SECURITIES PURCHASE AGREEMENT
dated as of
February 28, 1997
between
GST TELECOMMUNICATIONS, INC.
and
OCEAN HORIZON SRL
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS....................................................1
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.01. COMMITMENT TO PURCHASE.........................................5
SECTION 2.02. THE CLOSING....................................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE ISSUER
SECTION 3.01. ORGANIZATION, STANDING; PERMITS, ETC...........................5
SECTION 3.02. AUTHORIZATION; NON-CONTRAVENTION...............................6
SECTION 3.03. BINDING EFFECT.................................................7
SECTION 3.04. CAPITALIZATION AND VOTING RIGHTS...............................7
SECTION 3.05. SUBSIDIARIES...................................................9
SECTION 3.06. RELATED PARTY TRANSACTIONS.....................................9
SECTION 3.07. REGISTRATION RIGHTS...........................................10
SECTION 3.08. LITIGATION, PROCEEDINGS; NO DEFAULTS..........................10
SECTION 3.09. RETURNS AND COMPLAINTS........................................11
SECTION 3.10. DISCLOSURE....................................................11
SECTION 3.11. FINANCIAL STATEMENTS..........................................12
SECTION 3.12. COMPLIANCE WITH ERISA.........................................12
SECTION 3.13. OFFERING......................................................14
SECTION 3.14. INVESTMENT COMPANY; PUHCA.....................................14
SECTION 3.15. GOVERNMENTAL REGULATION.......................................14
SECTION 3.16. SOLICITATION; ACCESS TO INFORMATION...........................14
SECTION 3.17. TAXES.........................................................14
SECTION 3.18. ABSENCE OF CERTAIN CHANGES....................................15
SECTION 3.19. PROPERTIES....................................................16
SECTION 3.20. EMPLOYEES; EMPLOYEE COMPENSATION..............................16
SECTION 3.21. NO UNDISCLOSED MATERIAL LIABILITIES...........................17
SECTION 3.22. MATERIAL CONTRACTS............................................17
SECTION 3.23. CERTAIN AGREEMENTS............................................18
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SECTION 3.24. ENVIRONMENTAL COMPLIANCE......................................18
SECTION 3.25. INSURANCE.....................................................18
SECTION 3.26. COMPLIANCE WITH LAWS..........................................19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. ORGANIZATION..................................................19
SECTION 4.02. AUTHORITY; NO OTHER ACTION....................................19
SECTION 4.03. NON-CONTRAVENTION.............................................19
SECTION 4.04. BINDING EFFECT................................................20
SECTION 4.05. NO DEFAULTS...................................................20
SECTION 4.06. PRIVATE PLACEMENT.............................................20
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. CONDITIONS TO THE PURCHASER'S OBLIGATIONS.....................21
SECTION 5.02. CONDITIONS TO ISSUER'S OBLIGATIONS............................22
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES.......................................................23
SECTION 6.02. NO WAIVERS; AMENDMENTS........................................23
SECTION 6.03. INDEMNIFICATION...............................................23
SECTION 6.04. SURVIVAL OF PROVISIONS........................................24
SECTION 6.05. EXPENSES; DOCUMENTARY TAXES...................................24
SECTION 6.06. SUCCESSORS AND ASSIGNS........................................25
SECTION 6.07. NEW YORK LAW..................................................25
SECTION 6.08. COUNTERPARTS; EFFECTIVENESS...................................25
SECTION 6.09. ENTIRE AGREEMENT..............................................25
SECTION 6.10. AMENDMENT OF SERIES A PREFERRED SHARES........................25
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SCHEDULES
Schedule 3.04(a) Voting Agreements
Schedule 3.04(b) Voting Agreements
Schedule 3.05(a) Subsidiaries
Schedule 3.05(c) Subsidiaries
Schedule 3.05(d) Subsidiaries
Schedule 3.06 Related Party Transactions
Schedule 3.07 Registration Rights
Schedule 3.09 Returns and Complaints
Schedule 3.18(f)
Schedule 3.19 Liens
Schedule 3.20 Employees; Employee Compensation
Schedule 3.23 Certain Agreements
EXHIBITS
Exhibit A - Form of Series A Preference Shares
Exhibit B - Form of Securityholders Agreement
Exhibit C-1 - Form of Opinion of Issuer's Canadian Counsel
Exhibit C-2 - Form of Opinion of Issuer's U.S. Counsel
Exhibit C-3 - Form of Opinion of Issuer's General Counsel
Exhibit D - Articles
Exhibit E - Amendment to the Articles
Exhibit F - Bylaws
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SECURITIES PURCHASE AGREEMENT
AGREEMENT dated as of February 28, 1997 between GST Telecommunications,
Inc., a Canadian corporation (the "ISSUER"), and OCEAN HORIZON SRL, a society
with restricted liability formed under the laws of Barbados (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:
"AFFILIATE" has the meaning given it in the Amendment to the Articles.
"AMENDMENT TO THE ARTICLES" means the amendment to the Articles
creating the Series A Preference Shares in the form attached as Exhibit E
hereto.
"ARTICLES" means the Articles of Incorporation of the Issuer in the
form attached as Exhibit D hereto as amended by the Amendment to the Articles in
the form attached as Exhibit E hereto.
"BALANCE SHEET" means the consolidated balance sheet of the Issuer and
its Consolidated Subsidiaries as of September 30, 1996 referred to in Section
3.11.
"BALANCE SHEET DATE" means September 30, 1996.
"BYLAWS" means the Bylaws of the Issuer in the form attached as Exhibit
F hereto.
"CHANGE OF CONTROL" means a "Change of Control" as defined in the
Amendment to the Articles.
"COMMON SHARES" means the Common Shares, no par value, of the Issuer.
"CONSOLIDATED SUBSIDIARY" means at any 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.
"CONVERTIBLE NOTES" means the 13 7/8% Convertible Senior Subordinated
Discount Notes due 2005 issued by GST USA, Inc., a wholly owned subsidiary of
the Issuer, and guaranteed by the Issuer.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute.
"HOLDER" means any registered holder of Series A Preference Shares or
Series A Common Shares.
"INDEBTEDNESS" has the meaning given it in Article I, Section 1.01 of
the Indenture.
"INDENTURE" means that certain Indenture dated as of December 19, 1995
among the Issuer, as guarantor, GST USA, Inc., a Delaware corporation and a
wholly owned subsidiary of the Issuer, as issuer, and United States Trust
Company of New York, as trustee, as in effect on the Closing Date, pursuant to
which GST USA, Inc. issued its 137/8% Senior Discount Notes due 2005, guaranteed
by the Issuer.
"ISSUER 10-K" means the Issuer's annual report on Form 10-K for the
fiscal year ended September 30, 1996, as filed with the Securities and Exchange
Commission pursuant to the Exchange Act.
"ISSUER 10-Q" means the Issuer's quarterly report on Form 10-Q for the
quarter ended December 31, 1996, as filed with the Securities and Exchange
Commission pursuant to the Exchange Act.
"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, assets, financial condition, results of operations or prospects of the
Issuer and its Subsidiaries taken as a whole.
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"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition, business, assets, results of operations of the Issuer and
its Subsidiaries taken as a whole.
"PERMITTED LIENS" means any Lien permitted by Section 4.09 of the
Indenture.
"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 a government or
political subdivision or an agency or instrumentality thereof.
"REGULATION D" means Regulation D under the Securities Act, as amended.
"SECURITIES" means the Series A Preference Shares to be issued by the
Issuer to the Purchaser on the Closing Date.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time or any successor statute.
"SECURITYHOLDERS AGREEMENT" means the Securityholders Agreement to be
entered into among the Issuer and the Purchaser on or prior to the Closing Date,
substantially in the form attached as Exhibit B hereto.
"SERIES A COMMON SHARES" means the Common Shares issued or issuable
upon conversion of the Series A Preference Shares, any Common Shares issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
in exchange for, or in replacement of, such Common Shares and any other interest
in the Issuer that has been or may be acquired upon the conversion of the Series
A Preference Shares and Common Shares issuable pursuant to Section 4.4 of the
Securityholders Agreement.
"SERIES A PREFERENCE SHARES" means the Issuer's Series A Preference
Shares, no par value, having the rights and privileges set forth in the
Amendment to the Articles.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
3
"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, or in
respect of 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.
"TRANSFER" means any transfer, in whole or in party, by sale, pledge
assignment or other means.
(b) Each of the following terms is defined in the Section opposite such
term:
TERM SECTION
Benefit Arrangement 3.16
Closing 2.02
Closing Date 2.02
Code 3.16
Damages 7.03
ERISA 3.16
ERISA Group 3.16
Hazardous Substance 3.24
Indemnified Person 7.03
Issuer Indemnified Person 7.03
Multiemployer Plan 3.16
Plan 3.16
Pre-Closing Tax Period 3.17
Purchase Price 2.01
Returns 3.17
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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, severally but not jointly,
to purchase from the Issuer, the Securities specified below the name of the
Purchaser on the signature pages hereof for an amount, in immediately available
funds, equal to the aggregate purchase price (the "PURCHASE PRICE") specified
below the name of the Purchaser on the signature pages hereof.
SECTION 2.02. THE CLOSING. (a) The purchase and sale of the Securities
(the "CLOSING") shall take place at the offices of Xxxxx Xxxx & Xxxxxxxx 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".
(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, certificates evidencing the Securities 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 as of
the Closing Date:
SECTION 3.01. ORGANIZATION, STANDING; PERMITS, ETC. (a) The Issuer is a
corporation duly incorporated, validly existing and in good standing under the
laws of Canada and has all corporate powers and all material governmental
licenses, authorizations, consents, approvals and permits ("ISSUER PERMITS")
required to carry on its business as conducted to date. The Articles and Bylaws
are true and complete copies of the Articles of Incorporation and bylaws of the
Issuer that will be in effect immediately following the Closing.
5
(b) 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 and all material
governmental licenses, authorizations, consents and approvals ("SUBSIDIARY
PERMITS") required to carry on its business as now conducted.
(c) All of the Issuer Permits and Subsidiary Permits (collectively,
"PERMITS") are valid and in full force and effect, and none of the Permits will
be terminated or impaired or become terminable, in whole or in part, as a result
of the transactions contemplated by this Agreement, the Securityholders
Agreement or the Securities, and there has been no notification to the Issuer or
any Subsidiary that any party to, or issuer of, any such Permit intends to
cancel or not renew such Permit beyond its expiration date as in effect on the
date hereof.
SECTION 3.02. AUTHORIZATION; NON-CONTRAVENTION. (a) The execution,
delivery and performance by the Issuer of each of this Agreement and the
Securityholders Agreement and the issuance, delivery and performance by the
Issuer of the Securities are within the Issuer's corporate powers, have been
duly authorized by all necessary corporate (including shareholder) action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (other than the filing of the Amendment to the Articles with
the Director, Corporations Branch, Industry Canada) and do not (i) contravene or
constitute a default under or violation of any provision of any applicable law
or regulation, judgment, injunction, order or decree binding upon or applicable
to the Issuer or any of its Subsidiaries, (ii) contravene or constitute a
default under the Articles or Bylaws or the Articles or bylaws of any Subsidiary
of the Issuer, (iii) require any consent, approval or other action by any other
Person or constitute a default under or violation of or give rise to any right
of termination, cancellation or acceleration of any right or obligation of the
Issuer or any Subsidiary or to a loss of any benefit to which the Issuer or any
Subsidiary is entitled under any material agreement 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 asset of the Issuer or any of its Subsidiaries.
Neither the Issuer nor any of its Subsidiaries is party to any agreement or
subject to any law or regulation, judgment, injunction, order or decree which
limits the ability of the Issuer to issue and sell its shares or to use the
proceeds of such sales and sales of shares of Subsidiaries (to the extent that
the sale of shares of such Subsidiaries is not prohibited) to redeem the Series
A Preference Shares.
(b) The Vancouver Stock Exchange ("VSE") has agreed to list 15,000,000
of the Series A Common Shares, subject to official notice of issuance and that
the balance of the Series A Common Shares will be listed upon the requst of the
Issuer upon payment of the applicable fee and filing of an application without a
requirement for a shareholder vote. As of the date hereof, the American Stock
Exchange ("AMEX") has agreed to list
6
4,234,208 of the Series A Common Shares. A simple majority vote of all holders
of Common Shares then outstanding is the only vote required to approve the
issuance of the Series A Common Shares to obtain the listing of such shares on
the AMEX.
SECTION 3.03. BINDING EFFECT. Each of this Agreement and the
Securityholders Agreement constitutes a valid and binding agreement of the
Issuer, and the Securities, 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 and giving effect to the purchase of the Securities, the authorized capital
shares of the Issuer will consist of (i) an unlimited number of Common Shares,
of which 25,550,815 shares will be issued and outstanding and (ii) 10,000,000
Preference Shares, no par value, per share, of which 500 shares designated
pursuant to the Amendment to the Articles as the Series A Preference Shares will
be issued and outstanding. Of the 25,550,815 Common Shares issued and
outstanding, (i) 750,000 Common Shares are held in escrow pursuant to an escrow
agreement with the Vancouver Stock Exchange, (ii) 130,000 Common Shares are held
in escrow for the former shareholders of Call America Business Communications
Corporation pursuant to the Agreement and Plan of Merger dated September 26,
1996, and amended by Amendment No. 1 dated as of December 26, 1996 and (iii)
80,232 Common Shares are held in escrow for the former shareholders of TotalNet
Communications, Inc., pursuant to the Agreement and Plan of Merger dated
September 27, 1996. As of the Closing Date, all of such issued and outstanding
capital shares of the Issuer will be duly authorized, validly issued, fully paid
and nonassessable, and will not be subject to any preemptive or other similar
rights.
As of the Closing Date and giving effect to the purchase of the
Securities, there will be issued and outstanding (i) warrants to purchase
296,155 Common Shares granted to Tomen America, Inc., 125,000 of which shall
expire on April 26, 1997 and 171,155 of which shall expire on May 23, 1998, (ii)
warrants to purchase 50,000 Common Shares granted to Xxxxxx, Read & Co. Inc.
expiring on Xxxxx 00, 0000, (xxx) warrants to purchase 300,000 Common Shares
granted to Xxxxxxx Xxxxx expiring on September 30, 2000, (iv) 500 Series A
Preference Shares convertible into a maximum of 14,759,197 Common Shares in
accordance with Section 5(a) of the Amendment to the Articles, (v)
U.S.$39,056,000 aggregate principal amount of Convertible Notes convertible into
3,098,109 Common Shares, (vi) 1,000,000 warrants to purchase 1,000,000 Common
Shares issued to holders of the Special Warrants issued on Septemer 23, 1996 and
(vii) 3,013,400 options to purchase Common Shares issued to employees and
directors pursuant to the following share incentive plans: general issuances not
pursuant to a plan (387,775), 1995 Stock Option Plan (1,154,077), 1996 Stock
Option Plan (178,548), Senior Operating Officer Plan (693,000) and Senior
executive Officer Plan (600,000) (collectively, "RIGHTS TO PURCHASE COMMON
SHARES").
7
As of the Closing Date, the Issuer will be committed to issue (i) a
maximum of 114,489 Common Shares to former shareholders of Call America Business
Communications Corporation, a California corporation on July 5, 1997, pursuant
to the Agreement and Plan of Merger dated September 26, 1996 and amended by
Amendment No. 1 dated December 26, 1996, (ii) Common Shares having the value of
$1,500,000 to Cable & Wireless Holdings, Inc. on October 1, 1999, pursuant to
the Stockholders Agreement dated December 12, 1996, (iii) a minimum of 174,906
shares and a maximum of 458,459 Common Shares to former shareholders of TotalNet
Communications, Inc., pursuant to the Agreement and Plan of Merger dated
September 27, 1996, (iv) Common Shares having the value of $1,813,000 to the
former shareholders of Tri-Star Residential Communications Corp., a Washington
Corporation, pursuant to the Stock Purchase Agreement dated September 4, 1996,
and (v) 22,000 Common Shares to former shareholders and employees of
Reservations Inc. d/b/a Hawaii on Line pursuant to the Purchase Agreement and
Plan of Reorganization dated February 29, 1996 (collectively, "COMMITMENTS TO
ISSUE COMMON SHARES").
As of the Closing Date and giving effect to the purchase of the
Securities, (i) 21,016,861 Common Shares will be reserved for issuance pursuant
to the Rights to Purchase Common Shares and Commitments to Issue Common Shares,
including, 14,759,197 Common Shares reserved for issuance pursuant to conversion
of the Series A Preference Shares and (ii) 3,013,400 Common Shares will be
reserved for issuance pursuant to the exercise of options or other rights
granted or to be granted to employees and other non-employees associated with
the Issuer's business under the terms of the Issuer's stock incentive plans.
The issuance of the Securities will not cause an adjustment to the
number of Common Shares which are issuable pursuant to any outstanding warrant,
right, option or commitment to issue Common Shares or any security convertible
into or exchangeable for Common Shares.
All Common Shares to be issued pursuant to the Rights to Purchase
Common Shares and Commitments to Issue Common Shares, including shares issuable
upon conversion of the Series A Preference Shares, will be duly authorized, and
upon issuance of such shares in accordance with the terms of such securities or
agreements, as applicable, will be validly issued, fully paid and nonassessable
and will not be subject to any preemptive or other similar rights.
Except as set forth in this Section 3.04(a), on the Closing Date and
after giving effect to the purchase of the Securities, there will be outstanding
no security of the Issuer and no security convertible into or exchangeable for,
or options, warrants or other rights to acquire from the Issuer, or other
obligations of the Issuer to issue, directly or indirectly any capital shares of
the Issuer.
8
(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 Common Shares, have been issued, and all
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), convertible securities or agreements for the
purchase or acquisition from the Issuer of any Common Shares have been granted,
in accordance with the registration or qualification provisions of the
Securities Act and in accordance with all applicable provincial securities
legislation and any relevant state or provincial securities laws or pursuant to
valid exemptions therefrom.
SECTION 3.05. SUBSIDIARIES. (a) Set forth on Schedule 3.05(a) hereto is
a complete and accurate list of all Subsidiaries of the Issuer, showing (as to
each such Subsidiary) the legal name thereof, the jurisdiction of its
incorporation, the number of shares of each class of capital shares authorized,
and the number outstanding, on such date and the percentage of the outstanding
shares of each such class owned, directly or indirectly, by the Issuer and the
number of shares covered by all outstanding options, warrants, rights of
conversion or purchase and similar rights as of such date. Except as set forth
on Schedule 3.05(a), on the Closing Date and after giving effect to the purchase
of the Securities, there will be outstanding no security of the Issuer or any
Subsidiary and no security convertible into or exchangeable for, or options,
warrants or other rights to acquire from the Issuer or any Subsidiary, or other
obligations of the Issuer or any Subsidiary to issue, directly or indirectly any
shares of capital shares of any Subsidiary of the Issuer.
(b) All of the outstanding shares of share capital of each Subsidiary
have been validly issued, are fully paid and nonassessable and are owned by the
Issuer and/or one or more of its Subsidiaries free and clear of all Liens.
(c) Except as set forth on Schedule 3.05(c), no Subsidiary is a party,
or otherwise is subject to any legal restriction or any agreement restricting
the ability of such Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to the Issuer or any of its Subsidiaries that
owns outstanding capital shares of (or other ownership or profit interests in)
such Subsidiary.
(d) Except for the Subsidiaries identified in Schedule 3.05(a) and as
set forth in Schedule 3.05(d), 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. Except as disclosed in the
Issuer 10-K, (i) no Affiliate of the Issuer is indebted to the Issuer, nor is
the Issuer
9
indebted (or committed to make loans or extend or guarantee credit) to any of
them; (ii) to the best of the Issuer's knowledge, none of such persons has any
direct or indirect ownership interest 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, except that one or more
of such persons, individually or with others, may own up to five percent (5%) of
the publicly traded stock of companies that may compete with the Issuer; (iii)
to the best of the Issuer's knowledge, no Affiliate is, directly or indirectly,
interested in any contract with the Issuer and (iv) neither the Issuer nor any
of its Subsidiaries is party to any transaction with any Affiliate of any of
them (other than transactions between the Issuer and its Subsidiaries or between
Subsidiaries) other than as permitted by clauses (i) through (iii). Schedule
3.06 is a true and complete list of all agreements, arrangements or
understandings between the Issuer and its Subsidiaries and any Affiliate of the
Issuer or any of its Subsidiaries, except for agreements, arrangements or
understandings the Issuer filed as Exhibits to the Issuer 10-K or Proxy
Statement for the 1997 Annual General Meeting.
SECTION 3.07. REGISTRATION RIGHTS. Except as set forth in Schedule
3.07, the Issuer is not obligated to register under the Securities Act or
Canadian Securities Act any of its currently outstanding securities or any of
its securities that may be issued after the date hereof.
SECTION 3.08. LITIGATION, PROCEEDINGS; NO DEFAULTS. (a) There is no
action, suit or proceeding pending or, to the best knowledge of the Issuer,
threatened against or affecting the Issuer or any of its Subsidiaries before any
court or arbitrator or any governmental body, agency or official in which there
is a reasonable likelihood of an adverse decision that could (individually or in
the aggregate) result in a Material Adverse Effect or 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, the Securities or any of the transactions contemplated hereby or
thereby. The foregoing includes, without limitation, any such action, suit,
proceeding, or investigation 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 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 its Articles or Bylaws nor in
violation of, 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) would affect the validity of
this Agreement, the Securityholders Agreement, the Securities, (ii) would
(individually or in the aggregate) impair the ability of the Issuer to perform
its obligations under this Agreement, the Securityholders Agreement or the
10
Securities or (iii) could have, or could reasonably be expected to have, a
Material Adverse Effect.
SECTION 3.09. RETURNS AND COMPLAINTS. Except as set forth in Schedule
3.09, the Issuer has received no complaints from any customer which accounted
for over $250,000 of revenues for the fiscal year ended September 30, 1996,
concerning alleged defects in its products or services (or the design thereof),
and there has been no notification that such customers intend to discontinue or
materially decrease their use or purchase of such products and services.
SECTION 3.10. DISCLOSURE. (a) The Issuer has provided the Purchaser
with access to all the information reasonably available to it that the Purchaser
has requested for determining whether to purchase the Securities. Neither this
Agreement nor any other written statements or certificates made or delivered by
the Issuer to the Purchaser in connection herewith contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements herein and therein not misleading. The consolidated projections and
1997 Annual Budget of the Issuer and its Subsidiaries previously delivered to
the Purchaser were prepared in good faith on the basis of the assumptions stated
therein, which assumptions management believed in good faith to be reasonable in
light of the conditions existing at the time of delivery of such projections and
budget, and represented, at the time of delivery, the Issuer's best estimate of
its future financial performance and expenditures, although the actual results
and expenditures during the period or periods covered by such projections and
budget may differ from the projected results and expenditures.
(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 shareholders and all actions by written consent without a
meeting by the directors and shareholders from January 1, 1994 to the date
hereof (except for minutes of the meetings of the directors since January 1,
1997 which are in draft form, and subject to the directors approval at its next
meeting) and accurately reflects in all respects all actions by the directors
(and any committee of directors) and shareholders with respect to all
transactions referred to in such minutes.
(c) The Issuer has delivered to the Purchaser (i) the annual reports on
Form 20-F for its fiscal years ended September 30, 1994 and 1995 and the annual
report on Form 10-K for its fiscal year ended September 30, 1996, (ii) its
quarterly report on Form 10-Q for the fiscal quarter ended December 31, 1996,
(iii) its proxy and information statements relating to meetings of, or actions
taken without a meeting by, the shareholders of the Issuer held since January 1,
1994, and (iv) all of its other reports, statements, schedules prospectuses and
registration statements filed with the U.S. Securities and Exchange Commission
(the "COMMISSION") or any of the Canadian provincial securities commissions (the
"CANADIAN COMMISSIONS") since January 1, 1996.
11
(d) As of its filing date, each such report or statement and all other
reports, statements, schedules prospectuses and registration statements filed
with the Commission or any of the Canadian Commissions since January 1, 1994 but
before January 1, 1996 ("OTHER FILINGS") filed pursuant to the Exchange Act or
the applicable provincial securities laws did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
(e) Each such report or statement, and all Other Filings as amended or
supplemented, if applicable, filed pursuant to the Securities Act or applicable
provincial securities laws as of the date such statement or amendment became
effective did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
SECTION 3.11. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the Issuer
included in its annual reports on Forms 20-F and 10-K and the quarterly report
on Form 10-Q referred to in Section 3.10(c) fairly present, with respect to the
annual report on Form 20-F for the fiscal year ended September 30, 1994, in
conformity with Canadian generally accepted accounting principles as reconciled
with United States generally accepted accounting principles, and with respect to
the annual reports on Forms 20-F and 10-K for the fiscal years ended September
30, 1995 and 1996, respectively and the quarterly report on Form 10-Q, in
conformity with U.S. generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto) the
consolidated financial position of the Issuer and its consolidated subsidiaries
as of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements).
SECTION 3.12. COMPLIANCE WITH ERISA. (a) For the purposes of this
Section 3.12, 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.
12
"INTERNATIONAL PLAN" means any employment, severance or
similar contract or arrangement (whether or not written) or any plan,
policy, fund, program or arrangement or contract providing for that (i)
is not a Plan or a Benefit Arrangement and (ii) is maintained, or
contributed to, by any member of the ERISA Group.
"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.
"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") or their foreign equivalent with respect to each Plan and International
Plan, as applicable, and is in compliance 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. Each Benefit
Arrangement that is intended to qualify under Section 401(a) of the Code is so
qualified and has been so qualified during the period since its adoption. Each
Benefit Arrangement and International Plan has been maintained in compliance
with its
13
terms and with the requirements prescribed by any and all applicable U.S. and
non-U.S. statutes, orders, rules and regulations, including, but not limited to,
ERISA and the Code.
SECTION 3.13. OFFERING. Assuming the accuracy of the representations
set forth in Article IV hereof, the offer, sale and issuance of the Securities
to the Purchaser at the Closing as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act and the prospectus
requirements of all applicable provincial securities laws.
SECTION 3.14. INVESTMENT COMPANY; PUHCA. (a) The Issuer is not, and
after giving effect to the sale and issuance of the Securities, will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(b) Neither the Issuer nor any of its Subsidiaries is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company" (each
within the meaning of the Public Utility Holding Company Act of 1935, as
amended).
SECTION 3.15. GOVERNMENTAL REGULATION. Except as required pursuant to
the Securities Act, the Exchange Act and state or Canadian provincial securities
laws, the Issuer is not subject to any U.S. federal, Canadian federal, state or
provincial law or regulation limiting its ability to issue and perform its
obligations under the terms of the Securities.
SECTION 3.16. SOLICITATION; ACCESS TO INFORMATION. No form of general
solicitation or general advertising was used by the Issuer or, to the best of
its knowledge, any other Person acting on its behalf, in respect of the
Securities or in connection with the offer and sale of the Securities. Neither
the Issuer nor any Person acting on behalf of the Issuer has, either directly or
indirectly, sold or offered for sale to any Person any of the Securities or any
other similar security of the Issuer except as contemplated by this Agreement.
SECTION 3.17. TAXES. (a) The Issuer and each of its Subsidiaries: (i)
has filed or will file, in accordance with all applicable laws, all 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) will file all other Returns required to be
filed when due (taking into account any extension of a required filing date);
(iii) has timely paid all Taxes shown as due and payable on the Returns that
have been filed; (iv) 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 (v) is not currently under
14
any contractual obligation to pay any 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
(excluding any provision for deferred income taxes) are adequate to cover the
Tax liabilities accruing through the date thereof; and (y) there is no action,
suit, proceeding, investigation, audit or claim pending or, to the knowledge of
the Issuer, threatened against or with respect to it in respect of any Tax.
(b) The Issuer does not have any accumulated or current earnings and
profits within the meaning of U.S. federal income tax principles.
(c) The Issuer is not, and after giving effect to the sale and issuance
of the Securities, will not be, a passive foreign investment company within the
meaning of Section 1296 of the Internal Revenue Code of 1986, as amended.
SECTION 3.18. ABSENCE OF CERTAIN CHANGES. Except as expressly
contemplated in this Agreement, 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:
(a) any event, occurrence, development or state of
circumstances or facts which has resulted in or could reasonably be
expected to result in a Material Adverse Change provided that an
operating loss not in excess of $28,000,000 through the date hereof
shall not be deemed to be a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital shares of
the Issuer, or any repurchase, redemption or other acquisition by the
Issuer or any of its Subsidiaries of any outstanding shares of capital
shares or other securities of (including options to purchase capital
shares), or other ownership interests in, the Issuer or any of its
Subsidiaries;
(c) any amendment of any term of any outstanding security of
the Issuer or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Issuer or
any of its Subsidiaries of any Indebtedness, net of Indebtedness repaid
during such period, in excess of $35,000,000;
(e) any creation or assumption by the Issuer or any of its
Subsidiaries of any Lien on any asset other than in the ordinary course
of business consistent with past practices and other than Permitted
Liens;
15
(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, including those Persons listed on Schedule 3.18(f) hereto,
other than the Issuer or any of its wholly-owned Subsidiaries.
(g) any material 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;
(h) any material 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 the
acquisition or disposition of any assets) or any relinquishment by the
Issuer or any of its Subsidiaries of any contract or other right, other
than in the ordinary course of business;
(i) any change in any method of accounting or accounting
practice by the Issuer or any of its Subsidiaries;
(j) any cancellation of any material licenses, sublicenses,
franchises, permits or agreements to which the Issuer or any Subsidiary
is a party, or any notification to the Issuer or any Subsidiary that
any party to any such material arrangements intends to cancel or not
renew such arrangements beyond its expiration date as in effect on the
date hereof; or
(k) except for entering into the agreements listed on Schedule
3.18(k) hereto and the prepayment for services from those persons
listed on Schedule 3.18(f) hereto for the purchase price described
therein, any transaction, agreement, arrangement or understanding
entered into, or payment made to, those persons listed on Schedule
3.18(f) hereto.
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 material property and assets (whether real or personal,
tangible or intangible) reflected on the Balance Sheet or acquired after the
Balance Sheet Date, except for inventory sold since the Balance Sheet Date in
the ordinary course of business consistent with past practices. None of such
material 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. EMPLOYEES; EMPLOYEE COMPENSATION. Except as set forth in
Schedule 3.20, to the best of the Issuer's knowledge, (i) there is no strike or
labor dispute or union organization activities pending or threatened between it
and its
16
employees; (ii) none of the Issuer's employees belongs to any union or
collective bargaining unit; (iii) the Issuer has complied with all applicable
U.S. federal, Canadian federal, state and provincial equal opportunity and other
laws related to employment; (iv) no employee of the Issuer is or will be in
violation 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 any other party
because of the nature of the business conducted or to be conducted by the Issuer
or to the use by the employee of his best efforts with respect to such business;
and (v) no officer or key employee, or any group of key employees, intends to
terminate their employment with the Issuer, nor does the Issuer have a present
intention to terminate the employment of any of the foregoing. Except as
disclosed in its filings filed with the Commission or set forth in Schedule
3.20, the Issuer is not a party 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 employee of the Issuer not covered
by an employment contract is terminable at the will of the Issuer.
SECTION 3.21. NO UNDISCLOSED MATERIAL LIABILITIES. There is no
liability of the Issuer or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability, other than (i)
liabilities disclosed or provided for in the Balance Sheet, and (ii) liabilities
incurred in the ordinary course of business consistent with past practice since
the Balance Sheet Date which in the aggregate would not have a Material Adverse
Effect.
SECTION 3.22. MATERIAL CONTRACTS. (a) Except for agreements, contracts,
plans, leases, arrangements or commitments included as exhibits to the Issuer
l0-K, 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, (ii)
provide for the purchase 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.
(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.
17
SECTION 3.23. CERTAIN AGREEMENTS. Attached hereto as Schedule 3.23 are
complete and accurate copies of all agreements, arrangements and understandings
the Issuer has with, or relating to, those Persons listed on Schedule 3.18(f)
hereto. None of such agreements, arrangements or understandings require the
Issuer or any of its Subsidiaries to pay any amount (in cash or other property)
to, to loan or advance any amount to, make any investment in or capital
contribution to, or pay or guarantee any obligation of, such Persons.
SECTION 3.24. ENVIRONMENTAL COMPLIANCE. (a) No notice, demand, order or
request for information has been issued, no complaint has been filed, no penalty
has been assessed and no investigation, claim, action, suit, proceeding or
review is pending, or to the Issuer's knowledge, threatened by any governmental
or other entity with respect to (i) any alleged violation of, or liability
under, any U.S. federal, Canadian federal, state, provincial or local law,
treaty, regulation, judicial decision, rule, order or any governmental
restriction relating to human health and safety, the environment or to
pollutants, contamination, wastes or chemicals or any Hazardous Substance (as
defined below) ("ENVIRONMENTAL LAWS") relating to the Issuer or any of its
Subsidiaries or (ii) any alleged failure by the Issuer or any of its
Subsidiaries to have any permit, license or approval required by any
Environmental Law in connection with the conduct of their businesses.
(b) (i) Other than in compliance with all applicable Environmental
Laws, neither the Issuer nor any of its Subsidiaries nor any former subsidiaries
nor any entity which is a predecessor of any of the foregoing has generated,
treated, stored, recycled, sold, disposed of or transported any pollutant or
contaminant or any toxic, radioactive, corrosive, reactive or otherwise
hazardous substance, material or waste, including petroleum, its derivatives,
by-products and other hydrocarbons, whether or not regulated under any
Environmental Law ("HAZARDOUS SUBSTANCE") and (ii) no generation, treatment,
storage, recycling, transportation, disposal or Release (as defined in 42 U.S.C.
ss. 9601(22)) of any Hazardous Substance has occurred at or on any property now
or, to the knowledge of the Issuer, previously owned, operated or leased by the
Issuer or any of its Subsidiaries or any former subsidiaries or any entity which
is a predecessor of any of the foregoing.
(c) (i) each of the Issuer and its Subsidiaries is in compliance in all
material respects with all Environmental Laws and (ii) there is no material
liability of or relating to the Issuer, any of its Subsidiaries, any former
subsidiaries or any entity which is a predecessor of any of the foregoing,
whether vested or unvested, contingent or fixed, actual or potential, known or
unknown, which arise under or relate to matters covered by Environmental Laws.
SECTION 3.25. INSURANCE. The Issuer has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to
18
reasonable deductibles) in the Issuer's opinion to allow it to replace any of
its material properties that might be damaged or destroyed. The Issuer has in
full force and effect products liability, business interruption and errors and
omissions insurance in amounts that to its best knowledge are customary for
companies similarly situated.
SECTION 3.26. COMPLIANCE WITH LAWS. Neither the Issuer nor any
Subsidiary nor any person acting on its or their behalf (a) has directly or
indirectly used any corporate funds for any unlawful payment to any foreign or
domestic governmental or judicial officials or employees, (b) made any unlawful
payment (including any bribe, rebate, pay-off, kickback or influence payment) to
any person or entity, private or public, whether in the form of cash, property,
services or otherwise, (c) established or maintained any fund of monies or other
assets for the purposes specified in clause (a) or (b) above or made any false
or fictitious entry on the books or records of the Issuer or any of its
affiliates relating to any payment referred to in clause (a) or (b) above, or
(d) is in violation of, or has violated, any applicable provisions of any laws,
statutes, ordinances, orders, decrees or regulations.
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 and
existing under the laws of Barbados.
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 society action.
(b) No action by or in respect of, or filing with, any governmental
authority, agency or official is required for the execution, delivery and
performance by the Purchaser of this Agreement and the Securityholders
Agreement, except for those which have been obtained or made.
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 agreement of formation or (ii) violate any
applicable law, rule, regulation, judgment, injunction, order or decree, which
violation would (a) affect the validity of this
19
Agreement or the Securityholders Agreement or (b) individually or in the
aggregate impair the ability of the Purchaser to perform 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
agreement of formation 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) would affect the
validity of this Agreement or the Securityholders Agreement or (ii) would
(individually or in the aggregate) impair the ability of the Purchaser to
perform the obligations which it has under this Agreement or the Securityholders
Agreement.
SECTION 4.06. PRIVATE PLACEMENT. (a) The Purchaser understands that the
offering and sale of the Securities is intended to be exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act.
(b) The Securities 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 Securities or any interest therein.
(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 Securities and the Purchaser is capable of bearing the
economic risks of such investment, including a complete loss of its investment
in the Securities.
(e) The Purchaser has been furnished with and has carefully read a copy
of the Issuer 10-K and the Issuer 10-Q and 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 terms and conditions of the Securities
and other related matters. The Purchaser further represents and warrants to the
Issuer that the Issuer has made available to the Purchaser or its agents all
documents and information relating to an investment in the Securities requested
by or on behalf of the Purchaser. In evaluating the suitability of an investment
in the Securities, the Purchaser has not relied upon any other representations
or other information (whether oral or written) made by or on behalf of the
Issuer other than as set forth in this Agreement, the Exhibits and Schedules
hereto or as contemplated by the two preceding sentences. The foregoing
provisions of this Section
20
4.04(e) shall not limit or modify the representations and warranties of the
Issuer contained in this Agreement or the right of the Purchaser to rely
thereon.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The obligation
of the Purchaser to purchase the Securities 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 on and as of the Closing Date;
(b) the Issuer shall have performed and complied 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 of 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;
(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) and (g) of this Section 5.01;
(e) the Issuer shall have obtained any and all consents,
waivers or Permits necessary for the consummation of the transactions
contemplated hereby;
(f) the Purchaser's purchase of and payment for the Securities
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;
21
(h) the Purchaser shall have received duly executed
certificates representing the Securities being purchased by the
Purchaser pursuant hereto;
(i) the Purchaser shall have received opinions from X'Xxxxx &
Issuer, Canadian counsel to the Issuer, Xxxxxx, Xxxxxxxx Frome &
Xxxxxxxxxx LLP, special U.S. counsel to the Issuer and the general
counsel of the Issuer dated the Closing Date and substantially in the
forms of Exhibits C-1, C-2 and C-3, respectively, hereto;
(j) the Amendment to the Articles shall have been duly adopted
and filed with the Director under the Canada Business Corporations Act
and shall be in full force and effect; and
(k) the Purchaser shall have received all documents and legal
opinions 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.
SECTION 5.02. CONDITIONS TO ISSUER'S OBLIGATIONS. The obligations of
the Issuer to issue and sell the Securities 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 on and as of the Closing
Date;
(b) the Purchaser shall have performed and complied with all
agreements required by this Agreement to be performed or complied with
by the Purchaser on or prior to the Closing Date; and
(c) the Purchaser's purchase of and payment for the Securities
shall not be prohibited by any applicable law, court order or
governmental regulation or contract, agreement, document or other
instrument by which the Purchaser is bound.
22
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address or telecopier number
set forth on the 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 in this Section and the appropriate electronic confirmation is
received or, (ii) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or, (iii) if given by any other means, when delivered at the address specified
in this Section 6.01.
SECTION 6.02. NO WAIVERS; AMENDMENTS. (a) No failure or delay on the
part of any 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 all parties
hereto.
SECTION 6.03. INDEMNIFICATION. (a) The Issuer hereby agrees to
indemnify and hold harmless the Purchaser, Xxxxxx Xxxxxxx Group, Inc. and its
Subsidiaries, and each Person, if any, who controls any of them 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
misrepresentation, breach of warranty or covenant made or to be performed on the
part of the Issuer under this Agreement, the Securityholders Agreement, the
Securities or otherwise resulting from any 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 and the Securities and (ii) any use made or proposed
to be made by the Issuer of the proceeds from the sale of the Securities) and
will reimburse any Indemnified Person for all expenses (including reasonable
counsel and expert fees) as they are incurred by any such Indemnified Person in
connection with any
23
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.
(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 any and all Damages incurred or
suffered by an Issuer Indemnified Person arising out of any misrepresentation or
breach of warranty, covenant or agreement made or to be performed by the
Purchaser pursuant to this Agreement or the Securityholders Agreement.
(c) The party seeking indemnification under paragraph (a) or (b) above
(the "INDEMNIFIED PARTY") agrees to give prompt notice to the party against whom
indemnity is sought (the "INDEMNIFYING PARTY") of the assertion of any claim, or
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought under such Section. The Indemnifying Party may at the request of
the Indemnified Party participate in and control the defense of any such suit,
action or proceeding at its own expense. The Indemnifying Party shall not be
liable under Section (a) or (b) for any settlement effected without its consent
of any claim, litigation or proceeding in respect of which indemnity may be
sought hereunder.
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 Securities remain outstanding.
SECTION 6.05. EXPENSES; DOCUMENTARY TAXES. The Issuer shall pay all
reasonable out-of-pocket expenses of the Purchaser, including reasonable fees
and disbursements of the Purchaser's United States, Canadian and Barbadian
counsel and consultants, in connection with the preparation of this Agreement,
the Securityholders Agreement, the Securities, any amendments thereto and the
transactions contemplated hereby and all matters related thereto (including any
subsequent restructuring or reorganization of the Issuer or any of its
Subsidiaries or any of the Securities). 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, the
Securityholders Agreement, or the issuance of the Securities or Common Shares
issuable upon the conversion of the Series A Preference Shares (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).
24
SECTION 6.06. SUCCESSORS AND ASSIGNS. The Purchaser may assign its
rights and obligations hereunder with the prior written consent of the Issuer.
This Agreement shall be binding upon the Issuer and the Purchaser and their
respective permitted 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 (including the Consent to Jurisdiction provision contained in Section
6.14 of such Agreement), the Securities and the Articles constitute the entire
agreement and understanding among the parties hereto and supersede any and all
prior agreements and understandings, written or oral, relating to the subject
matter hereof.
SECTION 6.10. AMENDMENT OF SERIES A PREFERRED SHARES. The parties agree
that as soon as possible after the Closing they will take all actions necessary
to amend the terms of the Series A Preference Shares by inserting the language
"the third Business Day after" after the first three words of Section 8(f)(i) of
the terms of the Series A Preference Shares.
25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GST TELECOMMUNICATIONS, INC.
By /s/ Xxxx Xxxxx
---------------------------
Name: Xxxx Xxxxx
Title: Chief Executive Officer
By /s/ Xxxxxxx Xxxxx
---------------------------
Name: Xxxxxxx Xxxxx
Title: Vice Chairman
Address: 0000 X.X. Xxxxxxxx Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Telecopier:(000) 000-0000
OCEAN HORIZON SRL
By /s/ Xxxxx Xxxx
---------------------------
Name: Xxxxx Xxxx
Title: Manager
Address: X.X. Xxx 000,
Xxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx
Telephone: (000) 000-0000
Telecopier:(000) 000-0000
Aggregate
Purchase
Securities Price
---------- ----------
500 Series A $48,750,000
Preference Shares
$50,000,000 Face Amount
26
EXHIBIT C-1
-----------
[Form of Canadian counsel opinion]
1. The Issuer is a corporation duly incorporated, validly existing and in
good standing under the laws of Canada and has all corporate powers and
all governmental licenses, authorizations, consents, approvals and
permits required to carry on its business as conducted to date and as
proposed to be conducted. Each of the Issuer's Subsidiaries
incorporated under the laws of Canada or a province thereof, is a
corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all
corporate power required to carry on its business as conducted to date
and as proposed to be conducted. Each of the Issuer's Subsidiaries has
all material governmental licenses, authorizations, consents, approvals
and permits, in each case, required to carry on its business as
conducted to date and as proposed to be conducted. All of the foregoing
licenses, authorizations, consents, approvals and permits of the Issuer
and its Subsidiaries ("PERMITS") are valid and in full force and
effect, and none of the Permits will be terminated or impaired or
become terminable, in whole or in part, as a result of the transactions
contemplated by the Purchase Agreement, the Securityholders Agreement
or the Securities, and there has been no notification to the Issuer or
any Subsidiary that any party to, or issuer of, any such Permit intends
to cancel or not renew such Permit beyond its expiration date as in
effect on the date hereof.
2. The execution, delivery and performance by the Issuer of each of the
Purchase Agreement and the Securityholders Agreement and the issuance,
delivery and performance by the Issuer of the Securities 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 the filing
of the Amendment to the Articles pursuant to the Canada Business
Corporations Act) and do not (a) contravene or constitute a default
under or violation of any provision of applicable law or regulation,
judgment, injunction, order or decree binding upon or applicable to the
Issuer or any of its Subsidiaries, (b) contravene or constitute a
default under the Articles or Bylaws or the Articles or bylaws of any
Subsidiary of the Issuer, (c) require any consent, approval or other
action by any other Person or constitute a default under or violation
of or give rise to any right of termination, cancellation or
acceleration of any right or obligation of the Issuer or any Subsidiary
or to a loss of any benefit to which the Issuer or any Subsidiary is
entitled under any material agreement 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 asset of the Issuer or any of its
Subsidiaries. Neither the Issuer nor any of its Subsidiaries is party
to any agreement or subject to any law or regulation, judgment,
injunction, order or decree which limits the ability of the Issuer to
issue and sell its capital shares or to use the proceeds of such sales
and sales of capital shares of Subsidiaries (to the extent that
the sale of capital shares of such Subsidiaries is not prohibited) to
redeem the Series A Preference Shares. The issuance of the Securities
will not cause an adjustment to the number of Common Shares which are
issuable pursuant to any outstanding warrant, right, option or
commitment to issue Common Shares or any security convertible into or
exchangeable for Common Shares.
3. The Purchase Agreement, the Securityholders Agreement and the
Securities have been executed and delivered by the Issuer and
constitute valid and binding obligations of the Issuer, enforceable in
accordance with their respective terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization and other
similar laws of general applicability affecting creditors' rights and
(b) as to the remedy of specific performance and injunctive and other
forms of equitable relief, whether sought in a court of law or in
equity, certain equitable defenses and the discretion of the court
before which they are being brought, and except that we express no
opinion of the enforceability of the indemnification and contribution
provisions contained in the Securityholders Agreement.
4. The Common Shares outstanding on the date hereof have been duly
authorized and validly issued, are fully paid and non-assessable and
are not subject to any preemptive or similar rights. The Common Shares
to be issued upon conversion of the Series A Preference Shares have
been duly authorized and reserved for issuance.
5. The Series A Preference Shares purchased by the Purchaser under the
Purchase Agreement are, and the Common Shares to be issued upon the
conversion of such Series A Preference Shares, when issued, sold and
delivered in accordance with the terms thereof will be, duly authorized
and validly issued, fully paid and non-assessable and free and clear of
any pre-emptive or similar rights.
6. There is no action, suit or proceeding pending or, to the best of my
knowledge, threatened against or affecting the Issuer or any of its
Subsidiaries before any court or arbitrator or any governmental body,
agency or official in which there is a reasonable likelihood of an
adverse decision that could (individually or in aggregate) result in a
Material Adverse Effect or result in any material change in the current
equity ownership of the Issuer, or which in any manner draws into
question the validity of the Purchase Agreement, the Securityholders
Agreement, the Securities or any of the transactions contemplated
thereby.
7. The Issuer is not in violation of its Articles or Bylaws nor 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 (a) would affect the
validity of the Purchase Agreement, the Securityholders Agreement or
the Securities, (b) would (individually or in the aggregate) impair the
ability of the Issuer to perform in any material respect its
obligations which it has under the Purchase
2
Agreement, the Securityholders Agreement or the Securities, or (c)
could have, or could reasonably be expected to have, a Material Adverse
Effect. The Issuer is not subject to any law or regulation limiting its
ability to issue and perform its obligations under the terms of the
Securities.
8. Assuming the accuracy of the representations set forth in Article IV of
the Purchase Agreement, the offer, sale and issuance of the Series A
Preference Shares to the Purchaser at the Closing are not in breach of
any securities laws of the provinces of Canada; PROVIDED that we
express no opinion with respect to any securities laws of the United
States, securities or Blue Sky laws of the various states of the United
States or the securities laws of any jurisdiction other than Canada.
All of the Series A Common Shares have been admitted to listing on the
Vancouver Stock Exchange, subject to official notice of issuance.
3
EXHIBIT C-2
-----------
[Form of US counsel opinion]
1. Each of the Issuer's Subsidiaries incorporated under the laws of a
state of the United States is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Issuer's Subsidiaries incorporated under the
laws of a state of the United States has all corporate powers.
2. The execution, delivery and performance by the Issuer of each of the
Purchase Agreement and the Securityholders Agreement and the issuance,
delivery and performance by the Issuer of the Securities, require no
action by or in respect of, or filing with, any governmental body,
agency or official (other than the filing of the Amendment to the
Articles with the Director, Corporations Branch, Industry Canada and do
not (a) contravene or constitute a default under or violation of any
provision of applicable law or regulation, judgment, injunction, order
or decree binding upon or applicable to the Issuer or any of its
Subsidiaries, (b) contravene or constitute a default under the Articles
or Bylaws or the Articles or bylaws of any Subsidiary of the Issuer,
(c) require any consent, approval or other action by any other Person
or constitute a default under or violation of or give rise to any right
of termination, cancellation or acceleration of any right or obligation
of the Issuer or any Subsidiary or to a loss of any benefit to which
the Issuer or any Subsidiary is entitled under any material agreement
or other instrument binding upon the Issuer or any of its Subsidiaries
or (d) result in the creation or imposition of any Lien on any asset of
the Issuer or any of its Subsidiaries. Neither the Issuer nor any of
its Subsidiaries is party to any agreement or subject to any law or
regulation, judgment, injunction, order or decree which limits the
ability of the Issuer to issue and sell shares of its capital shares or
to use the proceeds of such sales and sales of capital shares of
Subsidiaries (to the extent that the sale of capital shares of such
Subsidiaries is not prohibited) to redeem the Series A Preference
Shares. The issuance of the Securities will not cause an adjustment to
the number of Common Shares which are issuable pursuant to any
outstanding warrant, right, option or commitment to issue Common Shares
or any security convertible into or exchangeable for Common Shares.
3. The Purchase Agreement, the Securityholders Agreement and the
Securities have been executed and delivered by the Issuer and
constitute valid and binding obligations of the Issuer, enforceable in
accordance with their respective terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization and other
similar laws of general applicability affecting creditors' rights and
(b) as to the remedy of specific performance and injunctive and other
forms of equitable relief, whether sought in a court of law or in
equity, certain equitable defenses and the discretion of the court
before which they are being brought, and except that we express no
opinion
of the enforceability of the indemnification and contribution
provisions contained in the Securityholders Agreement.
4. To our knowledge, after due inquiry, there is no action, suit or
proceeding pending or, threatened against or affecting the Issuer or
any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
likelihood of an adverse decision that could (individually or in
aggregate) result in a Material Adverse Effect or result in any
material change in the current equity ownership of the Issuer, or which
in any manner draws into question the validity of the Purchase
Agreement, the Securityholders Agreement, the Securities or any of the
transactions contemplated thereby.
5. The Issuer is not 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 (a) would
affect the validity of the Purchase Agreement, the Securityholders
Agreement or the Securities, (b) would (individually or in the
aggregate) impair the ability of the Issuer to perform in any material
respect its obligations which it has under the Purchase Agreement, the
Securityholders Agreement or the Securities, or (c) could have, or
could reasonably be expected to have, a Material Adverse Effect. The
Issuer is not subject to any law or regulation limiting its ability to
issue and perform its obligations under the terms of the Securities.
6. The Issuer is not, and after giving effect to the issuance and sale of
Securities pursuant to the Agreement will not be, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended. Neither the Issuer nor any of its Subsidiaries is a "holding
company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company" (each within the meaning of the Public Utility
Holding Company Act of 1935, as amended).
7. Assuming the accuracy of the representations set forth in Article IV of
the Purchase Agreement, the offer, sale and issuance of the Series A
Preference Shares to the Purchaser at the Closing are exempt from the
registration requirements of the Securities Act; PROVIDED that we
express no opinion with respect to any securities laws -------- of
Canada or the provinces thereof, securities or Blue Sky laws of the
various states of the United States or the securities laws of any
jurisdiction other than the United States. A total of 4,234,208 of the
Series A Common Shares have been admitted to listing on the American
Stock Exchange, subject to official notice of issuance.
2
EXHIBIT C-3
-----------
[Form of Opinion of Issuer's General Counsel]
1. The Issuer has all material governmental licenses, authorizations,
consents, approvals and permits required to carry on its business as
conducted to date and as proposed to be conducted. Each of the Issuer's
Subsidiaries has all material governmental licenses, authorizations,
consents, approvals and permits, in each case, required to carry on its
business as conducted to date and as proposed to be conducted. All of
the foregoing licenses, authorizations, consents, approvals and
permits, of the Issuer and its Subsidiaries (the "PERMITS") are valid
and in full force and effect, and none of the Permits will be
terminated or impaired or become terminable, in whole or in part, as a
result of the transactions contemplated by the Purchase Agreement, the
Securityholders Agreement or the Securities, and there has been no
notification to the Issuer or any Subsidiary that any party to, or
issuer of, any such Permit intends to cancel or not renew such Permit
beyond its expiration date as in effect on the date hereof.
3
