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EXHIBIT 10.11
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SECURITIES PURCHASE AGREEMENT
AMONG
MGC COMMUNICATIONS, INC.
AND
THE PURCHASERS LISTED ON
SCHEDULE 1 HERETO
Dated as of November 26, 1997
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TABLE OF CONTENTS
1. Sale and Purchase of Shares................................................................................... 1
1.1 Sale and Purchase of Shares........................................................................ 1
2. Purchase Price................................................................................................ 1
2.1 Amount of Purchase Price........................................................................... 1
2.2 Payment of the Purchase Price...................................................................... 1
3. Closing; Termination of Agreement............................................................................. 1
3.1 Closing Date....................................................................................... 1
4. Representations and Warranties of the Company................................................................. 2
4.1 Organization and Good Standing..................................................................... 2
4.2 Authorization of Agreement; Enforceability......................................................... 2
4.3 Subsidiaries....................................................................................... 3
4.4 Consents of Third Parties.......................................................................... 3
4.5 Authorization of Preferred Shares and Reserved Shares.............................................. 3
4.6 Financial Statements............................................................................... 3
4.7 No Undisclosed Liabilities......................................................................... 4
4.8 Absence of Certain Developments.................................................................... 4
4.9 Taxes.............................................................................................. 6
4.10 Real Property...................................................................................... 6
4.11 Tangible Personal Property......................................................................... 7
4.12 Intangible Property................................................................................ 8
4.13 Material Contracts.................................................................................10
4.14 Employee Benefits..................................................................................10
4.15 Employees..........................................................................................12
4.16 Litigation.........................................................................................12
4.17 Compliance with Laws; Permits......................................................................12
4.18 Environmental Matters..............................................................................13
4.19 Investment Company Act.............................................................................14
4.20 Transactions with Affiliates.......................................................................14
4.21 Disclosure.........................................................................................14
4.22 Financial Advisors.................................................................................14
4.23 Insurance..........................................................................................14
4.24 Dissolution of Previous Entities...................................................................14
4.26 Improper Actions...................................................................................15
5. Representations and Warranties of the Purchasers..............................................................15
5.1 Organization and Good Standing.....................................................................15
5.2 Authorization of Agreement.........................................................................15
5.3 Purchaser Representation...........................................................................15
5.4 Investment Intention...............................................................................15
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5.5 Financial Advisors..................................................................................16
6. Further Agreements of the Parties.............................................................................16
6.1 Covenants..........................................................................................17
6.3 Use of Proceeds....................................................................................17
6.3 Access to Information..............................................................................17
6.4 Confidentiality....................................................................................17
6.5 Other Actions......................................................................................17
6.7 Indemnity..........................................................................................17
6.9 U.S. Real Property Holding Corporation.............................................................18
6.10 Financial Statements, Reports, Etc.................................................................18
7. Documents to be Delivered at the Closing......................................................................19
7.1 Documents to be Delivered by the Company...........................................................19
7.2 Delivery of Purchase Price.........................................................................20
8. Miscellaneous.................................................................................................20
8.1 Certain Definitions................................................................................20
8.2 Tax Treatment of Preferred Stock...................................................................24
8.3 Expenses...........................................................................................24
8.4 Specific Performance...............................................................................25
8.5 Further Assurances.................................................................................25
8.6 Submission to Jurisdiction; Consent to Service of Process..........................................25
8.7 Entire Agreement; Amendments and Waivers...........................................................25
8.8 Governing Law......................................................................................26
8.9 Table of Contents; Headings; Interpretive Matters..................................................26
8.10 Notices............................................................................................26
8.11 Severability.......................................................................................27
8.12 Binding Effect; Assignment.........................................................................27
8.13 Counterparts.......................................................................................27
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of November 26, 1997 (this
"Agreement"), among MGC Communications, Inc., a Nevada corporation (the
"Company"), and the Purchasers listed on Schedule 1 (the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company desires to issue to each Purchaser, and each
Purchaser desires to purchase from the Company, the Shares (as such term is
defined below) in such amounts as set forth next to such Purchaser on Schedule
1, and
WHEREAS, certain terms used in this Agreement are defined in Section
8.1 hereof;
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements hereinafter contained, the parties hereto hereby agree as
follows:
1. SALE AND PURCHASE OF SHARES.
1.1. Sale and Purchase of Shares. Subject to the terms and conditions
of this Agreement, on the Closing Date (as defined in Section 3.1 hereof) the
Company shall sell, assign, transfer, convey and deliver to each Purchaser, and
each Purchaser shall purchase from the Company the number of shares of Series A
Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred
Stock") listed next to such Purchaser on Schedule 1 (the "Shares"), for the
Purchase Price (as defined in Section 2.1 below) and upon the terms and
conditions hereinafter set forth.
2. PURCHASE PRICE.
2.1. Amount of Purchase Price. The purchase price for the Shares shall
be as indicated on Schedule 1 (the "Purchase Price"). The Purchase Price shall
be payable as provided in Section 2.2 hereof.
2.2. Payment of the Purchase Price.. At the Closing, the Purchasers
shall pay the Purchase Price by wire transfer of clearinghouse funds or by such
other method as may be reasonably acceptable to the Company and the Purchasers
to such account of the Company as shall have been designated in advance to the
Purchasers by the Company.
3. CLOSING; TERMINATION OF AGREEMENT.
3.1. Closing Date. The closing of the sale and purchase of the Shares
provided for in Section 1.1 (the "Closing") shall take place at 9:00 a.m. at the
offices of Akin, Gump,
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Xxxxxxx, Xxxxx & Xxxx, L.L.P. in New York, New York (or at such other place as
the parties hereto may mutually agree) on the date hereof, or on such other date
as the parties hereto may mutually agree. The date on which the Closing is held
is referred to in this Agreement as the "Closing Date." At the Closing, the
parties shall execute and deliver the documents referred to in Section 7 hereof.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Purchaser that:
4.1.Organization and Good Standing. (a) The Company is duly organized,
validly existing and in good standing under the laws of the State of Nevada and
has full corporate power and authority to own, lease and operate its properties
and assets and to carry on its business as now conducted and as it is proposed
to be conducted. The Company is duly qualified or authorized to do business as a
foreign corporation and is in good standing under the laws of each jurisdiction
in which the conduct of its business or the ownership of its properties or
assets requires such qualification or authorization, except for those
jurisdictions where the failure to be so qualified would not, individually or in
the aggregate, have or result in a material adverse effect on the business,
properties, results of operations, prospects or conditions (financial or
otherwise) of the Company.
(b) The authorized capital stock of the Company is as set forth on
Schedule 4.1(b). Except as disclosed on Schedule 4.1(b), there is no existing
option, warrant, call, right, commitment or other agreement of any character to
which the Company is a party requiring, and there are no securities of the
Company outstanding which upon conversion or exchange would require, the
issuance, sale or transfer of any additional shares of capital stock or other
equity securities of the Company or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase shares of
capital stock or other equity securities of the Company. Except as disclosed on
Schedule 4.1(b), the Company is not a party to, nor aware of, any voting trust
or other voting agreement with respect to any of the securities the Company or
to any agreement relating to the issuance, sale, redemption, transfer or other
disposition of the capital stock of the Company.
4.2. Authorization of Agreement; Enforceability. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and each other agreement, document, instrument or certificate contemplated by
this Agreement or to be executed by the Company in connection with the
consummation of the transactions contemplated by this Agreement (the
"Transaction Documents"), and to perform fully its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of this
Agreement and the Transaction Documents have been duly authorized by all
necessary corporate action on the part of the Company and its shareholders. This
Agreement and each of the Transaction Documents have been duly and validly
executed and delivered by the Company and (assuming the due authorization,
execution and delivery thereof by each Purchaser) this Agreement and each of the
Transaction Documents constitutes the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting
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creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.3. Subsidiaries. The Company has no Subsidiaries.
4.4. Consents of Third Parties. None of the execution and delivery by
the Company of this Agreement and the Transaction Documents, the consummation of
the transactions contemplated hereby or thereby, or compliance by the Company
with any of the provisions hereof or thereof will (a) conflict with, or result
in the breach of, any provision of the articles of incorporation or by-laws of
the Company; (b) conflict with, violate, result in the breach or termination of,
or constitute a default or give rise to any right of termination or acceleration
or right to increase the obligations or otherwise modify the terms thereof under
any Contract, Permit or Order to which the Company is a party or by which the
Company or any of its properties or assets is bound (except for the antidilution
protection granted to certain existing warrantholders for issuances of
securities below $5.00 per share, which warrants were issued in connection with
the issuance of Senior Notes); (c) constitute a violation of any Law applicable
to the Company, or (d) result in the creation of any Lien upon the properties or
assets of the Company, other than, in the case of clauses (b), (c) and (d), any
such conflict, violation, breach, termination, acceleration or other event
which, individually or in the aggregate, could not reasonably be expected to
cause a Material Adverse Change. Other than those which have been obtained or
made, no consent, waiver, approval, Order, Permit or authorization of, or
declaration or filing with, or notification to, any Person or Governmental Body
is required on the part of the Company in connection with the execution and
delivery of this Agreement or the Transaction Documents, or the compliance by
the Company with any of the provisions hereof or thereof.
4.5. Authorization of Preferred Shares. The issuance, sale, and
delivery of the Shares have been duly authorized by all requisite action of the
Company, and, when issued, sold, and delivered in accordance with this
Agreement, the Shares, and the Common Stock delivered upon conversion of the
Shares will be validly issued and outstanding, fully paid, and non-assessable,
with no personal liability attaching to the ownership thereof, and, except as
may be set forth in the Stockholders Agreement, not subject to preemptive or any
other similar rights of the shareholders of the Company or others.
4.6. Financial Statements. The Company has provided prior to the
Closing Date (a) copies of the unaudited consolidated balance sheets of the
Company as of September 30, 1997 and the related unaudited consolidated
statements of income and cash flows for the quarter then ended (the "Unaudited
Financial Statements") and (b) the audited consolidated balance sheets of the
Company as of December 31, 1996 and the related consolidated statements of
income and cash flows for such year ended (such statements, including the
related notes and schedules thereto, and the Unaudited Financial Statements, are
referred to herein as the "Financial Statements"). Each of the Financial
Statements was prepared in good faith by the Company, is complete and correct in
all material respects, has been prepared in accordance with GAAP and in
conformity with the practices consistently applied by the Company and presents
fairly the consolidated financial position, results of operations and cash flows
of the Company as
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of the dates and for the periods indicated, except, with respect to the
Unaudited Financial Statements, for the absence of footnotes and year end
adjustments.
4.7. No Undisclosed Liabilities. Except as set forth on Schedule 4.7,
the Company has no liabilities (whether accrued, absolute, contingent or
otherwise, and whether due or to become due or asserted or unasserted), except
(a) obligations under Contracts described in Schedule 4.13 or under Contracts
that are not required to be disclosed thereon as a result of dollar thresholds
therein; (b) liabilities provided for in the Unaudited Financial Statements; (c)
liabilities (other than accounts payable) incurred since the Unaudited Financial
Statements, in the ordinary course of business, the sum of which is, in the
aggregate, no greater than $500,000; and (d) accounts payable in excess of those
shown on the Unaudited Financial Statements, incurred in the ordinary course of
business, the sum of which is, in the aggregate, not greater than $500,000.
Unless specifically disclosed as a breach on Schedule 4.7, disclosure of a
Contract on Schedule 4.13 shall not be indicative of a breach of any provision
of such Contract.
4.8. Absence of Certain Developments.
(a) Except as set forth in Schedule 4.8(a) the general nature of the
business of the Company (the "Business") is described in the Offering Memorandum
with respect to the Company's issuance of $160,000,000 of 13% Senior Secured
Notes due 2004 (and related warrants) dated September 24, 1997 (to the extent
not superceded by the Prospectus contained in the Registration Statement on Form
S-4 filed with the Securities and Exchange Commission on October 28, 1997 (the
"Registration Statement")) and the Registration Statement (collectively, the
"Offering Memorandum"), which previously has been delivered to the Purchasers.
(b) Except as set forth in Schedule 4.8(b) and since the date of the
Unaudited Financial Statements:
(i) there has not been any Material Adverse Change nor has
any event occurred which could reasonably be expected to result in any Material
Adverse Change; or
(ii) there has not been any damage, destruction or loss,
whether or not covered by insurance, with respect to the property and assets of
the Company having a replacement cost of more than $100,000 for any single loss
or $500,000 for all such losses;
(iii) there has not been any declaration, setting a record
date, setting aside or authorizing the payment of, any dividend or other
distribution in respect of any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company, of any of the
outstanding shares of capital stock or other securities of, or other ownership
interest in, the Company;
(iv) except for grants of ___ shares under the Company's
stock option plan, there has not been any transfer, issue, sale or other
disposition by the Company of any shares of capital stock or other securities
of the Company or any grant of options, warrants,
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calls or other rights to purchase or otherwise acquire shares of such capital
stock or such other securities;
(v) except with respect to the hiring of new Employees in
the ordinary course of business whose annual compensation in the aggregate is
not greater than $500,000 (exclusive of benefits), the Company has not awarded
or paid any bonuses to Employees of the Company nor has the Company entered into
any employment, deferred compensation, severance or similar agreements (nor
amended any such agreement) or agreed to increase the compensation payable or to
become payable by it to any of the Company's directors, officers, Employees,
agents or Representatives or agreed to increase the coverage or benefits
available under any severance pay, termination pay, vacation pay, company
awards, salary continuation for disability, sick leave, deferred compensation,
bonus or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with such directors,
officers, Employees, agents or Representatives, other than in the ordinary
course of business consistent with past practice which increases in the
aggregate do not exceed $100,000 in annual cost to the Company, and other than
as may have been required by law or insurers;
(vi) the Company has not made any loans, advances or capital
contributions to, or investments in, any Person or paid any fees or expenses to
any Affiliate of the Company, other than for reimbursement of expenses in the
ordinary course of business consistent with past practices;
(vii) except for Liens with respect to the Senior Notes, the
Company has not mortgaged, pledged or subjected to any Lien any of its assets,
or acquired any assets or sold, assigned, transferred, conveyed, leased or
otherwise disposed of any assets, except for assets acquired or sold, assigned,
transferred, conveyed, leased or otherwise disposed of in the ordinary course of
business consistent with past practice;
(viii) the Company has not discharged or satisfied any Lien,
or paid any obligation or liability (fixed or contingent), except in the
ordinary course of business consistent with past practice and which, in the
aggregate, would not be material to the Company;
(ix) the Company has not canceled or compromised any debt or
claim or amended, canceled, terminated, relinquished, waived or released any
Contract or right except in the ordinary course of business consistent with past
practice and which, in the aggregate, would not be material to the Company;
(x) the Company has not transferred or granted any rights
under any contracts, leases, licenses, agreements or Intangible Property (as
defined in Section 4.12 hereof) used by the Company in its business which
reasonably could be expected to result in a Material Adverse Change; and
(xi) the Company has not made any binding commitment to make
any capital expenditures or capital additions or betterments in excess of
$500,000 in the aggregate.
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4.9. Taxes.
(a) The amount, if any, shown on the Unaudited Financial Statements, as
provision for Taxes is sufficient for payment of all accrued and unpaid federal,
state, county, local and foreign Taxes for the period then ended and all prior
periods.
(b) The Company has filed all Tax Returns (federal, state, county,
local and foreign) required to be filed by it and all such returns are true and
correct in all material respects. All Taxes shown to be due and payable on such
returns, any assessments imposed, and to the Company's knowledge all other Taxes
due and payable by the Company on or before the Closing have been paid or will
be paid prior to the time they become delinquent, other than those being
contested in good faith and listed on Schedule 4.9(b).
(c) Federal Income Tax Returns of the Company have not been audited by
the Internal Revenue Service, and no controversy with respect to Taxes of any
type is pending or, to the best of the Company's knowledge, threatened.
(d) Neither the Company nor any of its stockholders has ever filed (i)
an election pursuant to Section 1362 of the Code that the Company be taxed as an
S Corporation or (ii) consent pursuant to Section 341(f) of the Code relating to
collapsible corporations.
(e) Except as set forth on Schedule 4.9(e), the Company's net operating
losses, if any, for federal income tax purposes, as set forth in the Financial
Statements, are not subject to any limitations imposed by Section 382 of the
Code, and consummation of the transactions contemplated by this Agreement or by
any other agreement, understanding or commitment, contingent or otherwise, to
which the Company is a party or by which it is otherwise bound will not have the
effect of limiting the Company's ability to use such net operating losses in
full to offset such taxable income.
(f) The Company has not waived any statute of limitation in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(g) The Company is not a party to any Income Tax allocation or sharing
agreement.
(h) The Company is not and has never been a member of an Affiliated
Group filing a consolidated Federal Income Tax Return (other than a group the
common parent of which was the Company).
(i) The Company is not a "United States real property holding
corporation" within the meaning of Section 847(c)(2) of the Internal Revenue
Code of 1986, as amended.
4.10 Real Property.
(a) The Company does not own any real property other than as set forth
on Schedule 4.10(a).
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(b) Except as set forth on Schedule 4.10(b), the Company has good,
legal, and marketable title to all of its assets, including all properties and
assets free and clear of all Liens, except those assets disposed of since the
date of the Unaudited Financial Statement in the ordinary course of business and
except for Liens incurred with respect to the Senior Notes and Liens incurred in
the ordinary course of business which would not impair the Company's use of such
property in any material way.
(c) Schedule 4.10(c) sets forth a complete list of all real property
and interests in real property leased by the Company (each a "Real Property
Lease", and collectively, the Real Property Leases) as lessee or lessor. The
Company has good and marketable title to the leasehold estates in all Real
Property Leases in each case free and clear of all Liens, except for Liens
incurred with respect to the Senior Notes and Liens incurred in the ordinary
course of business which would not impair the Company's use of such property in
any material way. The Company has no reason to believe that such title would not
be insurable subject to customary exceptions.
(d) Each of the Real Property Leases is valid and enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity), and there is no material default under any Real Property Lease by the
Company or, to the best knowledge of the Company, by any other party thereto,
and no event has occurred that with the lapse of time or the giving of notice or
both would constitute a material default thereunder. The Company has made
available to each Purchaser true, correct and complete copies of the Real
Property Leases, together with all amendments, modifications, supplements or
side letters affecting the obligations of any party thereunder.
(e) No previous or current party to any Real Property Lease has given
notice of or made a claim with respect to any breach or default thereunder. With
respect to those Real Property Leases that were assigned or subleased to the
Company by a third party, all necessary consents to such assignments or
subleases have been obtained.
4.11 Tangible Personal Property.
(a) Schedule 4.11(a) sets forth all leases of personal property
("Personal Property Leases") involving annual payments in excess of [$50,000]
relating to personal property used in the business of the Company or to which
the Company is a party or by which the Company or any of its respective
properties or assets is bound. The Company has made available to each Purchaser
true, correct and complete copies of the Personal Property Leases, together with
all amendments, modifications, supplements or side letters affecting the
obligations of any party thereunder.
(b) (i) Each of the Personal Property Leases is in full force and
effect and is valid, binding and enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
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enforcement is sought in a proceeding at law or in equity), and there is no
material default under any Personal Property Lease by the Company or, to the
best knowledge of the Company, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a material default thereunder; and
(ii) No previous or current party to any such Personal
Property Lease has given notice of or made a claim with respect to any breach or
default thereunder.
(c) With respect to those Personal Property Leases that were assigned
or subleased to the Company by a third party, all necessary consents to such
assignments or subleases have been obtained.
(d) The Company has good, legal and marketable title to all of the
material items of tangible personal property used by it (except as sold or
disposed of subsequent to the date hereof in the ordinary course of business
consistent with past practice), free and clear of any and all Liens, except for
Liens incurred with respect to the Senior Notes and Liens incurred in the
ordinary course of business which would not impair the Company's use of such
property in any material way. All such items of tangible personal property
which, individually or in the aggregate, are material to the operation of the
business of the Company are suitable for the purposes used for the operation of
the business of the Company.
4.12 Intangible Property.
(a) "Proprietary Rights" shall mean any and all of the following which
have been or are used and/or owned by, and/or issued or licensed to the Company,
along with all income, royalties, damages and payments due or payable at the
Closing or thereafter, including, without limitation, damages and payments for
past, present or future infringements or misappropriations thereof, the right to
xxx and recover for past infringements or misappropriations thereof and any and
all corresponding rights that, now or hereafter, may be secured throughout the
world: patents, patent applications, patent disclosures and inventions (whether
or not patentable and whether or not reduced to practice) and any reissue,
continuation, continuation-in-part, division, revision, extension or
reexamination thereof; utility model registrations and applications; design
registrations and applications; trademarks, service marks, trade dress, logos,
trade names and corporate names together with all goodwill associated therewith,
copyrights registered or unregistered and copyrightable works; mask works; and
all registrations, applications, and renewals for any of the foregoing; trade
secrets and confidential information (including without limitation, ideas,
formulae, compositions, know-how, manufacturing and production processes and
techniques, research and developmental information, drawings, specifications,
designs, plans, proposals, technical data, financial, business and marketing
plans, and customer and supplier lists and related information); computer
software and software systems (including, without limitation, data, databases,
object code, source code, microcode and firmware and related documentation);
other proprietary and intellectual property rights; licenses or other agreements
including but not limited to those assigning, waiving or relating to rights of
publicity, moral rights or neighboring rights to or from third parties; and all
copies and tangible embodiments of the foregoing (in whatever form or medium),
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in each case including, without limitation, the items set forth on the Schedule
4.12(b) attached hereto.
(b) Schedule 4.12(b) sets forth a complete and correct list of: (i) all
patents, trademark and servicemark registrations, copyright registrations and
other registered Proprietary Rights as well as all pending applications
therefor; (ii) all corporate names, trade names and unregistered trademarks used
by the Company (to the extent not reflected on other schedules attached hereto)
as their own marks; (iii) all material unregistered copyrightable works
authorized by the Company, mask works, and material computer software owned or
licensed by the Company (other than commercial software products generally
available to consumers); and (iv) all material licenses or similar agreements to
which the Company is or just prior to closing was a party either as licensee or
licensor for the Proprietary Rights, in each case identifying the subject
Proprietary Rights.
(c) Except as set forth on Schedule 4.12(c), (i) the Company owns and
possess all right, title and interest, free and clear of all Liens, in and to,
and to the best knowledge of the Company has a valid and enforceable right to,
each of the Proprietary Rights as described on Schedule 4.12(b), and no claim by
any third party contesting the validity, enforceability, use or ownership of any
of the Proprietary Rights has been made, is currently outstanding or, to the
best knowledge of the Company, is threatened, except for those which could not
reasonably be expected, individually or in the aggregate, to cause a Material
Adverse Change; (ii) the Proprietary Rights comprise all material intellectual
property rights which are currently being used by the Company or which are
necessary for the operation business as currently conducted by the Company, and
as currently proposed to be conducted; (iii) no loss or expiration of any
Proprietary Right or related group of Proprietary Rights is, to the Company's
knowledge, threatened, or is pending or reasonably foreseeable, except for those
which could not reasonably be expected, individually or in the aggregate, to
cause a Material Adverse Change; (iv) the Company has not received any notices
of, nor is the Company aware of any facts which indicate a likelihood of any
infringement or misappropriation by, or conflict with, any third party with
respect to any of the Proprietary Rights including, without limitation, any
demand or request by the Company that such third party license any of the
Proprietary Rights from the Company or to the Company; (v) to the best of the
Company's knowledge, the Company has not infringed, misappropriated or otherwise
conflicted with any rights, including intellectual property rights, of any third
parties, and the Company is not aware of any infringement, misappropriation or
conflict by the Company of any third-party patent, trademark, copyright or other
intellectual property right, or of any such infringement, misappropriation or
conflict which shall occur as a result of the continued operation of the
business by the Company, as currently conducted or as currently proposed to be
conducted, and there is no demand or request from a third party that the Company
take a license under any intellectual property right; and (vi) none of the
Proprietary Rights owned by or licensed to the Company are, to the best
knowledge of the Company, being infringed, misappropriated or conflicted by any
third party.
(d) All of the Proprietary Rights are owned by, or properly assigned or
licensed to, the Company or use thereof is otherwise authorized, except to the
extent that the failure to be so owned, assigned, licensed or otherwise
authorized could not reasonably be
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expected to, individually or in the aggregate, cause a Material Adverse Change.
The Company has not disclosed, or is aware of any disclosure by any other Person
of any of its trade secrets or confidential information to any third party other
than pursuant to a written confidentiality agreement or disclosure to the
Company's shareholders.
4.13 Material Contracts.
(a) Except as set forth on Schedule 4.13(a), neither the Company nor
any of its respective properties or assets is a party to or bound by any (i)
Contract not made in the ordinary course of business, or involving a commitment
or payment in excess of $500,000 or otherwise material to the business of the
Company; (ii) employment, consulting, non-competition, severance, "golden
parachute" or indemnification Contract involving, individually or in the
aggregate, annual payments of more than $250,000 (including, without limitation,
in each case any Contract to which the Company is a party involving Employees of
the Company); (iii) Contract among shareholders or granting a right of first
refusal or for a partnership or a joint venture or for the acquisition, sale or
lease of any assets (except in the ordinary course of business) or capital stock
of the Company or any other Person or involving a sharing of profits; (iv)
mortgage, pledge, conditional sales contract, security agreement, factoring
agreement or other similar Contract with respect to any real or tangible
personal property of the Company; (v) loan agreement, credit agreement,
promissory note, guarantee, subordination agreement, letter of credit or any
other similar type of Contract; (vi) Contract with any Governmental Body; (vii)
Contract with respect to the discharge, storage or removal of Hazardous
Materials; or (viii) binding commitment or agreement to enter into any of the
foregoing. The Company has delivered or otherwise made available to each
Purchaser true, correct and complete copies of the Contracts listed on Schedule
4.13(a) (except as noted thereon), together with all amendments, modifications,
supplements or side letters affecting the obligations of any party thereunder.
(b) (i) Each of the Contracts listed on Schedule 4.13(a) is valid and
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and there is no material default under any
Contract listed on Schedule 4.13(a) by the Company or, to the best knowledge of
the Company, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a material
default thereunder.
(ii) No previous or current party to any Contract has given notice to
the Company of or made a claim with respect to any breach or default thereunder
and the Company is not aware of any notice of or claim to any such breach or
default.
(c) With respect to the Contracts listed on Schedule 4.13(a) that were
assigned to the Company by a third party, all necessary consents to such
assignment have been obtained.
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4.14 Employee Benefits.
(a) The Company has not made contributions to any pension, defined
benefit, or defined contribution plans for its Employees which are subject to
ERISA.
(b) Set forth on Schedule 4.14(b) is a true and complete list of each
Company Benefit Plan and each Employee Agreement providing for annual
compensation in excess of $100,000. Except as set forth on Schedule 4.14(b), the
Company does not have any plan or commitment, whether legally binding or not, to
establish any new Company Benefit Plan, to enter into any Employee Agreement or
to modify or to terminate any Company Benefit Plan or Employee Agreement (except
to the extent required by law or to conform any such Company Benefit Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to the Purchasers, or as required by this Agreement), nor
has any intention to do any of the foregoing been communicated to Employees.
(c) Except as set forth on Schedule 4.14(c), (i) the Company does not
maintain or contribute to any Company Benefit Plan which provides, or has any
liability to provide, life insurance, medical, severance or other employee
welfare benefits to any Employee upon his retirement or termination of
employment, except as may be required by Section 4980B of the code; and (ii) the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical, severance
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by Section 4980B of the Code.
(d) The Company (i) is in compliance with all applicable federal, state
and local laws, rules and regulations (domestic and foreign) respecting
employment, employment practices, labor, terms and conditions of employment and
wages and hours, in each case, with respect to Employees, except where the
failure to be in such compliance could not reasonably be expected, individually
or in the aggregate, to cause a Material Adverse Change; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries
and other payments to Employees; (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees.
(e) No work stoppage or labor strike against the Company by Employees
is pending or, to the best knowledge of the Company, threatened. The Company (i)
is not involved in or, to the best knowledge of the Company, threatened with any
significant labor dispute, grievance, or litigation relating to labor matters
involving any Employees, including, without limitation, violation of any
federal, state or local labor, safety or employment laws (domestic of foreign),
charges of significant unfair labor practices or discrimination complaints; (ii)
has not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act or the Railway Labor Act which would cause a Material
Adverse Change ; or (iii) is not presently, nor has been in the past a party to,
or bound by, any collective bargaining agreement or union
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contract with respect to Employees and no such agreement or contract is
currently being negotiated by the Company or any of its affiliates. No Employees
are currently represented by any labor union for purposes of collective
bargaining and, to the best knowledge of the Company, no activities the purpose
of which is to achieve such representation of all or some of such Employees are
ongoing or threatened.
(f) Except as set forth on Schedule 4.14(f), no benefits shall accrue,
become payable vest or accelerate as a result of the Transaction under any
Company Benefit Plan or Employee Agreement, including, but not limited to, the
vesting of benefits under any "employee benefit plan" within the meaning of
Section 3(3) of ERISA, the acceleration of stock or stock-related awards, or the
payment of any amount under any Employee Agreement or Company Benefit Plan.
4.15 Employees.
Except as set forth on Schedule 4.15, to the best knowledge of the
Company, no key executive Employee and no group of Employees or independent
contractors of the Company has any plans to terminate his, her or its employment
or relationship as an Employee or independent contractor with the Company.
4.16 Litigation.
There are no Legal Proceedings pending or, to the best knowledge of the
Company, threatened that question the validity of this Agreement or the
Transaction Documents or any action taken or to be taken by the Company in
connection with the consummation of the transactions contemplated hereby or
thereby. Schedule 4.16 sets forth a true, correct and complete list of all Legal
Proceedings pending or, to the best knowledge of the Company, threatened against
or affecting the Company or any of its properties or assets (including Company
Benefit Plans) of the Company, at law or in equity, and, to the best knowledge
of the Company, there is no reasonable basis for any other such Legal
Proceeding. There is no outstanding or, to the best knowledge of the Company,
threatened Order of any Governmental Body against, affecting or naming the
Company or affecting any of its properties or assets.
4.17 Compliance with Laws; Permits.
(a) The Company is and at all times has been in compliance with all
Laws and Orders promulgated by any Governmental Body applicable to the Company
or to the conduct of the business or operations of the Company or the use of its
properties (including any leased properties) and assets, except where the
failure to be in such compliance could not reasonably be expected, individually
or in the aggregate, to cause a Material Adverse Change. The Company has not
received or knows of the issuance of, any notices of violation or alleged
violation of any such Law or Order by any Governmental Body.
(b) The Company has or is in the process of obtaining all Permits
necessary for the conduct of its business as currently conducted, except where
the failure to obtain a Permit could not reasonably be expected, individually or
in the aggregate, to cause a Material Adverse
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Change. Schedule 4.17(b) lists all material Permits of the Company obtained (or
for which applications have been made for) from all Governmental Bodies,
indicating, in each case, the expiration date thereof, which are required by the
nature of the operations of the Company to permit the operation thereof in the
manner in which they are currently conducted. Such Permits have been issued
pursuant to valid applications by the Company to the appropriate Governmental
Bodies made in compliance with all applicable Laws, and the Company has
substantially complied with all conditions of such Permits applicable to it. No
material default or violation, or event that with the lapse of time or giving of
notice or both would become a material default or violation, has occurred in the
due observance of any such Permit. All such Permits are in full force and effect
without further consent or approval of any Person. The Company has not received
any notice from any source to the effect that there is lacking any such Permit
required in connection with the current operations of the Company. The Company
has made all required filings with Governmental Bodies, except where the failure
to make such filings could not reasonably be expected, individually or in the
aggregate, to cause a Material Adverse Change.
4.18 Environmental Matters. (a) Except as set forth on Schedule 4.18,
the operations of the Company have been and, as of the Closing Date, will be in
compliance with all Environmental Laws, except where the failure to be in such
compliance could not reasonably be expected, individually or in the aggregate,
to cause a Material Adverse Change; (b) the Company has obtained, currently
maintains and, as of the Closing Date, will have all Environmental Permits
necessary for its operations, other than such Environmental Permits the lack of
which could not reasonably be expected, individually or in the aggregate, to
cause a Material Adverse Change; all such Environmental Permits are and, as of
the Closing Date, will be, in good standing; there are no Legal Proceedings
pending or, to the best knowledge of the Company, threatened to revoke any such
Environmental Permit; the Company is, and as of the Closing Date will be, in
compliance with such Environmental Permits; and the Company has not received any
notice from any source, or has otherwise obtained knowledge, to the effect that
there is lacking any Environmental Permit required in connection with the
current use or operation of any Real Property Lease; (c) the Company and all of
its past and current Facilities and operations are not subject to any
outstanding written Order or Contract, including Environmental Liens, with any
Governmental Body or Person, or to the best knowledge of the Company subject to
any federal, state, local or foreign investigation respecting (1) Environmental
Laws, (2) any Remedial Action or (3) any Environmental Claim arising from the
Release or threatened Release of a Hazardous Material; (d) the Company is not
subject to any Legal Proceeding alleging the violation of any Environmental Law
or Environmental Permit; (e) the Company has not received (nor, to the best
knowledge of the Company, has there been issued) any written communication,
whether from a Governmental Body, citizens' group, Employee or any other Person,
that alleges that the Company is not in compliance with any Environmental Law or
Environmental Permit; (f) the Company has not caused or permitted any Hazardous
Materials to remain or be disposed of, either on or under real property legally
or beneficially owned or operated by the Company or on any real property not
permitted to accept, store or dispose of such Hazardous Materials; (g) the
Company does not have any liabilities with respect to Hazardous Materials, and
no facts or circumstances exist which, in the aggregate, could give rise to
liabilities with respect to Hazardous Materials; (h) none of the operations of
the Company involves the generation, transportation, treatment, storage or
disposal of hazardous waste or subject waste, as defined
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under 40 C.F.R. Parts 260-270 (in effect as of the date of this Agreement); and
(i) there is not now on or in any property of the Company (1) any underground
storage tanks or surface tanks, dikes or impoundments; (2) any
asbestos-containing materials or (3) any polychlorinated biphenyls, that, in any
such case described in this clause (i), could reasonably be expected,
individually or in the aggregate, to cause a Material Adverse Change.
4.19 Investment Company Act. The Company is not, nor is it directly or
indirectly controlled by or acting on behalf of any Person that is, an
investment company within the meaning of the Investment Company Act of 1940, as
amended.
4.20 Transactions with Affiliates. Except as set forth on Schedule
4.20, the Company has not made any payment to, or received any payment from, or
made or received any investment in, or entered into any transaction with, any
Affiliate, including without limitation, the purchase, sale or exchange of
property or the rendering of any service, where the amounts involved is material
to the business of the Company.
4.21 Disclosure; Survival. This Agreement, the Financial Statements,
schedules provided in connection with this Agreement and the Offering
Memorandum, taken as a whole, do not contain any untrue statement of material
fact, fairly represent the business, properties, assets, and condition,
financial or otherwise, of the Company in all material respects, and do not fail
to state a material fact necessary in order to make the statements contained
therein and herein, when taken as a whole, not misleading. There is no fact
which has not been disclosed to the Purchasers of which the Company is aware and
which materially adversely affects or could reasonably be anticipated to
materially adversely effect the business, financial condition, operating
results, earnings, assets, customary, supplier, Employee or sales representative
relations or business prospects of the Company. All representations, warranties,
covenants and agreements set forth in this Agreement or in any writing or
certificate delivered in connection with this Agreement shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and shall not be affected by any examination
made for or on behalf of any Purchaser, the knowledge of any Purchaser, or the
acceptance by any Purchaser of any certificate or opinion.
4.22 Financial Advisors. Except as disclosed on Schedule 4.22, no
agent, broker, investment banker, finder, financial advisor or other person
acting on behalf of the Company or under its authority is or will be entitled to
any broker's or finder's fee or any other commission or similar fee, directly or
indirectly, in connection with the transactions contemplated by this Agreement
or any Transaction Document and no Person is entitled to any fee or commission
or like payment in respect thereof based in any way on agreements, arrangements
or understandings made by or on behalf of the Company.
4.23 Insurance. Schedule 4.23 lists all insurance policies carried by
the Company covering its properties and business. Such insurance insures against
such losses and risks as are adequate in accordance with customary industry
practice to protect the Company and its business. The Company is not in material
default with respect to its obligations under any insurance policy maintained by
it.
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4.24 Dissolution of Previous Entities. The dissolution of MGC
Communications, LLC, a Georgia limited liability company, formerly known as
NevTEL, LLC (the "LLC"), and the distribution of the shares of Common Stock of
the Company held by the LLC (the "Reorganization") was consummated in compliance
with all applicable Laws. No person was or is entitled to receive any shares of
capital stock or other consideration which have been distributed as a result of
the Reorganization.
4.25 Improper Actions. The Company, or to the best knowledge of the
Company, any of its officers, directors, partners, employees, agents or
affiliates or any other person acting on behalf of the Company has not, directly
or indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, official or
employee of any Governmental Body), Governmental Body or any political party or
candidate for office (domestic or foreign) or other person who was, is or may be
in a position to help or hinder the business of the Company (or assist the
Company in connection with any actual or proposed transaction) which (i) might
subject the Company, or any other individual or entity to any damage or penalty
in any Legal Proceeding, (ii) if not given in the past, might have caused a
Material Adverse Change or (iii) if not continued in the future, might cause a
Material Adverse Change.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company, severally, for itself only, that:
5.1 Organization and Good Standing. Each Purchaser is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
formation or incorporation, as applicable.
5.2 Authorization of Agreement. Each Purchaser has full corporate or
partnership power and authority to execute and deliver this Agreement and each
other agreement, document, instrument or certificate contemplated by this
Agreement or to be executed by each Purchaser in connection with the
consummation of the transactions contemplated hereby and thereby (the "Purchaser
Documents"), and to perform fully its obligations hereunder and thereunder. The
execution, delivery and performance by such Purchaser of this Agreement and each
Purchaser Document has been duly authorized by all necessary corporate or
partnership action on behalf of such Purchaser. This Agreement and each
Purchaser Document has been duly executed and delivered by such Purchaser and
(assuming the due authorization, execution and delivery by the other parties
hereto and thereto) this Agreement and each Purchaser Document constitute the
legal, valid and binding obligations of each Purchaser, enforceable against such
Purchaser in accordance with their respective terms.
5.3 Purchaser Representation. Each Purchaser has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Shares. Each Purchaser has been
given the opportunity to examine all documents provided by, conduct due
diligence and ask questions of, and to receive answer from,
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the Company and their respective representatives concerning the terms and
conditions of an investment in the Shares.
5.4 Investment Intention. Each Purchaser is acquiring the Shares for
its own account, for investment purposes only and not with a view to the
distribution (as such term is used in Section 2(11) of the Securities Act)
thereof in violation of the Securities Act, and that it is an "accredited
investor" within the meaning of Rule 501 of Regulation D of the Securities and
Exchange Commission. Each Purchaser understands that the Shares have not been
registered under the Securities Act and cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is
available. The principal place of business or domicile of each Purchaser is
located in the jurisdiction where notices are to be sent to such Purchaser as
set forth on Schedule 1.
5.5 Financial Advisors. No agent, broker, investment banker, finder,
financial advisor or other person acting on behalf of each Purchaser or under
its authority is or will be entitled to any broker's or finder's fee or any
other commission or similar fee, directly or indirectly, in connection with the
transactions contemplated by this Agreement or any Transaction Document and no
Person is entitled to any fee or commission or like payment in respect thereof
based in any way on agreements, arrangements or understandings made by or on
behalf of each Purchaser.
5.6 Reliance. In making its decision to acquire the Shares, no
Purchaser has relied on any information provided by the Company or its
representatives other than the Offering Memorandum and the representations and
warranties contained herein and in the other documents executed in connection
herewith.
6. FURTHER AGREEMENTS OF THE PARTIES.
6.1 Covenants. (a) For so long as the Shares are convertible, the
Company shall reserve that number of shares of Common Stock issuable upon
conversion of the Shares, which shares shall not be subject to any preemptive or
other similar rights (collectively, the "Reserved Shares").
6.2 Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Shares under this Agreement in accordance with the "Use of Proceeds"
section of the Offering Memorandum.
6.3 Access to Information. Until the consummation of a Public Offering,
the Purchasers shall be entitled, at their expense, upon reasonable notice, to
make such reasonable investigation of the properties, businesses and operations
of the Company and such examination of the books, records and financial
condition of the Company as they reasonably request and to make extracts and
copies of such books and records. Any such investigation and examination shall
be conducted during regular business hours and under reasonable circumstances
without material interference with the Company's normal business operations, and
the Company and its respective employees shall cooperate fully therein. No
investigation by the Purchasers prior to or after the date of this Agreement
shall diminish or obviate any of the representations, warranties,
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covenants or agreements of the Company contained in this Agreement or the
Transaction Documents. In order that the Purchasers may have full opportunity to
make such physical, business, accounting and legal review, examination of the
affairs of the Company investigation as may be reasonably requested, the Company
shall cause its Representative to cooperate fully with the Representatives of
the Purchaser in connection with such review and examination; provided that the
Company shall not incur any material expense related thereto. Each Purchaser
shall use its reasonable best efforts to maintain the confidentiality of
information obtained as a result of the exercise of its rights granted under
this Section 6.3.
6.4 Confidentiality. Except as may be required by applicable law,
neither the Company nor the Purchasers or any of their respective Affiliates
shall at any time divulge, disclose, disseminate, announce or release any
information to any person concerning this Agreement, the Transaction Documents
or the transactions contemplated hereby or thereby without first obtaining the
prior written consent of the other party hereto; provided, however, each
Purchaser shall be entitled to disclose information with respect to its
investment in the Company on any reports such Purchaser furnishes to its
investors or as otherwise required by Law and the Company may disclose the terms
of this Agreement in connection with an issuance of debt or equity securities.
6.5 Other Actions. The Company and the Purchasers agree to execute and
deliver such other documents and take such other actions, as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the Transaction Documents.
6.6 Indemnity (a) The Company agrees to indemnify, defend and hold
harmless each Purchaser (and its partners (and each officer and director
thereof), directors, officers, members, shareholders, Employees, affiliates,
agents and permitted assigns) from and against any and all losses, liabilities,
damages, deficiencies, costs or expenses (including interest, penalties, and
reasonable attorneys' fees, disbursements and related charges) (collectively,
"Losses") based upon, arising out of or otherwise in respect of any inaccuracy
in or breach of any representations, warranties, covenants or agreements of the
Company contained in this Agreement or the Transaction Documents.
(b) Each Purchaser agrees, severally, for itself only, to indemnify,
defend and hold harmless the Company (and its partners (and each officer and
director thereof), directors, officers, members, shareholders, Employees,
affiliates, agents and permitted assigns) from and against any and all Losses
based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representations, warranties, covenants or agreements of each
Purchaser contained in this Agreement or the Transaction Documents.
6.7 U.S. Real Property Holding Corporation. The Company covenants that
it will operate in a manner such that it will not become a "United States real
property holding corporation" as such term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended ("USRPHC"), and the regulations
thereunder. The Company agrees to make determinations as to its status as a
USRPHC, and will file statements concerning those
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determinations with the Internal Revenue Service, in the manner and at the times
required under Reg. 1.897-2(h), or any supplementary or successor provision
thereto. Within 30 days of a request from a Purchaser, the Company will inform
the requesting party, in the manner set forth in Reg. 1.897-2(h) or any
supplementary or successor provision thereto, whether that party's interest in
the Company constitutes a United States real property interest (within the
meaning of Internal Revenue Code Section 897(c)(1) and the regulations
thereunder) and whether the Company has provided to the Internal Revenue Service
all required notices as to its USRPHC status.
6.8 Financial Statements, Reports, Etc. The Company shall furnish to
each Purchaser which, together with its Affiliates, purchases and continues to
own at least 285,714 Shares:
(a) as soon as available, and in any event within 90 days after the end
of each fiscal year of the Company, (i) a consolidated audited financial
statement of the Company as of the end of such fiscal year; (ii) the related
consolidated statements of income, stockholders' equity and cash flows for the
fiscal year then ended, prepared in accordance with GAAP and certified by a firm
of independent public accountants of recognized national standing selected by
the board of directors of the Company and acceptable to a majority of the
Purchasers (the "Annual Financial Statement"); and (iii) any related management
letters from such accounting firm. The Audited Financial statements shall be
accompanied by a management report describing the state of the Company's
business at year end.
(b) as soon as available, and in any event within 30 days after the end
of each month in each fiscal year a consolidated balance sheet of the Company,
and the related consolidated statement of income (with statements of
stockholders' equity and cash flows to be provided quarterly), unaudited but
prepared in accordance with GAAP (except that such unaudited financial statement
do not contain all of the required footnotes and are subject to normal,
recurring non-material year-end adjustments) and certified by the chief
financial officer of the Company (the "Monthly Balance Sheet"). The Monthly
Balance Sheet should be prepared as of the end of such month with consolidated
statements of income, stockholders' equity and cash flows for such month and for
the period from the beginning of the fiscal year to the end of such month, in
each case with comparative statements for the prior fiscal year and the most
recent 12-month budget delivered by the Company pursuant to Section 6.8(c)
hereof;
(c) as soon as available and in any event no later than 30 days prior
to the start of each fiscal year (except for the budget with respect to 1998,
which is due on January 1, 1998), an annual business plan and consolidated
capital and operating expense budget, cash flow projections and income and loss
projections for the Company, in respect of such fiscal year, as approved by the
board of directors of the Company and all itemized in reasonable detail and
prepare on a quarterly basis, and, promptly after preparation, any revisions to
any of the foregoing;
(d) any document relating to the affairs of the Company delivered to
the shareholders of the Company; or
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(e) prompt notice, and in any event within five days after notice has
been received by the Company, of any material litigation or an adverse claims,
dispute or any other developments which could reasonably be expected to be
material to operations, assets, or properties of the Company.
provided, however, that the rights provided in this Section 6.8 to a
Purchaser shall terminate with respect to such Purchaser (a) upon the earlier of
a Public Offering or (b) when such Purchaser (or its Affiliates) owns less than
fifty percent of the Shares, (including the Common Stock issuable thereto)
purchased by such Purchaser at the Closing; and provided further that the rights
provided in this Section 6.8 shall only be transferable to a transferee that
acquires and continues to own at least 50% of the Shares acquired by the
Purchaser hereunder.
7. DOCUMENTS TO BE DELIVERED AT THE CLOSING.
7.1 Documents to be Delivered by the Company. At the Closing, the
Company shall deliver, or cause to be delivered, to each Purchaser the
following:
(a) Certificates representing the Shares issued hereunder;
(b) an opinion of Xxxxx Funk, Goldberg, Xxxxxxxx & Dokson, P.C. and
Xxxxxx Xxxx and Xxxxxx LLP, in form and substance satisfactory to the
Purchasers;
(c) the Stockholders Agreement;
(d) (i) certificate of good standing with respect to the Company
issued by the secretary of state of Nevada; (ii) copy, certified by the
secretary or assistant secretary of the Company, as being a true and
complete copy as of the Closing Date, of the by-laws of the Company; and
(iii) copy, certified by the Secretary of State of Nevada, of the
certificate of incorporation of the Company;
(e) (i) copy of resolutions of the board of directors of the
Company, authorizing the execution, delivery and performance of this
Agreement and the Transaction Documents, the issuance of the Series A
Preferred Stock and the reservation of the Reserved Shares; (ii) and a
certificate of the secretary or assistant secretary of the Company, dated
the Closing Date certifying that such resolutions were duly adopted and are
in full force and effect and attesting to the true signatures and to the
incumbency of the officers of the Company, executing this Agreement and the
Transaction Documents; and
(f) a certificate, certified by the President or any Vice-President
of the Company, stating that the respective representations and warranties
of the Company contained in this Agreement are true and correct in all
material respects on and as of the Closing Date.
(g) such other documents as the Purchasers shall reasonably
request.
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7.2 Delivery of Purchase Price. At the Closing, each Purchaser shall
deliver its Purchase Price by wire transfer to an account of which the Company
shall notify the Purchasers prior to the Closing Date.
8. MISCELLANEOUS.
8.1 Certain Definitions
"Affiliate" of any Person means any Person that directly or indirectly
controls, or is under common control with, or is controlled by, such Person. As
used in this definition, "control" (including with its correlative meanings,
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise). With
respect to the Purchasers listed as S-C Purchasers on Schedule 1 hereto, the
term "Affiliate" shall include one or more of Xxxxxx Xxxxx, Xxxxxxxx Xxxxxxxxxx,
Chatterjee Fund Management, L.P. or Xxxxx Fund Management LLC or affiliates
thereof, and any person or entity for which any such person or entity acts as
investment advisor or investment manager.
"Benefit Plan" means each plan, program, policy, payroll practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally binding,
including, without limitation, each "Employee benefit plan," within the meaning
of Section 3(3) of ERISA and each "multi-employer plan" within the meaning of
Section 3(37) or 4001(a)(3) of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Common Stock" means the Company's common stock, par value $.001 per
share.
"Communications Act" means the Communications Act of 1934, as amended,
and the rules and regulations and practices of the FCC. "Company Benefit Plan"
means each Benefit Plan (other than an Employee Agreement) which is now or
previously has been sponsored, maintained, contributed to, or required to be
contributed to, or with respect to which any withdrawal liability (within the
meaning of Section 4201 of ERISA) has been incurred, by the Company for the
benefit of any Employee, and pursuant to which the Company has or may have any
liability, contingent or otherwise.
"Contract" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, conditional sale contract, mortgage, license, franchise,
insurance policy, commitment or other arrangement or agreement, whether written
or oral.
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"Employee" means each current, former, or retired employee, office
consultant, independent contractor, agent or director of the Company.
"Employee Agreement" means each management, employment, severance,
consulting, non-compete, confidentiality, or similar agreement or contract
between the Company, and any Employee pursuant to which the Company has or may
have any liability contingent or otherwise.
"Environmental Claim" means any accusation, allegation, notice of
violation, action, claim, Lien, demand, abatement or other Order or direction
(conditional or otherwise) by any Governmental Body or any Person for personal
injury (including sickness, disease or death), tangible or intangible property
damage, damage to the environment, nuisance, pollution, contamination or other
adverse effects on the environment, or for fines, penalties or restrictions
resulting from or based upon (i) the existence, or the continuation of the
existence, of a Release (including, without limitation, sudden or non-sudden
accidental or non-accidental Releases) of, or exposure to, any Hazardous
Material or other substance, chemical, material, pollutant, contaminant, odor,
audible noise, or other Release in, into or onto the environment (including,
without limitation, the air, soil, surface water or groundwater) at, in, by,
from or related to the Facilities or any activities conducted thereon; (ii) the
environmental aspects of the transportation, storage, treatment or disposal of
Hazardous Materials in connection with the operation of the Facilities; or (iii)
the violation, or alleged violation, of any Environmental Laws, Orders or
Permits of or from any Governmental Body relating to environmental matters
connected with the Facilities.
"Environmental Law" means any Law concerning Releases into any part of
the natural environment, or activities that might result in damage to the
natural environment, or any Law that is concerned in whole or in part with the
natural environment and with protecting or improving the quality of the natural
environment and protecting public and Employee health and safety and includes,
but is not limited to, the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") (42 U.S.C. ss. 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Clean Water Act
(33 U.S.C. ss. 1251 et seq.), the Clean Air Act (33 U.S.C. ss. 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.) and the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.) ("OSHA"), as such
laws have been amended or supplemented, and the regulations promulgated pursuant
thereto, and any and all analogous state or local statutes, and the regulations
promulgated pursuant thereto, and any and all treaties, conventions and
environmental public and employee health and safety statutes and regulations or
analogous requirements of non-United States jurisdictions in which the Company
conducts any business.
"Environmental Matters" means any matter arising out of or relating to
the production, storage, transportation, disposal or Release of any Hazardous
Material or otherwise arising out of or relating to safety, health or the
environment which could give rise to liability or require the expenditure of
money to address, and shall include, without limitation, the costs of
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investigating and remedying any of the foregoing matters, any fines and
penalties arising in connection therewith, and any claim in respect thereof for
damages or injunctive relief for alleged personal injury, property damage or
damage to natural resources under common law or other Environmental Law.
"Environmental Permit" means any Permit, variance, registration, or
permission required under any applicable Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any regulations promulgated or proposed thereunder.
"Facility" means real property owned, leased or operated by the
Company.
"FCC" means the Federal Communication Commission and any successor
thereto.
"GAAP" means generally accepted accounting principles, as in effect in
the United States.
"Governmental Body" means any government or governmental or regulatory
body thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"Hazardous Materials" means any substance, material or waste which is
regulated by any local, state or federal Governmental Body in the jurisdiction
in which the Company conducts business, or the United States, including, without
limitation, any material or substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "subject waste," "contaminant," "toxic waste" or
"toxic substance" under any provision of Environmental Law, including but not
limited to, petroleum products, asbestos, radon and polychlorinated biphenyls.
"Law" means any federal, state, local or foreign law (including common
law), statute, code, ordinance, rule, regulation or other requirement or
guideline (including, without limitation, the Communications Act and the rules
and regulations of the FCC.
"Legal Proceeding" means any judicial, administrative or arbitral
actions, suits, proceedings (public or private), claims or governmental
proceedings.
"Lien" means any lien, pledge, hypothecation, levy, mortgage, deed of
trust, security interest, claim, lease, charge, option, right of first refusal,
easement, or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Material Adverse Change" means any material adverse change in the
business, properties, results of operations, prospects or condition (financial
or otherwise) of the Company.
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"material default" means a default which could reasonably be expected
to result in a Material Adverse Change.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Permits" means any approvals, authorizations, consents, licenses,
permits or certificates by any Governmental Body (including, with respect to the
FCC).
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Public Offering" means a firm commitment underwritten public offering
of shares of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as then in effect or any comparable statement under
any similar federal statute then in force or effect.
"Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching, or
migration into the indoor or outdoor environment, or into or out of any property
owned, operated or leased by the Company, including the movement of any
Hazardous Material or other substance through or in the air, soil, surface
water, groundwater, or property.
"Remedial Action" means all actions, including, without limitation, any
capital expenditures, required or voluntarily undertaken to (i) clean up,
remove, treat, or in any other way address any Hazardous Material or other
substance in the indoor or outdoor environment; (ii) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material or
other substance so it does not migrate or endanger or threaten to endanger
public health or welfare of the indoor or outdoor environment; (iii) perform
pre-remedial studies and investigations or post-remedial monitoring and care; or
(iv) bring any Facility into compliance with all Environmental Laws and
Environmental Permits.
"Representatives" of a Person means its officers, Employees, agents,
legal advisors and accountants.
"Senior Notes" means the Company's 13% Senior Secured Notes due 2004.
"Stockholders Agreement" means the Stockholders' Agreement dated as of
the date hereof, by and among the Company and the shareholders listed on the
signature pages thereto.
"Taxes" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Internal Revenue Code of 1986, as amended (the "Code")), customs duties,
capital stock, franchise, profits, withholding, social
23
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security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
8.2 Tax Treatment of Preferred Stock. The Company agrees that the
Series A Preferred Stock is stock which participates in corporate growth to a
significant extent within the meaning of Treasury Regulation ss.1.305-5(a), and
hence will not be treated as preferred stock for purposes of Internal Revenue
Code ss.305 and the regulations thereunder. Accordingly, the Company has
determined that there will not be constructive distributions under Treasury
Regulation ss.1.305-5(b) with respect to the Series A Preferred Stock.
8.3 Expenses. The Company shall pay the reasonable fees and expenses of
the Purchasers associated with this transaction, including legal expenses (which
the Purchasers shall use their reasonable best efforts to cap at $30,000),
consulting expenses (not in excess of $10,000) and out-of pocket expenses. In
addition, the Company shall pay all stamp and other taxes which may be payable
in respect of the execution and delivery of this Agreement, the Transaction
Documents, or the issuance, delivery or acquisition of the Shares.
8.4 Specific Performance. The Company acknowledges and agrees that the
breach of this Agreement would cause irreparable damage to the Purchasers and
that the Purchasers will not have an adequate remedy at law. Therefore, the
obligations of the Company under this Agreement, including, without limitation,
the Company's obligation to sell the Shares to the Purchasers, shall be
enforceable by a decree of specific performance issued by any court of competent
jurisdiction, and appropriate injunctive relief may be applied for and granted
in connection therewith. Such remedies shall, however, be cumulative and not
exclusive and shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.
8.5 Further Assurances. The Company and the Purchasers each agree to
execute and deliver such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby.
8.6 Submission to Jurisdiction; Consent to Service of Process.
(a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of any federal or state court located within the County of Xxxx,
State of Illinois over any dispute arising out of or relating to this Agreement
or any of the transactions contemplated hereby and each party hereby irrevocably
agrees that all claims in respect of such dispute or any suit, action or
proceeding related thereto may be heard and determined in such courts. The
parties hereby irrevocably waive, to the fullest extent permitted by applicable
law, any objection which they may now or hereafter have to the laying of venue
of any such dispute brought in such
24
28
court or any defense of inconvenient forum for the maintenance of such dispute.
Each of the parties hereto agrees that a judgment in any such dispute may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b) Each of the parties hereto hereby consents to process being served
by any party to this Agreement in any suit, action or proceeding by the mailing
of a copy thereof in accordance with the provisions of Section 8.9.
8.7 Entire Agreement; Amendments and Waivers. This Agreement
(including the schedules and exhibits hereto) represents the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the parties hereto. No action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
8.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the principles of conflict of laws thereunder which would specify the
application of the law of another jurisdiction.
8.9 Table of Contents; Headings; Interpretive Matters. The table of
contents and section headings of this Agreement are for reference purposes only
and are to be given no effect in the construction or interpretation of this
Agreement. No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which any such
party or its counsel participated in the drafting thereof or by reason of the
extent to which any such provision is inconsistent with any prior draft hereof
or thereof.
8.10 Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally,
telecopied or mailed by certified mail, return receipt requested, to the parties
at the following addresses (or to such other address as a party may have
specified by notice given to the other party pursuant to this provision):
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29
If to the Company, to:
MGC Communications, Inc.
0000 Xxxxx Xxxxxxx
Xxx Xxxxx, Xxxxxx 00000
Attn:
Fax: (000) 000-0000
With a copy (which shall by itself not constitute notice) to:
Ellis, Funk, Xxxxxxxx, Xxxxxxxx & Dokson, P.C.
0000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxxx
Fax: (000) 000-0000
If to the Purchasers, to the address listed in Schedule 1.
With a copy (which shall by itself not constitute notice) to:
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
All notices are effective upon receipt or upon refusal if properly
delivered.
8.11 Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of this Agreement shall remain in effect.
8.12 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns (as permitted in accordance with the terms of this Agreement).
Nothing in this Agreement shall create or be deemed to create any third-party
beneficiary rights in any person or entity not a party to this Agreement except
as provided below. No assignment of this Agreement or of any rights or
obligations hereunder may be made by the Company or the Purchaser (by operation
of law or otherwise) without the prior written consent of the other parties
hereto and any attempted assignment without the required consents shall be void;
provided, however, that the Purchasers may assign this Agreement and any or all
rights and obligations hereunder, in whole or in part, to any Affiliate of the
Purchasers, but any such assignment shall not relieve the Purchasers of their
respective obligations hereunder. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of any Purchaser as a purchaser or holder of Shares (or any securities
pursuant to which such Shares may be converted or exercised into) are also for
the benefit of and enforceable by, any subsequent holder of such
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30
securities. Upon any permitted assignment, the references in this Agreement to
the Purchasers shall also apply to any such assignee unless the context
otherwise requires.
8.13 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
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SECURITIES PURCHASE AGREEMENT SIGNATURE PAGES
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
MGC COMMUNICATIONS, INC.
By:
------------------------------------
Name:
Title:
PURCHASERS:
JK&B CAPITAL, L.P.
By: JK&B Management, L.L.C.
Its: General Partner
By:
------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Manager
JK&B CAPITAL II, L.P.
By: JK&B Management, L.L.C.
Its: General Partner
By:
------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Manager
STRATEGIC INVESTMENT PARTNERS LIMITED
By:
------------------------------------
Name:
Title: Attorney-in-Fact
X-0
00
X-X PHOENIX HOLDINGS, L.L.C.
By:
-------------------------------------
Name:
Title:
WINSTON PARTNERS II LDC
By:
-------------------------------------
Name:
Title: Attorney-in-Fact
WINSTON PARTNER II LLC
By: Chatterjee Advisors L.L.C.
Its: Manager
By:
-------------------------------------
Name:
Title: Manager
WIND POINT PARTNERS III, L.P.
By: WIND POINT PARTNERS, LLC
Its: General Partner
By:
-------------------------------------
Name:
Title:
X-0
00
XXXXXX XXXXXXX XXXXXXXX XXX, L.P.
By:
-------------------------------------
Name:
Title:
XXXXXX, INC.
By:
-------------------------------------
Name:
Title:
FRUIT OF THE LOOM, INC. SENIOR EXECUTIVE OFFICER
DEFERRED COMPENSATION TRUST
By:
-------------------------------------
Name:
Title:
---------------------------------------------
Xxxxxxx Xxxxxx
---------------------------------------------
Xxxxxx X. Xxxxx
S-3
34
WESTBURY CAPITAL PARTNERS, L.P.
By: Westbury MGP, L.P., its general partner
By: XX Xxxx & Co. Incorporated, its general partner
By:
-------------------------------------------
Name:
Title:
----------------------------------------------------
Xxxxxxx X. Xxxxx
----------------------------------------------------
Xxxxx X. Rome
35
SCHEDULE 1
Name of Purchaser Dollar Amount Series A Preferred
----------------- ------------- ------------------
JK&B Capital, L.P. $3,350,000 957,143
JK&B Capital II, L.P. $1,650,000 471,429
000 Xxxxx Xxxxxxxx
Xxxxx 000
Xxxxxxx, Xxx 00000
Attn: Xxxxx Xxxxxxxx
Fax No.: (000) 000-0000
Strategic Investment Partners Limited $2,000,000 571,429
c/o Curacao Corporation
Company, N.V
Xxxx Xxxxxxxxx 0
Xxxxxxxxxx, Xxxxxxx
Xxxxxxxxxxx Antilles
Facsimile No.: 011-599-9-322-001
With a copy to:
Xxxxx Fund Management LLC
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxx
Facsimile No.: (000) 000-0000
S-C Phoenix Holdings, L.L.C $1,250,000 357,142
c/x Xxxxx Fund Management LLC
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: 000-000-0000
Attention: Xxxxxxx X. Xxxx
Xxxxxxx Partners II LDC $ 500,000 142,857
c/o Curacao Corporation
Company, N.V
Xxxx Xxxxxxxxx 0
Xxxxxxxxxx, Xxxxxxx
Xxxxxxxxxxx Antilles
Facsimile No.: 011-599-9-322-001
1
36
With a copy to:
The Chatterjee Group
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxxxxx/Xxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
Winston Partners II LLC $ 250,000 71,429
c/o Chatterjee Advisors L.L.C
c/o The Chatterjee Group
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxxxxx /Xxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
Wind Point Partners III, L.P. $ 4,000,000 1,142,857
000 X. Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxx 00000
Attn: Xxxxx Tenebrook
Fax No.: (000) 000-0000
Boston Capital Ventures III, L.P. $ 1,000,000 285,714
00 Xxxxxx Xxxxxx
Xxxxxx, Xx 00000
Attn: Johan von der Xxxxx
Fax No.: (000) 000-0000
Xxxxxx, Inc. $ 1,000,000 285,714
Fruit of the Loom, Inc.
Senior Executive Officer
Deferred Compensation Trust $ 500,000 142,857
Xxxxxxx Xxxxxx 1,500,000 428,571
Xxxxxx Group
c/o Fruit of the Loom
000 Xxxxx Xxxxxx Xxxxx
5000 Sears Tower
Chicago, Ill 60606
Attn: Xxxxx Xxxxx
Fax No.: (000) 000 0000
2
37
Xx. Xxxxxx X. Xxxxx $ 20,000 5,714
00000 Xxxxxxxxx Xxxx
Xxxxxxxxx, Xxx 00000
Fax No.: (000) 000-0000
Westbury Capital Partners, L.P. $ 950,000 271,429
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
Xxxxxxx X. Xxxxx $ 20,000 5,714
00 Xxxxx Xxx
Xxxxxx Xxxxxxx, XX 00000
Xxxxx X. Rome $ 30,000 8,571
00 Xx. Xxxxxx Xxxxx
Xxxx Xxxxx Xxxxxxx, XX 00000
----------- ---------
TOTAL $18,020,000 5,148,570
=========== =========
3
