TELSCAPE INTERNATIONAL, INC.
SECURITIES PURCHASE AGREEMENT
December 7, 2000
EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Warrant Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Legal Opinion
Exhibit E Investor Questionnaire
Schedule 1 Purchasers, Shares Purchased, Warrants Purchased and Purchase
Price (Initial Closing)
Schedule 2 Purchasers, Shares Purchased, Warrants Purchased and Purchase
Price (Subsequent Closing)
Schedule 2.2 Capitalization
Schedule 2.3 Subsidiaries
Schedule 2.5 Compliance with Securities Laws, Valid Issuance of Securities
Schedule 2.6 Consents
Schedule 2.7 Litigation
Schedule 2.8 Intellectual Property
Schedule 2.10 Financial Statements
Schedule 2.11 Material Customers and Contracts
Schedule 2.12 Liabilities and Obligations
Schedule 2.15 Conflicts of Interest
Schedule 2.16 Registration Rights and Voting Rights
Schedule 2.18 Title to Property and Assets
Schedule 2.19 Compensation; Employment Agreements
Schedule 2.20 Tax Returns and Audits
Schedule 2.21 Labor and Employee Relations
Schedule 2.22 Permits
Schedule 2.24 Absences of Changes
Schedule 2.25 Environmental Matters
Schedule 2.27 Insurance
Schedule 2.29 Employee Benefit Plans
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
December 7, 2000, is made by and among TELSCAPE INTERNATIONAL, INC., a Texas
corporation (the "Company"), and the Purchasers (as defined herein) identified
on Schedule 1 and Schedule 2 attached hereto.
WITNESSETH:
WHEREAS, subject to the terms and conditions set forth herein, the Company
desires to issue and sell to the Purchasers, and the Purchasers desire to
purchase from the Company, shares of the Company's Class G Senior Preferred
Stock, par value $0.001 per share, and warrants to purchase shares of the
Company's common stock, par value $0.001 per share (the "Common Stock") for the
aggregate purchase price set forth on Schedule 1 and Schedule 2 attached hereto.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Purchase and Sale of Preferred Stock and Warrants.
1.1 Sale and Issuance of Class G Senior Preferred Stock and Warrants.
(a) Subject to the terms and conditions set forth herein, on the Initial
Closing Date (as defined below) or on any Subsequent Closing Date (as defined
below), as the case may be, the Purchasers set forth on Schedule 1 hereto (the
"Initial Purchasers") and the Purchasers set forth on Schedule 2 hereto (the
"Subsequent Purchasers," and together with the Initial Purchasers, the
"Purchasers") each severally agree to purchase from the Company, and the Company
agrees to issue and sell to each such Initial Purchaser or Subsequent Purchaser
in the amounts and for the purchase price as set forth opposite such Initial
Purchaser's name on Schedule 1 attached hereto or such Subsequent Purchaser's
name on Schedule 2 attached hereto (i) shares of the Company's Class G Senior
Preferred Stock, par value $0.001 per share (the "Class G Preferred Shares"),
having the rights, privileges and preferences set forth in the Certificate of
Designation attached hereto as Exhibit A (the "Certificate"), and (ii) warrants
to purchase shares of the Company's Common Stock at an exercise price of $0.01
per share (as such price per share may be adjusted as provided herein) (the
"Warrants"), which Warrants shall be subject to the terms and conditions set
forth in one or more Warrant Agreements in substantially the form attached
hereto as Exhibit B (the "Warrant Agreement").
(b) The parties agree that the number of Class G Preferred Shares and
Warrants (together, the "Securities") to be issued by the Company to the
Purchasers on the Initial Closing Date or any Subsequent Closing Date, as the
case may be, and the exercise price of the Warrants, shall be equitably
adjusted, subject to the agreement of each party, to reflect any spin-off,
split-up, reclassification, combination of shares, recapitalization or similar
corporate reorganization, or any consolidation or merger under which the
surviving entity is or becomes the "Company" as defined in this Agreement, in
any such case which occurs between the
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effective date of this Agreement and the Initial Closing Date or any Subsequent
Closing Date, as the case may be; provided that no such event shall occur, and
no such action will be taken, without the prior written consent of the
Purchasers.
1.2 Closing.
(a) Subject to the satisfaction or, to the extent permissible by law,
waiver by the parties hereto on the Initial Closing Date or any Subsequent
Closing Date of the conditions described in Sections 4 and 5 of this Agreement,
the closings of the issuance and sale of the Securities (respectively, the
"Initial Closing" and any "Subsequent Closing" and, sometimes collectively
referred to herein as the "Closing") shall occur on such date or dates as the
Company and the Purchasers may mutually agree in writing (such date on which the
Initial Closing takes place being the "Initial Closing Date" and such dates,
which in no event shall be later than December 31, 2000, on which any Subsequent
Closing takes place being a "Subsequent Closing Date"). Both the Initial Closing
and any Subsequent Closing shall take place at the offices of the Company at
0000 Xxxxxxxxxxx Xxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxxxx 00000, or at such other
place as the Company and the Purchasers may mutually agree upon in writing.
(b) At the Initial Closing, the Company shall deliver to each Initial
Purchaser certificates registered in the name of such Initial Purchaser
representing the Class G Preferred Shares being purchased hereby in accordance
with Schedule 1 hereto, and the Initial Purchasers shall deliver to the Company
the purchase price therefore, as provided on Schedule 1, by wire transfer of
immediately available federal funds to such account as the Company shall
designate in writing to the Initial Purchasers.
(c) At any Subsequent Closing, the Company shall deliver to each Subsequent
Purchaser certificates registered in the name of such Subsequent Purchaser
representing the Class G Preferred Shares being purchased hereby in accordance
with Schedule 2 hereto, and the Subsequent Purchasers shall deliver to the
Company the purchase price therefore, as provided on Schedule 2, by wire
transfer of immediately available federal funds to such account as the Company
shall designate in writing to the Subsequent Purchasers.
(d) By January 5, 2000, the Company shall deliver to each Purchaser
certificates registered in the name of such Purchaser representing such
Purchaser's pro rata share of the Warrants purchased hereby and in accordance
with the Warrant Agreement. Notwithstanding the foregoing, any Warrants
purchased hereunder shall be deemed to have been issued pro rata among the
Purchasers on the day of the Initial Closing or any Subsequent Closing.
1.3 Use of Proceeds. The Company hereby agrees that it shall use the net
proceeds received hereunder from the sale of the Securities (after deduction of
all costs and expenses of such sale) to build out and interconnect its
competitive local exchange and Mexican fiber optic networks, to repay debt and
to fund working capital and capital expenditures of the Company.
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2. Representations, Warranties and Covenants of the Company. The Company
hereby represents and warrants to and covenants with the Purchasers as follows
(except as set forth on the Schedules hereto, which exceptions shall be deemed
to be representations and warranties as if made hereunder):
2.1 Organization, Qualifications and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas and has all requisite corporate power and authority to own
and hold its properties and to carry on its business as now conducted and as
proposed to be conducted. Each of the Company's Subsidiaries (the term
"Subsidiary," and collectively, "Subsidiaries," means any entity of which the
Company owns 10% or more of the capital stock, calculated on a fully-diluted
basis) is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization. The Company and each of its
Subsidiaries is duly qualified to conduct business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on the business (as now conducted or as proposed to be
conducted), financial condition, operating results, assets, properties or
prospects of the Company and its Subsidiaries, taken as a whole (each such
effect, a "Material Adverse Effect"). The Company has all requisite corporate
power and authority to execute, deliver and perform this Agreement, the Warrant
Agreement and the Registration Rights Agreement and to sell, issue and deliver
to the Purchasers the Securities and the shares of Common Stock issuable upon
exercise of the Warrants (collectively, the "Underlying Shares"). The Company
has made available to the Purchasers complete and correct copies of the
Company's Articles of Incorporation (including all amendments thereto) and
Bylaws, in each case in effect as of the date hereof (the "Existing Articles"
and "Existing Bylaws," respectively). Correct and complete copies of all stock
records and minute books of the Company have been made available to the
Purchasers.
2.2 Capitalization. The authorized, issued and outstanding capital stock of
the Company is set forth on Schedule 2.2. All of the issued and outstanding
shares of capital stock (including all options, warrants and convertible or
exercisable securities) have been duly authorized and validly issued, are fully
paid and nonassessable, and were offered, issued, sold and delivered by the
Company in compliance with all applicable laws, including, without limitation,
those laws concerning the issuance of securities. None of such shares were
issued in violation of the preemptive rights of any past or present
stockholders. Except as set forth on Schedule 2.2, no subscription, option,
warrant, call, convertible or exchangeable security, other conversion right or
commitment of any kind exists which obligates the Company to issue any of its
capital stock or other securities.
2.3 Subsidiaries. Except as set forth on Schedule 2.3, the Company owns, of
record or beneficially, or controls, directly or indirectly, no capital stock,
securities convertible into or exchangeable for capital stock or any other
equity interest in any corporation, association or other business entity and all
of the entities set forth on Schedule 2.3 are Subsidiaries. Except as set forth
on Schedule 2.3, the Company is not, directly or indirectly, a participant in
any joint venture, limited liability company, partnership or other noncorporate
entity. Except as set forth on Schedule 2.3, the Company owns all of the capital
stock and securities convertible or exchangeable for capital stock of the
Subsidiaries listed on Schedule 2.3 free and clear of all liens. Except as set
forth on Schedule 2.3, no subscription, option, warrant, call, convertible or
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exchangeable security, other conversion right or commitment of any kind exists
which obligates any of the Company's Subsidiaries to issue any of their capital
stock or other securities.
2.4 Authorization and Validity of Investment Agreements.
(a) All corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization, execution and
delivery of this Agreement, the Warrant Agreement, and the Registration Rights
Agreement in the form attached hereto as Exhibit C (the "Registration Rights
Agreement" and with the Certificate, this Agreement and the Warrant Agreement,
and all other documents and instruments to be executed in connection therewith
collectively, the "Investment Agreements") has been taken. All corporate action
on the part of the Company, its officers, directors and shareholders necessary
for: (i) the performance of all obligations of the Company hereunder and under
the other Investment Agreements and the consummation of the transactions
contemplated hereby and thereby, and (ii) the authorization, issuance, sale and
delivery of the Securities and the Underlying Shares to the Purchasers pursuant
to the terms of the Investment Agreements has been taken.
(b) (1) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, and (2) the other
Investment Agreements, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms; except in each case of
subclause (1) and (2) (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors, rights generally; (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies; or (iii) to the extent the indemnification
provisions contained in the Investment Agreements may be limited by applicable
federal or state securities laws.
2.5 Compliance with Securities Laws; Valid Issuance of Securities. The
Securities being issued to the Purchasers hereunder, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully-paid and nonassessable with the
rights, powers and privileges as set forth herein, in the Company's Articles of
Incorporation, as amended, and in the Warrant Agreement, and will be free and
clear of all liens, charges, claims, encumbrances and restrictions other than
restrictions on transfer under the Investment Agreements and applicable federal
and state securities laws, and will be issued pursuant to an exemption from the
registration requirements of all applicable federal and state securities laws.
The Underlying Shares issuable upon the exercise of the Warrants purchased
hereunder are duly and validly reserved for issuance, and upon issuance in
accordance with the terms of the Company's Articles of Incorporation, as
amended, and the Warrant Agreements, shall be duly and validly issued,
fully-paid and nonassessable and will be free of all liens, charges, claims,
encumbrances and restrictions on transfer other than restrictions on transfer
under the Investment Agreements and applicable federal and state securities
laws, and will be issued pursuant to an exemption from the registration
requirements of all applicable federal and state securities laws. Except as set
forth on Schedule 2.5, the issuance, sale and delivery of the Securities and the
Underlying Shares are not subject to any preemptive or similar
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right of any shareholder of the Company or any right of first refusal or other
right in favor of any person. The issuance of the Underlying Shares will not
trigger any anti-dilution adjustments for any shares of capital stock of the
Company outstanding on the date hereof.
2.6 Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, foreign, state or local governmental authority is required on the part
of the Company or any of its Subsidiaries in connection with the consummation of
the transactions contemplated by the Investment Agreements, except for filings
pursuant to applicable state securities laws and Regulation D of the Securities
Act of 1933, as amended (the "Securities Act"). Except as set forth on Schedule
2.6, no consent of any holder of any class of the Company's capital stock or any
other Person (as defined below) is required in connection with the transactions
contemplated by this Agreement.
2.7 Litigation and Compliance with Law. Except as set forth on Schedule
2.7, there are no actions, suits or proceedings, pending or, to the knowledge of
the Company threatened against the Company or its Subsidiaries, at law or in
equity, or before or by any governmental authority having jurisdiction over the
Company or its Subsidiaries, nor, to the Company's knowledge, is there any
reasonable basis for the foregoing. No written notice of any claim, action, suit
or proceeding, whether pending or threatened, has been received by the Company
or its Subsidiaries. Except to the extent set forth on Schedule 2.7, the Company
and its Subsidiaries have conducted and are conducting their respective
businesses in compliance with all laws applicable to the Company or its
Subsidiaries, its assets or the operation of its business, except such
non-compliance that would not have a Material Adverse Effect.
2.8 Intellectual Property. Set forth on Schedule 2.8 attached hereto is a
list of all patents, pending patent applications, trademarks, service marks,
trade names, copyrights, licenses, computer codes or computer software,
proprietary rights, proprietary processes and other intellectual property rights
(collectively "Intellectual Property") used by the Company or any of its
Subsidiaries in their respective businesses (as currently conducted or proposed
to be conducted), with an indication as to which of such items are owned by or
licensed to the Company or any of its Subsidiaries and are material to the
Company and its Subsidiaries (the "Company Intellectual Property"). The
Company's and its Subsidiaries' legal rights to use the Intellectual Property
are sufficient for the use thereof in their respective businesses as now
conducted and as proposed to be conducted, except where the failure would not
have a Material Adverse Effect. None of the Company or any of its Subsidiaries
has received any communications alleging that the Company or any of its
Subsidiaries has violated or, by conducting its business as now conducted or as
proposed to be conducted, would violate any of the rights in the Intellectual
Property of any other individual, corporation, association, partnership, joint
venture, trust, estate, limited liability company, limited liability
partnership, joint stock company, unincorporated organization or government or
any agency or political subdivision thereof, or other entity or organization
(each, a "Person"). To the Company's knowledge, none of the Company or any of
its Subsidiaries is infringing upon the right or claimed right of any Person
with respect to any of the Company Intellectual Property. None of the Company or
any of its Subsidiaries has licensed any of the Company Intellectual Property to
any other Person, nor does any other Person have an option or any other right to
acquire any of the Company Intellectual Property other than in the ordinary
course of business (except for the
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Company Intellectual Property that is in the public domain). To the Company's
knowledge, none of the employees of the Company or any of its Subsidiaries is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement regarding Intellectual Property, or subject to
any order, writ, injunction, judgment, instrument or decree of any court,
administrative agency, government agency or instrumentality that would interfere
with the use of such employee's best efforts to promote the interests of the
Company or any of its Subsidiaries with regards to the Company Intellectual
Property or that would conflict with the business of the Company or such
Subsidiary (as currently conducted or proposed to be conducted) with respect to
the Intellectual Property. None of the execution or delivery of the Investment
Agreements, nor the carrying on of the business of the Company or any of its
Subsidiaries (as currently conducted or proposed to be conducted) by their
respective employees, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions, or provisions of, or constitute a default
under, any contract or respective other agreement, covenant or instrument with
respect to Intellectual Property under which any such employee is obligated. It
is not, nor will it be necessary, to use any inventions of any of the current
employees of the Company or its Subsidiaries (or Persons the Company currently
intends to hire) made prior to their employment with the Company or its
Subsidiaries and to which the Company or its Subsidiaries do not otherwise have
rights.
2.9 Compliance.
None of the Company or any of its Subsidiaries is in violation or in
default of any provisions of its respective Articles of Incorporation, bylaws or
of any order, writ, injunction, judgment, instrument, decree or contract to
which it is a party or by which it is bound or, to its knowledge, of any
provision of federal or state statute, rule or regulation (each such provision a
"Law") applicable to the Company or any of its Subsidiaries which violations or
defaults would, either individually or in the aggregate, have a Material Adverse
Effect. The execution, delivery and performance of the Investment Agreements and
the consummation of the transactions contemplated hereby or thereby do not
conflict with any Law, and do not and will not, with or without the passage of
time and/or the giving of notice: (i) result in any such violation or be in
conflict with or constitute a default under any such provision, order, writ,
injunction, judgment, instrument, decree or contract; (ii) result in the
creation of any lien, security interest, charge or encumbrance upon the capital
stock or any assets of the Company or any of its Subsidiaries; or (iii) give any
third party the right to modify, terminate or accelerate any obligation under
any such provision, order, writ, injunction, judgment, instrument, decree or
contract.
2.10 Financial Statements.
(a) The Company has made available to the Purchasers complete copies of the
following financial statements:
(i) the audited consolidated balance sheets of the Company as of
December 31, 1997, 1998 and 1999 and the related audited
consolidated statements of income, stockholders' equity and cash
flows for the three annual periods ended December 31, 1999,
together with the related notes, schedules and audit report of
the Company's independent accountants
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(such balance sheets and the related statements of income and the
related notes and schedules are referred to herein as the
"Year-End Financial Statements"); and
(ii) the unaudited consolidated balance sheet (the "Interim Balance
Sheet") of the Company as of September 30, 2000 (the "Balance
Sheet Date") and the related unaudited consolidated statement of
operations for the interim period ended on the Balance Sheet
Date, together with the related notes and schedules (such balance
sheets, the related statements of income and the related notes
and schedules are referred to herein as the "Interim Financial
Statements"). The Year-End Financial Statements and the Interim
Financial Statements (collectively, the "Financial Statements")
are attached as Schedule 2.10 to this Agreement.
(b) Except as set forth on Schedule 2.10, the Financial Statements have
been prepared from the books and records of the Company in conformity with GAAP
(except for the absence of notes in the Interim Financial Statements and that
the Interim Financial Statements are subject to year-end audit adjustments, none
of which are expected to be material) and will present fairly in all material
respects the financial position and results of operations of the Company and its
Subsidiaries as of the dates of such statements and for the periods covered
thereby. The books of account of the Company have been kept accurately in all
material respects in the ordinary course of business, the transactions entered
therein represent bona fide transactions, and the revenues, expenses, assets and
liabilities of the Company have been properly recorded therein in all material
respects.
2.11 Material Customers and Contracts.
(a) Schedule 2.11 sets forth an accurate list of (i) all customers
representing 10% or more of the Company's and its Subsidiaries consolidated
revenues for the fiscal year ended December 31, 1999 or the interim period ended
on the Balance Sheet Date (the "Material Customers"), and (ii) all contracts,
warranties, commitments and similar agreements to which the Company or any of
its Subsidiaries are currently a party or by which they or any of their
properties are bound, involving, (A) customer contracts in excess of $100,000,
including, without limitation, consignment contracts, (B) contracts with any
labor organizations, (C) leases providing for annual rental payments in excess
of $100,000, (D) loan agreements, (E) pledge and security agreements, (F)
indemnity or guaranty agreements or obligations , (G) bonds, (H) notes, (I)
mortgages, (J) joint venture or partnership agreements, (K) options to purchase
real or personal property, (L) agreements relating to the purchase or sale by
the Company of assets (other than oral agreements relating to sales of inventory
or services in the ordinary course of business, consistent with past practices)
or securities for more than $100,000, individually, (M) all non-compete
agreements to which the Company is a party and which restrict the Company's
ability to compete, and, to the Company's knowledge, all non-compete agreements
between the Company's current officers and employees and any third parties, and
(N) other material agreements of the Company not made in the ordinary course of
business that could have a Material Adverse Effect. Prior to the date hereof,
the Company has made available to the Purchasers complete and correct copies,
including all amendments, of all such agreements.
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(b) Except to the extent set forth on Schedule 2.11, (i) no Material
Customer has canceled or substantially reduced or, to the knowledge of the
Company, intends to cancel or substantially reduce its purchases of the
Company's products or services; and (ii) each contract listed on Schedule 2.11
(each a "Material Contract"), is valid and subsisting and the Company is in
compliance with all commitments and obligations pertaining to it under each
Material Contract and is not in default under any Material Contract, no notice
of default has been received by the Company regarding any Material Contract, and
to the knowledge of the Company, there is no event which, with notice or the
passage of time or both, would result in a default under any Material Contract,
in any case where such noncompliance or default would have a Material Adverse
Effect on the Company.
(c) Except to the extent set forth on Schedule 2.11, the Company is not a
party to any governmental contracts subject to price redetermination or
renegotiation. Except to the extent set forth on Schedule 2.11, the Company is
not required to provide any bonding or other financial security arrangements in
any amount in connection with any transactions with any of its customers or
suppliers, the failure of which would have a Material Adverse Effect on the
Company.
2.12 Liabilities and Obligations. Except as set forth on Schedule 2.12, the
Company has no material liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature except liabilities, obligations or
contingencies (i) that are accrued or reserved against in the Financial
Statements or reflected in the notes thereto or (ii) that were incurred after
the Balance Sheet Date and were incurred in the ordinary course of business,
consistent with past practices. Schedule 2.12 sets forth the Company's
outstanding principal amount of indebtedness for borrowed money (including
overdrafts) as of September 30, 2000.
2.13 No Misrepresentation. None of the representations or warranties of the
Company contained in this Agreement, the schedules and exhibits attached hereto,
the other Investment Agreements or any certificate furnished or to be furnished
to the Purchasers at Closing (when read together), contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. There is no fact which has not been
disclosed to the Purchasers in writing of which the Company has knowledge, and
which has had or would reasonably be anticipated to have a Material Adverse
Effect, and the Company is not aware of any impending or contemplated event or
occurrence that would cause any of the representations or warranties contained
herein not to be true and complete on the date of such event or occurrence as if
made on that date.
2.14 SEC Filings; Disclosure. Except for the filing of certain Forms 3, 4
and/or 5, the Company has filed with the Securities and Exchange Commission (the
"SEC") on a timely basis, all forms, statements, reports and documents required
to be filed by it prior to the date hereof under each of the Securities Act, the
Securities Exchange Act of 1934, as amended, and the respective rules and
regulations thereunder, (a) all of which, as amended, if applicable, complied
when filed in all material respects with all applicable requirements of the
appropriate Act and the rules and regulations thereunder, and (b) none of which,
as amended, if applicable, contains any
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untrue statement of material fact or omits to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made and at the time they
were made, not misleading. The financial statements of the Company included in
the Company's annual report on Form 10-K for the fiscal year ended December 31,
1999 and Form 10-Q for the fiscal quarter ended September 30, 2000, comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP, applied on a consistent basis during the
period covered and fairly represent, in all material respects, the consolidated
financial position of the Company as of the date thereof and the results of
operations and changes in financial position for the period then ended.
2.15 Conflicts of Interest. Except as set forth on Schedule 2.15, none of
the Company or any of its Subsidiaries is indebted, directly or indirectly, to
any of its respective officers or directors or to their respective spouses or
immediate family members, for any amount whatsoever other than in connection
with expenses or advances of expenses incurred in the ordinary course of
business consistent with past practices or relocation expenses of employees.
Except as set forth on Schedule 2.15, no director, officer or any affiliates
thereof, (as such term is defined in Rule 405 under the Securities Act), or any
members of their immediate families (x) are, directly or indirectly, indebted to
the Company or any of its Subsidiaries or, (y) have any direct or indirect
ownership interest in any Person (A) with which the Company or any of its
Subsidiaries is affiliated or (B) with which the Company or any of its
Subsidiaries has a material business relationship, or (C) which competes with
the Company or any of its Subsidiaries; except that for purposes of this clause
(y), officers, directors or affiliates thereof or any members of their immediate
families may own stock in (but not exceeding one percent (1%) of the outstanding
capital stock of) any publicly traded companies that may compete with the
Company. To the Company's knowledge, none of the officers or directors of the
Company or any members of their immediate families are, directly or indirectly,
interested in any Material Contract of the Company or any of its Subsidiaries.
Except as set forth on Schedule 2.15, none of the Company or any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
Person.
2.16 Registration Rights and Voting Rights. Except as set forth on Schedule
2.16 and contemplated in the Registration Rights Agreement, there are no
agreements, written or oral, between the Company and any Person relating to the
registration of its capital stock under federal or state securities laws,
including piggyback registration rights. Except as set forth on Schedule 2.16,
to the Company's knowledge, no stockholders of the Company have entered into any
agreements with respect to the voting of shares of the capital stock of the
Company.
2.17 Private Placement. Subject to and in reliance in part on the truth and
accuracy of the Purchasers' representations set forth in this Agreement, the
offer, sale and issuance of the Securities and Underlying Shares as contemplated
by this Agreement are exempt from the registration requirements of the
Securities Act and any applicable state securities laws and none of the Company
or any of its Subsidiaries nor any authorized agent acting on its behalf will
take any action hereafter that would cause the loss of such exemption.
2.18 Title to Property and Assets. Except as set forth on Schedule 2.18,
the Company and each of its Subsidiaries owns its property and assets free and
clear of all mortgages, liens,
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loans and encumbrances, except such encumbrances and liens set forth on Schedule
2.18 or liens for taxes that are not delinquent or being contested in good faith
and do not materially impair the ownership or use of such property or assets by
the Company or such Subsidiary. Except as set forth on Schedule 2.18 with
respect to the property and assets it leases, each of the Company and its
Subsidiaries is in compliance with such leases and holds a valid leasehold
interest free of any liens, claims or encumbrances.
2.19 Compensation; Employment Agreements. The Company has provided the
Purchasers with an accurate written list of all officers, directors and
employees of the Company and its Subsidiaries with annual salaries of $100,000
or more, listing the rate of compensation (and the portions thereof attributable
to salary, bonus, benefits and other compensation, respectively) of each of such
persons as of (a) the Balance Sheet Date and (b) the date hereof. The Company
shall make available to the Purchasers true, complete and correct copies of each
employment or consulting agreement with any employee of the Company and its
Subsidiaries. Except as disclosed on Schedule 2.19, neither the Company nor any
of its Subsidiaries is a party to or bound by any (i) employment, termination or
severance agreement, (ii) agreement (A) the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving the Company of the nature of any of the transactions contemplated by
this Agreement, (B) providing any term of employment or compensation guarantee
extending for a period of one year or longer or (C) providing severance benefits
or other benefits after the termination of employment not comparable to benefits
available to employees generally, (iii) agreement, plan or arrangement under
which any person may receive payments that may be subject to the tax imposed by
Section 4999 of the Internal Revenue Code (the "Code") or included in the
determination of such person's "parachute payment" under Section 280G of the
Code and (iv) agreement or plan, including any stock option plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting or
other realization of the benefits of which will be accelerated, by the
occurrence of the transactions contemplated by this Agreement or the value of
any of the benefits of which will be calculated on the basis of or otherwise
affected by the transactions contemplated by this Agreement.
2.20 Tax Returns and Audits. Except as set forth on Schedule 2.20, the
Company and its Subsidiaries have accurately prepared and timely filed all
federal, state, foreign, local and other tax returns required by law to be
filed, have paid or made provision for the payment of all taxes shown on such
returns to be due and all additional assessments. Adequate provisions have been
made and are reflected in the Financial Statements to the extent required by
generally accepted accounting principles applied on a consistent basis and as in
effect in the United States ("GAAP") for all current taxes and other charges to
which the Company or any of its Subsidiaries is subject and which are not
currently due and payable. There are no additional assessments or adjustments
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries for any period.
2.21 Labor and Employee Relations. Except as set forth on Schedule 2.21,
none of the Company or any of its Subsidiaries is bound by or subject to any
arrangement with any labor union. Except as set forth on Schedule 2.21, no
employees of the Company or any of its Subsidiaries are represented by any labor
union or covered by any collective bargaining agreement nor, to the Company's
knowledge, is any campaign to establish such representation in
10
progress. There is no pending or, to the Company's knowledge, threatened labor
dispute involving the Company or its Subsidiaries and any group of its employees
nor has the Company or any of its Subsidiaries experienced any significant labor
interruptions over the past five years.
2.22 Permits. Except as set forth on Schedule 2.22, the Company and its
Subsidiaries have all franchises, permits, licenses and any other governmental
authority necessary for the conduct of their businesses as now being conducted,
the lack of which could have a Material Adverse Effect. None of the Company or
any of its Subsidiaries is in default in any material respect under any of such
franchises, permits, licenses or other authority.
2.23 Real Property Holding Corporation. The Company is not a United States
real property holding corporation within the meaning of Internal Revenue Code
Section 897(c)(2) and Section 1.897-2(c) of the Treasury Regulations promulgated
thereunder.
2.24 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 2.24, the Company and its Subsidiaries have conducted their
operations in the ordinary course and there has not been:
(a) any material adverse change in the business, operations, properties,
condition (financial or other), assets, liabilities (contingent or otherwise) or
results of operations of the Company or its Subsidiaries, individually or in the
aggregate;
(b) any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the Company or its
Subsidiaries, individually or in the aggregate;
(c) except as contemplated by this Agreement or the transactions
contemplated hereby, any change in the authorized capital stock of the Company
or its Subsidiaries, or in their respective outstanding securities or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) except as contemplated by this Agreement or the transactions
contemplated hereby, any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company or its
Subsidiaries;
(e) any increase in the compensation payable or to become payable by the
Company or its Subsidiaries to their respective stockholders or to any of their
respective officers, directors, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice, which bonuses and salary increases are set forth on Schedule
2.24;
(f) any material labor disputes, labor grievances or labor claims filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company or any of its Subsidiaries
to any person;
11
(h) any cancellation, or agreement to cancel, any material indebtedness or
other material obligation owing to the Company or any of its Subsidiaries;
(i) any increase in the indebtedness of the Company or any of its
Subsidiaries, other than the Credit Agreement among the Company, its
Subsidiaries and General Electric Capital Corporation (the "Credit Agreement")
and accounts payable incurred in the ordinary course of business, consistent
with past practices, or any default or violation of the terms of any agreement
evidencing such indebtedness;
(j) any plan, agreement or arrangement granting any preferential rights to
purchase or acquire any interest in any of the assets, property or rights of the
Company or any of its Subsidiaries or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or arrangement to
purchase or acquire, any property, rights or assets outside of the ordinary
course of business,
(l) any waiver of any material rights or claims of the Company or any of
its Subsidiaries;
(m) any breach, amendment or termination of any material contract,
agreement, permit or other right to which the Company or any of its Subsidiaries
is a party or any of their property is subject, except that which would not have
a Material Adverse Effect on the Company or any of its Subsidiaries; or
(n) except for the transactions contemplated by this Agreement, any other
material transaction by the Company or any of its Subsidiaries outside the
ordinary course of business.
2.25 Environmental Matters. Except as set forth on Schedule 2.25 and except
for such matters as would not have a Material Adverse Effect, (a) the Company
has complied with and is in compliance with all Environmental, Health and Safety
Laws, including, without limitation, Environmental, Health and Safety Laws
relating to air, water, land and the generation, storage, use, handling,
transportation, treatment or disposal of Hazardous Substances; (b) the Company
has obtained and complied with all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Hazardous
Substances and has reported, to the extent required by all Environmental, Health
and Safety Laws, all past and present sites owned or operated by the Company
where Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (c) there have been no "releases" or to the Company's knowledge,
threats of "releases" (as defined in any Environmental, Health and Safety Laws)
at, from, in or on any property owned or operated by the Company; (d) there is
no on-site or off-site location to which the Company has transported or disposed
of Hazardous Substances or arranged for the transportation or disposal of
Hazardous Substances which is the subject of any federal, state, local or
foreign enforcement action or any other investigation which could lead to any
claim against the Company for any clean-up cost, remedial work, damage to
natural resources or personal injury, including, but not limited to, any claim
under (i) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) the
12
Resource Conservation and Recovery Act, (iii) the Hazardous Materials
Transportation Act, or (iv) comparable state and local statutes and regulations;
and (e) to the Company's knowledge, the Company has no contingent liability in
connection with any release or disposal of any Hazardous Substance into the
environment. None of the past or present sites owned or operated by the Company
is currently or has ever been designated as a treatment, storage and/or disposal
facility, nor has any such facility ever applied for a Permit designating it as
a treatment, storage and/or disposal facility, under any Environmental, Health
or Safety Law.
2.26 Absence of Certain Business Practices. Neither the Company nor any of
its Affiliates on behalf of the Company has given or offered to give anything of
value to any governmental official, political party or candidate for government
office that was illegal to so offer or give nor has it otherwise taken any
action which would constitute a violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any similar Law.
2.27 Insurance. Schedule 2.27 sets forth an accurate list as of the Balance
Sheet Date of all insurance policies that are material to the Company. Except as
set forth on Schedule 2.27, the policies described in such Schedule 2.27 are
currently in full force and effect and, to the knowledge of the Company, no
defaults exist under any of them, and such policies are all of the insurance
policies necessary for the operation of the Company's business in keeping with
industry standards.
2.28 Brokers Fees. There are no claims for investment bankers' fees,
brokerage commissions, finders' fees, or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Company.
2.29 Employee Benefit Plans. Attached hereto as Schedule 2.29 is a list of
the Company's employee benefit plans. Except as indicated on Schedule 2.29, each
of such employee benefit plans has been administered in accordance with, and is
in compliance with, all applicable Laws.
3. Representations and Warranties of Purchasers. Each Purchaser hereby
severally and not jointly represents and warrants to the Company, with respect
to itself only, that:
3.1 Accredited Investor; Authorization. Such Purchaser is an "accredited
investor" within the meaning of Rule 501 promulgated under Regulation D of the
Securities Act and has the corporate, partnership or individual, as the case may
be, power and authority to enter into and perform this Agreement and the other
Investment Agreements and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly authorized, executed and delivered by such
Purchaser and constitutes the legal, valid and binding obligation of such
Purchaser, enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors', rights generally and except as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, except to the extent the indemnification provision
contained in the Investment Agreements may be limited by applicable federal or
state securities laws.
13
3.2 No Conflict with Other Agreements. The execution, delivery and
performance of the Investment Agreements and the consummation of the
transactions contemplated hereby or thereby will not, with or without the
passage of time and/or the giving of notice, result in a violation or default of
any provisions of such Purchaser's charter, bylaws or other organizational
document or of any order, writ, injunction, judgment, instrument, decree or
material contract to which it is a party or by which it is bound or, to its
knowledge, of any material provision of federal or state statute, rule or
regulation applicable to such Purchaser.
3.3 Investment Knowledge. Such Purchaser has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the risks and merits of its investment in the Company and is capable of bearing
the economic risks of such investment, including a complete loss of its
investment.
3.4 Distribution. The Securities (including Class G Preferred Shares
issuable as dividends and the Underlying Shares) are being acquired for such
Purchaser's own account with the present intention of holding such securities
for purposes of investment and not with a view to or for resale in connection
with any distribution thereof in violation of any securities laws. Each of the
Purchasers further represents that it understands and agrees that, until
registered under the Securities Act or transferred pursuant to the provisions of
Rule 144 as promulgated by the SEC (such securities, "Unrestricted Securities"),
all certificates evidencing any of the Class G Preferred Shares (including those
issuable as dividends), whether upon initial issuance or upon any transfer
thereof, shall bear a legend, prominently stamped or printed thereon, reading
substantially as follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or the securities laws of any state. These securities
have been acquired for investment and not with a view to
distribution or resale in violation of any securities laws. Such
shares may not be offered for sale, sold, delivered after sale,
transferred, pledged or hypothecated in the absence of an
effective registration statement covering such shares under the
Act and any applicable state securities laws or an exemption
therefrom."
3.5 Brokers Fees. There are no claims for investment bankers' fees,
brokerage commissions, finders' fees, or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of any Purchaser.
4. Conditions of Purchasers' Obligations at the Initial and Subsequent
Closings. The obligations of each Initial Purchaser to the Company under this
Agreement are subject to the fulfillment, on or before the Initial Closing of
each of the following conditions set forth in Sections 4.1 through 4.10
hereunder, unless otherwise waived in writing by such Initial Purchaser. The
obligations of TSG (as defined below), in its capacity as Subsequent Purchaser,
to the Company under this Agreement are subject to the fulfillment, on or before
the Subsequent Closing of each of the following conditions set forth in Section
4.1 through 4.12 hereunder, unless otherwise waived in writing by TSG. The
obligations of Xxxxxx Xxxxxxx Strategic
14
Partners Fund, L.P. ("Xxxxxx"), in its capacity as a Subsequent Purchaser, to
the Company under this Agreement are subject to the fulfillment, on or before
the Subsequent Closing of the conditions set forth in Sections 4.1 through 4.10,
and Section 4.13, unless otherwise waived by Xxxxxx.
4.1 Performance. The Company shall have performed and complied with all
covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by the Company on or before
the Closing. Each of the representations and warranties of the Company contained
in this Agreement shall be deemed made as of the date of this Agreement. All
such representations and warranties shall be true and correct on and as of both
the Initial and the Subsequent Closing Dates with the same force and effect as
if made at that time, and there shall be no material adverse change in the
circumstances surrounding such representations and warranties between the date
of this Agreement and the Subsequent Closing Date.
4.2 Qualifications. All authorizations, approvals, consents or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state or of the holders of other classes of the Company's capital stock or
any Person that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be obtained and effective as of
the Closing.
4.3 Opinion of Company Counsel. The Purchasers shall have received from
counsel for the Company, an opinion, dated as of the Closing, in substantially
the form of Exhibit D.
4.4 Supporting Documents. The Purchasers shall have received the following:
(a) A copy of resolutions of the Board of Directors of the Company
authorizing and approving the Investment Agreements and the consummation of the
transactions contemplated thereby and a copy of resolutions of the Board of
Directors of the Company authorizing and approving the adoption and filing of
the Certificate, all such resolutions to be certified by the Secretary of the
Company;
(b) A copy of resolutions of the holders of the requisite percentage of
each class of outstanding preferred stock of the Company consenting to the
transactions contemplated by the Investment Agreements and the issuance of the
Class G Preferred Shares, including waiver of all preemptive and anti-dilution
rights applicable to this transaction and agreeing to increase the size of the
Board of Directors as provided herein.
(c) A Certificate of Incumbency executed by the Secretary of the Company
certifying the names, titles and signatures of the officers authorized to
execute the Investment Agreements and further certifying that the Articles of
Incorporation, as amended, and Bylaws of the Company delivered to legal counsel
for the Purchasers at the time of the execution of this Agreement have been
validly adopted and have not been amended or modified; and
15
(d) Such additional supporting documentation and other information with
respect to the transactions contemplated hereby as legal counsel for the
Purchasers may reasonably request.
4.5 Registration Rights Agreement. The Company and each Purchaser shall
have executed and delivered the Registration Rights Agreement in substantially
the form attached as Exhibit C.
4.6 Warrant Agreement. The Company shall have entered into the Warrant
Agreement in the form attached hereto as Exhibit B;
4.7 Certificate of Designation. The Company shall have filed the
Certificate with the Secretary of State of Texas, which Certificate shall
continue to be in full force and effect as of the Closing.
4.8 Payment of Expenses. The Company shall have paid in accordance with
Section 8.9 the expenses and disbursements of the Purchasers.
4.9. Required Preferred Agreements and Consents. The Required Preferred
Agreements and Consents (as defined in Section 6.7(a)) shall have been obtained
and be in full force and effect, such Required Preferred Agreements and Consents
shall be as to such matters as counsel to Purchasers deems to be required or
necessary and such Required Preferred Agreements and Consents shall be in such
form reasonably satisfactory to counsel to Purchasers.
4.10 EGL Side Letter. The Company will have executed the EGL Holdings Side
Letter, in form and substance mutually agreeable to EGL Holdings and the
Company.
4.11 Additional Consents. The Company shall use its good faith best efforts
to obtain the additional consents as described in Section 6.7(d).
4.12 Consent of GECC and NTFC. The Company shall have obtained the consent
of both NTFC Capital Corporation and General Electric Capital Corporation with
respect to the issuance by the Company of that certain Promissory Note in favor
of Fermor Investments Limited as Holder, in the aggregate principal amount of
$2,200,000, and such consent shall be in full force and effect.
4.13 TSG Subsequent Closing. Simultaneous with TSG's consummation its
portion of the Subsequent Closing, Xxxxxx shall consummate its portion of the
Subsequent Closing.
5. Conditions of the Company's Obligations at the Closing. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived by the Company in writing.
16
5.1 Performance. All covenants, agreements, obligations and conditions
contained in this Agreement to be performed by such Purchaser on or prior to the
Closing shall have been performed or complied with in all material respects.
5.2 Registration Rights Agreement. Such Purchaser shall have executed and
delivered the Registration Rights Agreement in substantially the form attached
as Exhibit C
5.3 Investor Questionnaire. Such Purchaser shall have completed and
delivered the Investor Questionnaire attached hereto as Exhibit E.
6. Affirmative Covenants of the Company. The Company covenants and agrees
as follows:
6.1 Corporate Existence. The Company will maintain its corporate existence
in good standing in the State of Texas and comply with all applicable laws and
regulations of the United States or of any state or political subdivision
thereof and of any foreign jurisdiction, and of any government authority of any
of the foregoing, where failure to so comply would have a Material Adverse
Effect.
6.2 Books of Account and Reserves. The Company will keep books of record
and account in order to prepare its Financial Statements. The Company will
employ a certified public accounting firm of established national reputation
selected by the Board of Directors of the Company who are "independent" within
the meaning of the accounting regulations of the SEC (the "Accountants"). The
Company will have annual audits made by such Accountants in the course of which
such Accountants shall make such examinations, in accordance with generally
accepted auditing standards, as will enable them to give such reports or
opinions with respect to the financial statements of the Company as will satisfy
the requirements of the SEC in effect at such time with respect to reports or
opinions of accountants.
6.3 Furnishing of Financial Statements and Information. The Company will
deliver to each Purchaser and its respective transferees, successors and assigns
(together with their respective Affiliates (as defined)) while any Class G
Preferred Shares are outstanding (and each recipient that receives such
information agrees to keep confidential such information as the Company
designates as confidential in writing):
(a) annually, as soon as available, but in any event by the end of each
fiscal year, an operating plan and budget for the following year;
(b) as soon as available, but in any event within 45 days after the end of
each quarterly accounting period in each fiscal year, unaudited statements of
income, operations and cash flows of the Company for such quarterly period and
for the period from the beginning of the fiscal year to the end of such quarter,
and unaudited balance sheets of the Company as of the end of such quarterly
period, setting forth in each case comparisons to the annual operating plan and
budget and to the corresponding period in the preceding fiscal year, and all
such statements shall be prepared in accordance with GAAP (provided, however,
that such statements need not
17
comply with the footnote disclosure requirements of GAAP) and the Company shall
forward its 10-Q filings to each Purchaser within 10 days after the 10-Q is
filed with the SEC;
(c) as soon as available, but in any event within 90 days after the end of
each fiscal year, audited statements of income, operations, retained earnings
and cash flows of the Company for such fiscal year and balance sheets of the
Company as of the end of such fiscal year, all prepared in accordance with GAAP,
all in reasonable detail and duly certified by the Accountants, who shall have
given the Company an opinion, unqualified as to the scope of the audit,
regarding such statements setting forth in each case comparisons to the annual
operating plan and budget of the preceding fiscal year and the Company shall
forward its 10-K filings to each Purchaser within 10 days after the 10-K is
filed with the SEC;
(d) promptly after the Company learns of the commencement or written
threats of the commencement of any material lawsuit, legal or equitable, or of
any material administrative, arbitration or other proceeding against the Company
or its business, assets or properties, written notice of the nature and extent
of such suit or proceeding;
(e) promptly upon transmission thereof, copies of all reports, proxy
statements, registration statements and notifications filed by it with the SEC
pursuant to any act administered by the SEC or furnished to stockholders of the
Company or to any national securities exchange;
(f) within 5 business days after the Company becomes aware of any default
in any agreement of the Company or any of its Subsidiaries which is reasonably
expected to result in a Material Adverse Effect; the Company shall notify each
Purchaser of such default;
(g) with reasonable promptness, such other financial data relating to the
business, affairs and financial condition of the Company and as is available to
the Company and as from time to time the Purchasers may reasonably request.
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under
common control with such first-named Person. For the purposes of
this definition, "control," (including with correlative meanings,
the terms "controlled by" and "under common control with") shall
mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities
or by contract or otherwise. In addition, in the case of each
Purchaser, an "Affiliate," of such Purchaser shall include the
partners thereof and the Company shall not be deemed to be an
"Affiliate," of any Purchaser.
6.4 Subsidiaries. The Company shall (i) cause each of its Subsidiaries to
comply with the covenants set forth in Sections 6.1, 6.2, and 6.3 and (ii) all
references in Section 6.3 to financial statements shall be deemed to refer to
consolidated financial statements.
18
6.5 Board of Directors. Pursuant to the Bylaws of the Company, the Board of
Directors of the Company (the "Board") shall pass a resolution to increase the
number of directors on the Board from nine to ten to accommodate Purchasers'
designee to the Board. Upon Closing, Purchasers shall have the right to appoint
one member to the Board. So long as TSG Capital Fund III, L.P. ("TSG") owns at
least 20% of the Class G Preferred Shares purchased by it pursuant to this
Agreement, TSG shall have the right to designate the director to be elected by
the holders of the Class G Preferred Shares. Pursuant to the Bylaws of the
Company, the Board shall pass a resolution providing an automatic increase in
the number of directors on the Board from ten to twelve to accommodate
Purchasers' additional designees to the Board pursuant to Section 6(c) of the
Certificate, and if at such time TSG owns at least 20% of the Class G Preferred
Shares purchased by it pursuant to this Agreement, TSG shall have the right to
designate one of such additional directors.
6.6 Access to Information. The Company will permit each Purchaser to visit
and inspect the Company's properties, to examine the Company's books and
records, and to discuss the Company's affairs with Company management, all at
such reasonable times as may be requested by such Purchaser.
6.7 Required Preferred Agreements and Consents; Closing; Shareholder
Consents.
(a) The Company shall use its good faith best efforts to obtain from the
requisite holders of outstanding shares of all other classes of preferred stock
of the Company (including, without limitation, the Class D, E and F preferred
stock) ("Other Preferred Holders") all of the agreements, waivers and consents
required or, in the determination of Purchasers, necessary, in connection with
the creation, issuance and sale of the Class G Preferred Shares, the
implementation of the terms thereof and the consummation of the transactions
contemplated by the Investment Agreements (collectively, the "Required Preferred
Agreements and Consents"), including, without limitation, agreements and
consents as to (i) the creation of the Class G Preferred Shares, which will be
senior to such other classes of preferred stock, (ii) the waiver of all
preemptive and antidilution rights such Other Preferred Holders may have in
connection with the issuance of the Class G Preferred Shares, (iii) the exercise
of any voting rights such Other Preferred Holders may have, in each case to the
extent necessary to effectuate the terms and provisions of the Class G Preferred
Shares including, without limitation, agreeing to vote in favor of increasing
the size of the Company's board of directors and to elect the director
designated by Purchasers to the board of directors pursuant to Section 6.5 of
this Agreement.
(b) The Company shall use its good faith best efforts to obtain the
Required Preferred Agreements and Consents, and to cause the Initial Closing to
occur, on or prior to the date hereof.
(c) The Company covenants and agrees to seek and obtain on a timely basis
any shareholder approvals which may be required in connection with the issuance
of shares of common stock upon exercise of the Warrants.
(d) The Company shall, (i) no later than five business days following the
Initial Closing (the "Distribution Date"), distribute to the Other Preferred
Holders and such other
19
Persons as deemed reasonably necessary or appropriate by Purchasers, and (ii)
during the period from the Distribution Date until the Subsequent Closing, use
its good faith best efforts to obtain from the Other Preferred Holders all of
the agreements, waivers and consents required to amend the Registration Rights
Agreements entered into by and between the Company and the Other Preferred
Holders in such form as is reasonably acceptable to the Purchasers.
(e) Within 3 business days following the Initial Closing, the Company shall
deliver to Sandler Capital Partners IV, L.P. and Sandler Capital Partners IV
FTE, L.P. (together "Sandler Capital"), (i) all stock certificates in respect of
all capital stock of the Company owned by Sandler Capital as of the Initial
Closing Date, (ii) all warrant certificates in respect of warrants exercisable
for capital stock of the Company held by Sandler Capital as of the Initial
Closing Date, (iii) a fully executed Registration Rights Agreement, dated June
2, 2000, by and between the Company and Sandler Capital and any other parties
appearing on the signature pages thereto, and (iv) a fully executed Warrant
Agreement, dated June 2, 2000, by and between the Company and Sandler Capital,
all in form and substance mutually acceptable to Sandler Capital and the
Company.
7. Negative Covenants of the Company. The Company will be limited and
restricted as follows:
7.1 Restrictive Agreements Prohibited. Neither the Company nor any of its
Subsidiaries shall become a party to any agreement which by its terms restricts
the Company's performance of the Investment Agreements or its obligations under
the Certificate.
7.2 Affiliate Transactions. The Company will not enter into any
transactions with any Affiliate unless conducted on an arm's-length basis, at
fair market value. For purposes of this Section 7.2, (i) "Affiliate" shall mean
any entity directly or indirectly controlling, controlled by or under direct or
indirect common control with the Company (or any of its subsidiaries) and
includes (a) any person who is a director or beneficial owner of at least 5% of
such person's equity securities, (b) any person (other than wholly-owned
subsidiaries) of which the Company or any Affiliate owns at least 10% of such
person's equity securities or (c) immediate family members of any such person
specified in clauses (a) or (b) and (ii) "Subsidiary" shall mean any entity of
which the Company owns, directly or indirectly, at least a majority of the
outstanding capital stock or a partnership in which the Company (or a subsidiary
of the Company) serves as general partner.
8. Miscellaneous.
8.1 Survival of Warranties. (a) The warranties, representations and
covenants of the Company and Purchasers (other than those contained in Sections
2.1, 2.2, 2.3, 2.4, 2.5 and 2.6) contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing for a
period of one year; provided, however that the representations and warranties
contained in Sections 2.1, 2.2, 2.3, 2.4, 2.5 and 2.6 shall survive indefinitely
and the representations and warranties contained in Sections 2.18, 2.20 and 2.25
shall survive until the expiration of the applicable statute of limitations.
20
(b) This Agreement may be terminated with respect to the obligations of the
parties in connection with the Subsequent Closing (a) by the mutual written
consent of the Company and the Purchasers or (b) by either the Purchasers or the
Company in the event that the Subsequent Closing shall not have occurred on or
before January 6, 2001 (the "Termination Date").
8.2 Transfer; Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
8.3 No Third Party Beneficiaries. Nothing express or implied in this
Agreement is intended to confer, nor shall anything herein confer, upon any
other than the parties hereto and the respective successors or assigns of such
parties, any rights, remedies, obligations or liabilities whatsoever.
8.4 GOVERNING LAW. THIS AGREEMENT AND ALL ACTS AND TRANSACTIONS PURSUANT
HERETO AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED,
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
8.5 WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND EACH PURCHASER DOES
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE SUCH RIGHT
ANY PARTY OR THEIR SUCCESSORS OR ASSIGNS MAY HAVE TO A JURY TRIAL IN EVERY
JURISDICTION IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE
PARTIES HERETO OR THEIR SUCCESSORS OR ASSIGNS AGAINST ANY OTHER PARTY HERETO OR
THEIR RESPECTIVE AFFILIATES, SUCCESSORS OR ASSIGNS IN RESPECT OF ANY MATTER
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENT
EXECUTED AND DELIVERED BY ANY PARTY IN CONNECTION THEREWITH (INCLUDING, WITHOUT
LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIMS OR
DEFENSES ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR OTHERWISE
VOID OR VOIDABLE).
8.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument. Facsimile transmission of any signed
original document and/or retransmission of any signed facsimile transmission
will be deemed the same as delivery of an original. At the request of any party,
the parties will confirm facsimile transmission by signing a duplicate original
document.
8.7 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.8 Notices. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed effectively given and received upon delivery in
person, or two business days
21
after delivery by overnight courier service or by telecopier transmission with
acknowledgment of transmission receipt, or five business days after deposit via
certified or registered mail, return receipt requested, addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice, and
(a) if to the Company:
Telscape International, Inc.
0000 Xxxxxxxxxxx Xxxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxx, General Counsel
Facsimile: 000-000-0000
with a copy to (which shall not constitute notice):
Gardere Xxxxx Xxxxxx LLP
3000 Thanksgiving Tower
0000 Xxx Xxxxxx
Attention: W. Xxxxxx Xxxx, Jr.
Facsimile: (000) 000-0000
(b) if to the Purchasers, at the addresses on their respective signature
pages.
8.9 Expenses. The Company shall pay and be responsible for all of the
Purchasers' reasonable costs and expenses (including, without limitation,
reasonable fees, expenses and disbursements of legal counsel) associated with
the negotiation, preparation and execution of the Investment Agreements and
consummation of the transactions contemplated thereunder, whether or not the
Closing occurs.
8.10 Termination Fee. In the event that this Agreement is terminated or the
Closing does not occur on or prior to the Termination Date and, at any time
during the period ending February 12, 2001, the Company enters into an agreement
securing commitments (conditional or otherwise) for debt or equity financing
from one or more sources other than the Purchasers (an "Alternative Financing
Agreement"), the Company shall pay to the Purchasers, pro rata based on the
Purchasers' individual commitments, a cash fee (the "Termination Fee") of up to
$1,200,000 (with the actual amount of such Termination Fee being based on the
ratio which the amount of commitments, if any, provided for in the Alternative
Financing Agreement bears to the aggregate commitment of the Purchasers
hereunder (i.e., $12,000,000)). For example, if the Alternative Financing
Agreement provides for $6,000,000 million in commitments, the Company shall pay
to the Purchasers a Termination Fee of $600,000. Notwithstanding the foregoing,
however, the Company shall have no obligation to pay such fee to the Purchasers
if the Closing has not occurred by reason of failure of the Company to obtain
the Required Agreements and Consents, notwithstanding the good faith best
efforts of the Company to obtain such consents. If however, the Closing fails to
occur due to the intentional failure by the Company to satisfy or cause to be
satisfied one or more conditions to Closing (or if the failure of such condition
or conditions is
22
caused by the Company's intentional or bad faith act or failure to act), the
full amount of the Termination Fee shall be payable to the Purchasers (whether
or not an Alternative Financing Agreement has been executed), within 10 business
days following execution of the Alternative Financing Agreement or if no
alternative Financing Agreement has been executed, on the Termination Date.
8.11 Amendments and Waivers. Any term of this Agreement may be amended or
waived, and this Agreement may be terminated, with the written consent of the
parties hereto.
8.12 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
8.13 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any holder of any of the Class G Preferred Shares or to
the Company, upon any breach or default of the Company or by the Purchasers
under this Agreement, shall impair any such right, power or remedy of such
holder or the Company, as the case may be, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder or the Company, as the case may
be, of any breach or default under this Agreement, or any waiver on the part of
any holder or the Company, as the case may be, of any provisions or conditions
of this Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be cumulative and
not alternative.
8.14 Further Assurances. The Company and each Purchaser shall take such
additional actions and execute and deliver such additional agreements and other
instruments and documents as necessary or appropriate to effect the transactions
contemplated by this Agreement in accordance with its terms.
8.15 Entire Agreement. This Agreement, and the documents referred to herein
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof, and any and all other written or oral agreements existing
between the parties hereto are expressly canceled. Other than the Investment
Agreements there are no other agreements existing between the Company and the
Purchasers with regard to the Class G Preferred Shares and the Warrants.
[Signature Pages Follow]
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EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATION
EXHIBIT B
FORM OF WARRANT AGREEMENT
EXHIBIT C
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT D
FORM OF LEGAL OPINION
EXHIBIT E
INVESTOR QUESTIONNAIRE
