PURCHASE AGREEMENT
DATED APRIL 20, 1994
BY AND AMONG
CIBC WOOD GUNDY VENTURES, INC.,
CHEMICAL VENTURE CAPITAL ASSOCIATES
AND
UNITED USN, INC.
TABLE OF CONTENTS
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Section 1. Authorization and Closing ................................... 1
1A. Authorization of the Stock .................................. 1
1B. Purchase and Sale of Stock .................................. 1
1C. The Tranche I Closing ....................................... 1
1D. Tranche II Participation .................................... 2
1E. The Tranche II Closings ..................................... 3
Section 2. Conditions of Each Purchaser's Obligation at the Tranche I
Closing ..................................................... 3
2A. Representations and Warranties; Covenants ................... 3
2B. Certificate of Incorporation ................................ 3
2C. Certificate of Designation .................................. 4
2D. Bylaws ...................................................... 4
2E. Registration Agreement ...................................... 4
2F. Subscription Agreement ...................................... 4
2G. Stockholders Agreement ...................................... 4
2H. Employment Agreements ....................................... 4
2I. Sale of Stock to Each Purchaser ............................. 5
2J. Binding Preliminary Agreement ............................... 5
2K. Blue Sky Clearance .......................................... 5
2L. UTS Agreement and ▇▇▇▇▇▇▇▇ Agreement ........................ 5
2M. FCCC Fees ................................................... 5
2N. Closing Documents ........................................... 5
2O. Opinion of Network's Counsel ................................ 6
2P. Compliance with Applicable Laws ............................. 6
2Q. Due Diligence ............................................... 6
2R. Investment Committee Approval ............................... 6
2S. Proceedings ................................................. 6
2T. Waiver ...................................................... 6
Section 3. Conditions of Each Purchaser's and Third Party Purchaser's
Obligation at a Tranche II Closing .......................... 7
3A. Effective Agreements ........................................ 7
3B. Blue Sky Clearance .......................................... 7
3C. Sale of Stock to Each Purchaser or Third Party Purchaser .... 7
3D. Closing Documents ........................................... 7
3E. Opinion of the Company's Counsel ............................ 8
3F. Compliance with Applicable Laws ............................. 8
3G. Investment Committee Approval ............................... 8
3H. Proceedings ................................................. 8
3I. Waiver ...................................................... 8
Section 4. Covenants ................................................... 9
4A. Financial Statements and Other Information .................. 9
4B. Attendance at Board Meetings ................................ 11
4C. Inspection of Property ...................................... 12
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TABLE OF CONTENTS
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(continued)
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4D. Restrictions ................................................ 12
4E. Affirmative Covenants ....................................... 16
4F. Compliance with Agreements .................................. 17
4G. Current Public Information .................................. 17
4H. Amendment of UTS Agreement, ▇▇▇▇▇▇▇▇ Agreement and
Employment Agreements ....................................... 18
4I. Proprietary Rights and CAP Agreements ....................... 18
4J. Preemptive Rights ........................................... 18
4K. Regulatory Compliance Cooperation ........................... 19
4L. Public Disclosures .......................................... 20
4M. Management Option Pool ...................................... 20
4N. Key-Man Life Insurance ...................................... 20
Section 5. Transfer of Restricted Securities ........................... 21
Section 6. Representations and Warranties of the Company ............... 21
6A. Organization and Corporate Power ............................ 22
6B. Capital Stock and Related Matters ........................... 22
6C. Subsidiaries; Investments ................................... 24
6D. Authorization; No Breach .................................... 24
6E. Financial Statements ........................................ 25
6F. Absence of Undisclosed Liabilities .......................... 25
6G. No Material Adverse Change....... ........................... 25
6H. Absence of Certain Developments ............................. 25
6I. Assets ...................................................... 27
6J. Tax Matters ................................................. 27
6K. Conduct of Business; Liabilities ............................ 28
6L. Contracts and Commitments ................................... 28
6M. Proprietary Rights .......................................... 29
6N. Litigation, etc ............................................. 29
6O. Brokerage ................................................... 30
6P. Governmental Consent, etc ................................... 30
6Q. Insurance ................................................... 30
6R. Employees ................................................... 30
6S. ERISA ....................................................... 31
(a) Multiemployer Plans .................................... 31
(b) Retiree Welfare Plans .................................. 31
(c) Defined Benefit Plans .................................. 31
(d) Defined Contribution Plans ............................. 31
(e) Other Plans ............................................ 31
(f) The Company ............................................ 32
6T. Compliance with Laws ........................................ 32
6U. Small Business Matters ...................................... 32
6V. Affiliated Transactions ..................................... 32
6W. Disclosure .................................................. 32
6X. Knowledge ................................................... 33
6Y. Tranche I Closing Date ...................................... 33
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TABLE OF CONTENTS
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(continued)
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Section 7. Put Arrangements ............................................ 33
7A. The Put ..................................................... 33
7B. Put Closing ................................................. 34
7C. Put Payment ................................................. 34
7D. Put Price ................................................... 35
7E. Put Termination ............................................. 35
Section 8. Definitions ................................................. 35
Section 9. Miscellaneous ............................................... 43
9A. Expenses .................................................... 43
9B. Remedies .................................................... 43
9C. Purchaser's Investment Representations ...................... 44
9D. Treatment of the Preferred Stock ............................ 44
9E. Consent to Amendments ....................................... 44
9F. Survival of Representations and Warranties .................. 45
9G. Successors and Assigns ...................................... 45
9H. Capital and Surplus; Special Reserves ....................... 45
9I. Generally Accepted Accounting Principles .................... 45
9J. Severability ................................................ 45
9K. Counterparts ................................................ 46
9L. Descriptive Headings; Interpretation ........................ 46
9M. Governing Law ............................................... 46
9N. Notices ..................................................... 46
9O. Understanding Among the Purchasers .......................... 46
9P. Indemnification ............................................. 47
9Q. No Solicitation, Etc. ....................................... 47
9R. Insurance Proceeds .......................................... 47
Schedules and Exhibits
----------------------
Tranche I Schedule of Purchasers
Tranche II Schedule of Purchasers
List of Exhibits
List of Disclosure Schedules
Attachment A
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PURCHASE AGREEMENT
THIS AGREEMENT is made as of April 20, 1994, by and among United USN,
Inc., a Delaware corporation (the "Company"), CIBC Wood Gundy Ventures, Inc., a
Delaware corporation ("CIBC"), and Chemical Venture Capital Associates, a
California limited partnership ("Chemical" and collectively with CIBC, the
"Purchasers"). Capitalized terms used herein are defined in Section 8 hereof.
WHEREAS, the parties hereto desire to capitalize the Company pursuant to
the terms of this Agreement and the terms of the Subscription Agreement as a
single plan of capitalization.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of the Stock. The Company shall authorize the issuance
and sale to the Purchasers of an aggregate of 9,900 shares of Preferred Stock
having the rights and preferences set forth in Exhibit A attached hereto, and
96,420 shares of Common Stock.
1B. Purchase and Sale of Stock.
(i) At the Tranche I Closing, the Company shall sell to each Purchaser
and, subject to the terms and conditions set forth herein, each Purchaser
shall purchase from the Company the number of shares of Preferred Stock set
forth opposite such Purchaser's name on the Tranche I Schedule of
Purchasers attached hereto at a price of $1,000 per share and the number of
shares of Common Stock set forth opposite such Purchaser's name on the
Tranche I Schedule of Purchasers attached hereto at a price of $1.00 per
share.
(ii) At any Tranche II Closing, the Company shall sell to each
Purchaser and, subject to paragraph 1D below and the terms and conditions
set forth herein, each Purchaser shall purchase from the Company up to the
number of shares of Preferred Stock set forth opposite such Purchaser's
name on the Tranche II Schedule of Purchasers attached hereto at a price of
$1,000 per share and up to the number of shares of Common Stock set forth
opposite such Purchaser's name on the Tranche II Schedule of Purchasers
attached hereto at a price of $1.077 per share.
(iii) The sale of Stock to each Purchaser shall constitute a separate
sale hereunder.
1C. The Tranche I Closing. Subject to the satisfaction of the conditions
set forth in Section 2, the Tranche I Closing shall take place at the offices of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, Citicorp
Center, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ at such date and
time as may be mutually agreeable to the Company and each Purchaser, or at such
other place as may be mutually agreeable to the Company and each Purchaser, but
in no event later than April 25, 1994. At the Tranche I Closing, the Company
shall deliver to each Purchaser stock certificates evidencing the Stock to be
purchased by such Purchaser, registered in such Purchaser's or its nominee's
name, upon payment of the purchase price thereof by a cashier's or certified
check, or by wire transfer of immediately available funds to the Company's
account at Madison Bank & Trust, in the amounts set forth opposite such
Purchaser's name on the Tranche I Schedule of Purchasers.
1D. Tranche II Participation.
(i) The board of directors of the Company shall issue a Tranche II
Notice indicating the number of shares of Stock, up to the number of shares
of Stock set forth opposite each Purchaser's name on the Tranche II
Schedule of Purchasers less the number of shares of such Stock which
previously have been purchased by the Purchasers or a Third Party Purchaser
in any Tranche II Closing, which the Company desires to sell to each
Purchaser in a Tranche II Purchase. If either Purchaser determines not to
fully participate in a Tranche II Purchase, the Declining Purchaser shall
deliver a Decline Notice to the Company and the other Purchaser within five
days after receipt of the Tranche II Notice. Upon receipt of a Decline
Notice, a Participating Purchaser, at its option, may purchase any or all
of the Declined Stock. If the Participating Purchaser determines not to
purchase all of the Declined Stock, the Participating Purchaser may invite
a Third Party Purchaser to purchase any remaining shares of Declined Stock.
If a Third Party Purchaser determines to purchase any portion of the
Declined Stock, the Participating Purchaser shall deliver a Third Party
Purchaser Notice to the Company and the Declining Purchaser. Upon receipt
of a Third Party Purchaser Notice, the Declining Purchaser shall have the
right to purchase all of the Stock to be purchased by the Third Party
Purchaser as set forth in the Third Party Purchaser Notice. In order to
exercise its purchase rights hereunder, the Declining Purchaser must within
five days after receipt of the Third Party Purchaser Notice deliver a
written notice to the Company and the Participating Purchaser describing
its election hereunder.
(ii) The Company shall give each Purchaser written notice of a Change
of Control at least 30 days prior to the consummation of a Change of
Control. At any time within five days after the receipt by a Purchaser of
the written notice of a Change of Control or at any time within 30 days
after the fifth anniversary of the date of this Agreement, each of the
Purchasers shall have the option in a Tranche II Purchase to purchase from
the Company up to the number of shares of Stock
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set forth opposite each Purchaser's name on the Tranche II Schedule of
Purchasers less the number of shares of such Stock which previously have
been purchased by the Purchasers or a Third Party Purchaser in any Tranche
II Closing. A Purchaser may exercise its purchase rights hereunder by
delivering a Tranche II Demand. If either Purchaser does not fully exercise
its option pursuant to this subparagraph lD(ii) or fails to deliver a
Tranche II Demand within the applicable option period specified above, a
Participating Purchaser may purchase any or all of the remaining shares of
Stock set forth on the Tranche II Schedule of Purchasers by delivering an
additional Tranche II Demand within five days after the expiration of the
applicable option period.
1E. The Tranche II Closings. Subject to satisfaction of the conditions set
forth in Section 3, a Tranche II Closing shall take place at the time and place
set forth in the Tranche II Notice or in the Tranche II Demand relating to such
Tranche II Purchase. The date of a Tranche II Closing shall be no earlier than
20 business days after the date on which the Tranche II Notice is delivered to
each Purchaser or the Tranche II Demand is delivered to the Company and each
Purchaser. At a Tranche II Closing, the Company shall deliver to each Purchaser
and Third Party Purchaser participating in such Tranche II Purchase stock
certificates evidencing the Stock to be purchased by such Purchaser and Third
Party Purchaser, respectively, registered in such Purchaser's, Third Party
Purchaser's or their nominee's name, upon payment of the purchase price thereof
by a cashier's or certified check, or by wire transfer of immediately available
funds to the Company's account at a bank specified by the Company, up to the
amounts set forth opposite such Purchaser's name on the Tranche II Schedule of
Purchasers, subject to the provisions of paragraph 1D.
Section 2. Conditions of Each Purchaser's Obligation at the Tranche I
Closing. The obligation of each Purchaser to purchase and pay for the Stock at
the Tranche I Closing is subject to the satisfaction as of the Tranche I Closing
of the following conditions:
2A. Representations and Warranties; Covenants. The representations and
warranties contained in Section 6 hereof shall be true and correct at and as of
the Tranche I Closing as though then made, except to the extent of changes
caused by the transactions expressly contemplated herein, and the Company shall
have performed in all material respects all of the covenants required to be
performed by them hereunder prior to the Tranche I Closing.
2B. Certificate of Incorporation. The Certificate of Incorporation shall be
in full force and effect under the laws of the State of Delaware as of the
Tranche I Closing and shall not have been amended or modified.
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2C. Certificate of Designation. The Company shall have duly adopted,
executed and filed with the Secretary of State of the State of Delaware the
Certificate of Designation, and the Company shall not have adopted or filed any
other document designating terms, relative rights or preferences of its
preferred stock. The Certificate of Designation shall be in full force and
effect as of the Tranche I Closing under the laws of the State of Delaware and
shall not have been amended or modified.
2D. Bylaws. The Company's bylaws shall (i) permit the holders of stock of
the Company entitled to cast not less than twenty percent (20%) of the votes at
a special meeting of the Company's stockholders to call for a meeting of the
Company's stockholders in the shortest period of time permitted by applicable
law, (ii) permit any member of the Company's board of directors to call a
meeting of the board of directors in the shortest period of time permitted by
applicable law, (iii) permit the Company's stockholders to establish the size of
the board from 5 to 11 directors and permit the stockholders to fill any
vacancies on the board of directors, and (iv) require meetings of the board of
directors to be held at least once during each of the Company's fiscal quarters.
The Company's bylaws shall be in full force and effect as of the Tranche I
Closing and shall not have been amended or modified.
2E. Registration Agreement. The Company and the Purchasers shall have
entered into the Registration Agreement, and the Registration Agreement shall be
in full force and effect as of the Tranche I Closing.
2F. Subscription Agreement. The Company, FCCC and the current holders of
Network Stock shall have entered into the Subscription Agreement, and the
Subscription Agreement shall be in full force and effect as of the Tranche I
Closing. The Subscription Agreement shall provide for the holders of the Network
Stock to exchange the Network Stock for Preferred Stock and Common Stock and for
FCCC to purchase Common Stock. Upon consummation of the transactions
contemplated by the Subscription Agreement concurrently with the Tranche I
Closing, Network shall become a wholly-owned subsidiary of the Company.
2G. Stockholders Agreement. The Company and the holders of all of the
outstanding Common Stock after giving effect to the transactions contemplated by
this Agreement and the Subscription Agreement shall have entered into the
Stockholders Agreement, and the Stockholders Agreement shall be in full force
and effect as of the Tranche I Closing.
2H. Employment Agreements. Network shall have amended its employment
agreements with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in form and
substance as set forth on Exhibit F attached hereto, the Employment Agreements
shall be in full force and effect as of the Closing.
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2I. Sale of Stock to Each Purchaser. The Company shall have tendered to
each Purchaser duly executed certificates for the Stock to be purchased by such
Purchaser hereunder at the Tranche I Closing.
2J. Binding Preliminary Agreement. The Binding Preliminary Agreement dated
December 28, 1993 between Network, UTS, United Telecom of America, Inc. and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ shall be terminated and released by the parties thereto
simultaneously with the Tranche I Closing.
2K. Blue Sky Clearance. The Company shall have made all pre-sale filings
under applicable state securities laws necessary to consummate the issuance of
the Stock pursuant to this Agreement in compliance with such laws.
2L. UTS Agreement and ▇▇▇▇▇▇▇▇ Agreement. The Company shall have entered
into the UTS Agreement and the UTS Agreement shall be in full force and effect
as of the Tranche I Closing. The Company shall have entered into the ▇▇▇▇▇▇▇▇
Agreement and the ▇▇▇▇▇▇▇▇ Agreement shall be in full force and effect as of the
Tranche I Closing.
2M. FCCC Fees. Network shall have reached an agreement with FCCC regarding
the payment of fees to FCCC in connection with the transactions contemplated by
this Agreement, which agreement shall be satisfactory to each of the Purchasers
in its sole discretion.
2N. Closing Documents. The Company shall have delivered to each Purchaser
all of the following documents:
(i) an Officer's Certificate, dated the date of the Tranche I
Closing, stating that the conditions specified in Section 1 and paragraphs
2A through 2M, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement, the Stockholders
Agreement, the Subscription Agreement and each of the other agreements
contemplated hereby, the filing of the Certificate of Designation, the
issuance and sale of the Stock, and the consummation of all other
transactions contemplated by this Agreement;
(iii) certified copies of the Certificate of Incorporation, the
Certificate of Designation and the Company's bylaws, each as in effect at
the Tranche I Closing;
(iv) copies of all third party and governmental consents, approvals
and filings required in connection with
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the consummation of the transactions hereunder (including, without
limitation, all blue sky law filings and waivers of all preemptive rights
and rights of first refusal);
(v) SBA Forms 480, 652 and 1031 and a list of (a) the name of each of
the Company's directors as of the Tranche I Closing, (b) the name and title
of each of the Company's officers as of the Tranche I Closing, and (c)
after giving effect to the transactions contemplated by this Agreement at
the Tranche I Closing, the name of each of the Company's stockholders
setting forth the number and class of shares held; and
(vi) such other documents relating to the transactions contemplated
by this Agreement as any Purchaser or its special counsel may reasonably
request.
2O. Opinion of Network's Counsel. Each Purchaser shall have received from
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, counsel for Network, an opinion with respect to the matters
set forth in Exhibit H attached hereto, which shall be addressed to each
Purchaser, dated the date of the Tranche I Closing and in form and substance
satisfactory to each of the Purchasers in its sole discretion.
2P. Compliance with Applicable Laws. The purchase of Stock by each
Purchaser hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject such Purchaser to any penalty,
liability or, in such Purchaser's sole judgment, other onerous condition under
or pursuant to any applicable law or governmental regulation, and shall be
permitted by laws and regulations of the jurisdictions to which such Purchaser
is subject.
2Q. Due Diligence. The Purchasers shall be reasonably satisfied with the
results of their continuing business, legal and accounting due diligence review
of Network, UTS and their Subsidiaries.
2R. Investment Committee Approval. Each Purchaser's investment committee
or similar authority shall have approved the transactions contemplated by this
Agreement and the UTS Agreement.
2S. Proceedings. All corporate and other proceedings taken or required to
be taken by the Company in connection with the transactions contemplated hereby
to be consummated at or prior to the Tranche I Closing and all documents
incident thereto shall be satisfactory in form and substance to the Purchasers
and their special counsel.
2T. Waiver. Any condition specified in this Section 2 may be waived if
consented to by all Purchasers; provided that no such waiver shall be effective
against any Purchaser unless it is set forth in a writing executed by such
Purchaser.
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Section 3. Conditions of Each Purchaser's and Third Party Purchaser's
Obligation at a Tranche II Closing. The obligation of each Purchaser and Third
Party Purchaser participating in a Tranche II Purchase to purchase and pay for
the Stock at a Tranche II Closing is subject to the satisfaction as of such
Tranche II Closing of the following conditions:
3A. Effective Agreements. The Registration Agreement, Stockholders
Agreement and Employment Agreements shall be in full force and effect as of the
Tranche II Closing and any Third Party Purchaser shall have become a party to
the Stockholders Agreement.
3B. Blue Sky Clearance. The Company shall have made all pre-sale filings
under applicable state securities laws necessary to consummate the issuance of
the Stock pursuant to this Agreement in compliance with such laws.
3C. Sale of Stock to Each Purchaser or Third Party Purchaser. The Company
shall have tendered to each Purchaser and Third Party Purchaser participating in
the Tranche II Purchase duly executed certificates for the Stock to be purchased
by each such Purchaser or Third Party Purchaser hereunder at the Tranche II
Closing.
3D. Closing Documents. The Company shall have delivered to each Purchaser
and Third Party Purchaser participating in the Tranche II Purchase all of the
following documents:
(i) an Officer's Certificate, dated the date of the Tranche II
Closing, stating that the conditions specified in Section 1 and paragraphs
3A through 3C, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the Company's
board of directors authorizing the transactions contemplated by this
Agreement to occur at the Tranche II Closing;
(iii) certified copies of the Certificate of Incorporation, the
Certificate of Designation and the Company's bylaws, each as in effect at
the Tranche II Closing;
(iv) copies of all third party and governmental consents, approvals
and filings required in connection with the consummation of the
transactions hereunder to occur at the Tranche II Closing (including,
without limitation, all blue sky law filings and waivers of all preemptive
rights and rights of first refusal);
(v) SBA Forms 480, 652 and 1031 and a list of (a) the name of each of
the Company's directors as of the Tranche II Closing, (b) the name and
title of each of the Company's officers as of the Tranche II Closing, and
(c) after
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giving effect to the transactions contemplated by this Agreement at the
Tranche II Closing, the name of each of the Company's stockholders setting
forth the number and class of shares held; and
(vi) such other documents relating to the transactions contemplated
by this Agreement as such Purchaser or its special counsel may reasonably
request.
3E. Opinion of the Company's Counsel. Each Purchaser and Third Party
Purchaser participating in the Tranche II Purchase shall have received from
counsel for the Company or Network an opinion, which shall be addressed to each
such Purchaser or Third Party Purchaser, dated the date of the Tranche II
Closing and in form and substance satisfactory to each such Purchaser or Third
Party Purchaser in its sole discretion.
3F. Compliance with Applicable Laws. The purchase of Stock by each
Purchaser or Third Party Purchaser participating in the Tranche II Purchase
hereunder shall not be prohibited by any applicable law or governmental
regulation, shall not subject such Purchaser or Third Party Purchaser to any
penalty, liability or, in such Purchaser's or Third Party Purchaser's sole
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation, and shall be permitted by laws and regulations of the
jurisdictions to which such Purchaser or Third Party Purchaser is subject.
3G. Investment Committee Approval. The investment committee or similar
authority of each Purchaser or Third Party Purchaser participating in the
Tranche II Purchase shall have approved the transactions contemplated by this
Agreement to occur at the Tranche II Closing.
3H. Proceedings. All corporate and other proceedings taken or required to
be taken by the Company in connection with the transactions contemplated hereby
to be consummated at or prior to the Tranche II Closing and all documents
incident thereto shall be satisfactory in form and substance to the Purchasers
and Third Party Purchasers participating in the Tranche II Purchase and their
special counsel.
3I. Waiver. Any condition specified in this Section 3 may be waived if
consented to by all Purchasers and Third Party Purchasers participating in the
Tranche II Purchase; provided that no such waiver shall be effective against any
such Purchaser or Third Party Purchaser unless it is set forth in a writing
executed by such Purchaser or Third Party Purchaser.
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Section 4. Covenants.
4A. Financial Statements and Other Information. The Company shall deliver
to each Qualified Holder:
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
statements of income and cash flows of each of the Company, Network and UTS
and unaudited consolidating and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such monthly period and for
the period from the beginning of the fiscal year to the end of such month,
and balance sheets of each of the Company, Network and UTS and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each
case comparisons to the annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied;
(ii) accompanying the financial statements referred to in
subparagraph (i), an Officer's Certificate stating that there is no Event
of Noncompliance in existence and that neither the Company nor any of its
Subsidiaries is in default under any of its other material agreements or,
if any Event of Noncompliance or any such default exists, specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(iii) within 90 days after the end of each fiscal year, statements of
income and cash flows of each of the Company, Network and UTS and
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and balance sheets of
each of the Company, Network and UTS and consolidating and consolidated
balance sheets of the Company and its Subsidiaries as of the end of such
fiscal year, setting forth in each case comparisons to the annual budget
and to the preceding fiscal year, all prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by
(a) with respect to the consolidated portions of such statements, an
opinion containing no exceptions or qualifications (except for
qualifications regarding specified contingent liabilities) of an
independent accounting firm of recognized national standing acceptable to
the holders of a majority of the Investor Preferred Stock and the holders
of a majority of the Investor Common Stock, (b) a certificate from such
accounting firm, addressed to the Company's board of directors, stating
that in the course of its examination nothing came to its attention that
caused it to believe that there was an Event of
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Noncompliance in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any other material
agreement to which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any Event of Noncompliance or other
default by the Company or any Subsidiary exists, a certificate specifying
the nature and period of existence thereof, and (c) a copy of such firm's
annual management letter to the board of directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's or its Subsidiaries' operations or financial
affairs given to the Company or its Subsidiaries by its independent
accountants (and not otherwise contained in other materials provided
hereunder);
(v) at least 30 days prior to the beginning of each fiscal year, an
annual budget prepared on a monthly basis for the Company and its
Subsidiaries for such fiscal year (displaying anticipated statements of
income and cash flows and balance sheets), and promptly upon preparation
thereof any other significant budgets prepared by the Company or its
Subsidiaries and any revisions of such annual or other budgets, and within
30 days after any monthly period in which there is a material adverse
deviation from the annual budget, an Officer's Certificate explaining the
deviation and what actions the Company has taken and proposes to take with
respect thereto;
(vi) promptly (but in any event within five business days) after the
discovery or receipt of notice of any Event of Noncompliance, any default
under any material agreement to which the Company or any of its
Subsidiaries is a party or any other material adverse event or circumstance
affecting the Company or any Subsidiary (including the filing of any
material litigation against the Company or any Subsidiary or the existence
of any dispute with any Person which involves a reasonable likelihood of
such litigation being commenced), an Officer's Certificate specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(vii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange
-10-
Commission or with any securities exchange on which any of its securities
are then listed, and copies of all press releases and other statements made
available generally by the Company or its Subsidiaries to the public
concerning material developments in the business of the Company or its
Subsidiaries;
(viii) within ten days after receipt thereof, copies of all financial
statements provided by UTS to the Company; and
(ix) with reasonable promptness, such other information and financial
data concerning the Company and its Subsidiaries as any Person entitled to
receive information under this paragraph 4A may reasonably request.
Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end audit adjustments (none of which would,
alone or in the aggregate, be materially adverse to the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of this paragraph 4A, other
than subparagraph 4A(ix), shall cease to be effective so long as the Company (a)
is subject to the periodic reporting requirements of the Securities Exchange Act
and continues to comply with such requirements and (b) promptly provides to each
Person otherwise entitled to receive information pursuant to this paragraph 4A
all reports and other materials filed by the Company with the Securities and
Exchange Commission pursuant to the periodic reporting requirements of the
Securities Exchange Act; provided that so long as any Investor Preferred Stock
remains outstanding, the Company shall continue to deliver to each Qualified
Holder the information specified in subparagraphs 4A(ii), 4A(iii)(b) and 4A(vi).
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, each Person entitled to receive information
regarding the Company and its Subsidiaries under paragraph 4A shall use its best
efforts to maintain the confidentiality of all nonpublic information obtained by
it hereunder which the Company or its Subsidiaries has reasonably designated as
proprietary or confidential in nature; provided that each such Person may, to
the extent required by law, disclose such information in connection with the
sale or transfer of any Stock if such Person's transferee agrees in writing to
be bound by the provisions hereof.
4B. Attendance at Board Meetings. The Company shall give each Qualified
Holder who does not have a representative on
-11-
the Company's board of directors written notice of each meeting of its board of
directors and each committee thereof at least three business days prior to the
date of each such meeting, and the Company shall permit representatives of all
Qualified Holders to attend as observers all meetings of its board of directors
and committees thereof; provided that in the case of telephonic meetings
conducted in accordance with the Company's bylaws and applicable law, each such
Qualified Holder need receive only actual notice thereof at least 48 hours prior
to any such meeting, and each such Qualified Holder's representative shall be
given the opportunity to listen to such telephonic meetings. Each representative
shall be entitled to receive all written materials and other information
(including, without limitation, copies of meeting minutes) given to directors in
connection with such meetings at the same time such materials and information
are given to the directors. If the Company proposes to take any action by
written consent in lieu of a meeting of its board of directors or of any
committee thereof, the Company shall give written notice thereof to each such
Qualified Holder prior to the effective date of such consent describing in
reasonable detail the nature and substance of such action. The Company shall pay
the reasonable out-of-pocket expenses of each representative incurred in
connection with attending such board and committee meetings.
4C. Inspection of Property. The Company shall permit any representatives
designated by any Qualified Holder, upon reasonable notice and during normal
business hours and such other times as any such holder may reasonably request,
to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries. The presentation of an executed copy of this Agreement by
any Qualified Holder to the Company's independent accountants shall constitute
the Company's permission to its independent accountants to participate in
discussions with such Qualified Holder.
4D. Restrictions. So long as a Purchaser holds any Investor Common Stock
or any Investor Preferred Stock, the Company shall not, without the Required
Approval:
(i) directly or indirectly declare or pay any dividends or make any
distributions upon any of its equity securities except for dividends and
distributions on the Preferred Stock pursuant to the terms of the
Certificate of Designation or dividends payable in shares of Common Stock
issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise acquire, or
permit any Subsidiary to redeem, purchase or otherwise acquire, any of the
Company's equity
-12-
securities (including, without limitation, warrants, options and other
rights to acquire equity securities) other than the Preferred Stock
pursuant to the terms of the Certificate of Designation or the Puts under
Section 7 of this Agreement.
(iii) except as expressly contemplated by this Agreement, authorize,
issue or enter into any agreement providing for the issuance (contingent or
otherwise) of, (a) any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities convertible
into or exchangeable for equity securities, issued in connection with the
issuance of equity securities or containing profit participation features)
or (b) any equity securities (or any securities convertible into or
exchangeable for any equity securities) which are senior to or on a parity
with the Preferred Stock with respect to the payment of dividends,
redemptions or distributions upon liquidation or otherwise;
(iv) except as contemplated by the UTS Agreement and the ▇▇▇▇▇▇▇▇
Agreement, permit any Subsidiary to authorize, issue or enter into any
agreement providing for the issuance (contingent or otherwise) of any notes
or debt securities containing equity features (including, without
limitation, any notes or debt securities convertible into or exchangeable
for equity securities, issued in connection with the issuance of equity
securities or containing profit participation features);
(v) make, or permit any Subsidiary to make, any loans or advances to,
guarantees for the benefit of, or Investments in, any Person (other than a
wholly-owned Subsidiary established under the laws of a jurisdiction of the
United States or any of its territorial possessions), except for (a)
reasonable advances to employees in the ordinary course of. business, (b)
acquisitions permitted pursuant to subparagraph (x) below, (c) Investments
in UTS pursuant to the UTS Agreement or as approved by a majority of the
members of the Company's board of directors, and (d) Investments having a
stated maturity no greater than one year from the date the Company makes
such Investment in (1) obligations of the United States government or any
agency thereof or obligations guaranteed by the United States government,
(2) certificates of deposit of commercial banks having combined capital and
surplus of at least $50 million or (3) commercial paper with a rating of at
least "Prime-l" by ▇▇▇▇▇'▇ Investors Service, Inc.;
(vi) merge or consolidate with any Person or, except as permitted by
subparagraph (x) below, permit any Subsidiary to merge or consolidate with
any Person (other than a wholly-owned Subsidiary);
-13-
(vii) sell, lease or otherwise dispose of more than 10% of the
consolidated assets of the Company and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted
accounting principles consistently applied, or fair market value,
determined by the Company's board of directors in its reasonable good faith
judgment) in any transaction or series of related transactions (other than
sales in the ordinary course of business) or sell, transfer, assign or
otherwise dispose of, or pledge or encumber, any of its CAP Agreements or
Proprietary Rights;
(viii) permit any Subsidiary to sell, lease or otherwise dispose of
more than 15% of the assets of such Subsidiary (computed on the basis of
book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Company's board of directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course of business) or sell, transfer, assign or otherwise dispose
of, or pledge or encumber (other than pursuant to the UTS Agreement), any
of such Subsidiary's CAP Agreements or Proprietary Rights;
(ix) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into partnership form);
(x) except for CAP Agreements approved by a majority of the members
of the Company's board of directors and investments in UTS pursuant to the
UTS Agreement or as approved by a majority of the members of the Company's
board of directors, acquire, or permit any Subsidiary to acquire, any
interest in any business (whether by a purchase of assets, purchase of
stock, merger or otherwise), or enter into any joint venture, involving an
aggregate consideration (including the assumption of liabilities whether
direct or indirect) exceeding $500,000 in any one transaction or exceeding
$1,000,000 in any twelve-month period;
(xi) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than as a
provider of competitive access telecommunications services;
(xii) become subject to, or permit any of its Subsidiaries to become
subject to, any agreement or instrument which by its terms would (under any
circumstances) restrict (a) the right of any Subsidiary to make loans or
advances or pay dividends to, transfer property to, or repay any
Indebtedness owed to, the Company or another Subsidiary or (b) the
Company's right to perform the provisions of this Agreement, the
Registration Agreement, the Stockholders
-14-
Agreement, the Certificate of Designation, the Certificate of Incorporation
or the Company's bylaws (including, without limitation, provisions relating
to payment of dividends on and making redemptions of the Preferred Stock);
(xiii) except as expressly contemplated by this Agreement, make any
amendment to the Certificate of Incorporation, the Certificate of
Designation or the Company's bylaws, or file any resolution of the board of
directors with the Secretary of State of the State of Delaware containing
any provisions, which would increase the number of authorized shares of the
Preferred Stock or adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Stock or the Investor
Common Stock under this Agreement, the Certificate of Incorporation, the
Certification of Designation, the Company's bylaws, the Registration
Agreement or the Stockholders Agreement;
(xiv) enter into, or permit any Subsidiary to enter into, any
transaction with the Company's or any Subsidiary's officers, directors,
employees or Affiliates or any individual related by blood or marriage to
any such Person or any entity in which any such Person or individual owns a
beneficial interest, except pursuant to the UTS Agreement, the ▇▇▇▇▇▇▇▇
Agreement, normal employment arrangements and benefit programs on
reasonable terms and except as otherwise expressly contemplated by this
Agreement;
(xv) except pursuant to the UTS Agreement, create, incur, assume or
suffer to exist, or permit any Subsidiary to create, incur, assume or
suffer to exist, Indebtedness exceeding in the aggregate $1,500,000
outstanding at any time on a consolidated basis;
(xvi) except pursuant to CAP Agreements approved by a majority of the
members of the Company's board of directors, make any capital expenditures
(including, without limitation, payments with respect to capitalized
leases, as determined in accordance with generally accepted accounting
principles consistently applied) exceeding $1,500,000 in the aggregate on a
consolidated basis during any twelve-month period;
(xvii) except pursuant to CAP Agreements approved by a majority of
the members of the Company's board of directors, enter into any leases or
other rental agreements (excluding capitalized leases, as determined in
accordance with generally accepted accounting principles consistently
applied) under which the amount of the aggregate lease payments for all
such agreements exceeds $1,500,000 on a consolidated basis for any twelve-
month period;
(xviii) change its fiscal year;
-15-
(xix) increase the authorized size of its board of directors above 11
members or decrease the authorized size of its board of directors below 5
members, subject to increase upon the occurrence of certain Events of
Noncompliance in the Certificate of Designation;
(xx) adopt any new stock option plan or employee stock ownership plan
or issue any shares of Common Stock to its or its Subsidiaries' employees
other than as approved by a majority of the members of the Company's board
of directors in connection with the Management Option Pool;
(xxi) except pursuant to the UTS Agreement, issue or sell any shares
of the capital stock, or rights to acquire shares of the capital stock, of
any Subsidiary to any Person other than the Company or another Subsidiary;
or
(xxii) borrow against, pledge, assign, modify, cancel or surrender
any key-man life insurance policies required to be maintained under
paragraph 4E hereof.
4E. Affirmative Covenants. So long as a Purchaser holds any Investor
Common Stock or any Investor Preferred Stock, the Company shall, and shall cause
each Subsidiary to:
(i) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses;
(ii) maintain and keep its properties in good repair, working order
and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be properly
and advantageously conducted at all times;
(iii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all claims for labor, materials or
supplies which if unpaid would by law become a lien upon any of its
property, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(iv) comply with all other obligations which it incurs pursuant to
any contract or agreement, whether oral or written, express or implied, as
such obligations become due, unless and to the extent that the same are
being contested in
-16-
good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(v) comply with all applicable laws, rules and regulations of all
governmental authorities, including the Federal Communications Commission,
the Public Utilities Commission of Ohio and the New York Public Service
Commission, the violation of which would reasonably be expected to have a
material adverse effect upon the financial condition, operating results,
assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole;
(vi) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for well-insured corporations of similar size
engaged in similar lines of business;
(vii) maintain the key-man life insurance policies referred to in
paragraph 4N hereof and maintain officers and directors liability insurance
coverage of at least $2,500,000; and
(viii) maintain proper books of record and account which fairly
present its financial condition and results of operations and make
provisions on its financial statements for all such proper reserves as in
each case are required in accordance with generally accepted accounting
principles, consistently applied.
4F. Compliance with Agreements. The Company shall perform and observe (i)
all of its obligations to each holder of the Stock set forth in the Certificate
of Incorporation, the Certificate of Designation and the Company's bylaws, (ii)
all of its obligations to each holder of Registrable Securities set forth in the
Registration Agreement, and (iii) all of its obligations under the Stockholders
Agreement.
4G. Current Public Information. At all times after the Company has filed a
registration statement with the Securities and Exchange Commission pursuant to
the requirements of either the Securities Act or the Securities Exchange Act,
the Company shall file all reports required to be filed by it under the
Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder and shall take such
further action as any holder or holders of Restricted Securities may reasonably
request, all to the extent required to enable such holders to sell Restricted
Securities pursuant to (i) Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter
-17-
adopted by the Securities and Exchange Commission or (ii) a registration
statement on Form S-2 or S-3 or any similar registration form hereafter adopted
by the Securities and Exchange Commission. Upon request, the Company shall
deliver to any holder of Restricted Securities a written statement as to whether
it has complied with such requirements.
4H. Amendment of UTS Agreement, ▇▇▇▇▇▇▇▇ Agreement and Employment
Agreements. The Company shall not amend, modify or waive any provision of the
UTS Agreement, the ▇▇▇▇▇▇▇▇ Agreement or the Employment Agreements without the
Required Approval, and the Company shall enforce the provisions of the UTS
Agreement, the ▇▇▇▇▇▇▇▇ Agreement and the Employment Agreements and shall
exercise all of its rights and remedies thereunder (including, without
limitation, any repurchase options and first refusal rights) unless it otherwise
receives the Required ▇▇▇▇▇▇▇▇.
▇▇. Proprietary Rights and CAP Agreements. The Company shall, and shall
cause each Subsidiary to, possess and maintain all material Proprietary Rights
necessary to the conduct of their respective businesses and own all right, title
and interest in and to, or have a valid license for, all material Proprietary
Rights used by the Company and each Subsidiary in the conduct of their
respective businesses. Neither the Company nor any Subsidiary shall take any
action, or fail to take any action, which would result in the invalidity, abuse,
misuse or unenforceability of its Proprietary Rights or CAP Agreements or which
would infringe upon any rights of other Persons.
4J. Preemptive Rights.
(i) Except for the issuance of Common Stock (a) pursuant to a Tranche
II Closing, (b) pursuant to the Management Option Pool as contemplated by
this Agreement, (c) in connection with the acquisition of another business
as contemplated by paragraph 4D(x), or (d) pursuant to a public offering
registered under the Securities Act, if the Company authorizes the issuance
or sale of any of its equity securities, any securities containing options
or rights to acquire any shares of its equity securities (other than as a
dividend on outstanding equity securities), the Company shall first offer
to sell to each holder of Investor Common Stock a portion of such stock or
securities equal to the quotient determined by dividing (1) the number of
shares of Investor Common Stock held by such holder by (2) the sum of the
total number of shares of outstanding Investor Common Stock and the number
of shares of Common Stock outstanding which are not shares of Investor
Common Stock. Each holder of Investor Common Stock shall be entitled to
purchase such stock or securities at the most favorable price and on the
most favorable terms as such stock or securities are to be offered to any
other Persons. The purchase price for all stock and securities offered to
the holders of the Investor Common Stock
-18-
shall be payable in cash or, to the extent otherwise required hereunder,
notes issued by such holders.
(ii) In order to exercise its purchase rights hereunder, a holder of
Investor Common Stock must within 30 days after receipt of written notice
from the Company describing in reasonable detail the stock or securities
being offered, the purchase price thereof, the payment terms, a management
financial forecast, use of proceeds and such holder's percentage allotment
deliver a written notice to the Company describing its election hereunder.
If all of the stock and securities offered to the holders of Investor
Common Stock is not fully subscribed by such holders, the remaining stock
and securities shall be reoffered by the Company to the holders purchasing
their full allotment upon the terms set forth in this paragraph, except
that such holders must exercise their purchase rights within five days
after receipt of such reoffer.
(iii) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the
holders of Investor Common Stock have not elected to purchase during the 30
days following such expiration on terms and conditions no more favorable to
the purchasers thereof than those offered to such holders. Any stock or
securities offered or sold by the Company after such 30-day period must be
reoffered to the holders of Investor Common Stock pursuant to the terms of
this paragraph.
4K. Regulatory Compliance Cooperation.
(i) In the event that a Purchaser determines that it has a Regulatory
Problem, the Company agrees to take all such actions as are reasonably
requested by the Purchaser in order (a) to effectuate and facilitate any
transfer by the Purchaser of any securities of the Company then held by the
Purchaser to any person designated by the Purchaser, (b) to permit the
Purchaser (or any Affiliate of the Purchaser) to exchange all or any
portion of the Common Stock then held by the Purchaser on a share-for-share
basis for shares of a class of nonvoting common stock of the Company, which
nonvoting common stock shall be identical in all respects to such Common
Stock, except that such common stock shall be nonvoting and shall be
convertible into Common Stock on such terms as are requested by the
Purchaser in light of regulatory considerations then prevailing, and (c) to
continue and preserve the respective allocation of the voting interests
with respect to the Company with respect to the Purchaser's ownership of
the Common Stock. Such actions may include, but shall not necessarily be
limited to:
(a) entering into such additional agreements as are requested by
the Purchaser to permit any person(s)
-19-
designated by the Purchaser to exercise any voting power which is
relinquished by the Purchaser upon any exchange of Common Stock for
nonvoting stock of the Company; and
(b) entering into such additional agreements, adopting such
amendments to the Certificate of Incorporation and bylaws of the
Company and taking such additional actions as are reasonably requested
by the Purchaser in order to effectuate the intent of the foregoing.
(ii) Without limiting the effect of paragraph 9G, the Company shall
grant to any subsequent holder of Investor Common Stock or Investor
Preferred Stock, upon such holder's request, the same rights granted to the
Purchasers pursuant to this paragraph.
4L. Public Disclosures. The Company shall not, nor shall it permit any
Subsidiary to, disclose any Purchaser's name or identity as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any governmental entity, without the prior written consent
of such Purchaser, unless such disclosure is required by applicable law or
governmental regulations or by order of a court of competent jurisdiction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
4M. Management Option Pool. Prior to the Tranche I Closing, the Company
shall reserve for issuance pursuant to the Management Option Pool a number of
shares of Common Stock equal to 18.2% of the outstanding shares of Common Stock
on a fully diluted basis after giving prospective effect to the Tranche I
Closing and assuming the issuance of all shares reserved under the Management
Option Pool. Prior to a Tranche II Closing, the Company shall reserve for
issuance pursuant to the Management Option Pool additional shares of Common
Stock such that the total number of shares so reserved equals 18.2% of the
outstanding shares of Common Stock on a fully diluted basis after giving
prospective effect to such Tranche II Closing and assuming the issuance of all
shares reserved under the Management Option Pool. The Company shall issue
options in the Management Option Pool to senior management of the Company as
incentive compensation at such times and with such terms as determined by the
Company's board of directors.
4N. Key-Man Life Insurance. Within 15 days from the date of the Tranche I
Closing, Network shall have obtained key-man life insurance policies on the
lives of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in the face amount of
$2,500,000 each. Such insurance policies shall name the Purchasers as
beneficiary and shall provide that such insurance policies may not be cancelled
-20-
unless the insurance carrier gives at least 30 days prior written notice of such
cancellation to each Purchaser.
Section 5. Transfer of Restricted Securities.
(i) Restricted Securities are transferable only pursuant to (a) public
offerings registered under the Securities Act, (b) Rule 144 or Rule 144A of
the Securities and Exchange Commission (or any similar rule or rules then
in force) if such rule is available, and (c) subject to the conditions
specified in subparagraph (ii) below, any other legally available means of
transfer.
(ii) In connection with the transfer of any Restricted Securities
(other than a transfer described in subparagraph 5(i)(a) or (b) above), the
holder thereof shall (unless such requirement is waived in writing by the
Company) deliver written notice to the Company describing in reasonable
detail the transfer or proposed transfer, together with an opinion of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that
such transfer of Restricted Securities may be effected without registration
of such Restricted Securities under the Securities Act. In addition, if the
holder of the Restricted Securities delivers to the Company an opinion of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ or such other counsel that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Restricted Securities which do not bear the
Securities Act legend set forth in paragraph 9C. If the Company is not
required to deliver new certificates for such Restricted Securities not
bearing such legend, the holder thereof shall not transfer the same until
the prospective transferee has confirmed to the Company in writing its
agreement to be bound by the conditions contained in this subparagraph and
paragraph 9C.
(iii) Upon the request of any holder of Restricted Securities which
are eligible for sale pursuant to Rule 144(k) together with the delivery to
the Company of an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ or such other counsel that no
subsequent transfer of such Restricted Securities shall require
registration under the Securities Act, the Company shall remove the
foregoing legend from the certificates for such holder's Restricted
Securities.
Section 6. Representations and Warranties of the Company. As a material
inducement to the Purchasers to enter into this Agreement and purchase the
Stock, the Company hereby represents and warrants that:
-21-
6A. Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify. The Company has all requisite corporate power and authority and
all licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the Company's and each Subsidiary's charter documents
and bylaws which have been furnished to the Purchasers' special counsel reflect
all amendments made thereto at any time prior to the date of this Agreement and
are correct and complete.
6B. Capital Stock and Related Matters.
(i) As of the Tranche I Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 50,000 shares
of preferred stock, of which 20,000 shares shall be designated as Series A
10% Senior Cumulative Preferred Stock, 6,300 shares shall be issued and
outstanding and 4,950 shares reserved for issuance pursuant to any Tranche
II Closing, and (b) 200,000 shares of Common Stock, of which 85,000 shares
shall be issued and outstanding, 46,420 shares shall be reserved for
issuance pursuant to any Tranche II Closing, 18,912 shares shall be
reserved for issuance in connection with the Management Option Pool
subsequent to the Tranche I Closing and 10,328 shares shall be reserved for
issuance in connection with the Management Option Pool subsequent to any
Tranche II Closing. As of the Tranche I Closing and immediately thereafter,
the stockholders of the Company shall be as set forth in the following
chart:
No. of Shares of No. of Shares of
Stockholder Common Stock Preferred Stock
----------- ---------------- ----------------
Chemical Venture Capital
Associates 25,000 2,475
CIBC Wood Gundy Ventures,
Inc. 25,000 2,475
First Continental Capital
Corporation 3,500 0
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ 10,000 175
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, as
Trustee for ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ 10,000 175
▇▇▇▇▇ ▇▇▇▇▇▇▇ 1,533 200
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 767 100
-22-
No. of Shares of No. of Shares of
Stockholder Common Stock Preferred Stock
----------- ---------------- ----------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 767 l00
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 767 100
▇▇▇▇▇▇ ▇▇▇▇▇▇ 767 l00
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 767 l00
Al Dentale, ▇▇. ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ 2,299 50
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 2,299 50
As of the Tranche I Closing, the authorized capital stock of Network shall
consist of 1,000,000 shares of Network Stock, of which 200,000 shares shall be
issued and outstanding and subject to the Subscription Agreement. As of the
Tranche I Closing, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock or containing any profit participation features, nor shall
it have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans,
except as set forth on the attached "Capitalization Schedule" or as provided in
this Agreement or the Subscription Agreement. As of the Tranche I Closing,
neither the Company nor any Subsidiary shall be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to acquire
its capital stock, except as provided in the Stockholders Agreement, as set
forth on the Capitalization Schedule, pursuant to the Certificate of
Designation and the Certificate of Incorporation or pursuant to Section 7 of
this Agreement. As of the Tranche I Closing, all of the outstanding shares of
the Company's capital stock shall be validly issued, fully paid and
nonassessable.
(ii) There are no statutory or contractual stockholders' preemptive rights
or rights of refusal with respect to the issuance of the Stock hereunder. The
Company and its Subsidiaries have not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of their
capital stock, and the offer, sale and issuance of the Stock hereunder does not
require registration under the Securities Act or any applicable state securities
laws. Except as set forth on the Capitalization Schedule and pursuant to the
Stockholders Agreement, to the
-23-
best of the Company's knowledge, there are no agreements between the
stockholders of the Company or its Subsidiaries with respect to the voting
or transfer of the capital stock of the Company or its Subsidiaries or with
respect to any other aspect of the affairs of the Company or its
Subsidiaries.
6C. Subsidiaries; Investments. The attached "Subsidiary Schedule" correctly
sets forth the name of each Subsidiary, the jurisdiction of its incorporation
and the Persons owning the outstanding capital stock of such Subsidiary. Each
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority and all material licenses, permits and authorizations necessary to
own its properties and to carry on its businesses as now being conducted and as
presently proposed to be conducted and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify. All of the outstanding shares of capital stock of each
Subsidiary are validly issued, fully paid and nonassessable, and all such shares
are owned by the Company or another Subsidiary free and clear of any lien,
charge or encumbrance. Except as set forth on the Subsidiary Schedule, neither
the Company nor any Subsidiary owns or holds the right to acquire any shares of
stock or any other security or interest in any other Person except as provided
in the UTS Agreement.
GD. Authorization; No Breach. The execution, delivery and performance of
this Agreement, the Registration Agreement, the UTS Agreement, and all other
agreements contemplated hereby to which the Company or Network is a party, and
the filing of the Certificate of Designation have been duly authorized by the
Company and, if applicable, Network. This Agreement, the Registration Agreement,
the UTS Agreement, the Certificate of Incorporation, the Certificate of
Designation and all other agreements contemplated hereby each constitutes a
valid and binding obligation of the Company, and, if applicable, Network,
enforceable in accordance with its terms. The execution and delivery by the
Company and, if applicable, Network, of this Agreement, the Registration
Agreement, the UTS Agreement and all other agreements contemplated hereby to
which the Company and/or Network is a party, the offering, sale and issuance of
the Stock hereunder, the filing of the Certificate of Designation, and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company and, if applicable, Network do not and shall not (i) conflict with
or result in a breach of the terms, conditions or provisions of, (ii) constitute
a default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any Subsidiary's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice to
any court or administrative or governmental body pursuant to, the Certificate of
Designation or
-24-
the charter or bylaws of the Company or any Subsidiary, or any law, statute,
rule or regulation to which the Company or any Subsidiary is subject, or any
agreement, instrument, order, judgment or decree to which the Company or any
Subsidiary is subject.
6E. Financial Statements. Attached hereto as the "Financial Statements
Schedule" is the unaudited consolidated balance sheet of Network as of March 31,
1994 (the "Latest Balance Sheet"), and statements of income and cash flows (or
the equivalent) for the period from inception through March 31, 1994. Each of
the foregoing financial statements (including in all cases the notes thereto,
if any) is accurate and complete in all material respects, is consistent with
the books and records of Network (which, in turn, are accurate and complete in
all material respects) and has been prepared in accordance with generally
accepted accounting principles, consistently applied.
6F. Absence of Undisclosed Liabilities. Except as set forth on the attached
"Liabilities Schedule," the Company and its Subsidiaries do not have any
obligation or liability (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to the Company or any Subsidiary, whether due or
to become due and regardless of when asserted), including any obligations or
liabilities to FoneNet Corporation or arising pursuant to Network's merger with
U.S. Network Corporation, an Illinois corporation, arising out of transactions
entered into at or prior to the Tranche I Closing, or any action or inaction at
or prior to the Tranche I Closing, or any state of facts existing at or prior to
the Tranche I Closing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
6G. No Material Adverse Change. Since the date of the Latest Balance Sheet,
there has been no material adverse change in the financial condition, operating
results, assets, operations, business prospects or employee relations of the
Company and its Subsidiaries taken as a whole.
6H. Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement, the UTS
Agreement or the ▇▇▇▇▇▇▇▇ Agreement or as set forth on the attached
"Developments Schedule," since the date of the Latest Balance Sheet,
neither the Company nor any Subsidiary have:
(a) issued any notes, bonds or other debt securities or any
equity securities or any securities
-25-
convertible, exchangeable or exercisable into any equity securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the
ordinary course of business;
(c) discharged or satisfied any lien or encumbrance or paid any
obligation or liability, other than current liabilities paid in the
ordinary course of business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its stock or
purchased or redeemed any shares of its stock or any warrants, options
or other rights to acquire its stock;
(e) mortgaged or pledged any of its properties or assets or
subjected them to any lien, security interest, charge or other
encumbrance, except liens for current property taxes not yet due and
payable;
(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or cancelled any debts or
claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other
intangible assets, or disclosed any proprietary confidential
information to any Person;
(h) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or
consistent with past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(j) entered into any other transaction other than in the
ordinary course of business or entered into any other material
transaction, whether or not in the ordinary course of business;
(k) made any loans or advances to, guarantees for the benefit
of, or any Investments in, any Persons in excess of $100,000 in the
aggregate;
(1) made any charitable contributions or pledges;
-26-
(m) suffered any damage, destruction or casualty loss exceeding
in the aggregate $l00,000, whether or not covered by insurance; or
(n) made any Investment in or taken steps to incorporate any
Subsidiary.
(ii) Neither the Company nor any Subsidiary has at any time made any
payments for political contributions or made any bribes, kickback payments
or other illegal payments.
6I. Assets. Except as set forth on the attached "Assets Schedule," the
Company and each Subsidiary have good and marketable title to, or a valid
leasehold interest in, the properties and assets used by them, located on their
premises or shown on the Latest Balance Sheet or acquired thereafter, free and
clear of all liens, security interests, charges and encumbrances, except for
properties and assets disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for liens disclosed on the Latest
Balance Sheet (including any notes thereto) and liens for current property taxes
not yet due and payable. Except as described on the Assets Schedule, the
Company's and each Subsidiary's buildings, equipment and other tangible assets
are in good operating condition in all material respects and are fit for use in
the ordinary course of business. The Company and each Subsidiary own, or have a
valid leasehold interest in, all assets necessary for the conduct of their
respective businesses as presently conducted and as presently proposed to be
conducted.
6J. Tax Matters. Except as set forth in the attached "Taxes Schedule,"
the Company and each Subsidiary have filed all tax returns which they are
required to file under applicable laws and regulations; all such returns are
complete and correct in all material respects; the Company and each Subsidiary
in all material respects have paid all taxes due and owing by them and have
withheld and paid over all taxes which they are obligated to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party; neither the Company nor any Subsidiary has waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to a tax assessment or deficiency; the accrual for current taxes on the
Latest Balance Sheet would be adequate to pay all of the Company's and its
Subsidiaries' current tax liabilities if their current tax year were treated as
ending on the date of the Latest Balance Sheet; the assessment of any additional
taxes for periods for which returns have been filed shall not exceed the
recorded liability therefor on the Latest Balance Sheet; no foreign, federal,
state or local tax audits are pending or being conducted with respect to the
Company or any Subsidiary, no information related to tax matters has been
requested by any foreign, federal, state or local taxing authority and no notice
indicating an intent to open an audit or other review has been received by the
Company or its Subsidiaries from any foreign, federal, state or local taxing
authority; and
-27-
there are no material unresolved questions or claims concerning the Company's or
any Subsidiary's tax liability. Neither the Company nor any of its Subsidiaries
has made an election under (S)341(f) of the Internal Revenue Code of 1986, as
amended.
6K. Conduct of Business; Liabilities. Except as set forth on the attached
"Liabilities Schedule" and "Contracts Schedule," prior to the Tranche I Closing,
neither the Company nor any of its Subsidiaries has conducted any business,
incurred any expenses, obligations or liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known to the Company and
whether due or to become due) or entered into any contracts or agreements. In
addition, prior to the Tranche I Closing, neither the Company nor any of its
Subsidiaries has violated any laws or governmental rules or regulations.
6L. Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule," as of the Tranche I Closing,
neither the Company nor any Subsidiary is a party to any written or oral
contract, agreement, instrument or legally binding obligation, including
any employment agreements.
(ii) All of the contracts, agreements and instruments set forth on
the Contracts Schedule are valid, binding and enforceable in accordance
with their respective terms. The Company and each Subsidiary have performed
all obligations required to be performed by them and are not in default
under or in breach of nor in receipt of any claim of default or breach
under any contract, agreement or instrument to which the Company or any
Subsidiary is subject; no event has occurred which with the passage of time
or the giving of notice or both would result in a default, breach or event
of noncompliance under any contract, agreement or instrument to which the
Company or any Subsidiary is subject; neither the Company nor any
Subsidiary has any present expectation or intention of not fully performing
all such obligations; neither the Company nor any Subsidiary has knowledge
of any breach or anticipated breach by the other parties to any contract or
commitment to which it is a party; and neither the Company nor any
Subsidiary is a party to any materially adverse contract or commitment.
(iii) The Purchasers' special counsel has been supplied with a true
and correct copy of each of the written contracts and an accurate
description of the oral contracts which are referred to on the Contracts
Schedule, together with all amendments, waivers or other changes thereto.
6M. Proprietary Rights. The attached "Proprietary Rights Schedule"
contains a complete and accurate list of (i) all
-28-
patented and registered Proprietary Rights owned by the Company or any
Subsidiary, (ii) all pending patent applications and applications for
registrations of other Proprietary Rights filed by the Company or any
Subsidiary, (iii) all unregistered trade names and corporate names owned or used
by the Company and its Subsidiaries and (iv) all unregistered trademarks,
service marks and copyrights and computer software which are material to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole. The Proprietary Rights
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company or any Subsidiary to any third party with respect
to any Proprietary Rights and all licenses and other rights granted by any third
party to the Company or any Subsidiary with respect to any Proprietary Rights.
The Company or one of its Subsidiaries owns or has the right to use pursuant to
a valid license all Proprietary Rights necessary for the operation of the
businesses of the Company and its Subsidiaries as presently conducted and as
presently proposed to be conducted. The loss or expiration of any Proprietary
Right or related group of Proprietary Rights would not have a material adverse
effect on the conduct of the Company's and its Subsidiaries' respective
businesses, and no such loss or expiration is threatened, pending or reasonably
foreseeable. The Company and its Subsidiaries have taken all necessary and
desirable actions to maintain and protect the Proprietary Rights which they own
and use. To the best of the Company's knowledge, the owners of any Proprietary
Rights licensed to the Company or any Subsidiary have taken all necessary and
desirable actions to maintain and protect the Proprietary Rights which are
subject to such licenses. Except as indicated on the Proprietary Rights
Schedule, (i) the Company and its Subsidiaries own all right, title, and
interest in and to all of the Proprietary Rights listed on such schedule and all
other Proprietary Rights material to the operation of the businesses of the
Company and its Subsidiaries, (ii) there have been no claims made against the
Company or any Subsidiary asserting the invalidity, misuse or unenforceability
of any of such rights, and there are no grounds for the same, (iii) neither the
Company nor any Subsidiary has received a notice of conflict with the asserted
rights of others within the last five years, and (iv) the conduct of the
Company's and each Subsidiary's business, including the use of their Proprietary
Rights, has not infringed or misappropriated and does not infringe or
misappropriate any Proprietary Rights of other Persons, nor would any future
conduct as presently contemplated infringe any Proprietary Rights of other
Persons and, to the best of the Company's knowledge, the Proprietary Rights
owned by the Company or any Subsidiary have not been infringed or
misappropriated by other Persons.
6N. Litigation, etc. Except as set forth on the attached "Litigation
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or threatened against or affecting the Company or any Subsidiary
(or pending or threatened against or affecting any of the officers, directors
or
-29-
employees of the Company and its Subsidiaries with respect to their businesses
or proposed business activities) at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality
(including, without limitations, any actions, suit, proceedings or
investigations with respect to the transactions contemplated by this Agreement);
neither the Company nor any Subsidiary is subject to any arbitration proceedings
under collective bargaining agreements or otherwise or any governmental
investigations or inquiries (including inquiries as to the qualification to hold
or receive any license or permit); and there is no basis for any of the
foregoing. Neither the Company nor any Subsidiary is subject to any judgment,
order or decree of any court or other governmental agency. Except as set forth
on the attached Litigation Schedule, neither the Company nor any Subsidiary has
received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business.
6O. Brokerage. Except as described in the attached "Brokerage Schedule,"
there are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay, and hold each Purchaser harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
6P. Governmental Consent, etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or in the exhibits hereto.
6Q. Insurance. The attached "Insurance Schedule" contains a description
of each insurance policy maintained by the Company and its Subsidiaries with
respect to its properties, assets and businesses, and each such policy is in
full force and effect as of the Tranche I Closing. Neither the Company nor any
Subsidiary is in default with respect to its obligations under any insurance
policy maintained by it. The insurance coverage of the Company and its
Subsidiaries is customary for well-insured corporations of similar size engaged
in similar lines of business.
6R. Employees. The Company is not aware that any executive or key
employee of the Company or any Subsidiary or any group of employees of the
Company or any Subsidiary has any plans to terminate employment with the Company
or any Subsidiary, except as contemplated by paragraph 2H. The Company and each
Subsidiary
-30-
has complied in all material respects with all laws relating to the employment
of labor, including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes, and the Company and its Subsidiaries have no material labor relations
problems (including any union organization activities, threatened or actual
strikes or work stoppages or material grievances). Neither the Company, its
Subsidiaries nor any of their employees is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of the Company and its Subsidiaries, except for agreements between
the Company and its present and former employees.
6S. ERISA.
(a) Multiemployer Plans. The Company does not have any obligation to
contribute to (or any other liability, including current or potential
withdrawal liability, with respect to) any "multiemployer plan" (as defined
in Section 3(37) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")).
(b) Retiree Welfare Plans. The Company does not maintain or have any
obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical,
health, life insurance or other welfare-type benefits for current or future
retired or terminated employees (except for limited continued medical
benefit coverage required to be provided under Section 4980B of the IRC or
as required under applicable state law).
(c) Defined Benefit Plans. The Company does not maintain, contribute
to or have any liability under (or with respect to) any employee plan which
is a tax-qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA), whether or not terminated.
(d) Defined Contribution Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee
plan which is a tax-qualified "defined contribution plan" (as defined in
Section 3(34) of ERISA), whether or not terminated.
(e) Other Plans. The Company does not maintain, contribute to or
have any liability under (or with respect to) any plan or arrangement
providing benefits to current or former employees, including any bonus
plan, plan for deferred compensation, employee health or other welfare
benefit plan or other arrangement, whether or not terminated.
-31-
(f) The Company. For purposes of this paragraph 6S, the term "Company"
includes all organizations under common control with the Company pursuant
to Section 414(b) or (c) of the IRC.
6T. Compliance with Laws. Except as set forth on the attached "Compliance
Schedule," neither the Company nor any Subsidiary has violated any law or any
governmental regulation or requirement which violation would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole, and neither the Company nor any Subsidiary
has received notice of any such violation. Neither the Company nor any
Subsidiary is subject to any clean up liability, or has reason to believe it may
become subject to any clean up liability, under any federal, state or local
environmental law, rule or regulation.
6U. Small Business Matters. Network, together with its "affiliates" (as
that term is defined in Title 13, Code of Federal Regulations, (S)121.401), is a
"small business concern" within the meaning of the Small Business Investment Act
of 1958 and the regulations thereunder, including Title 13, Code of Federal
Regulations, (S)121.802. The information set forth in the Small Business
Administration Forms 480, 652 and Section A of Form 1031 regarding the Company
and Network is accurate and complete. Copies of such forms shall have been
completed by the Company and Network and delivered to each Purchaser at the
Tranche I Closing. Neither the Company nor any Subsidiary presently engages in,
and it shall not hereafter engage in, any activities, nor shall the Company or
any Subsidiary use directly or indirectly the proceeds from the sale of the
Stock hereunder for any purpose, for which a Small Business Investment Company
is prohibited from providing funds by the Small Business Investment Act of 1958
and the regulations thereunder, including Title 13, Code of Federal Regulations,
(S)107.901.
6V. Affiliated Transactions. Except as set forth on the attached
"Affiliated Transactions Schedule" and pursuant to the UTS Agreement, the
▇▇▇▇▇▇▇▇ Agreement, the Stockholders Agreement, the Subscription Agreement and
the Employment Agreements, no officer, director, shareholder or Affiliate of the
Company or any Subsidiary or any individual related by blood or marriage to any
such Person or any entity in which any such Person or individual owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or any Subsidiary or has any material interest in
any material property used by the Company or any Subsidiary.
6W. Disclosure. Neither this Agreement nor any of the schedules,
attachments, written statements, documents, certificates or other items prepared
or supplied to any Purchaser by or on behalf of the Company and its Subsidiaries
with respect to the
-32-
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading; provided that with respect to the financial projections
furnished to the Purchasers by the Company and its Subsidiaries, the Company
represents only that such projections were based upon assumptions reasonably
believed by the Company and its Subsidiaries to be reasonable and fair as of the
date the projections were prepared in the context of the Company's and its
Subsidiaries' history and current and reasonably foreseeable business
conditions. There is no fact which the Company and its Subsidiaries have not
disclosed to the Purchasers in writing and of which any of their officers,
directors or executive employees is aware (other than matters of a general
economic nature) and which has had or would reasonably be anticipated to have a
material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company and its Subsidiaries taken as a whole.
6X. Knowledge. As used in this Section 6, the terms "knowledge" or "aware"
shall mean and include (i) the actual knowledge or awareness of the Company and
its Subsidiaries (which shall include the actual knowledge and awareness of the
officers, directors and key employees of the Company and its Subsidiaries,
including ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇), and
(ii) the knowledge or awareness which a prudent business person would have
obtained in the conduct of his business after making reasonable inquiry and
reasonable diligence with respect to the particular matter in question.
6Y. Tranche I Closing Date. The representations and warranties of the
Company contained in this Section 6 and elsewhere in this Agreement and all
information contained in any exhibit, schedule or attachment hereto or in any
writing delivered by, or on behalf of, the Company and its Subsidiaries to any
Purchaser shall be true and correct in all material respects (provided that any
projections shall be based on underlying assumptions which provide a reasonable
basis for such projections) on the date of the Tranche I Closing as though then
made, except as affected by the transactions expressly contemplated by this
Agreement.
Section 7. Put Arrangements.
7A. The Put. At any time after the Put Trigger Date, Purchasers holding 33%
of the Investor Common Stock shall have the right to Put any or all of the
Investor Common Stock held by such Purchasers at the Put Price by delivering the
Put Notice; provided, however, that no Purchaser shall have the right to Put an
amount of Investor Common Stock which is less than 25% of the amount of Investor
Common Stock held by such Purchaser on the date hereof after giving effect to
the Tranche I Closing or to deliver any Put Notice within six months of the
delivery of any previous Put Notice. Within five days after receipt of a Put
Notice, the
-33-
Company shall deliver the Exercise Notice to all other Purchasers. Each
Purchaser receiving an Exercise Notice may request to participate in the Put by
delivering a Participation Notice to the Company within five days after receipt
of the Exercise Notice. The right to exercise the Put will inure to the benefit
of all transferees of the Investor Common Stock.
7B. Put Closing. Upon the delivery of the Put Notice and any Participation
Notice, the Company and the Purchasers participating in the Put shall in good
faith promptly determine the Put Price as provided hereunder, and, subject to
the provisions hereof, within ten days after the determination of the Put Price,
the Company will purchase and such Purchasers will sell the number of shares of
Investor Common Stock specified in the Put Notice and any Participation Notice
at a mutually agreeable time and place.
7C. Put Payment. At the Put Closing, the Purchasers participating in the
Put shall deliver to the Company certificates representing the Investor Common
Stock to be repurchased by the Company and the Company shall deliver to such
Purchasers the Put Price for all shares of Investor Common Stock to be
repurchased by the Company by cashier's or certified check payable to each such
Purchaser or by wire transfer of immediately available funds to an account
designated by each such Purchaser; provided that if the Company does not have
sufficient funds to pay the Put Price for any shares of Investor Common Stock to
be repurchased by the Company, then:
(i) the Company promptly will pay to the Purchasers participating in
the Put (pro rata, according to the aggregate amount of Put Price owing to
each such Purchaser) such funds as are then available or which later become
available for the payment of the Put Price, until the Put Price of all such
shares has been paid in full; and
(ii) the Board of Directors of the Company will use its best efforts
to effect a sale of the Company's assets or stock, or a merger,
consolidation, share exchange or similar transaction, or obtain debt or
equity financing, which will result in cash proceeds to the Company which
will be sufficient to pay the portion of the Put Price which is then
unpaid.
If the Company does not have sufficient funds to pay the Put Price for any
shares of Investor Common Stock to be repurchased by the Company at the Put
Closing and subsequently such funds become available, the Company shall deliver
a written notice to each of the Purchasers participating in the Put indicating
that such funds have become available. Upon receipt of such notice, each
Purchaser participating in the Put shall have the right to rescind the exercise
of the Put with respect to the shares of Investor Common Stock for which the Put
Price has not been paid by delivering written notice of such rescission to the
Company within five days
-34-
of the receipt of the Company's notice regarding the availability of funds to
pay the Put Price. If a Purchaser has delivered a rescission notice to the
Company as set forth above, such Purchaser may deliver a subsequent Put Notice
without regard to the six month time period set forth in paragraph 7A.
7D. Put Price. The "Put Price" of the Investor Common Stock to be
repurchased shall mean the product of (A) the sum of the Market Value of the
Company and the total exercise price to be paid to the Company assuming the
exercise or conversion of all outstanding options, warrants or convertible
securities of the Company, multiplied by (B) a fraction, the numerator of which
will be the number of shares of Investor Common Stock to be repurchased and the
denominator of which will be the total number of shares of Common Stock
outstanding on a fully diluted basis. Unless otherwise agreed by the Company and
the Purchasers participating in the Put, Market Value shall be determined by an
investment banking firm reasonably acceptable to the Company and such
Purchasers, which firm shall submit to the Company and such Purchasers a written
report setting forth such determination. If the parties are unable to agree on
an investment banking firm within 15 days after delivery of a Put Notice, a firm
shall be selected by lot from the investment banking firms listed on Attachment
A hereto, after the Company and such Purchasers have each eliminated one such
firm. The expenses of such firm will be borne equally by the Company and the
Purchasers participating in the Put, and the determination of such firm will be
final and binding upon all parties, except that after the determination of
Market Value following the exercise of the Put, such Purchasers may rescind
their exercise of such Put.
7E. Put Termination. The Put rights contained in this Section 7 shall
terminate upon a Qualified Public Offering.
Section 8. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"Affiliate" of any particular person or entity means any other person or
entity controlling, controlled by or under common control with such particular
person or entity.
"CAP Agreements" means agreements to provide telephone services within and
between local access transport areas, such services to be provided primarily on
facilities owned or leased by the Company.
"Certificate of Incorporation" means the Company's Certificate of
Incorporation in the form set forth in Exhibit B hereto.
"Certificate of Designation" means the Company's Certificate of Designation
of Rights and Preference of Series A Preferred Stock establishing the terms and
the relative rights and
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preferences of the Preferred Stock in the form set forth in Exhibit A hereto.
"Change of Control" shall be deemed to have occurred at such time as any of
the following events shall occur:
(i) There shall be consummated any sale or issuance or series of sales
and/or issuance of shares of Common Stock by the Company or any holders
thereof which results in any Person or affiliated Persons (other than the
owners of Common Stock or their Affiliates as of the date of the Purchase
Agreement after giving effect to the transactions contemplated hereby,
including any Tranche II Purchases, and by the Subscription Agreement)
owning Common Stock of the Company possessing the voting power (under
ordinary circumstances) to elect a majority of the Company's board of
directors.
(ii) There shall be consummated a sale or transfer of more than 30% of
the assets of the Company and its Subsidiaries on a consolidated basis in
any transaction or series of transactions (other than sales in the ordinary
course of business).
(iii) There shall be consummated any merger or consolidation to which
the Company is a party, except for a merger in which the Company is the
surviving corporation and, after giving effect to such merger, the holders
of Common Stock immediately prior to the merger shall own Common Stock
possessing the voting power (under ordinary circumstances) to elect a
majority of the Company's board of directors.
"Chemical" means Chemical Venture Capital Associates, a California limited
partnership.
"CIBC" means CIBC Wood Gundy Ventures, Inc., a Delaware corporation.
"Closing" means the Tranche I Closing or the Tranche II Closing.
"Common Stock" means the Company's common stock, par value $.01 per share.
"Company" means United USN, Inc., a Delaware corporation.
"Decline Notice" means a written notice delivered by the Declining
Purchaser to the Company and the other Purchaser within five days of the
Declining Purchaser's receipt of the Tranche II Notice specifying the number of
shares of Stock the Declining Purchaser will purchase in the Tranche II
Purchase.
"Declined Stock" means the number of shares of Stock equal to the number of
shares of Stock the Company requested the
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Declining Purchaser to purchase in the Tranche II Purchase pursuant to the
Tranche II Notice less the number of shares of Stock purchased by the Declining
Purchaser, if any.
"Declining Purchaser" means a Purchaser not fully participating in a
Tranche II Purchase.
"Employment Agreements" means Network's employment agreements with ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as amended in form and substance as set
forth on Exhibit F attached hereto, and a consulting agreement with ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇.
"Event of Noncompliance" has the meaning set forth in the Certificate of
Designation.
"Exercise Notice" means a written notice of the Company indicating that the
Put has been exercised and specifying each Purchaser exercising the Put and the
number of shares to be purchased from each such Purchaser.
"FCCC" means First Continental Capital Corporation, a Texas corporation.
"Indebtedness" shall mean at a particular time, without duplication, (i)
indebtedness for borrowed money or for the deferred purchase price of property
or services in respect of which any Person is liable, contingently or otherwise,
as obligor or otherwise (other than trade payables and other current liabilities
incurred in the ordinary course of business) or any commitment by which any
Person assures a creditor against loss, including contingent reimbursement
obligations with respect to letters of credit, (ii) indebtedness guaranteed in
any manner by any Person, including guarantees in the form of an agreement to
repurchase or reimburse, (iii) obligations under capitalized leases in respect
of which obligations any Person is liable, contingently or otherwise, as
obligor, guarantor or otherwise, or in respect of which obligations any Person
assures a creditor against loss and (iv) any unsatisfied obligation of any
Person for "withdrawal liability" to a "multiemployer plan" as such terms are
defined under ERISA.
"Investment" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Investor Common Stock" means (i) the Common Stock issued pursuant to this
Agreement and (ii) any Common Stock issued or issuable with respect to the
Common Stock referred to in clause (i) above by way of stock dividends or stock
splits or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular shares
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of Investor Common Stock, such shares shall cease to be Investor Common Stock
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the Registration statement covering them or (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar rule then in force).
"Investor Preferred Stock" means (i) the Preferred Stock issued pursuant to
this Agreement and (ii) any Preferred Stock issued or issuable with respect to
the Preferred Stock referred to in clause (i) above by way of stock dividends or
stock splits or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular shares of
Investor Preferred Stock, such shares shall cease to be Investor Preferred Stock
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the Registration statement covering them or (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar rule then in force).
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"Management Option Pool" means options to purchase shares of Common Stock
to be issued by the Company to senior management as incentive compensation upon
terms to be determined by the Company's board of directors.
"Market Value" means the highest price for which all of the outstanding
Common Stock of the Company could be sold in an orderly sale as between a
willing buyer and a willing seller within the 12 months prior to the date of
delivery of the Put Notice to the Company.
"Network" means U.S. Network Corporation, a Delaware corporation.
"Network Stock" means Network common stock, par value $.001 per share.
"NYNEX" means NYNEX Corp. and its Subsidiaries, including New York
Telephone Company.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him
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to verify the accuracy of the information set forth in such certificate and (ii)
to the best of such officer's knowledge, such certificate does not misstate any
material fact and does not omit to state any fact necessary to make the
certificate not misleading.
"Participating Purchaser" means a Purchaser fully participating in a
Tranche II Purchase.
"Participation Notice" means a written notice delivered to the Company by a
Purchaser specifying the number of shares to be purchased from such Purchaser
pursuant to the Put.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.
"Preferred Stock" means the Company's Series A 10% Senior Cumulative
Preferred Stock, par value $1.00 per share.
"Proprietary Rights" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data and documentation, (vi) trade secrets and
other confidential information (including, without limitation, the "U.S. Network
Corporation, Competitive Access Project, Outline of Project Requirements" dated
October 1993, ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and customer and supplier
lists and information), (vii) other intellectual property rights, and (viii)
copies and tangible embodiments thereof (in whatever form or medium).
"Purchasers" means CIBC and Chemical collectively and "Purchaser" means
CIBC or Chemical individually.
"Put" means the right of the Purchasers to require the Company to
repurchase all or any portion of the Investor Common Stock.
"Put Closing" means the closing of the Put.
"Put Notice" means a written notice delivered by the Purchasers to the
Company specifying the number of shares to be purchased from each Purchaser
pursuant to the Put.
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"Put Price" means the price for Common Stock to be paid by the Company to a
Purchaser pursuant to the Put determined in accordance with paragraph 7D.
"Put Trigger Date" means the earlier of the fifth anniversary of the
Tranche I Closing or the date upon which a Change of Control of the Company
occurs.
"Qualified Holder" means a holder of at least 15% of the outstanding
Investor Preferred Stock or a holder of at least 15% of the outstanding Investor
Common Stock.
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of Common Stock which
would result in at least 20% of the shares of Common Stock outstanding after
such offering having been registered pursuant to the Securities Act, with such
shares outstanding having an aggregate value of at least $20 million.
"Registration Agreement" means the registration agreement between the
Company and the Purchasers in form and substance as set forth in Exhibit C
hereto.
"Regulatory Problem" means any set of facts or circumstances wherein it has
been asserted by any governmental regulatory agency (or the Purchaser believes
that there is a substantial risk of such assertion) that the Purchaser is not
entitled to hold, or exercise any significant right with respect to, the Stock.
"Required Approval" means the Company must have delivered a written notice
to the Purchasers stating the action proposed to be taken by the Company and
Purchasers holding at least 50% of the outstanding Investor Common Stock must
have approved such action by a written approval delivered to the Company.
"Restricted Securities" means (i) the Investor Preferred Stock and the
Investor Common Stock issued hereunder, and (ii) any securities issued with
respect to the securities referred to in clause (i) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
(b) become eligible for sale pursuant to Rule 144 (or any similar provision then
in force) under the Securities Act or (c) been otherwise transferred and new
certificates for them not bearing the Securities Act legend set forth in
paragraph 9C have been delivered by the Company in accordance with paragraph
5(ii). Whenever any particular securities cease to be Restricted Securities, the
holder thereof shall be entitled to receive from the Company, without expense,
new
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securities of like tenor not bearing a Securities Act legend of the character
set forth in paragraph 9C.
"▇▇▇▇▇▇▇▇ Agreement" means an agreement between the Company, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ and UTS that, in the sole discretion of each of the Purchasers,
positions the Company and its Subsidiaries to pursue arrangements similar to
that entered into by UTS and NYNEX with regional ▇▇▇▇ operating companies other
than NYNEX on terms acceptable to the Purchasers.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Stock" means the Preferred Stock and the Common Stock collectively.
"Stockholders Agreement" means the stockholders agreement between the
Company and the holders of Common Stock in form and substance as set forth in
Exhibit E attached hereto.
"Subscription Agreement" means the stock subscription agreement between the
Company, FCCC and the current holders of Network Stock in form and substance as
set forth in Exhibit D attached hereto.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity. For purposes of the provisions of this Agreement, all references to the
Company and its Subsidiaries or a Subsidiary of the Company (a) shall be deemed
to include Network and its Subsidiaries notwithstanding the fact that Network
and its Subsidiaries will
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become wholly-owned Subsidiaries of the Company concurrently with the Tranche I
Closing, and (b) shall be deemed to include UTS and its Subsidiaries for so long
as the Company controls a majority of the board of directors of UTS or UTS is
deemed a Subsidiary under clause (i) above; provided, however, all references to
the Company and its Subsidiaries shall not include UTS and its Subsidiaries for
purposes of Section 6.
"Third Party Purchaser" means a person not originally a party to this
Agreement who participates in a Tranche II Purchase.
"Third Party Purchaser Notice" means a written notice delivered by a
Participating Purchaser to the Company and the Declining Purchaser specifying
the name of a proposed Third Party Purchaser and the number of shares of Stock
to be purchased by such Third Party Purchaser.
"Tranche I Closing" means the closing of the Tranche I Purchase.
"Tranche II Closing" means a closing of a Tranche II Purchase.
"Tranche II Demand" means a written notice delivered by a Purchaser to the
Company and the other Purchaser exercising its option pursuant to subparagraph
1D(ii) and specifying the number of shares of Stock to be purchased in a Tranche
II Purchase and the time and place where such Tranche II Closing shall occur.
"Tranche II Notice" means a written notice given by the board of directors
of the Company to the Purchasers specifying the number of shares of Stock to be
purchased in a Tranche II Purchase and the time and place where such Tranche II
Closing shall occur.
"Tranche I Purchase" means the sale by the Company to each Purchaser and
the purchase from the Company by each Purchaser of the number of shares of stock
set forth opposite such Purchaser's name on the Tranche I Schedule of Purchasers
attached hereto.
"Tranche II Purchase" means the sale by the Company to each Purchaser and
the purchase from the Company by each Purchaser of up to the number of shares of
Stock set forth opposite such Purchaser's name on the Tranche II Schedule of
Purchasers attached hereto in one or more transactions, subject to the
provisions of paragraph 1D.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
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"UTS" means United Telemanagement Service, Inc., a Delaware corporation.
"UTS Agreement" means the Note and Stock Purchase Agreement dated as of
April 20, 1994 by and between the Company and UTS in form and substance as set
forth in Exhibit G attached hereto.
Section 9. Miscellaneous.
9A. Expenses. The Company agrees to pay, and hold each Purchaser harmless
against liability for the payment of, (i) the fees and expenses of their special
counsel arising in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at the Closing or, if the Closing does not
occur, payable upon demand, (ii) all out-of-pocket costs and expenses and
consultants' fees in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at Closing or, if the Closing does not occur,
payable upon demand, (iii) the fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effective) under or in
respect of this Agreement, the agreements contemplated hereby, the Certificate
of Incorporation or the Certificate of Designation, (iv) stamp and other taxes
which may be payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any shares of Stock, (v) the fees
and expenses incurred with respect to the enforcement of the rights granted
under this Agreement, the agreements contemplated hereby, the Certificate of
Incorporation and the Certificate of Designation, (vi) the fees and expenses
incurred by each such Person in any filing with any governmental agency with
respect to its investment in the Company or in any other filing with any
governmental agency with respect to the Company or its Subsidiaries which
mentions such Person, and (vii) the reasonable fees and expenses incurred by any
such Person in connection with any transaction, claim or event which such Person
believes affects the Company or its Subsidiaries and as to which such Person
seeks advice of counsel.
9B. Remedies. Each holder of Stock shall have all rights and remedies set
forth in this Agreement, the Certificate of Incorporation and the Certificate
of Designation and all rights and remedies which such holders have been granted
at any time under any other agreement or contract and all of the rights which
such holders have under any law. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
9C. Purchaser's Investment Representations. Each Purchaser hereby
represents that it is acquiring the Restricted
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Securities purchased hereunder or acquired pursuant hereto for its own account
with the present intention of holding such securities for purposes of
investment, and that it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein shall prevent any
Purchaser and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of Section 5 hereof. Each
certificate for Restricted Securities shall be imprinted with a legend in
substantially the following form:
"The securities represented by this certificate were originally issued on
April 20, 1994, and have not been registered under the Securities Act of
1933, as amended. The transfer of the securities represented by this
certificate is subject to the conditions specified in the Purchase
Agreement, dated as of April 20, 1994, between the issuer (the "Company")
and certain investors, and the Company reserves the right to refuse the
transfer of such securities until such conditions have been fulfilled with
respect to such transfer. A copy of such conditions shall be furnished by
the Company to the holder hereof upon written request and without charge."
9D. Treatment of the Preferred Stock. The Company covenants and agrees
that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports. The Company acknowledges and
agrees that the increased dividend rate on the Preferred Stock provided for in
the Certificate of Designation upon the occurrence of certain Events of
Noncompliance has been negotiated by (and is intended by) the Company and the
Purchasers as a reasonable increase in yield necessitated by the increased risk
to the holders of the Preferred Stock which would arise upon any such
occurrence.
9E. Consent to Amendments. Except as otherwise expressly provided herein,
the provisions of this Agreement may be amended or waived and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company has obtained the Required Approval. No
other course of dealing between the Company and the holder of any Stock or any
delay in exercising any rights hereunder or under the Certificate of
Incorporation or Certificate of Designation shall operate as a waiver of any
rights of any such holders. For purposes of this Agreement, shares of Stock
held by the Company or any Subsidiaries shall not be deemed to be outstanding.
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9F. Survival of Representations and warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
9G. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Stock are also for the benefit of, and enforceable by,
any subsequent holder of such Stock.
9H. Capital and Surplus; Special Reserves. The Company agrees that the
capital of the Company (as such term is used in Section 154 of the General
Corporation Law of the State of Delaware) in respect of the Stock issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement. The Company also agrees that it shall not create any special
reserves under Section 171 of the General Corporation Law of the State of
Delaware without the prior written consent of each of the Purchasers.
9I. Generally Accented Accounting Principles. Where any accounting
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied, except that if because of a change in generally accepted
accounting principles the Company would have to alter a previously utilized
accounting method or policy in order to remain in compliance with generally
accepted accounting principles, such determination or calculation shall continue
to be made in accordance with the Company's previous accounting methods and
policies, unless otherwise directed by each of the Purchasers.
9J. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9K. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such
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counterparts taken together shall constitute one and the same Agreement.
9L. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a Section
of this Agreement. The use of the word "including" in this Agreement shall be by
way of example rather than by limitation.
9M. Governing Law. The corporate law of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits and schedules hereto shall be
governed by the internal law, and not the law of conflicts, of the State of New
York.
9N. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, dispatched by telegram or electronic facsimile transmission
(confirmed in writing by mail simultaneously dispatched), sent to the recipient
by reputable express courier service (charges prepaid) or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to each
Purchaser at the address indicated on the Tranche I Schedule of Purchasers and
to the Company at the address indicated below:
United USN, Inc.
l0 ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9O. Understanding Among the Purchasers. The determination of each
Purchaser to purchase the Stock pursuant to this Agreement has been made by such
Purchaser independent of any other Purchaser and independent of any statements
or opinions as to the advisability of such purchase or as to the properties,
business, prospects or condition (financial or otherwise) of the Company and its
Subsidiaries which may have been made or given by any other Purchaser or by any
agent or employee of any other Purchaser.
9P. Indemnification. The Company agrees to indemnify and hold each
Purchaser harmless against and in respect of any and all direct out-of-pocket
damages, losses, liabilities, obligations,
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costs and expenses (including reasonable attorneys' fees) which the Purchasers,
or any of them, may suffer or incur as a result of a breach of any of the
representations, warranties or agreements by the Company set forth herein
(notwithstanding any investigations or verifications made by or on behalf of the
Purchasers).
9Q. No Solicitation, Etc.
During such time as this Agreement is in effect and prior to the Tranche I
Closing, neither the Company, its Subsidiaries or any of their stockholders,
directors, officers, employees, agents or representatives (collectively, the
"Company Parties"), without the prior written approval of each of the
Purchasers, (a) will solicit, initiate, encourage or discuss any proposal or
offer from any person other than the Purchasers relating to an equity financing
of the Company or its Subsidiaries (other than as contemplated by Section 2L and
other than any communications necessary to advise investors of the Company's or
its Subsidiaries' lack of interest in such proposal), or (b) furnish any
information with respect to, or assist or participate in, or facilitate in any
other manner, any effort or attempt by any person to do or seek the foregoing.
Promptly after execution of this Agreement, all Company Parties will terminate
all discussions with any third party regarding the foregoing and will notify
each of the Purchasers immediately after any Company Party learns that any
person has made any proposal, offer, inquiry or contact with respect to the
foregoing. The Company's acknowledgement of and agreement with the terms and
conditions set forth in this Agreement will constitute a representation and
warranty that neither the Company, its Subsidiaries nor, to their knowledge, any
other Company Party, has entered into any executory agreement or accepted any
commitment with respect to the foregoing transactions.
9R. Insurance Proceeds.
The Purchasers agree that following the payment to Purchasers of any
insurance proceeds under paragraph 4N, (i) the Purchasers shall remit to the
Company an amount of such proceeds, if any, which is equal to (a) the aggregate
amount of proceeds received under paragraph 4N by the Purchasers, less (b) the
Liquidation Value of any Investor Preferred Stock then outstanding, together
with accrued and unpaid dividends, plus the purchase price of any Investor
Common Stock then outstanding; and (ii) the Purchasers agree to return to the
Company for cancellation the shares of Investor Preferred Stock for which
payment in full (including accrued and unpaid dividends) has been received from
such insurance proceeds.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
UNITED USN, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
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By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
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By:
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Its:
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-48-