Series F Preferred Stock Purchase Agreement - Birch Telecom Inc.
BIRCH TELECOM, INC.
SERIES F PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES F PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of July 13, 1999, by and among BIRCH TELECOM, INC., a Delaware
corporation (the "Company"), and BTI VENTURES L.L.C. , a Delaware limited
liability company, together with such affiliates as it shall designate
("Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of twenty-three million, five hundred ninety-six thousand, four
hundred and ninety two (23,596,492) shares of its Series F Preferred Stock;
WHEREAS, Purchaser initially desires to purchase 13,333,334 shares of
Series F Preferred Stock and obtain options to purchase up to an additional
10,263,158 shares of Series F Preferred Stock on the terms and conditions set
forth herein; and
WHEREAS, the Company desires to issue and sell such shares of Series F
Preferred Stock and grant such options to Purchaser on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the First Closing (as
defined in Section 2 below), the Company shall have authorized (i) the initial
sale and issuance to Purchaser of 13,333,334 shares of Series F Preferred Stock
(the "Firm Shares"), (ii) the issuance of 10,263,158 shares of Series F
Preferred Stock (the "Option Shares" and, together with the Firm Shares, the
"Shares") to be issued upon exercise of the Option (as defined below), and (iii)
the issuance of such shares of Common Stock to be issued upon conversion of the
Shares (the "Conversion Shares"). The Shares and the Conversion Shares shall
have the rights, preferences, privileges and restrictions set forth in the
Restated Certificate of Incorporation of the Company in the form attached hereto
as Exhibit A (the "Restated Certificate").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the First Closing (as hereinafter defined) the Company hereby agrees to issue
and sell to Purchaser, and Purchaser agrees to purchase from the Company the
Firm Shares at a purchase price of $4.50 per Firm Share.
1.3 OPTION.
(A) In connection with the purchase of the Firm Shares, the Company
has agreed to provide Purchaser, as of the date of the First Closing, with an
irrevocable option (the "Option") to purchase up to (i) 5,263,158 Option Shares
at a purchase price of $4.75 per Option Share and (ii) up to 5,000,000 Option
Shares at a purchase price of $5.00 per Option Share.
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(B) The Option may be exercised by Purchaser as to all or any part
of the Option Shares, at any time, commencing on the First Closing and ending on
midnight of the date which is 270 days after the First Closing.
(C) In the event Purchaser wishes to exercise the Option, Purchaser
shall send a written notice to the Company of its intention to exercise the
Option, in whole or in part (a "Notice"), specifying the place, time and date
("Option Closing Date") of the closing of such purchase (the "Option Closing"),
which date shall not be less than three business days from the date on which a
Notice is delivered.
(D) At the Option Closing, the Company shall deliver to Purchaser
all of the Option Shares to be purchased by delivery of a certificate or
certificates evidencing such Option Shares so purchased by Purchaser, free and
clear of any liens, encumbrances or any interests of any other party and
Purchaser will make payment to the Company of the aggregate purchase price for
the Option Shares being purchased upon partial or full exercise of the Option by
wire transfer of immediately available funds to an account designated by the
Company.
(E) To the extent not reflected in the adjustment provisions in the
Restated Certificate, the applicable purchase price with respect to the Option,
shall be adjusted to reflect any stock splits, cash or noncash dividends,
recapitalizations, combinations, distributions, issuances, reclassifications,
exchanges, substitutions or other similar adjustments with respect to the
capital stock of the Company, or sales of shares of capital stock below the
applicable purchase price with respect to the Option, in each case consistent
with the adjustment provisions relating to the Shares in the Restated
Certificate.
(F) Except to the extent set forth herein, the purchase of any
Option Shares pursuant to the exercise of the Option shall be subject to the
same terms and conditions as the purchase of the Firm Shares under this
Agreement. Without limiting the generality of the foregoing, the
representations, warranties, covenants and agreements contained in this
Agreement shall apply to the purchase of the Option Shares pursuant to the
Option and the closing conditions set forth in Section 6.1(a), shall apply to
the extent applicable to the Option Closing.
2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Firm Shares
under this Agreement (the "First Closing" and, together with the Option Closing,
each a "Closing") shall take place at 5:00 p.m. on the third business day after
the satisfaction or waiver of the conditions set forth in Section 6, at the
offices of the Company, 2020 Baltimore Avenue, Kansas City, Missouri 64108, or
at such other time or place as the Company and Purchaser may mutually agree
(such date is hereinafter referred to as the "First Closing Date" and, together
with each Option Closing Date, each a "Closing Date").
2.2 DELIVERY. At the First Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser all of the Firm Shares by
delivery of a certificate or certificates evidencing the Firm Shares to be
purchased at the First Closing, free and clear of any liens, encumbrances or
interests of any other party and the Purchaser will make payment to the
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Company of the purchase price therefor by wire transfer of immediately
available funds to an account designated by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on a Schedule of Exceptions delivered by the
Company at each Closing, the Company hereby represents and warrants to Purchaser
as of the date of this Agreement, First Closing Date and each Option Closing
Date as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company
and its Subsidiaries (as defined below) is a corporation or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of incorporation or formation as set forth on Schedule 3.1 and has
all requisite power and authority to own and operate its respective properties
and assets and to carry on its respective business as currently conducted and as
currently proposed to be conducted. The Company has all requisite corporate
power and authority to execute and deliver this Agreement and the Amended and
Restated Purchasers Rights Agreement in the form of Exhibit B attached hereto
(the "Purchasers Rights Agreement," and together with any other agreement
entered into in connection with this transaction, the "Related Agreements"), to
issue and sell the Shares and to carry out the provisions of this Agreement and
the Related Agreements. Each of the Company and its Subsidiaries is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation or other entity in all jurisdictions in which the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the assets, liabilities,
business, results of operations, financial condition or prospects of the Company
and its Subsidiaries, taken as a whole (a "Material Adverse Effect"). Schedule
3.1 lists all the jurisdictions in which the Company is qualified as a foreign
corporation and the dates of such qualifications.
3.2 SUBSIDIARIES. The Company does not own voting securities or other
similar interests of any corporation or other entity that is sufficient to
enable the company to elect a majority of the members of such corporation's or
other entity's Board of Directors or other governing body, except for those
corporations or other entities set forth on Schedule 3.1 (each a "Subsidiary"
and collectively, the "Subsidiaries"). All the outstanding shares of stock of
the Subsidiaries have been validly issued and are fully paid and non-assessable
and all such outstanding shares are owned directly by the Company free of any
lien or claim. Except as set forth of Schedule 3.1, neither the Company nor any
of its Subsidiaries is a participant in any joint venture, partnership or
similar arrangement.
3.3 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the
Company, immediately prior to the First Closing, will consist of 135,000,000
shares, of which 80,000,000 are shares of Common Stock, par value $.001 per
share, 5,043,706 shares of which are issued and outstanding and 791,748 shares
of which are reserved for future issuance to employees pursuant to the Stock
Option Plan (as hereinafter defined) and 55,000,000 are shares of Preferred
Stock, par value $.001 per share; 8,750,000 of which are designated Series B
Preferred Stock, 8,572,039 of which are issued and outstanding; 8,500,000 shares
of which are designated Series C Preferred Stock, 8,492,749 of which are issued
and outstanding; 2,225,000 of which are designated Series D Preferred Stock, not
more than 2,222,222 of which are issued and outstanding; 1,904,898 of which
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are designated Series E Preferred Stock, none of which are issued and
outstanding; and 30,000,000 of which are designated Series F Preferred Stock,
none of which are issued and outstanding. All issued and outstanding shares of
the Company's capital stock (a) have been duly authorized and validly issued,
(b) are fully paid and nonassessable, (c) were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. The
rights, preferences, privileges and restrictions of the Preferred Stock are as
stated in the Restated Certificate. The Company has delivered to Purchaser a
copy of the Company's Stock Option Plan (the "Stock Option Plan"). Schedule 3.3
sets forth a true and complete summary of all options issued under the Stock
Option Plan, including the holder, issue date, exercise price, vesting status
and expiration date of such option. Other than the 791,748 shares reserved for
issuance under the Stock Option Plan, the Options issued pursuant to the Stock
Option Plan as set forth on Schedule 3.3 and 115,000 outstanding warrants to
purchase 1,409,734 shares of Common Stock (the "Existing Warrants"), and except
as may be granted pursuant to this Agreement and the Related Agreements, there
are no outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or shareholder agreements, or
agreements of any kind for the purchase or acquisition from the Company or any
Subsidiary of any of their securities. Except as described in this Agreement or
set forth in Schedule 3.3, (x) there are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any securities of the Company or any voting or equity securities or interests of
any subsidiary of the Company, (y) there is no voting trust or other agreement
or understanding to which the Company or any of its Subsidiaries is a party or
is bound with respect to the voting of the capital stock or other voting
securities of the Company or any of its Subsidiaries and (z) there are no other
options, calls, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Company or any of its Subsidiaries to which the Company or any of its
Subsidiaries is a party. When issued in accordance with the provisions of this
Agreement and the Restated Certificate, the Shares will be validly issued, fully
paid and nonassessable; provided, however, that such shares may be subject to
restrictions on transfer under the Purchasers Right Agreement or under state
and/or federal securities laws or as otherwise required by such laws at the time
a transfer is proposed. Schedule 3.3 sets forth as of the date hereof the name
of each person or entity owning any of the Company's outstanding equity
securities and the number and class of equity security owned by each such person
or entity.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and shareholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder and thereunder as of each Closing and
the authorization, sale, issuance and delivery of the Shares (including the
Option Shares) has been taken or will be taken prior to the First Closing. The
Agreement and the Related Agreements, when executed and delivered, will be valid
and binding obligations of the Company enforceable in accordance with their
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (b) general principles of equity that restrict
the availability of equitable remedies; and (c) to the extent that the
enforceability of the indemnification provisions in Section 2.5 of the
Purchasers Rights Agreement may be limited by applicable laws. The sale of the
Shares (including Option Shares) is not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived.
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3.5 SEC REPORTS; FINANCIAL STATEMENTS.
(A) The Company has filed with the Securities and Exchange
Commission ("SEC") all forms, reports, schedules, proxy statements
(collectively, and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein, the "SEC Reports") required to be
filed by the Company with the SEC since September 1, 1998. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder and none of such SEC Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(B) The Company has delivered to Purchaser an unaudited balance
sheet (the "Statement Date Balance Sheet") of the Company and its Subsidiaries
as at March 31, 1999 (the "Statement Date") and unaudited statement of income
and cash flows of the Company and its subsidiaries for the three months ending
on the Statement Date (the "Statement Date Income Statement" and "Statement Date
Cash Flow Statement" respectively, and collectively with the Statement Date
Balance Sheet and all audited and unaudited financial statements included in the
SEC Reports, the "Financial Statements"). The Financial Statements, together
with the notes thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods indicated, except as disclosed therein, and present fairly the
consolidated financial position of the Company and its Subsidiaries as of the
respective dates presented therein and the consolidated results of operations
and cash flows of the Company and its Subsidiaries for the respective periods
presented therein; provided, however, that the unaudited financial statements
are subject to normal recurring year-end audit adjustments (which are not
individually or in the aggregate expected to be material).
3.6 UNDISCLOSED LIABILITIES. Except as and to the extent set forth on
the Statement Date Balance Sheet of the Company and its Subsidiaries at the
Statement Date, neither the Company nor any Subsidiaries has any liabilities
that are material (individually or in the aggregate), except current liabilities
incurred in the ordinary course of business consistent with past practice
subsequent to the Statement Date.
3.7 AGREEMENTS; ACTION.
(A) Except (i) as set forth on Schedule 3.7(a), (ii) as described
in the Company's Annual Report on Form 10-K for the year ended December 31, 1998
(the "1998 Form 10-K") and (iii) for agreements between the Company or any
Subsidiary and its employees with respect to the sale of Common Stock, there are
no agreements, understandings or proposed transactions between the Company or
any Subsidiary and any of its officers, directors, affiliates or any affiliate
thereof.
(B) Attached hereto as Schedule 3.7(b) is a list of (i) all
"material contracts" with the meaning of Item 601 of Regulation S-K of the
United States Securities and Exchange Commission, and (ii) all Contracts
restricting the Company or any of its Subsidiaries from engaging in any line of
business or competing with any person or entity or in any geographical area, or
from using or disclosing any information in its possession (other than routine
vendor and customer
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confidentiality agreements and confidentiality agreements with potential
acquisition targets) (collectively, the "Contracts").
(C) Except as set forth in Schedule 3.7(c), neither the Company nor
any of its Subsidiaries is, nor to the Company's knowledge is any other party to
any Contract, in material default under, or in material breach or material
violation of, any Contract and, to the knowledge of the Company, no event has
occurred which, with the giving of notice or passage of time or both would
constitute a material default by the Company under any Contract. Other than
Contracts which have terminated or expired in accordance with their terms, each
of the Contracts is valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered on a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing) and is in full force and
effect. No event has occurred which either entitles, or would, on notice or
lapse of time or both, entitle the holder of any indebtedness of the Company or
any of its Subsidiaries to accelerate or which does accelerate the maturity of
any indebtedness for borrowed money of the Company or any of the Subsidiaries.
(D) Except as set forth on Schedule 3.7(d), neither the Company nor
any Subsidiary has (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed or any other liabilities,
individually, in excess of $1,000,000, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(E) For the purposes of subsection (d) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company or any Subsidiary has reason to believe are affiliated therewith)
shall be aggregated for the purpose of meeting the individual minimum dollar
amounts of such subsections.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company or any Subsidiary to their respective officers, directors, shareholders,
or employees other than (a) for payment of salary for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company or
Subsidiary and (c) for other standard employee benefits made generally available
to all employees (including stock option agreements outstanding under the Stock
Option Plan). Except as set forth on Schedule 3.8, neither the Company nor any
Subsidiary is a guarantor or indemnitor of any indebtedness of any other person,
firm or corporation.
3.9 CHANGES. Since the Statement Date, there has not been:
(A) any change in the assets, liabilities, financial condition or
operations of the Company and its Subsidiaries from that reflected in the
Statement Date Balance Sheet and Statement Date Income Statement, other than
changes in the ordinary course of business, none of which individually or in the
aggregate has had, or could reasonably be expected to have, a Material Adverse
Effect;
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(B) any resignation or termination of any key officers of the
Company and its Subsidiaries; and the Company does not know of the impending
resignation or termination of employment of any such officer;
(C) any material damage, destruction or loss, whether or not
covered by insurance;
(D) any waiver by the Company or any Subsidiary of a valuable right
or of a material debt owed to it;
(E) any direct or indirect loans made by the Company or any
Subsidiary to any shareholder, employee, officer or director of the Company or
any Subsidiary, other than travel advances and salary advances (which salary
advances do not exceed $25,000 in the aggregate) made in the ordinary course of
business consistent with past practice;
(F) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder (other than
compensation increases in the ordinary course of business consistent with past
practice);
(G) any declaration or payment of any dividend or other
distribution of the assets of the Company or any Subsidiary;
(H) to the Company's knowledge, any labor organization activity;
(I) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any Subsidiary, except those for immaterial amounts
and for current liabilities incurred in the ordinary course of business and
consistent with past practice;
(J) any sale, assignment or transfer of any material patents,
trademarks, copyrights, trade secrets or other intangible assets;
(K) any change in any Contract which could reasonably be expected
to have a Material Adverse Effect;
(L) any action taken by the Company or any Subsidiary that if taken
after the date of this Agreement would require the prior written consent of
Purchaser in accordance with Section 5.1(b); or
(M) any other event or condition of any character that, either
individually or cumulatively, has had, or could reasonably be expected to have,
a Material Adverse Effect.
3.10 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company and each
of its Subsidiaries has good and marketable title to its respective properties
and assets, including the properties and assets reflected in the Statement Date
Balance Sheet, and good title to its respective leasehold estates, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge. The Company
and each of its Subsidiaries is in compliance with all material terms of each
lease to which it is a party or is otherwise bound.
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3.11 PATENTS AND TRADEMARKS. The Company and each of its Subsidiaries
owns or possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its respective business as now
conducted and as currently proposed to be conducted, without any known
infringement of the rights of others. Neither the Company nor any of its
Subsidiaries has received any communications alleging that it has violated or,
by conducting its business as currently proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. Neither the Company nor
any of its Subsidiaries is aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
any of its Subsidiaries or that would conflict with the Company's or any of its
Subsidiaries' business as presently proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
or any of its Subsidiaries' business by the employees of the Company or its
Subsidiaries, nor the conduct of the Company's or any of its Subsidiaries'
business as currently proposed, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. Neither the
Company nor any of its Subsidiaries believes it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company or any of its
Subsidiaries, except for inventions, trade secrets or proprietary information
that have been assigned to the Company or any of its Subsidiaries.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company nor any of
its Subsidiaries is in violation or default of (i) the Restated Certificate or
Bylaws, (ii) any Contract or (iii) of any judgment, decree, order, writ, or any
statute, rule or regulation, including, without limitation, requirements of the
FCC or any state regulatory agency applicable to the Company or any Subsidiary,
except for such violations or defaults in respect of clauses (ii) or (iii) which
would not, individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect. The execution, delivery, and performance of this
Agreement, and the Related Agreements, and the issuance and sale of the Shares
pursuant hereto, will not, with or without the passage of time or giving of
notice, result in any violation, or be in conflict with or constitute a default
under (i) the Restated Certificate or Bylaws, (iii) any Contract or (iii) any
judgment, decree, order, writ or any statute, rule or regulation including,
without limitation, requirements of the FCC or any state regulatory agency
applicable to the Company or any Subsidiary. The execution, delivery and
performance of this Agreement, and the Related Agreements, and the issuance and
sale of the Shares pursuant hereto, will not result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company and its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
3.13 LITIGATION. Except as set forth on Schedule 3.13, there is no
action, suit, proceeding or investigation pending or to the Company's knowledge
currently threatened against the Company or any Subsidiary. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's or any Subsidiary's employees, their use in connection with the
Company's or any Subsidiary's business of any information or techniques
allegedly proprietary to any of their former employers, or
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their obligations under any agreements with prior employers. Neither the Company
nor any Subsidiary is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government authority. There is no
action, suit, proceeding or investigation by the Company or any Subsidiary
currently pending or which the Company or any Subsidiary intends to initiate.
3.14 TAX RETURNS AND PAYMENTS.
(A) Except as set forth on Schedule 3.14(a), each of the Company
and its Subsidiaries has accurately prepared and filed on time with all
appropriate governmental authorities all material Tax returns and other material
documents that it has been required to file in respect of any Taxes for all
fiscal periods ending on or prior to the Closing Date and all such returns or
other material documents are correct and complete in all material respects and
do not contain a disclosure statement under Section 6662 of the Internal Revenue
Code of 1986, as amended (the "Code").
(B) Each of the Company and its Subsidiaries has paid in full all
material Taxes due on or before the date hereof and, in the case of such Taxes
accruing on or before such date that are not due on or before such date, the
Company has made adequate provision in its books and records and Financial
Statements to the extent currently required by GAAP.
(C) Each of the Company and its Subsidiaries has withheld from
each payment made to any of its present or former employees, officers, directors
and managers all amounts required by law to be withheld or remitted. Each of the
Company and its Subsidiaries has remitted all social security contributions and
other Taxes payable by it in respect of its employees. Each of the Company and
its Subsidiaries has charged, collected and remitted all material Taxes as
required under applicable legislation on any sale, supply or delivery
whatsoever, made by the Company or any of its Subsidiaries.
(D) Except as set forth on Schedule 3.14(d), there are no
reassessments of Taxes of the Company or any of its Subsidiaries that have been
issued and are outstanding. No governmental authority has challenged, disputed
or questioned the Company or any of its Subsidiaries in writing in respect of
any Taxes or of any Tax returns, filings or other reports filed under any
statute providing for such Taxes.
(E) Except as set forth in Schedule 3.14(e), neither the Company
nor any of its Subsidiaries has (i) granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax, or (ii) requested any extension of time within which to file any
federal income Tax Return or any state income or franchise Tax Return, which Tax
Return has not been filed as of the date hereof.
(F) Except as set forth in Schedule 3.14(f), neither the Company
nor any of its Subsidiaries (i) is a party to or bound by (nor will it become a
party to or become bound by) any Tax indemnity, Tax sharing, Tax allocation or
similar agreement or arrangement (or administrative or accounting practice
having substantially the same effect); (ii) has filed a consent under Section
341(f) of the Code (or any corresponding provisions of state, local or foreign
income tax law) or agreed to have Section 341(f) of the Code (or any
corresponding provision of state, local or foreign tax law) apply to any
disposition of any asset owned by it; (iii) has agreed to make or is required to
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make any material adjustment under Section 481(a) of the Code; (iv) has been a
member of an affiliate group of corporations, within the meaning of Section 1504
of the Code (other than the affiliated group of which the Company is the common
parent corporation); (v) owns material assets that directly or indirectly secure
debt the interest on which is tax-exempt under Section 103(a) of the Code; or
(vi) is obligated under any agreements in connection with industrial development
bonds or other obligations with respect to which the excludability from gross
income of the holder for federal or state income tax purposes would be affected
by the transactions contemplated hereunder, or (vii) owns any property of a
character, the indirect transfer of which pursuant to this Agreement, would give
rise to any material documentary, stamp or other transfer tax.
(G) Neither the Company nor any of its Subsidiaries is, or has
been, a United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, and, to the Company's knowledge, no foreign person
directly or indirectly holds (within the meaning of Section 897(c)(3) of the
Code), more than 5% of the voting stock of the Company.
(H) Except as set forth on Schedule 3.14(h), neither the Company
nor any of its Subsidiaries is a party to any agreement, contract, arrangement
or plan that has resulted or would result, separately or in the aggregate, in
connection with this Agreement or any change of control of the Company or any of
its Subsidiaries, in the payment of any material "excess parachute payments"
within the meaning of Section 280G of the Code.
(I) For purposes of this Agreement, the term "Tax" or "Taxes"
shall mean all taxes, charges, fees, levies, imposts and other assessments,
including all income, sales, use, goods and services, value added, capital,
capital gains, alternative net worth, transfer, profits, withholding, payroll,
employer health, excise, real property and personal property taxes, and any
other taxes, customs duties, fees, assessments or similar charges in the nature
of a tax, including, without limitation, any interest, fines and penalties
imposed by any governmental authority.
3.15 EMPLOYEES. Neither the Company nor any of its Subsidiaries has any
collective bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened with respect to the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries is aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company or any of its Subsidiaries, nor does
the Company or any of its Subsidiaries have a present intention to terminate the
employment of any officer, key employee or group of key employees.
3.16 REGISTRATION RIGHTS. Except as required pursuant to the Purchasers
Rights Agreement, neither the Company nor any of its Subsidiaries is currently
under any obligation, and has not granted any rights, to register (as defined in
the Purchasers Rights Agreement) any of the Company's or any Subsidiary's
currently outstanding securities or any of its securities that may hereafter be
issued.
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3.17 COMPLIANCE WITH LAWS.
(A) Neither the Company nor any of its Subsidiaries has been, or
currently is, in violation, in any material respect, of any material statute,
rule, regulation, order or restriction of any domestic or foreign government
authority thereof in respect of the conduct of its business or the ownership of
its properties. Except as set forth on Schedule 3.17(a), the Company is in
compliance, in all material respects, with all applicable material FCC and state
regulatory agency tariffing requirements, reporting requirements, universal
service and telecommunications relay service funding obligations and other
telecommunications regulations. Except as set forth on Schedule 3.17(a), no
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement and the
issuance of the Shares.
(B) Except as set forth on Schedule 3.17(b), there are no
proceedings or investigations pending or threatened, before the FCC or any state
regulatory agency directed specifically at the Company or, in the case of
matters of general applicability to the telecommunications industry, in which
the Company is identified for possible disparate treatment or whose outcome may
have a disparate impact on the Company in which any of the following matters are
being considered which are reasonably likely to have a Material Adverse Effect,
nor has the Company or any of its Subsidiaries received written notice or
inquiry from the FCC or any state regulatory agency, indicating that any of such
matters should be considered or may become the object of consideration or
investigation specifically regarding the Company which are reasonably likely to
have a Material Adverse Effect, or, in the case of matters of general
applicability to the telecommunications industry, in which the Company is
identified for possible disparate treatment or whose outcome may have a
disparate impact on the Company or which otherwise involves: (a) increases or
reductions in access charges, universal service contributions or the like; (b)
traffic routing restrictions or restrictions on use of facilities; (c) reduction
or restriction of rates charged to customers; (d) reduction of earnings; (e)
refunds or other forfeitures of amounts previously charged to customers; (f) use
of NXX codes; or (g) failure to meet any expense, infrastructure, service
quality or other commitments previously made to or imposed by the FCC or any
state regulatory agency.
(C) Except as set forth on Schedule 3.17(c), neither the Company
nor any of its Subsidiaries has any outstanding commitments made in the context
of a matter or proceeding related specifically to the Company or, in the case of
matters of general applicability to the telecommunications industry, in which
the Company is identified for possible disparate treatment or whose outcome may
have a disparate impact on the Company (and no such obligations have been
imposed upon the Company and remain outstanding), regarding: (a) increases or
reductions in access charges, universal service contributions or the like; (b)
traffic routing restrictions or restrictions on use of facilities; (c) reduction
or restriction of rates charged to customers; (d) reduction of earnings; (e)
refunds or other forfeitures of amounts previously charged to customers; (f) use
of NXX codes; or (g) expenses, infrastructure expenditures, service quality or
other regulatory requirements, to or by the FCC or any state regulatory agency,
in each case which are reasonably likely to have a material adverse effect on
the Company.
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3.18 ENVIRONMENTAL AND SAFETY LAWS.
(A) All material licenses or permits which are required under
Environmental Laws (as defined below) (each an "Environmental Permit") for the
conduct of the business of the Company or any Subsidiary or the operation of any
property owned, leased or occupied by the Company or any of its Subsidiaries
which are required to be obtained or applied for by the Company or any of its
Subsidiaries have been so obtained or applied for.
(B) Neither the Company nor any Subsidiary has failed to comply in
any material respect with any Environmental Laws or any Environmental Permit and
neither the Company nor any Subsidiary has been notified by any governmental
authority of any such non-compliance and, to the Company's knowledge no
Environmental Permit will be modified, suspended, canceled or revoked or cannot
be renewed in the ordinary course of business.
(C) To the Company's knowledge, no Hazardous Substance (as defined
below) is currently or has been in the past generated, stored, handled, treated,
transported to or from or disposed of on any property currently or formerly
owned by the Company or any of its Subsidiaries, or operated or leased by the
Company or any of its Subsidiaries. To the Company's knowledge, neither the
Company nor any Subsidiary has generated, disposed of, transported or arranged
for the transportation (directly or indirectly) of any Hazardous Substances to
any location that is listed or, to the knowledge of the Company, proposed for
listing on the National Properties List or the CERCLA Information System under
CERCLA, or under any similar state, local or foreign list, or where there has
been a Release (as defined below) or suspected Release of a Hazardous Substance.
Neither the Company nor any Subsidiary has generated or disposed of any
Hazardous Substance in a manner which could reasonably be expected to give rise
to a material liability under any Environmental Law.
(D) Neither the Company nor any Subsidiary has received any
written notice from any person or entity advising it that it is responsible for
or potentially responsible for cleanup or remediation of any Hazardous
Substances. No capital expenditure is planned or required in respect of the
assets of the Company or any of its Subsidiaries pursuant to or to comply with
any Environmental Law, nor has the Company or any of its Subsidiaries received
any written notice of any such requirement.
(E) There is no claim pending or, to the best knowledge of the
Company, threatened against the Company or any of its Subsidiaries or pending
or, to the knowledge of the Company, threatened against any other person or
entity whose liability for any environmental claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law under any Environmental Law. To the Company's knowledge, no
real property currently or formerly owned by the Company or any of its
Subsidiaries, or operated or leased by the Company or any of its Subsidiaries
(during the period of such operation or lease) has been impacted by any Release
or threatened Release of any Hazardous Substance.
(F) Each of the Company and its Subsidiaries has delivered or
otherwise made available for inspection to the Purchaser true, accurate and
complete copies and results of any reports, studies, analyses, tests or
monitoring possessed or initiated by the Company or any of its Subsidiaries
pertaining to Hazardous Substances in, on, beneath or adjacent to any property
or
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regarding compliance by the Company or any of its Subsidiaries with applicable
Environmental Laws.
(G) To the Company's knowledge, there are no underground or
above-ground storage tanks (whether or not currently in use) located on or under
any real property currently owned, leased or operated by the Company or any of
its Subsidiaries.
(H) For purposes of this Agreement, the term (i) "Environmental
Laws" shall mean all federal, foreign, state, local or municipal environmental,
health or safety-related laws, regulations, by-laws, rules, ordinances, judicial
or administrative decrees or decisions, orders or requirements applicable to the
Company or any of its Subsidiaries relating to the physical or environmental
condition or use of their respective properties, their respective businesses or
pollution or protection of human health or the Environment, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C., ss.9601, et seq., as amended ("CERCLA"), the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended, the
Clean Air Act, 42 U.S.C. Section 7401 et seq., as amended, the Clean Water Act,
33 U.S.C. Section et seq., the Toxic Substance Control Act, 15 U.S.C ss.2601 et
seq., the Occupational Safety and Health Act, laws relating to Releases or
threatened Releases of Hazardous Substances into the Environment or otherwise
relating to the manufacture, generation, processing, distribution, use,
treatment, storage, abatement, existence, holding, Release, transport or
handling of Hazardous Substances, and all laws and regulations with regard to
recordkeeping, notification, disclosure and reporting requirements respecting
Hazardous Substances; (ii) "Hazardous Substances" shall mean any pollutant,
contaminant, toxic substance, hazardous waste, hazardous material, or hazardous
substance, or any oil, petroleum or petroleum product, each as defined or listed
in, or classified pursuant to, any Environmental Laws; and (iii) "Release" shall
have the meaning ascribed to such term in any Environmental Laws.
3.19 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 4 hereof, the offer, sale and
issuance of the Shares will be exempt from the registration requirements of the
Securities Act and will have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
3.20 EMPLOYEE BENEFIT PLANS.
(A) Schedule 3.20 contains a true and complete list of each
"employee benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), stock purchase,
stock option, severance, employment, change-in-control, fringe benefit, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject to
ERISA, under which any employee or former employee of the Company or its
Subsidiaries has any present or future right to benefits and under which the
Company or its Subsidiaries has any present of future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively referred
to as the "Company Plan".
(B) With respect to each Company Plan, the Seller has delivered to
the Buyer a current, accurate and complete copy thereof and, to the extent
applicable: (i) any related trust
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agreement or other funding instrument; (ii) the most recent determination
letter, if applicable; (iii) any summary plan description; and (iv) for the most
recent year (A) the Form 5500 and attached schedules, (B) audited financial
statements and (C) actuarial valuation reports.
(C) Each Company Plan has been established and administered in
accordance with its terms, in all material respects, and in material compliance
with the applicable provisions of ERISA, the Code and other applicable laws,
rules and regulations and neither the Company nor any of its Subsidiaries has
incurred any material tax, fine, lien, penalty or other liability imposed by
ERISA, the Code or other applicable law, rule and regulations; and (ii) each
Company Plan which is intended to be qualified within the meaning of Code
section 401(a) has received a favorable determination or if such plan is a
prototype plan, the prototype plan has received a favorable determination
letter, in all material respects, to its qualifications, or is in a form in
which the Internal Revenue Service consider the terms of such Company Plan to be
qualified without the need to receive such a letter, and subsequent to that term
nothing has occurred, whether by action or failure to act, that could reasonably
be expected to cause the loss of such qualification.
(D) No Company Plan is (i) subject to Title IV or ERISA or (ii)
a "multiemployer plan" (as such term is defined in section 3(37) of ERISA) and
neither the Company nor any of its Subsidiaries has incurred any withdrawal
liability or termination liability with respect to any such plan that remains
unsatisfied. The Company has not engaged in, and is not a successor or parent
corporation to any entity that has engaged in, a transaction described in
Section 4069 or 4212(c).
(E) Except as disclosed on Schedule 3.21(e), with respect to any
Company Plan, no actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened or reasonably expected to arise.
(F) Except as disclosed on Schedule 3.21(f), no Company Plan
exists that could result in the payment to any present or former employee of the
Company or its Subsidiaries of any money or other property or accelerate or
provide any other rights or benefits to any present or former employee of the
Company or its Subsidiaries as a direct result of the transaction contemplated
by this Agreement, whether or not such payment would constitute a parachute
payment within the meaning of Code section 280G.
3.21 INSURANCE. Schedule 3.21 sets forth a true and complete summary of
each insurance policy pertaining to the assets or operations of the Company and
each Subsidiary. Each such insurance policy is in full force and effect and
neither the Company nor any Subsidiary has any claims pending under any such
policies nor has the Company or any Subsidiary been denied coverage with respect
to any claim or potential claim filed under any such policies.
3.22 BOOKS AND RECORDS. The books of account, stock records, minute
books and other records of the Company and each of its Subsidiaries are
accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
3.23 BUSINESS PLAN; PROJECTIONS. Attached as Schedule 3.23(a) is the
Company's Business Plan, dated June 23, 1999 ("1999 Business Plan"), which
consists of the budget for the Company and its Subsidiaries for 1999 on a
consolidated basis, and attached as Schedule 3.23(b) are
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the projections of the future performance of the Company and its Subsidiaries,
on a consolidated basis, including annual income, net profits and cash flows for
each year of the five-year period ending 2003 (the "Projections"). The
Projections have been prepared in good faith and are based on what the Company
and its management believe to be a reasonable assessment of the future
performance of the Company and its Subsidiaries. All material assumptions used
in the preparation of the Projections are set forth in the notes thereto.
Notwithstanding the foregoing, no representation is made that the projections
will be attained.
3.24 ACCOUNTS RECEIVABLE AND BAD DEBTS. All notes and accounts
receivable of the Company and its Subsidiaries shown on the Statement Date
Balance Sheet were generated for valid consideration in the ordinary course of
business. Attached as Schedule 3.24 is an aging of the accounts receivable of
the Company and its Subsidiaries. Schedule 3.24 also sets forth the aggregate
amount of accounts receivable of the Company and its Subsidiaries that were
written off in each of 1997 and 1998.
3.25 LICENSES. Schedule 3.25 sets forth a list of each license used by
the Company or any of its Subsidiaries and which is material to the conduct and
operation of the Company business (the "Licenses"). True and correct copies of
the Licenses and all amendments thereto to the date hereof, have been delivered
by the Company to the Purchaser. All Licenses are in full force and effect. The
Company and its Subsidiaries have complied in all material respects with the
terms of the Licenses and there are no pending modifications, amendments or
revocations of the Licenses which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect. All fees due and
payable from the Company or any of its Subsidiaries to governmental authorities
pursuant to the Licenses have been paid. All reports required of the Company or
any of its Subsidiaries to be filed in connection with the Licenses have been
timely filed and are accurate and complete. The Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. Except as specified in Schedule 3.25, no
registrations, filings, applications, notices, transfers, consents, approvals,
audits, qualifications, waivers or other action of any kind is required by
virtue of the execution and delivery of this Agreement or any Related Agreement,
or of the consummation of the transactions contemplated hereby or thereby (a) to
avoid the loss of any license or any asset, property or right pursuant to the
terms thereof or the violation or breach of any law applicable thereto, or (b)
to enable the Company and its Subsidiaries to hold and enjoy the same after the
Closing Date in the conduct of its business as conducted immediately prior to
the Closing Date. The Company has filed with the FCC an application for
authorization to provide international telecommunications service and no party
has opposed the granting of such application.
3.26 NETWORK. Schedule 3.26 sets forth, as of June 30, 1999 (i) the
location of each switch owned by the Company or any Subsidiary and the switch's
make and model and (ii) the location of all of the Company's or any Subsidiary's
collocation sites. The Company's and its Subsidiaries' switches are (i) fully
installed, (ii) interconnected to the incumbent telephone company's local
network and (iii) capable of carrying commercial traffic. The Company's and its
Subsidiaries' collocation sites possess all of the necessary equipment to carry
commercial traffic and are linked via leased or owned transmission cable to a
switch owned by the Company or any Subsidiary.
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3.27 CUSTOMERS. No single customer of the Company accounted for more
than five percent (5%) of the Company's consolidated net sales for 1998, and the
Company does not anticipate any single customer accounting for more than five
percent (5%) of the Company's consolidated net sales in 1999. Schedule 3.27 sets
forth as of March 31, 1999, the total number of lines in service.
3.28 YEAR 2000 COMPLIANCE. The Company has implemented a Year 2000
readiness program to evaluate date-sensitive material hardware and software
systems used by the Company to determine if such systems are Year 2000 Compliant
or will be Year 2000 Compliant by December 31, 1999, and, based on that, has
formulated a plan to make such systems Year 2000 Compliant, as more particularly
described on Schedule 3.28 (the "Year 2000 Compliance Plan"). The term "Year
2000 Compliant" as used herein means that under the conditions of the Company's
internal testing the computer systems at issue will neither cause any abnormal
termination of performance nor generate inconsistent results when processing
date data from, into, and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations. The Company
represents that it is using commercially reasonable efforts to achieve the goals
set forth in its Year 2000 Compliance Plan, and that if such goals are achieved,
the material hardware and software systems used by the Company will be Year 2000
Compliant by December 31, 1999. The Company does not control third party
hardware or software systems that may interfere or exchange data with the
Company's material hardware and software systems and the foregoing
representation specifically excludes any representation that such third party
hardware and software systems are Year 2000 Compliant.
3.29 NO BROKER. Except as set forth in Schedule 3.29, neither the
Company nor any of its Subsidiaries has employed any broker or finder, or
incurred any liability for any brokerage or finders' fees or any similar fees or
commissions in connection with the transactions contemplated by this Agreement.
3.30 DISCLOSURE. No representation or warranty contained in this
Agreement or any statement or information contained in any schedule, exhibit,
certificate, written statement, document or instrument, or other information
attached to, delivered or required to be delivered pursuant to this Agreement
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein not misleading or
necessary in order to fully and fairly provide the information required to be
provided in any such document.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Purchaser hereby represents and warrants to the Company as follows:
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (b) general principles
of equity that restrict the availability of equitable remedies, and (c) to the
extent
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that the enforceability of the indemnification provisions of Section 2.5 of the
Purchasers Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in this Agreement. Purchaser hereby
represents and warrants as follows:
(A) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares are registered pursuant to the
Securities Act, or an exemption from registration is available. Purchaser
understands that the Company has no present intention of registering the Shares,
the Conversion Shares or any shares of its Common Stock. Purchaser also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow Purchaser to transfer all or any portion of the Shares
under the circumstances, in the amounts or at the times Purchaser might propose.
(B) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Shares
for its own account for investment only, and not with a view towards their
distribution.
(C) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that
by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement.
(D) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(E) COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company and its management regarding
the terms and conditions of this investment.
(F) RULE 144. Purchaser acknowledges and agrees that the Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
has been advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act as in effect from time to time, which permits limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain current
public information about the Company, the
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resale occurring following the required holding period under Rule 144 and the
number of shares being sold during any three-month period not exceeding
specified limitations.
4.3 TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that the
Shares and Conversion Shares are subject to restrictions on transfer as set
forth in the Purchasers Rights Agreement.
5. COVENANTS OF THE COMPANY.
5.1 ORDINARY COURSE OF BUSINESS.
(A) Except, as otherwise contemplated by the terms of this
Agreement, during the period from the date of this Agreement to the First
Closing Date (the "Pre-Closing Period"), the Company shall use commercially
reasonable efforts to preserve intact its and its Subsidiaries' current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees, advertisers, distributors and others having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired.
(B) Without limiting the generality of the foregoing, during the
Pre-Closing Period, each of the Company and its Subsidiaries shall not, without
the prior consent of Purchaser (i) amend its certificate of incorporation or
by-laws, except as contemplated by the Restated Certificate; (ii) issue,
deliver, sell, pledge, dispose of or encumber, or authorize or commit to the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest or amend the terms of its capital stock or enter into any
agreement or understanding with respect to its capital stock, except (A) for the
Recapitalization (as hereafter defined), (B) the Series C Repurchase (as
hereinafter defined), (C) the Series E Redemption (as hereinafter defined), (D)
issuances of Common Stock upon valid exercise of outstanding stock options or
warrants, (E) issuances of Series D Preferred Stock in accordance with the
provisions of the Series D Preferred Stock Purchase Agreement dated July 2, 1999
and (F) the pledge of stock of Subsidiaries in connection with the Company's new
credit facility; (iii) combine, split, reverse split, or reclassify or otherwise
alter the Company's capital stock (whether by recapitalization, reorganization
or otherwise) or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
except for (A) the Recapitalization, (B) the Series C Repurchase, and (C) the
Series E Redemption; (iv) pay any dividends on its capital stock or redeem or
repurchase any shares of capital stock, except for (A) for Recapitalization, (B)
the Series C Repurchase, and (C) the Series E Redemption; (v) acquire any
corporation, partnership, business organization or material assets or enter into
any merger or business combination transaction; (vi) dispose, transfer or
encumber any material assets; (vii) incur any indebtedness for borrowed money
(including draws under the Company's senior credit facilities) in excess of
$5,000,000; (viii) enter into any arrangements with any affiliate; (ix) enter
into any new material line of business or any joint venture or similar
transaction; (x) authorize or make any capital expenditures other than
expenditures consistent with the 1999 Business Plan not in excess of $3,000,000
individually or $14,000,000 in the aggregate; (xi) enter into or amend or
modify, in any material respect, any material contract, except in the ordinary
course of business consistent with past practice; (xii) increase or otherwise
amend or modify, in any material respect, the compensation or benefit
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arrangements of the directors, officers, employees and consultants or enter
into, renew, terminate or otherwise take any action with respect to any new
compensation or benefit arrangements for such persons (except for salary
increases to employees in the ordinary course of business consistent with past
practice); (xiii) change any material accounting principles or make any material
Tax elections; (xiv) settle or compromise any material claims; (xv) liquidate,
dissolve or wind up the business of the Company; or (xvi) agree to take or
authorize to take any of the foregoing actions.
5.2 BASIC FINANCIAL INFORMATION. The Company will furnish the following
reports to Purchaser:
(A) As soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of such
fiscal year, and consolidated statements of income and cash flows of the Company
and its Subsidiaries, if any, for such year, prepared in accordance with GAAP
consistently applied and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and followed
promptly thereafter (to the extent not available) such financial statements
accompanied by the opinion of independent public accountants of recognized
national standing selected by the Company, and a Company-prepared comparison to
the Company's operating plan for such year.
(B) As soon as practicable after the end of the first, second, and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, a consolidated balance sheet
of the Company and its Subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of income and cash flows of the
Company and its Subsidiaries, if any, for such period and for the current fiscal
year to date, prepared in accordance with GAAP consistently applied and setting
forth in comparative form the figures for the corresponding periods of the
previous fiscal year and to the Company's operating plan then in effect and
approved by its Board of Directors, subject to changes resulting from normal
year-end audit adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company, except that such
financial statements need not contain the notes required by generally accepted
accounting principles.
(C) As soon as practical after the end of each month and in any
event within twenty (20) days thereafter (within thirty (30) days thereafter for
the first three months following the Closing), the Company will deliver to
Purchaser a consolidated balance sheet of the Company and its Subsidiaries, if
any, as at the end of such month and consolidated statements of income and cash
flows of the Company and its Subsidiaries, for each month and for the current
fiscal year of the Company to date, all subject to normal year-end audit
adjustments, prepared in accordance with GAAP consistently applied and certified
by the principal financial or accounting officer of the Company, together with a
comparison of such statements to the corresponding periods of the prior fiscal
year and to the Company's operating plan then in effect and approved by its
Board of Directors.
(D) The Company will deliver to Purchaser an annual financial plan
for the Company for the next fiscal year, no later than forty-five (45) days
before the start of the Company's next fiscal year, in such manner and form as
approved by the Board of Directors of the Company, which financial plan shall
include at least a projection of income and a projected cash flow statement
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for each fiscal quarter in such fiscal year and a projected balance sheet as of
the end of each fiscal quarter in such fiscal year. Any material changes in such
business plan shall be delivered to each requesting Purchaser as promptly as
practicable after such changes have been approved by the Board of Directors of
the Company.
(E) In lieu of the financial information required pursuant to this
Section 5.2, the Company may deliver copies of its annual reports on Form 10-K
and its quarterly reports on Form 10-Q, respectively.
5.3 ACCESS. The Company shall, and shall cause its Subsidiaries,
officers, directors, employees, auditors and other agents to, afford the
officers, employees, auditors and other agents of Purchaser, during normal
business hours reasonable access at all reasonable times to its officers,
employees, auditors, legal counsel, properties, offices, plants and other
facilities and to all books and records, and shall furnish Purchaser with all
financial, operating and other data and information as Purchaser, through its
officers, employees or agents, may from time to time reasonably request.
5.4 KEY PERSON LIFE INSURANCE; D&O INSURANCE.
(A) The Company agrees to maintain term life insurance on the life
of David E. Scott in the amount of $5,000,000, during the period of time that
Purchaser owns at least 6,500,000 Shares or Conversion Shares (subject to
adjustment for any stock split, reverse stock split and the like). A copy of
such policy has been provided by the Company to the Purchaser. The Company
agrees to use commercially reasonable efforts to obtain from financially
approved and reputable insurers term life insurance on the life of each of
Jeffrey Shackelford, Bradley Moline and Gregory Lawhon, in each case in the
amount of $2,000,000, and maintain such policies during the period of time that
Purchaser owns at least 6,500,000 Shares or Conversion Shares (subject to
adjustment for any stock split, reverse stock split and the like). Each such
policy shall not be cancelable by the Company.
(B) During the period that Purchaser owns at least 6,500,000 Shares
or Conversion Shares (subject to adjustment for any stock split, reverse stock
split and the like), the Company agrees to maintain Directors and Officers
Insurance in the amount of $25,000,000, or the maximum lesser amount of coverage
that can be obtained with an annual premium of $175,000.
5.5 INDEPENDENT ACCOUNTANTS. The Company will retain independent public
accountants of recognized national standing who shall opine on the Company's
financial statements at the end of each fiscal year. In the event the services
of the independent public accountants so selected, or any firm of independent
public accountants hereafter employed by the Company, are terminated, the
Company will promptly thereafter notify the Purchaser and will request the firm
of independent public accountants whose services are terminated to deliver to
the Purchaser a letter from such firm setting forth the reasons for the
termination of their services. In the event of such termination, the Company
will promptly thereafter engage another firm of independent public accountants
of recognized national standing. In its notice to the Purchaser the Company
shall state whether the change of accountants was recommended or approved by the
Board of Directors of the Company or any committee thereof.
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5.6 USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Firm Shares as follows: $9,999,999 to repurchase 2,222,222 shares of
Series C Preferred Stock on the First Closing Date from Stephen L. Sauder (the
"Series C Repurchase"); $8,572,041 to redeem all of the outstanding shares of
Series E Preferred Stock on the First Closing Date (the "Series E Redemption");
and the remaining proceeds shall be used for working capital and general
corporate purposes.
5.7 EFFORTS. Each party hereto agrees to use commercially reasonable
efforts to take any and all actions required in order to consummate the
transactions contemplated in this Agreement and the Related Agreements.
5.8 NOTIFICATION OF CERTAIN MATTERS. During the Pre-Closing Period, the
Company shall give prompt notice to Purchaser of the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty contained in Section 3 to be
untrue, or the failure of the Company to comply with or satisfy any covenant or
agreement under this Agreement.
5.9 RECAPITALIZATION. The Company shall take all necessary corporate
action to amend and restate its existing certificate of incorporation as the
Restated Certificate, and in connection therewith will recapitalize the Company
with the issuance immediately prior to the First Closing of 1,904,898 shares of
Series E Preferred Stock, on a prorata basis, to the existing holders of Series
B Preferred Stock (the "Recapitalization").
5.10 BANK FINANCING. The Company shall permit Purchaser to participate
with the Company in the negotiation of the terms of any new senior secured
credit facility and shall not execute the definitive senior secured credit
facility agreements without Purchaser's consent, which consent shall not
unreasonably withheld.
5.11 MANAGEMENT STOCKHOLDER AGREEMENTS. The Company shall use
commercially reasonable efforts to cause the officers listed on Schedule 5.11 to
execute and deliver Management Stockholder Agreements and/or the Purchasers
Rights Agreement which shall provide that such officers have the rights and are
subject to the obligations described on Exhibit D attached hereto; provided,
however, that such commercially reasonable efforts shall not include the
obligation to seek such execution unless the Company has been informed of the
consideration to be given to such officers in exchange for the execution of such
Agreement(s).
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE THE SHARES.
(A) EACH CLOSING. Purchaser's obligation to purchase the Firm
Shares or Option Shares, as applicable, at each Closing is subject to the
satisfaction of the following conditions:
(I) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all materials respects as of such Closing
Date with the same force and effect as if they had been made as of such Closing
Date, except (A) for changes contemplated by this Agreement, (B) for those
representations and warranties which address matters only as of a particular
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date (which representation and warranties shall be true and correct in all
material represents as of such particular date) and (C) all Material Adverse
Effect qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded. The Company shall have performed all obligations and conditions
herein required to be performed or observed by it on or prior to such Closing
Date.
(II) LEGAL INVESTMENT. On such Closing Date, the sale and
issuance of the Firm Shares or Option Shares, as applicable, shall be legally
permitted by all laws and regulations to which Purchaser and the Company are
subject.
(III) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as Purchaser determines may be properly obtained
subsequent to such Closing Date).
(IV) CORPORATE DOCUMENTS. The Company shall have delivered to
Purchaser or their counsel, copies of all corporate documents of the Company as
Purchaser shall reasonably request.
(V) COMPLIANCE CERTIFICATE; SECRETARY'S CERTIFICATE; GOOD
STANDING CERTIFICATE. The Company shall have delivered to Purchaser a Compliance
Certificate, executed by the President of the Company, dated such Closing Date,
to the effect that the conditions specified in Section 6.1(a)(i) have been
satisfied. The Company shall have delivered to the Purchaser a certificate
executed by the Secretary of the Company, dated such Closing Date, certifying as
to (i) the resolutions of the Board of Directors of the Company evidencing
approval of the transactions contemplated by and from this Agreement and the
Related Agreements and the authorization of the named officer or officers to
execute and deliver this Agreement and the Related Agreements and (ii) certain
of the officers of the Company, their titles and examples of their signatures.
The Company shall have delivered to the Purchaser certificates of the Secretary
of State of the State of Delaware, dated a recent date, that the Company is in
good standing.
(VI) LEGAL OPINION. The Purchaser shall have received from
legal counsel to the Company an opinion addressed to them, dated as of such
Closing Date, in a form reasonably satisfactory to Purchaser.
(VII) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at such Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to Purchaser and its counsel, and
Purchaser and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
(VIII) NO MATERIAL ADVERSE EFFECT. No event or change has
occurred which has had, or could reasonably be expected to have, a Material
Adverse Effect.
(B) FIRST CLOSING. Purchaser's obligation to purchase the Firm
Shares at the First Closing is subject to the satisfaction of the following
additional conditions:
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(I) RESTATED CERTIFICATE. The Restated Certificate, in the
form set forth in Exhibit A (or otherwise satisfactory to Purchaser) shall have
been filed with and certified by the Secretary of State of the State of
Delaware.
(II) PURCHASERS RIGHTS AGREEMENT. The Purchasers Rights
Agreement in the form attached hereto as Exhibit B (or otherwise satisfactory to
Purchaser), as modified as may be necessary to reflect the terms of the
Management Stockholder Agreements described in Section 6.1(b)(vii), shall have
been executed and delivered by each of the parties listed on Exhibit A thereto.
(III) INDENTURE AND WARRANT CONSENT. The holders of the
Company's 14% Senior Notes Due 2008 and related Warrants shall have agreed to
consent to the amendments to the Indenture and Warrant Agreement pursuant to the
terms of the Consent Solicitation materials attached hereto as Exhibit C.
(IV) HSR COMPLIANCE. Any waiting period applicable to the
purchase of the Shares under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and any applicable foreign antitrust or competition laws shall have
terminated or expired.
(V) WAIVER OF PREEMPTIVE RIGHTS. The holders of the Company's
outstanding equity securities shall have waived their preemptive rights in
connection with issuance of the Firm Shares or Option Shares, as applicable, to
be issued to Purchaser pursuant to this Agreement.
(VI) BOARD OF DIRECTORS. Upon the First Closing, the authorized
size of the Board of Directors of the Company shall consist of seven (7) members
and the Board shall consist of David E. Scott, Henry H. Bradley, Thomas R.
Palmer, Alexander Navab, Jr., James H. Greene, Jr., and Adam H. Clammer. The
remaining director's position will be vacant at the First Closing.
(VII) MANAGEMENT STOCKHOLDER AGREEMENTS. Each of the officers
listed on Schedule 6.1(b)(vii) shall have executed Management Stockholder
Agreements, and/or the Purchasers Rights Agreement which shall provide that such
officers have the rights and are subject to the obligations described on Exhibit
D attached hereto.
(VIII) NO IMPEDIMENTS TO REPURCHASE OR REDEMPTION. No statute,
regulation, order, decree or preliminary or permanent injunction of any court or
administrative agency shall be enacted, promulgated, entered or otherwise in
effect which would prohibit consummation of the Series C Repurchase or Series E
Redemption immediately following the First Closing and there shall be no other
impediment that would prohibit the consummation of the Series C Repurchase and
the Series E Redemption on the First Closing Date . All corporate action on the
part of the Company, its officers, directors and shareholders necessary for the
authorization of the Series C Repurchase and Series E Redemption and the
performance of all obligations of the Company in connection therewith shall have
been taken. The Company and Stephen L. Sauder shall have entered into a binding
agreement providing for the Series C Repurchase immediately following the First
Closing, which agreement shall be in full force and effect.
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6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY.
(A) EACH CLOSING. The Company's obligation to issue and sell the
Firm Shares or Option Shares, as applicable, at each Closing is subject to the
satisfaction, on or prior to such Closing, of the following conditions:
(I) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by Purchaser in Section 4 hereof shall be true and correct
in all material respects at the date of such Closing Date with the same force
and effect as if they had been made on and as of such Closing Date, and the
Purchaser shall have performed all obligations and conditions herein required to
be performed or complied with by it on or before such Closing Date.
(II) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to such
Closing Date).
(B) FIRST CLOSING. The Company's obligation to issue and sell the
Firm Shares at the First Closing is subject to the satisfaction of the following
conditions:
(I) PURCHASERS RIGHTS AGREEMENT. The Purchasers Rights
Agreement shall have been executed and delivered by Purchaser.
(II) HSR COMPLIANCE. Any waiting period applicable to the
purchase of the Shares under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and any applicable foreign antitrust or competition laws shall have
terminated or expired.
7. MISCELLANEOUS.
7.1 GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. This Agreement
shall be governed in all respects by the laws of the State of New York. No suit,
action or proceeding with respect to this Agreement may be brought in any court
or before any similar authority other than in a court of competent jurisdiction
in the State of New York, as Purchaser may elect in its sole discretion, and the
Company hereby submits to the exclusive jurisdiction of such courts for the
purpose of such suit, proceeding or judgment. The Company hereby irrevocably
waives any right which it may have had to bring such an action in any other
court, domestic or foreign, or before any similar domestic or foreign authority.
Each of the parties hereto hereby irrevocably and unconditionally waives trial
by jury in any legal action or proceeding in relation to this Agreement and for
any counterclaim therein.
7.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
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7.3 SUCCESSORS AND ASSIGNS; ASSIGNMENT. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time. This Agreement may
not be assigned without the prior written consent of the other party, except
that Purchaser may assign its rights and obligations hereunder to any affiliate.
7.4 ENTIRE AGREEMENT; SUPERCEDES PRIOR AGREEMENT. This Agreement and
the Exhibits hereto, the Related Agreements and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
7.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.6 AMENDMENT AND WAIVER. This Agreement may be amended or modified,
and the rights of the Company or the Purchaser hereunder may only be waived,
upon the written consent of the Company and Purchaser.
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the Purchaser's part of any breach, default
or noncompliance under this Agreement or the Related Agreements or any waiver on
such party's part of any provisions or conditions of the Agreement or the
Related Agreements, 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 the Related Agreements, by law, or otherwise afforded to any
party, shall be cumulative and not alternative.
7.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) business day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the addresses set forth below:
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If to the Company:
Birch Telecom, Inc.
2020 Baltimore Avenue
Kansas City, MO 64108
Telephone: (816) 300-3000
Fax:(816) 300-3291
Attn: General Counsel
with copies to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Telephone: (650) 843-5004
Fax: (650) 857-0663
Attn: Patrick A. Pohlen, Esq.
If to Purchaser:
c/o Kohlberg Kravis Roberts & Co. L.P.
9 W. 57th Street
New York, NY 10019
Telephone: (212) 750-8300
Fax: (212) 750-0333
Attn: Alexander Navab, Jr.
with copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, N.Y. 10017
Telephone: (212) 455-2000
Fax: (212) 455-2502
Attn: Alan G. Schwartz, Esq.
7.9 EXPENSES; INDEMNIFICATION. The Company shall pay all costs and
expenses that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement and the Related Agreements. The Company shall, at
the First Closing, reimburse the reasonable fees of and expenses of Purchaser
incurred in connection with the transactions contemplated by this Agreement and
the Related Agreements, including the payment of the fees and expenses of
Kohlberg Kravis Roberts & Co. L.P. in the amount previously disclosed to the
Company and Purchaser's financial, legal and accounting advisors. The Company
hereby further agrees to indemnify, exonerate and hold Purchaser and its members
and its shareholders, officers, directors, employees, affiliates and agents
(each an "indemnitee") free and harmless from and against any and all actions,
causes of action, suits, losses, liabilities, damages and expenses, including,
without limitation, reasonable attorneys' fees and disbursements, incurred in
any capacity by any of such indemnitees
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as a result of or relating to any breach of any representation, warranty,
covenant or agreement of the Company in this Agreement or any Related Agreement.
7.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.11 KNOWLEDGE. References to "knowledge" in this Agreement shall refer
to the knowledge of each of the officers of the Company after due inquiry into
the matters at issue with the employees of the Company responsible for such
matters.
7.12 TERMINATION. This Agreement may be terminated by (i) mutual
agreement of the parties hereto or (ii) by Purchaser or the Company in the event
the Closing has not occurred within 60 days of the date hereof, provided that
this termination right may not be exercised by a party whose nonperformance has
delayed the Closing.
7.13 COUNTERPARTS; EXECUTION BY FACSIMILE SIGNATURE. This Agreement may
be executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument. This Agreement may be
executed by facsimile signature(s).
7.14 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
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IN WITNESS WHEREOF, the parties hereto have executed the SERIES F
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
BIRCH TELECOM, INC. BTI VENTURES L.L.C.
By: /s/ David E. Scott By: /s/ Alex Navab
---------------------------- -------------------------------
Name: David E. Scott Name: Alex Navab
Title: President Title: Member
SIGNATURE PAGE TO
SERIES F PREFERRED STOCK PURCHASE AGREEMENT