EXHIBIT 10.6
INVESTMENT AGREEMENT
BY AND BETWEEN
THE FRANKLIN HOLDING CORPORATION (DELAWARE)
AND
▇▇▇▇▇ COMMUNICATIONS, INC.
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DATED AS OF MAY 30, 1997
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INVESTMENT AGREEMENT
TABLE OF CONTENTS
PAGE
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ARTICLE 1
PURCHASE AND SALE OF UNITS AND RELATED TRANSACTIONS
Section 1.1. Purchase and Sale of Units.................................... 2
Section 1.2. Purchase Price................................................ 2
Section 1.3. Preferred Stock Exchange...................................... 2
Section 1.4. Loan.......................................................... 2
Section 1.5. Franklin Warrant.............................................. 2
Section 1.6. Board of Directors of the Company............................. 2
Section 1.7. Management Fee................................................ 3
Section 1.8. Use of Proceeds............................................... 3
ARTICLE 2
THE CLOSING
Section 2.1. The Closing................................................... 3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company................. 4
3.1.1. Existence; Good Standing; Corporate Authority;
Compliance with Law........................................ 4
3.1.2. Authorization, Validity and Effect of Agreements........... 4
3.1.3. Capitalization............................................. 5
3.1.4. Subsidiaries............................................... 6
3.1.5. Other Interests............................................ 6
3.1.6. No Violation............................................... 6
3.1.7. Books and Records.......................................... 7
3.1.8. Financial Statements....................................... 7
3.1.9. Litigation................................................. 8
3.1.10. Absence of Certain Changes................................ 8
3.1.11. Tax Returns............................................... 10
3.1.12. Employee Benefit Plans.................................... 10
3.1.13. Labor Matters............................................. 11
3.1.14. No Brokers................................................ 11
3.1.15. Contracts; No Defaults.................................... 11
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3.1.16. Title to Assets........................................... 14
3.1.17. Insurance................................................. 14
3.1.18. Environmental Matters..................................... 14
3.1.19. Intellectual Property..................................... 14
3.1.20. Licenses.................................................. 14
3.1.21. Shares to be Delivered to Purchaser....................... 15
3.1.22. Disclosure................................................ 15
3.1.23. No Undisclosed Liabilities................................ 15
Section 3.2. Representations and Warranties of Purchaser................... 15
3.2.1. Existence; Good Standing; Ownership........................ 15
3.2.2. Corporate Authority; Compliance with Law................... 16
3.2.3. No Violation............................................... 16
3.2.4. No Brokers................................................. 17
3.2.5. Investment Intent.......................................... 17
ARTICLE 4
COVENANTS
Section 4.1. Terms of Franklin New Preferred Stock......................... 19
Section 4.2. Loan.......................................................... 20
Section 4.3. Registration Rights........................................... 21
Section 4.4. Expenses...................................................... 21
Section 4.5. Other Action.................................................. 21
Section 4.6. Inspection of Records......................................... 22
Section 4.7. Publicity..................................................... 22
Section 4.8. Filing of Certificates of Designation......................... 22
ARTICLE 5
CONDITIONS
Section 5.1. Conditions to Each Party's Obligation to Close................ 22
5.1.1. Conditions to Obligation of the Company to Close........... 23
5.1.2. Conditions to Obligation of Purchaser to Close............. 23
ARTICLE 6
DEFINITIONS AND CONSTRUCTION
Section 6.1. Definition of Certain Terms................................... 24
Section 6.2. Rules of Construction......................................... 30
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PAGE
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ARTICLE 7
GENERAL PROVISIONS
Section 7.1. Severability.................................................. 31
Section 7.2. Notices....................................................... 31
Section 7.3. Headings...................................................... 32
Section 7.4. Entire Agreement.............................................. 32
Section 7.5. Counterparts.................................................. 32
Section 7.6. Governing Law, Etc............................................ 32
Section 7.7. Binding Effect................................................ 33
Section 7.8. Assignment.................................................... 33
Section 7.9. No Third Party Beneficiaries.................................. 33
Section 7.10. Amendment; Waivers; Etc....................................... 33
EXHIBIT LIST
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Exhibit A - Form of Certificate of Designation for Series D
Exhibit B - Form of Certificate of Designation for Series E
Exhibit C - Form of Franklin Subordinated Note
Exhibit D - Form of Franklin Security Agreement
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Franklin Warrant
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INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (this "AGREEMENT") is dated as of May 30,
1997, and is being entered into by and between THE FRANKLIN HOLDING CORPORATION
(DELAWARE), a Delaware corporation ("PURCHASER"), and ▇▇▇▇▇ COMMUNICATIONS,
INC., a Delaware corporation (the "COMPANY").
RECITALS
A. The Company desires to sell to Purchaser, and Purchaser desires to
purchase from the Company, 7.5 units (collectively, the "UNITS"), upon the terms
and subject to the conditions hereinafter set forth. Each of the Units shall
consist of (i) 200,000 shares of a new series of the Company's Preferred Stock,
par value $0.01 per share (the "PREFERRED STOCK"), which new series of the
Preferred Stock shall be designated as the Series D Senior Voting Cumulative
Convertible Preferred Stock (the "FRANKLIN NEW PREFERRED STOCK"), and (ii)
133,333 shares of the Company's Common Stock, par value $0.01 per share (the
"COMMON STOCK"). The 0.5 Unit shall consist of 100,000 shares of the Franklin
New Preferred Stock and 66,666 shares of the Common Stock. The 1,500,000 shares
of the Franklin New Preferred Stock to be issued by the Company to the Purchaser
pursuant to this Agreement are hereinafter referred to collectively as the
"FRANKLIN PREFERRED SHARES," and the 999,997 shares of the Common Stock to be
issued by the Company to the Purchaser pursuant to this Agreement are
hereinafter referred to collectively as the "FRANKLIN COMMON SHARES."
B. Purchaser desires to exchange the 350,000 shares of the Company's
Series B Junior Convertible Redeemable Preferred Stock (the "SERIES B PREFERRED
STOCK") presently owned by it for 350,000 shares of a new series of the
Company's Preferred Stock, which new series shall be identical in all respects
to the Series B Preferred Stock, except that such new series of Preferred Stock
shall be designated as the Series E Junior Convertible Redeemable Voting
Preferred Stock (the "FRANKLIN EXCHANGE PREFERRED STOCK") and shall have voting
rights as hereinafter provided. The 350,000 shares of the Franklin Exchange
Preferred Stock to be issued by the Company to the Purchaser pursuant to this
Agreement are hereinafter referred to collectively as the "FRANKLIN EXCHANGE
SHARES." The Franklin Preferred Shares, the Franklin Common Shares and the
Franklin Exchange Shares to be issued by the Company to the Purchaser pursuant
to this Agreement are hereinafter referred to collectively as the "FRANKLIN
SHARES."
C. The Purchaser desires to make a $1,000,000 subordinated loan (the
"LOAN") to the Company, upon the terms and subject to the conditions hereinafter
set forth. As additional consideration for the making of the Loan, the Company
will issue to the Purchaser, upon the terms and subject to the conditions
hereinafter set forth, a five-year warrant to purchase 666,666 shares of the
Common Stock at an exercise price of $1.50 per share (the "FRANKLIN WARRANT").
D. For the convenience of the parties, except as otherwise expressly
provided or unless the context otherwise requires, the defined terms used in
this Agreement have the respective meanings assigned to them or referred to in
Section 6.1, and include the plural as well as the singular, and an Index of
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Defined Terms is attached hereto as Annex I.
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NOW, THEREFORE, in consideration of the foregoing, and of the mutual
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF UNITS AND RELATED TRANSACTIONS
SECTION 1.1. PURCHASE AND SALE OF UNITS. On the basis of the
representations and warranties herein contained, and subject to the terms and
conditions hereof, the Company shall sell and deliver to the Purchaser, and the
Purchaser shall purchase from the Company, at the Closing, 7.5 Units.
SECTION 1.2. PURCHASE PRICE. The purchase price for each of the whole
Units shall be $200,000, and the purchase price for the 0.5 Unit shall be
$100,000. Accordingly, in consideration of the sale by the Company of the Units,
and in full and complete payment therefor, at the Closing the Purchaser shall
pay to the Company the sum of $1,500,000.00 (the "PURCHASE PRICE"). The Purchase
Price, less the $50,000 expense reimbursement contemplated by Section 4.4, shall
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be paid to the Company at the Closing in currently available funds by federal
funds wire transfer to the account specified by the Company.
SECTION 1.3. PREFERRED STOCK EXCHANGE. On the basis of the
representations and warranties herein contained, and subject to the terms and
conditions hereof, at the Closing, the Company shall deliver to Purchaser the
Franklin Exchange Shares. In consideration therefor, and in full and complete
payment therefor, the Purchaser shall sell, convey, transfer and deliver to the
Company good and valid title in and to 350,000 shares of the Series B Preferred
Stock, free and clear of all Liens. The certificates representing the 350,000
shares of the Series B Preferred Stock shall be duly endorsed (or accompanied by
stock powers), with signatures guaranteed by a commercial bank or by a member of
the New York Stock Exchange, for transfer to the Company.
SECTION 1.4. LOAN. On the basis of the representations and warranties
herein contained, and subject to the terms and conditions hereof, at the
Closing, the Purchaser shall make the Loan to the Company. The Loan proceeds
shall be paid to the Company at the Closing in currently available funds by
federal funds wire transfer to the account specified by the Company.
SECTION 1.5. FRANKLIN WARRANT. On the basis of the representations and
warranties herein contained, and subject to the terms and conditions hereof, at
the Closing, the Company shall issue and deliver to Purchaser the Franklin
Warrant.
SECTION 1.6. BOARD OF DIRECTORS OF THE COMPANY. On the basis of the
representations and warranties herein contained, and subject to the terms and
conditions hereof, at the Closing, the Company shall cause the number of
directors constituting the whole Board of Directors of the Company to be
increased to six, and shall cause the three individuals identified by Purchaser
and the three individuals identified by the Company on Annex II hereto to be
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elected to the
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Board of Directors of the Company. Each such director shall hold office until
the next annual meeting of shareholders of the Company and until such Person's
successor is elected and qualified or until such Person's earlier death,
resignation or removal. The Chairman of the Board shall be selected from among
the three individuals identified by the Company on Annex II hereto, and the Vice
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Chairman of the Board shall be selected from among the three individuals
identified by Purchaser on Annex II hereto.
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SECTION 1.7. MANAGEMENT FEE. For the period beginning on the date the
Franklin Preferred Shares have been automatically converted upon the occurrence
of a Qualified Public Offering as provided in the Series D Certificate of
Designation and ending on the second anniversary of the date of this Agreement,
the Company shall pay to Purchaser a management fee of $150,000 per year (the
"MANAGEMENT FEE"). The Management Fee shall be paid in arrears in equal
quarterly installments on the last day of each calendar quarter. The Management
Fee shall be paid by either bank check or wire transfer, or, at the option of
Purchaser, in shares of Common Stock of the Company. The Management Fee shall be
pro rated for any period less than one full calendar quarter. Notwithstanding
the foregoing, if the Franklin Preferred Shares are redeemed at any time during
said two-year period, the Company shall have no obligation to pay the Management
Fee.
SECTION 1.8. USE OF PROCEEDS. Purchaser acknowledges that the Purchase
Price and Loan proceeds will be used by the Company as set forth on Annex III
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hereto.
ARTICLE 2
THE CLOSING
SECTION 2.1. THE CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated hereby (the "CLOSING")
shall take place at the offices of the Company, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m., local time, or at such other time,
date or place as the Company and Purchaser may agree. The date on which the
Closing occurs is referred to herein as the "CLOSING DATE." At the Closing, the
Company will issue and transfer to Purchaser good and valid title in and to the
Franklin Shares, free and clear of all Liens, by delivering to Purchaser a
certificate or certificates representing the Franklin Shares, in genuine and
unaltered form registered in the name of Purchaser. At the Closing, there shall
also be delivered to Purchaser and the Company the other Transaction Documents,
certificates and other instruments to be delivered under Article 5. At the
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option of the Company and Purchaser, the Closing may occur by the Company's and
the Purchasers' exchanging facsimile copies of the certificate or certificates
representing the Franklin Shares and of the executed originals of the other
Transaction Documents, certificates and other instruments referred to in Article
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5 , the executed originals of which shall be delivered by such means as the
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Company and Purchaser may mutually agree. In the event the Closing occurs by
exchanging facsimile copies of the certificate or certificates representing the
Franklin Shares and of the executed originals of the other Transaction
Documents, certificates and other instruments referred to in Article 5, the
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Closing shall be deemed to have occurred for all purposes in Chicago, Illinois,
on and as of the date and time specified by the Company and Purchaser, or, if
not so specified, on and as of the date of this Agreement.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
set forth in the disclosure letter delivered at or prior to the execution hereof
to Purchaser (the "DISCLOSURE LETTER"), the Company represents and warrants to
Purchaser as follows:
3.1.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY;
COMPLIANCE WITH LAW. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of State of
Delaware. The Company is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of those
jurisdictions specified in Section 3.1.1 of the Disclosure Letter,
which are the only jurisdictions in which the character of the
properties owned, used or leased by it therein or in which the
transaction of its business makes such qualification necessary, except
where the failure to be so qualified would not, individually or in the
aggregate, have or reasonably be expected to have a material adverse
effect on the business, properties, assets, results of operations or
financial or other condition or prospects of the Company and its
Subsidiaries taken as a whole (a "COMPANY MATERIAL ADVERSE EFFECT").
The Company has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now
conducted. Each of the Company's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has the corporate power and authority to
own, operate and lease its properties and to carry on its business as
it is now being conducted, and is duly qualified to do business and is
in good standing in those jurisdictions in which the ownership of its
property or the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a Company
Material Adverse Effect. To the Knowledge of the Company, neither the
Company nor any of its Subsidiaries is in violation of any order, writ,
judgment, decree, injunction or similar pronouncement (each, an
"ORDER"), of any court, governmental authority or arbitration board or
tribunal, or any law, statute, ordinance, governmental rule or
regulation (each, a "LAW") to which the Company or any of its
Subsidiaries or any of their respective properties or assets is
subject, and the Company and its Subsidiaries have conducted their
businesses and operations in substantial compliance with all Laws
applicable thereto. The copies of the Company's Organizational
Documents previously delivered to Purchaser are true and correct and
are the Organizational Documents as in effect on the date hereof.
3.1.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The
Company has the requisite corporate power and authority to execute and
deliver this Agreement, the Loan Documents, the Franklin Warrant and
the Registration Rights Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and, subject to filing the Certificates of Designation
with the Secretary of State of the State of Delaware, to perform its
obligations hereunder and thereunder and to consummate the
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transactions contemplated hereby and thereby. The execution and
delivery by the Company of this Agreement and the other Transaction
Documents and the performance and consummation by the Company of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite corporate action on the part of the
Company. This Agreement has been duly and validly executed and
delivered by the Company and constitutes, and the other Transaction
Documents (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of
the Company, enforceable against the Company in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar
laws relating to creditors' rights generally or general principles of
equity (whether considered in a proceeding in equity or at law) or by
public policy applicable to securities laws.
3.1.3. CAPITALIZATION. The authorized capital stock of the
Company consists solely of 20,000,000 shares of Common Stock and
20,000,000 shares of Preferred Stock. As of May 23, 1997, there were
6,879,482 shares of Common Stock issued and outstanding and 3,496,667
shares of Preferred Stock issued and outstanding. The shares of
Preferred Stock are divided into four series, of which 800,000 shares
have been designated as the Series A Junior Convertible Redeemable
Preferred Stock (the "SERIES A PREFERRED STOCK"), 1,050,000 shares have
been designated as the Series B Preferred Stock, 340,000 have been
designated as the Series C Junior Convertible Redeemable Preferred
Stock (the "SERIES C PREFERRED STOCK"), and 5,000,000 shares have been
designated as the Senior Cumulative Redeemable Preferred Stock, 1996
HBS Series (the "HBS SENIOR PREFERRED STOCK"). As of May 23, 1997, the
Company had issued and outstanding 700,000 shares of the Series A
Preferred Stock, 850,000 shares of the Series B Preferred Stock, 66,667
shares of the Series C Preferred Stock, and 1,880,000 shares of the HBS
Senior Preferred Stock. All such issued and outstanding shares of
Common Stock and Preferred Stock have been duly authorized and validly
issued, and are fully paid, nonassessable and free of preemptive
rights. The Certificates of Designation for the Series D Preferred
Stock and the Series E Preferred Stock are attached hereto as Exhibits
A and B, respectively. Except as specified on Section 3.1.3 of the
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Disclosure Letter, neither the Company nor any Subsidiary has
outstanding bonds, debentures, notes or other obligations the holders
of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the
stockholders of the Company or any Subsidiary on any matters. Other
than as contemplated by this Agreement or except as specified on
Section 3.1.3 of the Disclosure Letter, there are no options, warrants,
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calls, subscriptions, convertible securities (other than the Series A
Preferred Stock, the Series B Preferred Stock, and the Series C
Preferred Stock), phantom stock rights, or other rights, Contracts,
agreements or commitments (each a "WARRANT") which obligate the Company
or any Subsidiary to issue, transfer or sell any shares of capital
stock of the Company or any Subsidiary, or, except as set forth in the
Organizational Documents of the Company relating to the Series A
Preferred Stock, the Series B Preferred Stock,
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the Series C Preferred Stock, and the HBS Senior Preferred Stock, any
obligation of the Company or any Subsidiary to repurchase, redeem or
otherwise acquire any outstanding capital stock of the Company or any
Subsidiary, or otherwise entitle the holder thereof to receive or
exercise any benefits or rights similar to any rights enjoyed by or
accruing to the holder of shares of capital stock of the Company or any
Subsidiary. Other than as contemplated by this Agreement or except as
specified on Section 3.1.3 of the Disclosure Letter, since May 23,
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1997, no additional shares of capital stock of the Company or any
Subsidiary have been authorized or issued and no additional Warrants
have been authorized or issued. Other than as contemplated by this
Agreement or except as specified on Section 3.1.3 of the Disclosure
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Letter, no Person has any right to cause the Company to register any
capital stock or Warrant of the Company or any Subsidiary for sale or
other distribution under the Securities Act, or any right to cause the
Company or any Subsidiary to include any capital sock or Warrant of the
Company in any registration statement filed by the Company to register
securities under the Securities Act (each an "▇▇▇▇▇ REGISTRATION
RIGHT"). The delivery of a certificate or certificates at the Closing
representing the Franklin Shares in the manner provided in Section 2.1
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will transfer to Purchaser good and valid title to the Franklin Shares,
free and clear of all Liens.
3.1.4. SUBSIDIARIES. Section 3.1.4 of the Disclosure Letter
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lists the name of each Subsidiary. Section 3.1.4 of the Disclosure
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Letter also lists for each Subsidiary the amount of its authorized
capital stock or partnership interests, the amount of its outstanding
capital stock or partnership interests, and the record owners of such
outstanding capital stock or partnership interests. The Company owns
directly or indirectly each of the outstanding shares of capital stock
or partnership interests of each Subsidiary. Each of the outstanding
shares of capital stock or partnership interests of each Subsidiary has
been duly authorized and validly issued and is fully paid and
nonassessable, and, except as disclosed in Section 3.1.4 of the
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Disclosure Letter, is owned, directly or indirectly, by the Company,
free and clear of all Liens. The name of each director and officer of
each Subsidiary on the date hereof, and the position with such
Subsidiary held by each, are listed in Section 3.1.4 of the Disclosure
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Letter.
3.1.5. OTHER INTERESTS. Except for interests in the Company's
Subsidiaries, neither the Company nor any Subsidiary owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity
(other than investments in short-term investment securities).
3.1.6. NO VIOLATION. Neither the execution and delivery by
the Company of this Agreement or of the other Transaction Documents,
nor the consummation by the Company of the transactions contemplated
hereby or thereby in accordance with the terms hereof and thereof, will
(i) result in a breach or violation of any provisions of the
Organizational Documents of the Company or any Subsidiary; (ii) violate
or result in a breach of any provision of, or constitute a default (or
an
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event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required
by, or result in the creation of any Lien upon any property of the
Company or its Subsidiaries under, or result in any additional rights
under or in being declared void, voidable, or without further binding
effect, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any material license, franchise,
permit, lease, Contract, agreement or other instrument, commitment or
obligation to which the Company or any of its Subsidiaries is a party,
or by which the Company or any of its Subsidiaries or any of their
respective properties is bound or affected; (iii) require any consent,
approval or authorization of, or declaration, filing or registration
with, any third party or any domestic or foreign governmental or
regulatory authority; or (iv) result in a violation or breach of any
term or provision of any Law or Order applicable to the Company or any
Subsidiary or any of their respective assets and properties. All
securities issued by the Company since November 1994 have been issued
in compliance with the Securities Act or have been issued in
transactions exempt from the provisions thereof.
3.1.7. BOOKS AND RECORDS. Except as set forth in Section
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3.1.7 of the Disclosure Letter, the minute books and other similar
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records of the Company and its Subsidiaries as made available to
Purchaser prior to the execution of this Agreement contain a true and
complete record, in all material respects, of all action taken at all
meetings and by all written consents in lieu of meetings of the
stockholders, the boards of directors and committees of the boards of
directors of the Company and its Subsidiaries.
3.1.8. FINANCIAL STATEMENTS. The Company has delivered to the
Purchaser audited consolidated balance sheets of the Company and its
Subsidiaries as at December 31 in each of the years 1995 and 1996, and
the related audited consolidated statements of income, changes in
stockholders' equity, and cash flow for each of the fiscal years then
ended, together with the report thereon of King ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ P.C.,
independent certified public accountants, including the notes thereto.
Such financial statements and notes fairly present the consolidated
financial condition and the consolidated results of operations, changes
in stockholders' equity, and cash flow of the Company and its
Subsidiaries as at the respective dates of and for the periods referred
to in such financial statements, all in accordance with GAAP. The
financial statements referred to in this Section 3.1.8 reflect the
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consistent application of such accounting principles throughout the
periods involved, except as disclosed in the notes to such financial
statements. No financial statements of any Person other than the
Company's Subsidiaries are required by GAAP to be included in the
consolidated financial statements of the Company and its Subsidiaries.
Except as and to the extent set forth on the audited consolidated
balance sheet of the Company and its Subsidiaries as at December 31,
1996, including the notes thereto, or as set forth in Section 3.1.8 of
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the Disclosure Letter, neither the Company nor any of its Subsidiaries
has any material liabilities or obligations of any nature (whether
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accrued, absolute, contingent or otherwise) that would be required to
be reflected on, or reserved against in, a consolidated balance sheet
of the Company and its Subsidiaries or in the notes thereto, prepared
in accordance with GAAP consistently applied, except liabilities
arising in the ordinary course of business since such date consistent
(in amount and kind) with past practice (none of which is a liability
resulting from a breach of contract, breach of warranty, or from any
other Action) and which do not exceed $50,000 in the aggregate.
3.1.9. LITIGATION. Except as disclosed in Section 3.1.9 of
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the Disclosure Letter, there are no Actions pending against, relating
to or affecting the Company or any of its Subsidiaries or any of their
respective assets and properties or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries, at law or in
equity, or before or by any federal or state commission, board, bureau,
agency or instrumentality. There are no Orders outstanding against the
Company or any Subsidiary.
3.1.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1996,
there has been no event or condition of any character (whether actual,
threatened or contemplated) that has had, or can reasonably be
anticipated to have, individually or together with such other events or
conditions, a Company Material Adverse Effect. Without limiting the
generality of the foregoing, except as set forth in Section 3.1.10 of
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the Disclosure Letter (with paragraph references corresponding to those
set forth below), neither the Company nor any Subsidiary has, since
December 31, 1996 :
(A) borrowed any funds or, except in the ordinary course of
the Company's business consistent with past practices, (i)
mortgaged or otherwise subjected to any Lien or other liability
any of its assets or properties, (ii) sold, assigned or
transferred any of its assets in excess of $25,000 in the
aggregate, or (iii) incurred any liability, commitment,
indebtedness or obligation (of any kind whatsoever, whether
accrued or contingent, matured or unmatured) in an amount,
individually or in the aggregate, in excess of $25,000;
(B) suffered any damage, destruction or loss, whether or
not covered by insurance in an amount, individually or in the
aggregate, in excess of $25,000, except for losses adequately
reserved against on the date of this Agreement;
(C) received notice or had knowledge or reasonable grounds
to believe that any labor unrest exists among any of its employees
or that any group, organization or union has attempted to organize
any of its employees;
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(D) received notice or had knowledge or reasonable grounds
to believe that any of its customers or suppliers has terminated
or intends to terminate its relationship with the Company or any
Subsidiary the result of which would be a Company Material Adverse
Effect;
(E) failed to operate its business in the ordinary course
consistent with past practices, or failed to preserve its business
organization intact or to preserve the goodwill of its suppliers,
customers and others with whom it has business relations;
(F) incurred any loss in an amount in excess of $25,000,
except for losses adequately reserved against on the date of this
Agreement or losses incurred in the ordinary course of the
operation of the businesses of the Company and its Subsidiaries,
or waived any material right in connection with any aspect of its
business, whether or not in the ordinary course of its business;
(G) cancelled any debt owed to it, or cancelled any of its
claims, or paid any of its noncurrent obligations or liabilities;
(H) made any capital expenditure or capital addition
or betterment in an amount in excess of $25,000 individually
or $100,000 in the aggregate;
(I) entered into any agreement requiring the payment,
conditionally or otherwise, of any salary, bonus, extra
compensation, pension or severance payment to any of its present
or former directors, officers or employees, except such agreements
as are terminable at will without any penalty or other payment by
it, or increased the compensation (including salaries, fees,
bonuses, profit sharing, incentive, pension, retirement or other
similar payments) of any such person whose annual compensation
would, following such increase, exceed $100,000;
(J) declared, set aside, increased or paid any dividend, or
declared or made any distribution on, or directly or indirectly
combined, redeemed, reclassified, purchased or otherwise acquired,
any shares of capital stock;
(K) authorized, issued, sold or otherwise disposed of any
shares of capital stock of or Warrant with respect to the Company
or any Subsidiary, or modified or amended any right of any holder
of any outstanding shares of capital stock or Warrant with respect
to the Company or any Subsidiary;
-9-
(L) changed any accounting, financial reporting or tax
practice or policy or any method of calculating any bad debt,
contingency or other reserve of the Company or any Subsidiary for
accounting, financial reporting or tax purposes, or any change in
the fiscal year of the Company or any Subsidiary;
(M) engaged in any transaction with any officer, director
or Affiliate of the Company or any Subsidiary; or
(N) entered into any agreement, contract or commitment to
do any of the foregoing after the date hereof.
3.1.11. TAX RETURNS. Except as disclosed in Section 3.1.11 of
--------------
the Disclosure Letter, the Company and each Subsidiary has accurately
and timely filed all federal, state and other tax returns which are
required to be filed and has timely paid all taxes covered by such
returns which have become due and payable. Neither the Company nor any
Subsidiary has been advised that any of its returns, federal, state or
other, have been or are being audited as of the date hereof. Neither
the Company nor any Subsidiary is delinquent in the payment of taxes or
assessments and has no tax deficiency proposed or assessed.
3.1.12. EMPLOYEE BENEFIT PLANS. All material employee benefit
plans, programs, policies, or arrangements (including, without
limitation, each employee benefit plan within the meaning of Section
3(3) of ERISA) that are sponsored, maintained or contributed to or
required to be contributed to by the Company or any Subsidiary for the
benefit of any active, former, or retired employee of the Company or
its Subsidiaries are listed in Section 3.1.12 of the Disclosure Letter
--------------
(the "COMPANY PLANS"). Each Company Plan has been maintained and
administered in all material respects with its terms and applicable
law, including ERISA and the Code. Any Company Plan intended to be
qualified under Section 401(a) of the Code has either obtained a
favorable determination letter as to its qualified status from the IRS
or still has a remaining period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such
determination letter and to make any amendments necessary to obtain a
favorable determination. No Company Plan is covered by Title IV of
ERISA or Section 412 of the Code. To the Knowledge of the Company,
neither the Company nor any officer or director of the Company has
incurred any liability or penalty under Sections 4975 through 4980 of
the Code or Title I of ERISA. No suit, action, or other litigation has
been brought or, to the Knowledge of the Company, is threatened against
or with respect to any such Company Plan. All material contributions,
reserves, or premium payments required to be made or accrued as of the
date hereof to the Company Plans have been made or accrued.
-10-
3.1.13. LABOR MATTERS. Section 3.1.13 of the Disclosure Letter
--------------
contains a list of names of each officer and employee of the Company or
its Subsidiaries having an annual base salary or wages of at least
$100,000 at the date hereof, together with each such person's position
or function, annual base salary or wages and any incentive or bonus
arrangement with respect to such person in effect on such date. No
employee of the Company or any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization.
There is no unfair labor practice, sex, age, race or other
discrimination or labor arbitration proceeding pending or, to the
Knowledge of the Company, threatened against the Company or its
Subsidiaries relating to their business. To the Knowledge of the
Company, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its
Subsidiaries. To the Knowledge of the Company, the Company and the
Subsidiaries have complied in all material respects with all applicable
Laws relating to the employment of labor, including, without
limitation, those relating to wages, hours and collective bargaining.
3.1.14. NO BROKERS. Except as disclosed in Section 3.1.14 of
--------------
the Disclosure Letter, neither the Company nor any Subsidiary has
entered into any Contract, arrangement or understanding with any person
or firm which may result in the obligation of the Company, any
Subsidiary or Purchaser to pay any finder's fees, brokerage or agent's
commission, or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions
contemplated hereby. Except as disclosed in Section 3.1.14 of the
--------------
Disclosure Letter, the Company is not aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like
payments by the Company or any Subsidiary in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
3.1.15. CONTRACTS; NO DEFAULTS.
(A) Section 3.1.15 of the Disclosure Letter sets
forth a list of the following Applicable Contracts
(collectively, the "MATERIAL APPLICABLE CONTRACTS"), true and
complete copies of which have been made available to
Purchaser:
(I) each Applicable Contract relating to the
Company's acquisition of BorderComm, Inc., a Texas
corporation, and Hold Billing Services, Ltd., a Texas
limited partnership;
(II) each Applicable Contract defining the
rights of holders of long-term debt of the Company
and each Subsidiary;
-11-
(III) each Applicable Contract to which any
director or officer of the Company and each
Subsidiary, or any Affiliate of any such director or
officer, are parties other than Contracts involving
only the purchase or sale of current assets having a
determinable market price, at such price;
(IV) each Applicable Contract upon which the
business of the Company and its Subsidiaries, taken
as a whole, is substantially dependent, such as
continuing Contracts to sell the major part of the
Company's or any Subsidiary's products or services or
to purchase the major part of the Company's or any
Subsidiary's requirements of goods, services or raw
materials;
(V) each Applicable Contract relating to the
management of the Company, or any compensatory plan,
Contract or arrangement, including, but not limited
to, plans relating to options, warrants or rights,
pension, retirement or deferred compensation or
bonus, incentive or profit sharing, (or if not set
forth in any formal document, a written description
thereof), in which any director or officer of the
Company or any Subsidiary participates;
(VI) each collective-bargaining agreement
and other Applicable Contract to or with any labor
union or other employee representative of a group of
employees;
(VII) each joint venture, partnership, and
other Applicable Contract (however named) involving a
sharing of profits, losses, costs, or liabilities by
any of the Companies with any other Person;
(VIII) Each Warrant of the Company;
(IX) Each Applicable Contract that contains
an ▇▇▇▇▇ Registration Right;
(X) each other Applicable Contract not made
in the ordinary course of business which is material
to the Company and its Subsidiaries, taken as a
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whole, and is to be performed in whole or in part
after the Closing; and
(XI) each amendment, supplement, and
modification (whether oral or written) in respect of
any of the foregoing.
(B) Except as set forth in Section 3.1.15(b) of the
------------------
Disclosure Letter, each Material Applicable Contract has been
fully performed or is in full force and effect and is valid
and enforceable in accordance with its terms.
(C) Except as set forth in Section 3.1.15(c) of the
-----------------
Disclosure Letter:
(I) each of the Companies is, and at all
times since January 1, 1996, has been, in full
compliance with all applicable terms and requirements
of each Material Applicable Contract under which each
of such Companies has or had any obligation or
liability or by which each of such Companies or any
of the assets owned or used by each of such Companies
is or was bound;
(II) to the Knowledge of the Company, each
other Person that has or had any obligation or
liability under any Material Applicable Contract
under which any of the Companies has or had any
rights is, and at all times since January 1, 1996,
has been, in full compliance with all applicable
terms and requirements of such Material Applicable
Contract;
(III) no event has occurred or circumstance
exists that (with or without notice or lapse of time)
may result in a violation or breach of, or give any
of the Companies or, to the Knowledge of the Company,
other Person the right to declare a default or
exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate,
or modify, any Material Applicable Contract; and
(IV) none of the Companies has given to or
received from any other Person, at any time since
January 1, 1996, any notice or other communication
(whether oral or written) regarding any actual,
-13-
alleged, possible, or potential violation or breach
of, or default under, any Material Applicable
Contract.
(D) The Material Applicable Contracts relating to the
sale or provision of products or services by the Companies
have been entered into in the ordinary course of business and
have been entered into without the commission of any act alone
or in concert with any other Person, or any consideration
having been paid or promised, that is or would be in violation
of any Law.
3.1.16. TITLE TO ASSETS. The Company and each Subsidiary has
good and marketable title to its properties and assets, and has good
title to all of its leasehold interests, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i)
the lien of current taxes not yet due and payable, and (ii) possible
minor liens and encumbrances that do not in any case materially detract
from the value of the property subject thereto or materially impair the
operations of the Company and which have not arisen otherwise than in
the ordinary course of business.
3.1.17. INSURANCE. Except as set forth in Section 3.1.17 of
---------------
the Disclosure Letter, the Company and each of its Subsidiaries
maintain in force insurance policies and bonds in such amounts and
against such liabilities and hazards as are reasonable and customary
for persons engaged in such business and operations and having such
assets and properties. All policies are valid and enforceable and in
full force and effect, no premiums due thereunder have not been paid
and neither the Company nor any of its Subsidiaries has received any
notice of a material premium increase or cancellation with respect to
any of its insurance policies or bonds or of any default thereunder.
The insurance coverage provided by any of the policies will not
terminate or lapse by reason of the transactions contemplated by this
Agreement.
3.1.18. ENVIRONMENTAL MATTERS. To the Knowledge of the
Company, neither the Company nor any Subsidiary is in violation of any
applicable statute, law, or regulation relating to the environment or
occupational health and safety, and, to the Knowledge of the Company,
no material expenditures by the Company or any Subsidiary are or will
be required in order to comply with any such existing statute, law or
regulation.
3.1.19. INTELLECTUAL PROPERTY. Neither the Company nor any
Subsidiary owns or uses any material Intellectual Property.
3.1.20. LICENSES. To the Knowledge of the Company, each of the
Company and its Subsidiaries has all necessary Licenses required to
conduct its respective business lawfully as presently conducted,
including all material Licenses, permits, certifications, and other
regulatory authorizations required for each of the Company and its
Subsidiaries to operate as they currently operate and
-14-
in accordance with all Applicable Laws or Orders of any Governmental
Authority, and, to the Knowledge of the Company, (a) each such License
is valid, binding and in full force and effect, (b) no such License is
subject to revocation or forfeiture by virtue of any existing
circumstance, (c) there is no pending or, to the Knowledge of the
Company, threatened proceeding to modify in any material respect or
revoke any material License, (d) no such License is subject to any
outstanding Order, decree, judgment, stipulation, or investigation
known to the Company that would materially affect such License, and (e)
neither the Company nor any Subsidiary is, or has received any notice
that it is, in default (or with the giving of notice or lapse of time
or both, would be in default) under any such License.
3.1.21. SHARES TO BE DELIVERED TO PURCHASER. The issuance and
delivery by the Company to Purchaser of the Franklin Shares and the
Franklin Warrant Shares have been duly and validly authorized by all
necessary corporate action on the part of the Company and have been
reserved for issuance pursuant to this Agreement or upon exercise of
the Franklin Warrant, as the case may be. The Franklin Shares and the
Franklin Warrant Shares, if and when issued in accordance with the
terms of the Warrant, will be validly issued, fully paid and
nonassessable and free of all Liens.
3.1.22. DISCLOSURE. None of the representations or warranties
made by the Company in this Agreement, and no information in the
Disclosure Letter or Exhibits hereto, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements contained herein and therein not misleading.
3.1.23. NO UNDISCLOSED LIABILITIES. To the Knowledge of the
Company, except as reflected or reserved for or against in the balance
sheet or in the notes thereto included in the financial statements of
the Company referred to in Section 3.1.8, or as disclosed in Section
-------------- -------
3.1.23 of the Disclosure Letter or any other Section of the Disclosure
------
Letter, there are no indebtedness of any kind or obligations or other
liabilities (whether absolute, accrued, contingent, fixed or otherwise,
or whether due or to become due) against, relating to or affecting the
Company or any Subsidiary or any of their respective assets and
properties, other than such indebtedness and liabilities incurred in
the ordinary course of business consistent with past practice (in
amount and kind) which in the aggregate do not exceed $25,000.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Company as follows:
3.2.1. EXISTENCE; GOOD STANDING; OWNERSHIP. Purchaser is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware. To the Knowledge of Purchaser,
neither Purchaser nor any of its Subsidiaries is in violation of any
Order of any court, Governmental Authority
-15-
or arbitration board or tribunal, or any Law to which Purchaser or any
of its Subsidiaries or any of their respective properties or assets is
subject.
3.2.2. CORPORATE AUTHORITY; COMPLIANCE WITH LAW. Purchaser has
the requisite corporate power and authority to execute and deliver this
Agreement and the other Transaction Documents. The consummation by
Purchaser of the transactions contemplated hereby and thereby has been
duly authorized by all requisite corporate action on the part of
Purchaser. This Agreement constitutes, and the other Transaction
Documents (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of
Purchaser, enforceable against Purchaser in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar
laws relating to creditors' rights generally or general principles of
equity (whether considered in a proceeding in equity or at law) or by
public policy applicable to securities laws.
3.2.3. NO VIOLATION. Neither the execution and delivery by
Purchaser of this Agreement nor the consummation by Purchaser of the
transactions contemplated hereby in accordance with the terms hereof,
will (i) result in a breach or violation of any provisions of the
Organizational Documents of Purchaser; (ii) violate or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default)
under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any material license, franchise,
permit, lease, Contract, agreement or other instrument, commitment or
obligation to which Purchaser is a party, or by which either Purchaser
or any of its properties is bound or affected, (iii) require the
consent or approval of the shareholders of Purchaser under the laws of
the State of Delaware or under the Investment Company Act, or require
any consent, approval or authorization of, or declaration, filing or
registration with, any third party or any domestic or foreign
governmental or regulatory authority, or (iv) result in a violation of
any Law, including the Investment Company Act, or Order applicable to
Purchaser or any of its Subsidiaries or any of their respective assets
or properties. Purchaser is an "investment company" (as such term is
defined in the Investment Company Act), and is registered with the
Commission under Section 8 of the Investment Company Act. To the
Knowledge of Purchaser, Purchaser is in compliance with and has not
violated any of the provisions of the Investment Company Act. Purchaser
has delivered to the Company a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed
by Purchaser with the Commission from January 1, 1996, through the date
of this Agreement (as such documents have been amended since the time
of their filing through the date of this Agreement, the "FRANKLIN SEC
DOCUMENTS"), which, except for Purchaser's Annual Report to
Stockholders for the year ended December 31, 1996, which was required
to be filed with the Commission on or before March 11, 1997, are all
the documents (other than preliminary material) that Purchaser was
required
-16-
to file and has filed with the Commission since such date. The
transactions contemplated by this Agreement do not deviate from
Purchaser's policy in respect of concentration of investments in any
particular industry or group of industries as recited in its
registration statement filed under the Investment Company Act, deviate
from any investment policy which is changeable only if authorized by
shareholder vote, or deviate from any policy recited in its
registration statement under the Investment Company Act pursuant to
Section 8(b)(3) of the Investment Company Act. The execution and
delivery of this Agreement by Purchaser, and the consummation by
Purchaser of the transactions contemplated hereby, will not violate the
provisions of Section 7 of the Investment Company Act.
3.2.4. NO BROKERS. Neither Purchaser nor any of its Affiliates
has entered into any contract, arrangement or understanding with any
person or firm which may result in the obligation of Purchaser, any
Affiliate of Purchaser or the Company to pay any finder's fees,
brokerage or agent's commission or like payments in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby. Purchaser is not aware of any claim
for payment of any finder's fees, brokerage or agent's commissions or
other like payments by Purchaser or any of its Affiliates in connection
with the negotiations leading to this Agreement or the consummation of
the transactions contemplated hereby.
3.2.5. INVESTMENT INTENT. Purchaser acknowledges that the
Franklin Shares and the Franklin Warrant are being, and, upon exercise
of the Franklin Warrant, the Franklin Warrant Shares will be, acquired
for Purchaser's own account as part of a private offering, exempt from
registration under the Securities Act and all applicable state
securities or blue sky laws, for investment only and not with a view to
the distribution or other sale thereof, and that an exemption from
registration under the Securities Act or any applicable state
securities laws may not be available if the Franklin Shares, the
Franklin Conversion Shares, the Franklin Warrant or the Franklin
Warrant Shares (collectively, the "SECURITIES") are acquired by
Purchaser with a view to resale or distribution thereof under any
conditions or circumstances as would constitute a distribution of the
Securities within the meaning and purview of the Securities Act or the
applicable state securities laws. The reliance by the Company upon such
exemptions is based in part upon the representations and warranties set
forth in this Section 3.2.5.
-------------
(A) Purchaser is an Accredited Investor.
(B) It is Purchaser's intention to acquire and hold
the Securities solely for Purchaser's private investment and
for Purchaser's own account and with no view or intention to
distribute (including, without limitation, any distribution to
the shareholder of Purchaser pursuant to the terms of its
governing instruments), sell, resell, assign, pledge,
mortgage, hypothecate, or otherwise transfer or dispose of the
Securities (or any portion thereof) except
-17-
pursuant to a valid exception from registration or a
registered offering under the Securities Act.
(C) No other Person (other than Purchaser's
shareholders) will acquire, directly or indirectly, any
interest in the Securities (or any portion thereof) as a
result of Purchaser's acquisition of the Securities pursuant
to this Agreement or the Franklin Warrant.
(D) Purchaser understands that the Securities have
not been registered under the Securities Act, and that it has
no right, except as provided in the Registration Rights
Agreement, to cause the Securities to be so registered.
(E) Purchaser has no contract, undertaking,
agreement, or arrangement with any Person to sell or otherwise
transfer to any Person, or to have any Person sell on behalf
of Purchaser, the Securities (or any portion thereof), and
Purchaser is not engaged in and does not plan to engage within
the foreseeable future in any discussion with any Person
relative to the sale or any transfer of the Securities (or any
portion thereof). Purchaser is not aware of any occurrence,
event, or circumstance upon the happening of which Purchaser
intends to attempt to sell, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of the
Securities (or any portion thereof), and Purchaser does not
have any present intention of selling, transferring, or
otherwise disposing of the Securities (or any portion thereof)
after the lapse of any particular period of time.
(F) Purchaser is, and will be on the Closing Date, a
sophisticated investor which has the capacity to protect
Purchaser's own interests in investments of this nature, and
has such knowledge and experience in financial and business
matters that Purchaser is capable of evaluating the merits and
risks of this investment and of making an informed investment
decision.
(G) To the Knowledge of Purchaser, Purchaser has had
all documents, records, books and due diligence materials
pertaining to this acquisition made available to Purchaser and
Purchaser's accountants and advisors; Purchaser has also had
an opportunity to ask questions and receive answers concerning
the acquisition of the Securities pursuant to this Agreement
and the Franklin Warrant; and Purchaser has all of the
information deemed by Purchaser to be necessary or appropriate
to evaluate this investment and the risks and merits thereof.
-18-
(H) Purchaser is acquiring the Securities solely upon
the information provided to Purchaser as specified in Section
3.2.5(g) , above, together with information obtained by
Purchaser through Purchaser's independent investigation.
(I) Purchaser is aware of the following:
(i) the Securities are speculative, with no
assurance of any income from the Securities;
(ii) no federal or state agency has made any
finding or determination as to the fairness of the
acquisition, or any recommendation or endorsement of
such acquisition;
(iii) transferability of the Securities is
highly restricted and, accordingly, it may not be
possible for Purchaser to liquidate the Securities in
case of emergency; and
(iv) with respect to the tax aspects of an
investment in the Securities, Purchaser in making
Purchaser's investment decision is not relying to any
degree upon the advice of the Company, or any Person
Affiliated therewith, but rather solely upon
Purchaser's own legal, financial and tax advisors.
(J) The certificates representing the Franklin Shares
issued to Purchaser or any subsequent holder thereof who
acquires the Franklin Shares (and the Franklin Warrant Shares,
if any) in a transaction exempt from registration under the
Securities Act may be imprinted with an appropriate
restrictive legend concerning registration.
(K) The Company's stock records may be marked to
indicate the provisions of this Section 3.2.5 and the Company
-------------
may direct any transfer agent to enter a stop transfer order
in its records with respect to the Shares in accordance with
this Section 3.2.5.
-------------
ARTICLE 4
COVENANTS
SECTION 4.1. TERMS OF FRANKLIN NEW PREFERRED STOCK. The terms of the
Franklin New Preferred Stock shall be as set forth in the Series D Certificate
of Designation. Such terms shall include the following:
-19-
(A) Pay annual cumulative dividend of $0.10 per
share, payable $0.025 quarterly in arrears in cash.
(B) Have one vote per share on all matters submitted
to a vote of the holders of the Company's Common Stock, with
such shares voting with the shares of Common Stock as a single
class.
(C) Be convertible initially into 0.5 share of Common
Stock, subject to normal anti-dilution provisions. The shares
shall be convertible at any time at the option of the holder
thereof. The shares shall be automatically converted into
Common Stock immediately prior to the completion of a
Qualified Public Offering.
(D) Except as otherwise expressly provided in the
Series D Certificate of Designation, rank pari passu with the
HBS Senior Preferred Stock.
(E) Have a liquidation preference with respect to the
Company's interest in Hold Billing Services, Ltd., a Texas
limited partnership, and a secondary liquidation preference in
the Company's interest in BorderComm, Inc., a Texas
corporation, in each case as specifically set forth in the
Series D Certificate of Designation.
SECTION 4.2. LOAN. The terms of the Loan shall be as set forth in the
Loan Documents. Such terms shall include the following:
(A) Have a term of three years from the Closing Date.
(B) Bear interest at the rate of 10% per annum,
payable quarterly in cash, with the first four payments
pre-paid on the Closing Date solely from the proceeds of the
Loan.
(C) Require no principal payments during the first
year of the Loan. After the first year, principal will be
required to paid in equal quarterly installments provided cash
flow permits.
(D) Be subordinate to all indebtedness of the
Companies owing to FINOVA Capital Corporation.
(E) Be secured by a security interest in the
Companies' partnership interests in Hold Billing Services,
Ltd., a Texas limited partnership, and all the Companies'
equity interest in HBS, Inc., a Texas corporation.
-20-
SECTION 4.3. REGISTRATION RIGHTS. At the Closing, the Company and
Purchaser will enter into a Registration Rights Agreement in substantially the
form of Exhibit E (the "REGISTRATION RIGHTS AGREEMENT"). Purchaser shall have
---------
the registration rights set forth in the Registration Rights Agreement. Such
rights shall include one demand registration right for the Franklin Common
Shares and the shares of Common Stock issuable upon conversion of the Franklin
Preferred Shares effective no earlier than April 1, 1998, and unlimited
"piggy-back" registration rights for the Franklin Common Shares, the Franklin
Warrant Shares and the shares of Common Stock issuable upon conversion of the
Franklin Exchange Shares.
SECTION 4.4. EXPENSES. At the Closing, the Company shall reimburse
Purchaser for that portion of its estimated actual out-of-pocket costs and
expenses incurred and paid in connection with this Agreement and the
transactions contemplated hereby by deducting $50,000 from the Purchase Price.
The obligation of the Company to reimburse Purchaser for that portion of its
actual out-of-pocket costs and expenses incurred and paid in connection with
this Agreement and the transactions contemplated hereby shall be limited to and
shall not exceed the amount by which $50,000 exceeds the total fees and expenses
incurred by the Company in connection with the negotiation, preparation,
execution and delivery of that certain letter dated March 24, 1997, from
Purchaser to the Company, which sets forth the basic terms of the transactions
contemplated hereby (the "LETTER OF INTENT"). After the Closing, Purchaser shall
reimburse the Company for its actual out-of-pocket costs and expenses incurred
in connection with the negotiation, preparation, execution and delivery of the
Letter of Intent. As a condition precedent to such reimbursements, Purchaser
shall furnish to the Company, and the Company shall furnish to Purchaser, such
invoices and other evidence of payment as is customary to document such payments
properly for the accounting and tax records of the Company or Purchaser, as the
case may be. Any such reasonable expenses incurred by Purchaser in excess of the
amount to which Purchaser is entitled to reimbursement hereunder would be
reimbursed by the Company only if approved by the Company's Board of Directors.
Except as otherwise provided in this Section 4.4, whether or not the Closing
------------
hereunder shall occur, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such cost or expense.
SECTION 4.5. OTHER ACTION. Subject to the terms and conditions herein
provided, the Company and Purchaser shall (a) use all reasonable efforts to
cooperate with one another in (i) determining whether any filings are required
to be made prior to the Closing with, and whether any consents, approvals,
permits or authorizations are required to be obtained prior to the Closing from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making any such filings and timely seeking any such consents, approvals,
permits or authorizations; and (b) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If at any time after the Closing,
any further action is necessary or desirable to carry out the purpose of or to
consummate the transactions contemplated by this Agreement, the Purchaser and
the Company shall use all reasonable efforts to cooperate with one another in
taking all such necessary action.
-21-
SECTION 4.6. INSPECTION OF RECORDS. From the date hereof through the
Closing, the Company shall allow, upon reasonable notice, all designated
officers, attorneys, accountants and other representatives of Purchaser access
at all reasonable times during normal business hours to the records and files,
correspondence, audits, properties and personnel, as well as to all information
relating to commitments, contracts, titles, franchise compliance and financial
position, or otherwise pertaining to the business and affairs, of the Company
and its Subsidiaries.
SECTION 4.7. PUBLICITY. The initial press release relating to this
Agreement shall be a joint press release and thereafter the Company and
Purchaser shall, subject to their respective legal obligations, consult with
each other, and use reasonable efforts to agree upon the text of any press
release, before issuing any such press release or otherwise making public
statements with respect to the transactions contemplated hereby and in making
any filings with any federal or state governmental or regulatory agency or with
any national securities exchange with respect thereto.
SECTION 4.8. FILING OF CERTIFICATES OF DESIGNATION. The Company shall
file the Certificates of Designation with the Secretary of State of the State of
Delaware on or before Closing.
ARTICLE 5
CONDITIONS
SECTION 5.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSE. The
respective obligation of each party to close the transactions contemplated
hereby shall be subject to the fulfillment at or prior to the Closing of the
following conditions:
(A) Neither of the parties hereto shall be subject to
any Order or injunction of a court of competent jurisdiction
which prohibits the consummation of the transactions
contemplated by this Agreement or any of the other Transaction
Documents or which could reasonably be expected to otherwise
result in a material diminution of the benefits of the
transactions contemplated hereby or thereby to Purchaser. In
the event any such Order or injunction shall have been issued,
each party agrees to use its reasonable efforts to have any
such Order or injunction lifted. There shall not be pending or
threatened on the Closing Date any Action which could
reasonably be expected to result in the issuance of any such
Order or injunction.
(B) All consents, authorizations, orders and
approvals of (or filings or registrations with) any
governmental commission, board or other regulatory body
required in connection with the execution, delivery and
performance of this Agreement and the other Transaction
Documents shall have been obtained or made, except
-22-
for any other documents required to be filed after the Closing
Date, which are set forth in the Disclosure Letter.
5.1.1. CONDITIONS TO OBLIGATION OF THE COMPANY TO CLOSE. The
obligation of the Company to close the transactions contemplated hereby
shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions (which may be waived in whole or in part by
the Company in its sole discretion):
(A) The Company shall have received a certificate,
dated the Closing Date, of the Secretary of Purchaser,
certifying as to the incumbency of the officers of Purchaser
executing this Agreement, the validity and effect of the
resolutions of the directors of Purchaser authorizing and
approving this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby, and such
other matters as Purchaser or its counsel may reasonably
request.
(B) Purchaser shall have delivered to the Company a
certificate, dated as of a recent date, from the Secretary of
State of the State of Delaware certifying that Purchaser is
duly incorporated under the laws of the State of Delaware and
is in good standing and has a legal corporate existence at
such date.
(C) The Company shall have received such other
documents, instruments or certificates incident to the
transactions contemplated by this Agreement or by the other
Transaction Documents as it or its counsel may reasonably
request.
5.1.2. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE. The
obligations of Purchaser to close the transactions contemplated hereby
shall be subject to the fulfillment at or prior to the Closing Date of
each of the following conditions (all or any of which may be waived in
whole or in part by Purchaser in its sole discretion):
(A) Purchaser shall have received a certificate,
dated the Closing Date, of the Secretary of the Company,
certifying as to the incumbency of the officers of the Company
executing this Agreement, the validity and effect of the
resolutions of the directors of the Company authorizing and
approving this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby, the
validity and effect of the Certificate of Incorporation and
Bylaws of the Company, and such other matters as Purchaser or
its counsel may reasonably request.
-23-
(B) The Company shall have delivered to Purchaser a
certificate, dated as of a recent date, from the Secretary of
State of the State of Delaware certifying that the Company is
duly incorporated under the laws of the State of Delaware and
is in good standing and has a legal corporate existence at
such date.
(C) The Company shall have filed the Certificates of
Designation with the Secretary of State of the State of
Delaware.
(D) Purchaser shall have received such other
documents, instruments or certificates incident to the
transactions contemplated by this Agreement or by the other
Transaction Documents as it or its counsel may reasonably
request.
ARTICLE 6
DEFINITIONS AND CONSTRUCTION
SECTION 6.1. DEFINITION OF CERTAIN TERMS. Except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in this
Section 6.1, whenever used in this Agreement (including in the Schedules), shall
-----------
have the respective meanings assigned to them in this Section for all purposes
of this Agreement, and include the plural as well as the singular.
"ACCREDITED INVESTOR" -- as defined in Regulation D
promulgated under the Securities Act.
"ACTION" -- any claim, action, suit, proceeding, arbitration
or investigation that could reasonably be expected to have a Company
Material Adverse Effect.
"AFFILIATE" -- of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, the first Person. "CONTROL"
(including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract or credit
arrangement, as trustee or executor, or otherwise.
"AGREEMENT" -- this instrument as originally executed,
including the Schedules hereto, or as it may be from time to time
supplemented or amended by one or more supplements or amendments hereto
entered pursuant to the applicable provisions hereof.
"APPLICABLE CONTRACT" -- any Contract (a) under which any of
the Companies has or may acquire any rights, (b) under which any of the
Companies has or may become subject to any obligation or liability, or
(c) by which any of the Companies or any of the assets owned or used by
it is or may become bound.
-24-
"APPLICABLE LAW" -- all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law),
rules, regulations, ordinances, codes or orders of any Governmental
Authority, (ii) Governmental Approvals and (iii) orders, decisions,
injunctions, judgments, awards and decrees of or agreements with any
Governmental Authority.
"▇▇▇▇▇ REGISTRATION RIGHT" -- as defined in Section 3.1.3.
-------------
"BUSINESS DAY" -- a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required to close.
"CERTIFICATES OF DESIGNATION" -- collectively, the Series D
Certificate of Designation and the Series E Certificate of Designation.
"CLOSING" -- as defined in Section 2.1.
-----------
"CLOSING DATE" -- as defined in Section 2.1.
-----------
"CODE" -- the Internal Revenue Code of 1986, as amended, or
any successor law, and all regulations issued by the IRS pursuant to
the Internal Revenue Code of 1986 or any successor law.
"COMMISSION" -- Securities and Exchange Commission of the
United States of America and any successor commission, service, agency
or bureau.
"COMMON STOCK" -- as defined in the Recitals hereto.
"COMPANIES" -- collectively, the Company and its Subsidiaries.
"COMPANY" -- as defined in the first paragraph of this
Agreement.
"COMPANY MATERIAL ADVERSE EFFECT" -- as defined in Section
-------
3.1.1.
-----
"COMPANY PLANS" -- as defined in Section 3.1.12.
--------------
"CONSENT" -- any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or
order of, registration, certificate, declaration or filing with, or
report or notice to, any Person, including but not limited to any
Governmental Authority.
"CONTRACT" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied)
that is legally binding.
"DISCLOSURE LETTER" -- as defined in Section 3.1.
-----------
"DOLLARS" or "$" -- lawful money of the United States.
-25-
"ERISA" -- the Employee Retirement Income Security Act of
1974, as amended, or any successor law, and regulations and rules
issued pursuant to that Act or any successor law.
"FRANKLIN COMMON SHARES" -- as defined in the Recitals hereto.
"FRANKLIN CONVERSION SHARES" -- the shares of Common Stock
issuable upon conversion of the Franklin Preferred Shares.
"FRANKLIN EXCHANGE PREFERRED STOCK" -- as defined in the
Recitals hereto.
"FRANKLIN EXCHANGE SHARES" -- as defined in the Recitals
hereto.
"FRANKLIN NEW PREFERRED STOCK" -- as defined in the Recitals
hereto.
"FRANKLIN PREFERRED SHARES" -- as defined in the Recitals
hereto.
"FRANKLIN SEC DOCUMENTS" -- as defined in Section 3.2.3.
-------------
"FRANKLIN SECURITY AGREEMENT" -- The Security Agreement
attached hereto as Exhibit D pursuant to which the Company will grant a
---------
security interest to Purchaser in its partnership interests in Hold
Billing Services, Ltd. a Texas limited partnership, in connection with
the Loan.
"FRANKLIN SHARES" -- as defined in the Recitals hereto.
"FRANKLIN SUBORDINATED NOTE" -- the form of Subordinated
Promissory Note attached hereto as Exhibit C, which will evidence the
---------
Loan.
"FRANKLIN WARRANT" -- as defined in the Recitals hereto, the
form of which is attached hereto as Exhibit F.
---------
"FRANKLIN WARRANT SHARES" -- the shares of Common Stock
issuable upon exercise of the Franklin Warrant.
"GAAP" -- generally accepted accounting principles as in
effect in the United States.
"GOVERNMENT APPROVAL" -- any Consent of, with or to any
Governmental Authority.
"GOVERNMENTAL AUTHORITY" -- any nation or government, any
state or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without
limitation, any government authority, agency, department,
-26-
board, commission or instrumentality of the United States, any State of
the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction, and any
self-regulatory organization.
"HBS SENIOR PREFERRED STOCK" -- as defined in the Section
3.1.3.
"INTELLECTUAL PROPERTY" -- any and all United States and
foreign: (a) patents (including design patents, industrial designs and
utility models) and patent applications (including docketed patent
disclosures awaiting filing, reissues, divisions, continuations-in-part
and extensions), patent disclosures awaiting filing determination,
inventions and improvements thereto; (b) trademarks, service marks,
trade names, trade dress, logos, business and product names, slogans,
and registrations and applications for registration thereof; (c)
copyrights (including software) and registrations thereof; (d)
inventions, processes, designs, formulae, trade secrets, know-how,
industrial models, confidential and technical information,
manufacturing, engineering and technical drawings, product
specifications and confidential business information; (e) mask work and
other semiconductor chip rights and registrations thereof; (f)
intellectual property rights similar to any of the foregoing; (g)
copies and tangible embodiments thereof (in whatever form or medium,
including electronic media).
"INVESTMENT COMPANY ACT" -- the Investment Company Act of
1940, as amended, or any successor law, and regulations and rules
issued pursuant to that Act or any successor law.
"IRS" -- the Internal Revenue Service of the United States of
America and any successor commission, service, agency or bureau.
"KNOWLEDGE" -- an individual will be deemed to have
"KNOWLEDGE" of a particular fact or other matter if: (a) such
individual is actually aware of such fact or other matter; or (b) a
prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such
fact or other matter. A Person (other than an individual) will be
deemed to have "KNOWLEDGE" of a particular fact or other matter if any
individual who is serving as a director, officer, partner, executor, or
trustee of such Person (or in any similar capacity) has Knowledge of
such fact or other matter.
"LAW" -- as defined in Section 3.1.1.
-------------
"LETTER OF INTENT" -- as defined in Section 4.4.
-----------
"LICENSE" -- any permit, license and other authorization,
approval, registration and similar consent.
-27-
"LIEN" -- any mortgage, pledge, hypothecation, right of
others, claim, security interest, encumbrance, lease, sublease,
license, occupancy agreement, adverse claim or interest, easement,
covenant, encroachment, burden, title defect, title retention
agreement, voting trust agreement, interest, equity, option, lien,
right of first refusal, charge or other restrictions or limitations of
any nature whatsoever, including but not limited to such as may arise
under any Contracts.
"LOAN" -- as defined in the Recitals hereto.
"LOAN DOCUMENTS" -- collectively, the Franklin Subordinated
Note and the Franklin Security Agreement.
"MANAGEMENT FEE" -- as defined in Section 1.7.
-----------
"MATERIAL APPLICABLE CONTRACTS" -- as defined in Section
-------
3.1.15(a).
---------
"ORDER" -- as defined in Section 3.1.1.
-------------
"ORGANIZATIONAL DOCUMENTS" -- (a) the articles or certificate
of incorporation and the bylaws of a corporation; (b) the partnership
agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited
partnership of a limited partnership; (d) any charter or similar
document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the
foregoing.
"PERSON" -- any natural person, firm, partnership,
association, corporation, company, trust, business trust, Governmental
Authority or other entity.
"PREFERRED STOCK" -- as defined in the Recitals hereto.
"PURCHASE PRICE" -- as defined in Section 1.2.
-----------
"PURCHASER" -- as defined in the first paragraph of this
Agreement.
"QUALIFIED PUBLIC OFFERING" -- the closing of the sale of the
Common Stock in a firm commitment, underwritten public offering
registered under the Securities Act, other than a registration relating
solely to a transaction under Rule 145 under the Securities Act or to
an employee benefit plan of the Company, at a public offering price
(prior to underwriters' discounts and expenses) equal to or exceeding
$5.00 per share of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares after the Closing
Date) and the aggregate proceeds to the Company or any selling
stockholders, or both (after deduction for underwriters' discounts and
expenses relating to the issuance, including, without limitation, fees
of the Company's counsel) of which exceed $7,000,000.
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"REGISTRATION RIGHTS AGREEMENT" -- as defined in Section 4.3.
-----------
"SECURITIES" -- collectively, the Franklin Shares, the
Franklin Conversion Shares, the Franklin Warrant and the Franklin
Warrant Shares.
"SECURITIES ACT" -- the Securities Act of 1933, as amended, or
any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"SERIES A PREFERRED STOCK" -- as defined in Section 3.1.3.
-------------
"SERIES B PREFERRED STOCK" -- as defined in the Recitals
hereto.
"SERIES C PREFERRED STOCK" -- as defined in the Section 3.1.3.
-------------
"SERIES D CERTIFICATE OF DESIGNATION" -- the Certificate of
Designations of the Franklin New Preferred Stock, to be filed with the
Secretary of State of the State of Delaware in the form attached hereto
as Exhibit A.
---------
"SERIES E CERTIFICATE OF DESIGNATION" -- the Certificate of
Designations of the Franklin Exchange Preferred Stock, to be filed with
the Secretary of State of the State of Delaware in the form attached
hereto as Exhibit B.
---------
"SUBSIDIARY" -- with respect to any Person (the "OWNER"), any
corporation or other Person of which securities or other interests
having the power to elect a majority of that corporation's or other
Person's board of directors or similar governing body, or otherwise
having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests
having such power only upon the happening of a contingency that has not
occurred) are held by the Owner, by one or more of its Subsidiaries, or
by the Owner and one or more of its Subsidiaries. When used without
reference to a particular Person, "Subsidiary" means a Subsidiary of
the Company.
"TAX" -- any federal, state, provincial, local, foreign or
other income, alternative, minimum, accumulated earnings, personal
holding company, franchise, capital stock, net worth, capital, profits,
windfall profits, gross receipts, value added, sales, use, goods and
services, excise, customs duties, transfer, conveyance, mortgage,
registration, stamp, documentary, recording, premium, severance,
environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy,
license, occupational, employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care,
withholding, estimated or other similar tax, duty or other governmental
charge or assessment or deficiencies thereof (including all interest
and penalties thereon and additions thereto whether disputed or not).
-29-
"TAX RETURN" -- any return, report, declaration, form, claim
for refund or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
"TRANSACTION DOCUMENTS" -- as defined in Section 3.1.2.
-------------
"UNITS" -- as defined in the Recitals hereto.
"WARRANT" -- as defined in Section 3.1.3.
-------------
SECTION 6.2. RULES OF CONSTRUCTION.
(A) "THIS AGREEMENT" means this instrument as
originally executed, including the Exhibits hereto, or as it
may be from time to time supplemented or amended by one or
more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(B) "INCLUDES" and "INCLUDING" are not limiting, and,
in each case, shall be construed as if followed by the words
"without limitation," "but not limited to" or words of similar
import;
(C) "MAY NOT" is prohibitive, and not permissive;
(D) "SHALL" is mandatory, and not permissive;
(E) "OR" is not exclusive [i.e., if a party "may do
(a), (b) or (c)," then the party may do all of, any one of, or
any combination of, (a), (b) or (c)] unless the context
expressly provides otherwise;
(F) all references in this instrument to designated
"ARTICLES," "SECTIONS" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this
instrument as originally executed;
(G) the words "HEREIN," "HEREOF," "HERETO" and
"HEREUNDER" and other words of similar import refer to this
Agreement as a whole and not to any particular Article,
Section or other subdivision;
(H) all terms used herein which are defined in the
Securities Act, the Exchange Act or the rules and regulations
promulgated thereunder have the meanings assigned to them
therein unless otherwise defined herein; and
-30-
(I) all accounting terms not otherwise defined herein
have the meaning assigned to them in accordance with GAAP.
ARTICLE 7
GENERAL PROVISIONS
SECTION 7.1. SEVERABILITY. If any provision of this Agreement,
including any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 7.2. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram:
(i) if to Purchaser, to:
The Franklin Holding Corporation (Delaware)
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chairman
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to the Company, to:
▇▇▇▇▇ Communications, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, Chairman
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
-31-
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 7.3. HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 7.4. ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto) and the other Transaction Documents (when executed and delivered)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
SECTION 7.5. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 7.6. GOVERNING LAW, ETC. This Agreement shall be governed in
all respects, including as to validity, interpretation and effect, by the
internal laws of the State of Delaware, without giving effect to the conflict of
laws rules thereof. Purchaser and the Company hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the Federal courts of
the United States of America located in the State of Delaware, solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and hereby waive, and agree not to
assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any of such document may not be enforced in or by said courts, and
the parties hereto irrevocably agree that all claims with respect to such action
or proceeding shall be heard and determined in such a Delaware State or Federal
court. Purchaser and the Company hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of any
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 7.6, or in
-----------
such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
-32-
SECTION 7.7. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 7.8. ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 7.9. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
SECTION 7.10. AMENDMENT; WAIVERS; ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach. The representations and warranties of the Company shall
not be affected or deemed waived by reason of any investigation made by or on
behalf of Purchaser (including but not limited to by any of their respective
advisors, consultants or representatives) or by reason of the fact that
Purchaser or any of such advisors, consultants or representatives knew or should
have known that any such representation or warranty is or might be inaccurate.
The representations and warranties of Purchaser shall not be affected or deemed
waived by reason of any investigation made by or on behalf of the Company
(including but not limited to by any of their respective advisors, consultants
or representatives) or by reason of the fact that the Company or any of such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
[THIS SPACE LEFT BLANK INTENTIONALLY.]
[SIGNATURES ON FOLLOWING PAGE.]
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INVESTMENT AGREEMENT
Signature Page
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
By:________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman
▇▇▇▇▇ COMMUNICATIONS, INC.
By:________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Chairman
-34-
ANNEX I
-------
INDEX OF DEFINED TERMS
PAGE
----
Accredited Investor...........................................................24
Action ............................................................24
Affiliate ............................................................24
Agreement .........................................................1, 24
Applicable Contract...........................................................24
Applicable Law ............................................................25
▇▇▇▇▇ Registration Right...................................................6, 25
Business Day ............................................................25
Certificates of Designation...................................................25
Closing .........................................................3, 25
Closing Date .........................................................3, 25
Code ............................................................25
Commission ............................................................25
Common Stock .........................................................1, 25
Companies ............................................................25
Company .........................................................1, 25
Company Material Adverse Effect............................................4, 25
Company Plans ........................................................10, 25
Consent ............................................................25
Contract ............................................................25
Disclosure Letter .........................................................4, 25
Dollars or $ ............................................................25
ERISA ............................................................26
Franklin Common Shares.....................................................1, 26
Franklin Conversion Shares....................................................26
Franklin Exchange Preferred Stock..........................................1, 26
Franklin Exchange Shares...................................................1, 26
Franklin New Preferred Stock...............................................1, 26
Franklin Preferred Shares..................................................1, 26
Franklin SEC Documents....................................................16, 26
Franklin Security Agreement...................................................26
Franklin Shares .........................................................1, 26
Franklin Subordinated Note....................................................26
Franklin Warrant .........................................................1, 26
Franklin Warrant Shares.......................................................26
GAAP ............................................................26
Government Approval...........................................................26
Governmental Authority........................................................26
HBS Senior Preferred Stock.................................................5, 27
Intellectual Property.........................................................27
I-1
PAGE
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Investment Company Act........................................................27
IRS ............................................................27
Knowledge ............................................................27
Law .........................................................4, 27
Letter of Intent ........................................................21, 27
License ............................................................27
Lien ............................................................28
Loan .........................................................1, 28
Loan Documents ............................................................28
Management Fee .........................................................3, 28
Material Applicable Contracts.............................................11, 28
Order .........................................................4, 28
Organizational Documents......................................................28
Person ............................................................28
Preferred Stock .........................................................1, 28
Purchase Price .........................................................2, 28
Purchaser .........................................................1, 28
Qualified Public Offering.....................................................28
Registration Rights Agreement.............................................21, 29
Securities ........................................................17, 29
Securities Act ............................................................29
Series A Preferred Stock...................................................5, 29
Series B Preferred Stock...................................................1, 29
Series C Preferred Stock...................................................5, 29
Series D Certificate of Designation...........................................29
Series E Certificate of Designation...........................................29
Subsidiary ............................................................29
Tax ............................................................29
Tax Return ............................................................30
Transaction Documents......................................................4, 30
Units .........................................................1, 30
Warrant .........................................................5, 30
I-2
ANNEX II
--------
MEMBERS OF THE BOARD OF DIRECTORS
IDENTIFIED BY PURCHASER
-----------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
IDENTIFIED BY THE COMPANY
-------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
II-1
ANNEX III
---------
USE OF PROCEEDS
III-1
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATION FOR SERIES D
EXHIBIT B
FORM OF CERTIFICATE OF DESIGNATION FOR SERIES E
EXHIBIT C
FORM OF FRANKLIN SUBORDINATED NOTE
EXHIBIT D
FORM OF FRANKLIN SECURITY AGREEMENT
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT F
FORM OF FRANKLIN WARRANT
