EXHIBIT 10.20
-----------------------------
SECURITIES PURCHASE AGREEMENT
by and between
T-NETIX, INC.
and
KEY PRINCIPAL PARTNERS, LLC
Dated as of November 14, 2002
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TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS....................................................................1
Section 1.1 Definitions....................................................1
Section 1.2 Accounting Terms; Financial Statements........................22
Section 1.3 Knowledge of the Person.......................................23
Section 1.4 Other Definitional Provisions.................................23
ARTICLE II. PURCHASE AND SALE OF THE SECURITIES..........................................23
Section 2.1 Purchase and Sale of the KPP Note.............................23
Section 2.2 Purchase and Sale of the KPP Warrant..........................24
Section 2.3 Fees at Closing...............................................24
Section 2.4 Closing.......................................................24
Section 2.5 Financial Accounting Positions; Tax Reporting.................24
ARTICLE III. CONDITIONS TO THE OBLIGATIONS OF KPP TO PURCHASE THE
SECURITIES.........................................................25
Section 3.1 Representations and Warranties................................25
Section 3.2 Compliance with this Agreement................................25
Section 3.3 Secretary's Certificates......................................25
Section 3.4 Documents.....................................................25
Section 3.5 Purchase of Securities Permitted by Applicable Laws...........26
Section 3.6 Opinions of Counsel...........................................26
Section 3.7 Approval of Counsel to KPP....................................26
Section 3.8 Consents and Approvals........................................26
Section 3.9 No Material Judgment or Order.................................26
Section 3.10 Material Adverse Change.......................................27
Section 3.11 No Litigation.................................................27
Section 3.12 Consummation of the Transactions..............................27
Section 3.13 Financial Condition...........................................28
Section 3.14 Pro Forma Financial Statements; Projections...................28
Section 3.15 Securities....................................................28
Section 3.16 Securityholders' and Registration Rights Agreement............28
Section 3.17 Solvency Certificate; Insurance Certificates..................28
Section 3.18 Letter to Accountants.........................................28
Section 3.19 Senior Credit Agreement.......................................29
Section 3.20 Fees, Etc.....................................................29
Section 3.21 D&O Insurance.................................................29
Section 3.22 Security Agreements...........................................29
Section 3.23 Guarantors....................................................29
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ARTICLE IV. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO ISSUE
AND SELL THE SECURITIES............................................29
Section 4.1 Representations and Warranties................................29
Section 4.2 Compliance with this Agreement................................29
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................30
Section 5.1 Corporate Existence and Power.................................30
Section 5.2 Authorization; No Contravention...............................30
Section 5.3 Governmental Authorization; Third Party Consents..............30
Section 5.4 Binding Effect................................................31
Section 5.5 Litigation....................................................31
Section 5.6 Compliance with Laws..........................................31
Section 5.7 No Default or Breach..........................................31
Section 5.8 Title to Properties...........................................32
Section 5.9 Use of Real Property..........................................32
Section 5.10 Taxes.........................................................32
Section 5.11 Financial Condition...........................................33
Section 5.12 Absence of Certain Changes....................................34
Section 5.13 No Material Adverse Change....................................34
Section 5.14 Environmental Matters.........................................34
Section 5.15 Investment Company/Government Regulations.....................35
Section 5.16 Subsidiaries..................................................35
Section 5.17 Capitalization................................................35
Section 5.18 Private Offering..............................................36
Section 5.19 Broker's, Finder's or Similar Fees............................36
Section 5.20 Labor Relations...............................................37
Section 5.21 Employees.....................................................37
Section 5.22 ERISA.........................................................37
Section 5.23 Patents, Trademarks, Etc......................................38
Section 5.24 Transaction with Affiliates...................................40
Section 5.25 Outstanding Borrowings; Liens.................................40
Section 5.26 Material Contracts............................................40
Section 5.27 Insurance.....................................................41
Section 5.28 Solvency......................................................41
Section 5.29 Change of Control Payments....................................42
Section 5.30 Customers and Suppliers.......................................42
Section 5.31 Information; Representations and Warranties in the Documents..42
Section 5.32 Regulatory Authorizations.....................................43
Section 5.33 No Regulatory Event...........................................43
Section 5.34 SEC Investigations............................................43
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF KPP..............................44
Section 6.1 Authorization; No Contravention...............................44
Section 6.2 Binding Effect................................................44
Section 6.3 Purchase for Own Account......................................44
Section 6.4 Broker's, Finder's or Similar Fees............................45
Section 6.5 Governmental Authorization; Third Party Consent...............45
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ARTICLE VII. COVENANTS..........................................................45
Section 7.1 Financial Statements..........................................45
Section 7.2 Other Business and Financial Information......................47
Section 7.3 Corporate Existence; Franchises; Maintenance of Properties....49
Section 7.4 Use of Proceeds...............................................50
Section 7.5 Compliance with Agreements....................................50
Section 7.6 Compliance with Laws; Regulatory Authorizations, etc..........50
Section 7.7 Payment of Obligations........................................51
Section 7.8 Insurance.....................................................51
Section 7.9 Maintenance of Books and Records; Inspection..................51
Section 7.10 Taxes.........................................................52
Section 7.11 SEC Reports...................................................52
Section 7.12 Creation of Subsidiaries......................................52
Section 7.13 Environmental Laws............................................52
Section 7.14 Further Assurances............................................53
Section 7.15 Board Rights and Quarterly Management Meetings................53
Section 7.16 Maintenance of D&O Insurance..................................53
Section 7.17 Site Leases and Consents......................................53
Section 7.18 Landlord Consents.............................................54
Section 7.19 Upgrade of Equipment..........................................54
Section 7.20 Subsidiary Guaranties and Security Agreements.................54
ARTICLE VIII. FINANCIAL COVENANTS................................................54
Section 8.1 Leverage Ratio................................................54
Section 8.2 Capitalization Ratio..........................................54
Section 8.3 Fixed Charge Coverage Ratio...................................54
Section 8.4 Capital Expenditures..........................................55
ARTICLE IX. NEGATIVE COVENANTS.................................................55
Section 9.1 Merger; Consolidation.........................................55
Section 9.2 Indebtedness..................................................55
Section 9.3 Liens.........................................................56
Section 9.4 Disposition of Assets.........................................58
Section 9.5 Investments...................................................59
Section 9.6 Restricted Payments...........................................60
Section 9.7 Transactions with Affiliates..................................61
Section 9.8 Lines of Business.............................................61
Section 9.9 Sale-Leaseback Transactions...................................61
Section 9.10 Increase in Senior Indebtedness...............................61
Section 9.11 Limitation on Certain Restrictions............................61
Section 9.12 Fiscal Year...................................................63
Section 9.13 Accounting Changes............................................63
Section 9.14 Inconsistent Agreements.......................................63
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ARTICLE X. EVENTS OF DEFAULT..................................................63
Section 10.1 Events of Default.............................................63
Section 10.2 Remedies on Default, Etc......................................66
Section 10.3 Other Remedies................................................67
Section 10.4 Rescission of Acceleration....................................67
Section 10.5 Notice by Holders.............................................68
ARTICLE XI. INDEMNIFICATION....................................................68
Section 11.1 Indemnification...............................................68
Section 11.2 Procedure; Notification.......................................69
Section 11.3 Registration Rights Agreement.................................70
ARTICLE XII. REDEMPTION.........................................................70
Section 12.1 Mandatory Redemption..........................................70
Section 12.2 Redemption at the Option of the Company.......................71
ARTICLE XIII. MISCELLANEOUS......................................................71
Section 13.1 Survival of Representations and Warranties....................71
Section 13.2 Notices.......................................................71
Section 13.3 Successors and Assigns........................................73
Section 13.4 Amendment and Waiver..........................................73
Section 13.5 Solicitation of Holders.......................................74
Section 13.6 Signatures; Counterparts......................................75
Section 13.7 Headings......................................................75
Section 13.8 Determinations, Requests or Consents..........................75
Section 13.9 GOVERNING LAW.................................................75
Section 13.10 JURISDICTION, JURY TRIAL WAIVER, ETC..........................75
Section 13.11 Severability..................................................76
Section 13.12 Rules of Construction.........................................76
Section 13.13 Entire Agreement..............................................76
Section 13.14 Certain Expenses..............................................76
Section 13.15 Publicity.....................................................77
Section 13.16 Registration of Note and Warrant..............................78
Section 13.17 Transfer and Exchange of Note.................................78
Section 13.18 Legend........................................................78
Section 13.19 Further Assurances............................................79
Section 13.20 Cumulative Powers.............................................79
Section 13.21 Obligations of the Holders....................................79
Section 13.22 No Strict Construction........................................79
Section 13.23 Equal Status..................................................79
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Exhibits
2.1 Form of Note
2.2 Form of Warrant
3.16 Form of Securityholders and Registration Rights Agreement
3.18 Form of Letter to Accountants
3.22 Form of Security Agreement
3.23 Form of Guaranty
7.2 Compliance Certificate
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of November 14, 2002, by and
between T-NETIX, Inc., a Delaware corporation (the "Company"), and Key Principal
Partners, LLC, an
Ohio limited liability company ("KPP").
WITNESSETH:
WHEREAS, the Company and its Subsidiaries (as hereafter defined) are
engaged in the business of providing inmate calling platform and related
services to correctional facilities throughout North America;
WHEREAS, the Company is interested in obtaining private debt funding
from KPP;
WHEREAS, KPP is willing to provide such private debt funding through
the purchase from the Company of (i) a senior subordinated promissory note due
November 14, 2008 in the principal amount of $9,000,000, and (ii) a warrant to
purchase 186,792 shares of common stock, par value $.01 per share, of the
Company (the "Common Stock"), in each case, upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Acquisition" shall mean any transaction or series of related
transactions, consummated on or after the date hereof, by which the Company
directly, or indirectly through one or more Subsidiaries, (i) acquires all or
any portion of any going business, division thereof or line of business, or all
or a material portion of the assets, of any Person, whether through purchase of
assets, merger or otherwise, or (ii) acquires securities or other ownership
interests of any Person having at least a majority of combined voting power of
the then outstanding securities or other ownership interests of such Person.
"Affiliate" shall mean with respect to any Person, a Person (a)
directly or indirectly controlling, controlled by, or under common control with,
such Person, (b) directly or indirectly owning or holding ten percent (10%) or
more of any Capital Stock in such Person or (c) ten percent (10%) or more of
whose voting stock or other Capital Stock is directly or indirectly owned or
held by such Person. For purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "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 and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Notwithstanding the foregoing, for purposes of this Agreement each of
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the Executive Managers and the Responsible Officers of Company and their
respective Affiliates (other than KPP and their respective Affiliates) shall
each be deemed to be an Affiliate of the Company.
"Agreement" shall mean this
Securities Purchase Agreement dated as of
November 14, 2002, by and between the Company and KPP, including the exhibits
and schedules attached hereto, as the same may be amended, supplemented or
modified in accordance with the terms hereof.
"Applicable Environmental Law" shall mean CERCLA, RCRA, 42 U.S.C.
Sections 6901 et seq., the Federal Waste Pollution Control Act, 33 U.S.C.
Sections 1261 et seq., the Clean Air Act, 42 U.S.C. Sections 7401 et seq., the
Toxic Substances Control Act, 42 U.S.C. Sections 2601 et seq, the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Sections 136-136y, any
similar provisions of state or local law in the countries and jurisdictions
where the properties of the Company are located and where the Company conducts
its business and the regulations thereunder and any other local, state and/or
federal laws, whether currently in existence or hereafter enacted, that govern:
(a) the existence, cleanup and/or remediation of contamination on real
property;
(b) the protection of the environment from spilled, deposited or
otherwise emplaced contamination;
(c) the control of hazardous wastes; or
(d) the use, generation, transport, handling, treatment, storage,
disposal, removal or recovery of Hazardous Materials, including building
materials.
"Asset Disposition" shall mean the disposition, whether by sale, issue,
lease or other transfer of any of the following: (a) any of the Capital Stock of
the Company or any of its Subsidiaries or (b) any or all of the assets of the
Company or any of its Subsidiaries other than cash, Permitted Investments,
accounts receivable, inventory and assets no longer used or useful in the
business of the Company and its Subsidiaries, and in the case of accounts
receivable and inventory, disposed of in the ordinary course of business
consistent with past practice of the Business.
"Business" shall mean the business of providing inmate calling platform
and related services to correctional facilities as conducted by the Company and
its Subsidiaries immediately prior to the Closing and the activities reasonably
related thereto.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in The City of Cleveland,
Ohio or Dallas,
Texas are authorized or required by law or executive order to close.
"By-laws" shall mean, unless the context in which such term is used
otherwise requires, the By-laws of each of the Company or any of its
Subsidiaries as in effect on the Closing Date.
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"Capital Expenditures" shall mean, for any period, the aggregate amount
(whether paid in cash or accrued as a liability) that would, in accordance with
GAAP, be included on the consolidated statement of cash flows of the Company and
its Subsidiaries for such period as additions to equipment, fixed assets, real
property or improvements or other capital assets, or replacements, substitutions
or additions thereto (including, without limitation, Capital Lease Obligations)
or any other payment which is otherwise required to be capitalized, including as
a cost the aggregate amount of expenses, charges, goods exchanged or services
rendered or payments due, or to become due, or arising in connection with the
direct or indirect acquisition of such equipment, fixed assets, real property,
improvements, replacements, substitutions or additions by way of increased
product or services charges or offset items or barter exchange, the entire
principal amount of any Indebtedness (including Capital Lease Obligations)
assumed or incurred in connection therewith, and expenditures pursuant to
clauses 9.5(k) and 9.5(l), in each case without duplication.
"Capital Lease Obligations" of any Person shall mean the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
consistently applied ("Capital Leases"). For the purposes of this Agreement, the
amount of such obligations at any time shall be the capitalized amount thereof
at such time determined in accordance with GAAP consistently applied. The
determination of Capital Lease Obligations at the relevant time of determination
with respect to the Company and its Subsidiaries shall be made on a consolidated
basis in accordance with GAAP consistently applied.
"Capital Stock" means (a) any capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person (whether voting or
non-voting, whether preferred, common or otherwise, and including any stock
appreciation, contingent interest or similar right), and (b) any option,
warrant, security or other right to convert or exchange any of the foregoing,
acquire directly or indirectly, any capital stock, partnership interest,
membership interests, beneficial interests or other equity ownership interest
described in clause (a) of this definition (including convertible debt
securities or any other evidence of Indebtedness that may be converted or
exchanged therefor.
"▇▇▇▇▇▇ Loan Agreement" means that certain Subordinated Loan Agreement
dated as of April 4, 2000, between the Company and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as amended.
"Cash Dividends" shall mean, with respect to any Person for any period,
all fixed and calculable cash dividend or similar payments on any Capital Stock
of such Person for such period.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sections 6901 et seq., as amended.
"Certificate of Incorporation" shall mean, as to a Person, unless the
context in which it is used shall otherwise require, the Certificate of
Incorporation (or equivalent or similar organizational documents) of such Person
as in effect on the Closing Date.
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"Change of Control" shall mean the occurrence of any of the following
after the Closing Date:
(i) one or more non-Affiliates assumes control of 20% or more
of the outstanding Shares of Capital Stock of the Company;
(ii) the directors of the Company and their Permitted
Transferees, singularly, or collectively, no longer own beneficially
and of record 66% or more of the outstanding shares of Common Stock of
the Company (on a fully diluted basis), held by all such directors as
reported in the Company's definitive proxy statement dated April 25,
2002;
(iii) the Executive Managers and their Permitted Transferees,
singularly or collectively, no longer own beneficially and of record,
80% or more of the outstanding shares of the Common Stock of the
Company (on a fully diluted basis) held by all such Executive Managers
as reported in the Company's definitive proxy statement dated April 25,
2002;
(iv) the board of directors of the Company shall not consist
of Continuing Directors;
(v) the acquisition of direct or indirect Control of the
Company by any Person or group other than any one or more Affiliates.
"Closing" shall have the meaning assigned to that term in Section 2.4.
"Closing Date" shall have the meaning assigned to that term in Section
2.4.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute thereto, and the regulations promulgated thereunder.
"Collateral Agent" shall have the meaning set forth in the Senior
Credit Agreement.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Commission" shall mean the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" shall have the meaning assigned to that term in the
recitals to this Agreement or any other Capital Stock of the Company into which
such stock is reclassified or reconstituted.
"Communications Law" means (a) the Communications Act of 1934, as
amended by the Telecommunications Act of 1996, any successor federal statute and
the rules and
4
regulations of the FCC thereunder and (b) any state law governing the provision
of telecommunications services and the rules and regulations of any PUC, all as
the same may be in effect from time to time.
"Company Program" shall mean any Employee Program ever maintained or
sponsored by the Company or any Subsidiary, or to which the Company or any
Subsidiary ever has any obligation to make a contribution, and, for purposes of
the definition of ERISA Event, any Employee Program maintained or sponsored by
any ERISA Affiliate, or to which any ERISA Affiliate has any obligations to
contribute.
"Compliance Certificate" shall mean the certificate or certificates to
be delivered pursuant to Section 7.2(a), substantially in the form attached
hereto as Exhibit 7.2.
"Consolidated" shall mean for any Person, as applied to any financial
or accounting term, such term determined on a consolidated basis in accordance
with GAAP (except as otherwise required herein) for such Person and all
Subsidiaries thereof.
"Consolidated Cash Interest Expense" means, with respect to any period,
the Consolidated Interest Expense of the Company and its Subsidiaries for such
period, but excluding to the extent otherwise included therein, (a) interest
expense to the extent not paid in cash (e.g., interest or dividends on
securities paid in additional securities, imputed interest, amortization of
original issue discount and/or by an addition to the accreted value thereof),
(b) amortization of discount, and (c) deferred financing costs.
"Consolidated Funded Debt" shall mean, as of any date of determination,
the aggregate (without duplication) of all Funded Debt of the Company and its
Subsidiaries as of such date, determined on a consolidated basis in accordance
with GAAP. For purposes of determining Consolidated Funded Debt as of any date,
each guaranty obligation of the Company and its Subsidiaries required to be
included in such determination shall be valued at the maximum aggregate
principal amount (whether or not drawn or outstanding) of the Indebtedness that
is the corresponding "primary obligation" (as such term is defined in the
definition of Contingent Obligation) as of such date; provided, however, that a
guaranty of the Company or any of its Subsidiaries of Funded Debt of the Company
or any of its Subsidiaries shall not constitute a separate incurrence of Funded
Debt to the extent such primary obligation is included in Consolidated Funded
Debt.
"Consolidated Interest Expense" means, with respect to any period, the
sum (without duplication) of the following (in each case, eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP): (a) all interest in respect of Indebtedness of the
Company and its Subsidiaries (including imputed interest on Capital Lease
Obligations) deducted in determining Consolidated Net Income for such period,
together with all interest capitalized or deferred during such period and not
deducted in determining Consolidated Net Income for such period, as such amounts
may be increased or decreased by the net income (or loss) from Interest Rate
Protection Agreements for such period, (b) all debt discount and expense
amortized or required to be amortized in the determination of Consolidated Net
Income for such
5
period; and (c) all commitment fees and other ongoing fees in respect of
Indebtedness (including the commitment fees provided for under this Agreement)
paid, accrued or capitalized during such period.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries for such period (taken as a
cumulative whole), as determined in accordance with GAAP, after eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP, provided that there shall be excluded:
(a) the income (or loss) of any other Person (other than a Consolidated
Subsidiary) in which the Company or any Subsidiary has an ownership interest,
except to the extent that any such income has been actually received by the
Company or such Subsidiary in the form of cash dividends or similar cash
distributions;
(b) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary or is merged into and consolidated with the Company or any
Subsidiary, and the income (or loss) of any Person substantially all of the
assets of which have been acquired in any manner, realized by such Person prior
to the date of acquisition;
(c) the undistributed earnings of any Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of its charter, certificate of
incorporation or formation or other constituent document or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Subsidiary;
(d) the aggregate net gain (but not any aggregate net loss) during such
period arising from the sale, conversion, exchange, or other disposition of
capital assets (such term to include, without limitation, (i) all non-current
assets and, without duplication, (ii) the following, whether or not current: all
fixed assets, whether tangible or intangible, all inventory sold in conjunction
with the disposition of fixed assets and all Equity Interests); and
(e) any income earned from the Company's Internet Services Division or
any other discontinued operations.
"Consolidated Net Worth" means, at any time,
(a) the sum of (i) the par value (or value stated on the books of the
Company) of the Equity Interests (but excluding treasury stock and Equity
Interests subscribed and unissued) of the Company and its Subsidiaries plus (ii)
the amount of the paid-in capital and retained earnings of the Company and its
Subsidiaries, in each case as such amount would be shown on a consolidated
balance sheet of the Company and its Subsidiaries as of such time prepared in
accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the Equity Interests and surplus
of Subsidiaries.
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"Consolidated Tangible Assets" shall mean, as of any date of
determination, all consolidated assets which would, in accordance with GAAP, be
classified on a consolidated balance sheet of the Company and its Subsidiaries
less goodwill and other intangible assets.
"Contingent Obligation" as to any Person shall mean the undrawn face
amount of any letters of credit issued for the account of such Person and shall
also mean any obligation of such Person guaranteeing or having the economic
effect of guaranteeing any Indebtedness, leases, dividends, letters of credit or
other obligations ("Primary Obligations") of any other Person (the "Primary
Obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (a) to
purchase any such Primary Obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such Primary Obligation or (ii) to maintain working capital or
equity capital of the Primary Obligor or otherwise to maintain the financial
condition or solvency of the Primary Obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the obligee under
any such Primary Obligation of the ability of the Primary Obligor to make
payment of such Primary Obligation or (d) otherwise to assure or hold harmless
the obligee under such Primary Obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the Primary Obligation or,
where such Contingent Obligation is specifically limited to a portion of any
such Primary Obligation, that portion to which it is limited or, if not stated
or determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Continuing Directors" means any Persons who were directors of the
Company on the Closing Date, and any other Persons subsequently elected as a
replacement for such Persons, or newly elected directors if, in each case, such
other director's nomination for election to the board of directors of the
Company is recommended or supported by a majority of the then Continuing
Directors.
"Contractual Obligations" shall mean as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument or arrangement (whether
in writing or otherwise) to which such Person is a party or by which it or any
of such Person's property is bound or subject.
"D&O Insurance Policy" shall mean an insurance policy in the amount of
$5,000,000 naming as beneficiaries all directors and officers of the Company for
the purpose of insuring such individuals from any and all liabilities arising by
reason of the fact that such director, executive officer serves the Company in
such capacity.
"Debt Documents" shall mean this Agreement, the Note, each Security
Agreement and each Guaranty.
"Default" shall mean any event or condition that, with the passage of
time or giving of notice, or both, would constitute an Event of Default.
7
"Default Rate" shall have the meaning assigned to that term in Section
2(b) of the Note.
"Disposition" shall mean with respect to any property, any sale, lease,
sale and leaseback, assignment, conveyance, transfer or other disposition
thereof. The terms "Dispose" and "Disposed of" shall have correlative meanings.
"Disqualified Capital Stock" shall mean, with respect to any Person,
any Capital Stock of such Person that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event or otherwise, (i) matures or is mandatorily
redeemable or subject to any mandatory repurchase requirement, pursuant to a
sinking fund obligation or otherwise, (ii) is redeemable or subject to any
mandatory repurchase requirement at the option of the holder thereof, or (iii)
is convertible into or exchangeable for (whether at the option of the issuer or
the holder thereof) (y) debt securities or (z) any Capital Stock referred to in
(i) or (ii) above, in each case under (i), (ii) or (iii) above at any time on or
prior to the 93rd day after the Subdebt Maturity Date; provided, however, that
only the portion of Capital Stock that so matures or is mandatorily redeemable
or repurchasable, is so redeemable or repurchasable at the option of the holder
thereof, or is so convertible or exchangeable on or prior to such date shall be
deemed to be Disqualified Capital Stock.
"EBITDA" means, in respect of any period, Consolidated Net Income for
such period, plus, to the extent deducted in the determination of Consolidated
Net Income for such period and without duplication, Consolidated Interest
Expense, depreciation, amortization, income taxes, and extraordinary losses, and
minus, to the extent deducted in the determination of Consolidated Net Income
for such period and without duplication, extraordinary gains calculated in
accordance with GAAP.
"Employee Program" shall mean any "employee benefit plan," within the
meaning of Section 3(3) of ERISA, whether or not it is subject to ERISA.
"Employees" shall mean officers, directors and employees who render
services to the Company or any of its Subsidiaries.
"Environmental Claims" shall mean any and all actions, suits, written
demands, demand letters, written claims, liens, written accusations, written
notices of noncompliance or violation, investigations (other than internal
reports prepared by any Person in the ordinary course of its business and not in
response to any third party action or request of any kind) or proceedings
(including, without limitation, administrative, regulatory and judicial
proceedings) relating in any way to any Hazardous Materials, any actual or
alleged violation of or liability under any Applicable Environmental Law or
relating to any actual or alleged violation of any permit issued, or any
approval given, under any Applicable Environmental Law (collectively, "Claims"),
including, without limitation, (i) any and all Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any Applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief in connection with any
Hazardous Materials or arising from alleged injury or threat of injury to human
health or the environment.
8
"Equipment" has the meaning assigned to it by the UCC.
"Equity Documents" shall mean the Warrant and the Securityholders' and
Registration Rights Agreement.
"Equity Interests" means (a) any capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person (whether voting or
non-voting, whether preferred, common or otherwise, and including any stock
appreciation, contingent interest or similar right), and (b) any option,
warrant, security or other right to convert or exchange any of the foregoing,
acquire directly or indirectly, any capital stock, partnership interest,
membership interests, beneficial interests or other equity ownership interest
described in clause (a) of this definition (including convertible debt
securities or any other evidence of Indebtedness that may be converted or
exchanged therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute and the regulations promulgated
thereunder.
"ERISA Affiliate" shall mean any entity that has ever been considered a
single employer with the Company under Section 4001(b) of ERISA or Section
414(b), (c), (m) or (o) of the Code.
"ERISA Event" shall mean any of the following with respect to Company
Programs or any Multiemployer Plan to which the Company, any Subsidiary or ERISA
Affiliate is obligated to make contributions, as applicable: (i) a Reportable
Event with respect to any Company Program or any such Multiemployer Plan, (ii) a
complete or partial withdrawal by the Company or any ERISA Affiliate from any
such Multiemployer Plan that results in liability under Section 4201 or 4204 of
ERISA, or the receipt by the Company or any ERISA Affiliate of notice from any
such Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA, (iii) the distribution by the Company or any ERISA
Affiliate under Section 4041 or 4041A of ERISA of a notice of intent to
terminate any Company Program or the taking of any action to terminate any
Company Program, (iv) the commencement of proceedings by the PBGC under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Company Program, or the receipt by the Company or any ERISA
Affiliate of a notice from any such Multiemployer Plan that such action has been
taken by the PBGC with respect to such Multiemployer Plan, (v) the institution
of a proceeding by any fiduciary of any such Multiemployer Plan against the
Company or any ERISA Affiliate to enforce Section 515 of ERISA, which is not
dismissed within thirty (30) days, (vi) the imposition upon the Company or any
ERISA Affiliate of any liability under Title IV of ERISA, other than for PBGC
premiums due but not delinquent under Section 4007 of ERISA, or the imposition
or threatened imposition of any Lien upon any assets of the Company or any ERISA
Affiliate as a result of any alleged failure to comply with the Internal Revenue
Code or ERISA in respect of any Company Program, (vii) the engaging in or
otherwise becoming liable for a nonexempt Prohibited Transaction by the Company
or any ERISA Affiliate or a breach of a fiduciary duty under ERISA that could
result in liability to the Company or any ERISA Affiliate, (viii) a violation of
the applicable requirements of Section 404 or 405 of ERISA or the exclusive
benefit rule under
9
Section 401(a) of the Internal Revenue Code by any fiduciary of any Company
Program for which the Company or any of its ERISA Affiliates may be directly or
indirectly liable, (ix) the adoption of an amendment to any Company Program
that, pursuant to Section 401(a)(29) of the Internal Revenue Code or Section 307
of ERISA, would result in the loss of tax-exempt status of the trust of which
such Company Program is a part if the Company or an ERISA Affiliate fails to
timely provide security to such Company Program in accordance with the
provisions of such sections; (x) the Company or any ERISA Affiliate has applied
for a waiver from the minimum funding requirements of Section 412 of the Code or
Section 302 of ERISA or the Company or any ERISA Affiliate is required to
provide security under Section 401(a)(29) of the Code or Section 307 of ERISA;
(xi) the existence of any condition or event with respect to a Company Plan
which presumes a risk of the imposition of any excise tax or any other liability
on the Company or any ERISA Affiliate; or (xii) a Company Plan (and any related
trust) which is intended to be qualified under Sections 401(a) or 501(a) fails
to be so qualified.
"Event of Default" shall have the meaning assigned to that term in
Section 10.
"Executive Manager Employment Agreements" shall mean the employment
agreements between the Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ dated September 1, 2002,
between the Company and ▇▇▇▇▇▇▇ ▇▇▇▇ dated September 1, 2002, between the
Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ dated June 27, 2001, between the Company and ▇▇▇▇▇▇
▇▇▇▇▇▇ dated January 1, 2002 and between the Company and ▇▇▇▇▇ ▇▇▇▇▇▇▇ dated May
1, 2002.
"Executive Managers" shall mean each of (i) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, (ii)
▇▇▇▇▇▇▇ ▇▇▇▇, (iii) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, (iv) ▇▇▇▇▇▇ ▇▇▇▇▇▇ and (v) ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
their respective Permitted Transferees.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations thereunder
as the same shall be in effect at the time.
"Exchange Rate" shall mean with respect to any Foreign Currency, at any
date of determination thereof, the spot rate of exchange in London that appears
on the display page applicable to such Foreign Currency on the Reuters System
(or such other page as may replace such page on such service for the purpose of
displaying the spot rate of exchange in London) for the conversion of such
Foreign Currency into currency of the United States of America; provided,
however, that if there shall at any time no longer exist such a page on such
service, the Exchange Rate shall be determined by reference to another similar
rate publishing service selected by Purchaser.
"Existing Bank Credit Agreement" means that certain Loan Agreement
dated as of September 9, 1999, among the Company, Bank One, NA, as Agent, and
the other lenders party thereto, as amended.
"FCC" means the Federal Communications Commission of the United States
of America, and any successor, in whole or in part, to its jurisdiction.
"FICA" shall mean the Federal Insurance Contribution Act, as amended.
10
"Financial Officer" shall mean, with respect to the Company, the chief
financial officer, vice president - finance, controller, or principal accounting
officer of the Company.
"Financial Statements" shall have the meaning set forth in Section
5.11.
"Fixed Charge Coverage Ratio" means, on any date, the ratio of (a)
EBITDA for the four fiscal quarter period of the Company ending on, or most
recently ended prior to, such date minus Capital Expenditures during such period
to (b) Fixed Charges for such period.
"Fixed Charges" means, with respect to any period, the sum of (a)
Consolidated Cash Interest Expense, (b) all payments of cash income taxes and
cash dividends, and (c) all payments of principal (including the payment of any
Indebtedness to General Electric Capital Corporation) in respect of Indebtedness
of the Company and its Subsidiaries (including the principal component of any
payments in respect of Capital Lease Obligations) paid or payable during such
period (other than the repayment of the Indebtedness on the Existing Bank Credit
Agreement and the ▇▇▇▇▇▇ Loan Agreement on the Effective Date) after eliminating
all offsetting debits and credits between the Company and its Subsidiaries and
all other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP.
"Foreign Subsidiary" means any Subsidiary that is organized under the
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"Funded Debt" shall mean, as to a particular Person at any particular
time, the sum of the following, calculated on a Consolidated basis and in
accordance with GAAP:
(a) all obligations for borrowed money (whether as a direct obligor on
a promissory note, bond, debenture or other similar instrument, as a
reimbursement obligor with respect to an issued letter of credit or similar
instrument, as an obligor under a Contingent Obligation in respect of borrowed
money, or as any other type of direct or contingent obligor); and (but without
duplication)
(b) all Capital Lease Obligations (other than the interest component of
such obligations).
"FUTA" shall mean the Federal Unemployment Tax Act, as amended.
"GAAP" shall mean United States generally accepted accounting
principles, as set forth in the statements, opinions and pronouncements of the
Accounting Principles Board, the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board, consistently applied
and maintained, as in effect from time to time (subject to the provisions of
Section 1.2).
"Governmental Authority" shall mean the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
or person exercising executive,
11
legislative, judicial, arbitral regulatory or administrative functions of or
pertaining to government, regulation or compliance.
"Guarantors" shall mean T-NETIX Telecommunications Services, Inc.,
Speakez, Inc., Telequip Labs, Inc., T-NETIX Internet Services, Inc. and T-NETIX
Monitoring Corporation.
"Guaranty" shall have the meaning assigned to that term in Section
3.23.
"Hazardous Materials" shall mean any substance which is identified as
"hazardous", "toxic", a "pollutant", "contaminant" or "waste", or otherwise
regulated under CERCLA or RCRA or which has been or shall be determined at any
time by any Governmental Authority agency or court to be a hazardous or toxic
substance under Applicable Environmental Law. The term "Hazardous Materials"
shall also include, without limitation, raw materials, building components
(including asbestos), the products of any manufacturing or other activities on
the properties, petroleum, polychlorinated biphenyl, and source, special nuclear
or by-product material as defined by the Atomic Energy Act of 1954, as amended
(42 U.S.C. Sections 3011 et seq., as amended).
"Hedge Agreement" shall mean all interest rate swaps, caps or collar
agreements or similar agreements or arrangements dealing with interest rates or
currency exchange rates or the exchange of nominal interest obligations, either
generally or under specific contingencies.
"Holder" or "Holders" shall mean the Purchaser and any permitted
transferee of the Note.
"Indebtedness" of any Person means, without duplication (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable or accrued liabilities incurred in the ordinary course of
business that (i) are not more than ninety (90) days overdue or (ii) that are
being withheld for good business reasons in the reasonable business judgment of
such Persons, or (iii) that are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP), (f) all Indebtedness of others secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property owned or acquired by such Person, whether or
not the Indebtedness secured thereby has been assumed, (g) all Contingent
Obligations by such Person of Indebtedness of others, (h) all Capital Lease
Obligations of such Person, (i) all obligations, contingent or otherwise, of
such Person as an account party in respect of letters of credit and letters of
guaranty, (j) all obligations, contingent or otherwise, of such Person in
respect of bankers' acceptances, (k) all net obligations with respect to Hedge
Agreements, (l) all obligations with respect to Disqualified Capital Stock
(other than the Warrant) with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to its maximum fixed repurchase price,
but excluding accrued dividends, if any (for the purposes hereof, the
12
"maximum fixed repurchase price" of any Disqualified Capital Stock that does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Agreement, and if such price is based upon, or measured by, the
fair market value of each issue of Disqualified Capital Stock, such fair market
value of each shall be determined reasonably and in good faith by the board of
directors or other governing body of the issuer of such Disqualified Capital
Stock), and (m) any obligation of such Person to pay any discount, interest,
fees, indemnities, penalties, recourse, expenses or other amounts in connection
with any sales by such Person unless such sales are on a non-recourse basis (as
to collectibility) of (i) accounts or general intangibles for money due or to
become due, (ii) chattel paper, instruments or documents creating or evidencing
a right to payment of money or (iii) other receivables (collectively
"receivables"), whether pursuant to a purchase facility or otherwise, other than
in connection with the disposition of the business operations of such Person
relating thereto or a disposition of defaulted receivables for collection and
not as a financing arrangement. The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such Person
is a general partner) to the extent such Person is liable therefor as a result
of such Person's ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness provide that such Person is
not liable therefor.
The "amount" or "principal amount" of any Indebtedness at any time of
determination represented by (i) any Indebtedness, issued at a price that is
less than the principal amount at maturity thereof or for which interest is
payable-in-kind, shall be the amount of the liability in respect thereof
determined in accordance with GAAP, but such Indebtedness shall be deemed to be
incurred only at the date of the original issuance for purposes of any debt
incurrence test, (ii) any Capitalized Lease shall be the principal component of
the aggregate of the rentals obligation under such Capitalized Lease payable
over the term thereof that is not subject to termination by the lessee, (iii)
any sale of receivables shall be the amount of unrecovered capital or principal
investment of the purchaser (other than the Company or any of its Subsidiaries)
thereof, excluding amounts representative of yield or interest earned on such
investment, and (iv) any Hedge Agreement shall be the maximum net amount of any
termination or loss payment required to be paid by such Person if such Hedge
Agreement were, at the time of determination, to be terminated by reason of any
event of default or early termination event thereunder, whether or not such
event of default or early termination event has in fact occurred.
"Insolvency Event" shall mean any dissolution, winding up, liquidation,
reorganization, arrangement, protection, relief or composition of the Company or
any of its Subsidiaries or their respective debts, whether voluntary or
involuntary, total or partial, or in bankruptcy, insolvency, receivership,
arrangement, reorganization, relief or other proceedings, or upon an assignment
for the benefit of creditors or any other marshalling of their respective assets
and liabilities.
"Intellectual Property" shall mean all technology, know-how and trade
secrets relating to or used in the business of the Company and its Subsidiaries,
including (i) the computer programs and software relating to or used in the
business of the Company and any of its Subsidiaries, together with the operating
codes, source codes, updates, upgrades, modifications, enhancements and any user
and technical documentation or utilities with respect
13
thereto, (ii) all patents, patent licenses and patent applications, copyrights
and copyright applications, trade secrets, proprietary information, proposals
and rights and other intellectual property rights relating to the business of
the Company and its Subsidiaries and (iii) all trademarks, trade names, service
marks and logos (including any registration and any application for registration
of any of the foregoing), relating to or used in the business of the Company and
its Subsidiaries.
"Intercreditor Agreement" means that certain Intercreditor and
Subordination Agreement dated as of November 14, 2002 by and among JPMorgan
Chase Bank, General Electric Capital Corporation and Key Principal Partners,
LLC.
"Interest Rate Protection Agreement" means an interest rate swap, cap,
collar or similar arrangement entered into to hedge interest rate risk (and not
for speculative purposes).
"Investments" shall have the meaning as set forth in Section 9.5 of
this Agreement.
"Investment Documents" shall mean the Debt Documents and the Equity
Documents.
"KPP" shall mean KPP and its permitted successors and assigns.
"Leverage Ratio" means, on any date, the ratio of (a) Total
Indebtedness to (b) EBITDA for the period of four consecutive fiscal quarters
ending on, or most recently ended prior to, such date.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other), charge, preference,
priority, right or other security interest or similar preferential arrangement
of any kind or nature whatsoever (excluding preferred stock and equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a Capital Lease Obligation, or any financing lease
having substantially the same economic effect as any of the foregoing.
"Mandatory Redemption Event" shall mean the earliest to occur of (i)
the Subdebt Maturity Date, (ii) the sale or other disposition in a single or a
series of related transactions of 25% or more of the assets of the Company and
its Subsidiaries, taken as a whole, and measured as of the date of such sale or
other disposition, (iii) a Change of Control and (iv) an Event of Default,
pursuant to which the Note has become due and payable, either automatically or
upon notice from the requisite Holders, as set forth in Section 10.1.
"Material Adverse Change" shall mean any material adverse change in the
condition (financial or otherwise), operations, business, properties, prospects
or assets of the Company, any of its Significant Subsidiaries or the Company and
its Subsidiaries, taken as a whole.
"Material Adverse Effect" shall mean a material adverse effect on (i)
the assets, business, properties, operations, condition (financial or otherwise)
or prospects of the Company
14
or any of its Significant Subsidiaries, individually, or the Company and its
Subsidiaries, taken as a whole, (ii) the ability of the Company or any of its
Subsidiaries to perform its obligations to the Purchaser or Holders under the
Investment Documents to which it is a party, (iii) the Transactions or (iv) the
rights or benefits available to the Purchaser or Holders under any Investment
Document.
"Material Contract" shall have the meaning set forth in Section 5.26.
"Material Customer" shall mean the ten (10) customers of the Company
and its Subsidiaries which accounted for the largest amount of gross sales to
the Company and its Subsidiaries during the seven (7) month period ended July
31, 2002.
"Material Supplier" shall mean the ten (10) suppliers of the Company
and its Subsidiaries of equipment, supplies and services accounting for the
greatest total purchases of such equipment, supplies and services by the Company
and its Subsidiaries during the seven (7) month period ended July 31, 2002.
"Modification" shall mean any amendment, restatement, replacement,
renewal, refinancing, extension, or modification of an agreement.
"Moody's" means ▇▇▇▇▇'▇ Investors Service, Inc.
"Multiemployer Plan" shall mean a "multiemployer plan" within the
meaning of Section 3(37) of ERISA.
"Net Cash Proceeds" of any Asset Disposition shall mean all cash
proceeds received by the Company or any of its Subsidiaries from any Asset
Disposition (including insurance proceeds, awards of condemnation, and payments
under Note or other debt securities received in connection with any Asset
Disposition), net of (a) all reasonable out-of-pocket fees, commissions and
other expenses actually incurred in connection with such Asset Disposition,
including the amount (estimated in good faith by such Person) of income,
franchise, sales and other applicable taxes required to be paid by such Person
in connection with or as a consequence of such Asset Disposition (after the
application of all available tax benefits), (b) any repayment of Indebtedness
that is required to be repaid by the Company in connection with or as a
consequence of such Asset Disposition to the extent otherwise permitted under
this Agreement and (c) any amount required to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP against
any liabilities associated with such Asset Disposition including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with any such Asset Disposition; provided, however, that
the amount of any such reserve, at the time that such reserve is no longer
required in accordance with GAAP and to the extent that such amount is not
actually applied to the liability for which it was reserved, shall be deemed to
be part of the Net Cash Proceeds of such Asset Disposition.
"Network" means a telecommunications system operated by the Company or
any of its Subsidiaries, including all equipment related thereto.
"Newco" has the meaning assigned to such term in Section 9.5.
15
"Note" shall mean the senior subordinated promissory note due November
13, 2008 to be issued to KPP by the Company pursuant to this Agreement together
with any portions thereof assigned or transferred.
"Obligations" shall mean all principal of and interest (including, to
the greatest extent permitted by law, post-petition interest) on the Note and
all fees, expenses, indemnities and other obligations owing, due or payable at
any time by the Company to the Purchaser or any other Person entitled thereto,
under this Agreement or any of the other Debt Documents, in each case whether
direct or indirect, joint or several, absolute or contingent, matured or
unmatured, liquidated or unliquidated, secured or unsecured, and whether
existing by contract, operation of law or otherwise.
"Observer" shall have the meaning assigned to that term in Section
7.15.
"Outstanding Borrowings" shall mean all Indebtedness of the Company and
its Subsidiaries for money borrowed that is outstanding at the relevant time of
determination.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, and any successor thereto.
"Permits" means all consents, licenses, notices, approvals,
authorizations, filings, orders, registrations, and permits required by any
Governmental Authority for the construction and operation of a Network or the
conduct of the business of the Company and its Subsidiaries.
"Permitted Asset Disposition" shall mean any disposition, exclusive of
any disposition permitted pursuant to Sections 9.4(a), 9.4(b), 9.4(c) or 9.4(d),
by the Company or any of its Subsidiaries of assets (including Capital Stock of
a Subsidiary including by means of merger or consolidation permitted hereunder),
a division or a line of business, at least 80% of the purchase price of which
shall be for cash, provided (a) that the value of such assets does not exceed
(i) together with all other Permitted Asset Dispositions during any period of 12
consecutive months, ten percent (10%) of Consolidated Tangible Assets and (ii)
at the time of determination taken with all other Permitted Asset Dispositions
subsequent to the Closing Date, twenty-five percent (25%) in the aggregate of
Consolidated Tangible Assets, in each case as set forth on the most recent
consolidated balance sheet of the Company and its Subsidiaries (determined in
accordance with GAAP); (b) the terms of such disposition are on an arms-length
basis and the Company receives proceeds at least equal to the fair market value
of such assets; and (c) no contingent liabilities will be incurred or assumed in
connection with such Permitted Asset Disposition which could reasonably be
expected to have a Material Adverse Effect.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States of America (or by
any agency thereof to the extent such obligations are backed by the full faith
and credit of the United States of America), in each case maturing within one
year from the date of acquisition thereof;
16
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, a rating of
"A-2" or better from S&P or "Prime-2" or better from ▇▇▇▇▇'▇;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 365 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts issued
or offered by, any domestic office of any commercial bank organized under the
laws of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $100,000,000 or
assets of at least $1,000,000,000; and
(d) fully collateralized repurchase agreements with a term of not more
than 90 days for securities described in clause (a) above and entered into with
a financial institution satisfying the criteria described in clause (c) above.
"Permitted Lien" shall have the meaning assigned to that term in
Section 9.3.
"Permitted Transferee" shall mean, with respect to any natural Person
who is a Executive Manager or director of the Company: (a) such Person's spouse
or children, any trust for such Person's benefit or the benefit of such Person's
spouse or children, or any corporation or partnership in which the direct and
beneficial owner of all of the equity interest is such natural Person or such
Person's spouse or children or any trust for the benefit of such Persons; and
(b) the heirs, beneficiaries, executors, administrators or personal
representatives of such natural Person upon the death of such Person or upon the
incompetency or disability of such Person for purposes of the protection and
management of such individual's assets.
"Person" shall mean any individual, firm, corporation, limited
liability company, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, Governmental Authority or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Preferred Stock," as applied to the Capital Stock of any Person, shall
mean Capital Stock of such Person of any class or classes (however designated)
that ranks prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of any other class of the Capital Stock of such
Person.
"Pro Forma Balance Sheet" shall mean the unaudited pro forma
consolidated balance sheet of the Company and its Subsidiaries to be delivered
pursuant to Section 3.14.
"Projections" shall mean the projections prepared by or on behalf of
the Company in connection with the Transactions and delivered to the Purchaser
on or before the Closing Date.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"PUC" means the public utilities commission for the state or any other
jurisdiction in which all or any portion of a Network is located or any business
of the Company
17
and its Subsidiaries is conducted, or any successor agency, and any successor,
in whole or in part, to its functions or jurisdictions.
"Purchaser" shall mean KPP and its permitted successors and assigns.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901 et seq.
"Redemption Price" shall have the meaning set forth in Article 12.
"Reference Period" with respect to any date of determination, shall
mean the period of four consecutive fiscal quarters of Company (or SPUSA and
NAP, if applicable) immediately preceding such date or, if such date is the last
day of a fiscal quarter, the period of four consecutive fiscal quarters ending
on such date.
"Regulatory Authorizations" means all approvals, authorizations,
licenses, filings, notices, registrations, consents, permits, exemptions,
registrations, qualifications, designations, declarations, or other actions or
undertakings now or hereafter made by, to or in respect of any
telecommunications Governmental Authority, including any certificates of public
convenience and all grants, approvals, licenses, filings and registrations from
or to the FCC or any PUC or under any Communications Law necessary in order to
enable the Company and its Subsidiaries to provide telecommunications service of
the type provided or proposed to be provided by any such Person.
"Regulatory Event" means any of the following events: (a) KPP or any of
its Affiliates becomes subject to regulation as a "carrier," a "telephone
company," a "common carrier," a "public utility" or otherwise under any
applicable law or governmental regulation, federal, state or local, solely as a
result of the transactions contemplated by this Agreement and the other
Transaction Documents or (b) the Company or its Subsidiaries becomes subject to
regulation by any Governmental Authority in any way that is materially different
from the regulation existing at the date hereof and that has a Material Adverse
Effect or (c) the FCC or any PUC issues an order revoking, denying or refusing
to renew, or recommending the revocation, denial or non-renewal of, any
Regulatory Authorization that has a Material Adverse Effect.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA.
"Required Holders" shall mean, at any time, the holders of the
outstanding Note representing at least a majority of the aggregate principal
amount of the Note then outstanding.
"Requirements of Law" shall mean as to any Person, provisions of the
Certificate of Incorporation and By-laws or other organizational or governing
documents of such Person, or any law, treaty, code, rule, regulation, right,
privilege, qualification, license or franchise or determination of any
Governmental Authority, in each case applicable or binding upon such Person or
any of such Person's property or to which such Person or any of such Person's
property is subject or pertaining to any or all of the transactions contemplated
or referred to herein.
18
"Responsible Officer" shall mean, with respect to the Company or any of
its Subsidiaries, the president, the chief executive officer, the chief
financial officer, any executive officer, or any other Financial Officer of the
Company or such Subsidiary, as the case may be, and any other officer or similar
official thereof responsible for the administration of the obligations of the
Company or such Subsidiary as the case may be in respect of this Agreement or
any other Debt Document.
"Restricted Payment" shall mean: (i) any dividend or other
distribution, direct or indirect, on account of any Capital Stock in the Company
or any of its Subsidiaries now or hereafter outstanding, except a dividend
payable solely in shares of such Capital Stock to the holders of that class;
(ii) any redemption, conversion, exchange, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
Capital Stock in the Company or any of its Subsidiaries now or hereafter
outstanding; (iii) any payment or prepayment of interest on, principal of,
premium, if any, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Indebtedness
subordinated to the Indebtedness existing pursuant to the Note and this
Agreement; (iv) any payment made to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of any Capital
Stock of the Company or any of its Subsidiaries now or hereafter outstanding;
(v) any payment under any non-compete agreement, except payments made under any
such non-compete agreement entered into between the Company or any Subsidiary of
the Company and any seller in connection with, and on or prior to the
consummation of, a permitted Acquisition (and also excluding from being a
Restricted Payment reasonable amounts paid in connection with bona-fide
employment and consulting services actually rendered); (vi) except such payments
which are permitted pursuant to this Agreement, every payment in connection with
any Investment; and (vii) every payment made by or on behalf of the Company or
any of its Subsidiaries (whether as repayment or prepayment of principal or as
interest or otherwise) or on or with respect to any obligation to repay
Indebtedness owing to any Affiliate of the Company or its Subsidiaries or to any
other holder of the Company's Capital Stock.
"Revcom" has the meaning assigned to such term in Section 9.5.
"Right-of-Way" means the Company or its Subsidiaries right, title and
interest in, to, over or under property located in any state or territory,
acquired or to be acquired by the Company or its Subsidiaries at any time for
Network purposes, and all such real and personal property interests as shall be
necessary to construct, install, operate and maintain the Company or its
Subsidiaries, including satellite rights, underground rights, access to and from
all such property and any such property or property rights now or hereafter
necessary to connect customers and service providers to the Network.
"SEC" shall mean the Securities and Exchange Commission.
"S&P" means Standard & Poor's.
"SEC Reports" with respect to any Person shall mean all forms, reports,
statements and other documents (excluding exhibits, annexes, supplements and
amendments to such documents) required to be filed by it, or sent or made
available by it to its security holders,
19
under the Exchange Act, the Securities Act, any national securities exchange or
quotation system or comparable Governmental Authority.
"Securities" shall mean, collectively, the Note and the Warrant.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations thereunder as the
same shall be in effect at the time.
"Securityholders' and Registration Rights Agreement" shall mean the
Securityholders' and Registration Rights Agreement substantially in the form
attached hereto as Exhibit 3.16.
"Senior Credit Agreement" shall mean the Credit Agreement dated as of
November 14, 2002 among the Company, JPMorgan Chase Bank, as Collateral Agent,
and the lenders from time to time parties thereto, as the same may be amended,
restated, or otherwise modified from time to time and including any extensions,
renewals, increases, and replacements thereof, including, without limitation,
any Replacement Credit Agreement (as defined in the Intercreditor Agreement).
"Senior Debt Documents" shall mean (i) the Senior Credit Agreement,
(ii) the Intercreditor Agreement (iii) the Security Documents, (as defined in
the Senior Credit Agreement (as in effect on the Closing Date)); and (iv) all
other instruments, documents and agreements delivered or to be delivered by any
one or more of the parties to the Senior Credit Agreement in connection with the
closing of, or pursuant to, the Senior Credit Agreement as the same may be
amended, modified, supplemented, renewed, restated, replaced or refinanced
except as prohibited by this Agreement.
"Senior Indebtedness" shall mean "Senior Debt" as defined in the
Intercreditor Agreement.
"Significant Subsidiary" shall have the meaning assigned to such term
in Section 210.1-02(w) of Regulation S-X promulgated under the Exchange Act.
"Site" means any site where Equipment is located, excluding
correctional facilities.
"Site Leases" means collectively, all leases, subleases, tower leases,
co-location agreements, license agreements, easements, use agreements,
privileges, access agreements, Right-of-Way Agreements and all other agreements
relating to the use by the Company or its Subsidiaries of any Site.
"Software" means any software now or hereafter owned by, or licensed
to, the Company or its Subsidiaries or with respect to which such Person has or
may have license or rights.
"Solvent" when used with respect to any Person, means that, as of any
date of determination, (i) the amount of the "present fair saleable value" of
the assets of such Person
20
will, as of such date, exceed the amount of all "liabilities of such Person,
contingent or otherwise," as of such date, as such quoted terms are determined
in accordance with applicable federal and state laws governing determinations of
the insolvency of debtors, (ii) the present fair saleable value of the assets of
such Person will, as of such date, be greater than the amount that will be
required to pay the liability of such Person on its debts as such debts become
absolute and matured, (iii) such Person will not have, as of such date, an
unreasonably small amount of capital with which to conduct its business, taking
into account the particular capital requirements of such Person and its
projected capital requirements and availability, and (iv) such Person will be
able to pay its debts as they mature. For purposes of this definition, (i)
"debt" means liability on a "claim," and (ii) "claim" means any (x) right to
payment, whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, secured or unsecured.
"Subdebt Maturity Date" shall mean November 13, 2008.
"Subsidiary(ies)" means, with respect to any Person (the "parent") at
any date, any corporation, limited liability company, partnership, association
or other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent (other than Newco
unless Newco satisfies the criteria set forth in clause (a) hereof or Newco is
otherwise required to be consolidated as a subsidiary of the Company in
preparing the consolidated financial statements of the Company and its
subsidiaries in accordance with GAAP).
"Tax" shall mean any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise profits, withholding (including
FICA), social security (or similar), unemployment (including FUTA), disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on-minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Telecommunications Equipment" means all telecommunications equipment,
switches, electronics, transmitting equipment, Software, fiber-optic cables, and
other cabling, hardware, devices and components, now or hereafter owned by the
Company or its Subsidiaries, and any and all additions, substitutions and
replacements to or of any of the foregoing, together with attachments,
components, parts, improvements, upgrades and accessions installed thereon and
affixed thereto.
21
"Term Loan" shall have the meaning as set forth in the Senior Credit
Agreement.
"Total Capitalization" means, at any time, the sum of Consolidated Net
Worth and Total Indebtedness.
"Total Indebtedness" means, as of any date of determination, the total
Indebtedness of the Company and its Subsidiaries on such date, after eliminating
all offsetting debits and credits between the Company and its Subsidiaries and
all other items required to be eliminated in the preparation of consolidated
financial statement of the Company and its Subsidiaries in accordance with GAAP.
"Total Voting Power" shall mean, with respect to any Person, the total
number of votes which may be cast in the election of directors or members of the
governing body of such Person at any meeting of equity holders of such Person if
all securities entitled to vote in the election of directors or members of the
governing body of such Person (on a fully diluted basis, assuming the exercise,
conversion or exchange of all rights, warrants, options and securities
exercisable for, exchangeable for or convertible into, such voting securities
then presently exercisable, convertible or exchangeable) were present and voted
at such meeting (other than votes that may be cast only upon the happening of a
contingency).
"Transaction Documents" shall mean collectively, the Investment
Documents, the Senior Debt Documents and any other instruments or agreements to
be executed or delivered by any one or more of the parties to any of the
foregoing in connection therewith.
"Transactions" shall mean, collectively, (i) the incurrence on the
Closing Date of Indebtedness under the Senior Debt Documents, (ii) the issuance
of the Securities hereunder and (iii) the payment of all fees and expenses in
connection with the foregoing.
"UCC" means the Uniform Commercial Code, as in effect in the State of
Ohio.
"US Dollar Equivalent" shall mean (i), with respect to any amount
denominated in lawful currency of the United States of America, that amount and
(ii), with respect to any amount denominated in any currency other than lawful
currency of the United States of America (a "Foreign Currency") and at any time,
the amount obtained by multiplying that amount by the Exchange Rate.
"Warrant" shall mean the Warrant to purchase 1% of the outstanding
Common Stock calculated as of the Closing Date to be issued to KPP by the
Company pursuant to this Agreement.
"Wholly Owned" shall mean, with respect to any Subsidiary of any
Person, that 100% of the outstanding Capital Stock of such Subsidiary is owned,
directly or indirectly, by such Person.
Section 1.2 Accounting Terms; Financial Statements. All accounting
terms used herein and not expressly defined in this Agreement shall have the
respective meanings given to them in conformance with GAAP. Financial statements
and other financial information furnished after the date hereof pursuant to this
Agreement or the other Investment Documents
22
shall be prepared in accordance with GAAP as in effect at the time of such
preparation, provided, however, that no "Accounting Changes" (as defined below)
shall be taken into account in determining compliance with the financial
covenants, or determinations contained in this Agreement until this Agreement
has been amended to take into account such Accounting Changes. The Company shall
prepare footnotes to each Compliance Certificate and the financial statements
required to be delivered hereunder that show the differences between the basis
for calculating financial covenant compliance (the calculation of financial
covenant compliance shall not be based upon nor reflect such Accounting Changes)
and the financial statements delivered (which shall reflect such Accounting
Changes). "Accounting Changes" means: (i) changes in accounting principles
required by GAAP and implemented by the Company; and (ii) changes in accounting
principles recommended by the Company's certified public accountants and
implemented by the Company.
Section 1.3 Knowledge of the Person. All references to the knowledge of
any Person or to facts known by such Person shall mean the knowledge or notice
of the Responsible Officers of such Person or any of its Subsidiaries. In
addition, all references to the knowledge of the Company or to facts known to
the Company or which the Company is aware shall include the knowledge or notice
of, the Responsible Officers of the Company and the Executive Managers.
Section 1.4 Other Definitional Provisions.
(a) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, (i) the words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation"
and (ii) the words "asset" and "property" shall be construed to have the same
meaning and effect and to refer to any and all tangible and intangible assets
and properties, including cash, Capital Stock, securities, revenues, accounts,
leasehold interests and contract rights.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE II.
PURCHASE AND SALE OF THE SECURITIES
Section 2.1 Purchase and Sale of the KPP Note. Subject to the terms and
conditions herein set forth, the Company agrees that it will issue and sell to
KPP, and KPP agrees that it will acquire from the Company on the Closing Date,
the Note substantially in the form attached hereto as Exhibit 2.1. The purchase
price of the Note shall be $8,533,020.00.
23
Section 2.2 Purchase and Sale of the KPP Warrant. Subject to the terms
and conditions herein set forth, the Company agrees that it will issue and sell
to KPP, and KPP agrees that it will acquire from the Company on the Closing
Date, the Warrant substantially in the form attached hereto as Exhibit 2.5. The
purchase price for the Warrant shall be $466,980.00.
Section 2.3 Fees at Closing. Concurrently with the execution hereof,
the Company shall (a) pay to KPP, $105,000 (reflecting a facility fee of
$180,000 less $75,000 previously paid by the Company), and (b) reimburse all of
KPP's reasonable out-of-pocket expenses (including, without limitation,
reasonable fees, charges and disbursements of counsel to KPP) incurred in
connection with (i) the negotiation and execution and delivery of this Agreement
and the Transaction Documents and KPP's due diligence investigation; and (ii)
the transactions contemplated by this Agreement and the Transaction Documents,
which payments shall be made by wire transfer of immediately available funds to
an account or accounts designated by KPP.
Section 2.4 Closing. The purchase and issuance of the Securities shall
take place at the closing (the "Closing") to be held at a location mutually
agreed to among the parties, on November 14, 2002 (the "Closing Date"). At the
Closing, the Company shall deliver to KPP (i) the Note and (ii) the Warrant, in
both cases, against delivery by KPP to the Company of the purchase price
therefor. Payment of the purchase price shall be by wire transfer of immediately
available funds to an account or accounts previously designated in writing by
the Company.
Section 2.5 Financial Accounting Positions; Tax Reporting. The parties
agree that the purchase price of the Securities set forth herein reflects their
relative fair market values. Accordingly, each of the parties to this Agreement
agrees to take reporting and other positions with respect to the Securities
which are consistent with the purchase price of the Securities set forth herein
for all purposes, including without limitation, for all financial accounting
purposes and for all federal, state and local tax purposes. The Company will
indemnify and hold KPP harmless from and against any and all losses, liabilities
and expenses, including without limitation, reasonable attorneys' fees and
additional income taxes, interest, penalties and additional tax that may be
incurred by KPP (or any of its equity holders) as a result of the failure of the
Company to so report and take other positions consistent with the purchase price
of the Securities set forth herein.
24
ARTICLE III.
CONDITIONS TO THE OBLIGATIONS
OF KPP TO PURCHASE THE SECURITIES
The obligations of KPP to purchase the Note and the Warrant, to pay the
purchase price therefor at the Closing and to perform any obligations hereunder
shall be subject to the satisfaction as determined by, or waiver by, KPP of the
following conditions on or before the Closing Date; provided, however, that any
waiver of a condition shall not be deemed a waiver of any breach of any
representation, warranty, agreement, term or covenant or of any
misrepresentation by the Company.
Section 3.1 Representations and Warranties. The representations and
warranties of the Company contained in Article 5 hereof shall be true and
correct at and as of the Closing Date as if made at and as of such date except
to the extent that any such representation or warranty is expressly stated to
have been made as of a specific date, in which case such representation or
warranty shall be true and correct as of such date. There shall exist no Default
or Event of Default at the time of the issuance of the Note and the Warrant and
after giving effect to the Transactions. KPP shall have received at the Closing,
a certificate to the foregoing effect, dated as of the Closing Date, and
executed by a Responsible Officer of the Company.
Section 3.2 Compliance with this Agreement. The Company and each of its
Subsidiaries shall have performed and complied with all of the agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by the Company and its Subsidiaries on or before the Closing Date,
and KPP shall have received at the Closing, a certificate to the foregoing
effect, dated as of the Closing Date, and executed by a Responsible Officer of
the Company.
Section 3.3 Secretary's Certificates. KPP shall have received a
certificate from the Company and each of its Subsidiaries, dated as of the
Closing Date and signed by the Secretary or an Assistant Secretary of the
Company and each of its Subsidiaries, respectively, certifying (i) that the
attached copies of the Certificate of Incorporation and By-laws of the Company
(or similar organizational or governing documents), and resolutions of the Board
of Directors of the Company approving the Transaction Documents and the
transactions contemplated thereby are all true, complete and correct and remain
unamended and in full force and effect, (ii) that the attached copies of the
executed Senior Debt Documents, are all true, complete and correct and remain
unamended and in full force and effect, (iii) that attached are certificates
issued by the appropriate governmental authorities, evidencing as of a date not
more than 7 Business Days prior to the Closing Date the good standing and, where
available, tax status of the Company in its jurisdiction of incorporation or
organization and in all other jurisdictions where it is qualified to do business
as a foreign corporation, (iv) the incumbency and specimen signature of each
officer of the Company executing any Transaction Document on behalf of the
Company and (v) as to any other matters reasonably requested by Purchaser.
Section 3.4 Documents. KPP shall have reviewed and approved in its sole
discretion all of the Transactions Documents, including without limitation,
final versions of (a) due diligence reports (including, but not limited to,
accounting, information technology, environmental, tax and legal reports) on the
Company and its Subsidiaries from KPMG, (b) a
25
review of the insurance coverage of the Company and its Subsidiaries from St.
▇▇▇▇ Insurance Company, and (c) the Projections (as defined in Section 5.11(d)
of this Agreement). There shall not have been any material modification,
amendment, supplement or waiver to the Transactions Documents without the prior
written consent of Purchaser, including, but not limited to, any modification,
amendment, supplement or waiver relating to the amount or type of consideration
to be paid in connection with the Transactions and the contents of all
disclosure schedules and exhibits. The elements of the Transactions constituting
the closing shall have been consummated in accordance with the terms of the
Transactions Documents (without waiver of any conditions precedent to the
obligations of KPP).
Section 3.5 Purchase of Securities Permitted by Applicable Laws. The
acquisition of and payment for the Securities and the consummation of the
Transactions (a) shall not be prohibited by any Requirement of Law, (b) shall
not subject KPP to any penalty or other onerous condition under or pursuant to
any Requirement of Law, and (c) shall be permitted by all Requirements of Law to
which KPP or the Transactions are subject; and KPP shall have received such
certificates or other evidence as they may reasonably request to establish
compliance with this condition.
Section 3.6 Opinions of Counsel. KPP shall have received:
(a) an opinion of outside counsel to the Company and its Subsidiaries,
dated as of the Closing Date, relating to the Investment Documents and the
transactions contemplated therein in form and substance reasonably acceptable to
KPP;
(b) an opinion of outside counsel to the Company and its Subsidiaries,
dated as of the Closing Date, addressed to the Senior Lender and relating to the
Senior Debt Documents, on which KPP shall be entitled to rely; and
(c) an opinion of ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇ LLP, regulatory counsel for the
Company and its Subsidiaries.
Section 3.7 Approval of Counsel to KPP. All actions and proceedings
hereunder and all agreements, schedules, exhibits, certificates, financial
information, filings and other documents required to be delivered by the Company
and each of its Subsidiaries hereunder or in connection with the consummation of
the transactions contemplated hereby, and all other related matters, shall have
been in form and substance reasonably acceptable to counsel to KPP.
Section 3.8 Consents and Approvals. Except as set forth on Schedule
3.8, all governmental and third-party consents and approvals necessary in
connection with the offer, sale and issuance of the Note, the Warrant and the
other Transactions, shall have been obtained and remain in full force and effect
and shall be satisfactory to KPP; all applicable waiting periods shall have
expired without any action being taken or threatened by any competent authority
and no Requirement of Law shall be applicable, or event shall have occurred,
that seeks to enjoin, restrain, restrict, set aside or prohibit, or impose
materially adverse conditions upon, the issuance of the Note or any of the other
Transactions.
Section 3.9 No Material Judgment or Order. There shall not be in effect
on the Closing Date any judgment, injunction or order of a court of competent
jurisdiction or any ruling
26
of any Governmental Authority or any condition imposed under any Requirement of
Law which, in the sole and exclusive judgment of KPP, would prohibit the
purchase of the Securities hereunder or subject KPP to any penalty or other
onerous condition under or pursuant to any Requirement of Law if the Securities
were to be purchased hereunder.
Section 3.10 Material Adverse Change. There shall not have occurred at
any time since June 30, 2002, (i) any Material Adverse Change or (ii) any event,
development or circumstance that has had or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
Section 3.11 No Litigation. No action, suit, proceeding or
investigation shall have been instituted or threatened before, and no order,
injunction or decree shall have been entered by, any Governmental Authority, in
each case seeking to enjoin, restrain, restrict, set aside or prohibit, to
impose material conditions upon, or to obtain substantial damages in respect of,
the issuance of the Securities, the transactions contemplated by the Senior
Credit Agreement or any of the other Transactions or that reasonably could be
expected to have a Material Adverse Effect.
Section 3.12 Consummation of the Transactions. On the Closing Date:
(a) KPP shall be satisfied with (i) the corporate and capital structure
of the Company and its Subsidiaries and the management of the Company and its
Subsidiaries after giving effect to the Transactions, (ii) with all legal, tax
and accounting matters relating to the Transactions or to the Company and its
Subsidiaries after giving effect thereto, and (iii) with all documentation
relating to the Transactions;
(b) the Company shall have received net cash proceeds or commitments of
not less than $14,000,000 under the Senior Credit Agreement as follows: (i) term
loan in the principal amount of $14,000,000, of which the entire amount shall be
outstanding upon the Closing, and (ii) a $8,000,000 revolving credit facility,
under which not more than $0.00 shall be outstanding upon Closing and not less
than $3,000,000 shall be available for borrowing as of the Closing Date, all on
terms and conditions (including, without limitation, interest, maturity,
covenants, default, permitted indebtedness and acceleration), and pursuant to
documentation, satisfactory to KPP;
(c) there shall have been delivered to KPP true and correct copies of
all documents entered into in connection with the Transactions (including,
without limitation, Senior Debt Documents), all of the terms and conditions of
such documents shall be in form and substance reasonably satisfactory to KPP,
and each of such documents, in the form previously delivered to and determined
to be satisfactory by KPP, shall be in full force and effect; and
(d) KPP shall have received satisfactory evidence that (i) all
Indebtedness under the Existing Bank Credit Agreement and the ▇▇▇▇▇▇ Loan
Agreement shall have been repaid in full, (ii) all commitments under such
agreements have terminated and (iii) all Liens on any Collateral securing any
such Indebtedness shall have been released.
27
Section 3.13 Financial Condition. The Company shall have delivered to
KPP evidence that, as of September 30, 2002 on a pro forma basis after giving
effect to the Transactions:
(a) Consolidated EBITDA for the immediately prior twelve-month period
is not less than $14,500,000 as adjusted in a manner reasonably acceptable to
KPP; and
(b) the total Consolidated Funded Debt of the Company and its
Subsidiaries is equal to or less than $23,000,000 (plus miscellaneous items of
Indebtedness (other than Capital Leases) acceptable to KPP), of which amount no
more than $22,000,000 is senior in right of payment or otherwise to the Note.
Section 3.14 Pro Forma Financial Statements; Projections. The Company
shall have delivered to KPP as of the Closing Date (i) an unaudited pro forma
consolidated balance sheet (the "Pro Forma Balance Sheet") of the Company and
its Subsidiaries, certified by the Chief Financial Officer of the Company to the
effect that such financial statements fairly present the financial position and
pro forma EBITDA (on a trailing 12-month basis) results of operations of the
Company and its Subsidiaries after giving effect to the pro forma adjustments
reflecting the consummation of the Transactions, as of the last day of the month
most recently ended prior to the Closing Date; provided, however, that if the
Closing Date occurs on or before the 20th day of the month in which the Closing
occurs, then the Pro Forma Financial Statements shall be dated as of the last
day of the next prior month and (ii) projected consolidated balance sheets and
statements of income and cash flow of the Company and its Subsidiaries, prepared
on an annual basis through December 31, 2006 (the "Projections"), all of which
shall be in form and substance satisfactory to KPP.
Section 3.15 Securities. The Securities shall have been duly executed
and delivered by the Company.
Section 3.16 Securityholders' and Registration Rights Agreement. The
Securityholders' and Registration Rights Agreement, substantially in the form
attached hereto as Exhibit 3.16, shall have been duly executed and delivered by
all of the parties thereto.
Section 3.17 Solvency Certificate; Insurance Certificates. On the
Closing Date, KPP shall have received:
(a) a certificate from a Financial Officer of the Company in form and
substance acceptable to KPP to the effect that, on the Closing Date and after
giving effect to the Transactions, the Company individually is, and the Company
and its Subsidiaries, taken as whole, are Solvent, which certificate shall be in
full force and effect on the Closing Date and shall provide that KPP shall be
entitled to rely thereon; and
(b) evidence of insurance complying with the requirements of Section
7.8 for the business and properties of the Company and its Subsidiaries.
Section 3.18 Letter to Accountants. On or prior to the Closing Date,
the Company shall use reasonable efforts to provide KPP with a copy of the
letter, substantially in
28
the form attached hereto as Exhibit 3.19, delivered by the Company to its
independent certified public accountants pursuant to Section 7.9.
Section 3.19 Senior Credit Agreement. The Senior Credit Agreement shall
have been duly executed by each party thereto and shall be in full force and
effect. On the Closing Date, each Lender under the Senior Credit Agreement shall
make the advances required thereunder to be made on the Closing Date in the full
amount contemplated therein, pay associated fees and expenses, all on terms and
conditions reasonably satisfactory to KPP.
Section 3.20 Fees, Etc. On the Closing Date, the Company shall have
paid to KPP all costs, fees and expenses (including, without limitation, legal
fees and expenses) payable to KPP.
Section 3.21 D&O Insurance. The Company shall have obtained a D&O
Insurance Policy satisfactory to KPP and naming KPP, in its capacity as an
observer of the Board of Directors of the Company, as an additional insured.
Section 3.22 Security Agreements. The Company and each Guarantor shall
have (a) delivered to KPP a security agreement (the "Security Agreement") in the
form attached hereto as Exhibit 3.22, and (b) authorized the filing of U.C.C.
Financing Statements pursuant to the Security Agreement.
Section 3.23 Guarantors. Each Guarantor shall have delivered to KPP a
Guaranty (the "Guaranty") in the form attached hereto as Exhibit 3.23.
ARTICLE IV.
CONDITIONS TO THE OBLIGATIONS
OF THE COMPANY TO ISSUE AND SELL THE SECURITIES
The obligations of the Company to issue and sell the Securities and to
perform its other obligations hereunder relating thereto shall be subject to the
reasonable satisfaction as determined by, or waived by, the Company of the
following conditions on or before the Closing Date:
Section 4.1 Representations and Warranties. The representations and
warranties of KPP contained in Article 6 hereof shall be true and correct at and
as of the date hereof and the Closing Date as if made at and as of such date.
Section 4.2 Compliance with this Agreement. KPP shall have performed
and complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by KPP on or before
the Closing Date.
29
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce KPP to enter into this Agreement and to purchase the
Securities, the Company hereby represents and warrants to KPP before and after
giving effect to the Transactions, as of the date hereof:
Section 5.1 Corporate Existence and Power. The Company and each of its
Subsidiaries (a) is duly organized validly existing and in good standing under
the laws of the jurisdiction of its incorporation, formation or organization, as
the case may be, (b) has all requisite corporate power and authority, and the
legal right, to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged, (c) is duly qualified as a foreign entity, licensed and
in good standing under the laws of each jurisdiction where its ownership, lease
or operation of property or the conduct of its business requires such
qualification, except to the extent that the failure to so qualify could not
have, individually or in the aggregate, a Material Adverse Effect and (d) has
the power and authority to execute, deliver and perform its obligations under
each Transaction Document to which it is or will be a party. True, correct and
complete copies of the Certificate of Incorporation and By-Laws of the Company
and each of its Subsidiaries have been delivered to KPP and the Certificate of
Incorporation and By-Laws are in full force and effect. Schedule 5.1 contains a
true, complete and correct list of each jurisdiction where the Company's or any
of its Subsidiaries is qualified to do business as a foreign entity as of the
date of this Agreement.
Section 5.2 Authorization; No Contravention. The execution, delivery
and performance by the Company and its Subsidiaries of this Agreement and each
other Investment Document to which it is or will be a party and the consummation
of the transactions contemplated thereby, including, without limitation, the
issuance of the Securities (a) has been duly authorized by all necessary action
of the Company and its Board of Directors and shareholders, (b) do not and will
not contravene or violate the terms of the Certificate of Incorporation or
By-Laws of the Company, or any Requirement of Law applicable to such Person or
such Person's assets, business or properties; (c) do not and will not (with or
without the giving of notice or the lapse of time or both), (i) conflict with,
contravene, result in any violation or breach of or default under any
Contractual Obligation of the Company or its Subsidiaries (ii) create in any
other Person a right or claim of termination or amendment of any Contractual
Obligation of the Company or its Subsidiaries, or (iii) require or permit
modification, acceleration or cancellation of any Contractual Obligation of the
Company or any of its Subsidiaries, except to the extent that such conflict,
including the conflicts listed on Schedule 5.2, contravention, violation,
breach, default, termination, amendment, modification, acceleration or
cancellation could not reasonably be expected to have a Material Adverse Effect;
and (d) do not and will not (with or without the giving of notice or the lapse
of time or both), result in the creation of any Lien (or obligation to create a
Lien) against any property, asset or business of the Company or any of its
Subsidiaries, other than Liens under the Senior Debt Documents.
Section 5.3 Governmental Authorization; Third Party Consents. No
approval, consent, compliance, exemption, authorization or other action by, or
notice to, or filing with or in
30
respect of, any Governmental Authority or any other Person in respect of any
Requirement of Law or Contractual Obligation, and no lapse of a waiting period
under a Requirement of Law or Contractual Obligation, is necessary or required
in connection with the execution, delivery or performance by (including, without
limitation, the payment of interest on the Note and the issuance of shares of
Capital Stock upon the exercise of the Warrant), or enforcement against the
Company or any of its Subsidiaries of the Transaction Documents to which it is a
party or the consummation of the transactions contemplated thereby, except
consents, authorizations, filings and notices described in Schedule 5.3, which
consents, authorizations, filings and notices have been obtained or made and are
in full force and effect or in respect of which the failure to obtain could not
be reasonably expected to have a Material Adverse Effect.
Section 5.4 Binding Effect. The Company and its Subsidiaries have duly
executed and delivered this Agreement and the other Investment Documents to
which it is a party and this Agreement and the other Investment Documents
constitute, and upon execution will constitute, the legal, valid and binding
obligation of the Company and its Subsidiaries enforceable against the Company
and its Subsidiaries in accordance with their respective terms.
Section 5.5 Litigation. There are no legal actions, suits, proceedings,
claims or disputes pending or threatened, at law, in equity, in arbitration or
before any Governmental Authority against or affecting the Company, any of its
Subsidiaries or the Business other than those matters set forth on Schedule 5.5
which matters, if determined adversely, would individually or in the aggregate
be reasonably likely to have a Material Adverse Effect. No injunction, writ,
temporary restraining order, decree or any order or determination of any nature
by any arbitrator, court or other Governmental Authority is in effect purporting
to enjoin or restrain the execution, delivery or performance of the Transaction
Documents.
Section 5.6 Compliance with Laws. Except as set forth in Schedule 5.6,
the Company and its Subsidiaries, with respect to the Business, has timely filed
all reports, documents and other materials required to be filed by it under all
applicable Requirements of Law with any Governmental Authority, has retained all
records and documents required to be retained by it under all applicable
Requirements of Law, and is otherwise in compliance with all applicable
Requirements of Law in respect of the conduct of its business and the ownership
and operation of its properties, except for such Requirements of Law in respect
of which the failure to comply, individually or in the aggregate, could not be
reasonably likely to have a Material Adverse Effect and the Company, nor any of
its Subsidiaries or has not received notice from any Governmental Authority of a
violation of any Requirement of Law, except to the extent such notice or
violations would not be reasonably likely to have a Material Adverse Effect.
Section 5.7 No Default or Breach. No event has occurred and is
continuing or would result from the incurring of obligations by the Company and
its Subsidiaries under the Transaction Documents which constitutes or, with the
giving of notice or lapse of time or both, would constitute an Event of Default.
Neither the Company, nor any of its Subsidiaries is or, with the giving of
notice or the lapse of time or both will be, in default under or with respect to
any Contractual Obligation which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
31
Section 5.8 Title to Properties.
(a) Schedule 5.8(a) contains a true, complete and correct list of all
real property owned by the Company and its Subsidiaries that is reflected on the
Pro Forma Financial Statements or used in connection with the respective
businesses of the Company and each of its Subsidiaries. The Company and/or its
Subsidiaries have good and valid title in all of its owned real property and its
interests as lessee in all material leased real property used in connection with
its business, free and clear of all Liens, liabilities and rights except for
Permitted Liens.
(b) Schedule 5.8(b) contains a list of all real property leases
reflected on the Pro Forma Financial Statements or used in connection with the
respective businesses of the Company and each of its Subsidiaries. The Company
and/or its Subsidiaries hold all of the right, title and interest of a tenant
under the leases reflected on the Pro Forma Financial Statements or used in
connection with their respective businesses free and clear of all Liens,
liabilities and rights except for Permitted Liens.
(c) The Company or its Subsidiaries have good and valid title to all of
the personal property owned by the Company and/or its Subsidiaries, free and
clear of Liens, except Permitted Liens and Liens being released on or prior to
the Closing Date. All of the material personal property owned or used by the
Company or any of its Subsidiaries is in good operating condition and repair
(subject to ordinary wear and tear), is suitable for the purposes for which it
is presently being used and is adequate to meet the requirements of the
Business. Each lease or sublease of material personal property to which the
Company or any Subsidiary is a party is in full force and effect. The Company or
its Subsidiaries have complied with all material commitments and obligations on
its part to be performed or observed under each such lease. Each party to each
such lease other than the Company or any of its Subsidiaries has complied with
all commitments and obligations on its part to be performed or observed
thereunder except where the failure to so comply, individually or in the
aggregate, could not be reasonably likely to have a Material Adverse Effect.
Section 5.9 Use of Real Property. Except as set forth on Schedule 5.9,
the owned and leased real properties reflected on the Pro Forma Financial
Statements or used in connection with the respective businesses of the Company
and its Subsidiaries, are used and operated in compliance and conformity with
all Contractual Obligations and Requirements of Law except where the failure to
so comply, individually or in the aggregate, could not be reasonably likely to
have a Material Adverse Effect.
Section 5.10 Taxes. Except as set forth on Schedule 5.10, the Company
and its Subsidiaries have timely filed all federal, state, local and foreign tax
returns and reports required to be filed by them and have paid all taxes,
assessments, fees and other charges required to have been paid by them, other
than those that are being contested in good faith and by the proper proceedings
and for which adequate reserves have been established in accordance with GAAP.
As of the Closing Date, except as set forth on Schedule 5.10, there is no
ongoing audit or examination or, other investigation by any Governmental
Authority of the tax liability of the Company or its Subsidiaries for any period
for which tax returns have been or were required to have been filed, other than
claims for which adequate reserves have been established in accordance with
GAAP. As of the Closing Date, the Company, nor its Subsidiaries have not
32
waived or extended or have requested to waive or extend the statute of
limitations relating to a tax assessment or deficiency.
Section 5.11 Financial Condition.
(a) KPP has been furnished with true, correct and complete copies of
(i) the audited balance sheets and income statements of the Company and its
Subsidiaries as of December 31, 2001, and the related audited statement of
operations, statement of changes in stockholders' equity (deficit) and balance
sheet, together with the notes thereto, for the fiscal year ended December 31,
2001, reported on by, and accompanied by an unqualified report from KPMG (the
"Financial Statements"), (ii) the Company's from 10K for its year ended December
31, 2001 (the "10K") and forms 10-Q for the periods ended March 31 and June 30,
2002 (the "10-Qs", and (iii) balance sheets and income statements and related
statement of operations and the financial statements for the period ended
September 30, 2002, in each case fairly presenting, in all material respects,
the financial position of the Company as of the respective dates thereof, and
the results of operations, changes in stockholders' equity (deficit) and balance
sheet of the Company as of the respective dates thereof and for the respective
periods set forth therein, all in conformity with GAAP consistently applied
during the periods involved, except as otherwise set forth in the Note thereto
and subject, in the case of the unaudited interim financial statements, to the
absence of Note required by GAAP and to normal year-end audit adjustments, none
of which, individually or in the aggregate, will be material. The non-financial
statement information contained in the 10K and the 10-Qs is true and accurate in
all material respects.
(b) Except as set forth on Schedule 5.11, the Company and its
Subsidiaries had no obligation, indebtedness or liability (whether accrued,
absolute, contingent or otherwise, and whether due or to become due), which was
not reflected or reserved against in the balance sheets or the notes thereto
which are part of the financial statements delivered pursuant to subsection (a)
above, except for those (i) incurred in the ordinary course of business
subsequent to June 30, 2002 and which are fully reflected on the Company's books
of account and (ii) which do not exceed $15,000 individually or $150,000 in the
aggregate.
(c) The Pro Forma Balance Sheet gives pro forma effect to the issuance
of the Note and Warrant, the initial extensions of credit made under the Senior
Credit Agreement, the payment of transaction fees and expenses related to the
foregoing, and the consummation of the other Transactions, all as if such events
had occurred on the date as of which the Pro Forma Balance Sheet is prepared.
The Pro Forma Balance Sheet has been prepared in accordance with GAAP (subject
to the absence of the Note required by GAAP and subject to normal year-end
adjustments, none of which, individually or in the aggregate, will be material)
and presents fairly the consolidated financial condition of the Company and its
Subsidiaries on an unaudited pro forma basis as of the date set forth therein,
after giving pro forma effect to the consummation of the transactions described
above.
(d) The Company has prepared, and has heretofore furnished to KPP, a
copy of, annual projected consolidated balance sheets and statements of income
and cash flows of the Company and its Subsidiaries for the four-fiscal year
period ending December 31, 2006, giving effect to the transactions described
therein (the "Projections"). The Projections disclose all assumptions made with
respect to general economic, financial and market conditions used in
33
formulating such Projections. As of the Closing Date, no facts exist that
(individually or in the aggregate) would require a material change in any of
such Projections. The Projections if adjusted to conform to the Transactions,
are based upon reasonable estimates and assumptions in light of the
circumstances under which they were made, have been prepared on the basis of the
assumptions stated therein and reflect the reasonable estimates of the Company
of the results of operations and other information projected therein.
Section 5.12 Absence of Certain Changes. Except as set forth in
Schedule 5.12 or pursuant to the Transaction Documents, and the transaction
contemplated thereby since June 30, 2002, the Business has been conducted only
in the ordinary course consistent with past practices, and none of the Company
nor any of its Subsidiaries has (i) incurred, or agreed to incur, material
Indebtedness, (ii) experienced any damage, destruction or loss that, to the
extent not covered by insurance, has had or reasonably would be expected to have
a Material Adverse Effect, (iii) declared, set aside or paid any dividend or
other distribution (whether in cash, equity securities, interests or property)
in respect of its equity securities, (iv) entered into any material Contractual
Obligation involving any director, officer, manager, shareholder, member,
employee of the Company, any of its Subsidiaries, or any Affiliates of any of
the foregoing Persons, (v) granted or committed to grant to any director,
officer, manager, member, employee or Affiliate of the Company, or any of its
Subsidiaries any material increase in compensation or benefits, (vi) granted or
committed to grant to any director, officer, manager, employee or Affiliate of
the Company or any of its Subsidiaries any increase in or right to severance or
termination pay or any other compensation or benefits payable upon a change in
control of any such entity or (vii) taken any action that, if taken after the
Closing Date hereof, reasonably would be expected to constitute a Default or
Event of Default or have a Material Adverse Effect.
Section 5.13 No Material Adverse Change. There has been no Material
Adverse Change since June 30, 2002.
Section 5.14 Environmental Matters. Except as described on Schedule
5.14:
(a) The Company and each of its Subsidiaries is in compliance with all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any Applicable Environmental
Laws, or in any plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder, except to the extent that failure
to so comply will not have a Material Adverse Effect. The Company is not aware
of, and none of the Company or any of its Subsidiaries has received notice of,
any past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
continued compliance, or which may give rise to any common law or legal
liability, or otherwise form the basis of any claim, action, suit, proceedings,
hearing or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, release
or threatened release of any Hazardous Material or alleged violation or any
violations of Applicable Environmental Laws; and
(b) No Hazardous Material has been incorporated in, used on, stored on
or under, released from, treated on, transported to or from, or disposed of on
or from any Property owned or during the period of the applicable lease, or to
the knowledge of the Company, any
34
prior period, leased the Company or any of its Subsidiaries such that, under
Applicable Environmental Laws (i) any such Hazardous Material would be required
to be removed, cleaned-up or remedied before the Property could be altered,
renovated, demolished or transferred, or (ii) the owner or lessee of the
Property could be subjected to liability for the removal, clean-up or
remediation of such Hazardous Material; and none of the Company nor any of its
Subsidiaries has received any notification from any Governmental Bodies or other
third parties relating to Hazardous Material on or affecting any Property owned
or leased by the Company or its Subsidiaries or relating to any potential or
known liability under Applicable Environmental Laws arising from the ownership
or leasing of any Property.
Section 5.15 Investment Company/Government Regulations. Except as set
forth on Schedule 5.15, the Company nor any of its Subsidiaries are not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended. The Company nor
any of its Subsidiaries are not subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act, or any federal or state statute or regulation limiting its ability
to incur Indebtedness. The Company nor any of its Subsidiaries are not engaged
principally or as one of its activities in the business of extending credit for
the purpose of "purchasing" or "carrying" any "margin stock" (as each such term
is defined or used in Regulation U of the Board of Governors of the Federal
Reserve System). No part of the proceeds of the Note will be used for purchasing
or carrying margin stock or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulations U or X of such Board of
Governors. Since their respective dates of incorporation or organization, as the
case may be, the Company and its Subsidiaries have not been, and are not, a
"United States real property holding corporation," as defined in Section
897(c)(2) of the Code and in Section 1.897-2(b) of the Treasury Regulations
issued thereunder.
Section 5.16 Subsidiaries. Schedule 5.16 sets forth a complete and
accurate list of all of the Subsidiaries of the Company together with their
respective jurisdictions of incorporation or organization. All of the
outstanding shares of Capital Stock of, or other Capital Stock in, the
Subsidiaries of the Company are validly issued, fully paid and nonassessable.
Except as set forth on Schedule 5.16, as of the Closing Date, all of the
outstanding shares of Capital Stock of, or other ownership interests in, each of
the Subsidiaries are owned by the Company, as the case may be, or by a Wholly
Owned Subsidiary of the Company, as the case may be, free and clear of any
Liens, except Liens being fully released on or prior to the Closing Date and
Liens being granted pursuant to the Senior Debt Documents on the Closing Date.
No Subsidiary of the Company has outstanding options, warrants, subscriptions,
calls, rights, convertible securities or other agreements or commitments
obligating the Subsidiaries to issue, transfer or sell any securities of such
Subsidiary in connection with the Transactions.
Section 5.17 Capitalization.
(a) As of the Closing Date and after giving effect to the Transactions,
the authorized capital stock of the Company consists of 80,000,000 shares of
stock, comprised of 70,000,000 shares of Common Stock, par value $.01 and 10,000
shares of Preferred Stock, par value $.01. The Company has no shares of Capital
Stock held in treasury. As of the Closing Date after giving effect to the
Transactions, there are: (i) 15,051,460 shares of Common Stock
35
issued and outstanding; (ii) no shares of Preferred Stock issued and outstanding
and (iii) 186,792 shares of Common Stock reserved for issuance upon exercise of
the Warrant. The Warrant and all outstanding shares of Capital Stock of the
Company have been duly authorized by all necessary corporate action. All
outstanding shares of Capital Stock of the Company are, and upon the exercise of
the Warrant, when issued, will be, validly issued, fully paid and nonassessable
and shall be free and clear of all Liens and the issuance of the foregoing has
not been or will not be, as the case may be, subject to preemptive rights in
favor of any Person (other than KPP) and will not result in the issuance of any
additional shares of Capital Stock of the Company or the triggering of any
anti-dilution or similar rights contained in any options, warrants, debentures
or other securities or agreements of the Company. Schedule 5.17 provides an
accurate list as of the Closing Date, after giving effect to the Transactions,
of all of the holders of warrants, options, rights and securities convertible
into Capital Stock of the Company, together with the number of shares of Capital
Stock to be issued upon the exercise or conversion of such warrants, options,
rights and convertible securities.
(b) On the Closing Date, except for the Warrant and as set forth on
Schedule 5.17, there will be no outstanding Capital Stock of the Company or any
of its Subsidiaries or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company or any of its Subsidiaries is a
party relating to the issuance of any Capital Stock of the Company or any of its
Subsidiaries.
Section 5.18 Private Offering. No form of general solicitation or
general advertising, including, without limitation, advertisements, articles,
notices or other communications, published in any newspaper, magazine or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising,
was used by the Company or any of its Subsidiaries or any of the Company's or
such Subsidiary's representatives, or, any other Person acting on behalf of the
Company or any of its Subsidiaries, in connection with the offering of the
Securities. None of the Company or any of its Subsidiaries or any Person acting
on the Company's or such Subsidiary's behalf has directly or indirectly offered
the Securities, or any part thereof or any other similar securities, for sale
to, or sold or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with any Person or Persons other
than KPP and other investors who the Company reasonably believed had such
knowledge and experience in financial and business matters that they were
capable of evaluating the merits and risks of purchasing the Securities. The
Company further represents to KPP that, assuming the accuracy of the
representations of KPP as set forth in Article 6 hereof, none of the Company or
any of its Subsidiaries or any Person acting on the Company's or such
Subsidiary's behalf has taken or will take any action which would subject the
issue and sale of the Securities to the provisions of Section 5 of the
Securities Act, except as contemplated by the Securityholders' and Registration
Rights Agreement. The Company has not sold the Securities to anyone other than
KPP. The Note and the Warrant shall bear substantially the same legend set forth
in Section 6.3 hereof, as applicable, for at least so long as such restrictions
apply. All prior offerings and sales of securities of the Company and its
Subsidiaries were in compliance with all applicable federal and state securities
laws.
Section 5.19 Broker's, Finder's or Similar Fees. Except as set forth on
Schedule 5.19, there are no brokerage commissions, finder's fees or similar fees
or commissions
36
payable in connection with the offer and sale of the Note and the Warrant by the
Company or any of its Subsidiaries.
Section 5.20 Labor Relations. The Company, nor any of its Subsidiaries
(with respect to the Business) has committed or is engaged in any unfair labor
practice within the meaning of the National Labor Relations Act of 1947, as
amended, except as set forth on Schedule 5.20. Except as set forth on Schedule
5.20, there is (a) no unfair labor practice complaint pending or threatened
against the Company, any of its Subsidiaries or any other Persons with respect
to the Business before the National Labor Relations Board and no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is so pending or threatened, (b) no strike, labor dispute, slowdown or stoppage
pending or, to the knowledge of the Company, threatened against the Company, any
of its Subsidiaries or any other Persons with respect to the Business, and (c)
no union representation question existing with respect to the employees of the
Company or any of its Subsidiaries and no union organizing activities are taking
place. Except as set forth on Schedule 5.20, each of the Company and its
Subsidiaries is in compliance in all material respects with all applicable
Requirements of Law respecting employment and employment practices, terms and
conditions of employment and wages and hours. None of the Company, nor any of
its Subsidiaries is a party to any collective bargaining agreement.
Section 5.21 Employees. Set forth on Schedule 5.21 is a complete list
of all employment agreements between the Company and any of its Subsidiaries and
any employee of the Company or its Subsidiaries. Except as set forth on Schedule
5.21, the Company is not aware that any executive or key senior employee of the
Company or any of its Subsidiaries or any group of such employees has any plans
to terminate employment with the Company or the Subsidiaries, as the case may
be. With respect to employees who are terminating their employment, Schedule
5.21 provides a true and correct summary of all severance benefits being
provided to such employees. Except as set forth on Schedule 5.21, none of the
Company or any of its Subsidiaries nor, to the knowledge of the Company, any of
its or their employees, is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting, collective bargaining or similar
agreement relating to, affecting or in conflict with, the present or proposed
business activities of the Company or any of its Subsidiaries or any such
Person's right to participate in the affairs of the Company or any of its
Subsidiaries.
Section 5.22 ERISA. Except as set forth on Schedule 5.22, or could not
be reasonably expected to result in a Material Adverse Effect:
(a) Each Company Program has been maintained in all material respects
in accordance with its terms and with all applicable laws, and no failure to so
maintain any Company Program will result from the completion of the
Transactions. Neither the Company nor any ERISA Affiliate has any unsatisfied
material liability, or any unpaid material fine, penalty or Tax, with respect to
any Company Program. There has been no "prohibited transaction," as defined in
Section 406 of ERISA or Code Section 4975, or any breach of any duty under
ERISA, any other applicable Law or any agreement, with respect to any Company
Program which could subject the Company or any ERISA Affiliate to material
liability either directly or indirectly (including, without limitation, through
any obligation of indemnification or contribution) for any damages, penalties,
Taxes or any other loss or expense. The Company or a
37
Subsidiary, as the case may be, has made full and timely payment of all
contributions required to be made to each Company Program by the terms of such
plan or under the applicable Law, except that all contributions which are so
required to be made by the Company or a Subsidiary, as the case may be, to the
Company Programs for any period ending prior to the Closing, but which are not
due by the date of the Closing, shall be properly reserved or accrued in the
Financial Statements.
(b) No litigation or claim (other than routine claims for benefits),
and no governmental administrative proceeding, audit or investigation, is
pending or, to the knowledge of the Company, threatened with respect to any
Company Program.
(c) As of the date of this Agreement, no Company Program is (i) a
"multiemployer plan", as defined in Section 3(37) of ERISA, a "multiple employer
plan", as described in Section 413(c) of the Code or a "multiple employer
welfare arrangement", as defined in Section 3(40) of ERISA, (ii) subject to the
funding requirements of Section 302 of ERISA or Section 412 of the Code, (iii)
subject to Title IV of ERISA.
(d) All health and medical benefit coverage under each Company Program
is provided solely through insurance. No Company Program provides health or
medical coverage to retired or former employees, directors or officers, except
for continuation coverage required by Section 4980B of the Code or Sections 601
to 608 of ERISA ("Continuation Coverage").
(e) No Employee of the Company or any Subsidiary shall accrue or
receive additional benefits, additional credit for service, accelerated vesting
or accelerated rights to payment of any benefit under any Company Program, or
become entitled to any severance, termination allowance or similar payments, as
a result of the Transactions. No payment made or contemplated under any Company
Program constituted, or would constitute, an "excess parachute payment" within
the meaning of Section 280G of the Code.
(f) Neither the Company nor any Subsidiary is under any obligation
(express or implied) to modify any Company Program, or to establish any new
Employee Program. The Company or a Subsidiary, as the case may be, has expressly
reserved to itself the right to amend, modify or terminate each Company Program,
or any portion of any Company Program, without liability to itself.
(g) No ERISA Affiliate has any unpaid material liability, fine, penalty
or Tax with respect to any Employee Program for which the Company or any
Subsidiary could be liable. To the Company's knowledge, neither the Company nor
any Subsidiary has any unpaid material liability, fine, penalty or tax with
respect to any Employee Program that it had previously maintained.
(h) No changes have occurred or are expected to occur that would cause
a material increase in the cost of providing benefits under any Company Program.
Section 5.23 Patents, Trademarks, Etc.
(a) Schedule 5.23 sets forth a complete and correct list of all
Intellectual Property that is owned by the Company or any of its Subsidiaries
and which has been duly
38
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark Office and the United States Copyright Office or other
filing offices, domestic or foreign (the "Owned Intellectual Property") and
identifies the office with which such filing was made. Schedule 5.23 sets forth
a complete and correct list of all Intellectual Property used by the Company and
its Subsidiaries in the Business immediately prior to the Closing Date. Except
as set forth on Schedule 5.23, the Owned Intellectual Property constitutes all
Intellectual Property used by, and necessary for the conduct of the business of
the Company and its Subsidiaries. Except as set forth on Schedule 5.23, the
Owned Intellectual Property does not infringe the rights of any other Person in
respect of any Intellectual Property in a manner that could reasonably be
expected to have a Material Adverse Effect. Except as set forth on Schedule
5.23, none of the Owned Intellectual Property is being infringed by any other
Person in a manner that could reasonably be expected to have a Material Adverse
Effect. None of the Company or any of its Subsidiaries nor, to the knowledge of
the Company, any employee or consultant of the Company or any of its
Subsidiaries has any agreements or arrangements with former employers of such
employees or consultants relating to any Intellectual Property of such
employers, which interfere or conflict with the performance of such employee's
or consultant's duties for the Company or any Subsidiary or results in any
former employers of such employees and consultants having any rights in, or
claims on, the Owned Intellectual Property. The activities of the employees and
consultants of the Company and each of its Subsidiaries on behalf of such
entities do not violate any agreements or arrangements which any such employees
or consultants have with former employers or current or former clients. Each
Owned Intellectual Property registration and filing listed in Schedule 5.23 is
in full force and effect.
(b) Schedule 5.23 sets forth a complete and correct list of all
material Contractual Obligations (i) pursuant to which the use by any Person of
material Intellectual Property is licensed or permitted by the Company or any of
its Subsidiaries and (ii) pursuant to which the use by the Company or any of its
Subsidiaries of material Intellectual Property is licensed or permitted by any
other Person (collectively, the "Intellectual Property Licenses"). All
Intellectual Property Licenses (i) are in full force and effect in accordance
with their terms, and (ii) are free and clear of any liens (other than Permitted
Liens or liens being released on or prior to the Closing). None of the Company
nor any of its Subsidiaries nor any of the other parties thereto is in default
under any of the Intellectual Property Licenses, and no such default is
currently threatened. There is no claim or demand of any Person pertaining to,
or any proceeding which is pending or, to the knowledge of the Company,
threatened, that challenges the rights of the Company or its Subsidiaries in
respect of any Intellectual Property, Owned Intellectual Property or any of the
Intellectual Property Licenses. Except as set forth on Schedule 5.23, none of
the Owned Intellectual Property or any Intellectual Property Licenses are
subject to any outstanding order, ruling, decree, judgment or stipulation by or
with any court, tribunal, arbitrator or other Governmental Authority. The
Company and its Subsidiaries have taken all reasonable measures to protect and
preserve the security, confidentiality and value of their Intellectual Property,
including trade secrets and other confidential information. All trade secrets
and other confidential information of the Company and its Subsidiaries are
presently valued and protectible and have not been abandoned by the Company and
its Subsidiaries except as could not reasonably be expected to have a Material
Adverse Effect. There is no Requirement of Law, patent, invention or device
pending or, to the knowledge of the Company and its Subsidiaries, proposed,
which would restrict the Company's or any Subsidiary's ability to use any of
their Intellectual Property.
39
Section 5.24 Transaction with Affiliates. Except as set forth on
Schedule 5.24 and other transactions among the Company and its Subsidiaries,
there are no Contractual Obligations of the Company and any of its Subsidiaries
to any of their respective officers, directors, managers, shareholders, members,
employees, Affiliates or their respective Affiliates, of any of the Company or
any of its Subsidiaries other than (i) for payment of compensation for services
rendered and indemnity, (ii) reimbursement for reasonable expenses incurred on
behalf of such entity, (iii) for standard employee benefits made generally
available to all employees of the Company (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company as set forth on Schedule 5.24) and (iv) pursuant to any of the
Transaction Documents. Except to the extent disclosed to KPP prior to the date
hereof, none of the officers, directors, managers, shareholders, members,
Affiliates, or their respective Affiliates of any of the Company or any of its
Subsidiaries has incurred Indebtedness to such entity or has any direct or
indirect material ownership interest in any person with which such entity is
affiliated. Except as set forth on Schedule 5.24 and other than transactions
among the Company and its Subsidiaries, no officer, director, manager,
shareholder, member, employee, Affiliate, or any of the respective Affiliates of
any of the Company or any of its Subsidiaries, is, directly or indirectly, a
party to or otherwise interested in any material Contractual Obligation with any
of the Company or any of its Subsidiaries. Except as may be expressly disclosed
in notes to the Financial Statements or permitted by Article 9, none of the
Company or any of its Subsidiaries is a guarantor or indemnitor of the
Indebtedness of any other Person.
Section 5.25 Outstanding Borrowings; Liens. Except for borrowings under
the Senior Credit Agreement and the Note issued hereunder, on the Closing Date
after giving effect to the Transactions, there exist no Outstanding Borrowings
of the Company or its Subsidiaries, except as set forth on Schedule 5.25. Except
for Permitted Liens and Liens set forth on Schedule 5.25, there exist no Liens
that encumber the assets of the Company or any of its Subsidiaries.
Section 5.26 Material Contracts. None of the Company or any Subsidiary
is a party to any Contractual Obligation, or is subject to any corporate
restriction or any Requirement of Law that could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Schedule 5.26
lists, as of the Closing Date and after giving effect to the Transactions, (a)
each "material contract" (within the meaning of Item 601(b)(10) of Regulation
S-K under the Exchange Act) to which the Company or any of its Subsidiaries is a
party, by which any of them or their respective properties is bound or to which
any of them is subject, other than purchase orders with customers entered into
in the ordinary course of business, and (b) each agreement to purchase
Telecommunications Equipment having an aggregate value per agreement in excess
of $1,000,000 to which any of the Company or any of its Subsidiaries is a party
and also indicates the parties thereto (collectively, "Material Contracts"). As
of the Closing Date and after giving effect to the Transactions, (i) each
Material Contract is in full force and effect and is enforceable by the Company
or such Subsidiary, as applicable, that is a party thereto in accordance with
its terms, and (ii) to the knowledge of the Company, no other party thereto is
in breach of or default under any Material Contract in any material respect or
has given notice of termination or cancellation of any Material Contract.
40
Section 5.27 Insurance. Schedule 5.27 sets forth a true, correct and
complete list of the insurance policies or programs of the Company and each
Subsidiary in effect as of the date hereof, and indicates the insurer's name,
policy number, expiration date, amount of coverage, type of coverage, annual
premiums, exclusions and deductibles, and also indicates any self-insurance
program that is in effect. All such policies are in full force and effect, are
underwritten by financially sound and reputable insurers, are sufficient for all
applicable Requirements of Law and otherwise are in compliance with the criteria
set forth in Section 7.8. All such policies will remain in full force and
effect, or shall be replaced by comparable policies and will not in any way be
affected by, or terminate or lapse by reason of any of the consummation of any
of the Transactions.
Section 5.28 Solvency.
(a) The value of the assets of the Company, based on a fair valuation
thereof, is not less than the amount that will be required to be paid on or in
respect of the probable liability on the existing debts and other liabilities
(including contingent liabilities) of the Company, as they are expected to
become absolute and mature. The value of the assets of each of the Subsidiaries
of the Company, based on a fair valuation thereof, is not less than the amount
that will be required to be paid on or in respect of the probable liability on
the existing debts and other liabilities (including contingent liabilities) of
each such Subsidiary, as they are expected to become absolute and mature.
(b) The assets of the Company do not constitute unreasonably small
capital for the Company to carry out its business as now conducted and as
proposed to be conducted including the capital needs of the Company, taking into
account (i) the nature of the business conducted by the Company, (ii) the
particular capital requirements of the business conducted by the Company, (iii)
the anticipated nature of the business to be conducted by the Company in the
future, and (iv) the projected capital requirements and capital availability of
such current and anticipated business. The assets of each of the Subsidiaries of
the Company do not constitute unreasonably small capital for such Subsidiary to
carry out its business as now conducted and as proposed to be conducted,
including the capital needs of each such Subsidiary, taking into account (1) the
nature of the business conducted by such Subsidiary, (2) the particular capital
requirements of the business conducted by such Subsidiary, (3) the anticipated
nature of the business to be conducted by such Subsidiary in the future, and (4)
the projected capital requirements and capital availability of such current and
anticipated business.
(c) Neither the Company, nor any of its Subsidiaries, intends to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be received by the Company or any such
Subsidiary, as applicable, and the timing and amounts to be payable on or in
respect of debt of the Company or any such Subsidiary, as applicable). The cash
flow of the Company or any such Subsidiary, as applicable, after taking into
account all anticipated uses of the cash of the Company or any such Subsidiary,
as applicable, will at all times be sufficient to pay all such amounts on or in
respect of debt of the Company or any such Subsidiary, as applicable, when such
amounts are anticipated to be required to be paid.
41
(d) The Company does not believe that final judgments against it or any
of its Subsidiaries in actions for money damages presently pending, if any, will
be rendered at a time when, or in an amount such that, the Company or any such
Subsidiary, as applicable, will be unable to satisfy any such judgments promptly
in accordance with their terms (taking into account the maximum reasonable
amount of such judgments in any such actions and the earliest reasonable time at
which such judgments might be rendered). The cash flow of the Company or any
such Subsidiary, as applicable, after taking into account all other anticipated
uses of the cash of the Company or any such Subsidiary, as applicable (including
the payments on or in respect of debt referred to in subparagraph (c) of this
Section 5.28), should at all times be sufficient to pay all such judgments
promptly in accordance with their terms (taking into account the maximum
reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered).
Section 5.29 Change of Control Payments. Except as set forth on
Schedule 5.29, neither the execution, delivery and performance by the Company of
this Agreement, nor the execution, delivery and performance by the Company or
any of its Subsidiaries of any of the other Transaction Documents, nor the
consummation of the transactions contemplated hereby shall require any payment
by the Company or any of its Subsidiaries or Affiliates, in cash or kind, under
any other agreement, plan, policy, commitment or other arrangement. There are no
agreements, plans, policies, commitments or other arrangements with respect to
any compensation, benefits or consideration which will be materially increased,
or the vesting of benefits of which will be materially accelerated, as a result
of the execution and delivery of any of the Transaction Documents, or
consummation of any of the Transactions. There are no payments or other benefits
payable by the Company or any of its Subsidiaries, the value of which will be
calculated on the basis of any of the Transactions.
Section 5.30 Customers and Suppliers.
(a) Schedule 5.30 sets forth a list of all Material Customers. Except
as set forth in Schedule 5.30, neither the Company nor any of its Subsidiaries
has received any notice or has any knowledge of any intention on the part of any
such Material Customer to terminate any material purchase contract or to
materially reduce its purchases from the levels sustained by such Material
Customer during the seven (7) month period ended June 30, 2002 or has any reason
to believe that sales projected to any such Material Customer over the seven (7)
month period following the Closing will be materially less than so projected.
(b) Schedule 5.30 sets forth a list of all Material Suppliers. Except
as set forth in Schedule 5.30, neither the Company nor any of its Subsidiaries
has received any notice or has any knowledge of any intention on the part of any
such Material Supplier to materially increase prices of such goods to the
Company and its Subsidiaries above current or current projected levels or to
otherwise materially alter its relationship with the Company and its
Subsidiaries in an adverse manner.
Section 5.31 Information; Representations and Warranties in the
Documents. None of the Debt Documents contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. There is no
42
material fact known to the Company which the Company has not disclosed in
writing to KPP, or counsel to KPP, which has or, insofar as the Company can
reasonably foresee, may have or will have a Material Adverse Effect (other than
general market, financial and business conditions applicable to the economy as a
whole). No representation or warranty made by the Company set forth herein, or
in any schedule hereto, in any supplement to any schedule contains or will
contain any untrue statement of a material fact, or omits to state any material
fact, necessary in order to make the statement therein, in light of the
circumstances in which it was made, not misleading. The representations and
warranties made by the Company in each Debt Document are true and correct in all
material respects as of the date of this Agreement (except where any such
representation and warranty is stated as being true only as of a specific date,
in which case such representation and warranty was true and correct in all
material respects on such date).
Section 5.32 Regulatory Authorizations. The Company or its Subsidiaries
holds or currently has pending all Regulatory Authorizations required by the
FCC, any PUC or any Communications Law for the conduct of its business as now
conducted and as proposed to be conducted and all such Regulatory Authorizations
currently held are in full force and effect and subject to no pending contest,
challenge or appeal. KPP, solely by reason of the execution, delivery and
performance of any of the Transaction Documents, will not be subject to the
regulation or control of either the FCC or any PUC, except in connection with
the enforcement of remedies. The Regulatory Authorizations are described on
Schedule 5.32.
Section 5.33 No Regulatory Event. No Regulatory Event is pending or has
occurred and is continuing and, to the knowledge of the Company, no Regulatory
Event is threatened against the Company.
Section 5.34 SEC Investigations. Except as described on Schedule 5.34,
none of the Company or any of its Subsidiaries is subject to any SEC
investigation or proceeding of any nature whatsoever. In the event that the
Company or any of its Subsidiaries becomes aware of any such proceeding or
investigation, the Company shall promptly provide KPP with written notice of
such proceeding or investigation accurately describing in detail the nature of
such proceeding or investigation. Neither the Company or any of its Subsidiaries
has received any notice from the SEC or any securities exchange requiring or
requesting that the Company restate or materially adjust its financial
statements.
43
ARTICLE VI.
REPRESENTATIONS AND
WARRANTIES OF KPP
KPP, hereby represents and warrants to the Company as of the date
hereof, as follows:
Section 6.1 Authorization; No Contravention. The execution, delivery
and performance by KPP of this Agreement: (a) is within KPP's power and
authority and has been duly authorized by all necessary action; (b) does not
contravene the terms of KPP's organizational documents or any amendment thereof;
and (c) will not violate, conflict with or result in any breach or contravention
of any of its material Contractual Obligations, or any order or decree directly
relating to it.
Section 6.2 Binding Effect. This Agreement has been duly executed and
delivered by KPP and this Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
Section 6.3 Purchase for Own Account.
(a) The Securities to be acquired by KPP are being or will be acquired
for KPP's own account and with no intention of distributing or reselling such
securities or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of the securities owned by it, under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act, and subject, nevertheless, to the
disposition of its property being at all times within its control. If KPP should
in the future decide to dispose of any of the Securities, KPP understands and
agrees that it may do so only in compliance with the Securities Act and
applicable state securities laws, as then in effect. KPP agrees to the
imprinting of a legend on certificates representing all of the Securities to the
following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE TRANSFERRED UNLESS THE COMPANY HAS RECEIVED
A WRITTEN OPINION FROM COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY STATING THAT SUCH TRANSFER IS BEING MADE IN COMPLIANCE WITH ALL
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
(b) KPP is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Securities Act.
(c) KPP understands that the offer and sale of the Note and the Warrant
will not be registered under the Securities Act, by reason of their issuance by
the Company in a
44
transaction exempt from the registration requirements of the Securities Act, and
that KPP must hold the Note and the Warrant indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt from registration.
(d) KPP understands that the exemption from registration afforded by
Rule 144 (the provisions of which are known to KPP) promulgated by the
Commission under the Securities Act depends on the satisfaction of various
conditions, including the requirement that the Company has been subject to the
reporting requirements of Section 13 or Section 15 of the Exchange Act for at
least 90 days, and that, if applicable, Rule 144 affords the basis for sales
only in limited amounts and that each of the Company does not now qualify under
Rule 144 and may not every qualify.
(e) KPP has been furnished with or has had access to the information it
has requested from the Company and has had an opportunity to discuss with the
management of the Company the business and financial affairs of the Company and
its Subsidiaries, and has generally such knowledge and experience in business
and financial matters and with respect to investments in securities or privately
held companies so as to enable it to understand and evaluate the risks of such
investment and form an investment decision with respect thereto; provided,
however, that the foregoing shall in no way affect, diminish or derogate from
the representations and warranties made by the Company hereunder or the right of
KPP to rely thereon and to seek indemnification hereunder.
Section 6.4 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with it or any action taken by KPP.
Section 6.5 Governmental Authorization; Third Party Consent. No
approval, consent, compliance, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person in
respect of any Requirement of Law, and no lapse of a waiting period under a
Requirement of Law, is necessary or required in connection with the execution,
delivery or performance by it or enforcement against it of this Agreement or the
transactions contemplated hereby except as set forth on Schedule 5.32.
ARTICLE VII.
COVENANTS
Until the payment by the Company in full of the Obligations, the
Company hereby covenants and agrees with the Holders as follows:
Section 7.1 Financial Statements. The Company will deliver to each
Holder:
(a) As soon as available and in any event the earlier of (i) thirty
(30) days after the end of each fiscal month (except for months at the end of
any fiscal quarter in which case within forty-five (45) days) or (ii) such
period as required by applicable law to be filed with the SEC, beginning with
the month ending September 30, 2002, unaudited consolidated balance sheets of
the Company and its Subsidiaries as of the end of such fiscal month, unaudited
consolidated statements of income for the Company and its Subsidiaries for the
fiscal month then ended and for that portion of the fiscal year then ended and,
unaudited consolidated statements of cash flows for the Company and its
Subsidiaries for the fiscal month then
45
ended and for that portion of the fiscal year then ended and, unaudited
consolidated statements of cash flows for the Company and its Subsidiaries for
the fiscal month then ended and for that portion of the fiscal year then ended,
in each case setting forth comparative consolidated figures as of the end of and
for the corresponding period in the preceding fiscal year together with
comparative budgeted figures for the fiscal period then ended, all in reasonable
detail and prepared in accordance with GAAP (subject to the absence of notes
required by GAAP and subject to normal year-end adjustments) applied on a basis
consistent with that of the preceding month or containing disclosure of the
effect on the financial condition or results of operations of any change in the
application of accounting principles and practices during such month;
(b) As soon as available and in any event the earlier of (i) forty-five
(45) days after the end of each of the first three fiscal quarters of each
fiscal year or (ii) such period as required by applicable law to be filed with
the SEC, beginning with the fiscal quarter ending September 30, 2002, unaudited
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such fiscal quarter and unaudited consolidated statements of income and
consolidated statements of cash flows and stockholders' equity for the Company
and its Subsidiaries for the fiscal quarter then ended and for that portion of
the fiscal year then ended, in each case setting forth comparative consolidated
figures as of the end of and for the corresponding period in the preceding
fiscal year together with comparative budgeted figures for the fiscal period
then ended, all in reasonable detail and prepared in accordance with GAAP
(subject to the absence of Note required by GAAP and subject to normal year-end
adjustments) applied on a basis consistent with that of the preceding quarter or
containing disclosure of the effect on the financial condition or results of
operations of any change in the application of accounting principles and
practices during such quarter;
(c) As soon as available and in any event within ninety (90) days after
the end of each fiscal year, beginning with the fiscal year ending December 31
2002, an audited consolidated balance sheet of the Company and its Subsidiaries
as of the end of such fiscal year and the related audited consolidated
statements of income and consolidated statements of cash flows and stockholders'
equity for the Company and its Subsidiaries for the fiscal year then ended,
including the notes thereto, in each case setting forth comparative figures as
of the end of and for the preceding fiscal year, all in reasonable detail and
certified by the independent certified public accounting firm regularly retained
by the Company or another independent certified public accounting firm of
recognized national standing reasonably acceptable to the Required Holders,
together with (y) a report thereon by such accountants that is not qualified as
to going concern or scope of audit and to the effect that such financial
statements present fairly the consolidated financial condition and results of
operations of the Company and its Subsidiaries as of the dates and for the
periods indicated in accordance with GAAP applied on a basis consistent with
that of the preceding year or containing disclosure of the effect on the
financial condition or results of operations of any change in the application of
accounting principles and practices during such year, and (z) a report by such
accountants to the effect that, based on and in connection with their
examination of the financial statements of the Company and its Subsidiaries,
they obtained no knowledge of the occurrence or existence of any Default or
Event of Default relating to accounting or financial reporting matters, or a
statement specifying the nature and period of existence of any such Default or
Event of Default disclosed by their audit (which report may be limited to the
extent required by accounting rules or guidelines);
46
provided, however, that such accountants shall not be liable to the Holders for
the failure to obtain knowledge of any Default or Event of Default; and
(d) Concurrently with each delivery of the financial statements
described in Sections 7.1(b) and 7.1(c), a management's discussion and analysis
report, regarding such topics as the Company's financial condition and results
of operations, the Company's business and corresponding industry and the
Company's management.
Section 7.2 Other Business and Financial Information. The Company will
deliver to each Holder:
(a) Concurrently with each delivery of the financial statements
described in Sections 7.1(b) and (c), a Compliance Certificate with respect to
the period covered by the financial statements being delivered thereunder,
executed by a Financial Officer of the Company, together with a Covenant
Compliance Worksheet reflecting the computation of the financial covenants set
forth in Sections 8.1 through 8.4 as of the last day of the period covered by
such financial statements, commencing with the time periods required by such
Sections;
(b) Concurrent with each delivery of the financial statements described
in Section 7.1(b) and (c), a certificate executed by a Financial Officer of the
Company in form and substance satisfactory to the Required Holders and
certifying that the financial statements delivered thereunder fairly present in
all material respects the consolidated financial position and results of
operations of the Company and any consolidated Subsidiaries as of the dates and
for the periods indicated in accordance with GAAP (subject, in the case of
unaudited financial statements, to the absence of notes required by GAAP and to
normal year-end adjustments);
(c) As soon as available and in any event (i) by January 31 of each
fiscal year, beginning with the fiscal year beginning January 1, 2003, a
consolidated operating budget for the Company and its Subsidiaries for such
fiscal year (prepared on a monthly basis), consisting of consolidated balance
sheets and consolidated statements of income and cash flows, together with a
certificate of a Financial Officer of the Company to the effect that such budget
has been prepared in good faith and is a reasonable estimate of the financial
position and results of operations of the Company and its Subsidiaries for the
period covered thereby; and (ii) within ten (10) days of their preparation, any
(x) operating budget of the Company or its Subsidiaries otherwise prepared and
(y) revisions or amendments made by the Company or its Subsidiaries to any
budget submitted or required to be submitted to the Holders pursuant to this
Section 7.2(c).
(d) Promptly upon receipt thereof, copies of any "management letter"
submitted to the Company or any of its Subsidiaries by its certified public
accountants in connection with each annual, interim or special audit, and
promptly upon completion thereof, any response reports from the Company or any
such Subsidiary in respect thereof;
(e) Promptly upon the sending, filing or receipt thereof, copies of (i)
all financial statements, reports, notices and proxy statements that the Company
or any of its Subsidiaries shall send or make available generally to its
shareholders, (ii) all regular, periodic and special reports, registration
statements and prospectuses (other than on Form S-8) that the Company or any of
its Subsidiaries shall render to or file with the Commission, the National
47
Association of Securities Dealers, Inc. or any national securities exchange, and
(iii) all press releases and other statements made available generally by the
Company or any of its Subsidiaries to the public concerning material
developments in the business of the Company or any of its Subsidiaries;
(f) Promptly upon (and in any event within five (5) Business Days
after) any Responsible Officer of the Company or any of its Subsidiaries
obtaining knowledge thereof, written notice of any of the following:
(i) the occurrence of any Default or Event of Default,
together with a written statement of a Responsible Officer of the
Company specifying the nature of such Default or Event of Default, the
period of existence thereof and the action that the Company has taken
and proposes to take with respect thereto;
(ii) the filing or commencement of any action, suit,
investigation or proceeding against or affecting the Company or any of
its Subsidiaries, including any such investigation or proceeding by any
Governmental Authority (other than routine periodic inquiries,
investigations or reviews), that would, if adversely determined, be
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect, and any material development in any litigation or other
proceeding previously reported pursuant to Section 5.5 or this Section
7.2(f);
(iii) the receipt by the Company or any of their respective
Subsidiaries from any Governmental Authority of (A) any notice
asserting any failure by the Company or any of their respective
Subsidiaries to be in compliance with applicable Requirements of Law or
that threatens the taking of any action against the Company or any of
its Subsidiaries or sets forth circumstances that, if taken or
adversely determined, would be reasonably likely to have a Material
Adverse Effect, or (B) any notice of any actual or threatened
suspension, limitation or revocation of, failure to renew, or
imposition of any restraining order, escrow or impoundment of funds in
connection with, any license, permit, accreditation or authorization of
the Company or any of its Subsidiaries, where such action would be
reasonably likely to have a Material Adverse Effect;
(iv) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Company and its Subsidiaries in
an aggregate amount exceeding $500,000, together with (x) a written
statement of a Responsible Officer of the Company specifying the
details of such ERISA Event and the action that the Company, any of its
Subsidiaries or any ERISA Affiliate, as the case may be, has taken or
proposes to take with respect thereto, (y) a copy of any notice with
respect to such ERISA Event that may be required to be filed with the
PBGC and (z) a copy of any notice delivered by the PBGC to the Company
or any of its ERISA Affiliates with respect to such ERISA Event;
48
(v) the occurrence of any material default under, or any
proposed or threatened termination or cancellation of, any Material
Contract or other material contract or agreement to which the Company
or any of its Subsidiaries is a party;
(vi) the occurrence of any of the following: (x) the assertion
of any Environmental Claim against or affecting the Company or any of
its Subsidiaries or any real property leased, operated or owned by the
Company or any of its Subsidiaries, or the discovery by the Company or
any of its Subsidiaries of a basis for any such Environmental Claim;
(y) the receipt by the Company or any of its Subsidiaries of written
notice of any alleged violation of or noncompliance with any Applicable
Environmental Law or release of any Hazardous Materials; or (z) the
taking of any investigation, remediation or other responsive action by
the Company or any of its Subsidiaries or any other Person in response
to the actual or alleged violation of any Applicable Environmental Law
by the Company or any of its Subsidiaries or generation, storage,
transport, release, disposal or discharge of any Hazardous Materials
on, to, upon or from any real property leased, operated or owned by the
Company or any of its Subsidiaries; but in each case under clauses (x),
(y) and (z) above, only to the extent the same would be reasonably
likely to have a Material Adverse Effect; and
(vii) any other matter or event that has, or would be
reasonably likely to have, a Material Adverse Effect, together with a
written statement of a Responsible Officer of the Company setting forth
the nature and period of existence thereof and the action that the
Company or any of its Subsidiaries, as the case may be, has taken and
proposes to take with respect thereto; and
(g) As promptly as reasonably possible, such other information about
the business, condition (financial or otherwise), operations or properties of
the Company or any of its Subsidiaries (including any Company Plan and any
information required to be filed under ERISA) as any Holder may from time to
time reasonably request.
(h) Promptly after execution thereof, copies of any Material Contract,
and each material amendment thereto.
(i) As promptly as reasonably possible, and in any event within three
(3) Business Days, after delivery to any Lender (as defined under the Senior
Credit Agreement as in effect on the date hereof), all financial or other
information delivered to any such Lender pursuant to Section 5.01 of the Senior
Credit Agreement.
(j) Promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Company and its Subsidiaries, or compliance with any of the terms of any
Transaction Document, as KPP may reasonably request.
Section 7.3 Corporate Existence; Franchises; Maintenance of Properties.
The Company will, and will cause each of its Subsidiaries to, (i) maintain and
preserve in full force and effect its legal existence, except as expressly
permitted otherwise by Section 9.1, (ii) obtain, maintain and preserve in full
force and effect all other rights, franchises, licenses, permits,
49
certifications, approvals and authorizations required by Governmental
Authorities and necessary to the ownership, occupation or use of its properties
or the conduct of its business, except to the extent the failure to do so would
not be reasonably likely to have a Material Adverse Effect, and (iii) keep all
material properties in good working order and condition (normal wear and tear
excepted) and from time to time make all necessary repairs to and renewals and
replacements of such properties, except to the extent that any of such
properties are obsolete or are being replaced; provided, however, that nothing
in this Section 7.3 shall prevent the Company from discontinuing the operation
and maintenance of any of its properties or those of their Subsidiaries if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its or their business and that would not, individually or in the aggregate, have
a Material Adverse Effect.
Section 7.4 Use of Proceeds. The Company will use the proceeds of the
sale of the Securities to (a) refinance, in part, approximately $18,250,000 of
senior debt, (b) retire a $3,750,000 subordinated note issued pursuant to that
certain Subordination Loan Agreement dated as of April 4, 2000 between the
Company and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as amended, (c) pay certain fees and expenses in
connection with the Transactions and/or (d) pay any and all fees and expenses in
connection with the issuance and sale of the Securities, all in amounts
acceptable to KPP.
Section 7.5 Compliance with Agreements. The Company will, and will
cause each of its Subsidiaries to, perform and observe all of their respective
material obligations set forth in this Agreement and the other Debt Documents to
which it is a party.
Section 7.6 Compliance with Laws; Regulatory Authorizations, etc. The
Company will, and will cause each of its Subsidiaries to, comply in all respects
with all Requirements of Law applicable in respect of the conduct of its
business and the ownership and operation of its properties, except to the extent
the failure so to comply would not be reasonably likely to have a Material
Adverse Effect. The Company shall and shall cause its Subsidiaries to at all
times obtain and maintain in force all of its material Regulatory Authorizations
and Permits and all material registrations, qualifications, designations,
declarations and other filings with, any Governmental Authority necessary in (i)
the conduct of its business in its present state of Network construction and
(ii) in connection with execution and delivery of this Agreement and the
Transaction Documents, consummation of the transactions herein or therein
contemplated, performance of or compliance with the terms and conditions hereof
or thereof or to ensure the legality, validity and enforceability hereof or
thereof. The Company shall and shall cause its Subsidiaries to promptly provide
KPP with a copy of each material Regulatory Authorization or Permit obtained
after the date hereof, and, if so requested by KPP, an opinion of regulatory
counsel to the effect that the Company and its Subsidiaries have all relevant
Regulatory Authorizations and Permits necessary for the operation of its
business. In no event, shall the Company be required to provide KPP with more
than one (1) opinion of regulatory counsel during any twelve (12) month period
other than upon the occurrence and during the continuation of a Default or an
Event of Default.
50
Section 7.7 Payment of Obligations.
(a) The Company will duly and punctually pay the principal of, and
interest and any premium on, the Note when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise).
(b) The Company will, and will cause each of its Subsidiaries to, (i)
pay, discharge or otherwise satisfy at or before maturity all liabilities and
obligations (provided that this section shall not apply to the Equity Documents
and the Senior Debt Documents) as and when due (subject to any applicable
subordination provisions) if the failure to pay, discharge, or otherwise satisfy
such liabilities and obligations would cause an Event of Default under Section
10.1(b)(ii) and 10.1(b)(iii), and (ii) pay and discharge all taxes, assessments
and governmental charges or levies imposed upon it, upon its income or profits
or upon any of its properties, prior to the date on which penalties would attach
thereto, and all lawful claims that, if unpaid, might become a Lien upon any of
the properties of the Company or any of its Subsidiaries; provided, however,
that neither the Company nor any of its Subsidiaries shall be required to pay
any such unsecured tax, assessment, charge, levy or claim that is being
contested in good faith and by proper proceedings and as to which the Company or
any of its Subsidiaries, as the case may be, is maintaining adequate reserves
with respect thereto in accordance with GAAP.
Section 7.8 Insurance. The Company will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurance
companies insurance with respect to its assets, properties and business, against
such hazards and liabilities, of such types and in such amounts, as is
customarily maintained by companies in the same or similar businesses similarly
situated.
Section 7.9 Maintenance of Books and Records; Inspection. The Company
will, and will cause each of its Subsidiaries to, (i) maintain adequate books,
accounts and records, in which full, true and correct entries shall be made of
all financial transactions in relation to its business and properties, and
prepare all financial statements required under this Agreement, in each case in
accordance with GAAP and in compliance with the requirements of any Governmental
Authority having jurisdiction over it, (ii) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Subsidiaries, contingencies, and other reserves, and (iii) at all times engage
KPMG or other national accounting firm as the independent certified public
accountants of the Company and its Subsidiaries and (iv) permit any Holder
individually or any of Holder's designated representatives to visit and inspect
its properties and examine or audit its books, records, working papers and
accounts and make copies and memoranda of them, and to discuss its affairs,
finances and accounts with its officers and employees and, the independent
public accountants of the Company and its Subsidiaries (and by this provision
the Company authorizes such accountants to discuss the finances and affairs of
the Company or any of its Subsidiaries), all at such times and from time to
time, upon reasonable notice and during business hours, as may be reasonably
requested; provided, however, that, other than during the occurrence of a
Default or Event of Default, the Holders shall use reasonable efforts to conduct
all such visits, inspections, examinations and discussions collectively as a
group.
51
Section 7.10 Taxes. The Company will, and will cause each of its
Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges (other than taxes, assessments and other governmental
charges imposed by foreign jurisdictions that in the aggregate are not material
to the business or assets of the Company on an individual basis or the Company
and its Subsidiaries on a consolidated basis) imposed upon them and their real
properties, sales and activities, or any part thereof, or upon the income or
profits therefrom, that if unpaid might by law become a lien or charge upon any
of its property; provided that any such tax, assessment, charge, levy or claim
need not be paid if the validity or amount thereof shall currently be contested
in good faith by appropriate proceedings and if the Company or its Subsidiary,
as the case may be, shall have set aside on its books adequate reserves with
respect thereto; and provided further that the Company or its Subsidiary, as the
case may be, shall pay all such taxes, assessments, charges, levies or claims
forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor.
Section 7.11 SEC Reports. (a).The Company will file the reports
required to be filed by it under the Securities Act and the Exchange Act (or, if
the Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales under Rule 144A under the Securities Act), including the SEC
Reports, and it will take such further action as any Holder may request, all to
the extent required from time to time to enable such Holder to sell registrable
securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144A under the Securities Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements.
Section 7.12 Creation of Subsidiaries. Subject to the provisions of
Section 9.5, the Company may from time to time create new Subsidiaries, and the
Subsidiaries of the Company may create new Subsidiaries, provided, however, that
each such new Subsidiary shall be a Wholly Owned Subsidiary, provided, however,
that Newco may be treated as a Subsidiary without violating the provisions of
this Section 7.12, if despite the fact that it is not Wholly Owned, GAAP would
require it to be consolidated with the Company as a result of the exercise by
the Company of control over Newco.
Section 7.13 Environmental Laws.
(a) The Company will, and will cause each of its Subsidiaries to,
comply in all material respects with, and ensure compliance in all material
respects by all tenants and subtenants, if any, with, all applicable
Environmental Laws and obtain and comply in all material respects with and
maintain, and ensure that all tenants and subtenants obtain and comply in all
material respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws, except to the extent that the failure to do so would not cause a Material
Adverse Effect.
(b) The Company will, and will cause each of its Subsidiaries to,
conduct and complete all investigations, studies, sampling and testing, and all
remedial, removal and other
52
actions, required under Environmental Laws and promptly comply in all material
respects with all lawful orders and directives of all Governmental Authorities
regarding Environmental Laws, except to the extent that the same are being
contested in good faith by appropriate proceedings and the pendency of such
proceedings would not cause a Material Adverse Effect.
Section 7.14 Further Assurances. The Company will, and will cause each
of its Subsidiaries to, make, execute, endorse, acknowledge and deliver any
amendments, modifications or supplements hereto and restatements hereof and any
other agreements, instruments or documents, and take any and all such other
actions, as may from time to time be reasonably requested by the Required
Holders to effect, confirm or further assure or protect and preserve the
interests, rights and remedies of the Holders under this Agreement and the other
Debt Documents.
Section 7.15 Board Rights and Quarterly Management Meetings. The
Company shall, and shall cause each of the Company's Subsidiaries to, (i) give
written notice (which notice shall include a detailed agenda to the extent such
agenda is available) to KPP of each meeting of the Board of Directors of the
Company contemporaneously with the giving of notice of such meetings to the
other directors, (ii) hold quarterly management meetings with the Chief
Executive Officer, Chief Financial Officer and either (a) the Executive Vice
President of Sales and Field Operations or (b) the Executive Vice President of
Business Development (collectively, the "Attendees") of the Company and its
Subsidiaries with all the Attendees being in attendance for all such meetings
for so long as the Indebtedness to KPP shall remain outstanding, (iii) permit
one (1) individual designated by KPP (the "Observer"), to attend as an observer
each fourth quarter meeting of the Board of Directors of the Company and its
Subsidiaries and each scheduled quarterly management meeting from the date of
this Agreement for so long as any Indebtedness to KPP shall remain outstanding
and (iv) reimburse promptly, upon demand, all reasonable out-of-pocket expenses
incurred by the Observer in attending and/or participating in such meetings. In
addition, the Company and its Subsidiaries shall provide the Observer with
fifteen (15) Business Days prior written notice to the date of each quarterly
management meeting and the Company and its Subsidiaries shall take all steps
necessary and complete all actions necessary to hold such meeting. In the event
that the fourth quarter meeting of the Board of Directors of the Company and/or
its Subsidiaries falls within a quarter in which a quarterly management meeting
must be called by the Company and/or its Subsidiaries pursuant to (ii) above,
the Company and/or its Subsidiaries will have the right not to call such
quarterly management meeting. In the event such quarterly management meeting is
called by the Company and/or its Subsidiaries, KPP will have the right to attend
such quarterly management meeting in addition to the fourth quarter meeting of
the Board of Directors of the Company and/or its Subsidiaries. Upon the consent
of the Company, KPP may attend such other meetings as are held by the Board of
Directors of the Company and its Subsidiaries in addition to those which KPP has
the right to attend in (iii) above.
Section 7.16 Maintenance of D&O Insurance. The Company shall maintain
in full force and effect the D&O Insurance Policy.
Section 7.17 Site Leases and Consents. The Company shall and shall
cause its Subsidiaries to maintain in force and renew all Site Leases except
where the failure to do so could not be reasonably expected to cause a Material
Adverse Effect. Unless otherwise
53
approved by Collateral Agent in writing, any Site Lease entered into after the
date hereof for all Sites where the aggregate cost of the Collateral to be
located at such Site exceeds $500,000, shall require that Collateral Agent be
given notice of default and the right to elect to cure defaults and/or assume
such agreement upon such Person's default thereunder upon the occurrence and
during the continuation of an Event of Default under this Agreement.
Section 7.18 Landlord Consents. To the extent that a landlord consent
is obtained with respect to the Senior Credit Agreement, the Company shall and
shall cause its Subsidiaries to obtain and keep effective a similar landlord
consent in favor of KPP.
Section 7.19 Upgrade of Equipment. The Company shall, and shall cause
each of its Subsidiaries to, update the Software customarily used in equipment
of the same type as the equipment utilized by the Company and its Subsidiaries
in the Telecommunication Business as reasonably necessary for the conduct and
operation of the business of the Company and its Subsidiaries and the Company
and its Subsidiaries shall update the Software utilized in other equipment to
the extent reasonably necessary for the operation of the business of the Company
and its Subsidiaries. The Company shall, and shall cause each of its
Subsidiaries to, maintain the Equipment in good working order in accordance with
established maintenance procedures such that the Equipment used in the
Telecommunication Business performs to published specifications and to upgrade
its functionality to include batch change supplements releases generally
available to customers of the Company or the applicable vendor, as the case may
be, and batch change supplements upgrades included in the original purchase
price of the purchase agreement for such equipment and perform updates and
maintenance on other equipment to the extent reasonably necessary for the
operation of business of the Company and its Subsidiaries.
Section 7.20 Subsidiary Guaranties and Security Agreements. Each
Subsidiary of the Company, created, acquired or held subsequent to the Closing
Date, shall promptly, but in no event later than five (5) Business Days after
the date upon which such Subsidiary is created, acquired or held by the Company,
execute and deliver to KPP (a) a Guaranty, (b) a Security Agreement covering all
assets of such Subsidiary, and (c) a consent to the Intercreditor Agreement,
such agreements to be in form and substance acceptable to KPP.
ARTICLE VIII.
FINANCIAL COVENANTS
Until the payment by the Company in full of the Obligations, the
Company hereby covenants and agrees with each Holder as follows:
Section 8.1 Leverage Ratio. The Company will not permit the Leverage
Ratio to exceed (i) 2.25 to 1.00 at any time after the date hereof through and
including December 31, 2003 or (ii) 1.70 to 1.00 from January 1, 2004 through
and including the later of December 31, 2006 or the date the Term Loan is paid
in full or (iii) 1.50 to 1.00 at any time thereafter.
Section 8.2 Capitalization Ratio. Total Indebtedness shall not exceed
62% of Total Capitalization at any time.
Section 8.3 Fixed Charge Coverage Ratio. The Company will not permit
the Fixed Charge Coverage Ratio to be less than (i) 1.05 to 1.00 at any time
after the date hereof
54
through and including the later of December 31, 2006 or the date the Term Loan
is paid in full or (ii) 1.50 to 1.00 thereafter.
Section 8.4 Capital Expenditures. The Company will not, and will not
permit any Subsidiary to, make or commit to make any Capital Expenditures except
Capital Expenditures of the Company and its Subsidiaries not exceeding in the
aggregate (i) during the fiscal year of the Company ending December 31, 2002,
$7,000,000 and (ii) during any fiscal year thereafter, the sum of (i)
$6,750,000, plus (ii) an amount equal to 50% of the positive remainder, if any,
of (x) EBITDA for the fiscal year most recently ended prior to such date, minus
(y) $15,000,000; provided, that up to 25% of any amount not so expended during
any fiscal year for which it is permitted may be carried over for expenditures
during any immediately succeeding fiscal year (but not other successive fiscal
years).
ARTICLE IX.
NEGATIVE COVENANTS
Until the payment by the Company in full of the Obligations, the
Company hereby covenants and agrees with each Holder as follows:
Section 9.1 Merger; Consolidation. The Company will not, and will not
permit or cause any of its Subsidiaries to, liquidate, wind up or dissolve, or
enter into any consolidation, merger or other combination or acquire a new
Person or line of business (other than as permitted by clause (h) of Section 9.5
of this Agreement), or agree to do any of the foregoing, except that, if at the
time thereof and immediately after giving effect thereto no Default or Event of
Default shall have occurred and be continuing (i) any Subsidiary may merge into
the Company in a transaction in which the Company is the surviving corporation
and (ii) any Subsidiary may liquidate or dissolve if the Company determines in
good faith that such liquidation or dissolution is in the best interests of the
Company and is not materially disadvantageous to KPP.
Section 9.2 Indebtedness. The Company will not, and will not permit or
cause any of its Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness other than:
(a) Senior Indebtedness;
(b) Indebtedness of the Company under this Agreement, the Note and
pursuant to the Securityholders' and Registration Rights Agreement;
(c) accrued expenses (including salaries, accrued vacation and other
compensation), current trade or other accounts payable and other current
liabilities arising in the ordinary course of business and not incurred through
the borrowing of money, in each case above to the extent constituting
Indebtedness;
(d) Indebtedness of the Company or its subsidiaries under any Interest
Rate Protection Agreements that are on such terms and with such parties as shall
be reasonably satisfactory to the KPP. In the event that the Collateral Agent
has approved any Interest Rate Protection Agreement but KPP has not responded as
to whether such Interest Rate Protection Agreement is reasonably satisfactory to
KPP, the Collateral Agent may, by written notice to KPP, request that KPP advise
the Collateral Agent as to whether such Interest Rate Protection
55
Agreement is reasonably satisfactory to KPP. If KPP fails to respond to any such
request within five (5) Business Days of the date such request is delivered to
it, the applicable Interest Rate Protection Agreement shall be deemed reasonably
acceptable to KPP.
(e) Indebtedness consisting of Contingent Obligations of the Company or
any of its Subsidiaries for the benefit of any Subsidiary of the Company;
provided, however, that the primary obligation being guaranteed is expressly
permitted by this Agreement;
(f) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is extinguished
within three (3) Business Days of incurrence;
(g) Indebtedness of the Company or any of its Subsidiaries in respect
of performance bonds, bankers' acceptances, workers' compensation claims, surety
or appeal bonds, payment obligations in connection with self-insurance or
similar obligations, entered into in the ordinary course of business;
(h) Indebtedness of the Company and the Subsidiaries incurred solely to
finance the acquisition of any equipment, real property or other fixed assets,
including Indebtedness in respect of Capital Lease Obligations, but only to the
extent permitted by Section 8.4; provided that such Indebtedness is incurred
within ninety (90) days following such acquisition;
(i) other Indebtedness of the Company and its Subsidiaries not
exceeding $2,000,000 in aggregate principal amount outstanding at any one time;
provided, that no such Indebtedness shall be incurred during the continuance of
a Default or Event of Default.
Notwithstanding the foregoing or anything to the contrary in this Agreement, the
Company will not, and will not permit or cause any of its Subsidiaries to
create, incur, assume or suffer to exist any Indebtedness that is subordinate or
junior in right of payment to any Senior Indebtedness and senior in any respect
to the Obligations.
Section 9.3 Liens. The Company will not, nor will it permit or cause
any of its Subsidiaries to, directly or indirectly, make, create, incur, assume
or suffer to exist, any Lien upon or with respect to any part of its property or
assets, whether now owned or hereafter acquired, or file or permit the filing
of, or permit to remain in effect, any financing statement or other similar
notice of any Lien with respect to any such property, asset, income or profits
under the Uniform Commercial Code of any state or under any similar recording or
notice statute, or agree to do any of the foregoing, other than the following
(collectively, "Permitted Liens"):
(a) Liens in favor of the administrative agent and the Lenders under
the Senior Credit Agreement created by or otherwise existing under or in
connection with the Senior Debt Documents (including, without limitation, Liens
in favor of the administrative agent and the Lenders under the Senior Credit
Agreement created by or otherwise existing under or in connection with Hedge
Agreements entered into in accordance with, Section 6.08 of the Senior Credit
Agreement and the Senior Debt Documents);
56
(b) Liens in existence on the Closing Date and set forth on Schedule
9.3;
(c) Liens imposed by law, such as Liens of carriers, warehousemen,
mechanics, materialmen and landlords, and other similar Liens incurred in the
ordinary course of business for sums not constituting borrowed money that are
not overdue for a period of more than thirty (30) days or that are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP (if so required);
(d) Liens (other than any Lien imposed by ERISA or the Code, the
creation or incurrence of which would result in an Event of Default under
Section 10.1(f)) incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or other forms of governmental
insurance or benefits, or to secure the performance of letters of credit, bids,
tenders, statutory obligations, surety and appeal bonds, leases, government
contracts and other similar obligations (other than obligations for borrowed
money) entered into in the ordinary course of business;
(e) Liens for taxes, assessments or other governmental charges or
statutory obligations that are not delinquent or remain payable without any
penalty or that are being contested in good faith by appropriate proceedings and
for which adequate reserves have been established in accordance with GAAP (if so
required);
(f) any attachment or judgment Lien not constituting an Event of
Default under Section 10.1(i) that is being contested in good faith by
appropriate proceedings and for which adequate reserves have been established in
accordance with GAAP;
(g) Liens securing the Indebtedness permitted under Section 9.2,
provided that (a) any such Lien shall attach to the property acquired with such
Indebtedness concurrently with or within ninety (90) days after the acquisition
thereof by the Company or such Subsidiary, (b) the amount of the Indebtedness
secured by such Lien shall not exceed the lesser of (y) the fair market value of
the property acquired with such Indebtedness at the time of such acquisition and
(z) the cost thereof to the Company or such Subsidiary and (c) any such Lien
shall not encumber any other property (other than the proceeds of, or accessions
to, such acquired property) of the Company or any of its Subsidiaries;
(h) customary security deposits under operating leases entered into by
the Company and its Subsidiaries in the ordinary course of business;
(i) customary rights of set-off, revocation, refund or chargeback under
deposit agreements or under the Uniform Commercial Code (or the equivalent
thereof in any foreign jurisdiction) of banks or other financial institutions
where the Company or any of its Subsidiaries maintains deposits (other than
deposits intended as cash collateral) in the ordinary course of business;
(j) Liens arising from the filing, for notice purposes only, of
financing statements in respect of true leases otherwise permitted hereunder;
(k) with respect to any real property occupied by the Company or any of
its Subsidiaries, all easements, rights of way, licenses and similar
encumbrances on title that do not
57
materially detract from the value of the affected property or interfere with the
ordinary course of business of the Company;
(l) Liens in favor of customs and revenue authorities arising as a
matter of law to secure nondelinquent customs duties in connection with the
importation of goods;
(m) Liens that arise in favor of banks under Article 4 of the Uniform
Commercial Code on items in collection and the documents relating thereto and
proceeds thereof; and
(n) Liens in favor of KPP pursuant to the Security Agreement.
Section 9.4 Disposition of Assets. The Company will not, and will not
permit or cause any of its Subsidiaries to, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
all or any portion of its assets, business or properties (including, without
limitation, any Capital Stock of any of its Subsidiaries), or agree to do any of
the foregoing, except
(a) sales of inventory and licenses or leases of Intellectual Property
and other assets (including rollovers and replacements of motors vehicles in the
ordinary course of business), in each case in the ordinary course of business
consistent with past practices;
(b) the sale, transfer or other disposition of cash, marketable
securities or cash equivalents;
(c) the sale, exchange or other disposition of used or obsolete
equipment or other capital assets to the extent the proceeds of such sale are
applied towards or are committed to be applied towards, or are assets exchanged
for, replacement equipment or replacement capital assets within ninety (90) days
of such sale, exchange or other disposition or applied to repay Senior
Indebtedness;
(d) the sale, lease or other disposition of assets in compliance with
Section 9.7 by the Company or any Subsidiary of the Company to the Company or
any Guarantor or any Subsidiary of the Company;
(e) any Permitted Asset Dispositions; and
(f) sales, transfers and dispositions to the Company or a Subsidiary
(so long as such Subsidiary is a Guarantor).
provided, however, that within 180 days after the receipt of any Net Cash
Proceeds from a Permitted Asset Disposition, the Company shall apply such Net
Cash Proceeds, to permanently reduce Senior Indebtedness (and correspondingly
reduce commitments with respect thereto in the case of any reduction of
borrowings under the Senior Credit Agreement) or to reinvest in assets as
permitted under the Senior Credit Agreement. Pending the final application of
any such Net Cash Proceeds, the Company may temporarily reduce Senior
Indebtedness or otherwise invest such Net Cash Proceeds in any manner that is
not prohibited by this Agreement. Any Net Cash Proceeds from a Permitted Asset
Disposition that are not applied or re-invested as provided
58
in the foregoing proviso will be deemed to constitute "Excess Proceeds." Within
10 Business Days of the date on which the aggregate amount of Excess Proceeds
exceeds the US Dollar Equivalent of $1,000,000, the Company shall make an offer
(the "Asset Sale Offer") to purchase the maximum principal amount of the Note
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to the Redemption Price, in accordance with the procedures for
redemption set forth in the Note unless such Net Cash Proceeds are required to
prepay Senior Indebtedness pursuant to the Senior Debt Documents. To the extent
that the aggregate amount of the Note tendered pursuant to an Asset Sale Offer
is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
the Note surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Note shall be purchased on a pro rata basis. Upon completion of such offer
to purchase, the amount of Excess Proceeds shall be reset at zero.
Section 9.5 Investments. The Company will not, and will not permit or
cause any of its Subsidiaries to directly or indirectly, purchase, own, invest
in or otherwise acquire any Capital Stock, evidence of indebtedness or other
obligation or security or any interest whatsoever in any other Person, or make
or permit to exist any loans, advances or extensions of credit to, or any
investment in cash or by delivery of property in, any other Person, make an
Acquisition, create or acquire any Subsidiary, or become a partner or joint
venturer in any partnership or joint venture (collectively, "Investments"), or
make a commitment or otherwise agree to do any of the foregoing, other than:
(a) Permitted Investments;
(b) Investments consisting of (i) loans and advances to employees of
the Company and its Subsidiaries for reasonable travel, relocation and business
expenses in the ordinary course of business not exceeding $300,000 at any time
outstanding, (ii) accounts receivable of the Company and its Subsidiaries
created or acquired in the ordinary course of business, and (iii) prepaid
expenses of the Company and its Subsidiaries incurred in the ordinary course of
business;
(c) Investments (including Indebtedness) of the Company and its
Subsidiaries received in settlement of debts owing to the Company or any of its
Subsidiaries or as a result of bankruptcy or insolvency proceedings or upon the
foreclosure or enforcement of any lien or other encumbrance, mortgage, pledge,
charge, restriction or other security interest in favor of the Company or any
Subsidiary;
(d) without duplication, Investments consisting of intercompany
Indebtedness permitted under Section 9.2(e);
(e) Investments existing (or contractually committed to) as of the
Closing Date and described in Schedule 9.5;
(f) Investments of the Company or its Subsidiaries under Hedge
Agreements permitted under Section 9.2(d);
(g) the Transactions;
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(h) the Company's purchase of Equity Interests in, and extension of
equipment financing to, a newly formed entity ("Newco") that will purchase all
of the assets of Revenue Communications, Inc., a Texas Corporation, ("Revcom")
which purchase and extension of financing shall not exceed $1,000,000 in the
aggregate and the consummation of such transaction will occur within six (6)
months of the Closing Date;
(i) investments by the Company and its Subsidiaries in Equity Interests
in their respective Subsidiaries; provided that (i) neither the Company nor any
Subsidiary shall have any Foreign Subsidiaries, (ii) each Subsidiary formed or
acquired after the Closing shall be a Wholly Owned Subsidiary and (iii) each
such Subsidiary shall be a Guarantor;
(j) loans or advances made by the Company to any Subsidiary and made by
any Subsidiary to the Company or any Subsidiary, provided that any such loans
and advances shall be subordinated to the prior payment in full of the
Obligations on terms and conditions acceptable to KPP and provided further that
each such Subsidiary is a Guarantor and is a Wholly Owned Subsidiary;
(k) Acquisitions other than the Acquisition described in clause (h)
above; provided that (i) the aggregate purchase price with respect to all
Acquisitions permitted by this clause (k) shall not, when added to the aggregate
Investments in Newco permitted by clause (l) below, exceed $1,000,000 in the
aggregate in any fiscal year, or $2,000,000 in the aggregate after the Closing
Date, (ii) no Acquisition may be made after the occurrence and during the
continuance of a Default or Event of Default, and (iii) the Company may not, and
may not permit any of its Subsidiaries to, make, or commit to make, an
Acquisition of any Person (including pursuant to any merger with any Person that
was not a Wholly Owned Subsidiary prior to such merger) if the EBITDA of such
acquired Person for the twelve months most recently ended immediately prior to
such Acquisition (calculated consistently with the calculations of EBITDA for
the Company and its Subsidiaries in this Agreement) is less than zero; and
(l) Investments in Newco not permitted by clause (h) above; provided
that (i) the Investments permitted by this clause (l) shall not exceed $250,000
in the aggregate, and (ii) no Investment may be made after the occurrence and
during the continuance of a Default or an Event of Default.
Section 9.6 Restricted Payments. The Company will not, and will not
permit or cause any of its Subsidiaries to, directly or indirectly declare or
make any Restricted Payment, except that:
(a) The Company and any Subsidiary (x) may declare and make dividend
payments or other distributions payable solely in its Common Stock, and (y) may
convert or change Capital Stock for other Capital Stock of the Company (not
constituting Disqualified Capital Stock of the Company); and
(b) each Wholly Owned Subsidiary of the Company may declare and make
dividend payments or other distributions to the Company or to another Wholly
Owned Subsidiary of the Company that is a Subsidiary Guarantor.
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Section 9.7 Transactions with Affiliates. The Company will not, and
will not permit or cause any of its Subsidiaries to, enter into any transaction
(including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service) with any officer, director,
stockholder or other Affiliate of the Company or any of its Subsidiaries, except
in the ordinary course of its business and upon fair and reasonable terms that
are no less favorable to the Company or such Subsidiary, as the case may be,
than such entity would obtain in a comparable arm's length transaction with a
Person other than an Affiliate of the Company or any of its Subsidiaries;
provided, however, that nothing contained in this Section 9.7 shall prohibit:
(a) transactions described on Schedule 9.7 or otherwise expressly
permitted under this Agreement;
(b) the payment by the Company of reasonable and customary fees to
members of the Company's board of directors;
(c) so long as no Event of Default is continuing, transactions
specifically permitted under Section 9.5(b)(i) upon fair and reasonable terms no
less favorable to the Company and its Subsidiaries than they would receive in an
arm's-length transaction; and
(d) transactions among the Company and its Subsidiaries (so long as
such Subsidiaries are Wholly Owned Subsidiaries and are Guarantors).
Section 9.8 Lines of Business. The Company will not, and will not
permit or cause any of its Subsidiaries to, engage in any lines of business
other than the business of providing inmate calling platform and related
services to correctional facilities throughout North America and activities
reasonably related thereto. All references in this Agreement and the other Debt
Documents to "in the ordinary course of business" shall mean only in the
ordinary course of those businesses permitted by this Section 9.8.
Section 9.9 Sale-Leaseback Transactions. The Company will not, and will
not permit or cause any of its Subsidiaries to, directly or indirectly, enter
into any arrangement, directly or indirectly, with any Person whereby the
Company or any of its Subsidiaries shall sell or transfer any Property, real or
personal, which is used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such Property or other Property
which the Company or such Subsidiary intends to use for substantially the same
purpose or purposes as the Property being sold or transferred.
Section 9.10 Increase in Senior Indebtedness. The Company will not, and
will not permit or cause any of its Subsidiaries to, enter into any Modification
of any provision of any of the Senior Debt Documents, if the effect of such
Modification would be to increase (by fundings, commitments or otherwise) the
aggregate principal amount of Senior Indebtedness above the level otherwise
permitted by the Intercreditor Agreement.
Section 9.11 Limitation on Certain Restrictions. The Company will not,
and will not permit any of its Subsidiaries to (i) enter into or permit to exist
any arrangement or agreement (excluding this Agreement and the Senior Debt
Documents, which directly or indirectly prohibits the Company or any of its
Subsidiaries from creating, assuming or incurring
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any Lien upon its properties, revenues or assets or those of any of its
Subsidiaries whether now owned or hereafter acquired or (ii) enter into any
agreement, contract or arrangement (other than this Agreement and the other Debt
Documents and Senior Debt Documents) restricting the ability of any of its
Subsidiaries to perform and comply with their respective obligations under the
Debt Documents or Senior Credit Agreement or the ability of any Subsidiary to
pay or make dividends or distributions in cash or kind to the Company or any
other Subsidiary, to make loans, advances or other payments of whatsoever nature
to the Company or any other Subsidiary, or to make transfers or distributions of
all or any part of its assets to the Company or any other Subsidiary; in each
case other than (a)(i) restrictions on specific assets which assets are the
subject of purchase money security interests permitted to be incurred pursuant
to this Agreement, (ii) customary restrictions contained in leases, software
licenses and joint venture agreements which restrict the assignment of such
agreements and/or rights thereunder, (iii) restrictions contained in indentures
and other licenses and agreements in existence on the Closing Date which are set
forth on Schedule 9.11, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings of
any such agreements or any Indebtedness to which such agreement relates,
provided however that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are no more
restrictive, taken as a whole, with respect to such distribution, dividend and
other payment restrictions and loan or investment restrictions than those
contained in such agreement, as in effect on the Closing Date; and (iv)
customary restrictions contained in contracts for the sale of goods which
restrict the assignment of performance of such contracts, in each case entered
in the ordinary course of business, (b) restrictions on the creation of Liens
pursuant to agreements governing Indebtedness incurred as purchase money
Indebtedness or Capital Lease Obligations and any Indebtedness incurred to
refinance such Indebtedness or obligations, provided however, that such
restrictions are limited to the property or assets secured by such Liens and
financed with such Indebtedness or obligations and provided further however,
that such Liens and Indebtedness are permitted pursuant to Section 9.3 (with
respect to Liens) or Section 9.2 (with respect to Indebtedness) respectively,
(c) as a result of applicable Requirements of Law, (d) the Senior Debt
Documents, (e) Liens securing Indebtedness otherwise permitted to be issued
pursuant to the provisions of Section 9.3 that limit the right of the Company or
any of its Subsidiaries to dispose of the assets subject such Liens, (f) any
agreement or instrument relating to any property or assets acquired after the
Closing Date, so long as such encumbrance or restriction relates solely to the
property or assets so acquired and is not and was not created in anticipation of
such acquisition, and so long as such acquisition was permitted hereunder, (g)
any agreement or instrument governing Indebtedness permitted to be incurred
under this Agreement, provided that the terms and conditions of any such
restrictions and encumbrances, taken as a whole, are not materially more
restrictive than those contained in this Agreement, taken as a whole, and
expressly permit the terms, conditions, rights, obligations and commitments
contained in this Agreement and the other Debt Documents and would in no way
restrain the exercise of rights and remedies of the Holders hereunder, and (h)
any agreement for the disposition of a Subsidiary (to the extent such
disposition is permitted hereunder) pending its sale or other disposition;
provided that such disposition is consummated, or such restrictions are
cancelled or terminated or lapse, within ninety (90) days of the effectiveness
of such agreement.
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Section 9.12 Fiscal Year. The Company will not, and will not permit or
cause any of its Subsidiaries to, change the ending date of its fiscal year to a
date other than December 31.
Section 9.13 Accounting Changes. Other than as permitted pursuant to
Section 1.2, the Company will not, and will not permit or cause any of its
Subsidiaries to, make or permit any material change in its accounting policies
or reporting practices, except (i) as may be required by GAAP or (ii) as the
Company's independent auditor may recommend and as reasonably consented to by
the Required Holders.
Section 9.14 Inconsistent Agreements. The Company will not, and will
not permit or cause any of its Subsidiaries to, enter into any agreement (other
than with respect to the Senior Indebtedness and the Intercreditor Agreement)
containing any provision that would be violated or breached by the performance
of its obligations under this Agreement or any other Debt Document or the
performance of which would cause a violation or breach of its obligations under
this Agreement or any other Debt Document.
ARTICLE X.
EVENTS OF DEFAULT.
Section 10.1 Events of Default. The occurrence (whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise) and continuation for any reason whatsoever of any of the
following events shall constitute an "Event of Default":
(a) Payment Defaults.
(i) The Company fails to make payment of or repurchase the
principal on the Note when the same shall become due and payable
whether at maturity or a date fixed for prepayment or by acceleration
or otherwise;
(ii) The Company fails to make payment of the interest on the
Note or any fees provided for hereunder or under the Note when the same
shall become due and payable, and such failure continues for a period
of 3 Business Days;
(b) Default in Other Agreements.
(i) An Event of Default (as defined in the Senior Credit
Agreement) under the Senior Credit Agreement occurs that results in an
acceleration of the Senior Indebtedness;
(ii) The failure of the Company or any of its Subsidiaries to
pay when due or within any applicable grace period any principal or
interest on Indebtedness (other than the Senior Indebtedness and Equity
Documents) or any Contingent Obligations (other than the Senior
Indebtedness and Equity Documents), of an amount in excess of $500,000
in the aggregate, exclusive of payments made into an escrow account, to
a court-appointed trustee or into an account pending settlement of a
dispute;
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(iii) The breach or default of the Company or any of its
Subsidiaries with respect to any Indebtedness (other than the Senior
Indebtedness and other than any defaults arising solely as a result of
defaults under the Senior Indebtedness and Equity Documents) or any
Contingent Obligations (other than the Senior Indebtedness and Equity
Documents), if the effect of such breach or default is to cause such
Indebtedness and/or Contingent Obligations (other than the Senior
Indebtedness and Equity Documents) having an amount, in excess of
$500,000 in the aggregate, to become or be declared due or to be
prepaid, redeemed, purchased or defeased prior to their stated maturity
by acceleration or otherwise;
(c) Breach of Certain Provisions. The failure of the Company or any of
its Subsidiaries to perform or comply with any term or condition contained in
Sections 7.2(f)(i), 7.3(i) (as it relates to the Company or any Significant
Subsidiary), 7.4, 7.9 (as it relates to the Company or any Significant
Subsidiary), 7.12, 8 or 9;
(d) Breach of Warranty. Any representation, warranty, certification or
other statement made by the Company or any of its Subsidiaries in any Debt
Document or in any statement or certificate at any time given by such Person in
writing pursuant or in connection with any Debt Document is false in any
material respect on the date made;
(e) Other Defaults Under Debt Documents. The Company or any of its
Subsidiaries defaults in the performance of or compliance with any term
contained in any Debt Documents and such default is not remedied or waived
within 15 days after the earlier of a Responsible Officer becoming aware of or
receipt by the Company of notice from any Holder of such default (other than
occurrences described in other provisions of this Section 10 for which a
different grace or cure period is specified or which constitute immediate Events
of Default);
(f) Involuntary Bankruptcy; Appointment of Receiver, Etc. (i) A court
enters a decree or order for relief with respect to the Company or any of its
Significant Subsidiaries, in an involuntary case under the Bankruptcy Code,
which decree or order is not stayed or other similar relief is not granted under
any applicable federal or state law; or (ii) the continuance of any of the
following events for sixty (60) days unless dismissed, bonded or discharged: (A)
an involuntary case is commenced against any such party, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or (B) a
decree or order of a court for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over any
such party, or over all or a substantial part of its property, is entered; or
(C) an interim receiver, trustee or other custodian is appointed without the
consent of any such party, for all or a substantial part of the property of any
such party;
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. (A) An order
for relief is entered with respect to the Company or any of its Subsidiaries, or
any such Person commences a voluntary case under the Bankruptcy Code, or
consents to the entry of an order for relief in an involuntary case or to the
conversion of an involuntary case to a voluntary case under any such law or
consents to the appointment of or taking possession by a receiver, trustee or
other custodian for all or a substantial part of its property; or (B) any such
Person makes any assignment for the benefit of creditors; or (C) the managers
(or analogous governing body) of the
64
Company or any of its Subsidiaries adopts any resolution or otherwise authorizes
action to approve any of the actions referred to in this subsection;
(h) Governmental. One or more liens, levies or assessments exceeding
$250,000 in the aggregate is filed or recorded with respect to or otherwise
imposed upon all or any material part of the assets of the Company or any of its
Subsidiaries by any Governmental Authority (other than Permitted Liens);
(i) Judgment and Attachments. Any money judgment, writ or warrant of
attachment, execution or similar process in excess of $150,000, (to the extent
not fully covered by insurance) is entered or filed against the Company or any
of its Subsidiaries, or any of their respective assets, and remains
undischarged, unvacated, unbonded or unstayed for a period of 60 days;
(j) Dissolution. Any order, judgment or decree is entered against the
Company or any of its Subsidiaries decreeing the dissolution or split up of the
Company or any of its Subsidiaries and such order remains undischarged or
unstayed for a period in excess of thirty (30) days;
(k) Injunction. The Company or any of its Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business, such order continues for more than 30 days and could reasonably be
expected to have a Material Adverse Effect;
(l) ERISA; Pension Plans. (i) The Company or any of its Subsidiaries or
ERISA Affiliates fails to make full payment when due of any amount which, under
the provisions of any employee benefit plan or any provision of ERISA, the Code
or any other applicable law, any such Person is required to pay as a
contribution to an employee benefit plan, and such failure results in or is
likely to result in a Material Adverse Effect; or (ii) an accumulated funding
deficiency occurs or exists, whether or not waived, with respect to any employee
benefit plans maintained or sponsored by the Company or any of its Subsidiaries
or ERISA Affiliates and such failure results in or is reasonably likely to
result in a Material Adverse Effect; or (iii) any employee benefit plan
maintained or sponsored by the Company or any of its Subsidiaries or ERISA
Affiliates loses its status as a qualified plan under Section 401(a) of the Code
or any ERISA Event occurs, that results in or could reasonably be expected to
have a Material Adverse Effect; (iv) in the case of any defined benefit plan
maintained by the Company or any of its Subsidiaries or ERISA Affiliates, as of
any valuation date of such plan which occurs after December 1, 2001, the value
of the plan's liabilities, computed on an ongoing basis using reasonable and
appropriate actuarial assumptions, exceeds the value of the plan's assets and
such failure results in or is reasonably likely to result in a Material Adverse
Effect; or (v) the occurrence of one or more ERISA Events that results in or is
likely to result in a Material Adverse Effect or the imposition of a lien on the
assets of the Company or any Subsidiary.
(m) Environmental Matters. The Company or any of its Subsidiaries fails
to: (i) obtain or maintain any operating licenses or permits required by
Applicable Environmental Law; (ii) begin, continue or complete any remediation
activities as required by any Applicable Environmental Law; (iii) store or
dispose of any Hazardous Materials in accordance with
65
Applicable Environmental Laws; or (iv) comply with any other Applicable
Environmental Laws; if any of the foregoing failures could reasonably be
expected to have a Material Adverse Effect;
(n) Invalidity of Debt Documents. Any of the Debt Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or the Company or any of its Subsidiaries denies that it has any further
liability under any Debt Document to which it is party, or gives notice to such
effect;
(o) Damage; Strike; Casualty. Any material damage to, or loss, theft or
destruction of, any material assets of the Company or any of its Subsidiaries,
taken as a whole, whether or not insured, or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which
causes, for more than 15 consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of the Company or
any of its Subsidiaries, if any such event or circumstance could reasonably be
expected to have a Material Adverse Effect; and
(p) Licenses and Permits. The loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired by the
Company or any of its Subsidiaries, or any other action shall be taken by any
Governmental Authority in response to any alleged failure by the Company or any
of its Subsidiaries to be in compliance with applicable Requirements of Law if
such loss, suspension, revocation or failure to renew or action, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
Section 10.2 Remedies on Default, Etc.(a) If an Event of Default
described in Section 10.1(a) has occurred and is continuing, (x) the holders of
outstanding Note representing at least fifty percent (50%) of the aggregate
principal amount of the Note then outstanding may at any time at their option by
notice or notices to the Company, declare that the Redemption Price as of the
date of such Event of Default with respect to the aggregate principal amount of
the Note then outstanding, together with all interest accrued pursuant to the
terms of the Note and unpaid as of the date of such Event of Default, shall
automatically become immediately due and payable and (y) any Holder may, at its
option, declare that the Redemption Price as of the date of such Event of
Default with respect to the aggregate principal amount of such Holder's Note(s)
then outstanding, together with all interest accrued pursuant to the terms of
the Note(s) and unpaid as of the date of such Event of Default, shall
automatically become immediately due and payable upon the earlier of (i) one
hundred twenty (120) days following the termination of a Forbearance Period
instituted with respect to such Event of Default or (ii) if no Forbearance
Period may be instituted with respect to such Event of Default, one hundred
twenty (120) days following the date of such Event of Default, in either case
only if such Event of Default at such time is continuing.
(b) If an Event of Default (other than an Event of Default described in
Section 10.1(a), 10.1(f) or 10.1(g)) has occurred and is continuing, the
Required Holders may at any time at their option, by notice or notices to the
Company, declare that the Redemption Price as of the date of such Event of
Default with respect to the aggregate principal amount of the Note then
outstanding, together with all interest accrued pursuant to the terms of the
Note and unpaid
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as of the date of such Event of Default, shall automatically become immediately
due and payable.
(c) If an Event of Default described in Section 10.1(f) or (g) has
occurred, then the Redemption Price as of the date of such Event of Default with
respect to the aggregate principal amount of the Note then outstanding, together
with all interest accrued pursuant to the terms of the Note and unpaid as of the
date of such Event of Default, shall automatically become immediately due and
payable.
(d) Upon the Note becoming due and payable under this Section 10.2,
whether automatically or by declaration, the Note will forthwith mature and the
Redemption Price as of the date of such Event of Default with respect to the
entire aggregate principal amount of the Note then outstanding, together with
all interest accrued pursuant to the terms of the Note and unpaid as of the date
of such Event of Default (such interest to accrue at the Default Rate with
respect to any overdue payment), shall all be immediately due and payable, in
each and every case without presentment, demand, protest or further notice, all
of which are hereby waived.
Section 10.3 Other Remedies. If any Event of Default shall occur and be
continuing, any Holder may proceed to protect and enforce its rights under this
Agreement by exercising such remedies as are available under applicable law,
either by suit in equity or by action at law, or both, whether for specific
performance of any covenant or other agreement contained in this Agreement or in
aid of the exercise of any power granted in this Agreement. No remedy conferred
in this Agreement upon the Purchaser or any Holder is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and in
addition to every other remedy conferred herein or now or hereafter existing at
law or in equity or by statute or otherwise. Notwithstanding any provision of
this Agreement to the contrary, no Holder may exercise any remedy under this
Section 10.3 or otherwise, unless such action is taken or approved in writing by
the Required Holders at the time of such action or unless the Required Holders
have waived such requirement in whole or in part with respect to such Holder.
Section 10.4 Rescission of Acceleration. The provisions of Sections
10.1, 10.2 and 10.3 are subject to the condition that if the principal of and
accrued interest on the Note have been declared immediately due and payable by
reason of the occurrence of any Event of Default described in Section 10.1,
other than subsections (f) and (g), the Required Holders may, by written
instrument filed with the Company, rescind and annul such declaration and the
consequences thereof, provided, however, that at the time such declaration is
annulled and rescinded:
(a) no judgment or decree has been entered for the payment of any
monies due pursuant to the Note or this Agreement;
(b) all arrears of interest upon all the Note and all other sums
payable under the Note and under this Agreement (except any principal or
interest on the Note which has become due and payable solely by reason of such
declaration under Section 10.2) shall have been duly paid, unless the same
specifically has been waived in writing by the Required Holders; and
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(c) each and every other Event of Default shall have been made good,
cured or waived;
(d) and provided, further, that no such rescission and annulment shall
extend to or affect any subsequent Event of Default or impair any right
consequent thereto.
Additionally, if the principal of and accrued interest on the Note has
been declared immediately due and payable solely by reason of the occurrence of
an Event of Default described in Section 10.1(b)(i), if all then outstanding
Events of Default under the Senior Credit Agreement are cured or are waived
under the terms of the Senior Credit Agreement, such acceleration of the Note
shall be automatically rescinded and the Note shall be deemed automatically
reinstated.
Section 10.5 Notice by Holders. Each Holder, prior to taking any action
pursuant to Section 10.2(a) or (b), shall use commercially reasonable efforts to
advise each other Holder not participating in the taking of, or who has not
previously been apprised of such Holder's intention to take, such action of such
Holder's intention to take such action; provided, however, that such Holder
shall not be obligated to take such action after so advising such other Holders;
provided, further, however, that the failure of such Holder to provide such
notice to such other Holders shall not void or otherwise effect the validity of
such action.
ARTICLE XI.
INDEMNIFICATION
Section 11.1 Indemnification.
(a) In addition to all other sums due hereunder or provided for in this
Agreement, the Company agrees to indemnify and hold harmless the Holders and its
respective Affiliates and each of their respective officers, directors, agents,
employees, Subsidiaries, partners, members, attorneys, accountants and
controlling persons (each, an "Indemnified Party") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including, without limitation, reasonable fees, disbursements and other charges
of counsel and costs of investigation incurred by an Indemnified Party in any
action or proceeding between the Company or any of its Subsidiaries and such
Indemnified Party (or Indemnified Parties) or between an Indemnified Party (or
Indemnified Parties) and any third party or otherwise) or other liabilities,
losses, or diminution in value (collectively, "Liabilities") resulting from or
arising out of any breach of any representation or warranty, covenant or
agreement of the Company in this Agreement, the Note, or the other Investment
Documents, including, without limitation, the failure to make payment when due
of amounts owing pursuant to this Agreement, the Note or the other Investment
Documents, on the due date thereof (whether at the scheduled maturity, by
acceleration or otherwise) or any legal, administrative or other actions
(including, without limitation, actions brought by any holders of equity or
indebtedness of the Company or any of their Subsidiaries or derivative actions
brought by any Person claiming through or in the Company's or any of their
Subsidiaries' name), proceedings or investigations (whether formal or informal),
or written threats thereof, based upon, relating to or arising out of the
Investment Documents, or any Indemnified Party's role therein; provided,
however, that the Company shall not be liable under this Section 11.1 to an
Indemnified Party to the extent that it is finally
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judicially determined that such Liabilities resulted principally from the
willful misconduct or gross negligence of such Indemnified Party; provided,
further, that if and to the extent that such indemnification is unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of such Liabilities that shall be permissible under applicable
Requirements of Law. In connection with the obligation of the Company to
indemnify for expenses as set forth above, the Company further agrees, upon
presentation of appropriate invoices containing reasonable detail, to reimburse,
without duplication, each Indemnified Party for all such expenses (including,
without limitation, fees, disbursements and other charges of counsel and costs
of investigation incurred by an Indemnified Party in any action or proceeding
between the Company or any of its Subsidiaries and such Indemnified Party (or
Indemnified Parties) or between an Indemnified Party (or Indemnified Parties)
and any third party or otherwise) as they are incurred by such Indemnified
Party; provided, however, that if an Indemnified Party is reimbursed hereunder
for any expenses, such reimbursement of expenses shall be refunded to the extent
it is finally judicially determined that the Liabilities in question resulted
solely from the willful misconduct or gross negligence of such Indemnified
Party.
(b) If KPP is made a party to or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that KPP is an "observer"
on the Board of Directors of the Company and its Subsidiaries, then KPP shall be
indemnified and held harmless by the Company and its Subsidiaries against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA,
excise taxes or penalties and amounts paid or to be paid in settlement) incurred
or suffered by KPP in connection therewith of any nature whatsoever. Such
indemnification shall continue as to KPP in the event KPP has ceased to be an
"observer" of the Board of Directors of the Company and its Subsidiaries and
shall inure to the benefit of KPP's successors and assigns.
Section 11.2 Procedure; Notification. Each Indemnified Party under this
Article 11 will, promptly after the receipt of written notice of the
commencement of any action, investigation, claim or other proceeding against
such Indemnified Party in respect of which indemnity may be sought from the
Company under this Article 11, notify the Company in writing of the commencement
thereof. The omission of any Indemnified Party so to notify the Company of any
such action shall not relieve the Company from any liability which it may have
to such Indemnified Party unless, and only to the extent that, such omission
results in the Company's being materially prejudiced thereby. In case any such
action, claim or other proceeding shall be brought against any Indemnified Party
and it shall notify the Company of the commencement thereof, the Company shall
be entitled to assume the defense thereof at its or their own expense, with
counsel satisfactory to such Indemnified Party in its reasonable judgment;
provided, however, that any Indemnified Party may, at its own expense, retain
separate counsel to participate in such defense. Notwithstanding the foregoing,
in any action, claim or proceeding in which the Company or any of its
Subsidiaries, on the one hand, and an Indemnified Party, on the other hand, is,
or is reasonably likely to become, a party, such Indemnified Party shall have
the right to employ separate counsel at the Company's expense and to control its
own defense of such action, claim or proceeding if, in the reasonable opinion of
counsel to such Indemnified Party, a conflict or potential conflict exists
between the Company or such Subsidiary, on the one hand, and such Indemnified
Party, on the other hand, that would make such separate representation
advisable; provided, however, that in no event shall the Company be required to
pay fees and expenses under this Article 11 for more than one firm of
69
attorneys in any jurisdiction in any one legal action or group of related legal
actions. The Company agrees that it will not, without the prior written consent
of the Holders, settle, compromise or consent to the entry of any judgment in
any pending or threatened claim, action or proceeding relating to the matters
contemplated hereby (if any Indemnified Party is a party thereto or has been
actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of such Indemnified
Party from all liability arising or that may arise out of such claim, action or
proceeding. The Company shall not be liable for any settlement of any claim,
action or proceeding effected against an Indemnified Party without its written
consent, which consent shall not be unreasonably withheld, delayed or
conditioned. The rights accorded to the Indemnified Parties hereunder shall be
in addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.
Section 11.3 Registration Rights Agreement. Notwithstanding anything to
the contrary in this Article 11, the indemnification and contribution provisions
of the Securityholders' and Registration Rights Agreement shall govern any claim
made with respect to registration statements filed pursuant thereto or sales
made thereunder.
ARTICLE XII.
REDEMPTION
Section 12.1 Mandatory Redemption. Upon the occurrence of a Mandatory
Redemption Event, the Company shall redeem the principal amount of the Note by
paying to the Holder thereof an amount equal to the redemption price as set
forth on the chart below (the "Redemption Price") together with all interest
accrued pursuant to the terms of the Note and unpaid as of the date of such
payment and all reasonable out-of-pocket costs and expenses (including, without
limitation, reasonable fees, charges and disbursements of counsel), if any,
incurred by the Holder and associated with such payment, within 3 Business Days
after the Mandatory Redemption Event. For purposes of this Section 12, the
Redemption Price shall be equal to (A) the product of the principal amount of
Note multiplied by the percentage that corresponds to the period in which the
Mandatory Redemption Event occurs, as provided below:
Period Redemption Price
------ ----------------
Prior to the 1st anniversary of the Closing Date 109%
1st anniversary of the Closing Date through the day prior to the 107%
2nd anniversary of the Closing Date
2nd anniversary of the Closing Date through the day prior to the 105%
3rd anniversary of the Closing Date
3rd anniversary of the Closing Date through the day prior to the 103%
4th anniversary of the Closing Date
4th anniversary of the Closing Date and thereafter 100%
70
Section 12.2 Redemption at the Option of the Company. The Company may
at any time after the second anniversary of the Closing Date redeem the
principal amount of the Note, in whole or in part, by paying to the Holder an
amount equal to the optional redemption price as set forth on the chart below
(the "Optional Redemption Price") as of the date fixed for such redemption,
together, with all interest accrued pursuant to the terms of the Note and unpaid
as of the date of such payment and all reasonable out-of-pocket costs and
expenses (including, without limitation, reasonable fees, charges and
disbursements of counsel), if any, incurred by KPP and associated with such
payment; provided, however, that in the event that the Company redeems a portion
and not all of the principal amount of the outstanding Note, the Company shall
redeem (a) not less than $1,000,000 in principal amount of the outstanding Note
or (b) in the event that less than $1,000,000 in principal amount of the Note
remains outstanding, not less than $500,000 in principal amount of the
outstanding Note. The Company shall give written notice of redemption of the
Note pursuant to this Section 12.2 at least 30 days and not more than 60 days
prior to the date fixed for such redemption. Such notice of redemption shall be
delivered in the manner specified in Section 13 hereof. Upon delivery of such
notice of redemption, the Company covenants and agrees that it will redeem the
Note, on the date specified in such notice, at the applicable Optional
Redemption Price, together with interest accrued pursuant to the terms of the
Note and unpaid as of the date fixed for such redemption and the costs and
expenses referred to in the preceding sentence. For purposes of this Section 12,
the Optional Redemption Price shall be equal to (A) the product of the principal
amount of the Note being redeemed by the Company multiplied by the percentage
that corresponds to the period in which the Company redeems such portion of the
principal amount of the Note, as provided below.
Period Optional Redemption Price
------ -------------------------
Prior to the 3rd Anniversary of the Closing 105%
Date
Prior to the 4th Anniversary of the Closing 103%
Date
4th Anniversary Date and thereafter 100%
ARTICLE XIII.
MISCELLANEOUS
Section 13.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, acceptance of the Securities and payment therefor,
or termination of this Agreement and may be relied upon by any subsequent Holder
of the Note or Warrant regardless of any investigation made by or on behalf of
such purchaser or the holders of the Note or Warrant. All statements contained
in any certificate or other instrument delivered by or on behalf of the Company
shall be deemed representations and warranties of the Company under this
Agreement.
Section 13.2 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-
71
class mail, return receipt requested, telecopier (with receipt confirmed),
nationally recognized overnight courier service or personal delivery:
(a) if to the Company:
T-NETIX, INC.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
with a copy to:
▇▇. ▇▇▇▇▇▇ ▇▇▇▇, Esq.
▇▇▇▇▇▇ & ▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) if to KPP:
Key Principal Partners, LLC
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Key Principal Partners, LLC
▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and
Benesch, Friedlander, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn.: ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
, or to such other address, with respect to any party, as such party shall give
notice of in accordance with this Section 13.2.
72
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; if mailed, three
Business Days after being deposited in the mail, postage prepaid; or if
telecopied, when receipt is acknowledged.
Section 13.3 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Subject to applicable securities laws and the terms of this
Agreement, the Purchasers may assign any of its respective rights under this
Agreement or any of the Investment Documents to any Person and the holders of
the Note, the Warrant or the Common Stock issuable upon exercise of the Warrant
may assign, in whole or in part, the Note, or Warrant or the Common Stock
issuable upon exercise of the Warrant to any Person, subject to the provisions
of the Warrant and Sections 13.17 and 13.18 of this Agreement. The Company may
not assign any of their respective rights, or delegate any of its respective
obligations, under this Agreement without the prior written consent of the
Required Holders, other than a transfer in accordance with the provisions of
Sections 9.1 or 9.4 of this Agreement, and any such purported assignment by the
Company without the written consent of the Required Holders shall be void and of
no effect.
Section 13.4 Amendment and Waiver.
(a) No failure or delay on the part of any of the parties hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for in this Agreement are
cumulative and are not exclusive of any remedies that may be available to the
parties hereto at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement or the Securities, any waiver of any provision of this Agreement
or the Securities and any consent to any departure by any party from the terms
of any provision of this Agreement or the Securities shall be effective only if
it is made or given in writing and signed by the Company and the Required
Holders; provided, however, that (i) no amendment, supplement, modification or
waiver of any of the provisions of Articles 2, 3, 4, 5 or 6 or of any defined
term used in such Articles, shall be effective as to KPP unless consented to by
such Holder in writing and (ii) no such amendment, supplement, modification or
waiver may, without the written consent of the Holder the Note at the time
outstanding affected thereby (A), subject to the provisions of Article 10,
change the amount or time of any payment or prepayment of principal of, or
reduce the rate or change the time of payment or method of computation of
interest on, the Note, or (B) amend any provision of Section 10.1(a), 10.2,
10.3, 10.4, Article 11, Article 12 or Article 13.
(c) Solely for the purpose of determining whether the Holders of the
requisite percentage of the aggregate principal amount of the Note then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement, or have directed the taking of any action provided
herein to be taken upon the direction of the Holders of a specified percentage
of the aggregate principal amount of the Note then outstanding, any portion of
the Note directly or indirectly owned by the Company or any of its Affiliates
shall be deemed not to be outstanding.
73
(d) Any amendment or waiver consented to as provided in this Section
13.4 is binding upon each future holder of any Security and upon the Company
without regard to whether such Security has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of dealing
between the Company and any Holder nor any delay in exercising any rights
hereunder or under any Security shall operate as a waiver of any rights of any
Holder.
Section 13.5 Solicitation of Holders.
(a) The Company will provide each Holder (including any successors or
permitted assigns) with sufficient information, sufficiently far in advance of
the date a decision is required, to enable such Holder to make an informed and
considered decision with respect to any proposed amendment, waiver or consent in
respect of any of the provisions hereof. No such amendment, waiver or consent
shall be effective until the earlier of (i) three (3) Business Days from the
delivery of a notice of such proposed amendment, waiver or consent pursuant to
Section 13.2 and (ii) such time as each Holder shall have actual knowledge of
the proposed amendment, waiver or consent; provided, that an Affiliate of a
Holder shall be deemed to have actual knowledge of any such proposed amendment,
waiver or consent known to such Holder. The Company will deliver executed or
true and correct copies of each amendment, waiver or consent effected pursuant
to Section 13.4 to each Holder promptly following the date on which it is
executed and delivered by, or it receives the consent or approval of each
Holder.
(b) The Company will, or will permit any Affiliates thereof to,
directly or indirectly pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, or grant any security,
to any Holder as consideration for or as an inducement to the entering into by
any Holder of any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each Holder then outstanding even if such
holder did not consent to such waiver or amendment (unless all such Holders were
given an equal opportunity to consent to such waiver or amendment in which case
only the Holders who consent to such waiver or amendment shall be paid such
remuneration or granted such security).
(c) The Company will not, or will not permit any Affiliate thereof to,
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Note except (a) upon the payment or prepayment of the Note in
accordance with the terms of this Agreement and the Note or (b) pursuant to an
offer to purchase made by the Company or an Affiliate pro rata to the Holders of
the Note then outstanding upon the same terms and conditions. Any such offer
shall provide each Holder with sufficient information, sufficiently far in
advance of the date a decision is required, to enable such Holder to make an
informed and considered decision with respect to such offer and shall remain
open for at least 20 Business Days. If the holders of more than 50% of the
principal amount of the Notes then outstanding accept such offer, the Company
shall promptly notify the remaining Holders of such fact and the expiration date
for the acceptance by such remaining Holders of such offer shall be extended by
the number of days necessary to give each such remaining Holder at least 5
Business Days from receipt of such notice to accept such offer.
74
Section 13.6 Signatures; Counterparts. Facsimile transmissions of any
executed original document and/or retransmission of any executed facsimile
transmission shall be deemed to be the same as the delivery of an executed
original. At the request of any party hereto, the other parties hereto shall
confirm facsimile transmissions by executing duplicate original documents and
delivering the same to the requesting party or parties. This Agreement may be
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Section 13.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 13.8 Determinations, Requests or Consents. All determinations,
requests, consents, waivers or amendments to be made by the Holders in their
respective opinions or judgments or with their approval or otherwise pursuant to
the Investment Documents shall be made with respect to each Security by the
Holder thereof.
Section 13.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED IN ACCORDANCE WITH, AND ENFORCED UNDER, THE LAWS OF THE STATE OF
OHIO,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE (INCLUDING
GIVING EFFECT TO GENERAL OBLIGATIONS LAW SECTION 5-1401).
Section 13.10 JURISDICTION, JURY TRIAL WAIVER, ETC.
(a) EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY AGREES THAT ANY
LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
NOTE, THE WARRANT OR ANY AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE OF
OHIO OR OF THE UNITED
STATES OF AMERICA FOR THE NORTHERN DISTRICT OF
OHIO AND HEREBY EXPRESSLY SUBMITS
TO THE NON-EXCLUSIVE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE
PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM
THAT SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 13.2,
SUCH SERVICE TO BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING.
(b) THE COMPANY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL WITH RESPECT
TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS
AGREEMENT, THE NOTE, THE WARRANT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, ANY
RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS
AND OBLIGATIONS. THE COMPANY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT
75
OR ATTORNEY OF ANY PURCHASER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY
PURCHASER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS AND (II) ACKNOWLEDGE THAT THE PURCHASER HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT, AND THE OTHER TRANSACTION DOCUMENTS TO WHICH THEY ARE PARTY BY,
AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
Section 13.11 Severability. If any one or more of the provisions
contained in this Agreement, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions of this Agreement. The parties
hereto further agree to replace such invalid, illegal or unenforceable provision
of this Agreement with a valid, legal and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such invalid, illegal or unenforceable provision.
Section 13.12 Rules of Construction. Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
Section 13.13 Entire Agreement. This Agreement, together with the
exhibits and schedules hereto and the other Investment Documents, is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the exhibits and schedules hereto, and the other Investment Documents supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
Section 13.14 Certain Expenses. The Company agrees (a) whether or not
the transactions contemplated by this Agreement shall be consummated, to pay
upon demand all reasonable out-of-pocket costs and expenses of each Holder
(including, without limitation, actual and reasonable fees, charges and
disbursements of one independent counsel to the Purchaser plus any required
local counsels (not more than one local counsel per locality)) in connection
with (i) such Purchaser's due diligence investigation in connection with, and
the preparation, negotiation, execution, delivery of, this Agreement and the
other Transaction Documents, (ii) at all times including following the Closing
Date, any amendment, modification or waiver hereof or thereof, consent with
respect hereto or thereto or any pay-off or termination of Liens in connection
therewith, and (iii) following the Closing Date and during, or in connection
with, a Default or an Event of Default, the administration, monitoring and
review of the Note (including, without limitation, reasonable out-of-pocket
expenses for travel, meals, long distance telephone calls, wire transfers,
facsimile transmissions and copying and with respect to the engagement of
appraisers, consultants, auditors or similar Persons by such Holder at any time
to render opinions concerning the Company's financial condition), (b) to pay
upon demand all reasonable out-of-pocket costs and expenses of each Holder
(including, without limitation, any reasonable fees,
76
expenses and disbursements of counsel) in connection with (x) any refinancing or
restructuring of the Note, whether in the nature of a "work-out" in any
insolvency or bankruptcy proceeding or otherwise and whether or not consummated,
and (y) the enforcement, attempted enforcement or preservation of any rights or
remedies under this Agreement or any of the other Investment Documents by the
Holders, whether in any action, suit or proceeding (including any bankruptcy or
insolvency proceeding) or otherwise, and (c) to pay and hold each Holder
harmless from and against all liability for any intangibles, documentary, stamp
or other similar taxes, fees and excises (including any interest and penalties
thereon) and any finder's or brokerage fees, commissions and expenses (other
than any fees, commissions or expenses of finders or brokers engaged by such
Holder), that may be payable in connection with the transactions contemplated by
this Agreement and the other Transaction Documents.
Section 13.15 Publicity.
(a) Each Holder shall use its commercially reasonable efforts not to
make public disclosure of any confidential information, including financial
terms and financial and organizational information contained in any documents,
statements, certificates, materials or information furnished, or to be
furnished, by the Company in connection with the transactions contemplated by
this Agreement; provided, however, that the foregoing shall not be construed,
now or in future, to apply to any information reflected in any recorded
documents, information which is independently developed by a Holder without
reference to confidential information, information obtained from sources other
than the Company or information that is or becomes in the public domain, nor
shall it be construed to prevent a Holder from (i) making any disclosure or any
information (A) if required to do so by any Requirement of Law, (B) to any
Governmental Authority having or claiming authority having or claiming authority
to regulate or oversee any aspect of such Holder's business or that of the
corporate holdings or affiliates of such Holder in connection with the exercise
of such authority or claimed authority, or (C) pursuant to subpoena; or (ii) to
the extent such Holder or its counsel deems necessary or appropriate to do so to
effect or preserve its security for any applicable investment or financing or to
enforce any remedy provided herein or in any applicable investment or financing
documents or otherwise available by law; or (iii) making, on a confidential
basis, such disclosures as such Holder deems necessary or appropriate to such
Holder's legal counsel or accountants (including outside auditors); or (iv)
making such disclosures as the Holder reasonably deems necessary or appropriate
to any bank or financial institutions or other entity, and./or counsel to or
other representatives of such bank or financial institution or other entity, to
which such Holder in good faith desires to sell an interest in any applicable
investment or financing; provided, however, that such bank, financial
institution or other entity or counsel to or representative thereof, agrees to
take reasonable steps to maintain the confidentiality of such disclosures.
(b) The Holders shall have the right to review and approve (such
approval not to be unreasonably withheld) any public announcement or public
filing made after the Closing Date relating to the Note, the Warrant or to the
Holders in any way before any such announcement or filing is announced or filed,
provided, however, no review or approval shall be required for any such
announcement or filing required to be announced or filed by law. In addition,
each Holder shall provide the Company an opportunity to review and approve any
public announcement issued by such Holder specifically relating to the Note
(provided, however,
77
no review or approval shall be required for any such announcement or filing
required to be announced or filed by law).
Section 13.16 Registration of Note and Warrant. The Company shall keep
at its principal executive office a register for the registration and
registration of transfers of Note and Warrant. Prior to due presentment for
registration of transfer, the Person in whose name the Note or Warrant shall be
registered shall be deemed and treated as the owner and holder thereof for all
purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary. The Company shall give to any Holder of a note
promptly upon request therefor, a complete and correct copy of the names and
addresses of all registrable holders of the Note.
Section 13.17 Transfer and Exchange of Note. Upon surrender of the Note
at the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer,
accompanied by a written instrument of transfer duly executed by the registered
Holder of such Note or his attorney duly authorized in writing and accompanied
by the address for notices of each transferee of such Note or part thereof), the
Company shall execute and deliver, at the Company's expense (except as provided
below), one or more new notes (as requested by the Holder thereof) in exchange
therefor, in an aggregate principal amount equal to the unpaid principal amount
of the surrendered Note, subject to the limitations of Section 13.3 and the
restrictions set forth in Section 13.17. Each such new Note shall be payable to
such Person as such holder may request and shall be substantially in the form of
Exhibit 2.1. Each such new Note shall be dated and bear interest from the date
to which interest shall have been paid on the surrendered Note or dated the date
of the surrendered Note if no interest shall have been pad thereon. The Company
may require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Note. Any transferee, by its
acceptance of a Note registered in its name (or the name of its nominee), shall
be deemed to have made the representations set forth in Section 6.
Section 13.18 Legend.
(i) The Note, the Warrant and each certificate, if any
representing the Common Stock issued upon exercise of a Warrant will
bear a legend in substantially the form set forth in Section 6.3;
(ii) The Warrant and each certificate, if any, representing
Common Stock issued upon exercise of a Warrant will bear a legend in
substantially the following form;
THE TRANSFER OF SECURITIES REPRESENTED BY THIS WARRANT IS SUBJECT TO
THE TRANSFER RESTRICTIONS, OBLIGATIONS, AND OTHER CONDITIONS SPECIFIED
IN THE SECURITYHOLDERS' AND REGISTRATION RIGHTS AGREEMENT, DATED AS OF
NOVEMBER 14, 2002 AND AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY
AND CERTAIN SECURITYHOLDERS.
(iii) The Note shall bear a legend in substantially the
following form:
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THIS NOTE IS SUBORDINATED TO THE PRIOR PAYMENT IN CASH OF ALL SENIOR
INDEBTEDNESS, AS DEFINED IN THAT CERTAIN
SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 14, 2002, AS THE SAME MAY BE AMENDED FROM TIME TO
TIME IN THE MANNER PROVIDED IN THE AGREEMENT.
Section 13.19 Further Assurances. Each of the parties shall execute
such documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement, including without limitation, any
post-closing assignment(s) by the Holders of a portion of the Securities to a
Person not currently a party hereto.
Section 13.20 Cumulative Powers. No remedy herein conferred upon a
Holder or any holder of a Note or the Warrant is intended to be exclusive of any
other remedy, and each such remedy shall be cumulative and in addition to every
other remedy given hereunder or now or hereafter existing at law, or in equity
or by statute or otherwise.
Section 13.21 Obligations of the Holders. Each Holder's obligations and
the obligations of the Company hereunder are subject to the execution and
delivery of this Agreement by the other Holders. The obligations of each Holder
shall be several and not joint and no Holder shall be liable or responsible for
the acts or omissions of any other Holder.
Section 13.22 No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement and the
other Investment Documents. In the event an ambiguity or question of intent or
interpretation arises under any provision of this Agreement or any Investment
Document, this Agreement or such other Investment Document shall be construed as
if drafted jointly by the parties thereto, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
of the provisions of this Agreement or any other Investment Document. No
knowledge of, or investigation, including without limitation, due diligence
investigation, conducted by, or on behalf of, any Holder shall limit, modify or
affect the representations set forth in Article 5 of this Agreement or the right
of any Holder to rely thereon.
Section 13.23 Equal Status.
(a) Notwithstanding anything contained in this Agreement or the
Investment Documents to the contrary or anything executed or delivered in
connection therewith, the Note that each Holder acquires hereunder will at all
times be of equal status and rank with the Note that each other Holder acquires
hereunder, without priority or preference of one over the others. Any payment,
collection proceeds or distribution of assets to any Holder or Holders pursuant
to and with respect to any Note or this Agreement (excluding any payments made
pursuant to Sections 7.15, 13.5(b) and 13.14 hereof), whether before or after
the occurrence of any Event of Default, shall be apportioned to pay to each
Holder an amount equal to the ratable percentage of the total principal amount
of the Notes then outstanding to such Holder (the "Ratable Amount").
Notwithstanding the foregoing sentence, if the Ratable Amount of a Holder
exceeds the amount
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due under such Holder's Note, then such excess shall be applied ratably to other
Holder's Note under which amounts are due.
(b) If any payment, collection proceeds or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
shall be received by any Holder of the Note on account of principal, interest or
other amounts due under the Note or in redemption or prepayment thereof, without
ratable contemporaneous payments or distributions to the Holders of the Note
pursuant to Section 13.23(a), then such payment or distribution shall, upon
written notice by the Company or any Holder who did not receive such ratable
contemporaneous payment or distribution to the Holder or Holders that received
such excess payment or distribution, be returned by such Holder to the Company,
which shall, upon receipt of such excess payment or distribution from such
Holder, promptly pay over the ratable portion to the Holders of the other Notes
such that all Holders share ratably in such payment or distribution; provided,
however, that such written notice must be received by such Holder within ten
(10) Business Days following the delivery of such payment or distribution.
(c) The provisions of this Section 13.23 shall not be deemed to require
the Purchaser or their successors or assigns to share ratably in (i) any
liability, resulting in set-off against amounts due under the Notes or
otherwise, which may be incurred by Purchaser to the Company or its
Subsidiaries, or (ii) in the event of a proceeding under the Bankruptcy Code by
the Company or any of its Subsidiaries, in amounts which are required to be
disgorged or paid over to the bankrupt estate by Purchaser or set-off against or
credited to collection proceeds or distributions to Purchaser as a result of any
preferential payments to Purchaser or other preferential actions with respect to
such Purchaser by the Company or the subject Subsidiary. The foregoing shall
likewise apply to any successor or assign of Purchaser or any of its interest in
the Note.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized as
of the date first above written.
T-NETIX, INC.
By:
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Name:
Title:
KEY PRINCIPAL PARTNERS, LLC
By:
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Executive Vice President
[SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT]
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SECURITIES PURCHASE AGREEMENT
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"Debt Service Expense" shall mean, with respect to any Person for any
period, the aggregate of regularly scheduled principal payments of all Funded
Debt (including, without limitation, regularly scheduled principal payments of
the Term Loan, as defined in the Senior Credit Agreement as in effect as of the
date hereof), made or to be made by such Person during such period, on a
Consolidated basis, in accordance with GAAP, consistently applied.
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