EXHIBIT 10.46
AGREEMENT
This agreement (this "Agreement") is entered into as of March __, 1999,
effective as of February 28, 1999 (the "Effective Date"), by and among
COMMUNICATION TELESYSTEMS INTERNATIONAL, d.b.a. WorldxChange Communications, a
California corporation ("CTS"), XXX-XXXX.xxx, INC., a Delaware corporation
("Tel-Save"), TEL-SAVE, INC., a Pennsylvania corporation and a subsidiary of
Tel-Save (the "Subsidiary"), XXXX XXXXX, as Trustee of that certain D&K Grantor
Retained Annuity Trust dated June 15, 1998 (the "Trust"), XXXXX X. XXXXXX AND
XXXXXXXX XXXXXX, individuals residing in San Diego, California (collectively,
the "Abbotts"), and XXXXXX XXXXX, an individual residing in San Diego,
California ("Soren").
RECITALS
A. CTS is the maker of three subordinated promissory notes, each dated
August 25, 1998, in favor of Xxxxxx Xxxxxx Xxxxxxxx & Co., Inc. ("GKM") in the
aggregate initial principal amount of $55,000,000 (collectively, the "Notes").
B. CTS is the maker of a subordinated promissory note, dated August 25,
1998, in favor of Tel-Save in the initial principal amount of $1,200,000 (the
"Accrued Interest Note").
C. CTS and GKM entered into that certain Security Agreement dated August
25, 1998 (the "Security Agreement"), pursuant to which CTS provided security for
repayment of the Notes and of the Accrued Interest Note, among other things.
D. The Abbotts and GKM entered into that certain Pledge Agreement dated
August 25, 1998 (the "Xxxxxx Pledge Agreement"), pursuant to which the Abbotts
granted a limited guaranty of the Notes and of the Accrued Interest Note,
pledged certain shares of CTS stock (the "Xxxxxx Pledged Shares") as security
for such limited guaranty, and delivered appropriate stock certificates and
stock powers pursuant to such pledge.
E. Soren and GKM entered into that certain Pledge Agreement dated August
25, 1998 (the "Soren Pledge Agreement"), pursuant to which Soren granted a
limited guaranty of the Notes and of the Accrued Interest Note, pledged certain
shares of CTS stock (the "Soren Pledged Shares") as security for such limited
guaranty, and delivered appropriate stock certificates and stock powers pursuant
to such pledge.
F. GKM assigned to Tel-Save all of the rights, title, and interest of GKM
in the Notes, the Security Agreement, the Xxxxxx Pledge Agreement, the Xxxxxx
Pledged Shares, the Soren Pledge Agreement, the Soren Pledged Shares, and all
related stock certificates and stock powers.
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G. CTS consented to such assignment from GKM to Tel-Save and acknowledged
Tel-Save as the payee of the Notes and the Secured Party under (and as defined
in) the Security Agreement.
H. The Abbotts consented to such assignment from GKM to Tel-Save and
acknowledged Tel-Save as the Secured Party under (and as defined in) the Xxxxxx
Pledge Agreement.
I. Soren consented to such assignment from GKM to Tel-Save and acknowledged
Tel-Save as the Secured Party under (and as defined in) the Soren Pledge
Agreement.
J. Pursuant to that certain Exchange Agreement dated January 2, 1999 (the
"Exchange Agreement"), Tel-Save granted to the Trust a participation interest in
all of the rights, title, and interest of Tel-Save in the Notes, the Accrued
Interest Note, the Security Agreement, the Xxxxxx Pledge Agreement, the Soren
Pledge Agreement, the Xxxxxx Pledged Shares, the Soren Pledged Shares, all
related stock certificates and stock powers, that certain Intercreditor
Agreement dated as of August 25, 1998, between Foothill Capital Corporation, a
California corporation, Tel-Save, and GKM, and the Financing Statement that was
filed in connection with the Security Agreement and that showed CTS as the
Debtor and Tel-Save as the Secured Party (such documents, other than the
Exchange Agreement, to be referred to hereinafter collectively as the "Note
Documents").
K. CTS desires to sell equity securities in an amount not less than
$30,000,000, and desires to enter into this Agreement in connection with that
proposed sale.
L. The parties hereto acknowledge and agree that the aggregate principal
balance owing on the Notes at the date hereof is $50,000,000.
M. The parties hereto acknowledge and agree that the principal balance
owing on the Accrued Interest Note at the date hereof is $1,200,000.
N. The parties hereto desire to modify certain of the covenants and
provisions of the Accrued Interest Note and the Notes and to enter into certain
other agreements as hereinafter set forth.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree that:
1. INCORPORATION OF RECITALS. CTS represents and warrants that Recital
K of this Agreement is true, complete, and correct. All other Recitals to this
Agreement are hereby incorporated by this reference herein and constitute
agreements among the parties hereto.
2. MODIFICATION OF CALL RIGHTS UNDER THE NOTES. Each of the Notes
contains certain "Call Rights" (as defined in the Notes). As of the Effective
Date, the second paragraph (unnumbered) of each Note shall be amended to read in
full as follows:
"In the event that the Maker shall close a private placement or public
offering of its Common Stock (an "Equity Offering"), the
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Holder shall have the right (the "Call Right") to require the Maker to
use up to an amount (the "Amount") of the net proceeds received by the
Maker from the Equity Offering to repay any accrued but unpaid
interest and any unpaid principal balance under this Note; provided,
however, the Holder shall have, within ten business days from receipt
of a written notice by the Maker of a proposed Equity Offering,
notified the Maker in writing of the exercise of its Call Right with
respect to such proposed Equity Offering. The Amount shall be
expressed herein as an aggregate amount to be applicable to this Note
and two other notes issued by Maker concurrently herewith, which three
promissory notes are in the initial aggregate principal amount of
$55,000,000. The Amount shall be divided among such three promissory
notes pro rata based on the initial principal amount of each such
promissory note. The Maker shall provide the Holder with reasonable
written notice of any proposed Equity Offering.
"(a) In the event that, after February 28, 1999, Maker closes an
Equity Offering in which net proceeds to the Maker are at least
$6,000,000 (the "First Equity Offering"), the Amount shall be limited
to an amount equal to the greater of: (i) 20% of the net proceeds
received by the Maker from the First Equity Offering or (ii)
$6,000,000.
"(b) With respect to any Equity Offering after the date of the
First Equity Offering, the Amount shall be limited to an amount equal
to 35% of the net proceeds received by the Maker from such Equity
Offering.
"(c) With respect to any Equity Offering after the Effective Date
of this Agreement but prior to the First Equity Offering, the Amount
shall be limited to an amount equal to 25% of the net proceeds
received by the Maker from such Equity Offering.
"(d) Multiple closings under one agreement for the private
placement of Common Stock of the Maker shall be deemed to be part of
the same Equity Offering."
3. POSSIBLE ONE YEAR EXTENSION OF THE TERM OF THE ACCRUED INTEREST
NOTE AND THE NOTES. In the event that, on or before November 30, 2000: (i) the
Accrued Interest Note and the Notes have not been repaid in full; and (ii) CTS
has made payments of principal on the Accrued Interest Note or the Notes after
the Effective Date of an aggregate amount of at least $12,250,000 (excluding any
and all payments described in subsection (a) contained in the amendment quoted
in Section 2 of this Agreement), then the due date of the Accrued Interest Note
and each of the Notes shall be extended from November 30, 2000, to November 30,
2001.
4. POSSIBLE TWO YEAR EXTENSION OF THE TERM OF THE ACCRUED INTEREST
NOTE AND THE NOTES. In the event that, on or before November 30, 2001: (i) the
Accrued
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Interest Note and the Notes have not been repaid in full; and (ii) CTS has made
payments of principal on the Accrued Interest Note or the Notes after the
Effective Date of an aggregate amount of at least $21,000,000 (excluding any and
all payments described in subsection (a) contained in the amendment quoted in
Section 2 of this Agreement), then the due date of the Accrued Interest Note and
each of the Notes shall be extended from November 30, 2000, or, if the due dates
have already been extended pursuant to Section 3 hereof, from November 30, 2001,
to November 30, 2002.
5. CERTAIN CONSENTS AND WAIVERS.
(a) Each of CTS, the Abbotts, and Soren (collectively, the "CTS
Parties") acknowledges and consents to each of the assignments and transfers
referred to in this Agreement, including without limitation the assignments and
transfers referred to in the Recitals to this Agreement.
(b) Each of the CTS Parties acknowledges and certifies that, as
of the date hereof, no default or Event of Default exists under any of the Note
Documents, nor would a default or Event of Default exist thereunder with notice
or the passage of time or both.
(c) CTS acknowledges and agrees that it has waived the effect of
Section 4.10 of the Security Agreement and that such Section is of no further
force or effect.
(d) Each of the CTS Parties represents and warrants to, and
agrees with, each of Tel-Save, the Trust, and the Subsidiary (collectively, the
"Other Parties") that, at the date hereof: (i) none of the Other Parties is in
default under any of the Note Documents; (ii) none of the CTS Parties has
suffered any damage under any of the Note Documents, and none of the CTS Parties
has, under any of the Note Documents, any cause of action, right of set-off or
counterclaim, or any other claim of any nature whatsoever under any of the Note
Documents against any of the Other Parties or any director, officer, attorney,
agent, employee, or affiliate of any of the Other Parties (collectively, "CTS
Parties' Claims"); and (iii) each of the CTS Parties hereby waives and
relinquishes any and all CTS Parties' Claims.
(e) Each of the Other Parties represents and warrants to, and
agrees with, each of the CTS Parties that, at the date hereof: (i) none of the
CTS Parties is in default under any of the Note Documents; (ii) none of the
Other Parties has suffered any damage under any of the Note Documents, and none
of the Other Parties has, under any of the Note Documents, any cause of action,
right of set-off or counterclaim, or any other claim of any nature whatsoever
under any of the Note Documents against any of the CTS Parties or any director,
officer, attorney, agent, employee, or affiliate of any of the CTS Parties
(collectively, "Other Parties' Claims"); and (iii) each of the Other Parties
hereby waives and relinquishes any and all Other Parties' Claims.
(f) CTS agrees that the Security Agreement remains in full force
and effect on the date hereof and that its force and effect will not be affected
by any of the transactions contemplated hereby, subject only to the express
confirmation of the prior modification of the Security Agreement by this
Agreement, and that the Security Agreement provides collateral security for the
Accrued Interest Note and for the Notes.
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(g) Each of the Abbotts agrees that the Xxxxxx Pledge Agreement
remains in full force and effect on the date hereof and that its force and
effect will not be affected by any of the transactions contemplated hereby, and
that it provides collateral security for the Accrued Interest Note and for the
Notes.
(h) Soren agrees that the Soren Pledge Agreement remains in full
force and effect on the date hereof and that its force and effect will not be
affected by any of the transactions contemplated hereby, and that it provides
collateral security for the Accrued Interest Note and for the Notes.
(i) CTS acknowledges and agrees that it may not reduce or offset
against any of its obligations under any of the Notes or the Accrued Interest
Note for any reason whatsover. Without limiting the generality of the foregoing,
nothing in this Agreement shall be deemed or construed to create such a right of
offset.
6. CERTAIN AGREEMENTS.
(a) Tel-Save represents and warrants to the Trust and CTS that,
except for the transfer to the Trust referred to herein, Tel-Save has not
transferred or assigned any of the Note Documents, or any interest therein, to
any other person or entity.
(b) The Trust represents and warrants to Tel-Save and CTS that
the Trust has not transferred or assigned any of the Note Documents, or any
interest therein, to any other person or entity.
(c) None of the Other Parties shall have any obligation or
responsibility with regard to the offer, purchase, or sale of any Equity
Offering. Without limiting the generality of the foregoing, and except for the
agreements of the Other Parties expressly set forth in this Agreement, none of
the Other Parties makes any representation, warranty, or covenant regarding CTS,
any Equity Offering, or such offer, purchase, or sale, and expressly disclaims
any such representation, warranty, or covenant, express or implied.
7. ADDITIONAL COVENANTS. Within 10 days following the receipt by
Tel-Save of a minimum of $6,000,000 from CTS as payment under subsection (a)
contained in the amendment quoted in Section 2 hereof, provided that such amount
is received by Tel-Save on or prior to May 31, 1999:
(a) Tel-Save, the Subsidiary, and the Trust shall enter into that
certain Modification of the Exchange Agreement, substantially in the form
attached hereto as Exhibit A, pursuant to which: (i) The Trust shall release and
discharge Tel-Save and the Subsidiary from all of their future individual and
joint obligations and responsibilities under the Exchange Agreement, including
without limitation the obligation of the Subsidiary to perform under its limited
guaranty set forth in the Exchange Agreement; (ii) Tel-Save shall sell to the
Trust the participation interest of Tel-Save in the Note Documents; (iii)
Tel-Save shall assign and deliver the Note Documents to the Trust; (iv) the
Subsidiary shall waive any guaranty fee payable under Section 4 of the Exchange
Agreement; and (v) Tel-Save and the Trust shall agree that Sections 3.4-3.18
(inclusive), 4, and 5 of the Exchange Agreement are terminated and are of no
further force or effect.
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(b) Tel-Save and the Trust shall execute and deliver to each
other and to the other parties thereto a Modification of the Registration Rights
Agreement substantially in the form of Exhibit B hereto, and the Trust shall
cause the other parties to such Modification of the Registration Rights
Agreement to execute and deliver such document to each other and to Tel-Save and
the Trust.
(c) CTS shall pay up to $10,000 of the reasonable costs and fees
incurred by Tel-Save, the Subsidiary, and the Trust in connection with this
Agreement and the transactions contemplated hereby, including without limitation
the reasonable fees of legal counsel incurred by such entities.
(d) The Trust shall deliver to CTS the Accrued Interest Note and
the Notes in exchange for an Amended and Restated Accrued Interest Note and
Amended and Restated Notes that shall be of identical terms as the promissory
notes exchanged therefor except that the payee of such Amended and Restated
promissory notes shall be the Trust.
(e) At the time of the transactions identified in this Section 7,
each of the Abbotts and Soren shall reconfirm in writing that their respective
Pledge Agreements remain in full force and effect.
8. TERMINATION. If, on or before May 31, 1999, Tel-Save has not
received a minimum of $6,000,000 from CTS as payment under subsection (a)
contained in the amendment quoted in Section 2 hereof: (a) Sections 2, 3, 4, and
7 of this Agreement shall be of no further force or effect; and (b) the
provisions set forth in Sections 2, 3, and 4 hereof amending the Accrued
Interest Note and the Notes shall be rescinded as of the Effective Date, shall
be of no further force or effect, and the Accrued Interest Note and the Notes
shall revert to their forms as they existed prior to such amendments.
9. BINDING EFFECT; TRANSFER. This Agreement is binding upon and inures
to the benefit of the successors and assigns of each of the parties. This
Agreement is also binding upon any transferees of the Accrued Interest Note or
any of the Notes. Each of the Other Parties agrees not to assign or transfer the
Accrued Interest Note or any of the Notes without first: (i) informing the
assignee or transferee of the terms of this Agreement; (ii) providing such
assignee or transferee with a copy of this Agreement; and (iii) notifying CTS in
writing of the proposed transfer. The possible modifications and possible
extensions in Sections 2, 3, and 4 hereof shall apply only to the provisions and
periods specifically referred to therein and no other, further, or broader
modifications or possible extensions, or any waiver or consent, is inferred or
shall be implied.
10. GOVERNING LAW. This Agreement is and shall be deemed to be a
contract entered into and made pursuant to the laws of the State of New York and
shall in all respects be governed, construed, applied, and enforced in
accordance with the laws of the State of New York without regard to choice of
law principles. The parties hereby agree that the venue of any legal action or
proceeding with respect to this Agreement and the rights and obligations of the
parties hereto shall lie in any state or federal court in the State of New York.
Each of the parties further consents to and hereby submits itself to the
jurisdiction of the above-mentioned courts situated in the State of New York.
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11. FULL FORCE AND EFFECT OF CERTAIN DOCUMENTS. Each of the parties
hereto agrees that, at the date hereof each of the Note Documents is in full
force and effect except as modified by this Agreement and the Exhibits hereto.
12. FURTHER COOPERATION. Each of the parties hereto agrees to
cooperate with each of the other parties hereto, including without limitation by
executing and delivering appropriate documents, to more fully effectuate the
purposes of this Agreement.
13. EXHIBITS. Exhibits A and B hereto are, by this reference,
incorporated herein.
14. LEGEND. On or before the date of this Agreement, the Other Parties
shall cause the following legend to be stamped or otherwise imprinted (while in
the presence of an officer of CTS) on the Accrued Interest Note and each of the
Notes:
"THIS NOTE AND THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBJECT TO
AN AGREEMENT, DATED AS OF MARCH __, 1999, BY AND BETWEEN THE MAKER (AS
DEFINED HEREIN), XXX-XXXX.xxx, INC., AND TEL-SAVE, INC., AND OTHER PARTIES,
COPIES OF WHICH AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF THE MAKER
(AS DEFINED HEREIN)."
IN WITNESS WHEREOF, CTS, Tel-Save, the Subsidiary, and the Trust have
caused this Agreement to be executed by their respective officers, thereunto
duly authorized, and the Abbotts and Soren have executed this Agreement, as of
the date first above written to be effective as of the Effective Date.
COMMUNICATIONS TELESYSTEMS
INTERNATIONAL, d.b.a.
WORLDXCHANGE
COMMUNICATIONS, a California
corporation
By:
---------------------------
Name:
-------------------------
Title:
------------------------
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XXX-XXXX.xxx, INC., a Delaware
corporation
By:
---------------------------
Name:
-------------------------
Title:
------------------------
TEL-SAVE, INC., a Pennsylvania
corporation
By:
---------------------------
Name:
-------------------------
Title:
------------------------
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XXXX XXXXX, as Trustee of that certain
D&K Grantor Retained Annuity Trust
dated June 15, 1998
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XXXXX X. XXXXXX
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XXXXXXXX XXXXXX
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XXXXXX X. XXXXX
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LIST OF EXHIBITS
A. Modification of the Exchange Agreement
B. Modification of Registration Rights Agreement
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