Xxx. 00.00
XXXXXXXX AGREEMENT
DATED AS OF OCTOBER 17, 1997
AMONG
FIDELITY COMMUNICATIONS INTERNATIONAL, INC.,
FIDELITY INVESTORS LIMITED PARTNERSHIP
AND
USN COMMUNICATIONS, INC.
TABLE OF CONTENTS
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Page
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Section 1. Authorization and Closing................................... 1
1A. Authorization of Series A Preferred Stock................... 1
1B. Purchase and Sale of Series A Preferred Stock............... 1
1C. The Closing................................................. 1
Section 2. Conditions to Purchasers' Obligations at the Closing........ 2
2A. Representations and Warranties; Covenants................... 2
2B. Certificate of Designations................................. 2
2C. Certificate of Incorporation................................ 2
2D. Blue Sky Clearance.......................................... 2
2E. Closing Documents........................................... 2
2F. Opinion..................................................... 3
2G. Registration Agreement...................................... 3
2H. Original Purchase Agreement................................. 3
2I. No Material Adverse Change.................................. 3
Section 3. Covenants................................................... 4
3A. Current Public Information.................................. 4
3B. Election of Fidelity Director............................... 4
3C. Inspection of Property...................................... 5
3D. Financial Statements and Other Information.................. 5
3E. Affirmative Covenants....................................... 7
3F. Compliance with Agreements.................................. 8
3G. Directors and Officers Indemnity Insurance.................. 8
Section 4. Transfer of Restricted Securities........................... 9
Section 5. Representations and Warranties of the Company............... 10
5A. Organization and Corporate Power............................ 10
5B. Capital Stock and Related Matters........................... 10
5C. Subsidiaries; Investments................................... 12
5D. Registration Statement...................................... 12
5E. Authorization; No Breach.................................... 12
5F. Financial Statements........................................ 13
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5G. Absence of Certain Developments............................. 13
5H. Assets...................................................... 14
5I. Tax Matters................................................. 14
5J. Proprietary Rights.......................................... 14
5K. Governmental Consents, etc.................................. 14
5L. Insurance................................................... 15
5M. Employees................................................... 15
5N. Compliance with Laws........................................ 15
Section 6. Definitions................................................. 15
Section 7. Miscellaneous............................................... 17
7A. Purchasers' Investment Representations...................... 17
7B. Purchasers' Authorization................................... 17
7C. Effect of a Qualified Public Offering....................... 17
7D. Treatment of the Series A Preferred Stock................... 18
7E. Consent to Amendments....................................... 18
7F. Survival of Representations and Warranties.................. 18
7G. Severability................................................ 19
7H. Counterparts................................................ 19
7I. Descriptive Headings; Interpretation........................ 19
7J. Governing Law............................................... 19
7K. Notices..................................................... 19
7L. Indemnification............................................. 20
7M. Expenses.................................................... 20
Exhibit A Series A Certificate of Designations
Exhibit B Certificate of Incorporation
Exhibit C Form of Third Amendment to Purchase Agreement dated as
of June 22, 1995
Schedule I Exceptions to Registration Statement
ii
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made as of October 17, 1997 (this
"Agreement") by and among USN Communications, Inc., a Delaware corporation (the
"Company") and Fidelity Communications International, Inc., a Massachusetts
corporation ("FCI") and Fidelity Investors Limited Partnership, a Delaware
limited partnership ("FILP", and collectively with FCI, the "Purchasers").
Unless otherwise defined herein, capitalized terms used herein are defined in
Section 6 hereof.
The Purchasers desire to purchase from the Company and the Company
desires to sell to the Purchasers shares of the Company's 9.0% Cumulative
Convertible Pay-In-Kind Preferred Stock, Series A, par value $1.00 per share
(the "Series A Preferred Stock").
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of Series A Preferred Stock. The Company has
authorized the issuance and sale to FCI of ten thousand (10,000) shares and to
FILP of five thousand (5,000) shares (collectively, the "Shares") of Series A
Preferred Stock having the rights and preferences set forth in Exhibit A
attached hereto.
1B. Purchase and Sale of Series A Preferred Stock. At the
Closing, the Company shall sell to FCI and FILP and, subject to the terms and
conditions set forth herein, FCI and FILP shall purchase the Shares from the
Company for an aggregate purchase price of ten million dollars ($10,000,000) and
five million dollars ($5,000,000), respectively.
1C. The Closing. Subject to the satisfaction of the conditions
set forth in Section 2, the closing of the transactions contemplated by Sections
1A and 1B (the "Closing") shall take place at the offices of the Company, 00
Xxxxx Xxxxxxxxx Xxxxx, Xxxxxxx, Xxxxxxxx 00000 at 10:00 a.m. local time on
October 17, 1997, or at such other place and time as may be mutually agreeable
to the Company and the Purchasers. At the Closing, the Company shall arrange to
deliver to the Purchasers stock certificates evidencing the Shares, registered
in the Purchasers' or their respective
nominees' name, upon payment of the purchase price thereof by wire transfer of
immediately available funds to the Company's account at Xxxxxx Trust and Savings
Bank, Chicago, Illinois, in the amount set forth Section 1B.
Section 2. Conditions to Purchasers' Obligations at the Closing. The
obligation of the Purchasers to purchase and pay for the Shares at the Closing
is subject to the satisfaction as of the Closing of the following conditions:
2A. Representations and Warranties; Covenants. The
representations and warranties contained in Section 5 hereof shall be true and
correct at and as of the Closing as though then made, except to the extent of
changes caused by the transactions expressly contemplated herein, and the
Company shall have performed in all material respects all of the covenants
required to be performed by it hereunder prior to the Closing.
2B. Certificate of Designations. The Certificate of
Designations, Powers, Rights and Preferences (the "Series A Certificate of
Designations"), substantially in the form of Exhibit A attached hereto, shall be
in full force and effect as of the Closing under the laws of the State of
Delaware and shall not have been amended or modified.
2C. Certificate of Incorporation. The Company's Certificate of
Incorporation, substantially in the form of Exhibit B attached hereto, shall be
in full force and effect as of the Closing under the laws of the State of
Delaware and shall not have been amended or modified.
2D. Blue Sky Clearance. The Company shall have made all pre-
sale filings under applicable state securities laws necessary, if any, to
consummate the issuance of the Shares pursuant to this Agreement in compliance
with such laws.
2E. Closing Documents. The Company shall deliver to Purchasers
at the Closing all of the following documents:
(i) an Officer's Certificate, dated the date of the
Closing, stating that the conditions specified in paragraphs 2A
through 2D, inclusive, and paragraphs 2F through 2I have been fully
satisfied;
(ii) certified copies of the resolutions duly adopted by
the Company's Board of Directors authorizing the execu-
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tion, delivery and performance of this Agreement, the amendment to the
Registration Agreement (as defined), the amendment to the Original
Purchase Agreement (as defined) and the issuance and sale of the
Shares;
(iii) copies of the Certificate of Incorporation and the
Series A Certificate of Designations, certified by the Secretary of
State of the State of Delaware, and the Company's by-laws, certified
by the Company's secretary, each as in effect at the Closing;
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of
the transactions hereunder (including, without limitation, all blue
sky law filings and waivers of all preemptive rights and rights of
first refusal); and
2F. Opinion. The Company shall cause to be delivered an opinion
of Skadden, Arps, Slate, Xxxxxxx & Xxxx as to the due incorporation and good
standing, capitalization, due authorization and enforceability of this
Agreement, the amendment to the Registration Agreement and the amendment to the
Original Purchase Agreement.
2G. Registration Agreement. The Amended and Restated
Registration Agreement dated as of June 22, 1995 (the "Registration Agreement"),
by and among the Company and the Investors (as defined therein) shall be amended
as necessary to include the Purchasers as parties thereto on comparable terms
with the other Investors.
2H. Original Purchase Agreement. The Purchase Agreement dated as
of June 22, 1995, as amended to date (as so amended, the "Original Purchase
Agreement") by and among the Company and the Original Purchasers shall be
amended substantially as set forth in Exhibit C hereto.
2I. No Material Adverse Change. Subsequent to the date of this
Agreement, there has been no material adverse change in the business, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole.
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Section 3. Covenants.
3A. Current Public Information. The Company shall file all
reports required to be filed by it under the Securities Act of 1933, as amended
(the "Securities Act") and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules and regulations adopted by the Securities and
Exchange Commission (the "Commission") thereunder and shall take such further
action as the Purchasers may reasonably request, all to the extent required to
enable such holders to sell Restricted Securities pursuant to Rule 144 adopted
by the Commission under the Securities Act (as such rule may be amended from
time to time) or any similar rule or regulation hereafter adopted by the
Commission.
3B. Election of Fidelity Director.
(i) Subject to the following clause (ii), from and after
the Closing, the Company shall take all actions necessary to cause one
representative designated by the Purchasers (the "Fidelity Director") to be
nominated for election to the Board of Directors of the Company.
(ii) The Purchasers' right to designate such representative
shall terminate at such time as (x) the Purchasers shall collectively hold
Shares and/or Class A Common Stock issued upon the conversion of the Shares
representing less than 66 2/3% of the Shares (and/or Class A Common Stock
issuable upon conversion of the Shares) originally sold to the Purchasers or (y)
the sale in an underwritten public offering registered under the Securities Act
of shares of common stock of the Company ("Qualified Public Offering"),
provided, that upon the consummation of such Qualified Public Offering, the
rights of the Original Purchasers to representation on the Board of Directors
shall also be terminated.
(iii) In the event that the Fidelity Director for any
reason ceases to serve as a member of the Board during such director's term of
office, the resulting vacancy on the Board shall be filled by a representative
designated by the Purchasers.
(iv) Subject to clause (ii) above, each Investor (as
identified on the signature page hereto), shall take all actions within
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its control (including, without limitation, attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of
written consents in lieu of meetings) to cause the Fidelity Director
to be elected to the Board and to effectuate the provisions of clause
(iii) above.
(v) The Company shall pay the reasonable out-of-pocket
expenses incurred by the Fidelity Director in connection with
attending the meetings of the Board or any committees thereof.
3C. Inspection of Property. The Company shall permit any
representatives designated by the Purchasers, upon reasonable notice and during
normal business hours and such other times as the Purchasers may reasonably
request, to (i) visit and inspect any of the properties of the Company and its
subsidiaries, (ii) examine the corporate and financial records of the Company
and its subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its subsidiaries.
3D. Financial Statements and Other Information. The Company
shall deliver to the Purchasers:
(i) As soon as available but in any event within 30 days
after the end of each monthly accounting period in each fiscal year
(other than quarterly accounting periods of any year), unaudited
consolidating and consolidated statements of income and cash flows of
the Company and its subsidiaries for such monthly period and for the
period from the beginning of the fiscal year to the end of such month,
and consolidated and consolidating balance sheets of the Company and
its subsidiaries as of the end of each monthly period, setting forth
in each case comparisons to the annual budget and to the corresponding
period in the preceding fiscal year;
(ii) As soon as available but in any event within 45 days
after the end of each quarterly accounting period in each fiscal year
(other than the fourth such quarterly accounting period of any year),
unaudited consolidating and consolidated statements of income and cash
flows of the Company and its subsidiaries for such quarterly period
and for the period from the beginning of the fiscal year to the
5
end of such quarter, and consolidating and consolidated balance sheets
of the Company and its subsidiaries as of the end of such quarterly
period, setting forth in each case comparisons to the annual budget
and to the corresponding period in the preceding fiscal year;
(iii) within the 90 days after the end of each fiscal year,
unaudited consolidating and audited consolidated statements of income
and cash flows of the Company and its subsidiaries for such fiscal
year, and unaudited consolidating and audited consolidated balance
sheets of the Company and its subsidiaries as of the end of such
fiscal year, setting forth in each case comparisons to the preceding
fiscal year and comparisons to budget will be provided under separate
cover, and accompanied by a certificate from an independent accounting
firm of recognized national standing, addressed to the Company's board
of directors, stating that in the course of its examination nothing
came to its attention that caused it to believe that there was any
default by the Company or any subsidiary in the fulfillment of or
compliance with any of the terms, covenants, provisions or conditions
of any material agreement to which the Company or any subsidiary is a
party or, if such accountants have reason to believe any default by
the Company or any subsidiary exists, a certificate specifying the
nature and period of existence thereof;
(iv) promptly (but in any event within five business days)
after the discovery or receipt of notice of any Event of
Noncompliance, any default under any material agreement to which the
Company or any of its subsidiaries is a party or any other material
adverse event or circumstance affecting the Company or any subsidiary
(including the filing of any material litigation against the Company
or any subsidiary or the existence of any dispute with any Person
which involves a reasonable likelihood of such litigation being
commenced), an Officer's Certificate specifying the nature and period
of existence thereof and what actions the Company and its subsidiaries
have taken and propose to take with respect thereto; and
(v) with reasonable promptness, such other information and
financial data concerning the Company and its subsidiaries as the
Purchasers may reasonably request.
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Each of the financial statements referred to in any of subparagraphs
(i), (ii) and (iii) shall be true and correct in all material respects as of the
dates and for the periods stated therein, be prepared in accordance with
generally accepted accounting principles consistently applied, subject in the
case of the unaudited financial statements to changes resulting from normal
year-end audit adjustments (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets,
operations or business prospects of the Company and its subsidiaries taken as a
whole) and except for the absence of footnotes.
Additionally, the Company will promptly provide to the Purchasers all
reports and other materials filed by the Company with the Securities and
Exchange Commission pursuant to the periodic reporting requirements of the
Securities Exchange Act.
Except as otherwise required by law or judicial order or decree or by
any governmental agency or authority, the Purchasers shall use their best
efforts to maintain the confidentiality of all nonpublic information obtained by
it hereunder which the Company or its subsidiaries has reasonably designated as
proprietary or confidential in nature.
3E. Affirmative Covenants. So long as the Purchasers hold any
Series A Preferred Stock, the Company shall, and shall cause each of its
subsidiaries to:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) maintain and keep its properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted at all times;
(iii) pay and discharge when payable all taxes, assessments
and governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all claims for labor, materials or
supplies which if unpaid would by law become
7
a lien upon any of its property, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its books with
respect thereto;
(iv) comply with all other obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto;
(v) comply with all applicable laws, rules and regulations
of all governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company
and its subsidiaries taken as a whole; and
(vi) apply for and continue in force with good and
responsible insurance companies adequate insurance covering risks of such
types and in such amounts as are customary for corporations of similar size
engaged in a similar line of business;
3F. Compliance with Agreements. The Company shall perform and
observe all of its obligations to each holder of the Shares set forth in the
Certificate of Incorporation, the Series A Certificate of Designations and the
Company's bylaws.
3G. Directors and Officers Indemnity Insurance. As of November
15, 1997, the date of the expiration of the Company's existing directors and
officers indemnity insurance coverage, the Company will enter into a new policy
providing for directors and officers indemnity insurance coverage reasonably
acceptable to the Purchasers. The Company shall maintain directors and officers
indemnity insurance coverage reasonably satisfactory to the Purchasers for so
long as the Fidelity Director serves on the Board of Directors of the Company
and for five years thereafter.
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Section 4. Transfer of Restricted Securities.
(i) Restricted Securities are transferable only pursuant to
(a) public offerings registered under the Securities Act, (b) Rule 144 or
Rule 144A of the Commission (or any similar rule or rules then in force) if
such rule is available, and (c) subject to the conditions specified in
subparagraph (ii) below, any other legally available means of transfer.
(ii) In connection with the transfer of any Restricted
Securities (other than a transfer described in subparagraph (i)(a) or (b)
above), the holder thereof shall (unless such requirement is waived in
writing by the Company) deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an
opinion of counsel which (to the Company's reasonable satisfaction) is
knowledgeable in securities law matters to the effect that such transfer of
Restricted Securities may be effected without registration of such
Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities delivers to the Company an opinion of counsel
that no subsequent transfer of such Restricted Securities shall require
registration under the Securities Act, the Company shall promptly upon such
contemplated transfer deliver new certificates for such Restricted
Securities which do not bear the Securities Act legend set forth in Section
7A. If the Company is not required to deliver new certificates for such
Restricted Securities not bearing such legend, the holder thereof shall not
transfer the same until the prospective transferee has confirmed to the
Company in writing its agreement to be bound by the conditions contained in
this subparagraph and Section 7A.
(iii) Upon the request of any holder of Restricted
Securities that are eligible for sale pursuant to Rule 144(k) together with
the delivery to the Company of an opinion of counsel that no subsequent
transfer of such Restricted Securities shall require registration under the
Securities Act, the Company shall remove the foregoing legend from the
certificates representing such holder's Restricted Securities.
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Section 5. Representations and Warranties of the Company. As a
material inducement to the Purchasers to enter into this Agreement and purchase
the Shares, the Company hereby represents and warrants that:
5A. Organization and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is qualified to do business in
every jurisdiction in which its ownership of property or conduct of business
requires it to qualify, except where the failure to qualify would not reasonably
be expected to have a material adverse effect on the Company and its
subsidiaries taken as a whole. The Company has all requisite corporate power and
authority and all material licenses, permits and authorizations necessary to own
and operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement. The copies of the Company's Certificate of
Incorporation, Certificates of Designations and by-laws that have been furnished
to the Purchasers' special counsel reflect all amendments made thereto at any
time prior to the date of this Agreement and are correct and complete.
5B. Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of 30,300,000 shares
of capital stock, consisting of (a) 30,050,000 shares of Common Stock, par
value $.01 per share, of which 30,000,000 shares are designated Class A
Common Stock and 50,000 shares are designated as Class B Common Stock and
(b) 250,000 shares of Preferred Stock, par value $1.00 per share, of which
30,000 shares are designated as 9% Cumulative Convertible Pay-In-Kind
Preferred Stock and 150,000 are designated as Series A Preferred Stock.
(ii) Except (x) as set forth in the Registration Statement,
(y) the USN Solutions Option, and (z) the ratification by the Board on
October 17, 1997 of a grant of options to purchase 75,000 shares of Class A
Common Stock granted on September 4, 1997, as of the Closing, neither the
Company nor any subsidiary shall have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, nor shall it have outstanding
any rights or options to subscribe for or to purchase its capital stock or
any stock or securities
10
convertible into or exchangeable for its capital stock or any stock
appreciation rights or phantom stock plans except as provided in this
Agreement. Except as set forth in the Registration Statement, as of the
Closing, neither the Company nor any subsidiary shall be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any warrants, options or other
rights to acquire its capital stock, except pursuant to the Certificates of
Designations, the Certificate of Incorporation, the Original Purchase
Agreement and the First Purchase Agreement. As of the Closing, all of the
outstanding shares of the Company's capital stock, including, without
limitation, the Series A Preferred Stock, shall be validly issued, fully
paid and nonassessable.
(iii) There are no statutory or contractual stockholders'
preemptive rights or rights of refusal that have not been waived with
respect to the issuance of the Shares hereunder. The Company and its
subsidiaries have not violated any applicable federal or state securities
laws in connection with the offer, sale or issuance of any of their
respective capital stock, and the offer, sale and issuance of the Shares
hereunder does not require registration under the Securities Act or any
applicable state securities laws. Except as contemplated by this Agreement
or set forth in the Registration Statement, to the best of the Company's
knowledge, there are no agreements between the stockholders of the Company
or its subsidiaries with respect to the voting or transfer of the capital
stock of the Company or its subsidiaries or with respect to any other
aspect of the affairs of the Company or its subsidiaries other than the
First Purchase Agreement, the Original Purchase Agreement, the Amended and
Restated Stockholders' Agreement, dated July 21, 1995, by and among the
Company and the Stockholders (as defined therein), the Registration
Agreement and the Second Amended and Restated Stock Transfer Agreement,
dated as of July 21, 1995, by and among the Company and the Stockholders
(as defined therein).
(iv) Following the declaration of a dividend by the Board
of Directors of the Company on September 4, 1997, payable at the rate of
nine shares of Class A Common Stock for each share of Class A Common Stock
outstanding, the Conversion Price (as defined
11
in the Series A Certificate of Designations) with respect to the Series A
Preferred Stock is $8.80127.
(v) The shares of Class A Common Stock issuable upon
conversion of the Shares (the "Conversion Shares") have been duly reserved
for issuance in accordance with the terms of the Series A Preferred Stock.
When issued upon conversion of the Series A Preferred Stock, the Conversion
Shares will be duly authorized, validly issued, fully paid and non-
assessable.
5C. Subsidiaries; Investments. Each subsidiary is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power and
authority and all material licenses, permits and authorizations necessary to own
its properties and to carry on its businesses as now being conducted and as
presently proposed to be conducted and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify. All of the outstanding shares of capital stock of each
subsidiary are validly issued, fully paid and nonassessable and all such shares
are owned by the Company or another subsidiary free and clear of any lien,
charge or encumbrance. Neither the Company nor any subsidiary owns or holds the
right to acquire any shares of stock or any other security or interest in any
other Person.
5D. Registration Statement. Except as set forth on Schedule I
attached hereto and as contemplated by this Agreement, the information set forth
in the Registration Statement, under the captions "Risk Factors," "Recent
Developments," "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management," "Certain
Relationships and Related Transactions," "Stock Ownership," "Certain Other
Indebtedness," "Business" and "Description of Capital Stock," as of the date
hereof, does not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
5E. Authorization; No Breach. The execution, delivery and
performance of this Agreement has been duly authorized by the Company. Each of
this Agreement, the Certificate of Incorporation, the Certificates of
Designations, the Registration Agreement and the Original Purchase Agreement,
each as amended as contemplated hereby, constitutes or will constitute a valid
and binding obligation of
12
the Company, enforceable in accordance with its terms, except as such
enforcement may be limited by (i) any applicable constitutional, bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law). The execution
and delivery by the Company of this Agreement and the amendments to each of the
Registration Agreement and the Original Purchase Agreement and the offering,
sale and issuance of the Series A Preferred Stock hereunder, and the fulfillment
of and compliance with the respective terms hereof and thereof by the Company do
not and shall not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii) result in
the creation of any lien, security interest, charge or encumbrance upon the
Company's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authorization, consent, approval, exemption or
other action by or notice to any court or administrative or governmental body
pursuant to, the charter or by-laws of the Company or any subsidiary, or any
law, statute, rule or regulation to which the Company or any subsidiary is
subject, or any agreement, instrument, order, judgment or decree to which the
Company or any subsidiary is subject.
5F. Financial Statements. The historical financial statements
(including in all cases the related schedules and notes thereto, if any) forming
a part of the Registration Statement are accurate and complete in all material
respects, consistent with the books and records of the Company (which, in turn,
are accurate and complete in all material respects) and have been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure and changes resulting from normal year-end adjustments (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its subsidiaries taken as a whole).
5G. Absence of Certain Developments. Except as expressly
contemplated by this Agreement or as set forth in the Registration Statement,
subsequent to the date as of which such information is given in the
Registration Statement, neither the Company nor any of its subsidiaries has
incurred any liability or obligation, direct or contingent, or entered into any
transaction, not in the ordinary course of business, that is material to the
Company and its subsidiaries taken as a whole, and there has not been any change
in the capital stock of the Company, or
13
material increase in the short-term debt or long-term debt of the Company or any
of its subsidiaries, or any development which would have a material adverse
effect on the Company and its subsidiaries taken as a whole.
5H. Assets. The Company and each subsidiary have good and
marketable title to, or a valid leasehold interest in, the properties and assets
described in the Registration Statement as being owned by it, free and clear of
all liens, security interests, charges and encumbrances except as described in
the Registration Statement or such as do not materially affect, singularly or in
the aggregate, the value of such properties and assets that are material to the
Company and its subsidiaries taken as a whole. Except as described in the
Registration Statement, the Company's and each subsidiary's buildings, equipment
and other tangible assets are in good operating condition in all material
respects and are fit for use in the ordinary course of business. The Company and
each subsidiary own, or have a valid leasehold interest in, all assets necessary
for the conduct of their respective businesses as presently conducted and as
presently proposed to be conducted.
5I. Tax Matters. The Company and each subsidiary have filed all
material tax returns which they are required to file under applicable laws and
regulations (or have obtained extensions for such filings); all such returns are
complete and correct in all material respects; and the Company and each
subsidiary in all material respects have paid all taxes due and owing by them
and have withheld and paid over all taxes which they are obligated to withhold
from amounts paid or owing to any employee, stockholder, creditor or other third
party.
5J. Proprietary Rights. The Company and its subsidiaries own or
possess all patents, trademarks, trademark registrations, service marks, service
xxxx registrations, trade names, copyrights, licenses, inventions, trade secrets
and rights described in the Registration Statement as being owned by them or any
of them or necessary for the conduct of their respective businesses except where
the lack of such ownership or possession would not have a material adverse
effect on the Company and its subsidiaries taken as a whole, and the Company is
not aware of any claim to the contrary or any challenge by any other person to
the rights of the Company and the subsidiaries with respect to the foregoing
which would, if successful, have a material adverse effect on the Company and
the subsidiaries taken as a whole.
5K. Governmental Consents, etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental
14
authority is required in connection with the execution, delivery and performance
by the Company of this Agreement or other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or in the exhibits hereto.
5L. Insurance. The Company and its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are customary in the businesses in which they are
engaged. Neither the Company nor any subsidiary is in default with respect to
its obligations under any material insurance policy maintained by it, and each
such policy is in full force and effect.
5M. Employees. The Company and each subsidiary has complied in
all material respects with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes, and
the Company and its subsidiaries have no material labor relations problems
(including any union organization activities, threatened or actual strikes or
work stoppages or material grievances).
5N. Compliance with Laws. Neither the Company nor any
subsidiary has violated any law or any governmental regulation or requirement
which violation would have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company and its subsidiaries taken as a whole, and neither the Company nor any
subsidiary has received notice of any such violation. Neither the Company nor
any subsidiary is subject to any clean up liability, or has reason to believe it
may become subject to any clean up liability, under any federal, state or local
environmental law, rule or regulation, which liability would have a material
adverse effect on the Company and its subsidiaries taken as a whole.
Section 6. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Certificates of Designations" means the Series A Certificate of
Designations and the 9.0% Certificate of Designations.
"Certificate of Incorporation" means the Company's Amended and
Restated Certificate of Incorporation in the form set forth in Exhibit B hereto.
15
"Common Stock" means the Company's Class A Common Stock, par value
$.01 per share, and the Company's Class B Common Stock, par value $.01 per
share.
"9.0% Certificate of Designations" means the Company's Certificate of
Designations, Powers, Rights and Preferences of 9.0% Cumulative Convertible Pay-
In-Kind Preferred Stock.
"Original Purchasers" means the "Purchasers" as defined in the
Original Purchase Agreement.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Series A Preferred Stock and the Company's
9.0% Cumulative Convertible Pay-In-Kind Preferred Stock.
"Registration Statement" means the Company's Registration Statement on
Form S-4, filed by the Company with the Securities and Exchange Commission on
October 10, 1997.
"Restricted Securities" means (i) the Shares issued hereunder, (ii)
shares of Class A Common Stock issued upon conversion of the Shares (the
"Conversion Shares") and (iii) any securities issued with respect to the Shares
or the Conversion Shares by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) become eligible for sale
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in Section 7A have been
delivered by the Company in accordance with Section 4(ii). Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new certificates
representing such securities not bearing a Securities Act legend of the
character set forth in Section 7A.
16
"Series A Certificate of Designations" means the Company's Certificate
of Designations, Powers, Rights and Preferences of 9.0% Cumulative Convertible
Pay-In-Kind Preferred Stock, Series A, establishing the terms and the relative
rights and preferences of the Series A Preferred Stock in the form set forth in
Exhibit A hereto.
Section 7. Miscellaneous.
7A. Purchasers' Investment Representations. Each of the
Purchasers hereby represents that it is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated under the Securities Act, it
is acquiring the Restricted Securities purchased hereunder or acquired pursuant
hereto for its own account with the present intention of holding such securities
for purposes of investment, and that it has no intention of selling such
securities in a public distribution in violation of the federal securities laws
or any applicable state securities laws; provided, that nothing contained herein
shall prevent the Purchasers and subsequent holders of Restricted Securities
from transferring such securities in compliance with the provisions of Section 4
hereof. Each certificate for Restricted Securities shall be imprinted with a
legend in substantially the following form:
"The securities represented by this certificate were originally issued on
October 17, 1997, and have not been registered under the Securities Act of
1933, as amended. The transfer of the securities represented by this
certificate is subject to the conditions specified in the Purchase
Agreement, dated as of October 17, 1997, between the issuer (the "Company")
and certain investors, and the Company reserves the right to refuse the
transfer of such securities until such conditions have been fulfilled with
respect to such transfer. A copy of such conditions shall be furnished by
the Company to the holder hereof upon written request and without charge."
7B. Purchasers' Authorization. The Purchasers' investment
committee or similar authority has approved and authorized the consummation of
the transactions contemplated by this Agreement.
7C. Effect of a Qualified Public Offering. Each of the
Purchasers agrees that upon the consummation of a Qualified Public Offering:
(i) All rights granted to the Purchasers pursuant to the
Third Amendment to the Original Purchase Agreement will be
17
terminated and the Purchasers will take all action necessary to effectuate
such termination;
(ii) All covenants contained in this Purchase Agreement
shall be terminated and of no further force and effect; and
(iii) The Purchasers will convert the Shares to Class A
Common Stock in accordance with the terms of the Series A Certificate of
Designations concurrently with closing of a Qualified Public Offering and
will enter into a lock-up agreement to the effect that the Purchasers will
not sell, offer to sell, grant any option for the sale of, or dispose of
any capital stock or security convertible into capital stock for a period
of 180 days from the date of the prospectus without the consent of the
underwriters for such offering.
Notwithstanding the foregoing, the agreement of the Purchasers
pursuant to this Section 7C shall be effective when and to the extent that (x)
the covenants of the Company in favor of the Original Purchasers paralleling
those referred to in clauses (i) and (ii) above shall have been terminated and
(y) the Original Purchasers shall have converted all shares of Preferred Stock
held by them into Class A Common Stock and entered into a comparable lock-up
agreement.
7D. Treatment of the Series A Preferred Stock. The Company
covenants and agrees that (i) so long as applicable income tax laws prohibit a
deduction for distributions made by the Company with respect to preferred stock,
it shall treat all distributions paid by it on the Series A Preferred Stock as
non-deductible distributions in respect of such stock on its applicable income
tax returns and (ii) it shall treat the Series A Preferred Stock as preferred
stock in all of its financial statements and other reports and shall treat all
distributions paid by it on the Series A Preferred Stock as distributions on
preferred stock in such statements and reports.
7E. Consent to Amendments. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company has obtained the
written consent of the Purchasers. No other course of dealing between the
Company and the Purchasers or any delay in exercising any rights hereunder or
under the Certificate of
18
Incorporation or the Certificates of Designations shall operate as a waiver of
any rights of the Purchasers.
7F. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
regardless of any investigation made by the Purchasers or on their behalf.
7G. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7H. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
7I. Descriptive Headings; Interpretation. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a Section of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
7J. Governing Law. The corporate law of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits and schedules hereto shall be
governed by the internal law, and not the law of conflicts, of the State of New
York.
7K. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, dispatched by telegram or electronic facsimile transmission
(confirmed in writing by mail simultaneously dispatched), sent to the recipient
by reputable express courier service (charges prepaid) or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to the
Company at
19
USN Communications, Inc.
00 Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Attention: Secretary
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and to the Purchasers at
00 Xxxxxxxxxx Xxxxxx
Xxxxxxxx X00X
Xxxxxx, XX 00000
Attention:
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7L. Indemnification. The Company agrees to indemnify and hold
the Purchasers harmless against and in respect of any and all direct out-of-
pocket damages, losses, liabilities, obligations, costs and expenses (including
reasonable attorneys' fees) which either of the Purchasers may suffer or incur
as a result of a breach of any of the representations, warranties or agreements
by the Company set forth herein (notwithstanding any investigations or
verifications made by or on behalf of the Purchasers).
7M. Expenses. The Company agrees to pay, and hold each of the
Purchasers harmless against liability for the payment of (i) the fees and
expenses incurred with respect to any amendments or waivers (whether or not the
same become effective) under or in respect of this Agreement, the agreements
contemplated hereby, the Certificate of Incorporation or the Series A
Certificate of Designation, (ii) stamp and other taxes which may be payable in
respect of the execution and delivery of this Agreement or the issuance,
delivery or acquisition of the Shares, (iii) the fees and expenses incurred with
respect to the enforcement of the rights granted under this Agreement, the
agreements contemplated hereby, the Certificate of Incorporation or the Series
A Certificate of Designation and (iv) the reasonable fees and expenses incurred
by either of the Purchasers in connection with any transaction, claim or event
which such Purchaser believes affects the Company or its subsidiaries and as to
which such Purchaser seeks advice of counsel.
20
* * * * *
21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
USN COMMUNICATIONS, INC.
__________________________________________________
By: J. Xxxxxx Xxxxxxx
Its: President and Chief Executive Officer
FIDELITY COMMUNICATIONS
INTERNATIONAL, INC.
By:_______________________________________________
Name___________________________________________
Its:___________________________________________
FIDELITY INVESTORS LIMITED PARTNERSHIP
By: Fidelity Investors Management Corp., general
partner
By:_______________________________________________
Name___________________________________________
Its:___________________________________________
Accepted and agreed to on this
_______ day of October by the
following Investors for purposes
of Section 3B only:
CIBC WOOD GUNDY VENTURES, INC.
By:
-----------------------------------
Its:
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By:
-----------------------------------
Its:
XXXXXXX VENTURE PARTNERS IV -
DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Xxxxxxx Venture
Partners, Inc.
By:
-----------------------------------
Its:
BT CAPITAL PARTNERS, INC.
By:
-----------------------------------
Its:
NORTHWOOD CAPITAL PARTNERS LLC
By:
-----------------------------------
Its:
NORTHWOOD VENTURES LLC
By:
-----------------------------------
Its:
ENTERPRISES & TRANSCOMMUNICATIONS L.P.
By: Prime Enterprises, L.P.
By: Prime New Ventures Management,
L.P.
By: Prime II Management, L.P.
By: Prime II Management, Inc.
By:
-----------------------------------
Its:
Schedule I
Exceptions to Registration Statement
None.
