Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
dated as of
November 1, 1996
between
ECONOPHONE, INC.
and
PRINCES GATE INVESTORS II, L.P.
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.................................................... 1
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.01. Commitment to Purchase........................................ 4
SECTION 2.02. The Closing................................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE ISSUER
SECTION 3.01. Organization, Standing, etc................................... 5
SECTION 3.02. Authorization; Non-Contravention.............................. 5
SECTION 3.03. Binding Effect................................................ 6
SECTION 3.04. Capitalization and Voting Rights.............................. 6
SECTION 3.05. Subsidiaries.................................................. 7
SECTION 3.06. Related Party Transactions.................................... 7
SECTION 3.07. Registration Rights........................................... 7
SECTION 3.08. Litigation, Proceedings; No Defaults.......................... 7
SECTION 3.09. Disclosure.................................................... 8
SECTION 3.10. Offering...................................................... 8
SECTION 3.11. Investment Company............................................ 8
SECTION 3.12. Governmental Regulation....................................... 8
SECTION 3.13. Solicitation; Access to Information........................... 8
SECTION 3.14. Financial Information......................................... 9
SECTION 3.15. Compliance with ERISA......................................... 9
SECTION 3.16. Taxes......................................................... 10
SECTION 3.17. Authorization to do Business.................................. 11
SECTION 3.18. Absence of Certain Changes.................................... 11
SECTION 3.19. Properties.................................................... 13
SECTION 3.20. Internal Controls............................................. 13
SECTION 3.21. Employees; Employee Compensation.............................. 13
SECTION 3.22. No Undisclosed Material Liabilities........................... 14
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SECTION 3.23. Material Contracts............................................ 14
SECTION 3.24. Intellectual Property......................................... 14
SECTION 3.25. Environmental Compliance...................................... 15
SECTION 3.26. Insurance..................................................... 16
SECTION 3.27. Shareholder Loans............................................. 16
SECTION 3.28. S-Corporation................................................. 16
SECTION 3.29. Currency Hedging.............................................. 16
SECTION 3.30. Significant Subsidiary........................................ 16
SECTION 3.31. Carrier Contracts............................................. 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. Organization.................................................. 16
SECTION 4.02. Authority; No Other Action.................................... 16
SECTION 4.03. Non-Contravention............................................. 17
SECTION 4.04. Binding Effect................................................ 17
SECTION 4.05. No Defaults................................................... 17
SECTION 4.06. Private Placement............................................. 17
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. Conditions to the Purchaser's Obligations..................... 18
SECTION 5.02. Conditions to the Issuer's Obligations........................ 20
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Notices....................................................... 20
SECTION 6.02. No Waivers; Amendments........................................ 21
SECTION 6.03. Indemnification............................................... 21
SECTION 6.04. Survival of Provisions........................................ 22
SECTION 6.05. Expenses; Documentary Taxes................................... 22
SECTION 6.06. Successors and Assigns........................................ 22
SECTION 6.07. New York Law.................................................. 23
SECTION 6.08. Counterparts; Effectiveness................................... 23
SECTION 6.09. Entire Agreement.............................................. 23
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SCHEDULES
Schedule 3.04(a) Authorized Capital Stock
Schedule 3.04(b) Voting Agreements
Schedule 3.05 Subsidiaries
Schedule 3.06 Related Party Transactions
Schedule 3.07 Registration Rights
Schedule 3.18 Material Changes
Schedule 3.19 Liens
Schedule 3.21 Employees; Employee Compensation
Schedule 3.22 Material Liabilities
Schedule 3.23 Material Contracts
Schedule 3.24 Intellectual Property Claims
Schedule 3.27 Shareholder Loans
EXHIBITS
Exhibit A - Form of Securityholders Agreement
Exhibit B-1 - Form of Opinion of Special Counsel to the Issuer
Exhibit B-2 - Form of Opinion of U.S. Regulatory Counsel to the Issuer
Exhibit B-3 - Form of Opinion of Foreign Regulatory Counsel to the Issuer
Exhibit C - Documentation not Relied Upon
Exhibit D - Charter
Exhibit E - Bylaws
SECURITIES PURCHASE AGREEMENT
AGREEMENT dated as of November 1, 1996 between Econophone, Inc., a New
York corporation (the "Issuer"), and Princes Gate Investors II, L.P. (the
"Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. (a) The following terms, as used herein,
have the following meanings:
"Balance Sheet" means the consolidated balance sheet of the Issuer and
its Consolidated Subsidiaries as of December 31, 1995.
"Balance Sheet Date" means December 31, 1995.
"Bylaws" means the Bylaws of the Issuer in the form attached as
Exhibit E hereto.
"Certificate of Amendment" means the certificate of amendment to the
Company's certificate of incorporation relating to, among other things, the
Series A Preferred, and filed with the Secretary of State of the State of New
York on the date hereof.
"Charter" means the Certificate of Incorporation of the Issuer, as in
effect as of the Closing Date, in the form attached as Exhibit D hereto.
"Common Stock" means the Common Stock, no par value per share, of the
Issuer.
"Consolidated Subsidiary" means, at any applicable date, any
subsidiary or other entity the accounts of which would be consolidated with
those of the Issuer in its consolidated financial statements if such statements
were prepared as of such date.
"Equipment Loan and Security Agreement" means the Equipment Loan and
Security Agreement dated May 28, 1996 between the Issuer and NTFC Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute.
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"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including,
without limitation, pursuant to capital leases, but excluding the balance
deferred and unpaid of the purchase price of currency) or representing any
hedging obligations, except any such balance that constitutes an accrued expense
or trade payable, if and to the extent any of the foregoing indebtedness (other
than hedging obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with generally accepted accounting
principles, and also includes, to the extent not otherwise included above, the
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner (including,
without limitation, through letters of credit and reimbursement agreements in
respect thereof) of items that otherwise would be included within this
definition.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, any Person shall be deemed to own subject to
any Lien any asset that it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Material Adverse Change" means a material adverse change in the
business, business prospects, assets, financial condition or results of
operations of the Issuer and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
financial condition, business, business prospects, assets or results of
operations of the Issuer and its Subsidiaries taken as a whole.
"Permitted Liens" means any Lien consisting of any one or more of the
following:
(i) Liens securing Indebtedness outstanding under the Equipment
Loan and Security Agreement;
(ii) Liens for current taxes not yet delinquent;
(iii) Liens imposed by law and imposed in the ordinary course of
business for obligations not yet delinquent to carriers, warehousemen,
laborers, materialmen and the like;
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(iv) Liens in respect of pledges or deposits made pursuant to
workers compensation laws or similar legislation;
(v) minor defects in title, none of which, individually or in the
aggregate, materially and adversely affects the Issuer's ability to
Transfer or use the subject asset or property;
(vi) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business; or
(vii) Liens placed upon any assets or property to secure
Indebtedness financing the improvements of assets or property, capitalized
lease obligations, or sale/leaseback transactions, PROVIDED THAT the
aggregate principal amount outstanding under all such financing does not
exceed $3 million.
"Person" means an individual, general partnership, limited
partnership, corporation, trust, joint stock company, association, joint venture
or any other entity or organization, whether or not legal entities, including,
without limitation, a government or political subdivision or an agency or
instrumentality thereof.
"Regulation D" means Regulation D under the Securities Act, as
amended.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor statute.
"Securityholders Agreement" means the Securityholders Agreement among
▇▇. ▇▇▇▇▇▇ ▇▇▇▇, the Issuer and the Purchaser of even date herewith.
"Series A Preferred" shall have the meaning set forth in Section 2.01
of this Agreement.
"Subsidiary" has the meaning ascribed thereto in the Securityholders
Agreement.
"Transfer" means any transfer, in whole or in party, by sale, pledge
assignment or other means.
"Warrants" has the meaning ascribed thereto in the Securityholders
Agreement.
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(b) Each of the following terms is defined in the Section opposite
such term:
TERM SECTION
Benefit Arrangement 3.15
Closing 2.02
Closing Date 2.02
Code 3.15
Damages 6.03
ERISA 3.15
ERISA Group 3.15
Hazardous Substance 3.25
Indemnified Person 6.03
Intellectual Property Rights 3.24
Issuer Indemnified Person 6.03
Multiemployer Plan 3.15
Plan 3.15
Pre-Closing Tax Period 3.16
Purchase Price 2.01
Returns 3.16
Tax 3.16
Taxing Authority 3.16
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.01. COMMITMENT TO PURCHASE. Subject to the terms and
conditions hereinafter stated, upon the basis of the representations and
warranties herein contained of the Purchaser, the Issuer agrees to issue and
sell to the Purchaser and, upon the basis of the representations and warranties
herein contained of the Issuer, the Purchaser agrees to purchase from the Issuer
140,000 shares of Redeemable Convertible Preferred Stock, Series A, of the
Issuer having an aggregate liquidation preference of $14 million (the "Series A
Preferred") at $96.00 per share, for an aggregate purchase price of $13.44
million (the "Purchase Price").
SECTION 2.02. THE CLOSING. (a) The purchase and sale of the Series
A Preferred (the "Closing") shall take place at the offices of Shearman &
Sterling at 10:00 a.m. on the date hereof or on such other date and at such
other location as the Issuer and the Purchaser shall agree. The date and time
of closing are referred to herein as the "Closing Date".
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(b) At the Closing, the Purchaser shall deliver to the Issuer, by
wire transfer (of immediately available funds in U.S. dollars) to an account
designated by the Issuer, the Purchase Price.
(c) At the Closing, the Issuer shall deliver to the Purchaser,
against payment of the Purchase Price, a certificate evidencing the Series A
Preferred in definitive form and registered in the name of the Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE ISSUER
The Issuer represents and warrants to the Purchaser as follows:
SECTION 3.01. ORGANIZATION, STANDING, ETC. (a) The Issuer is a
corporation duly incorporated and subsisting under the laws of the State of New
York and has all corporate powers necessary to carry on its business as
conducted on the date hereof. The Charter and Bylaws are true and complete
copies of the certificate of incorporation and bylaws of the Issuer that will be
in effect immediately following the Closing.
(b) Except for those Subsidiaries designated as inactive on
Schedule 3.05, each of the Issuer's Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers necessary to carry
on its business as now conducted. The Issuer has heretofore delivered to the
representative of the Purchaser true and complete copies of the certificate of
incorporation and bylaws of each of its Subsidiaries designated as active on
Schedule 3.05 as currently in effect.
SECTION 3.02. AUTHORIZATION; NON-CONTRAVENTION. The execution,
delivery and performance by the Issuer of each of this Agreement and the
Securityholders Agreement and the issuance and delivery by the Issuer of the
Series A Preferred and the performance by the Issuer of its obligations
contained in the Certificate of Amendment are within the Issuer's corporate
powers, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any governmental body, agency or
official (other than as may be required under federal or state securities laws
in connection with the registration obligations of the Issuer contained in the
Securityholders Agreement) and do not (i) contravene or constitute a default
under any provision of applicable law or regulation, judgment, injunction, order
or decree binding upon or applicable to the Issuer, (ii) contravene or
constitute a default under the Charter or Bylaws, (iii) except for such consent
or approval as has been obtained, require any consent, approval or other action
by any other
6
Person (other than any securities regulatory authority or securities exchange or
inter-dealer quotation system in connection with the registration obligations of
the Issuer contained in the Securityholder Agreement) or constitute a default
under or contravene any material agreement, judgment, injunction, order, decree
or other instrument binding upon the Issuer or any of its Subsidiaries or (iv)
result in the creation or imposition of any Lien on any material asset of the
Issuer or any of its Subsidiaries.
SECTION 3.03. BINDING EFFECT. Each of this Agreement and the
Securityholders Agreement constitutes a valid and binding agreement of the
Issuer, and the Series A Preferred, when issued and delivered by the Issuer in
accordance with this Agreement, shall constitute a valid and binding obligation
of the Issuer.
SECTION 3.04. CAPITALIZATION AND VOTING RIGHTS. (a) As of the
Closing Date, the authorized capital stock of the Issuer and the issued and
outstanding shares of capital stock of the Issuer will each be as set forth on
Schedule 3.04(a)(i). All of the issued and outstanding shares of capital stock
of the Issuer will be validly issued, fully paid and nonassessable, and the
holders thereof will not be entitled to any preemptive or other similar rights.
As of the Closing Date, 4,012,000 shares of Common Stock have been reserved for
issuance in connection with the conversion of the Series A Preferred and
3,000,000 shares of Common Stock are issuable under the terms of the Issuer's
stock incentive plan (the "1996 Flexible Incentive Plan"). Copies of the 1996
Flexible Incentive Plan, which has been adopted by the Board of Directors of the
Issuer prior to the date hereof and, as in effect on the date hereof, has been
delivered to the Purchaser prior to the date hereof. Except as set forth on
Schedule 3.04(a)(ii), the Certificate of Amendment and the rights provided for
in the Securityholders Agreement, the 1996 Flexible Incentive Plan is the only
plan or arrangement in existence relating to the issuance of capital stock of
the Issuer. All shares of Common Stock to be issued upon conversion of the
Series A Preferred and upon the exercise of options granted pursuant to the
terms of any stock incentive plans adopted by the Issuer will be duly authorized
and validly issued, fully paid and nonassessable. Except as set forth in this
Section 3.04(a) or on Schedule 3.04(a)(iii), upon the consummation of the
Closing, there will be outstanding no securities of the Issuer and no securities
convertible into or exchangeable for, or options or other rights to acquire from
the Issuer, or other obligations of the Issuer to issue, directly or indirectly
any shares of capital stock of the Issuer.
(b) Except as set forth in Schedule 3.04(b), the Issuer is not a
party or subject to any agreement or understanding that affects or relates to
the voting or giving of written consents with respect to any security or the
voting by any director of the Issuer.
(c) The outstanding shares of Common Stock have been issued, and
all outstanding options, for the purchase or acquisition from the Issuer of any
shares of its capital stock have been granted, in accordance with the
registration or qualification
7
provisions of the Securities Act and any relevant state securities laws or
pursuant to valid exemptions therefrom.
SECTION 3.05. SUBSIDIARIES. Except for the Subsidiaries set forth on
Schedule 3.05 and the joint ventures described on Schedule 3.05, the Issuer does
not own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity, and the Issuer is not a
participant in any joint venture, partnership, or similar arrangement.
SECTION 3.06. RELATED PARTY TRANSACTIONS. (i) Except as set forth on
Schedule 3.06(i), no officer or director of the Issuer or member of the
immediate family of any officer or director is indebted to the Issuer, nor, is
the Issuer indebted (or committed to make loans or extend or guarantee credit)
to any of them; (ii) except as set forth on Schedule 3.06(ii), to the Issuer's
knowledge, none of such persons has any direct or indirect material ownership
interest (which shall consist of 1% or more of the ownership interests) in any
firm or corporation with which the Issuer is affiliated or with which the Issuer
has a business relationship, or any firm or corporation that competes with the
Issuer; and (iii) except as set forth on any Schedule hereto or in Mr. ▇▇▇▇
▇▇▇▇'▇ employment agreement, as amended, which has been delivered to the
Purchaser, no officer or director or any member of the family of any officer or
director directly or indirectly, has any financial interest in any material
contract of the Issuer.
SECTION 3.07. REGISTRATION RIGHTS. Except as set forth on Schedule
3.07 and except as may be required pursuant to the Securityholders Agreement and
pursuant to the 1996 Flexible Incentive Plan, the Issuer is not obligated to
register under the Securities Act any of its currently outstanding securities or
any of its securities that may subsequently be issued.
SECTION 3.08. LITIGATION, PROCEEDINGS; NO DEFAULTS. (a) There is
no action, suit or proceeding pending or, to the knowledge of the Issuer,
threatened against the Issuer or any of its Subsidiaries or reasonably expected
by the Issuer to have a Material Adverse Effect before any court or arbitrator
or any governmental body, agency or official in which there is a possibility of
an adverse decision, except which, individually or in the aggregate, is
reasonably not expected to result in a Material Adverse Effect or reasonably is
not expected to result in any material change in the current equity ownership of
the Issuer, or which in any manner draws into question the validity of this
Agreement, the Securityholders Agreement or any of the transactions contemplated
hereby or thereby. The foregoing includes, without limitation, any such action,
suit, proceeding, or investigation known to the Issuer pending or currently
threatened involving the prior employment of any of the Issuer's employees, such
employees' use in connection with the Issuer's business of any information or
techniques allegedly proprietary to any of such employees' former employers, the
obligations of any of the Issuer's employees under any agreements with the prior
employers
8
of such employees, or negotiations by the Issuer with potential backers of, or
investors in, the Issuer or its proposed business.
(b) The Issuer is not in violation of the Charter or Bylaws nor in
violation or contravention of or default under any provision of applicable law
or regulation or of any agreement, judgment, injunction, order, decree or other
instrument binding upon it, to the extent that such violation, contravention or
default (i) would affect the validity of this Agreement, the Securityholders
Agreement or the Certificate of Amendment or (ii) would (individually or in the
aggregate) impair the ability of the Issuer to perform in any material respect
the obligations which it has under this Agreement, the Securityholders
Agreement, the Certificate of Amendment or any of the transactions contemplated
thereby.
SECTION 3.09. DISCLOSURE. (a) The Issuer has provided the Purchaser
with all the information available to it that the Purchaser has requested for
determining whether to purchase the Series A Preferred.
(b) The copy of the minute books of the Issuer provided to the
Purchaser's counsel prior to the Closing Date contains minutes of all meetings
of directors and stockholders and all actions by written consent without a
meeting by the directors and stockholders from February 9, 1992 to the date
hereof and accurately reflects in all material respects all actions by the
directors (and any committee of directors) and stockholders with respect to all
transactions referred to in such minutes and consents.
SECTION 3.10. OFFERING. Assuming the accuracy of the representations
set forth in Article IV hereof, the offer, sale and issuance of the Series A
Preferred to the Purchaser at the Closing as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act.
SECTION 3.11. INVESTMENT COMPANY. The Issuer is not, and after
giving effect to the sale and issuance of the Series A Preferred, will not be,
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
SECTION 3.12. GOVERNMENTAL REGULATION. Except as required pursuant
to the Securities Act, the Exchange Act, state securities laws and the Business
Corporation Law of the State of New York, the Issuer is not subject to any
Federal or state or foreign law or regulation limiting its ability to issue and
perform its obligations under the terms of the Series A Preferred or the
Certificate of Amendment.
SECTION 3.13. SOLICITATION; ACCESS TO INFORMATION. No form of
general solicitation or general advertising was used by the Issuer or, to its
knowledge, any other Person acting on its behalf, in respect of the Series A
Preferred or in connection with the offer and sale of the Series A Preferred.
Neither the Issuer nor any Person acting on behalf
9
of the Issuer has, sold or, to the knowledge of the Issuer, directly or
indirectly offered for sale to any Person any of the Series A Preferred or any
other similar security of the Issuer except as contemplated by this Agreement.
SECTION 3.14. FINANCIAL INFORMATION. (a) The Balance Sheet and the
related consolidated statement of operations, changes in stockholders' equity
and cash flows for the fiscal year then ended reported on by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
LLP, which have been delivered to the Issuer, fairly present in all material
respects, in conformity with generally accepted accounting principles, the
consolidated financial position of the Issuer and its Consolidated Subsidiaries
as of such date and their consolidated results of operations and cash flows for
such fiscal year.
(b) The unaudited consolidated balance sheet of the Issuer and
its Consolidated Subsidiaries as of June 30, 1996 and the related unaudited
consolidated statement of operations for the six months then ended, in each case
as delivered to the Purchaser, fairly present in all material respects, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of the Issuer and its Consolidated
Subsidiaries as of such date and their consolidated results of operations for
the six months then ended (subject to normal year-end adjustments).
SECTION 3.15. COMPLIANCE WITH ERISA. (a) For the purposes of this
Section 3.15, the following terms shall have the following meanings:
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to
by any member of the ERISA Group.
"ERISA Group" means the Issuer and all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Issuer,
are treated as a single employer under Section 414 of the Code.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to
which any member of the ERISA Group is then making or accruing an
obligation to make contributions or has within the preceding five plan
years made contributions, including for these purposes any Person that
ceased to be a member of the ERISA Group during such five-year period.
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"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code
and either (i) is maintained, or contributed to, by any member of the
ERISA Group for employees of any member of the ERISA Group or (ii) has
at any time within the preceding five years been maintained, or
contributed to, by any Person which was at such time a member of the
ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
(b) Each member of the ERISA Group has fulfilled its obligations
under the minimum funding standards of the Employee Retirement Income Security
Act of 1974, as amended from time to time ("ERISA") and the Internal Revenue
Code (the "Code") with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Plan. No member of the ERISA Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security under
ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other
than a liability to the Pension Benefit Guaranty Corporation (or any entity
succeeding to any or all of its functions under ERISA) for premiums under
Section 4007 of ERISA. Neither the Issuer nor any of its Subsidiaries has made
any contributions to a Multiemployer Plan or a Plan. No member or former member
of the ERISA Group has within the last five years engaged in, or is a successor
or parent corporation to an entity that has engaged in, a transaction described
in Section 4069 of ERISA. The Issuer has filed for, but has not yet received, a
determination letter of the Internal Revenue Service with respect to each
Benefit Arrangement that is intended to qualify under Section 401(a) of the
Code, and the Issuer has no reason to believe that such determination letter
when issued will not be favorable. Each Benefit Arrangement has been maintained
in substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations, including,
without limitation, ERISA and the Code.
SECTION 3.16. TAXES. The Issuer and each of its Subsidiaries: (i)
has filed in accordance with all applicable laws, all material Tax (as defined
below) returns, statements, reports and forms (collectively, the "Returns")
required to be filed with any Taxing Authority (as defined below) on or before
the Closing Date (taking into account any extension of a required filing date)
with respect to any Tax period ending on or before the Closing Date
("Pre-Closing Tax Period"); (ii) has timely paid all material Taxes shown as due
and payable on the Returns that have been filed; (iii) has not been a member of
an affiliated, consolidated, combined or unitary group other than one of which
the Issuer was the common parent; and (iv) is not currently under any
contractual obligation to pay any
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amounts of the type described in clause (ii) or (iii) of the definition of Tax.
The Issuer represents further that (x) the charges, accruals and reserves for
Taxes reflected on its Balance Sheet are adequate to cover the Tax liabilities
accruing through the date thereof; and (y) there is no material action, suit,
proceeding, investigation, audit or claim pending or, to the knowledge of the
Issuer, threatened against it in respect of any Tax. "Tax" (and with
correlative meaning, "Taxes") means (i) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license, withholding on amounts paid to or by the
Issuer or any of its Subsidiaries, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or any penalty, addition to
tax or additional amount due from the Issuer or any of its Subsidiaries, as the
case may be, imposed by any governmental authority (a "Taxing Authority")
responsible for the imposition of any such tax (domestic or foreign), (ii)
liability of the Issuer or any of its Subsidiaries for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group, or being a party to any
agreement or arrangement whereby liability of the Issuer or any of its
Subsidiaries for payment of such amounts was determined or taken into account
with reference to the liability of any other Person for any Pre-Closing Tax
Period, and (iii) liability of the Issuer or any of its Subsidiaries for the
payments of any amounts as a result of being party to any tax sharing agreement
or with respect to the payment of any amounts of the type described in (i) or
(ii) as a result of any express or implied obligation to indemnify any other
Person.
SECTION 3.17. AUTHORIZATION TO DO BUSINESS. The Issuer and its
Subsidiaries (i) possess all licenses, certificates, authorizations, approvals
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses in the manner being
conducted on the date hereof, excepting any certificate, authorization, approval
or permit, the failure to possess which is reasonably not expected to result in
a Material Adverse Change and (ii) have not received any notice of proceedings
relating to the revocation or modification of any such license, certificate,
authorization, approval or permit, nor is the Issuer or any of its Subsidiaries
in violation or contravention of, or in default under, any such license,
authorization, approval or permit or any decree, order or judgment applicable to
the Company or its Subsidiaries, except the effect of which, singly or in the
aggregate, is reasonably not expected to result in a Material Adverse Effect.
SECTION 3.18. ABSENCE OF CERTAIN CHANGES. Except as expressly
contemplated in this Agreement or as set forth on Schedule 3.18, since the
Balance Sheet Date, the Issuer and its Subsidiaries have conducted their
businesses in the ordinary course consistent with past practices and there has
not been:
12
(a) any Material Adverse Change or any event, occurrence,
development or state of circumstances or facts, except such which is
reasonably not expected to result in a Material Adverse Change;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital
stock of the Issuer, or any repurchase, redemption or other
acquisition by the Issuer or any of its Subsidiaries of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Issuer or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding
security of the Issuer or any of its Subsidiaries, other than as set
forth in the Charter;
(d) any incurrence, assumption or guarantee by the Issuer or
any of its Subsidiaries of any indebtedness for borrowed money, net of
indebtedness repaid during such period, in excess of $100,000, other
than indebtedness incurred pursuant to the Equipment Loan and Security
Agreement;
(e) any creation or assumption by the Issuer or any of its
Subsidiaries of any Lien on any material asset other than in the
ordinary course of business consistent with past practices;
(f) other than temporary investments of cash in the ordinary
course of business, any making by the Issuer or any of its
Subsidiaries of any loan, advance or capital contributions to or
investment in any Person other than the Issuer or any of its wholly
owned Subsidiaries, in excess of $100,000;
(g) any damage, destruction or other casualty loss (whether
or not covered by insurance) affecting the business or assets of the
Issuer or any of its Subsidiaries, except which, individually or in
the aggregate, has not had and is reasonably not expected to have a
Material Adverse Effect;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Issuer or any of its Subsidiaries
relating to its assets or business (including, without limitation, the
acquisition or disposition of any assets) or any relinquishment by the
Issuer or any of its Subsidiaries of any contract or other right, in
any such case, material to the Issuer and its Subsidiaries taken as a
whole, other than in the ordinary course of business; or
13
(i) any change in any method of accounting or accounting
practice by the Issuer or any of its Subsidiaries, except for any such
change required by reason of a change in generally accepted accounting
principles.
SECTION 3.19. PROPERTIES. The Issuer and its Subsidiaries have good
and marketable title to, or in the case of leased property have valid leasehold
interests in, all property and assets (whether real or personal, tangible or
intangible) material to the business of the Issuer and its Subsidiaries taken
together as a whole reflected on the Balance Sheet or acquired after the Balance
Sheet Date. None of such properties or assets is subject to any Liens, except
(i) Liens disclosed or provided for on the Balance Sheet, (ii) Liens in
existence on the date hereof and listed in Schedule 3.19 hereto or (iii)
Permitted Liens.
SECTION 3.20. INTERNAL CONTROLS. The Issuer and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(3) access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
SECTION 3.21. EMPLOYEES; EMPLOYEE COMPENSATION. Except as set forth
in Schedule 3.21, to the Issuer's knowledge, (i) there is no strike or labor
dispute or union organization activities pending or threatened between it or its
Subsidiaries and their respective employees; (ii) none of the Issuer's or its
Subsidiaries' employees belongs to any union or collective bargaining unit;
(iii) the Issuer and its Subsidiaries have complied in all material respects
with all applicable state and federal equal opportunity and other laws related
to employment, the failure to comply with which is material to the Issuer and
its Subsidiaries, taken together as a whole; (iv) no employee of the Issuer or
its Subsidiaries is or will be in violation in any material respect of any
judgment, decree, or order, or any term of any employment contract, patent
disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with the Issuer or its Subsidiaries or any
other party because of the nature of the business conducted or contemplated to
be conducted as of the date hereof by the Issuer or its Subsidiaries; and (v) no
officer or key employee, or any group of key employees, intends to terminate
their employment with the Issuer or its Subsidiaries, nor does the Issuer or any
of its Subsidiaries have a present intention to terminate the employment of any
of the foregoing. Except as set forth in Schedule 3.21, the Issuer and its
Subsidiaries are not parties to or bound by any currently effective employment
contract, deferred compensation agreement, bonus plan, incentive plan, profit
sharing plan, retirement agreement, or other employee compensation agreement.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and
14
employee of the Issuer or its Subsidiaries not covered by an employment contract
is terminable at the will of the Issuer or its Subsidiaries.
SECTION 3.22. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set
forth in the financial statements described in Section 3.14 or the notes thereto
or on Schedule 3.22, there are no liabilities of the Issuer or any of its
Subsidiaries in an amount exceeding $25,000 individually or $350,000 in the
aggregate of any kind whatsoever.
SECTION 3.23. MATERIAL CONTRACTS. (a) Except for agreements,
contracts, plans, leases, arrangements or commitments set forth in Schedule 3.23
or any other schedule hereto, neither the Issuer nor any of its Subsidiaries is
a party to or subject to any agreements, contracts, plans, leases, arrangements
or commitments that (i) are material to its business, assets, financial
condition or operations taken together as a whole, (ii) provide for the purchase
in excess of $100,000 of materials, supplies, goods, services, equipment or
other assets other than in the ordinary course of business, (iii) involve any
partnership, joint venture or other similar arrangement or (iv) restrict the
Issuer or any Subsidiary from engaging in or competing in any line of business
or with any Person or in any geographic area; provided that any such contract
containing obligations of the Issuer in excess of $100,000 is identified on such
Schedule with an asterisk.
(b) Each agreement, contract, plan, lease, arrangement and
commitment disclosed or required to be disclosed pursuant to clause (a) above is
a valid and binding agreement of the Issuer or a Subsidiary of the Issuer and is
in full force and effect, and neither the Issuer, any of its Subsidiaries nor,
to the knowledge of the Issuer, any other party thereto is in default in any
material respect under the terms of any such agreement, contract, plan, lease,
arrangement or commitment.
SECTION 3.24. INTELLECTUAL PROPERTY. (a) Except as set forth in
Schedule 3.24, the Issuer and its Subsidiaries own or have the right to use all
material trademarks, service marks, trade names, inventions, patents, trade
secrets, know-how, copyrights, or any other similar type of proprietary
intellectual property right material to the conduct of the business of the
Issuer and its Subsidiaries taken together as a whole as currently conducted
("Intellectual Property Rights").
(b) The consummation of the transactions contemplated hereby will
not alter or impair any of the Intellectual Property Rights or the Issuer's or
any Subsidiary's interests therein. Except as set forth in Schedule 3.24, there
are no pending claims against the Issuer by any Person relating to the use of
any such Intellectual Property Rights or challenging or questioning the validity
or effectiveness of any license or agreement relating to Intellectual Property
Rights to which the Issuer is a party, and the Issuer does not know of any valid
basis for any such claim; and the use of such Intellectual Property Rights by
the
15
Issuer or any Subsidiary does not, to the knowledge of the Issuer, infringe on
the rights of any Person.
(c) To the knowledge of the Issuer, none of the Issuer's key
employees is obligated under any contract or other agreement (including, without
limitation, licenses, covenants, or commitments of any nature), with any Person
other than the Issuer or one of its Subsidiaries or subject to any judgment,
decree, or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of the
Issuer or that would conflict with such employee's involvement in the Issuer's
business as proposed to be conducted. To the knowledge of the Issuer, neither
the execution nor delivery of this Agreement, nor the involvement of any such
employee in the Issuer's business as now conducted will conflict with or result
in a breach of the terms, conditions, or provisions of, or constitute a default
under, any contract, covenant, or instrument with any Person other than the
Issuer or one of its Subsidiaries under which any of such key employees is now
obligated.
SECTION 3.25. ENVIRONMENTAL COMPLIANCE. (a) No notice or request
for information has been issued by, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending, or to the Issuer's
knowledge, threatened by any governmental or other entity with respect to (i)
any alleged violation by the Issuer or any of its Subsidiaries of any
environmental law, regulation or order of any governmental entity in connection
with the conduct of their businesses or (ii) any alleged failure by the Issuer
or any of its Subsidiaries to have any environmental permit, license or approval
in connection with the conduct of their businesses.
(b) Other than in compliance in all material respects with all
applicable environmental laws, regulations or orders, (i) neither the Issuer nor
any of its Subsidiaries has generated, processed, treated, sold or transported
any material amount of any toxic, caustic or otherwise hazardous substance,
including, without limitation, petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics whether or not regulated under Federal, state or
local environmental laws, regulations or orders ("Hazardous Substance") and (ii)
no generation, treatment, storage, recycling, transportation, disposal or
Release (as defined in 42 U.S.C. Section 9601(22)) of any Hazardous Substance
has occurred at or on any property now or previously owned or leased by the
Issuer or any of its Subsidiaries.
(c) (i) Except as is reasonably not expected to have a Material
Adverse Effect, each of the Issuer and its Subsidiaries is in compliance in all
material respects with all Federal, state and local and foreign environmental
laws, regulations and orders and (ii) there are no liabilities of the Issuer or
any of its Subsidiaries, whether vested or unvested, contingent or fixed, actual
or potential, known or unknown, which (1) arise under or relate to matters
covered by Federal, state and local and foreign environmental laws, regulations
16
and orders, (2) relate to actions occurring or conditions existing on or prior
to the Closing Date and (3) have had or are expected to have a Material Adverse
Effect.
SECTION 3.26. INSURANCE. The Issuer has in full force and effect
fire and casualty insurance policies, with extended coverage, sufficient in
amount (subject to reasonable deductibles) in the Issuer's opinion to allow it
to replace any of its material properties that might be damaged or destroyed.
SECTION 3.27. SHAREHOLDER LOANS. Except as set forth on Schedule
3.27, there is no outstanding indebtedness by the Issuer or any of its
Subsidiaries owed to any shareholder of the Issuer or any family member of any
shareholder or any affiliate of such a shareholder or family member.
SECTION 3.28. S-CORPORATION. The Issuer is not an S-corporation
within the meaning of the Code.
SECTION 3.29. CURRENCY HEDGING. The Issuer and its Subsidiaries
engage in currency hedging solely for purposes of hedging and not for
speculative purposes.
SECTION 3.30. SIGNIFICANT SUBSIDIARY. No Subsidiary of the Issuer is
a Significant Subsidiary of the Issuer within the meaning of Regulation S-X
under the Securities Act.
SECTION 3.31. CARRIER CONTRACTS. The aggregate commitment of the
Issuer and its Subsidiaries under the carrier contracts to which they are
parties does not exceed $400,000 per month.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Issuer as follows:
SECTION 4.01. ORGANIZATION. The Purchaser is duly organized, validly
existing and in good standing under the laws of the State of Delaware.
SECTION 4.02. AUTHORITY; NO OTHER ACTION. (a) The execution,
delivery and performance of this Agreement and the Securityholders Agreement are
within the Purchaser's powers and have been duly authorized on its part by all
requisite corporate or partnership action, as the case may be.
17
(b) No action consent or approval by or in respect of, or filing
with, any governmental authority, agency or official or any other Person is
required for the execution, delivery and performance by the Purchaser of this
Agreement and the Securityholders Agreement.
SECTION 4.03. NON-CONTRAVENTION. The execution, delivery and
performance by the Purchaser of this Agreement and the Securityholders Agreement
and the consummation of the transactions contemplated hereby and thereby do not
and will not (i) violate its charter or bylaws or other constituent documents
(including, without limitation, any partnership agreement) or (ii) violate any
applicable law, rule, regulation, judgment, injunction, order or decree, which
violation would (a) affect the validity of this Agreement or the Securityholders
Agreement or (b) individually or in the aggregate impair the ability of the
Purchaser to perform in any material respect the obligations which it has under
this Agreement or the Securityholders Agreement.
SECTION 4.04. BINDING EFFECT. This Agreement and the Securityholders
Agreement have been duly executed by the Purchaser and constitute valid and
binding agreements of the Purchaser.
SECTION 4.05. NO DEFAULTS. The Purchaser is not in violation of its
charter or bylaws or in default under any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or other
instrument binding upon it, which violation or default (i) could reasonably be
expected to affect the validity of this Agreement or the Securityholders
Agreement or (ii) could reasonably be expected to (individually or in the
aggregate) impair the ability of the Purchaser to perform in any material
respect the obligations which it has under this Agreement or the Securityholders
Agreement. There is no action, suit or proceeding pending or, to the knowledge
of the Purchaser, threatened against the Purchaser before any court or
arbitrator or any government body, agency or official concerning this Agreement,
the Securityholders Agreement or any of the transactions contemplated hereby or
thereby.
SECTION 4.06. PRIVATE PLACEMENT. (a) The Purchaser understands that
(i) the offering and sale of the Series A Preferred is intended to be exempt
from registration under the Securities Act pursuant to Section 4(2) of the
Securities Act and (ii) there is no existing public or other market for the
Series A Preferred and there can be no assurance that the Purchaser will be able
to sell or dispose of such Series A Preferred purchased by the Purchaser
pursuant to this Agreement.
(b) The Series A Preferred to be acquired by the Purchaser
pursuant to this Agreement are being acquired for the Purchaser's own account
and without a view to the public distribution of such Series A Preferred or any
interest therein.
18
(c) The Purchaser is an "Accredited Investor" as such term is
defined in Regulation D.
(d) The Purchaser has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of its investment in the Series A Preferred and the Purchaser is capable
of bearing the economic risks of such investment.
(e) The Purchaser has been furnished with and has carefully read a
copy of the Exhibits and Schedules to this Agreement and has been given the
opportunity to ask questions of, and receive answers from, the Issuer concerning
the Issuer and its Subsidiaries, the terms and conditions of the Series A
Preferred and other related matters.
(f) The Purchaser acknowledges that, in making its investment
decision with respect to the Series A Preferred, it has not relied on (i) any
drafts of the offering memorandum for the high yield offering contemplated by
the Issuer and an affiliate of the Purchaser received to date, (ii) the
1997-2001 Econophone business plan, (iii) Exhibit C hereto or (iv) the TELCO
Global Communications TGC business plan.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The
obligation of the Purchaser to purchase the Series A Preferred to be purchased
by it hereunder is subject to the satisfaction, on or prior to the Closing Date,
of the following conditions:
(a) the representations and warranties of the Issuer
contained herein shall be true and correct in all material respects on
and as of the Closing Date;
(b) the Issuer shall have performed and complied in all
material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the
Closing Date;
(c) the Securityholders Agreement shall have been executed
and delivered by the parties thereto other than the Purchaser, the
conditions to effectiveness to the Securityholders Agreement of each
of the parties thereto other than the Purchaser shall have been
satisfied and, assuming due execution and delivery by the Purchaser,
the Securityholders Agreement shall be in full force and effect;
19
(d) the Purchaser shall have received a certificate dated
the Closing Date signed by an executive officer of the Issuer to the
effect set forth in subsections (a), (b), (e), (g), (k) and (n) of
this Section 5.01;
(e) the Issuer shall have obtained any and all material
consents, waivers or permits necessary for the consummation of the
transactions contemplated hereby;
(f) the Purchaser's purchase of and payment for the Series A
Preferred shall not be prohibited by any applicable law, court order
or governmental regulation or any contract, agreement, document or
other instrument by which the Purchaser is bound;
(g) as of the date of the Closing, there shall not have
occurred and be continuing a Change of Control (as defined in the
Certificate of Amendment);
(h) the Purchaser shall have received, contemporaneously
with the Closing, a duly executed certificate representing the Series
A Preferred being purchased by the Purchaser pursuant hereto;
(i) the Purchaser shall have received an opinion from
▇▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP, special counsel to the Issuer, dated the
Closing Date, substantially in the form of Exhibit B-1 hereto;
(j) the Purchaser shall have received opinions from U.S., U.K.
and Belgian regulatory counsel to the Issuer, dated the Closing Date,
substantially in the form of Exhibit ▇-▇, ▇-▇ and B-3, respectively,
hereto;
(k) to the knowledge of the Issuer, there shall not on the Closing
Date be any impediment to the contemplated relationship between the Issuer
and Telco Investments Limited, a United Kingdom corporation ("Telco U.K.");
(l) the Certificate of Amendment shall have been duly
adopted and filed with the Secretary of State of the State of New York
and shall be in full force and effect;
(m) the Purchaser shall have received all documents
reasonably requested by its counsel relating to the existence of the
Issuer, the corporate authority for entering into, and the validity
of, this Agreement and any other matters relevant hereto and thereto,
all in form and substance reasonably satisfactory to such counsel; and
20
(n) all investments, loans and capital contributions by any Person
in the Issuer shall have been documented and such documentation shall have
been provided to the Purchaser.
SECTION 5.02. CONDITIONS TO THE ISSUER'S OBLIGATIONS. The
obligations of the Issuer to issue and sell the Series A Preferred to the
Purchaser pursuant to this Agreement are subject to the satisfaction, at or
prior to the Closing Date, of the following conditions:
(a) the representations and warranties of the Purchaser
contained herein shall be true and correct in all material respects on
and as of the Closing Date;
(b) the Purchaser shall have performed and complied in all
material respects with all agreements required by this Agreement to be
performed or complied with by the Purchaser on or prior to the Closing
Date;
(c) the Purchaser's purchase of and payment for the Series A
Preferred shall not be prohibited by any applicable law, court order
or governmental regulation or any contract, agreement, document or
other instrument by which the Purchaser is bound;
(d) the Securityholders Agreement shall have been executed and
delivered by the parties thereto other than the Issuer, the conditions to
effectiveness to the Securityholders Agreement of each of the parties
thereto other than the Issuer shall have been satisfied and, assuming due
execution and delivery by the Issuer, the Securityholders Agreement shall
be in full force and effect;
(e) the Purchaser shall have obtained any and all material
consents, waivers or permits necessary for the consummation of the
transactions contemplated hereby; and
(f) the Purchaser shall contemporaneously pay the Purchase Price
in full.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES. All notices, requests and other
communications to either party hereunder shall be in writing (including, without
limitation, telecopier or similar writing) and shall be given to such party at
its address or telecopier number set forth on the
21
signature page hereof, or such other address or telecopier number as such party
may hereinafter specify for the purpose to the party giving such notice. Each
such notice, request or other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified on
the signature page hereof and the appropriate electronic confirmation is
received or, (ii) if given by mail, 72 hours after such communication is
deposited in the U.S. mails with first class postage prepaid, addressed as
aforesaid or, (iii) if given by any other means, when delivered at the address
specified on the signature page hereof.
SECTION 6.02. NO WAIVERS; AMENDMENTS. (a) No failure or delay on
the part of either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed by both
parties hereto.
SECTION 6.03. INDEMNIFICATION. (a) The Issuer hereby agrees to
indemnify and hold harmless the Purchaser and its Subsidiaries and each Person,
if any, who controls the Purchaser within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, and their respective
directors, officers, agents and employees (each, an "Indemnified Person") from
and against and to pay any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) ("Damages") to which such Indemnified Person may
become subject as the result of any material breach of any representation or
warranty or covenant made or to be performed on the part of the Issuer under
this Agreement, the Securityholders Agreement or otherwise resulting from any
third-party action, claim or proceeding arising out of the matters or
transactions which are the subject of or contemplated by this Agreement or any
instrument or agreement referred to herein (including, without limitation, (i)
the execution, delivery and performance of this Agreement, the Securityholders
Agreement, the Certificate of Amendment and the Series A Preferred and (ii) any
use made or proposed to be made by the Issuer of the proceeds from the sale of
the Series A Preferred) and will reimburse any Indemnified Person for all
expenses (including, without limitation, reasonable counsel and expert fees) as
they are incurred by any such Indemnified Person in connection with any such
misrepresentation or breach of warranty or covenant or investigating, preparing
or defending any such action or proceeding, whether pending or threatened, and
whether or not such Indemnified Person is a party hereto. Notwithstanding the
foregoing, the Issuer will not be responsible for any Damages or expenses to the
extent that a court of competent jurisdiction shall have finally determined that
such Damages or expenses resulted primarily from such Indemnified Person's bad
faith or gross negligence or
22
material breach of this Agreement or the Securityholders Agreement. The
agreement of the Issuer in this Section shall be in addition to any liability
the Issuer may otherwise have.
(b) The Purchaser hereby agrees to indemnify and hold harmless
the Issuer, its Subsidiaries and each Person, if any, who controls the Issuer
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, and their respective directors, officers, agents and employees
(each, an "Issuer Indemnified Person") from and to pay any Damages to which such
Issuer Indemnified Person may become subject as the result of any material
breach of any representation or warranty or covenant made or to be performed on
the part of the Purchaser under this Agreement or the Securityholders Agreement
and will reimburse any Issuer Indemnified Person for all expenses (including,
without limitation, reasonable counsel and expert fees) as they are incurred by
any such Issuer Indemnified Person in connection with any such misrepresentation
or breach of warranty or covenant. Notwithstanding the foregoing, the Purchaser
will not be responsible for any Damages or expenses to the extent that a court
of competent jurisdiction shall have finally determined that such Damages or
expenses resulted primarily from such Issuer Indemnified Person's bad faith or
gross negligence or material breach of this Agreement or the Securityholders
Agreement. The agreement of the Purchaser in this Section shall be in addition
to any liability the Purchaser may otherwise have.
SECTION 6.04. SURVIVAL OF PROVISIONS. The representations and
warranties, covenants and agreements contained in this Agreement shall survive
so long as any of the Series A Preferred remain outstanding.
SECTION 6.05. EXPENSES; DOCUMENTARY TAXES. Subject to a maximum
amount of $125,000, the Issuer shall upon submission of reasonably satisfactory
supporting documentation pay all reasonable out-of-pocket expenses of the
Purchaser, including, without limitation, fees and disbursements of the
Purchaser and its counsel, in connection with the preparation and negotiation of
this Agreement, the Securityholders Agreement, the Certificate of Amendment, the
physical securities and the transactions contemplated hereby and all matters
related thereto. In addition, the Issuer shall pay any and all stamp, transfer
and other similar taxes payable or determined to be payable in connection with
the execution and delivery of this Agreement, or the issuance of the Series A
Preferred or the shares of Common Stock issuable upon the conversion of the
Series A Preferred (other than any such taxes payable in connection with the
transfer of any outstanding securities and the issuance by the Issuer of new
certificates representing such securities in the name of the transferee at the
request of the transferor).
SECTION 6.06. SUCCESSORS AND ASSIGNS. The Purchaser may assign its
rights and obligations hereunder except to any direct or indirect competitor of
the Issuer or any of its Subsidiaries; provided that the Purchaser's rights
under Section 6.03 shall not be assignable except to Permitted Holders (as
defined in the Certificate of Amendment). This
23
Agreement shall be binding upon the Issuer and the Purchaser and their
respective successors and assigns.
SECTION 6.07. NEW YORK LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York.
SECTION 6.08. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in any number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other hereto.
SECTION 6.09. ENTIRE AGREEMENT. This Agreement, the Securityholders
Agreement and the Certificate of Amendment, taken together as a whole,
constitute the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersede any and all prior agreements
and understandings, written or oral, relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
ECONOPHONE, INC.(1)
By: _________________________________________
Name:
Title:
PRINCES GATE INVESTORS II, L.P.(2)
By: _________________________________________
Name:
Title:
(1) Address: ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier Number: (▇▇▇) ▇▇▇-▇▇▇▇
(2) Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopier Number: (▇▇▇) ▇▇▇-▇▇▇▇