or to any affiliate of a Substantial Holder,
in any amount whatsoever. To the best knowledge of the Company, no Substantial
Holders or any of their affiliates are indebted to any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company. Except
as contemplated by the Documents, no Substantial Holder, or, to the best of the
Company's knowledge, any affiliate of a Substantial Holder, has a direct or
indirect interest in any contract with the Company or any of the Subsidiaries.
2.26 Small Business Matters. The Company, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
ss. 121.101), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, ss. 121.201. The information regarding the
Company and its affiliates set forth in SBA Form 480, Form 652 and Part A of
Form 1031 delivered at the Closing is accurate and complete. Copies of such
forms shall have been completed and executed by the Company and delivered to
those Purchasers that so request at the Closing. The Company does not engage in
any activities for which a "small business investment company" is prohibited
from providing funds by the Small Business Investment Act of 1958 and the
regulations thereunder (including Title 13, Code of Federal Regulations,
ss. 107.720).
2.27 Full Disclosure. This Agreement, the other Documents, and any
report, statement or other writing furnished to the Purchasers by or on behalf
of the Company in connection with the negotiation of this Agreement and the
other Documents and the sale of the Preferred Shares, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
which is necessary to make the statements contained herein or therein not
misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company, each with respect to itself only, as follows:
3.1 Organization. Purchaser is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Such Purchaser was not organized for the specific purpose of
acquiring the Preferred Shares.
3.2 Power. Purchaser has the requisite corporate, partnership or other
power to execute and deliver the Documents and to perform its obligations
thereunder, and the execution and delivery by such Purchaser of the Documents,
the performance by such Purchaser of the transactions contemplated thereby and
the purchase of and payment for the Preferred Shares by such Purchaser, have
been duly authorized by all necessary corporate, partnership or other action on
the part of such Purchaser.
3.3 Binding Obligation. This Agreement has been duly executed and
delivered by such Purchaser, and constitutes a valid and binding agreement of
such Purchaser, enforceable against such Purchaser in accordance with its terms.
The other Documents, when executed and delivered by such Purchaser and the other
parties listed therein, will constitute valid and binding agreements of such
Purchaser enforceable against such Purchaser in accordance with their terms.
3.4 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of such
Purchaser is required in connection with the valid execution and delivery of the
Documents or the purchase of and payment for the Preferred Shares, or the
consummation of any other transaction contemplated by the Documents.
3.5 Investment Purposes. (a) Such Purchaser is acquiring the securities
solely for such Purchaser's account for investment and not with a view to, or
for resale in connection with, the distribution thereof, except for any
distribution thereof effected in compliance with the Securities Act.
(b) Such Purchaser understands that: (i) the purchase of the
Preferred Shares is a speculative investment which involves a high degree of
risk of loss of such holder's investment therein; (ii) there are substantial
restrictions on the transferability of Preferred Shares and the Conversion
Shares under the terms of the Stockholders' Agreement and the applicable
provisions of the Securities Act and the rules and regulations of the Securities
and Exchange Commission (the "SEC") promulgated thereunder and under applicable
state securities or "blue sky" laws; and (iii) at the Closing, and for an
indeterminate period following the Closing, there will be no public market for
the Preferred Shares or the Conversion Shares and, accordingly, that it may not
be possible to readily liquidate an investment in the Company, if at all.
(c) Such Purchaser has been advised and understands that: (i)
the offer and sale of the Preferred Shares and the Conversion Shares have not
been registered under the Securities Act; (ii) the Preferred Shares and the
Conversion Shares must be held indefinitely and such Purchaser must continue to
bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares
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unless the offer or sale of the Preferred Shares or the Conversion Shares is
subsequently registered under the Securities Act or an exemption from such
registration is available; (iii) there is not currently any public market for
the Preferred Shares or the Conversion Shares; (iv) Rule 144 promulgated under
the Securities Act is not presently available with respect to the sale of any
securities of the Company, including the Preferred Shares or the Conversion
Shares, and when and if the Preferred Shares or the Conversion Shares may be
disposed of without registration in reliance on Rule 144, such disposition can
be made only in accordance with the terms and conditions of such Rule; (v)
restrictive legends described in Section 3.7 shall be placed on the certificates
representing the Preferred Shares or the Conversion Shares; and (vi) a notation
shall be made in the appropriate records of the Company indicating that the
Preferred Shares or the Conversion Shares are subject to restrictions on
transfer and, if the Company should at some time in the future engage the
services of a securities transfer agent, appropriate stop-transfer instructions
will be issued to such transfer agent with respect to the Preferred Shares or
the Conversion Shares.
(d) Such Purchaser is aware that, except as expressly provided
in the Registration Rights Agreement, there exists no right to require
registration of the Preferred Shares or the Conversion Shares and such Purchaser
must bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares.
3.6 Accredited Investor. Each Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933, as amended.
3.7 Legend on Certificates. Each Purchaser has been advised by the
Company that the certificates representing the Preferred Shares (and Conversion
Shares) will bear an appropriate legend to the effect that the shares
represented by such Certificates have not been registered under the Securities
Act, and may not be transferred in the absence of an effective registration
statement under the Securities Act or an exemption from such registration under
said Act, and such additional legends as may be called for by the Stockholders'
Agreement.
ARTICLE IV
CONDITIONS TO THE PURCHASERS' OBLIGATIONS
The obligation of each of the Purchasers to purchase the Preferred
Shares hereunder shall be subject to the satisfaction, prior to or concurrently
with such purchase, of the following conditions:
4.1 Delivery of Certificates. Such Purchaser shall have received duly
executed stock certificates representing the Preferred Shares being purchased by
such Purchaser.
4.2 Representations and Warranties; Covenants. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date as if made on and as of
such date. The Company shall have performed and complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
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4.3 No Material Adverse Effect. No event or events shall have occurred
and no condition or conditions shall exist, which individually or in the
aggregate would have a Material Adverse Effect, including without limitation,
any such events or conditions which occurred prior to, or existed on the date of
this Agreement, but were not explicitly disclosed herein or in a Schedule
hereto.
4.4 Litigation. There shall not be any litigation, investigation, claim
or proceeding of or before any court, arbitrator or governmental authority
pending or threatened with respect to any of the Documents or the transactions
contemplated thereby.
4.5 Applicable Law. Such Purchaser's purchase of and payment for the
Preferred Shares shall not be prohibited by any applicable law, court order or
governmental regulation and shall not subject such Purchaser to any tax,
penalty, liability or other condition under or pursuant to any applicable law,
court order or governmental regulation.
4.6 Articles of Amendment. The Articles of Amendment shall have been
filed in the Office of the Secretary of State of South Carolina and shall be in
full force and effect on the Closing Date.
4.7 Stockholders' Agreement; Registration Rights Agreement. Prior to or
at the Closing, the Stockholders' Agreement and the Registration Rights
Agreement shall have been executed and delivered by each of the parties thereto.
4.8 Consents. All governmental authorizations, consents, approvals or
exemptions required to issue the Preferred Shares pursuant to this Agreement
shall have been obtained, and all necessary governmental filings shall have been
made.
4.9 Certification of Satisfaction of Conditions. The Company shall have
delivered to the Purchasers a certificate, dated the Closing Date, and signed by
the President of the Company, certifying to the satisfaction of the conditions
set forth in Sections 4.2, 4.3 and 4.4.
4.10 Opinion of Counsel. The Purchasers shall have received the opinion
of Wyche, Burgess, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.A., counsel for the Company, dated the
Closing Date, in form and substance satisfactory to the Purchasers and the
Purchasers' counsel covering such matters as the Purchasers and their counsel
may reasonably request.
4.11 Performance of Obligations. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incident thereto shall be satisfactory in form and substance to
Purchasers, and the Purchasers or their counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request, which shall include, without limitation, a copy of
each of the Documents, duly executed by each party thereto, and a copy of the
Articles of Amendment certified to be a true and complete copy thereof by the
Secretary of State of the State of South Carolina.
4.12 Taxes. Any taxes, fees and other charges due and payable in
connection with the issuance and sale of the Preferred Shares shall have been
paid in full by the Company.
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4.13 Fees and Disbursements of Purchasers' Counsel. Purchasers' counsel
shall have received payment from the Company of its fees and disbursements in
connection with the consummation of the transactions contemplated herein.
4.14 Board of Directors. The Articles of Amendment and Bylaws of the
Company shall provide that the Board of Directors shall be set at seven and the
nominees of the Purchasers shall have been duly elected to the Company's Board
of Directors in accordance with the terms of the Stockholders' Agreement.
4.15 Good Standing Certificates. The Company shall deliver a good
standing certificate dated within 10 days of the Closing Date for each
jurisdiction in which they are organized or qualified to do business.
4.16 No Liens. The Company shall have delivered evidence, satisfactory
to the Purchasers and Purchasers' counsel, that there are no liens, other than
those set forth on Schedule 2.13 hereto, on the assets or properties of the
Company.
4.17 Key Person Life Insurance. The Company shall have obtained key
person life insurance on the life of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ in an aggregate amount of
not less than $5,000,000 with the proceeds thereof payable to the Purchasers.
4.18 Non-Competition Agreement. The Company and each of the individuals
that are party to the Stockholders' Agreement shall have entered into a
Non-Disclosure and Non-Competition Agreement in substantially the form of
Exhibit D attached hereto.
4.19 SBA Documents and Information. The Company shall have executed and
delivered to each Purchaser that so requests forms and information required by
the rules and regulations of the United States Small Business Administration,
including without limitation, a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652 and information necessary for the
preparation of a Portfolio Financing Report on SBA Form 1031.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the Preferred Shares
shall be subject to the satisfaction, prior to or concurrently with such
issuance and sale, of the following conditions:
5.1 Tender by Purchasers. At the Closing, each of the Purchasers shall
have tendered the cash consideration set forth on Schedule I attached hereto.
5.2 Representations and Warranties; Performance of Covenants. The
representations and warranties of each Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as if made on and as of such date, and each Purchaser shall have
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performed and complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
5.3 Stockholders' Agreement; Registration Rights Agreement. Prior to or
at the Closing, the Stockholders' Agreement and the Registration Rights
Agreement shall have been executed and delivered by each of the parties thereto.
5.4 Applicable Law. The Purchasers' purchase of the Preferred Shares
shall not be prohibited by any applicable law, court order or governmental
regulation and there shall not be any litigation, investigation or proceeding of
or before any court, arbitrator or governmental authority pending or threatened
with respect to any of the Documents or the transactions contemplated thereby.
5.5 Consents. All governmental authorizations, consents, approvals or
exemptions required by the Company to issue and sell the Preferred Shares
pursuant to this Agreement shall have been obtained, and all necessary
governmental filings shall have been made.
5.6 Performance of Obligations. All proceedings taken or to be taken in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Company and the
Company and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request, which
shall include, without limitation, a copy of each of the Documents, duly
executed by each party thereto.
5.7 Articles of Amendment. The Articles of Amendment shall have been
filed in the Office of the Secretary of State of South Carolina and shall be in
full force and effect on the Closing Date.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees that, except as provided in Section
6.1 below, until such time as the Company has consummated a Public Offering (as
such term is defined in the Stockholders' Agreement):
6.1 Securities Law Filings. Upon consummation of a Public Offering (as
such term is defined in the Stockholders' Agreement), and for so long as the
Purchasers hold Conversion Shares, the Company will timely file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder, to the extent required from
time to time to enable the Purchasers to sell Conversion Shares without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Purchaser, the Company will deliver a written
statement as to whether it has complied with such requirements.
6.2 Transactions with Substantial Holders. The Company shall not,
directly or indirectly, enter into any material transaction or agreement with
any stockholder owning or having a right to acquire 5% or more of the capital
stock of the Company (a "Substantial Holder") or any affiliate or
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officer of the Company or a Substantial Holder, or a material transaction or
agreement in which a Substantial Holder or affiliate or officer of the Company
or a Substantial Holder has a direct or indirect interest, unless such
transaction or agreement is on terms and conditions no less favorable to the
Company or any Subsidiary than could be obtained at the time in an arm's length
transaction with a third person that is not such a Substantial Holder or
affiliate or officer of the Company or a Substantial Holder, and such
transaction or agreement has been reviewed and approved by (i) a majority of
those members of the Company's Board of Directors who have no such interest in
the transaction, and (ii) not less than 60% of the outstanding Preferred Shares
voting separately as a class. Except as provided in Section 9.3, this Section
6.2 shall not be enforceable against the Company by any person or entity not a
party to this Agreement.
6.3 Business and Financial Covenants. The Company covenants that:
(a) Without the prior written consent of the holders of not
less than 60% of the outstanding Preferred Shares voting separately as a class:
(1) Merger, Consolidation, Acquisitions, Sale of
Assets.
(i) The Company shall not merge, effect a liquidation
or statutory share exchange, consolidate with, or otherwise
engage in any transaction or series of related transactions
which results in a change of control or permit any Subsidiary
to merge, effect a liquidation or statutory share exchange, or
consolidate with, any entity or otherwise effect a change of
control.
(ii) The Company shall not sell, assign, lease or
otherwise dispose of, or permit any Subsidiary to sell,
assign, lease or otherwise dispose of, all or substantially
all of its assets (whether now owned or hereafter acquired).
(iii) Except for up to 4,000,000 shares of Common
Stock of the Company which may be issued upon the exercise of
options granted under the Company's Employee Incentive Plan
pursuant to option grants having a per share exercise price of
not less than fair market value on the date of grant as
determined by the Board of Directors, the Company will not,
and will not permit any Subsidiary to, hereafter issue or sell
any shares of capital stock or any securities convertible
into, or any warrants, rights, or options to purchase shares
of, the capital stock of the Company or such Subsidiary to any
person or entity other than the Company, and the Company will
not pledge any of the capital stock of any Subsidiary to any
person or entity.
(2) Loans to and Investments in Others. The Company
shall not (except for the advancement of money for expenses in
the ordinary course of business) make, or permit any
Subsidiary to make, any loans or advances to any person or
entity or have outstanding any investment in any entity,
whether by way of loan or advance to, or by the acquisition of
the capital stock, assets or obligations of or any interest
in, any person or entity.
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(3) Restricted Payments; Repurchase of Common Stock.
Except as permitted by Section 6.9 hereof, neither the Company
nor a Subsidiary shall declare or make any Restricted Payment.
"Restricted Payment" means (i) any payment or the incurrence
of any liability to make any payment in cash, property or
other assets as a dividend or other distribution in respect of
any shares of capital stock of the Company or any Subsidiary,
excluding, however, any dividends payable to the Company by a
Subsidiary, and (ii) except as otherwise permitted by the
Documents, any payment or the incurrence of any liability to
make any payment in cash, property or other assets for the
purposes of purchasing, retiring or redeeming any shares of
any class of capital stock of the Company or any Subsidiary or
any warrants, options or other rights to purchase any such
shares, other than employee stock repurchases approved by the
Board of Directors of the Company upon termination of such
employee's employment.
(4) Articles of Incorporation. The Company shall not
amend or repeal its articles of incorporation or bylaws, or
violate or breach any of the provisions thereof.
(5) Debt. The Company shall not create, incur or
suffer to exist, or permit any Subsidiary to create, incur or
suffer to exist, any debt other than:
(i) debt existing on the date hereof and included in
the Financial Statements or incurred in the ordinary course of
business between the date of the Financial Statements and the
date hereof, and any renewals or replacements of such debt not
exceeding the principal amount of the debt being replaced or
renewed; and
(ii) debt not in excess of $1,000,000 in the
aggregate in any one calendar year.
(6) Lease Obligations. The Company shall not create
or suffer to exist, or permit any Subsidiary to create or
suffer to exist, any obligations for the payment of rent for
any property, real or personal, under leases or agreements to
lease, other than obligations for (i) the payment of rent
which, in the aggregate, do not exceed $1,000,000 annually,
and (ii) payments under leases set forth on Schedule 2.21.
(7) Other Actions. The Company shall not take any
other action that could reasonably be expected to have a
Material Adverse Effect on the holders of the Preferred
Shares.
(b) Without the consent of (i) a majority of the Board of
Directors, and (ii) the directors nominated by each of Richland Ventures II,
L.P. and First Union Capital Partners, Inc. and elected in accordance with the
terms of the Stockholders' Agreement:
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(1) Acquisitions. The Company shall not acquire, or
permit any Subsidiary to acquire, directly or indirectly, the
assets of or equity interests in any other business or entity,
whether by purchase, merger, consolidation or otherwise.
(2) Public Offering. The Company shall not effect
an initial public offering of any equity securities, other
than a public offering in which the Company would receive net
offering proceeds of not less than $20,000,000 and the common
equivalent price per share to the public is not less than
$7.20, subject to equitable adjustment for any subdivision,
stock split, combination or other similar corporate
transaction affecting the capital stock of the Company.
6.4 Corporate Existence, Business, Maintenance, Insurance.
(a) The Company will at all times preserve and keep in full
force and effect its corporate existence and rights and franchises deemed
material to its business and those of its Subsidiaries, except any Subsidiary of
the Company may be merged into the Company or another Subsidiary.
(b) The Company shall engage solely in the business of
providing local exchange and long distance telecommunication services to
residential customers and small and medium size businesses and such other
related business activities approved by the Board. The Company (and any
Subsidiary) will not purchase or acquire any property other than property useful
in and related to such business.
(c) The Company will maintain or cause to be maintained in
good repair, working order and condition all properties used or useful in the
business of the Company and any Subsidiary and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof. The
Company and any Subsidiary will at all times comply in all material respects
with the provisions of all material leases to which it is a party or under which
it occupies property so as to prevent any loss or forfeiture thereof or
thereunder.
(d) The Company will maintain or cause to be maintained, with
financially sound and reputable insurers, appropriate insurance with respect to
its properties and business and the properties and business of any Subsidiary
against loss or damage.
6.5 Payment of Taxes; ERISA.
(a) The Company will pay, and will cause any Subsidiary to
pay, all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or profits before any penalty or interest accrues thereon, and
all claims (including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by law have
or might become a lien or charge upon any of its properties or assets, provided
that no such charge or claim need be paid if being contested in good faith by
appropriate proceedings and if such reserve or other appropriate provisions, if
any, as shall be required by generally accepted accounting principles shall have
been made therefor.
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(b) The Company and any Subsidiary will comply in all material
respects with the Employee Retirement Income Security Act of 1974, as amended
from time to time.
6.6 Books and Records, Compliance.
(a) The Company and any Subsidiary will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(b) The Company and any Subsidiary shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its property or
assets.
6.7 Directors' and Officers' Liability Insurance. The Company shall use
its best efforts to obtain directors' and officers' liability insurance, if such
insurance is available at a cost which the Company's Board of Directors deems to
be reasonably satisfactory.
6.8 Repurchase of Preferred Shares. Except as provided in the Company's
Articles of Amendment, the Company shall not, and shall not permit any
Subsidiary or any affiliate of the Company to, directly or indirectly, redeem or
repurchase or make any offer to redeem or repurchase any Preferred Shares (or
Conversion Shares), unless the Company, such Subsidiary or such affiliate has
offered to repurchase Preferred Shares (or Conversion Shares) pro rata, from all
holders of outstanding Preferred Shares (or Conversion Shares) upon the same
terms and such repurchase has been approved by not less than 60% of the
outstanding Preferred Shares.
6.9 Compensation. All awards of compensation, including, but not
limited to, salary, bonus and awards of stock options made to executive
officers, key managers and/or directors of the Company shall be determined by
the Company's Board of Directors in accordance with the terms of the
Stockholders' Agreement.
6.10 Key Person Life Insurance. The Company shall maintain and keep in
full force and effect key person life insurance on the life of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
in an aggregate amount of not less than $5,000,000 with the proceeds thereof
payable to the Company.
6.11 SBA Requirements. The Company will at all times after the Closing
Date comply with the nondiscrimination requirements of 13 C.F.R. Sections 112
and 113.
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ARTICLE VII
INFORMATION
The Company covenants and agrees that it shall deliver the following
information and provide the following rights to each Purchaser (including
permitted transferees in accordance with Section 9.3, except as set forth in
Section 7.7), for so long as such Purchaser (or such transferees) shall hold at
least 5% of the aggregate outstanding Preferred Shares and Conversion Shares
(considered as a single class), or until such time as the Company shall have
consummated a Qualified Public Offering (as defined in the Articles of
Amendment):
7.1 Audited Annual Financial Statements. As soon as practicable and, in
any case, within one hundred and twenty (120) days after the end of each fiscal
year, financial statements of the Company, consisting of the balance sheet of
the Company as of the end of such fiscal year and the statements of operations,
statements of shareholders' equity and statements of cash flows of the Company
for such fiscal year, setting forth in each case, in comparative form, the
figures for the preceding fiscal year, all in reasonable detail and fairly
presented in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods reflected therein, and accompanied by
an opinion thereon of KPMG Peat Marwick LLP, or other independent certified
public accountants selected by the Company of good and recognized national
standing in the United States.
7.2 Quarterly Unaudited Financial Statements. As soon as practicable
and, in any case, within forty-five (45) days after the end of each of the first
three fiscal quarters in each fiscal year, unaudited financial statements of the
Company setting forth the balance sheet of the Company at the end of each such
fiscal quarter and the statements of operations and statements of cash flows of
the Company for each such fiscal quarter and for the year to date, and setting
forth in comparative form figures as of the corresponding date and for the
corresponding periods of the preceding fiscal year (provided that quarterly
statements of cash flows shall not be required for periods ended prior to the
Closing Date), all in reasonable detail and certified by an accounting officer
of the Company as complete and correct, as having been prepared in accordance
with generally accepted accounting principles consistently applied and as
presenting fairly, in all material respects, the financial position of the
Company and any Subsidiary and results of operations and cash flows thereof
subject, in each case, to customary exceptions for interim unaudited financial
statements.
7.3 Monthly Unaudited Financial Statements. As soon as available, but
in any event within thirty (30) days after the end of each calendar month,
copies of the unaudited balance sheet of the Company as at the end of such
calendar month and the related unaudited statements of operations and cash flows
for such calendar month and the portion of the calendar year through such
calendar year, in each case setting forth in comparative form the figures for
the corresponding periods of (a) the previous calendar year (provided that
monthly financial information shall not be required for periods ended prior to
the Closing Date) and (b) commencing on October 31, 1998, the budget for the
current year, prepared in reasonable detail and in accordance with generally
accepted accounting principles applied consistently throughout the periods
reflected therein and certified by the chief financial officer of the Company as
presenting fairly the financial condition and results of operations of the
Company and any Subsidiary (subject to customary exceptions for interim
unaudited financial statements).
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7.4 Management's Analysis. All the financial statements delivered
pursuant to Sections 7.1 and 7.2 shall be accompanied by an informal narrative
description of material business and financial trends and developments and
significant transactions that have occurred in the appropriate period or periods
covered thereby.
7.5 Budgets. As soon as practicable, but in any event within ninety
(90) days prior to the commencement of a fiscal year, an annual operating budget
for such fiscal year, approved by the Board of Directors, including monthly
income and cash flow projections and projected balance sheets as of the end of
each quarter within such fiscal year.
7.6 Inspection. (a) The Company shall, and shall cause any Subsidiary
to, permit any such Purchaser, by its representatives, agents or attorneys:
(i) to examine all books of account, records, reports
and other papers of the Company or such Subsidiary except to
the extent that such action would, in the reasonable opinion
of counsel, constitute a waiver of the attorney/client
privilege;
(ii) to make copies and take extracts from any
thereof, except for information which is confidential or
proprietary;
(iii) to discuss the affairs, finances and accounts
of the Company or such Subsidiary with the Company's or such
Subsidiary's officers and independent certified public
accountants (and by this provision the Company hereby
authorizes said accountants to discuss with any such Purchaser
and its representatives, agents or attorneys the finances and
accounts of the Company or such Subsidiary); and
(iv) to visit and inspect, at reasonable times and on
reasonable notice during normal business hours, the properties
of the Company and such Subsidiary.
(b) Notwithstanding any provision herein to the contrary, the
provisions of this Section 7.6 are in addition to any rights of the Purchasers
under the South Carolina Business Corporation Act of 1988, as amended and shall
in no way limit such rights.
(c) The expenses of any Purchaser in connection with any such
inspection shall be for the account of such Purchaser. Notwithstanding the
foregoing sentence, it is understood and agreed by the Company that all
reasonable expenses incurred by the Company or such Subsidiary, any officers,
employees or agents thereof or the independent certified public accountants
therefor, shall be expenses payable by the Company and shall not be expenses of
the Purchaser making the inspection.
7.7 Other Information. The Company shall deliver the following to each
such Purchaser, provided that in the reasonable opinion of counsel to the
Company such disclosure will not constitute a waiver of the attorney/client
privilege:
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(a) promptly after the submission thereof to the
Company, copies of any detailed reports (including the
auditors' comment letter to management, if any such letter is
prepared) submitted to the Company by its independent auditors
in connection with each annual or interim audit of the
accounts of the Company made by such accountants;
(b) promptly, and in any event within ten (10) days
after obtaining knowledge thereof, notice of the institution
of any suit, action or proceeding (other than a proceeding of
general application which is not directly against the Company
or one or more Subsidiary), the happening of any event or, to
the best knowledge of the Company, the assertion or threat of
any claim against the Company or any Subsidiary;
(c) promptly upon, and in any event within thirty
(30) days after obtaining knowledge thereof, notice of any
breach of, default under or failure to comply with any term
under this Agreement or any of the Documents or any material
adverse change in the Company's relationship with its major
customers, suppliers, employees or other entity with which the
Company has a business relationship;
(d) with reasonable promptness, a notice of any
default by the Company or any Subsidiary under any material
agreement to which it is a party;
(e) with reasonable promptness, copies of all written
materials furnished to directors;
(f) promptly (but in any event within ten days) after
the filing of any document or material with the SEC, a copy of
such document or material;
(g) promptly after the record date set by the Board
of Directors to determine the stockholders entitled to vote at
the Company's annual meeting of stockholders (but in any event
ten days prior to such meeting), a list of all stockholders of
the Company and their respective holdings; and
(h) promptly upon request therefor, such other data,
filings and information as any Purchaser may from time to time
reasonably request.
ARTICLE VIII
EXPENSES
8.1 Expenses of Directors. The Company shall reimburse each Purchaser's
Board representative elected pursuant to the Stockholders' Agreement, his
reasonable, out-of-pocket expenses incurred in connection with attending
meetings of the Board of Directors of the Company or conducting such other
activities as may be requested by the Company.
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8.2 Legal Fees and Other Expenses. The Company shall pay or reimburse
the Purchasers for all fees and charges incurred by them, including all
reasonable legal, consulting and accounting fees, in connection with the
preparation, execution, and delivery of the Documents and the consummation of
the transactions contemplated thereby whether or not the transactions
contemplated by this Agreement are consummated.
8.3 Finder's Fee. Each party represents and warrants to each other
party that it has employed no broker or finder.
8.4 Other Expenses. The Company shall pay, and shall save each
Purchaser harmless against liability for, reasonable costs and expenses relating
to any modification, amendment or alteration of this Agreement and the other
Documents (including, without limitation, reasonable legal fees and
disbursements and any applicable taxes thereon). The obligations of the Company
under this Section 8.4 shall survive the termination of this Agreement and the
other Documents.
ARTICLE IX
MISCELLANEOUS
9.1 Survival. Except for the covenants and agreements contained in
Articles VI, VII, and VIII hereof which shall survive termination of this
Agreement in accordance with their respective terms, all agreements and
covenants made by the Company and the Founders herein or by the Company or
Founders in any certificate or other instrument delivered under or in connection
with this Agreement shall be considered to have been relied upon by the
Purchasers and shall survive the delivery to the Purchasers of the Preferred
Shares regardless of any investigation made by the Purchasers or on their
behalf.
9.2 Indemnification. (a) Indemnification by the Company. The Company
shall, to the fullest extent permitted by law, indemnify, defend and hold each
Purchaser harmless from and against any liability, loss or damage, together with
all reasonable costs and expenses related thereto (including reasonable legal
fees and expenses), arising out of or related to the untruth, inaccuracy or
breach of any of the representations, warranties or agreements of the Company
contained in this Agreement or any other document or instrument executed or
entered into by the Company in connection with the consummation of the
transactions contemplated herein.
(b) Indemnification by the Purchasers. Each Purchaser shall,
severally and not jointly, to the fullest extent permitted by law, indemnify,
defend and hold the Company harmless from and against any liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal fees and expenses), arising out of or related to the
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of such Purchaser contained in this Agreement or any other document
or instrument executed or entered into by such Purchaser in connection with the
consummation of the transactions contemplated herein.
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(c) Survival of Representations and Warranties; Duration of
Rights of Indemnification. The representations and warranties contained in this
Agreement and the right of each party to be indemnified hereunder shall survive
for a period of two years following the Closing Date; provided, however, the
right of each party to seek indemnification shall continue after such two year
period with respect to:
(i) any claim for indemnification properly noticed
within such two year period;
(ii) any claim for indemnification arising out of or
related to a breach of the representations and warranties
contained at Sections 2.6, 2.7, 2.8 or 2.22 of this Agreement,
which right of indemnification shall extend until the
expiration of all applicable statutes of limitation.
9.3 Transfer and Termination of Rights. No rights under this Agreement
may be transferred, except that:
(i) the rights of a Purchaser under this Agreement
may be transferred after the Closing in connection with a
transfer of Preferred Shares made in accordance with the
provisions of the Stockholders' Agreement (other than a
transfer pursuant to a registration statement under the
Securities Act or a transfer pursuant to Rule 144 thereunder);
and
(ii) all the rights of a Purchaser may be transferred
to an affiliate of such Purchaser;
provided, that any such transferee shall execute and deliver to the Company an
instrument satisfactory to it agreeing to be bound by the provisions hereof and
of the Stockholders' Agreement and the Registration Rights Agreement.
9.4 Binding Effect. Subject to the limitations on transfer set forth in
Section 9.3, this Agreement and all the provisions hereof shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
9.5 Amendment. This Agreement may be amended or supplemented, and the
observance of any term hereof or thereof may be waived, with the written consent
of the Company and (i) on or prior to the Closing Date, each Purchaser, and (ii)
after the Closing Date, the holders of a majority of the Preferred Shares and
any Conversion Shares voting as a single class.
9.6 Governing Law. The interpretation, validity and performance of the
terms of this Agreement shall be governed by the laws of the State of South
Carolina, regardless of the law that might be applied under principles of
conflicts of law.
9.7 Notices. (a) All communications under this Agreement shall be in
writing and (i) sent by facsimile transmission and by certified or registered
mail, return receipt requested, courier or overnight
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mail, or (ii) sent by certified or registered mail, return receipt requested,
courier or overnight mail (A) if to a Purchaser, to such Purchaser's facsimile
number and address set forth in Schedule I, or at such other address as such
Purchaser may have furnished to the Company in writing, (B) if to any transferee
of a Purchaser, to it at its facsimile number and address listed in the stock
ledger books of the Company, or at such other address as such Purchaser or
transferee shall have furnished to the Company in writing, and (C) if to the
Company, to ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ II, Esq. or at such other address or facsimile
number as it shall have furnished in writing to all Purchasers.
(b) Any written communication so addressed, sent by facsimile
transmission or certified or registered mail, return receipt requested, courier
or overnight mail, shall be deemed to have been given when sent via facsimile or
mailed or deposited with a courier. All other written communications shall be
deemed to have been given upon receipt thereof.
9.8 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.9 Regulatory Requirements. In the event of any reasonable
determination by any Purchaser that, by reason of any future federal or state
rule, regulation, guideline, order, request or directive (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) (collectively, a "Regulatory Requirement"), it is effectively
restricted or prohibited from holding any of the shares of capital stock of the
Company (including any shares of capital stock or other securities distributable
to such Purchaser in any merger, reorganization, readjustment or other
reclassification of such shares), the Company shall take such action, at the
Company's expense, as may be deemed reasonably necessary by such Purchaser to
permit such Purchaser to comply with such Regulatory Requirement. Such action to
be taken may include, without limitation, the Company's authorization of one or
more new classes of capital stock and the modification of amendment of the
articles of incorporation or any other documents or instruments executed in
connection with the shares held by such Purchaser. Such Purchaser shall give
written notice to the Company of any such determination and the action or
actions necessary to comply with such Regulatory Requirement, and the Company
shall take all steps necessary to comply with such determination as
expeditiously as possible. This Section 9.9 shall not be deemed to limit in any
respect the representations of the Purchasers in Sections 3.2 and 3.4 hereof
9.10 Counterparts. This Agreement may be executed and delivered in two
or more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same agreement.
[Signatures on Next Page]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
STATE COMMUNICATIONS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By:
---------------------------------------------
Title:
------------------------------------------
FIRST UNION CAPITAL PARTNERS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
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SCHEDULE I
PURCHASERS
Purchasers Total Cash to be
---------- No. of Shares Purchase Price Paid at Closing Subscription Receivable
------------- -------------- --------------- -----------------------
Richland Ventures II, L.P. 2,083,334 $5,000,001.60 $3,000,000 $2,000,001.60
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
First Union Capital Partners, Inc. 2,083,334 $5,000,001.60 $3,000,000 $2,000,001.60
One First Union Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
-1-