EXHIBIT 1
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STOCK AND WARRANT PURCHASE AGREEMENT
By and Among
Z-TEL TECHNOLOGIES, INC.
And
THE INVESTORS LISTED ON SCHEDULE I HERETO
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Dated July 2, 2001
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Table of Contents
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ARTICLE 1 DEFINITIONS.......................................................1
1.1 Definitions..................................................1
1.2 Additional Definitions.......................................8
1.3 Accounting Terms; Financial Covenants. .....................9
ARTICLE 2 PURCHASE AND SALE OF PREFERRED SHARES
AND WARRANTS.................................................9
2.1 Purchase and Sale of Preferred Shares and Warrants...........9
2.2 Purchase and Sale of Preferred Stock After Effective Date...11
2.3 Series G Certificate of Designation.........................11
2.4 Use of Proceeds.............................................11
2.5 Allocation of Purchase Price................................11
ARTICLE 3 CONDITIONS TO THE OBLIGATION OF THE
INVESTORS TO CLOSE..........................................12
3.1 Representations and Warranties True.........................12
3.2 Compliance with this Investment Agreement...................12
3.3 Officer's Certificate.......................................12
3.4 Secretary's Certificate.....................................12
3.5 Documents...................................................12
3.6 Purchase Permitted by Applicable Laws.......................12
3.7 Filing of Series G Certificate of Designation...............13
3.8 Opinion of Counsel..........................................13
3.9 Approval of Counsel to the Investors........................13
3.10 Consents and Approvals......................................13
3.11 Consent of Certain Preferred Stockholders...................13
3.12 Rights Plan.................................................13
3.13 No Material Adverse Change..................................13
3.14 Conduct of Business.........................................13
3.15 Registration Rights Agreement...............................13
3.16 Charter and By-Laws of the Company..........................13
3.17 Market Conditions...........................................14
3.18 No Litigation...............................................14
3.19 No Default or Breach........................................14
3.20 NASDAQ......................................................14
3.21 Other Investors.............................................14
3.22 Warrants....................................................14
3.23 BackUp Purchase Agreement...................................14
3.24 Certificate of Designation, Series E........................15
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ARTICLE 4 CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE.....................................15
4.1 Representations and Warranties True.........................15
4.2 Compliance with this Investment Agreement...................15
4.3 Issuance Permitted by Applicable Laws.......................15
4.4 Approval of Counsel to the Company..........................15
4.5 Consents and Approvals......................................16
4.6 Consent of Certain Preferred Stockholders...................16
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................16
5.1 Corporate Existence and Power...............................16
5.2 Corporate Authorization; No Contravention...................16
5.3 Governmental Authorization; Third Party Consents............17
5.4 Binding Effect..............................................17
5.5 No Legal Bar................................................17
5.6 Litigation..................................................17
5.7 No Default or Breach........................................18
5.8 Title to Properties.........................................18
5.9 Taxes.......................................................18
5.10 Financial Condition.........................................18
5.11 No Material Adverse Change..................................18
5.12 Commission Documents........................................18
5.13 Environmental Matters.......................................19
5.14 Investment Company..........................................19
5.15 Subsidiaries................................................19
5.16 Capitalization..............................................19
5.17 Solvency....................................................19
5.18 Private Offering............................................19
5.19 Broker's, Finder's or Similar Fees..........................20
5.20 Full Disclosure.............................................20
5.21 Regulatory Compliance.......................................20
5.22 Certain Statutes............................................21
5.23 Registration Rights Agreement...............................21
5.24 Trade Relations.............................................22
5.25 Material Contracts..........................................22
5.26 Business Model..............................................22
5.27 No Undisclosed Financial Liabilities........................22
5.28 Intellectual Property.......................................22
5.29 ERISA.......................................................24
5.30 Labor Relations.............................................24
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS..................24
6.1 Existence and Power.........................................24
6.2 Authorization; No Contravention.............................25
6.3 Binding Effect..............................................25
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6.4 No Legal Bar................................................25
6.5 Purchase for Own Account....................................25
6.6 Broker's, Finder's or Similar Fees..........................26
6.7 Investment Knowledge........................................26
ARTICLE 7 INDEMNIFICATION..................................................27
7.1 Indemnification by the Company..............................27
7.2 Notification................................................27
7.3 Registration Rights Agreement...............................28
ARTICLE 8 AFFIRMATIVE COVENANTS............................................28
8.1 Financial Statements........................................28
8.2 Certificates; Other Information.............................29
8.3 Preservation of Corporate Existence.........................29
8.4 Payment of Obligations......................................30
8.5 Compliance with Laws........................................30
8.6 Notices.....................................................30
8.7 Issue Taxes.................................................31
8.8 Reservation of Shares.......................................31
8.9 Inspection..................................................31
8.10 Board Representation........................................32
8.11 Registration and Listing....................................33
8.12 Private Offering............................................33
8.13 Additional Registration Rights..............................33
8.14 Carrier Receivables.........................................33
8.15 Sale of Corporation.........................................34
8.16 Limitation on Officers and Directors........................34
8.17 Appointment of Xxxxx as Attorney-In-Fact; Special
Power of Attorney...........................................34
8.18 Best Efforts................................................35
ARTICLE 9 NEGATIVE COVENANTS...............................................35
9.1 Consolidations and Mergers..................................36
9.2 Transactions with Affiliates................................36
9.3 No Inconsistent Agreements..................................36
9.4 Issuance of Preferred Stock.................................37
9.5 Taxable Dividends...........................................37
ARTICLE 10 DISPOSITIONS.....................................................37
10.1 Dispositions by Xxxxx.......................................37
10.2 Dispositions by the Investor................................38
ARTICLE 11 MISCELLANEOUS....................................................38
11.1 Survival of Provisions......................................38
11.2 Notices.....................................................39
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11.3 Successors and Assigns; No Third Party Beneficiaries........40
11.4 Amendment and Waiver........................................40
11.5 Counterparts................................................41
11.6 Headings....................................................41
11.7 Determinations..............................................41
11.8 Governing Law...............................................41
11.9 Jurisdiction................................................41
11.10 Severability................................................41
11.11 Rules of Construction.......................................41
11.12 Remedies....................................................41
11.13 Entire Agreement............................................42
11.14 Attorneys' Fees.............................................42
11.15 Publicity...................................................42
11.16 Expenses....................................................42
EXHIBITS
Exhibit A Form of Warrant
Exhibit B Form of Certificate of Designation
Exhibit C Certificate of Incorporation
Exhibit D Backup Purchase Agreement
Exhibit E Form of Registration Rights and Agreement
Exhibit F Amended and Restated Series E Certificate
Exhibit G Voting Agreement
SCHEDULES
Schedule 1 Investors
Schedule 5.3 Governmental Authorization
Schedule 5.6 Litigation
Schedule 5.15 Subsidiaries
Schedule 5.16 Capitalization
Schedule 5.21 Regulatory Compliance
Schedule 5.23 Registration Rights Agreements; Shareholders Agreements
Schedule 5.26 Business Model/Cash Flow Forecast
Schedule 5.27 Undisclosed Liability
Schedule 5.28 Intellectual Property
Schedule 5.30 Labor Relations
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STOCK AND WARRANT PURCHASE AGREEMENT (this "Investment
Agreement"), dated July 2, 2001 (the "Effective Date"), by and among Z-Tel
Technologies, Inc., a corporation organized under the laws of Delaware (the
"Company"), The 1818 Fund III, L.P. (the "Fund") and certain additional
investors listed on Schedule 1 hereto ("Additional Investors" and collectively
with the Fund, the "Investors").
WHEREAS, the Company may issue to the Investors, and the
Investors shall purchase to the extent required by the Company, upon the terms
and subject to the conditions set forth in this Investment Agreement, shares of
12% Junior Redeemable Convertible Preferred Stock, Series G, par value $.01 per
share, (the "Preferred Stock") having an aggregate Liquidation Preference of up
to $17,500,000; and
WHEREAS, in accordance with the terms and conditions set forth
in this Investment Agreement, the Company shall issue to the Investors warrants
(the "Warrants") to purchase, subject to the terms and conditions set forth in
the form of Warrant attached hereto as Exhibit A, that number of shares of
Common Stock (subject to adjustment), set forth opposite such Investor's name on
Schedule 1.
NOWTHEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
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1.1 DEFINITIONS. As used in this Investment Agreement, and unless
the context requires a different meaning, the following terms have the meanings
indicated:
"ADDITIONAL INVESTORS" means the Investors other than the Fund
who are listed on Schedule 1.
"AFFILIATE" has the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act; PROVIDED,
that for purposes of this Investment Agreement no Investor shall be deemed an
Affiliate of the Company.
"BACKUP PURCHASE AGREEMENT" means the Backup Purchase
Agreement by and among the Investors and Z-Tel Communications, Inc. and Touch 1
Communications, Inc. attached hereto as Exhibit D.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York, New York are
authorized or required by law or executive order to close.
"CARRIER CONTRACTS" means all contracts of the Company or any
subsidiary with any telecommunications carrier.
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"CARRIER RECEIVABLES" means any receivable of the Company or
any Subsidiary from any telecommunications carrier.
"CERTIFICATE OF INCORPORATION" means the Certificate of
Incorporation of the Company together with all amendments and restatements
thereof, in the form attached hereto as Exhibit C to this Investment Agreement.
"CHANGE OF CONTROL" of the Company shall mean such times as:
(i) Any Person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of stock of the Company entitling
such Person or Persons to exercise 50% or more of the total votes (excluding the
Preferred Stock) entitled to be cast at a regular or special meeting, or by
action by written consent, of shareholders of the Company (the term "beneficial
owner" shall be determined in accordance with Rule 13d-3, promulgated by the
Commission under the Exchange Act);
(ii) A majority of the Board of Directors of the
Company shall consist of Persons other than Continuing Directors. The term
"Continuing Director" shall mean any member of the Board of Directors on the
Closing Date or designated pursuant to this Investment Agreement and any other
member of the Board of Directors who shall be recommended or elected to succeed
or become a Continuing Director by a majority of Continuing Directors who are
then members of the Board of Directors.
(iii) The shareholders of the Company shall have
approved a recapitalization, reorganization, merger, consolidation or similar
transaction, in each case with respect to which all or substantially all the
Persons who were the respective beneficial owners, directly or indirectly, of
the outstanding shares of capital stock of the Company immediately prior to such
recapitalization, reorganization, merger, consolidation or similar transaction,
will own less than 50% of the combined voting power of the then outstanding
shares of capital stock of the Company resulting from such recapitalization,
reorganization, merger, consolidation or similar transaction; PROVIDED that any
such recapitalization shall not be considered a Change of Control if the holders
of Preferred Stock have the right to participate on at least a pari passu basis.
(iv) The shareholders of the Company shall have
approved of the sale or other disposition of all or substantially all the assets
of the Company in one transaction or in a series of related transactions;
(v) Any transaction occurs, the result of which
is that the Common Stock is not required to be registered under Section 12 of
the Exchange Act and that the holders of Common Stock do not receive common
stock of the Person surviving such transaction which is required to be
registered under Section 12 of the Exchange Act; or
(vi) Immediately after any merger, consolidation,
recapitalization or similar transaction, Xxxxx or a "group" (within the meaning
of Section 13(d)(3) of the Exchange Act) shall be the beneficial owners,
directly or indirectly, of
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outstanding shares of capital stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or more of the total
voting power of shares of capital stock of the Company (or the surviving Person
in such transaction) and (2) in connection with or as a result of such
transaction, the Company (or such surviving Person) shall have incurred or
issued additional indebtedness such that the total indebtedness so incurred or
issued equals at least 50% of the consideration payable in such transaction;
PROVIDED that any such transactions shall not be considered a Change of Control
if the holders of Preferred Stock have the right to participate on at least a
pari passu basis.
"CLOSING DATE" means the a date on and as of which shares of
Preferred Stock are issued by the Company and purchased by Investors pursuant to
this Investment Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"COMMISSION DOCUMENTS" means all registration statements,
proxy statements, reports and other documents (and all amendments thereto),
required to be filed by the Company since October 19, 1999 under the Securities
Act or the Exchange Act.
"COMMON STOCK" means the common stock, par value $.01 per
share, and each other class of capital stock of the Company into which such
stock is reclassified or reconstituted.
"COMMUNICATIONS ACT" means the Communications Act of 1934, as
amended by the Telecommunications Act of 1996, as amended.
"COMMUNICATIONS LICENSES" means all licenses, waivers,
consents, permits or other authorizations issued or granted by the FCC or any
other state or local public utilities commission to the Company or any of its
Subsidiaries in connection with ownership and operation of the services provided
by the Company and its Subsidiaries.
"CONDITION OF THE COMPANY" means the assets, business,
properties or financial condition of the Company and its Subsidiaries taken as a
whole.
"CONSOLIDATED NET WORTH" means, as of the date of
determination with respect to any Person, the consolidated stockholders' equity
(which, in the case of the Company, shall include the Preferred Stock) of such
Person and its Subsidiaries, determined in accordance with GAAP.
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, guaranty, letter of credit or other obligation (the "primary
obligation") of another Person (the "primary obligor"), including, without
limitation, any obligation of such first-mentioned Person, whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligations or any
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property constituting direct or indirect security therefor, or (b) to advance or
provide funds (i) for the payment or discharge of any such primary obligation,
or (ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item, level
of income or financial condition of the primary obligor, or (c) to purchase
property, securities or services primarily for the purpose of assuring the
beneficiary of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (d) otherwise to assure or hold
harmless the beneficiary of any such primary obligation against loss in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof as determined by
the Company in good faith.
"CONTRACTUAL OBLIGATIONS" means as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"COPYRIGHTS" means any foreign or United States copyright
registrations and applications for registration thereof, and any non-registered
copyrights.
"DRAWDOWN AMOUNT" means an amount at least equal to $3,500,000
that, when added to all prior Drawdown Amounts, including the Effective Date
Drawdown Amount, is not greater than $17,500,000.
"DRAWDOWN PERIOD" means the period beginning on the Effective
Date and ending on September 18, 2001.
"EFFECTIVE DATE DRAWDOWN AMOUNT" means a Drawdown Amount, if
any, specified as such on Schedule 1.
"ENVIRONMENTAL LAWS" means any applicable federal, state,
territorial, provincial or local law, common law doctrine, rule, order, decree,
judgment, injunction, license, permit or regulation in effect as of each Closing
Date, relating to environmental matters, including those pertaining to air,
soil, surface water, ground water (including the protection, cleanup, removal,
remediation or damage thereof), or any other environmental matter, together with
any other laws (federal, state, territorial, provincial or local) relating to
emissions, discharges, releases or threatened releases of any contaminant
including, without limitation, medical, biological, biohazardous or radioactive
waste and materials, into ambient air, land, surface water, groundwater,
personal property or structures, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation,
discharge or handling of any contaminant, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
ss.9601 ET SEQ.), the Hazardous Material 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 Federal Water Pollution Control Act (33 U.S.C.ss.1251 ET SEQ.), the Clean
Air Act (42 X.X.X.xx. 7401 ET SEQ.), the Toxic Substances Control Act (15
U.S.C.ss.2601
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ET SEQ.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.ss.136
et seq.), and the Oil Pollution Act of 1990 (33 X.X.X.xx. 2701 ET SEQ.).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"FCC" means the Federal Communications Commission.
"FCC RULES" means the current rules, regulations and policies
of the FCC.
"FUND" means The 1818 Fund III, L.P., a Delaware limited
partnership.
"FUND REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement among the Company and the Fund executed in connection with the
issuance of the Series E Preferred.
"GAAP" means generally accepted accounting principles in the
United States in effect from time to time.
"GOVERNMENTAL AUTHORITY" means the government of any nation,
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"HOLDER," with respect to Preferred Shares, Warrants, Warrant
Shares or Common Stock issued upon conversion of the Preferred Shares, means the
Investors and any subsequent direct or indirect transferee of such security;
PROVIDED, that the term Holder shall not include any Person who owns such
security if it has been registered under the Securities Act or if it has been
transferred to such Person after such security has been the subject of a
distribution to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act or otherwise distributed under circumstances not
requiring a legend.
"HSR ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended, and the rules and regulations of the Federal Trade
Commission thereunder.
"INDEBTEDNESS" means as to any Person, without duplication,
(a) all obligations of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations evidenced by notes, bonds, debentures or similar instruments,
(c) all obligations to pay the deferred purchase price of property or services,
except trade accounts payable and accrued liabilities arising in the ordinary
course of business, (d) all interest rate and currency swaps and similar
agreements under which payments are obligated to be made, whether periodically
or upon the happening of a contingency, (e) all indebtedness
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created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations under
leases which have been or should be, in accordance with GAAP, recorded as
capital leases, (g) all indebtedness secured by any Lien (other than Liens in
favor of lessors under leases other than leases included in clause (f)) on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, (h) all obligations of such Person to
reimburse or prepay any bank or other Person in respect of amounts paid under a
letter of credit, banker's acceptance or similar instrument, (i) all capital
stock issued by such Person subject to mandatory redemption that is not
contingent upon future events or circumstances, and (j) any Contingent
Obligation.
"INTERNET ASSETS" means any Internet domain names and other
computer user identifiers and any rights in and to sites on the worldwide web,
including rights in and to any text, graphics, audio and video files and html or
other code incorporated in such sites.
"INVESTMENT AGREEMENT" means this Investment Agreement as the
same may be amended, supplemented or modified in accordance with the terms
hereof.
"INVESTORS" means, collectively, the Fund and the Additional
Investors listed on Schedule 1.
"KNOWLEDGE" means knowledge after due inquiry. References to
the Knowledge of the Company include the Knowledge of all of the Company's
Subsidiaries.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority or other security interest or preferential arrangement of any kind or
nature whatsoever (including, without limitation, those created by, arising
under or evidenced by any conditional sale or other title retention agreement,
the interest of a lessor under a capitalized lease obligation, or any financing
lease having substantially the same economic effect as any of the foregoing).
"LIQUIDATION PREFERENCE" has the meaning assigned in the
Series G Certificate of Designation.
"NASDAQ" means the National Market System of the Nasdaq Stock
Market.
"NYSE" means the New York Stock Exchange, Inc.
"ORDERS" means any judgment, injunction, writ, award, decree
or order of any nature of any Governmental Authority against, or binding upon,
the Company.
"PATENTS" means any foreign or United States patents and
patent applications, including any divisions, continuations,
continuations-in-part, substitutions or
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reissues thereof, whether or not patents are issued on such applications and
whether or not such applications are modified, withdrawn or resubmitted.
"PERCENTAGE ALLOCATION" means, with respect to any Investor,
the percentage set forth opposite such Investor's name on Schedule 1.
"PERSON" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form attached hereto as Exhibit E.
"REQUIREMENTS OF LAW" means as to any Person, the Certificate
of Incorporation and By-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"SERIES D PREFERRED STOCK" means the Company's Series D
Convertible Preferred Stock.
"SERIES E PREFERRED STOCK" means the Company's 8% Convertible
Preferred Stock, Series E.
"SERIES G CERTIFICATE OF DESIGNATION" means the Certificate of
Designation with respect to the Preferred Stock (the form of which is attached
hereto as Exhibit B) to be adopted by the Board of Directors of the Company and
filed with the Secretary of State of the State of Delaware.
"SOFTWARE" means any computer software programs, source code,
object code, data and documentation.
"SOLVENT" means, with respect to any Person, that the fair
saleable value on a going concern basis of the assets and property of such
Person is, on the date of determination, greater than the total amount of
liabilities (including Contingent Obligations) of such Person as of such date
and that, as of such date, such Person is able to pay all liabilities of such
Person as such liabilities mature. In computing the amount of Contingent
Obligations at any time, such liabilities will be computed as the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that is probable to become an actual or matured liability.
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"STOCKHOLDER APPROVAL" shall have the meaning assigned in the
Series G Certificate of Designation.
"STOCKHOLDER APPROVAL CERTIFICATION DATE" shall have the
meaning assigned in the Series G Certificate of Designation.
"STOCKHOLDER MEETING" shall have the meaning assigned in the
Series G Certificate of Designation.
"STOCKHOLDER VOTE" shall have the meaning assigned in the
Series G Certificate of Designation.
"SUBSIDIARY" means, with respect to any Person, another Person
of which 50% or more of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such first-mentioned
Person. Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Investment Agreement shall refer to a Subsidiary or
Subsidiaries of the Company.
"TAXES" means all federal, state, county, local, foreign and
other taxes, including, without limitation, income taxes, estimated taxes,
excise taxes, sales taxes, use taxes, gross receipts taxes, franchise taxes,
employment and payroll related taxes, property taxes and import duties, whether
or not measured in whole or in part by net income.
"TRADE SECRETS" means any trade secrets, whether in the form
of research records, processes, procedures, manufacturing formulae, technical
know-how, technology, blue prints, designs, plans, inventions (whether
patentable and whether reduced to practice), or invention disclosures and
improvements thereto.
"TRADEMARKS" means any foreign or United States trademarks,
service marks, trade dress, trade names, brand names, designs and logos,
corporate names, product or service identifiers, whether registered or
unregistered, and all registrations and applications for registration thereof.
"TRANSACTION DOCUMENTS" means the Series G Certificate of
Designation, the Amended Series E Certificate, the Registration Rights
Agreement, the Preferred Shares, the Warrants, the Voting Agreement and the
Backup Purchase Agreement.
"TOUCH 1 COMMUNICATIONS" means Touch l Communications, Inc. an
Alabama corporation and wholly-owned subsidiary of the Company
"VOTING AGREEMENT" means the Voting Agreement, dated June 29,
2001, between the Company and each stockholder of the Company listed therein.
"Z-TEL COMMUNICATIONS" means Z-Tel Communications, Inc. a
Delaware corporation and wholly-owned subsidiary of the Company.
1.2 ADDITIONAL DEFINITIONS. The following terms are defined in the
section of this Investment Agreement set forth opposite such term:
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TERM SECTION
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Amended Series E Certificate 3.24
Business Model 5.26
Company Preamble
DGCL 5.22
Drawdown Notice 2.2(b)
Effective Date Preamble
Forecast 5.26
Fund Preamble
Indemnified Party 7.1
Independent Director 8.10(a)
Intellectual Property 5.28
Liabilities 7.1
Material Contracts 5.25
1999 Audited Financials 5.10
2000 Audited Financials 5.10
2001 Interim Financials 5.10
Preferred Shares 2.1(f)
Preferred Stock Recitals
PWRW&G 2.1(e)
Xxxxx 10.1(a)
Warrants Recitals
Warrant Shares 2.1(f)
1.3 ACCOUNTING TERMS; FINANCIAL COVENANTS. All accounting terms
used herein not expressly defined in this Investment Agreement shall have the
respective meanings given to them in accordance with sound accounting practice.
The term "sound accounting practice" shall mean such accounting practice as, in
the opinion of the independent accountants regularly retained by the Company,
conforms at the time to GAAP applied on a consistent basis except for changes
with which such accountants concur. If any changes in accounting principles are
hereafter occasioned by promulgation of rules, regulations, pronouncements or
opinions by or are otherwise required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions), and any of such changes results in
a change in the method of calculation of, or affects the results of such
calculation of, any of the financial covenants, standards or terms found herein,
then the parties hereto agree to enter into and diligently pursue negotiations
in order to amend such financial covenants, standards or terms so as to reflect
fairly and equitably such changes, with the desired result that the criteria for
evaluating the Company's financial condition and results of operations shall be
the same after such changes as if such changes had not been made.
ARTICLE 2
PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
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2.1 PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
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(a) Subject to the terms and conditions herein, the
Company has the right to require the Investors to purchase, and each Investor
severally agrees to purchase its Percentage Allocation of, shares of Preferred
Stock having an aggregate Liquidation Preference of up to $17,500,000.
(b) If Schedule 1 sets forth an Effective Date Drawdown
Amount, then the first Closing and the first Closing Date shall occur on the
Effective Date and the Drawdown Amount for such Closing shall be the Effective
Date Drawdown Amount. If Schedule 1 does not set forth an Effective Date
Drawdown Amount, then the first Closing and the first Closing Date shall occur,
and the Drawdown Amount for such Closing shall be, as set forth in the first
Drawdown Notice, if any, delivered by the Company pursuant to Section 2.2. If
Schedule 1 does not set forth an Effective Date Drawdown Amount and the Company
does not deliver any Drawdown Notice pursuant to Section 2.2, then there shall
be no Closing under this Investment Agreement.
(c) The Company agrees that at each Closing it shall
issue and sell to each Investor, and each Investor agrees that at each Closing
it shall purchase from the Company, for a purchase price equal to such
Investor's Percentage Allocation of the Drawdown Amount for such Closing, that
number of Preferred Shares having an aggregate Liquidation Preference equal to
such Investor's Percentage Allocation of the Drawdown Amount for such Closing;
PROVIDED that in the event any Additional Investor is unable to purchase its
Percentage Allocation at the first Closing, Xxxxx shall purchase such Additional
Investor's Percentage Allocation (up to an aggregate Liquidation Preference of
$2.5 million) on such Additional Investor's behalf and such Additional Investor
shall repurchase such Percentage Allocation from Xxxxx as soon as practicable
thereafter. The Additional Investors may re-allocate their respective Percentage
Allocations among themselves or to third parties; PROVIDED, that (i) any such
third parties execute this Investment Agreement and all Transaction Documents to
which the Additional Investors are party prior to being allotted any Percentage
Allocation, and (ii) Xxxxx'x Percentage Allocation may in no event be less than
14.3%. In the event of any reallocation of Percentage Interests among the
Additional Investors, any Additional Investor whose Percentage Allocation is
reduced shall transfer and assign to the Additional Investor receiving his
Percentage Allocation a proportionate amount of the Warrant held by such
transferring Additional Investor. The parties agree to amend Schedule 1 to
reflect any reallocation of Percentage Allocations pursuant to this Section
2.1(c).
(d) Subject to the terms and conditions herein, at each
Closing, the Company shall deliver to each Investor a certificate or
certificates, in definitive form and registered in the name of such Investor,
representing the number of Preferred Shares purchased by such Investor at such
Closing against delivery by such Investors to the Company of such Investor's
Percentage Allocation of the Drawdown Amount in payment of the applicable
purchase price for such shares by wire transfer of immediately available funds.
(e) Each Closing shall be held at the offices of Xxxx,
Weiss, Rifkind, Xxxxxxx & Xxxxxxxx ("PWRW&G") on such date as may be determined
under Section 2.1(b) or Section 2.2, at 10:00 a.m., New York City time, or as
otherwise agreed by the Company and the Investors.
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(f) On the Effective Date, the Company shall execute and
deliver to each Investor, in consideration of such Investor's entering into this
Investment Agreement, a Warrant to purchase a number of shares of Common Stock
equal to such Investor's Percentage Allocation of 3,000,000. All of the shares
of Preferred Stock being purchased under this Investment Agreement are referred
to as the "Preferred Shares"; all of the shares of Common Stock issuable upon
the exercise of the Warrants are referred to as the "Warrant Shares."
2.2 PURCHASE AND SALE OF PREFERRED STOCK AFTER EFFECTIVE DATE.
(a) At any time during the Drawdown Period the Company
has the right (the "Issuance Right"), subject to the terms and conditions
herein, to require each Investor to purchase its Percentage Allocation of
Preferred Shares having an aggregate Liquidation Preference of up to
$17,500,000, less an amount equal to the Effective Date Drawdown Amount, if any.
(b) The Company may exercise the Issuance Right from time
to time during the Drawdown Period by giving the Investors written notice of its
election to exercise the Issuance Right (each, a "Drawdown Notice"). Each
Drawdown Notice shall specify:
(i) The Closing Date on which the related
Closing shall occur, which shall be a Business Day occurring at least five
Business Days after the date of the relevant Drawdown Notice and must occur
during the Drawdown Period; provided, that the Investors waive such five
Business Day notice period with respect to the first Drawdown Notice.
(ii) A Drawdown Amount.
(c) On each Closing Date, the Company shall deliver to
each Investor a revised Schedule 1 to this Investment Agreement, signed by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company, reflecting the number of
shares of Preferred Stock purchased by each Investor at such Closing.
2.3 SERIES G CERTIFICATE OF DESIGNATION. The Preferred Stock shall
have the preferences and rights set forth in the Series G Certificate of
Designation.
2.4 USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Preferred Stock and the Warrants to the Investors to fund the
Company's working capital and operating funds.
2.5 ALLOCATION OF PURCHASE PRICE. As soon as reasonably
practicable after the end of the Drawdown Period, the aggregate consideration
paid for the Preferred Shares and Warrants issued under this Investment
Agreement shall be allocated for tax purposes among such Preferred Shares and
Warrants in a manner to be reasonably determined by the holders of a majority of
the Preferred Shares. The Investors and the Company agree to use the allocations
determined pursuant to this Section 2.7 for all tax purposes. The Investors
shall promptly notify the Company in writing of each determination pursuant to
this Section.
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ARTICLE 3
CONDITIONS TO THE OBLIGATION OF THE INVESTORS TO CLOSE
------------------------------------------------------
The obligation of the Investors to purchase the Preferred
Shares, to pay the Drawdown Amount at each Closing and to perform any
obligations hereunder shall be subject to the satisfaction or waiver of the
following conditions on or before such Closing Date (except as set forth below):
3.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company contained in Article 5 hereof shall be true and
correct in all material respects at and as of such Closing Date as if made at
and as of such date; provided, that any representation and warranty qualified in
any respect by materiality shall be true and correct at and as of such Closing
Date as if made at and as of such date.
3.2 COMPLIANCE WITH THIS INVESTMENT AGREEMENT. The Company shall
have performed and complied with all of its agreements and conditions set forth
or contemplated herein that are required to be performed or complied with by the
Company on or before such Closing Date.
3.3 OFFICER'S CERTIFICATE. The Investors shall have received a
certificate, dated the Relevant Closing Date and signed by the President or a
Vice-President of the Company, certifying that the conditions set forth in
Sections 3.1 and 3.2 hereof have been satisfied on and as of such date.
3.4 SECRETARY'S CERTIFICATE. The Investors shall have received a
certificate, dated such Closing Date, and signed by the Secretary or an
Assistant Secretary of the Company, certifying the truth and correctness of (a)
the attached copies of the Certificate of Incorporation and By-laws of the
Company and (b) the resolutions of the Board of Directors of the Company
approving this Investment Agreement, the Transaction Documents and the
transactions contemplated hereby and thereby, including, without limitation,
approval for the purposes of Section 203(a)(1) of the DGCL.
3.5 DOCUMENTS. On or prior to the Effective Date, the Investors
shall have received copies of such documents as they reasonably may request in
connection with the sale of the Preferred Shares and the Warrants and the
transactions contemplated hereby, all in form and substance reasonably
satisfactory to the Investors.
3.6 PURCHASE PERMITTED BY APPLICABLE LAWS. The acquisition of and
payment for the Preferred Shares and the Warrants to be acquired by the
Investors hereunder and the consummation of the transactions contemplated hereby
(a) shall not be prohibited by any applicable law or governmental regulation and
(b) shall not subject any of the Investors to any penalty or, in its reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation.
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3.7 FILING OF SERIES G CERTIFICATE OF DESIGNATION. On or prior to
the Effective Date, the Series G Certificate of Designation shall have been duly
filed by the Company with the Secretary of State of the State of Delaware.
3.8 OPINION OF COUNSEL. The Investors shall have received the
opinion of Trenam Xxxxxx, counsel to the Company, dated as of such Closing Date,
in a form satisfactory to the Investors.
3.9 APPROVAL OF COUNSEL TO THE INVESTORS. Prior to such Closing
Date, all actions and proceedings hereunder and all documents required to be
delivered by the Company hereunder or in connection with the consummation of the
transactions contemplated hereby, and all other related matters, shall have been
reasonably acceptable to PWRW&G, counsel to the Investors, as to their form and
substance.
3.10 CONSENTS AND APPROVALS. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons, necessary or required in connection
with the execution, delivery or performance (including, without limitation, the
payment of dividends on the Preferred Stock and the issuance of Common Stock
upon the conversion of the Preferred Stock or exercise of the Warrants) by the
Company or enforcement against the Company of this Investment Agreement and the
Transaction Documents shall have been obtained and be in full force and effect,
and the Investors shall have been furnished with appropriate evidence thereof.
3.11 CONSENT OF CERTAIN PREFERRED STOCKHOLDERS. Prior to the
Effective Date, the Company shall have received the requisite consent of the
holders of the Company's Series E Preferred Stock to the Amended Series E
Certificate.
3.12 RIGHTS PLAN. Prior to the Effective Date, the Rights
Agreement, dated as of February 19, 2001, between the Company and American Stock
and Transfer Company, shall have been amended in form and substance satisfactory
to the Fund.
3.13 NO MATERIAL ADVERSE CHANGE. Since March 31, 2001, there shall
have been no material adverse change, nor shall any such change be threatened,
in the Condition of the Company since that date.
3.14 CONDUCT OF BUSINESS. The Company shall have conducted its
business in the ordinary course from the Effective Date to such Closing Date,
and no transaction not in the ordinary course of business shall have occurred
without the Investors' consent.
3.15 REGISTRATION RIGHTS AGREEMENT. On the Effective Date, the
Company shall have duly executed and delivered to the Additional Investors the
Registration Rights Agreement.
3.16 CHARTER AND BY-LAWS OF THE COMPANY. Except for the Series G
Certificate of Designation or as otherwise approved by the Fund, no amendments
to the Certificate of Incorporation or Bylaws of the Company as in effect on the
Effective Date shall have been effected.
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3.17 MARKET CONDITIONS. Between the Effective Date of this
Investment Agreement and such Closing Date, (a) trading in the Common Stock
shall not have been suspended by the Commission or by the NASDAQ for a material
portion of a trading day, (b) trading in securities generally on the NYSE or
NASDAQ shall not have been suspended or limited or minimum or maximum prices
shall not have been generally established on such exchange, or additional
material governmental restrictions, not in force on the date of this Investment
Agreement, shall not have been imposed upon trading in securities generally by
such exchange or by order of the Commission or any court or other Governmental
Authority, (c) a general banking moratorium shall not have been declared by
either Federal or New York State authorities and (d) any material adverse change
in the financial or securities markets in the United States or in political,
financial or economic conditions in the United States or any outbreak or
material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity or crisis shall not have occurred.
3.18 NO LITIGATION. No action, suit, proceeding, claim or dispute
shall have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company or any of its Subsidiaries
which would, if adversely determined (a) have a material adverse effect on the
Condition of the Company or (b) have a material adverse effect on the ability of
the Company to perform its obligations under this Investment Agreement or any of
the Transaction Documents.
3.19 NO DEFAULT OR BREACH. Neither the Company nor any of its
Subsidiaries shall have been in default under or with respect to any Contractual
Obligation in any respect, which, individually or together with all such
defaults, would be materially adverse to the Condition of the Company or which
could materially adversely affect the ability of the Company to perform its
obligations under this Investment Agreement or any of the Transaction Documents.
3.20 NASDAQ. As of the Effective Date, the Company shall reasonably
believe, based on telephone conversations with representatives of NASDAQ, and
the Fund shall have no reasonable basis for disbelief, that the consummation of
the transactions contemplated by this Investment Agreement and the Transaction
Documents will not result in any action by NASDAQ against the Company. As of
each Closing Date, the Company shall continue to believe, and the Fund shall
continue to have no reasonable basis for disbelief, that the consummation of the
transactions contemplated by this Investment Agreement and the Transaction
Documents will not result in any action by NASDAQ against the Company.
3.21 OTHER INVESTORS. At each Closing, Xxxxx shall have purchased
his Percentage Allocation of the Preferred shares specified in the relevant
Drawdown Notice.
3.22 WARRANTS. On Effective Date, the Company shall have duly
executed and delivered to each Investor a Warrant exercisable for the number of
shares of Common Stock equal to such Investor's Percentage Allocation of
3,000,000.
3.23 BACKUP PURCHASE AGREEMENT. Z-Tel Communications and Touch 1
Communications shall have duly executed and delivered the Backup Purchase
Agreement. The
15
representations and warranties in the Backup Purchase Agreement shall be true
and correct in all material respects at and as of such Closing Date.
3.24 CERTIFICATE OF DESIGNATION, SERIES E. On the Effective Date,
the Company shall have filed the amended and restated Certificate of Designation
of 8% Convertible Preferred Stock, Series E (the "Amended Series E Certificate")
attached hereto as Exhibit F.
3.25 VOTING AGREEMENTS. On the Effective Date, the Company and
certain investors of the Company (including the Fund) having the power to vote
(as defined in the Voting Agreement) an aggregate of at least 50.1% of the
Company Stock (as defined in the Voting Agreement and assuming the issuance of
shares of Series G Preferred having an aggregate Liquidation Preference of $8
million and issuance of the Warrants) shall have duly executed and delivered a
Voting Agreement and the Voting Agreement shall be in full force and effect on
each Closing Date.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
-----------------------
The obligations of the Company to issue and sell the Preferred
Shares and the Warrants, and to consummate the transactions contemplated herein
on each Closing Date, shall be subject to the satisfaction or waiver of the
following conditions on or before such Closing Date:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Investors contained in Article 6 hereof shall be true and
correct in all material respects at and as of each Closing Date as if made at
and as of such date.
4.2 COMPLIANCE WITH THIS INVESTMENT AGREEMENT. The Investors shall
have performed and complied with all of their agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by the Investors on or before such Closing Date.
4.3 ISSUANCE PERMITTED BY APPLICABLE LAWS. The issuance of the
Preferred Shares and the Warrants and the consummation of the transactions
contemplated hereby by the Company (a) shall not be prohibited by any applicable
law or governmental regulation and (b) shall not subject the Company to any
penalty or, in its reasonable judgment, other onerous condition under or
pursuant to any applicable law or governmental regulation.
4.4 APPROVAL OF COUNSEL TO THE COMPANY. All actions and
proceedings hereunder and all documents required to be delivered by the
Investors hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Trenam Xxxxxx, counsel to the Company, as to their form and
substance.
16
4.5 CONSENTS AND APPROVALS. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons necessary or required in connection
with the execution, delivery or performance by the Investors or enforcement
against the Investors of this Investment Agreement shall have been obtained and
be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
4.6 CONSENT OF CERTAIN PREFERRED STOCKHOLDERS. Prior to the
Effective Date, the Company shall have received the requisite consent of the
holders of its Series E Preferred Stock to the Amended Series E Certificate.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
-------------------------
The Company hereby represents and warrants to the Investors,
and to each of them, as follows:
5.1 CORPORATE EXISTENCE AND POWER. The Company and each of its
Subsidiaries:
(a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization;
(b) has (i) full corporate (or other organizational)
power and authority and (ii) all governmental licenses, authorizations, consents
and approvals to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged;
(c) is duly qualified as a foreign person, licensed and
in good standing under the laws of each jurisdiction where its ownership, lease
or operation of property or the conduct of its business requires such
qualification; and
(d) is in compliance with all Requirements of Law;
except, in the case of (b)(ii), (c) or (d) of this Section 5.1, to the extent
that the failure to so comply would not have a material adverse effect on the
Condition of the Company.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by the Company of this Investment Agreement, the
Registration Rights Agreement and the transactions contemplated hereby and
thereby, including without limitation the issuance of the Preferred Shares, the
Warrants and the Common Stock issuable upon the conversion of the Preferred
Shares and exercise of the Warrants:
(a) are within the Company's corporate power and
authority and have been duly authorized by all necessary corporate action; and
17
(b) will not violate, conflict with or result in any
breach or contravention of or the creation of any Lien under, any Material
Contract of the Company or any of its Subsidiaries or any order or decree
directly relating to the Company or any of its Subsidiaries.
5.3 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Except as
set forth on Schedule 5.3 or as contemplated by Section 4.5 and Section 4.6, no
approval, consent, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, is necessary or
required in connection with the execution, delivery or performance by the
Company or enforcement against the Company of this Investment Agreement and the
Transaction Documents or the transactions contemplated hereby or thereby.
5.4 BINDING EFFECT. This Investment Agreement and each of the
Transaction Documents to which the Company is a party have been duly executed
and delivered by the Company. This Investment Agreement and each of the
Transaction Documents constitute the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with their terms, subject,
as to enforcement of remedies, to bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer, or similar laws affecting creditors' rights
generally from time to time in effect and general equitable principles, except
that any rights to indemnification set forth in this Investment Agreement and
the Registration Rights Agreement may be limited by federal and state securities
laws and public policy considerations.
5.5 NO LEGAL BAR. Neither the execution, delivery nor performance
of this Investment Agreement and the Transaction Documents nor the issuance or
performance of the terms of the Preferred Shares or the Warrants will violate
any Requirement of Law.
5.6 LITIGATION.
(a) Except as set forth on Schedule 5.6, there are no
actions, suits, proceedings, claims or disputes pending, or to the Knowledge of
the Company, threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company or any of its Subsidiaries:
(i) with respect to this Investment Agreement,
the Preferred Shares, the Warrants or the Registration Rights Agreement or any
of the transactions contemplated hereby or thereby; or
(ii) which would, if adversely determined, (A)
have a material adverse effect on the Condition of the Company or (B) have a
material adverse effect on the ability of the Company to perform its obligations
under this Investment Agreement or any Transaction Document.
(b) No injunction, writ, temporary restraining order,
decree or any order of any nature has been issued by any court or other
Governmental Authority purporting to enjoin or restrain the execution, delivery
and performance of this Investment Agreement or any Transaction Document.
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5.7 NO DEFAULT OR BREACH. No event has occurred and is continuing
which constitutes a default under or breach of any of the provisions of Article
8 or 9. No event which constitutes a default under or breach of any of the
provisions of Article 8 or 9 is likely to result from the incurring of
obligations by the Company under this Investment Agreement or the Transaction
Documents or from the issuance of the Preferred Shares or the Warrants. Neither
the Company nor any of its Subsidiaries is in default under or with respect to
any Contractual Obligation in any respect, which, individually or together with
all such defaults, would have a material adverse effect on the Condition of the
Company or on the ability of the Company to perform its obligations under this
Investment Agreement or the Transaction Documents.
5.8 TITLE TO PROPERTIES. The Company and each of its Subsidiaries
have good and defensible title to, or hold leases in full force and effect in
all their real property, except for such defects in title as could not,
individually or in the aggregate, have a material adverse effect on the
Condition of the Company or the ability of the Company to perform its
obligations under this Investment Agreement or the Transaction Documents.
5.9 TAXES. The Company and its Subsidiaries have filed or caused
to be filed, or have properly filed extensions for, all income tax returns which
are required to be filed and have paid or caused to be paid all taxes as shown
on said returns and on all assessments received by it to the extent that such
taxes have become due, except taxes the validity or amount of which is being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside. The Company and its Subsidiaries have
paid or caused to be paid, or have established reserves that the Company
reasonably believes to be adequate for all income tax liabilities applicable to
the Company and its Subsidiaries for all fiscal years which have not been
examined and reported on by the taxing authorities (or closed by applicable
statutes).
5.10 FINANCIAL CONDITION. The Company heretofore has delivered to
the Investors true and correct copies of audited consolidated financial
statements of the Company and its Subsidiaries dated as of December 31, 1999
(the "1999 Audited Financials), December 31, 2000 (the "2000 Audited
Financials") and the unaudited consolidated financial statements of the Company
and its Subsidiaries dated as of March 31, 2001 (the "2001 Interim Financials").
The 1999 Audited Financials, 2000 Audited Financials and the 2001 Interim
Financials have been prepared in accordance with GAAP applied consistently and
present fairly in all material respects the consolidated financial condition of
the Company as of the dates thereof and the consolidated results of operations
of the Company for the period, or portion thereof, then ended (except in the
case of the 2001 Interim Financials, for normal year-end adjustments and the
absence of footnotes).
5.11 NO MATERIAL ADVERSE CHANGE. Since March 31, 2001, there has
not been any material adverse change, nor to the Knowledge of the Company is any
such change threatened, in the Condition of the Company.
5.12 COMMISSION DOCUMENTS. The Company has filed all registration
statements, proxy statements, reports and other documents required to be filed
by it under the Securities Act or the Exchange Act, and all amendments thereto.
The Company has furnished or made available to the Investors copies of all
Commission Documents, each as filed with the Commission. Each Commission
Document, as amended, when filed with the Commission or as
19
so amended was true and accurate in all material respects and in compliance in
all material respects with the requirements of its respective report form.
5.13 ENVIRONMENTAL MATTERS. The Company is in compliance with all
applicable Environmental Laws except as would not have a material adverse effect
on the Condition of the Company. There is no civil, criminal or administrative
judgment, action, suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to the Knowledge
of the Company, threatened against the Company pursuant to Environmental Laws
except as would not have a material adverse effect on the Condition of the
Company; and, to the Knowledge of the Company, there are no past or present
events, conditions, circumstances, activities, practices, incidents, agreements,
actions or plans which could reasonably be expected to prevent compliance with,
or which have given rise to or will give rise to liability under, Environmental
Laws except as would have not have a material adverse effect on the Condition of
the Company.
5.14 INVESTMENT COMPANY. Neither the Company nor any Person
controlling the Company is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.15 SUBSIDIARIES. Schedule 5.15 sets forth a complete and accurate
list of all of the Subsidiaries of the Company together with their respective
jurisdictions of incorporation or organization. Each such Subsidiary is directly
or indirectly wholly owned by the Company.
5.16 CAPITALIZATION. As of the Effective Date, without giving
effect to the execution of this Investment Agreement, the issuance of the
Warrants, or any Closing that may occur on the Effective Date: (i) the
authorized capital stock of the Company consists of 150,000,000 shares of Common
Stock and 39,523,816 shares of preferred stock, par value $.01 per share, of
which as of the date hereof, 34,036,466 shares of Common Stock and 8,854,914
shares of preferred stock are issued and outstanding; (ii) except as set forth
on Schedule 5.16, there are no shares of capital stock of the Company reserved
for issuance; and (iii) except for the Warrants, this Investment Agreement, the
Preferred Shares, or as set forth on Schedule 5.16 or in the Series G
Certificate of Designation, there are no options, warrants or other rights to
any Person to purchase shares of capital stock or other securities of the
Company, and the Company is not obligated in any manner to issue shares of its
capital stock or other securities. Except as contemplated hereby and for
relevant state and federal securities laws, there are no restrictions on the
transfer of shares of capital stock of the Company issued or issuable to the
Investors. All of the outstanding shares of capital stock of the Company have
been duly authorized and are fully paid and non-assessable. The Preferred Shares
when issued upon payment of the Purchase Price, and the shares of Common Stock
when issued upon conversion of the Preferred Shares or exercise of the Warrants,
will be duly authorized, and, in each case, validly issued, fully paid and
non-assessable.
5.17 SOLVENCY. On and as of each Closing Date, after giving effect
to the transactions contemplated in this Investment Agreement, the Company will
be Solvent.
5.18 PRIVATE OFFERING. No form of general solicitation or general
advertising was used by the Company or, to its Knowledge, its representatives in
connection with the offer
20
or sale of the Preferred Shares. Assuming the truth and accuracy of the
Investors' representation in Section 6.5, no registration of the Preferred
Shares or the Warrants pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws will be required by the offer, sale or
issuance of the Preferred Shares or the Warrants pursuant to this Investment
Agreement. The Company agrees that neither it, nor anyone acting on its behalf,
will offer or sell the Preferred Shares or the Warrants or any other security so
as to require the registration of the Preferred Shares or the Warrants pursuant
to the provisions of the Securities Act or any state securities or "blue sky"
laws, unless such Preferred Shares or the Warrants are so registered.
5.19 BROKER'S, FINDER'S OR SIMILAR FEES. Except for the obligation
of the Company to pay an advisory fee to Breckenridge Securities Corp., and as
set forth on Schedule 5.16, there are no brokerage commissions, finder's fees or
similar fees or commissions payable in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with
the Company or any of its Subsidiaries, or any action taken by any such entity.
5.20 FULL DISCLOSURE.
(a) No statement by the Company contained in (i) this
Investment Agreement or (ii) any certificates delivered to the Investors in
connection with the purchase and sale of the Preferred Shares at any Closing
contains (or will contain) an untrue statement of a material fact or omits (or
will omit) to state a material fact required to be stated therein or necessary
to make the statements made, in the light of the circumstances in which made,
not materially false or misleading.
(b) There is no fact that the Company has not disclosed
to the Investors in writing which materially adversely affects, or insofar as
the Company can reasonably foresee, could materially adversely affect, the
Condition of the Company or the ability of the Company to perform its
obligations under this Investment Agreement or the Transaction Documents.
5.21 REGULATORY COMPLIANCE.
(a) The Company and its Subsidiaries hold all
Communications Licenses required under the Communications Act, the FCC Rules or
other state or local laws or rules to own and operate their properties and to
carry on the business of the Company and its Subsidiaries as now conducted,
except as would not have a material adverse effect on the Condition of the
Company.
(b) Set forth on Schedule 5.21 is a complete list of all
Communications Licenses of the Company and its Subsidiaries relating to or used
in connection with the business of the Company and its Subsidiaries, including
which legal entity holds such License and, if such legal entity is neither the
Company nor any of its Subsidiaries, a summary of the terms under which the
Company and its Subsidiaries is permitted to engage in the business relating to
such License. Such list correctly sets forth the expiration date, if any, of
each such Communications License. Each such Communications License is in full
force and effect, and is not subject to any special conditions outside the
ordinary course. The Company and its
21
Subsidiaries have taken all actions and performed all of their obligations that
are necessary to maintain such Communications Licenses without adverse
modification or impairment.
(c) Except as set forth on Schedule 5.21, the Company and
its Subsidiaries are not parties to, nor to the Knowledge of the Company is
there threatened in writing, any formal investigation, notice of apparent
liability, violation, forfeiture or other notice, order or formal complaint
issued by or before any court or regulatory body (other than non-material,
ordinary course of business customer complaints), including the FCC, that could
in any manner threaten or adversely affect the validity or continued
effectiveness of the Communications Licenses of the Company and its
Subsidiaries. Since January 1, 2000, the Company and each Subsidiary has filed
in a substantially timely manner all material reports, applications, documents,
instruments and information required to be filed by it pursuant to the
Communications Act, the FCC Rules or other state or local laws or rules related
to Communications Licenses. All such filings are accurate and complete in all
material respects.
(d) The Company and its Subsidiaries are in compliance
with the Communications Licenses, the Communications Act, the FCC Rules or other
state or local laws or rules, except as would not have a material adverse effect
on the Condition of the Company.
(e) The Company has no Knowledge of any facts, and the
Company and the Subsidiaries have received no formal written notice, indicating
that the Company and the Subsidiaries, in their ownership and operation of the
business of the Company and the Subsidiaries, are not in compliance with all
requirements of (i) applicable FCC Rules or the Communications Act, or (ii)
similar state and local statutes, regulations and ordinances, except as would
not have a material adverse effect on the Condition of the Company.
(f) No consent, waiver or other action of, or filing or
notification to, the FCC is required for the consummation of the transactions
contemplated hereby.
5.22 CERTAIN STATUTES. The Board of Directors of the Company has
approved this Investment Agreement and the transactions contemplated hereby for
purposes of Section 203(a)(1) of the Delaware General Corporations Law (the
"DGCL") and has taken all appropriate and necessary actions to ensure that the
restrictions on business combinations in Section 203 of the DGCL will not have
any effect on the transactions contemplated by this Investment Agreement and
will not in the future apply to any Investor by reason of this Investment
Agreement, the Transaction Documents or the transaction contemplated hereby or
thereby.
5.23 REGISTRATION RIGHTS AGREEMENT. Schedule 5.23 sets forth all
agreements to which the Company or any Subsidiary is a party or by which it is
bound relating to the registration of its securities or, in the case of a
Subsidiary, the securities of the Company. Except as set forth on Schedule 5.23,
no agreements grant any registration rights to any Person which are inconsistent
with the rights to be granted to the Investors in the Registration Rights
Agreement. Schedule 5.23 sets forth all agreements to which the Company has
Knowledge relating to the voting of Common Stock or restricting the transfer of
Common Stock.
22
5.24 TRADE RELATIONS. There exists (a) to the Knowledge of the
Company, no actual or (b) so far as the Company is aware, no threatened,
material change in the business relationship of the Company and its Subsidiaries
taken as a whole with any customer or any group of customers, or with any
supplier, which would have a material adverse effect on the business of the
Company and its Subsidiaries, taken as a whole.
5.25 MATERIAL CONTRACTS. All contracts, agreements and commitments
of the Company and its Subsidiaries required to be filed with the Company's
Commission Documents ("Material Contracts") are in full force and effect and
binding upon the parties thereto in accordance with their terms, subject, as to
enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, or similar laws affecting creditors' rights generally from
time to time in effect and general equitable principles. Neither the Company nor
any of its Subsidiaries, nor, to the Knowledge of the Company, any other party
to a Material Contract, is in default under, and no condition exists that with
notice or lapse of time, or both, would constitute a default under any Material
Contract, in each case other than defaults that individually or in the aggregate
would not have a material adverse effect on the Condition of the Company. The
Company has no Knowledge of any threatened cancellation or termination of any
Material Contract.
5.26 BUSINESS MODEL. Prior to the Effective Date, the Company
delivered to the Investors the Z-Tel Technologies, Inc. Consolidated Business
Model 2001 Business Plan, dated June 30, 2001, (the "Business Model") and the
Z-Tel Consolidated Cash Balance forecast, (the "Forecast") copies of each of
which are attached as Schedule 5.26. The assumptions used in preparation of the
Business Model and Forecast were reasonable when made and continue to be
reasonable as of the Effective Date. The Business Model and Forecast have been
prepared in good faith. The Investors acknowledge that the Business Model and
Forecast contain assumptions about future events and that actual results during
the period or periods covered may differ from the data and results contained in
such Business Model and Forecast and such differences may be material and
adverse to the Company.
5.27 NO UNDISCLOSED FINANCIAL LIABILITIES. Except as set forth on
Schedule 5.27, the Company and its Subsidiaries, after giving effect to the
transactions contemplated hereby, will not have any material direct or indirect
indebtedness, liability (including, without limitation, product liability or
warranty claim), obligation, whether known or unknown, fixed or unfixed,
contingent or otherwise, and whether or not of a kind required by GAAP to be set
forth on a financial statement, other than (a) liabilities fully and adequately
reflected on the 2001 Interim Financials, (b) liabilities incurred since March
31, 2001 in the ordinary course of business, (c) liabilities incurred pursuant
to this Investment Agreement and (d) liabilities which individually or in the
aggregate would not have a material adverse effect on the Condition of the
Company.
5.28 INTELLECTUAL PROPERTY.
(a) (i) The Company is the owner of all, or has the license
or right to use, sell and license all of, the Copyrights, Patents, Trade
Secrets, Trademarks, Internet Assets, Software and other proprietary rights
(collectively, "Intellectual Property") that are used in connection with its
business as presently conducted or contemplated in the Business Plan, free
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and clear of all Liens, except as would have not have a material adverse effect
on the Condition of the Company.
(ii) Except as set forth on Schedule 5.28, no
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand is pending or, to the Knowledge of the Company, threatened in writing,
which challenges the validity, enforceability, use or ownership of the
Intellectual Property.
(iii) The Company has substantially performed all
obligations imposed upon it under any Intellectual Property licenses, and is
not, nor to the Knowledge of the Company is any other party thereto, in breach
of or default thereunder in any respect, nor is there any event which with
notice or lapse of time or both would constitute a default thereunder. All of
the Intellectual Property licenses are enforceable and in full force and effect,
and will continue to be so on identical terms immediately following each Closing
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(b) No Person is infringing upon or otherwise violating
any Trademarks of the Company and to the Knowledge of the Company, no Person is
violating any other Intellectual Property rights of the Company, except in each
case as would not in the aggregate be reasonably expected to have a material
adverse effect on the Condition of the Company.
(c) No former employer of any employee of the Company
currently is asserting a claim against the Company that such employee is
utilizing Intellectual Property of such former employer.
(d) The Company is not a party to or bound by any license
or other agreement requiring the payment by the Company of any royalty payment,
excluding such agreements relating to software licensed for use solely on the
computers of the Company.
(e) To the Knowledge of the Company, no employee of the
Company is in violation of any term of any employment agreement, patent or
invention disclosure agreement or other contract or agreement relating to the
relationship of such employee with the Company. Subject to Section 5.6, to the
Knowledge of the Company, no employee of the Company is in violation of any term
of any employment agreement, patent or invention disclosure agreement or other
contract or agreement relating to the relationship of such employee with any
prior employer.
(f) To the Knowledge of the Company, none of the Trade
Secrets of the Company, wherever located, the value of which is contingent upon
maintenance of confidentiality thereof, has been disclosed to any Person other
than employees, representatives and agents of the Company, except as required
pursuant to the filing of a patent application by the Company or pursuant to a
non-disclosure agreement.
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(g) Except on Schedule 5.28, it is not necessary for the
Company's business to use any Intellectual Property owned by any director,
officer, employee or consultant of the Company (or persons the Company presently
intends to hire).
(h) All present employees of the Company have executed
and delivered confidentiality agreements with the Company, and are obligated
under the terms thereof to protect all confidential information received during
the course of employment for a period of five years after such information is
received.
5.29 ERISA. Neither the Company nor any of its Subsidiaries has
violated any provisions of ERISA, or the rules and regulations promulgated
thereunder, except for such violations which would not, individually or in the
aggregate, have a material adverse effect on the Condition of the Company. If
any plan subject to ERISA is adopted, the execution and delivery of this
Investment Agreement and the sale of the Preferred Shares and the Warrants will
not involve any non-exempt prohibited transaction within the meaning of Section
406 of ERISA or Section 4975 of the Code.
5.30 LABOR RELATIONS. Except to the extent set forth in Schedule
5.30 (a) neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement, (b) the Company and each of its Subsidiaries is
in compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including but
not limited to, the Workers Adjustment and Retraining Notification Act, and
neither the Company nor any of its Subsidiaries is engaged in any unfair labor
practice, (c) there is no unfair labor practice complaint against the Company or
any of its Subsidiaries or pending before the National Labor Relations Board,
(d) there is no labor strike, dispute, slowdown or stoppage actually pending or,
to the Company's Knowledge, threatened against or affecting the Company or any
of its Subsidiaries, (e) with respect to the Company or any of its Subsidiaries,
no grievance or arbitration proceeding arising out of or under collective
bargaining agreements is pending or exists and, to the Company's Knowledge, no
claim therefor is threatened, and (f) neither the Company nor any of its
Subsidiaries has experienced any work stoppage or other labor difficulty since
inception; except in the case of clauses (b), (c), (d), (e) and (f) as would not
have a material adverse effect on the Condition of the Company.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE INVESTORS
---------------------------
The Investors, severally and not jointly, represent and
warrant to the Company as follows:
6.1 EXISTENCE AND POWER. Each of the Investors:
(a) who is not a natural person is duly organized and
validly existing under the laws of the jurisdiction of its organization; and
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(b) has full power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed to be, engaged.
6.2 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and
performance by each of the Investors of this Investment Agreement, the
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including without limitation the acquisition of the
Preferred Shares, the Warrants and the Common Stock issuable upon the conversion
of the Preferred Shares and exercise of the Warrants:
(a) is within the Investor's power and authority and has
been duly authorized by all necessary action;
(b) does not contravene the terms of the governing
documents of any Investor who is not a natural person, or any amendment thereof;
(c) will not violate, conflict with or result in any
breach or contravention of or the creation of any Lien under, any Contractual
Obligation of the Investor, or any order or decree directly relating to the
Investor, and
(d) does not require approval, consent, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person, other than filing and expiration of the
applicable waiting period under the HSR Act.
6.3 BINDING EFFECT. This Investment Agreement and each Transaction
Document to which it is a party have been duly executed and delivered by each of
the Investors, constitute the legal, valid and binding obligation of each of the
Investors enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.4 NO LEGAL BAR. The execution, delivery and performance of this
Investment Agreement and the Transaction Documents will not violate any
Requirement of Law or any Contractual Obligation of any of the Investors.
6.5 PURCHASE FOR OWN ACCOUNT. The Preferred Shares and the
Warrants (including, for purposes of this Section 6.5, the Common Shares
issuable upon conversion of the Preferred Shares and exercise of the Warrants)
to be acquired by each of the Investors pursuant to this Investment Agreement
are being acquired for its own account for investment purposes and with no view
toward any "distribution" thereof within the meaning of the Securities Act,
without prejudice, however, to the rights of such Investors at all times to sell
or otherwise dispose of all or any part of the Preferred Shares or the Warrants
under an effective registration statement under the Securities Act, or under an
exemption from such registration available under the Securities Act, or pursuant
to Article 10 hereof, and subject, nevertheless, to the disposition of the
Investors' property being at all times within their control. If any of the
Investors should in the future decide to dispose of any of the Preferred Shares,
Warrants, the shares of Common Stock issuable upon conversion of the Preferred
Shares or the Warrant Shares, such Investor understands and agrees that it may
do so only in compliance with the Securities Act and
26
applicable state securities laws, as then in effect, and that stop-transfer
instructions to that effect, where applicable, will be in effect with respect to
the Preferred Shares. If any of the Investors should decide to dispose of the
Preferred Shares or Warrants, other than pursuant to the provisions of the
Registration Rights Agreement or Article 10 hereof, such Investor, if requested
by the Company, will have the obligation in connection with such disposition, at
the Investor's expense, of delivering to the Company an opinion of counsel of
recognized standing in securities law, to the effect that the proposed
disposition of the Preferred Shares or Warrants would not be in violation of the
Securities Act or any applicable state securities laws and, assuming such
opinion is required and is otherwise appropriate in form and substance under the
circumstances, the Company will accept, and will recommend to any applicable
transfer agent or trustee for any such securities that it accept, such opinion.
The Investors agree to the imprinting, so long as required by law, of a legend
on certificates representing all of the Preferred Shares and the shares of
Common Stock issued on conversion thereof to the following effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS
OF SUCH ACT OR SUCH LAWS."
The Investors agree to the imprinting, so long as required by law, of a legend
on the Warrants and the Warrant Shares to the following effect:
"THE WARRANT AND SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR
QUALIFIED UNDER ANY STATE SECURITIES LAW. THE WARRANT AND SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNLESS SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN A TRANSACTION THAT IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT."
6.6 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Investors or any action taken by the Investors.
6.7 INVESTMENT KNOWLEDGE. Each Investor has sufficient knowledge
and experience in financial and business matters and the business in which the
Company is engaged so as to be capable of evaluating the merits and risks of its
investment in the Preferred Shares, Warrants, the shares of Common Stock
issuable upon conversion of the Preferred Shares and the Warrant Shares, and is
able to bear the economic risk of the loss of its investment in the Company.
Each of the Investors is an "accredited investor" within the meaning of Rule 501
promulgated under the Securities Act.
27
ARTICLE 7
INDEMNIFICATION
---------------
7.1 INDEMNIFICATION BY THE COMPANY. In addition to all other sums
due hereunder or provided for in this Investment Agreement, the Company agrees
to indemnify and hold harmless the Investors and their Affiliates (including,
without limitation, Xxxxx Brothers Xxxxxxxx & Co.) and their respective
officers, directors, agents, employees, subsidiaries, partners and controlling
persons (each, an "Indemnified Party") to the fullest extent permitted by law
from and against any and all losses, claims, damages, expenses (including
reasonable fees, disbursements and other charges of counsel) or other
liabilities ("Liabilities") resulting from any breach of any covenant,
agreement, representation or warranty of the Company in this Investment
Agreement or any legal, administrative or other actions (including actions
brought by the Company or any equity holders of the Company or derivative
actions brought by any Person claiming through the Company or in the Company's
name), proceedings or investigations (whether formal or informal), or written
threats thereof, based upon, relating to or arising out of this Investment
Agreement, the Transaction Documents, the transactions contemplated hereby or
thereby, or any indemnified person's role therein or in the transactions
contemplated hereby or thereby; provided, however, that the Company shall not be
liable under this Section 7.1: (a) for any amount paid in settlement of claims
without the Company's consent (which consent shall not be unreasonably
withheld), (b) with respect to Liabilities arising solely out of actions brought
by the partners or members of any of the Investors against an Indemnified Party
or by one Indemnified Party against another, (c) to the extent that it is
finally judicially determined that such Liabilities resulted primarily from (i)
the willful misconduct, bad faith or gross negligence of such Indemnified Party
or (ii) a breach of the Investor's representations in Article 6 or any breach of
the Investor's obligations under this Investment Agreement or the Registration
Rights Agreement, or (d) any Liabilities arising solely from the transfer of the
Preferred Shares or the Warrants by any of the Investors to any Person; provided
further, that if and to the extent that such indemnification is unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of such indemnified liability which shall be permissible under
applicable laws. In connection with the obligation of the Company to indemnify
for expenses as set forth above, the Company further agrees to reimburse each
Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel) as they are incurred by such
Indemnified Party; provided, however, that if an Indemnified Party is reimbursed
hereunder for any expenses, such reimbursement of expenses shall be refunded to
the extent it is finally judicially determined that the Liabilities in question
resulted primarily from the willful misconduct, bad faith or gross negligence of
such Indemnified Party. The maximum aggregate amount the Company shall be
required to pay any Investor under this section 7.1 with respect to Liabilities
resulting from any breach of any covenant, agreement, representation or warranty
of the Company in this Investment Agreement shall not exceed the aggregate
Purchase Price paid by such Investor under this Investment Agreement.
7.2 NOTIFICATION. Each Indemnified Party under this Article 7
will, promptly after the receipt of notice of the commencement of any action or
other proceeding against such Indemnified Party in respect of which indemnity
may be sought from the Company under this Article 7, notify the Company in
writing of the commencement thereof. The omission of any Indemnified Party so to
notify the Company of any such action shall not relieve the Company
28
from any liability which it may have to such Indemnified Party (i) other than
pursuant to this Article 7 or (ii) under this Article 7 unless, and only to the
extent that, such omission results in the Company's forfeiture of substantive
rights or defenses. In case any such action or other proceeding shall be brought
against any Indemnified Party and it shall promptly notify the Company of the
commencement thereof, the Company shall be entitled to participate therein and,
to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Party; provided, however, that any
Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action or
proceeding in which both the Company and an Indemnified Party is, or is
reasonably likely to become, a party, such Indemnified Party shall have the
right to employ separate counsel at the Company's expense and to control its own
defense of such action or proceeding if, in the reasonable opinion of counsel to
such Indemnified Party, (a) there are or may be legal defenses available to such
Indemnified Party or to other indemnified parties that are different from or
additional to those available to the Company or (b) any conflict or potential
conflict exists between the Company and such Indemnified Party that would make
such separate representation advisable; provided, however, that in no event
shall the Company be required to pay unreasonable fees or expenses or fees and
expenses under this Section 7 for more than one firm of attorneys in any
jurisdiction in any one legal action or group of related legal actions. The
Company agrees that the Company will not, without the prior written consent of
the Investors, settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the matters
contemplated hereby (if any Indemnified Party is a party thereto or has been
actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the Investors and
each other Indemnified Party from all liability arising or that may arise out of
such claim, action or proceeding. The rights accorded to indemnified parties
hereunder shall be in addition to any rights that any Indemnified Party may have
at common law, by separate agreement or otherwise.
7.3 REGISTRATION RIGHTS AGREEMENT. Notwithstanding anything to the
contrary in this Article 7, the indemnification and contribution provisions of
the Fund Registration Rights Agreement and the Registration Rights Agreement
shall govern any claim made with respect to registration statements filed
pursuant thereto or sales made thereunder.
ARTICLE 8
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees (a) with the
Investors, and each of them, and any Affiliate of the Investors with respect to
all of this Article 8, and (b) with any other Holder, with respect to all of
this Article 8 except Sections 8.1(c), 8.9, 8.10 and 8.12, so long as such
Investor, such Affiliate or such Holder holds any Preferred Shares or Warrants,
and with respect to Section 8.10, 8.11, 8.12 and 8.13 so long as such Investor,
such Affiliate or such Holder holds any shares of Common Stock issued or
issuable upon conversion of the Preferred Shares or exercise of the Warrants:
8.1 FINANCIAL STATEMENTS. The Company shall deliver to the
Investors and any of their Affiliates that are Holders:
29
(a) as soon as available, but not later than one hundred
twenty (120) days after the end of each fiscal year of the Company, a copy of
the audited consolidated balance sheet of the Company and its Subsidiaries as of
the end of such year and the related consolidated statements of income and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous year, all in reasonable detail and accompanied by a
management discussion and analysis of the operations of the Company and its
Subsidiaries for such fiscal year and by the opinion of PricewaterhouseCoopers
LLP (or any successor thereto) or another nationally recognized independent
public accounting firm which report shall state that such consolidated financial
statements present fairly in all material respects the financial position for
the periods indicated in conformity with GAAP applied on a basis consistent with
prior years (except for changes with respect to which such accounting firm
concurs); PROVIDED, HOWEVER, that the delivery of a copy of the Company's Annual
Report on Form 10-K shall satisfy the requirements of this Section 8.1(a);
(b) commencing with the fiscal period ending on June 30,
2001, as soon as available, but in any event not later than forty-five (45) days
(or fifty (50) days if the Company avails itself of the time extension provided
by Rule 12b-25 promulgated under the Exchange Act) after the end of each of the
first three fiscal quarters of each year, the unaudited consolidated balance
sheet of the Company and its Subsidiaries, and the related consolidated
statements of income and cash flow for quarter and for the period commencing on
the first day of the fiscal year and ending on the last day of such quarter, all
certified by an appropriate officer of the Company; PROVIDED, HOWEVER, that the
delivery of a copy of the Company's Quarterly Report on Form 10-Q shall satisfy
the requirements of this Section 8.1(b);
(c) annual budgets and such other financial and operating
data of the Company and its Subsidiaries, as the Investors reasonably may
request, to the extent that such information is formally prepared for the
Company's Chairman, President, Board of Directors and/or banks or other lenders,
subject to the provisions of Section 8.9(b);
(d) at any time when it is not subject to Section 13 or
15(d) of the Exchange Act, upon request, to the Investors and prospective
investors of the Preferred Shares or the Warrants, information of the type that
would satisfy the requirement of subsection (d)(4)(i) of Rule 144A (or any
similar successor provision) under the Securities Act; and
(e) except as otherwise provided in Sections 8.1(a) and
(b), promptly after the same are filed, copies of all Commission Documents.
8.2 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to
the Investors and to any Affiliate of the Investors that is a Holder,
concurrently with the delivery of the financial statements referred to in
Section 8.1(a), a certificate of the Company's Chief Financial Officer stating
that to the knowledge of such officer there is no default under or breach of
Articles 8 and 9, except as specified in such certificates.
8.3 PRESERVATION OF CORPORATE EXISTENCE. The Company shall, and
shall cause each of its Subsidiaries to:
30
(a) preserve and maintain in full force and effect its
corporate or organizational existence under the laws of its jurisdiction of
incorporation or organization except as permitted by Section 9.1;
(b) preserve and maintain in full force and effect all
material rights, privileges, qualifications, licenses and franchises necessary
in the normal conduct of its business; and
(c) use its reasonable efforts to preserve its business
organization.
8.4 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause its
Subsidiaries to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including without limitation:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which the Company and each of its
Subsidiaries is obligated to pay, which are due and which, if unpaid, might by
law become a Lien upon its property (other than Liens which individually or in
the aggregate would not have a material adverse effect on the Condition of the
Company), unless the same are being contested in good faith by appropriate
proceedings and adequate reserves in accordance with GAAP are being maintained
by the Company or such Subsidiary; and
(c) all payments of principal of and interest on
Indebtedness when due (giving effect to any grace periods relating thereto).
8.5 COMPLIANCE WITH LAWS. The Company shall comply, and shall
cause each Subsidiary to comply, in all material respects with all Requirements
of Law and with the directions of any Governmental Authority having jurisdiction
over it or its business, except such as to which such failure to comply would
not have a material adverse effect on the Condition of the Company.
8.6 NOTICES. Upon Knowledge of the Chief Executive Officer, the
President or the Chief Financial Officer of the Company of the events described
below, the Company shall give written notice within 10 days to the Investors of:
(a) the occurrence of any default under, or breach of,
any provision of Article 8 or 9 accompanied by a certificate specifying the
nature of such default or breach, the period of existence thereof and the action
that the Company has taken or proposes to take with respect thereto; and
(b) any (i) material default or event of default under
any material Contractual Obligation, of the Company or any of its Subsidiaries,
or (ii) material dispute, litigation, investigation, proceeding or suspension
which may exist at any time between the Company or any of its Subsidiaries and
any Governmental Authority; each accompanied by a
31
statement setting forth details of the occurrence referred to therein and
stating what action the Company proposes to take with respect thereto.
8.7 ISSUE TAXES. The Company shall pay, or cause to be paid, all
documentary and similar taxes levied under the laws of any applicable
jurisdiction in connection with the issuance of the Preferred Shares and the
Warrants and the execution and delivery of the Transaction Documents and any
modification of the Preferred Shares or the Warrants or such other agreements
and documents and will hold the Investors harmless, without limitation as to
time, against any and all Liabilities with respect to all such taxes.
8.8 RESERVATION OF SHARES.
(a) The Company shall at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue or
delivery upon conversion of the Preferred Shares as provided in the Series G
Certificate of Designation, such number of shares of Common Stock as shall then
be issuable or deliverable upon the conversion of all outstanding Preferred
Shares. Such shares of Common Stock shall, when issued or delivered in
accordance with the Series G Certificate of Designation, be duly and validly
issued and fully paid and non-assessable. The Company shall issue the Common
Stock into which the Preferred Shares are convertible upon the proper surrender
of the Preferred Shares in accordance with the provisions of the Series G
Certificate of Designation and shall otherwise comply with the terms thereof.
(b) The Company shall at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue or
delivery upon exercise of the Warrants as provided therein, the Warrant Shares.
Such Warrant Shares shall, when issued or delivered in accordance with the
Warrants, be duly and validly issued and fully paid and non-assessable. The
Company shall issue the Warrant Shares upon the proper surrender of a notice in
accordance with the provisions of the Warrants and shall otherwise comply with
the terms thereof.
8.9 INSPECTION.
(a) The Company will permit, and will cause each of its
Subsidiaries to permit, representatives of the Investors to visit and inspect
any of its properties, to examine its corporate, financial and operating records
and make copies thereof or abstracts therefrom, and to discuss its affairs,
finances and accounts with their respective officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested, upon reasonable advance notice to the
Company.
(b) The Investors and any Holder which is an Affiliate of
any of the Investors expressly agrees that any confidential information relating
to the Company and its Subsidiaries obtained (i) in negotiation and execution of
this Investment Agreement, (ii) during any inspection pursuant to Section
8.9(a), (iii) pursuant to Section 8.1(c) or 8.10, (iv) from the Company or any
of its Subsidiaries or representatives thereof which is clearly marked
"Confidential" on the first or cover page thereof or (v) in conducting its due
diligence investigation of the Company prior to the execution of this Investment
Agreement, (collectively, the "Information") shall be kept confidential by the
Investors and such Affiliate, and that they
32
shall use their best efforts to cause any person designated pursuant to Section
8.10 to attend meetings of the Board of Directors to keep all Information
confidential.
The term "Information" shall not include any information which
(i) at the time of disclosure or thereafter is generally available to or known
by the public (other than as a result of its disclosure by the Investors or such
Affiliate), (ii) was available to the Investors or such Affiliate on a
non-confidential basis prior to disclosure to the Investors or such Affiliate by
the Company, (iii) becomes available to the Investors or such Affiliate on a
non-confidential basis from a Person who is not to the Investors' or such
Affiliate's knowledge otherwise bound by a confidentiality agreement with the
Company, or (iv) has been independently developed by the Investors or its
Affiliates.
Notwithstanding the foregoing, the Investors and their
Affiliates may disclose Information to: (i) their advisors, representatives,
agents, partners or employees, with the understanding that such parties are
bound by the agreement of the disclosing party in this Section 8.9(b) and (ii)
any prospective transferee of the Preferred Shares or the Warrants or of an
interest in the Investors or in a successor fund sponsored by Xxxxx Brothers
Xxxxxxxx & Co. if such transferee enters into a confidentiality agreement having
substantially the same terms as this Section 8.9(b).
8.10 BOARD REPRESENTATION.
(a) In addition to the two representatives of the Fund
who may serve on the Company's Board of Directors pursuant to the Stock and
Warrant Purchase Agreement dated October 19, 2000, at any time on or after the
Stockholder Approval Certification Date (as that term is defined in the Series G
Certificate of Designation), the Fund may designate one additional, independent
director to serve on the Company's Board of Directors (the "Independent
Director") subject to approval of the Board of Directors, which approval shall
not be unreasonably withheld. Prior to the Fund appointing the Independent
Director, the Company shall use its best efforts to cause a vacancy to be
created on its Board of Directors (by increasing the number of members of the
Board of Directors or otherwise), and, within 21 days of receiving notice from
the Fund, the Company shall use its best efforts to cause the Independent
Director to be selected to fill such vacancy. With respect to the Company, the
Independent Director shall be an "independent director" within the meaning of
Nasdaq Rule 4200(a)(14), an "outside director" within the meaning of Section
162(m) of the Code and the Regulations promulgated thereunder, and not (other
than solely by reason of serving as a director of the Company) an Affiliate,
officer, director, employee or agent of any Investor.
(b) On and after the Stockholder Approval Certification
Date, and commencing with the then next succeeding annual meeting of
stockholders of the Company , the Company shall use its best efforts cause the
Independent Director to be included in the slate of nominees recommended by the
Board to the Company's stockholders for election as directors, and the Company
shall use its reasonable best efforts to cause the election of such Independent
Director, including voting all shares for which the Company holds proxies
(unless otherwise directed by the stockholder submitting such proxy) or is
otherwise entitled to vote, in favor of the election of such person.
33
(c) In the event the Independent Director shall cease to
serve as a director for any reason, the Company shall use its reasonable efforts
to cause the vacancy resulting thereby to be filled by a substitute Independent
Director designated by the Fund in accordance with and meeting the requirements
of Section 8.10(a).
8.11 REGISTRATION AND LISTING. If any shares of Common Stock
required to be reserved for purposes of conversion of the Preferred Shares as
provided in the Series G Certificate of Designation or for purposes of exercise
of the Warrants as provided therein require registration with or approval of any
Governmental Authority under any Federal or state or other applicable law before
such Common Stock may be issued or delivered upon such conversion or exercise,
the Company will endeavor in good faith and as expeditiously as possible to
cause such Common Stock to be duly registered or approved, as the case may be,
unless such registration or approval is required solely because of a breach of
the Investors' representation contained in Section 6.5. So long as the Common
Stock is quoted on the NASDAQ or listed on any national securities exchange, the
Company, if permitted by the rules of such system or exchange, will quote or
list and keep quoted or listed on such system or exchange, upon official notice
of issuance, all Common Stock issuable or deliverable upon conversion of the
Preferred Shares and exercise of the Warrants.
8.12 PRIVATE OFFERING. In the event the Company proposes to sell
Common Stock in an offering not required to be registered under the Securities
Act, it will give the Investors at least 20 Business Days prior notice. If any
of the Investors elects by written notice to the Company within 15 Business Days
after receipt of such notice, it may participate in the sale (under the same
terms and conditions as set out in such offering), by including in such sale in
place of an equal number of shares of Common Stock to be sold by the Company,
such aggregate number of shares of Common Stock as is equal to the product
obtained by multiplying (i) the number of shares of Common Stock proposed to be
sold by the Company by (ii) a fraction (A) the numerator of which is the number
of shares of Common Stock into which the Preferred Shares held by such Investor
have heretofore been or may be converted and (B) the denominator of which is the
sum of (x) the amount of such numerator and (y) the total number of shares of
Common Stock outstanding at such time. The provisions of this Section 8.12 shall
not apply to issuances of Common Stock in connection with: (1) acquisitions by
the Company, (2) the exercise of options or conversion of convertible securities
and (3) services rendered to the Company.
8.13 ADDITIONAL REGISTRATION RIGHTS. The Company shall not provide
any registration rights with respect to its securities which are superior or
inconsistent with those granted under the Registration Rights Agreement.
8.14 CARRIER RECEIVABLES. So long as any Preferred Stock is
outstanding, the Company shall cause: (a) all Carrier Receivables to arise out
of the course of Z-Tel Communications' or Touch 1 Communications' business and
not that of the Company or any other Subsidiary (except Subsidiaries holding
Carrier Contracts, the Carrier Receivables for which are payable to Z-Tel
Communications or Touch 1 Communications); and (b) all Carrier Receivables and
Carrier Contracts to be the assets of Z-Tel Communications or Touch 1
Communications (or in the case of Carrier Contracts (but not Carrier
Receivables) Z-Tel Network Services, Inc.) and not of the Company or any other
Subsidiary.
34
8.15 SALE OF CORPORATION. In the event of a contemplated Change of
Control of the Company, the Company shall, if requested by the Investors holding
a majority of the Preferred Shares, use its best efforts to cause such Change of
Control to be structured in a manner that requires the purchaser(s) to purchase
the Warrants from the Investors at a price equal to the consideration the
Investors would have received had they exercised the Warrants immediately prior
to the consummation of such Change of Control less the exercise price of such
Warrants.
8.16 LIMITATION ON OFFICERS AND DIRECTORS. No Additional Investor
who is an officer or director of the Company shall, at any time prior to the
occurrence of the Stockholder Approval Certification Date, (1) cast, or be
permitted to cast, any vote with respect to any share of Preferred Stock or
submit any share of Preferred Stock for conversion into Common Stock, (2)
exercise, or be permitted to exercise, any Warrant in whole or in part, or (3)
convert, or be permitted to convert, any share of Preferred Stock owned by such
Additional Investor into Common Stock. If, prior to the Stockholder Approval
Certification Date, any share of Preferred Stock owned by any such Additional
Investor otherwise would be required to be converted into Common Stock then, in
lieu of such conversion, the Company shall purchase from such Additional
Investor and such Additional Investor shall sell such share to the Company for
the purchase price then previously paid by such Additional Investor for such
share. If the Stockholder Approval Certification Date shall not have occurred on
or before December 31, 2001, then the Company and the Additional Investor shall
rescind the Additional Investor's participation in this Investment Agreement,
whereupon such Additional Investor shall surrender and return to the Company for
cancellation all shares of Preferred Stock and all Warrants theretofore issued
to such Additional Investor under this Investment Agreement, and the Company
shall return to such Additional Investor all payments made by such Additional
Investor to the Company under this Investment Agreement. Each Additional
Investor consents to every purchase and every rescission effectuated in
accordance with this Section.
8.17 APPOINTMENT OF XXXXX AS ATTORNEY-IN-FACT; SPECIAL POWER OF
ATTORNEY.
Except as otherwise set forth on Schedule 1:
(a) Each Additional Investor (other than Xxxxx), on
behalf of such Additional Investor and also on behalf of such Additional
Investor's successors, assigns, heirs and, if applicable, the executors,
personal representatives or administrators of such person's estate, hereby
irrevocably constitutes and appoints Xxxxx as such person's agent and
attorney-in-fact to (a) receive, accept and acknowledge receipt of all notices,
documents, instruments, materials and information required or permitted to be
transmitted, delivered or provided to such Additional Investor under or pursuant
to this Investment Agreement or any document or instrument referred to therein,
including but not limited to the Series G Certificate of Designation, (b) agree
on such Additional Investor's behalf to waive any of the conditions to such
Additional Investor's obligations to consummate the transactions contemplated by
this Investment Agreement; and (c) to do such further and other things as may,
in the judgment of Xxxxx as attorney-in-fact, be necessary or convenient, and
containing such terms and conditions as Xxxxx as attorney-in-Fact shall deem
advisable, to carry out the purposes of this special power of attorney.
35
(b) Unless the Company has received written notice from
an Additional Investor of termination of this special power of attorney, the
Company may assume that Xxxxx is authorized as attorney-in-fact to take any
action deemed advisable by Xxxxx in connection with the matters contemplated
hereby, and the Company shall have no responsibility to confirm in any manner
the authority of Xxxxx.
(c) All business transacted under this special power of
attorney for the Additional Investor shall be transacted in the Additional
Investor's name, and all endorsements and instruments executed by Xxxxx for the
purpose of carrying out any of the foregoing powers shall contain the Additional
Investor's name, followed by that of Xxxxx and the designation
"Attorney-in-Fact".
(d) If the authority contained herein shall be revoked or
terminated by operation of law without notice, the Additional Investor does
hereby agree for the Additional Investor, and the Additional Investor's
executors, administrators, heirs, successors, and assigns, and in consideration
of the said attorney-in-fact's willingness to act pursuant to this special power
of attorney, to save, indemnify and hold Xxxxx harmless from any loss suffered
or any liability incurred by Xxxxx in so acting after such revocation or
termination without notice. In addition, the Additional Investor does hereby
save, indemnify and hold the Company harmless from any loss suffered or
liability incurred as a result of action in reliance upon the authority granted
to Xxxxx as attorney-in-fact hereunder prior to receipt by the Company of
written notice of such revocation or termination.
8.18 BEST EFFORTS. The Company shall promptly use its best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to obtain Stockholder Approval, including,
without limitation: (a) recommending to the Company's stockholders the approval
of the terms of this Investment Agreement and the issuance of the Preferred
Stock as contemplated by this Investment Agreement; and (b) voting all shares
for which the Company holds proxies or is otherwise entitled to vote (but
excluding any such share held by any other person (other than a stockholder of
the Company party to the Voting Agreement) as to which the Company has received
or is subject to other voting instructions) in favor of the issuance of the
Preferred Stock as contemplated by this Investment Agreement. In addition, the
Company shall use its commercially reasonable best efforts to cause the
Stockholder Approval Certification Date to occur on the earliest practicable
date and in any event no later than December 31, 2001. The Company shall
promptly deliver to the Investors notice that the Stockholder Approval
Certification Date has occurred, or if such date does not occur by December 31,
2001, the Company shall deliver to the Investors notice on such date that the
Stockholder Approval Certification Date has not occurred.
ARTICLE 9
NEGATIVE COVENANTS
------------------
The Company hereby covenants and agrees with the Investors,
any Affiliate of the Investors, and any Holder so long as such Person holds any
Preferred Shares or Warrants, that without the prior consent of such Person in
accordance with Section 11.4:
36
9.1 CONSOLIDATIONS AND MERGERS. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), except the Company may consolidate or
merge with or into, or sell all or substantially all of its assets to, any
Person if:
(a) The corporation or partnership formed by such
consolidation or surviving such merger or the Person which acquires all or
substantially all of the assets of the Company shall be (after giving effect to
such transaction) a Solvent corporation or partnership organized or formed, as
the case may be, and existing under, the laws of the United States, any state
thereof, or the District of Columbia and shall expressly assume in writing all
of the obligations of the Company under this Investment Agreement and the
Transaction Documents;
(b) immediately after giving effect to such transaction,
no default under, or breach of, provisions of Article 8 and 9 exists; and
(c) the Company shall have furnished to the Holders (i)
an opinion of counsel satisfactory to a majority in interest of the Holders
addressing the matters (other than Solvency) set forth in clause (a) above and
(ii) the certificate of the Chief Financial Officer of the Company to the effect
that such transaction has been consummated in compliance with the foregoing
requirements; PROVIDED, that nothing in this Section 9.1 shall affect the rights
of any Holder under this Investment Agreement and the Transaction Documents.
9.2 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall
not permit any of its Subsidiaries to, enter into any transaction with any
Affiliate of the Company or of any such Subsidiary, except on terms no less
favorable to the Company or such Subsidiary than those the Company or such
Subsidiary would obtain in a comparable arm's-length transaction with a Person
not an Affiliate of the Company or such subsidiary; provided, that any
transaction approved by a majority of the independent directors of the Company
shall be conclusively deemed to be on such terms.
9.3 NO INCONSISTENT AGREEMENTS. Neither the Company nor any of its
Subsidiaries shall enter into any loan or other agreement, or enter into any
amendment or other modification to any currently existing agreement, which by
its terms restricts or prohibits the ability of the Company to pay dividends on
the Preferred Stock, to issue Common Stock upon conversion of the Preferred
Stock in accordance with the Series G Certificate of Designation and this
Investment Agreement or to issue the Warrant Shares; provided, however, that the
foregoing shall not prevent the Company from entering into loan or other
agreements that contain restrictions on the ability of the company to pay
dividends on the Preferred Stock either (a) during the existence of an event of
default under such agreements or (b) if such payment or repurchase would,
although not in itself a breach of any covenant in any such agreement, result in
the occurrence of a default or event of default arising from a breach by the
Company of one or more covenants regarding the financial condition of the
Company so long as, on the date such agreement is entered into, (x) the terms of
any such covenants would not prohibit such payment on such date and (y) the
Company does not reasonably anticipate that any of the terms of such covenants
is likely to be breached during the term of such agreement as a result of such
payment of dividend.
37
9.4 ISSUANCE OF PREFERRED STOCK. The Company shall not issue any
Preferred Stock except pursuant to this Investment Agreement.
9.5 TAXABLE DIVIDENDS. The Company shall use commercially
reasonable efforts to not take any action that would require the reporting of
any taxable stock dividends to the holders of the Preferred Shares under Section
305 of the Code.
ARTICLE 10
DISPOSITIONS
------------
10.1 DISPOSITIONS BY XXXXX.
(a) If D. Xxxxxxx Xxxxx ("Xxxxx") at any time or from
time to time proposes or agrees to sell or transfer to a Person or a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) of Persons, any
shares of Common Stock held by him, and so long as the Fund and all Holders that
are Affiliates of the Fund hold collectively at least five percent of the Common
Stock issued or issuable upon conversion of the Preferred Stock, Xxxxx shall
give written notice of such proposed sale to the Fund within 15 Business Days
prior to the date of such sale, which notice shall state the price and other
terms of the proposed transaction and shall state the number of shares proposed
to be sold; PROVIDED, HOWEVER, that the provisions of this Section 10.1(a) shall
not apply to the sale or transfer of any shares of Common Stock held by Xxxxx
unless the sum of such shares plus all other shares of Common Stock sold or
transferred by Xxxxx during the period from October 19, 2000 to the date of the
proposed sale or transfer of such share shall be equal to or greater than 25% of
the number of shares of Common Stock held by Xxxxx on October 19, 2000 (assuming
the exercise of all options held by Xxxxx). So long as the Fund and all Holders
that are Affiliates of the Fund hold collectively at least five percent of the
Common Stock issued or issuable upon conversion of the Preferred Stock, the Fund
and each such Holder may, upon giving written notice thereof to Xxxxx within ten
Business Days after receipt of the notice provided for in the first sentence of
this Section 10.1, participate in such sale on the same terms and conditions as
those offered by Xxxxx to such third party or parties, by including in such sale
in place of an equal number of shares of Common Stock held by Xxxxx (excluding
any shares with respect to which the provisions of this Section 10.1(a) shall
not apply in accordance with the preceding sentence hereof) such aggregate
number of shares of Common Stock as is equal to the product obtained by
multiplying (i) the number of shares of Common Stock proposed to by sold by
Xxxxx by (ii) a fraction (A) the numerator of which is the number of shares of
Common Stock into which the Preferred Shares held by the Fund and each such
Holder have theretofore been converted or may be converted and (B) the
denominator of which is the sum of (x) the amount of such numerator and (y)
7,360,800 (which number shall be adjusted appropriately for any subdivision,
combination, reclassification or similar event with respect to the Common
Stock).
(b) Notwithstanding anything to the contrary in this
Investment Agreement, including Section 10.1(a) hereof, the provisions of this
Section 10.1 shall not apply to any sale or transfer by Xxxxx of any shares of
Common Stock (i) to (A) a spouse, (B) any of his lineal descendants, (C) a
partnership or trust set up for the benefit of one or more of such
38
persons or (D) any entity controlled by Xxxxx; PROVIDED, HOWEVER, that any
proposed sale or transfer by any of such transferees shall be deemed to be a
sale or transfer by Xxxxx for purposes of this Section 10.1, or (ii) pursuant to
a transaction intended to be a charitable contribution.
(c) The provisions of this Section 10.1 shall terminate
upon the death or disability of Xxxxx or if Xxxxx is no longer either an officer
or director of the Company. The term "disability" shall mean, with respect to
Xxxxx, that due to physical or mental infirmity, whether total or partial, Xxxxx
is permanently unable to perform his usual duties for the Company.
10.2 DISPOSITIONS BY THE INVESTOR.
(a) Except as set forth below, until the earlier to occur
of (i) the first anniversary of the Effective Date, (ii) the date on which the
Investors collectively cease to own at least five percent of the Common Stock
issued or issuable upon conversion of the Preferred Stock, (iii) the occurrence
of a Change of Control and (iv) the occurrence of a breach with respect to any
of the covenants set forth in Sections 8.8, 8.9, 8.10, 8.11, 8.12, 8.13 and 8.14
or Article 9, which breach remains uncured ten Business Days after written
notice is provided to the Company (the "Transfer Restriction Period"), no
Investor shall transfer or sell any derivative security with respect to or
otherwise dispose of its Preferred Shares, Common Stock issued upon conversion
of the Preferred Shares, Warrants or Warrant Shares (collectively, the "Series G
Stock"); PROVIDED that Xxxxx may transfer to any Additional Investor any
Preferred Shares purchased by Xxxxx in excess of his Percentage Allocation of
the first Closing Drawdown Amount in accordance with Section 2.1(c).
(b) Notwithstanding anything in this Section 10.2 to the
contrary, the Fund may, at any time and from time to time, sell or otherwise
transfer the Series G Stock (i) pursuant to an exchange offer or a tender offer
not opposed by a majority of the Company's Board of Directors, (ii) pursuant to
any all cash tender offer made by any Person for all of the issued and
outstanding Common Stock, (iii) pursuant to the Fund Registration Rights
Agreement, (iv) to any of the Fund's Affiliates, or (v) to the Fund's limited
partners pursuant to a pro rata distribution; PROVIDED, HOWEVER, that any
Affiliates (or limited partners) of the Fund to which such securities are
transferred shall agree to be bound by all of the transfer restrictions set
forth in this Section 10.2.
(c) Except as otherwise provided in Section 10.2(b), any
securities transferred by the Investors shall not thereafter be subject to the
provisions of this Section 10.2.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 SURVIVAL OF PROVISIONS. All warranties, representations and
covenants made by the Company in or under this Investment Agreement shall be
considered to have been relied upon by the Investors and shall survive the
execution and delivery of this Investment Agreement and the issuance to the
Investors of the Preferred Shares and the Warrants, regardless of any
investigation made by the Investors or on their behalf. All warranties,
representations and
39
covenants made by the Investors or on their behalf shall survive the execution
and delivery of this Investment Agreement and the issuance to the Investors of
the Preferred Shares and the Warrants. Except as otherwise set forth in Article
8 or 9, all of the representations and warranties made herein and each of the
provisions of Articles 5, 6, 7 and 11 shall survive the execution and delivery
of this Investment Agreement, any investigation by or on behalf of the Investors
or any Affiliate, acceptance of the Preferred Shares and the Warrants and
payment therefor, payment or prepayment of the Preferred Shares and the Warrants
upon redemption or otherwise, conversion of the Preferred Shares and exercise of
the Warrants or termination of this Investment Agreement; provided, that the
representations and warranties set forth in Articles 5 and 6 shall expire and
terminate upon the earlier of (i) conversion of all of the Preferred Shares into
Common Stock and the exercise of all of the Warrants for Common Stock and (ii)
the second anniversary of the later of (x) the Effective Date or (y) any
Closing.
11.2 NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(a) if to the Fund at the following address:
The 1818 Fund III, L.P.
c/o Brown Brothers Xxxxxxxx & Co.
00 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier No.: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxx
with a copy to:
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
1285 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000-0000
Telecopier No.: (000) 000-0000
Attention: Xxxxxxx Xxxxx, Esq.
(b) if to the Company at the following address:
Z-Tel Technologies, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxx, Xxxxxxx 00000
Telecopier No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
with a copy to:
Trenam Xxxxxx
0000 Xxxx xx Xxxxxxx Xxxxx
00
Xxxxx, XX 00000
Fax: 000-000-0000
Attn: Xxxx Xxxx, Esq.
(c) if to the Additional Investors at the following
address:
c/o D. Xxxxxxx Xxxxx
Z-Tel Technologies, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxx, Xxxxxxx 00000
Telecopier No.: (000) 000-0000
or, as to any Additional Investor, as otherwise set
forth on Schedule 1
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
11.3 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. This
Investment Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. Each of the Investors
may assign any of its rights under this Investment Agreement only to any of its
Affiliates; provided, that any such Affiliate (including any limited partner)
agrees to be bound by the provisions in this Investment Agreement. The Company
may not assign any of its rights under this Investment Agreement without the
written consent of the Investors. Except as provided in Article 7, no Person
other than the parties hereto is intended to be a beneficiary of this Investment
Agreement or the Transaction Documents. Nothing in this Section 11.3 shall
prohibit the Investors from transferring Common Stock, Preferred Shares or the
Warrants to any person nor shall anything in this Section affect any Holder's
rights under the Registration Rights Agreement.
11.4 AMENDMENT AND WAIVER. No failure or delay on the part of the
Company or the Investors in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Investors at law, in equity or otherwise. Any
amendment, supplement, modification or termination of or to any provision of
this Investment Agreement, any waiver of any provision of this Investment
Agreement, and any consent to any departure by the Company from the terms of any
provision of this Investment Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given and shall be
effective only when signed in writing by or on behalf of holders of at least 50%
of the Common Stock issued and issuable upon conversion of the Preferred Shares
(whether or not converted) (it being understood that the terms of this
Investment Agreement may be waived or amended with the written consent of
holders of at least 50% of the Common Stock issued and issuable upon
41
conversion of the Preferred Shares (whether or not converted)). Except where
notice is specifically required by this Investment Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
11.5 COUNTERPARTS. This Investment Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
11.6 HEADINGS. The headings in this Investment Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
11.7 DETERMINATIONS. Except where any provision expressly requires
that a determination be reasonable or a consent not be unreasonably withheld, or
be subject to qualifications to similar effect, all determinations to be made by
the Company, the Investors or any Holder hereunder in its opinion or judgment or
with its approval or otherwise shall be made by it in its sole discretion.
11.8 GOVERNING LAW. This Investment Agreement has been negotiated,
executed and delivered in the State of New York and shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
11.9 JURISDICTION. Each party to this Investment Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Investment Agreement or any agreements or transactions
contemplated hereby shall be brought only in the courts of the State of New York
located in New York City or of the United States of America for the Southern
District of New York and hereby expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and expressly waives any claim
of improper venue and any claim that such courts are an inconvenient forum. Each
party hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the address
set forth in Section 11.2, such service to become effective 10 days after such
mailing.
11.10 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
11.11 RULES OF CONSTRUCTION. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Investment Agreement.
11.12 REMEDIES. If a breach of this Investment Agreement, any
Warrant or the Series G Certificate of Designation by the Company occurs and is
continuing, any Holder may
42
pursue any available remedy by proceeding at law or in equity to enforce the
performance (including, without limitation, the specific performance) of any
provision of this Investment Agreement, the Warrant or the Series G Certificate
of Designation. Except as otherwise provided by law, a delay or omission by any
Holder in exercising any right or remedy accruing upon any such breach shall not
impair the right or remedy or constitute a waiver of or acquiescence in any such
breach. No remedy is exclusive of any other remedy. All available remedies are
cumulative.
11.13 ENTIRE AGREEMENT. This Investment Agreement, together with the
exhibits and schedules hereto and the Transaction Documents, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Investment Agreement, together with the
exhibits and schedules hereto, and the Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
11.14 ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Investment Agreement (including, without
limitation, the representations and warranties of the Investors), the
Transaction Documents or any other document or instrument contemplated hereby or
thereby, or where any provision hereof or thereof is validly asserted as a
defense, the successful party shall be entitled to recover reasonable attorneys'
fees, charges and disbursements in addition to any other available remedy.
11.15 PUBLICITY. Except as may be required by applicable law or
stock exchange rules, neither party hereto shall issue a publicity release or
announcement or otherwise make any public disclosure concerning this Investment
Agreement or the transactions contemplated hereby, without prior approval by the
other party hereto. If any announcement is required by law to be made by either
party hereto, prior to making such announcement such party will deliver a draft
of such announcement to the other party and shall give the other party an
opportunity to comment thereon.
11.16 EXPENSES. The Company acknowledges and agrees that whether or
not the transactions contemplated hereby are consummated, the Company shall
reimburse the Investors for (i) all reasonable consulting and legal fees and
expenses and other charges of the Investors in connection with the negotiation,
execution and delivery of this Investment Agreement and the Transaction
Documents and the purchase of the Preferred Shares (including, without
limitation, all reasonable fees, disbursements and related charges of PWRW&G)
and (ii) reasonable out-of pocket expenses for attendance at meetings of the
Board of Directors of the Company by the Fund's Directors and any
representative. The Company agrees that it will make such reimbursements as such
fees and expenses are incurred, upon request from the Investors.
43
IN WITNESS WHEREOF, the parties hereto have caused this
Investment Agreement to be executed and delivered by their respective
representatives hereunto duly authorized as of the date first above written.
Z-TEL TECHNOLOGIES, INC.
By: /s/ D. Xxxxxxx Xxxxx
---------------------------------------
Name: D. Xxxxxxx Xxxxx
Title: President and CEO
THE 1818 FUND III, L.P.
By: Xxxxx Brothers Xxxxxxxx & Co.,
General Partner
By: /s/ Xxxxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxxxx X. Xxxxxx
Title: Partner
44
IN WITNESS WHEREOF, the parties hereto have caused this
Investment Agreement to be executed and delivered by their respective
representatives hereunto duly authorized as of the date first above written.
ADDITIONAL INVESTORS
D. XXXXXXX XXXXX
By: /s/ D. Xxxxxxx Xxxxx
---------------------------------------
Name: D. Xxxxxxx Xxxxx
XXXXXXX XXXXXX
By: /s/ Xxxxxxx Xxxxxx
---------------------------------------
Name: Xxxxxxx Xxxxxx
FULMEAD VENTURES LIMITED
By: /s/ X. Xxxxxx
---------------------------------------
Name: X. Xxxxxx
Title: Director
XXXXXXX XX XXXXXXX
By: /s/ Xxxxxxx Xx Xxxxxxx
---------------------------------------
Name: Xxxxxxx XxXxxxxxx
N. XXXXX XXXXXXX
By: /s/ N. Xxxxx Xxxxxxx
---------------------------------------
Name: N. Xxxxx Xxxxxxx
XXXXXXX XXXXX
By: /s/ Xxxxxxx Xxxxx
---------------------------------------
Name: Xxxxxxx Xxxxx
XXXX XXXXXXXX
By: /s/ Xxxx Xxxxxxxx
---------------------------------------
Name: Xxxx Xxxxxxxx