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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
MGC Communications, Inc.
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(Name of Issuer)
Common Stock $.001 par value per share
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(Title of Class of Securities)
552763302
---------
(CUSIP Number)
David Kronfeld
205 N. Michigan, Suite 808
Chicago, Illinois 60601
(312)946-1200
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
November 19, 1999
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a Statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D and is filing this
schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check
the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Section 240.13d-7(b) for
other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class
of securities, and for any subsequent amendment containing information
which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 6
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13D
CUSIP NO. 552763302
First Cover Page
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (entities only)
DAVID KRONFELD
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ X ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
AF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e). [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.A.
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7 SOLE VOTING POWER
NUMBER OF
2,061,070
-------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY -------------------------------------------------------------
EACH
9 SOLE DISPOSITIVE POWER
REPORTING 2,061,070
PERSON -------------------------------------------------------------
WITH
10 SHARED DISPOSITIVE POWER
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,061,070
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(See Instructions) [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.6%
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14 TYPE OF REPORTING PERSON (See Instructions)
IN
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13D
CUSIP NO. 552763302
Second Cover Page
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1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (entities only)
JK&B Management, LLC F.E.I. #36-4043079
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ X ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS (See Instructions)
AF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e). [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
NUMBER OF
968,143
SHARES ----------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH
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REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 968,143
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10 SHARED DISPOSITIVE POWER
None
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
968,143
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(See Instructions) [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.2%
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14 TYPE OF REPORTING PERSON (See Instructions)
00
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SCHEDULE 13D
ITEM 1.
The title of the class of equity securities to which this statement
relates is the Common Stock, par value $.001 per share (the "Common Stock"). The
name of the issuer is MGC Communications, Inc. (the "Company"). The principal
executive offices of the Company are located at 171 Sullys Trail, Suite 202,
Pittsford, New York 14534.
ITEM 2. IDENTITY AND BACKGROUND
The reporting persons are David Kronfeld and JK&B Management, LLC
("JK&BM"). David Kronfeld is the managing member of JK&BM and is also the
managing member of JK&B Capital LLC. JK&BM is a Delaware limited liability
company whose principal business is the operation of investment funds and whose
principal business and office is located at 205 N. Michigan, Suite 808, Chicago,
Illinois 60601. JK&BM is the General Partner of JK&B Capital L.P. and JK&B
Capital II L.P., each of which is the beneficial owner of Common Stock of the
Company reported herein. JK&B Capital LLC is the General Partner of JK&B Capital
III L.P. which has executed an agreement to purchase additional capital stock of
the Company as described in Item 4(a) below. JK&BM has not been a party to any
civil or criminal proceeding required to be disclosed in response to this Item.
The following information is provided for David Kronfeld:
(a) Name. David Kronfeld.
(b) Address. 205 N. Michigan, Suite 808, Chicago, Illinois 60601.
(c) Principal Occupation and Employment. David Kronfeld is the manager of
JK&B Management, LLC and JK&B Capital LLC.
(d) Criminal Proceedings. None.
(e) Civil proceedings. None
(f) Citizenship. United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Working capital of affiliates of JK&BM.
ITEM 4. PURPOSE OF TRANSACTION
All of the reported shares are held for investment purposes.
(a) Under the terms of a Securities Purchase Agreement dated
as of November 19, 1999 (the "Agreement"), JK&B Capital III L.P. has
agreed to purchase 357,143 shares of Series C Preferred Stock of the
Company which is convertible into 357,143 shares of Common Stock, which
transaction is expected to close in December 1999. The rights to
acquire Common Stock upon conversion of the Series C Preferred Stock
are included in the Reporting Person's beneficial ownership reported
hereby. Depending on market conditions and other factors, including
evaluation of the Company's business and prospects, ability to dispose
of the shares to a third party, ability to dispose of shares in the
market, availability of funds, alternative uses of funds and general
economic conditions, the Reporting Persons may from time to time
purchase additional securities of the Company or dispose of all or a
portion of their investment in the Company.
(b) The Reporting Persons have no plans or proposals which
relate to or would result in an extraordinary corporate transaction,
such as a merger, organization or liquidation, involving the Company or
any of its subsidiaries;
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(c) The Reporting Persons have no plans or proposals which
relate to or would result in a sale or transfer of a material amount of
assets of the Company or any of its subsidiaries;
(d) Under the terms of a Securityholders' Agreement to be
executed in connection with the purchase of Series C Preferred Stock,
the purchasers of the Series B Preferred Stock and the Series C
Preferred Stock of the Company are entitled to select two Directors and
to appoint additional Board representatives if the size of the Board
increases. However, a majority of the Series B Preferred Stock and a
majority of the Series C Preferred Stock will be held by a single
unrelated investor. Mr. Kronfeld presently serves on the Board of
Directors of the Company. The Reporting Persons have no plans or
proposals which relate to or would result in any change in the
management of the Company;
(e) The Reporting Persons have no plans or proposals which
relate to or would result in any material change in the present
capitalization or dividend policy of the Company;
(f) The Reporting Persons have no plans or proposals which
relate to or would result in any other material change in the Company's
business or corporate structure;
(g) The Reporting Persons have no plans or proposals which
relate to or would result in changes in the Company's charter or bylaws
or other actions which may impede the acquisition of control of the
Company by any person;
(h) The Reporting Persons have no plans or proposals which
relate to or would result in causing a class of securities of the
Company to be delisted from a national securities exchange or to cease
to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association;
(i) The Reporting Persons have no plans or proposals which
relate to or would result in a class of equity securities of the
Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Act; or
(j) The Reporting Persons have no plans or proposals which
relate to or would result in any action similar to any of those
enumerated above in Paragraphs (b), (c) and (e) through (i).
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Number of Shares/Percentage of Class Beneficially Owned.
JK&B Management, LLC beneficially owns 968,143 shares
of the Company's Common Stock. Such 968,143 shares represent
approximately 4.2% of the outstanding shares of Common Stock, based on
23,129,330 shares of Common Stock outstanding as of November 29, 1999
as indicated by the Company.
David Kronfeld beneficially owns a total of 1,703,927
shares of the Company's Common Stock (which includes 555,556 shares of
Series B Preferred Stock which is convertible into Common Stock on a
one-for-one basis, and which includes the beneficial ownership of JK&B
Management, LLC reported above), and under the Agreement, JK&B Capital
III L.P. has agreed to purchase 357,143 shares of Series C Preferred
Stock (convertible into Common Stock on a one-for-one basis) (which
Preferred Stock will also be beneficially owned by Mr. Kronfeld). Such
2,061,070 shares represent approximately 8.6% of the outstanding shares
of Common Stock, based on 23,129,330 shares of Common Stock outstanding
as of November, 29,1999, as indicated by the Company, assuming the
conversion to Common Stock of the Reporting Person's 555,556 shares of
Series B Preferred Stock, and based on the purchase by the Reporting
Persons under the Agreement of 357,143 shares of Series C Preferred
Stock and the subsequent immediate conversion of such shares to Common
Stock on a one-for-one basis.
(b) Nature of Ownership. JK&B Management, LLC has sole power
to vote and direct the disposition of all of the 968,143 shares
reported as beneficially owned by it. David Kronfeld has
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sole power to vote and direct the disposition of all of the 2,061,070
shares (assuming closing of the purchase of the Series C Preferred
Stock) reported as beneficially owned by him.
(c) Recent Transactions. Under the terms of the Securities
Purchase Agreement dated as of November 19, 1999, JK&B Capital III LP
has agreed to purchase 357,143 shares of Series C Preferred Stock in
the Company at the price of $28.00 per share. The transaction is
expected to be completed in December 1999. The Reporting Person, David
Kronfeld, is the manager of JK&B Capital, LLC which is the General
Partner of JK&B Capital III L.P.
(d) Rights to Dividends or Proceeds. None.
(e) As of July 21, 1999, JK&B Management, LLC ceased to be a
beneficial owner of more than five percent of the Common Stock of the
Company.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF ISSUER
The Securities Purchase Agreement dated as of November 19,
1999, was entered into by the Company, JK&B Capital III L.P., Providence
Equity Partners III L.P. and Providence Equity Operating Partners III L.P.
Under this Agreement, the purchasers thereunder have agreed to purchase
1,250,000 shares of Series C Preferred Stock from the Company at $28.00 per
share, of which 357,143 shares are to be purchased by JK&B Capital III L.P. An
amended and restated Securityholders' Agreement will be entered into by the
Company, JK&B Capital III L.P., Providence Equity Partners III L.P., and certain
stockholders of the Company ("Subject Stockholders"). The Reporting Persons are
included among the Subject Stockholders covered by such agreement. Under the
Amended and Restated Securityholders' Agreement, the Subject Stockholders will
agree for a period of time up to seven years to vote for the Board nominees
selected by the purchasers of the Series B Preferred Stock and the purchasers of
the Series C Preferred Stock.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
The following documents are filed as exhibits hereto:
(a) Securities Purchase Agreement dated as of November 19,
1999 by and among the Company, JK&B Capital III L.P., Providence Equity
Partners III L.P. and Providence Equity Operating Partners III L.P.
(b) Form of Amended and Restated Securityholders' Agreement
to be entered into by and among the Company, JK&B Capital III L.P.,
Providence Equity Partners III L.P. and certain stockholders of the
Company.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
December 14, 1999
/s/ David Kronfeld
---------------------------------------
David Kronfeld
December 14, 1999 JK&B Management, LLC
By: /s/ David Kronfeld
-------------------------------------
David Kronfeld, Managing Member
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EXHIBIT 99.(A)
EXHIBIT (A)
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
PROVIDENCE EQUITY PARTNERS III L.P.
PROVIDENCE EQUITY OPERATING PARTNERS III L.P.
J K & B CAPITAL III L.P.
AND
MGC COMMUNICATIONS, INC.
DATED AS OF NOVEMBER 19, 1999
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LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Certificate of Designation
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Securityholders' Agreement
Exhibit D Form of Opinion of Counsel to the Company
Exhibit E Form of Opinion of Regulatory Counsel to the Company
Exhibit F Amendment to Certificate of Designation for Series B Preferred
Schedule 2.1: List of Purchasers
Schedule 3.4(a): Capitalization
Schedule 3.4(b): Options, Etc.
Schedule 3.4(c): Registration Rights
Schedule 3.5: Subsidiaries; Other Interests
Schedule 3.6: September Balance Sheet
Schedule 3.9 Title to Assets
Schedule 3.10 Necessary Property
Schedule 3.11 Compliance with Law
Schedule 3.12 No Material Adverse Change
Schedule 3.13 No Brokers
Schedule 3.14 Network
Schedule 3.15 Customers and Suppliers
Schedule 3.16: Year 2000 Compliance Plan
</TABLE>
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SECURITIES PURCHASE AGREEMENT
MGC COMMUNICATIONS, INC.
3301 North Buffalo Drive
Las Vegas, Nevada 89129
As of November 19, 1999
Providence Equity Partners III L.P.
901 Fleet Center
50 Kennedy Plaza
Providence, Rhode Island 02903
Providence Equity Operating Partners III L.P.
901 Fleet Center
50 Kennedy Plaza
Providence, Rhode Island 02903
JK&B Capital III L.P.
205 N. Michigan Avenue, Suite 808
Chicago, Illinois 60601
Ladies and Gentlemen:
The undersigned, MGC Communications, Inc., a Nevada corporation (the
"Company"), hereby agrees with you as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings set forth in this Article I:
Business Day. The term "Business Day" shall mean any day other than
Saturday, Sunday, a federal holiday or other day on which commercial banks in
the State of Rhode Island or Las Vegas, Nevada are required or permitted to
close by law.
Charter. The term "Charter" means the certificate or articles of
incorporation, by-laws, statute, constitution, joint venture, certificate of
limited partnership, partnership agreement, articles of organization, limited
liability company operating agreement or other organizational
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document of any Person other than an individual, each as from time to time
amended or modified.
Closing Date. The term "Closing Date" shall have the meaning specified
in Section 2.2 or such other date as the Company and the Purchasers may agree
upon.
Common Stock. The term "Common Stock" shall mean the Common Stock,
$.001 par value, of the Company.
Company. The term "Company" shall mean MGC Communications, Inc., a
Nevada corporation.
Contract. The term "Contract" means any contract, plan, lease,
commitment, indenture or other agreement.
Current Financial Statements. The term "Current Financial Statements"
shall have the meaning specified in Section 3.6.
Equity Securities. The term "Equity Securities" means all shares of
capital stock of the Company, including (i) all classes of shares of capital
stock, voting and non-voting (including, without limitation, the Purchased
Securities), (ii) any warrants, options or other rights to subscribe for or to
acquire, directly or indirectly, whether pursuant to any division or split of
any class of shares of capital stock of the Company or in connection with a
combination, exchange, reorganization, recapitalization, reclassification,
merger, consolidation or similar business combination transaction involving the
Company or otherwise, (iii) any other equity interests in the Company or any
bonds, notes, debentures, or other securities convertible into or exchangeable
for, directly or indirectly, any shares of capital stock or equity interests of
the Company and (iv) any interests in any of the foregoing in each case
outstanding at any time.
FCC. The term "FCC" shall mean the Federal Communications Commission.
GAAP. The term "GAAP" shall mean generally accepted accounting
principles applied on a basis consistent with prior periods and such that a
chartered accountant would, insofar as the use of accounting principles is
pertinent, be in a position to deliver an unqualified opinion as to financial
statements in which such principles have been properly applied.
Governmental Authority. The term "Governmental Authority" shall mean
any government or any agency, bureau, board, commission, court, department,
official, political subdivision, tribunal or other instrumentality of any
government (foreign, federal, local or otherwise) and shall include any
international regulatory or trade body or organization and the FCC and any State
Regulatory Agency.
Income Statement. The term "Income Statement" shall have the meaning
specified in Section 3.6.
2
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Indebtedness. The term "Indebtedness" shall mean all obligations,
contingent (to the extent required to be reflected in financial statements
prepared in accordance with GAAP) and otherwise, which in accordance with GAAP
should be classified on the obligor's balance sheet as liabilities, including
without limitation, in any event and whether or not so classified: (i) all debt
and similar monetary obligations, whether direct or indirect; (ii) all
liabilities secured by any mortgage, pledge, security interest, lien, charge or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; (iii) all
guarantees, endorsements and other contingent obligations whether direct or
indirect in respect of Indebtedness or performance of others, including any
obligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor to purchase Indebtedness or to assure the owner of
Indebtedness against loss, through an agreement to purchase goods, supplies or
services for the purpose of enabling the debtor to make payment of the
Indebtedness held by such owner or otherwise and (iv) obligations to reimburse
issuers of any letters of credit.
Licenses. The term "Licenses" shall mean all licenses, permits,
consents, approvals, concessions and authorizations of all Governmental
Authorities, whether foreign, federal, state or local, including, without
limitation, the Federal Communications Commission and any State Regulatory
Agency and their equivalents in foreign countries.
Lien. The term "Lien" shall mean (a) any encumbrance, mortgage, pledge,
lien, charge or other security interest of any kind upon any property or assets
of any character, or upon the income or profits therefrom; (b) any acquisition
of or agreement to have an option to acquire any property or assets upon
conditional sale or other title retention agreement, device or arrangement
(including a capitalized lease); or (c) any sale, assignment, pledge or other
transfer for security of any accounts, general intangibles or chattel paper,
with or without recourse.
Majority Purchasers. The term "Majority Purchasers" shall mean, at any
time, the record holders of more than fifty percent (50%) of the outstanding
Purchased Securities.
Material Adverse Effect. The term "Material Adverse Effect" shall mean,
with respect to any Person, any effect that is, or series of related effects
that are, in the aggregate, materially adverse to the business, assets,
properties, condition (financial or otherwise) or prospects of such Person.
Person. The term "Person" shall mean an individual, partnership,
limited liability company, corporation, association, trust, joint venture,
unincorporated organization and any Governmental Authority.
Purchased Securities. The term "Purchased Securities" shall mean the
Series C Preferred being purchased by the Purchasers pursuant to Section 2.1 of
this Agreement, the Common Stock issuable upon conversion of the Series C
Preferred or otherwise and any capital stock or other securities of the Company
issued or issuable in exchange therefor upon an exchange, conversion,
reorganization, reclassification, recapitalization, merger, consolidation or
other similar business transaction involving the Company, its Subsidiaries or
otherwise.
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Purchaser. The term "Purchaser" shall mean the several purchasers named
in Schedule 2.1 (individually, a "Purchaser" and collectively, the "Purchasers")
and their respective successors and assigns.
Related Agreements. The term "Related Agreements" shall mean the
Securityholders' Agreement and the Registration Rights Agreement.
Registration Rights Agreement. The term "Registration Rights Agreement"
shall mean that certain Amended and Restated Registration Rights Agreement,
dated the Closing Date, by and among the Company, and the Purchasers, in the
form of Exhibit B attached hereto, as the same may be amended, modified or
supplemented from time to time.
SEC. The term "SEC" shall mean the Securities and Exchange Commission.
SEC Documents. The term "SEC Documents" shall have the meaning
specified in Section 3.17.
Securities Act. The term "Securities Act" shall mean all applicable
securities laws, rules, regulations, notices and policies in force in the United
States, as amended, modified or supplemented from time to time.
Securityholders' Agreement. The term "Securityholders' Agreement" shall
mean that certain Amended and Restated Securityholders' Agreement among the
Company, the Purchasers and certain holders of the Company's outstanding Common
Stock and Series B Preferred, in the form of Exhibit C attached hereto, as the
same may be amended, modified or supplemented from time to time.
September Balance Sheet. The term "September Balance Sheet" shall have
the meaning specified in Section 3.6.
Series C Preferred. The term "Series C Preferred" shall mean the Series
C Preferred Stock, $.001 par value, of the Company.
State Regulatory Agency. The term "State Regulatory Agency" means any
of the various state regulatory agencies with primary regulatory jurisdiction
over telecommunications matters.
Subsidiary. The term "Subsidiary" shall mean any Person of which the
Company or other specified Person now or hereafter shall at the time own,
directly or indirectly through a Subsidiary, at least a majority of the
outstanding Equity Securities (or other shares of beneficial interest) entitled
to vote generally.
Tax or Taxes. 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,
4
<PAGE> 7
fees, assessments or similar charges in the nature of a tax, including, without
limitation, pension plan contributions and workers compensation premiums,
together with any interest, fines and penalties imposed by any Governmental
Authority, and whether disputed or not.
SECTION 1.2. HEREOF, HEREIN, ETC. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. Unless otherwise specified herein, the term "or" has the inclusive
meaning represented by the term "and/or" and the term "including" is not
limiting. All references as to "Sections", "Subsections", "Articles",
"Schedules" and "Exhibits" shall be to Section, Subsections, Articles, Schedules
and Exhibits, respectively, of this Agreement unless otherwise specifically
provided.
SECTION 1.3. COMPUTATION OF TIME PERIODS. In the computation of periods
of time from a specified date to a later specified date, unless otherwise
specified herein the words "commencing on" mean "commencing on and including",
the word "from" means "from and including" and the words "to" and "until" each
means "to and including".
ARTICLE II
SALE AND PURCHASE OF PURCHASED SECURITIES
SECTION 2.1. SALE AND PURCHASE OF THE PURCHASED SECURITIES. Subject to
all of the terms and conditions hereof and in reliance on the representations
and warranties set forth or referred to herein, the Company agrees to issue and
sell to each Purchaser and each Purchaser agrees to purchase, on the Closing
Date, the number of Purchased Securities set forth opposite the name of such
Purchaser on Schedule 2.1, at a purchase price per share equal to $28.00 (the
"Per Share Price"). Notwithstanding the foregoing, in the event the Company
issues shares of Common Stock, Series D Convertible Preferred Stock ("Series D
Preferred") or other class or series of Preferred Stock prior to the Closing
Date and the effective price per share of Common Stock issued or issuable upon
conversion of the Series D Preferred or effective cost per share of Common Stock
of such other class or series of Preferred Stock upon conversion is less than
the Per Share Price, such Per Share Price shall be reduced to the lowest of the
issue price of such Common Stock, such effective price per share of Common Stock
issuable upon conversion of the Series D Preferred or effective cost per share
of Common Stock issuable pursuant to such other class or series of Preferred
Stock and the number of shares of Purchased Securities to be purchased by each
Purchaser shall be increased proportionally. In addition, in such event
appropriate changes shall be made herein and in the Exhibits hereto to give
effect to such lower Per Share Price.
SECTION 2.2. CLOSING. The closing of the purchase and sale of the
Purchased Securities contemplated by Section 2.1 (the "Closing") will take place
at the offices of Edwards & Angell, 2800 BankBoston Plaza, Providence, Rhode
Island 02903 at 10:00 a.m. on a mutually agreeable date within five (5) business
days of satisfaction of the Conditions to Closing contained in Article V (the
"Closing Date"). Subject to the satisfaction of the conditions to Closing set
forth in Article V, as payment in full for the Purchased Securities being
purchased by the Purchasers
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under this Agreement on the Closing Date, each Purchaser shall deliver to the
Company, in immediately available funds, the amount set forth opposite such
Purchaser's name under the heading "Aggregate Purchase Price of the Purchased
Securities" on Schedule 2.1.
SECTION 2.3. USE OF PROCEEDS. Proceeds from the sale of the Purchased
Securities hereunder shall be used for the expansion of the Company's
telecommunications network and sales and marketing program and for working
capital and general corporate purposes, as determined from time to time by the
Company's Board of Directors and consistent with the Company's business plan in
effect at such time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchasers to enter into this Agreement and to
purchase the Purchased Securities, the Company hereby represents and warrants
that:
SECTION 3.1. ORGANIZATION AND EXISTENCE. (a) The Company is duly
organized, validly existing and in good standing in its jurisdiction of
organization and is duly qualified as a foreign corporation and authorized to do
business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary except where the failure to so
qualify would not have a Material Adverse Effect. The Company has the power to
own its properties and to carry on its business as now conducted and as proposed
to be conducted.
(b) Each of the Company's Subsidiaries is duly organized, validly
existing and in good standing in its jurisdiction of incorporation and is duly
qualified as a foreign entity and authorized to do business in all other
jurisdictions in which the nature of its business or property makes such
qualification necessary and where the failure to so qualify would not have a
Material Adverse Effect. Each of the Subsidiaries has the power to own its
properties and to carry on its business as now conducted and as proposed to be
conducted. The Company holds of record all outstanding shares of each
Subsidiary.
SECTION 3.2. AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance by the Company of this Agreement and of each Related Agreement, and
the issuance and sale by the Company of the Purchased Securities hereunder, (a)
are within its power and authority, and (b) have been duly authorized by all
necessary action of the Company (including the audit committee of the Company's
Board of Directors) and its stockholders and by all other requisite proceedings.
Neither the execution and delivery by the Company of this Agreement or any
Related Agreement nor the consummation by the Company of the transactions
contemplated thereby (including, without limitation, the purchase and sale of
the Purchased Securities hereunder) (a) will violate any provision of the
Charter of the Company or any of its Subsidiaries, (b) will violate or conflict
with any applicable statute, law, ordinance, rule, regulation, order, judgment,
writ, injunction, license, permit or decree applicable to the Company or any of
its Subsidiaries, (c) will conflict with or constitute a violation of or a
default (or an event which with notice or lapse of time or both, would
constitute a default) under, or will result
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in the termination of, or accelerate performance required by, any Contract to
which the Company or any of its Subsidiaries is a party or to which any of the
assets or properties of the Company or any of its Subsidiaries are subject, (d)
will result in the creation of any Lien upon any of the Equity Securities of the
Company or any of its Subsidiaries or upon any of the property or assets of the
Company or any of its Subsidiaries, or (e) will require the consent,
authorization or approval of, or notice to or filing or registration with, any
Person, other than stockholder approval, if required by Nasdaq.
SECTION 3.3. ENFORCEABILITY. The execution and delivery by the Company
of this Agreement and of each of the Related Agreements, and the issuance and
sale by the Company of the Purchased Securities hereunder, will result in
legally binding obligations of the Company enforceable against the Company in
accordance with the respective terms and provisions hereof and thereof, subject,
however, to limitations with respect to enforcement imposed by law in connection
with bankruptcy or similar proceedings, or to the extent that equitable remedies
such as specific performance and injunction are in the discretion of the court
from which they are sought.
SECTION 3.4. CAPITALIZATION.
(a) Schedule 3.4(a) accurately sets forth the number, type and class of
Equity Securities the Company is authorized to issue, the name and address of
those Persons owning 5% or more of the Company's outstanding Equity Securities
immediately prior to giving effect to the transactions contemplated hereby and
the number and class of Equity Securities owned by each such record owner. All
of the Company's issued Equity Securities have been duly authorized, validly
issued and outstanding and are fully paid and non-assessable.
(b) Options, Etc. Except as set forth on Schedule 3.4(b) and except for
the rights of the Purchasers hereunder, no Person has any rights (either
pre-emptive or otherwise) or options to subscribe for or purchase from the
Company, or any warrants or other agreements providing for or requiring the
issuance by the Company of, any Equity Securities or other securities
convertible into or exchangeable for, or exercisable into Equity Securities of
the Company, or any voting trusts, proxies or agreements relating to the voting
of the Company's or any Subsidiary's Equity Securities. The number of shares of
Common Stock available for issuance under the Company's Stock Option Plan is
4,640,000. Schedule 3.4(b) sets forth the (i) name of each Person holding such
convertible or exchangeable securities, (ii) the type of security, (iii) the
amount of shares of Common Stock issuable upon exercise of such securities, and
(iv) the exercise price of such securities.
(c) Registration Rights. Except as set forth on Schedule 3.4(c) and as
provided under the Registration Rights Agreement, no other holder of Equity
Securities has registration rights with respect to such Equity Securities.
SECTION 3.5. SUBSIDIARIES; OTHER OWNERSHIP INTERESTS. Except as set
forth on Schedule 3.5 hereto, the Company does not have any Subsidiaries
(foreign or domestic) and does not own or hold of record and/or beneficially own
or hold, directly or through a Subsidiary, any Equity
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Securities of any corporation, general or limited partnership, limited liability
company, business trust or joint venture or in any other unincorporated trade or
business enterprise. Except as set forth on Schedule 3.5 hereto, all outstanding
Equity Securities of each such Subsidiary and such other business enterprises is
owned by the Company or another Subsidiary of the Company as set forth on such
Schedule 3.5, free and clear of any Lien, is validly issued and outstanding, and
is fully paid and non-assessable, and there are no commitments for the purchase
or sale of, and no options, warrants or other rights to subscribe for or
purchase, any Equity Securities of any such Subsidiary.
SECTION 3.6. REPORTS AND FINANCIAL STATEMENTS. Each Purchaser has
heretofore been furnished with the consolidated balance sheet and statement of
income and cash flow of the Company and its subsidiaries as of September 30,
1999 (the "September Balance Sheet") and statement of income for the nine-month
period ended September 30, 1999 (the "Income Statement", and together with the
September Balance Sheet, the "Current Financial Statements"), such September
Balance Sheet being attached hereto as Schedule 3.6.
SECTION 3.7. INDEBTEDNESS AND LIENS. Neither the Company nor any of its
Subsidiaries has Indebtedness or Liens upon any of their properties other than
those which are reflected on the September Balance Sheet and Indebtedness
incurred in the ordinary course of business since September 30, 1999.
SECTION 3.8. TAXES.
(a) Each of the Company and its Subsidiaries has prepared and filed on
time with all appropriate Governmental Authorities all 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.
(b) Each of the Company and its Subsidiaries has paid in full all 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 (including
the September Balance Sheet) for such payment.
SECTION 3.9. TITLE TO ASSETS. Except as disclosed on Schedule 3.9, the
Company and its Subsidiaries own all of their assets, and have good and
marketable title with respect thereto, reflected in the September Balance Sheet,
subject to no Liens.
SECTION 3.10. NECESSARY PROPERTY. Except as may be set forth in
Schedule 3.10 and the other Schedules hereto, the properties and assets owned,
leased by or licensed to the Company or any of its Subsidiaries and reflected in
the Current Financial Statements and any properties or assets acquired since
September 30, 1999, constitute all of the material real and personal
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properties, tangible and intangible, which are necessary, used or useful in the
conduct of its business in the manner and to the extent presently conducted by
them.
SECTION 3.11. COMPLIANCE WITH LAW.
(a) Except as may be set forth in Schedule 3.11, neither the Company
nor any Subsidiary is in default under, or in violation of, any laws, rules or
regulations (including, without limitation, foreign, federal, state or local
laws, rules or regulations relating to the issuance or sale of securities,
telecommunications, anti-trust, occupational safety, the protection of the
environment, transportation, storage or disposal of hazardous waste,
anti-pollution and air and water quality laws), or any Licenses, granted by, or
any judgment, decree, writ, injunction or order of, any Governmental Authority,
applicable to its business or any of its properties or assets, which defaults
and violations would in the aggregate expose the Company and its Subsidiaries to
liabilities in excess of an aggregate of $250,000 or otherwise materially
adversely affect the assets or properties or business or operations of the
Company and its Subsidiaries or requiring or prohibiting future activities.
Neither the Company nor any Subsidiary has received any notification alleging
any violations of any of the foregoing with respect to which adequate corrective
action has not been taken.
(b) Except as set forth on Schedule 3.11, 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 on the
Company, 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 on 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: (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 3.11, 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
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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.
SECTION 3.12. NO MATERIAL ADVERSE CHANGES. Except as disclosed in the
Company's SEC Documents or as set forth on Schedule 3.12, since December 31,
1998, there has occurred no material adverse change in the business, assets,
properties, prospects, operations, or condition (financial or otherwise) of the
Company or any of its Subsidiaries, whether or not in the ordinary course of
business, whether separately or in the aggregate with other occurrences or
developments, and whether insured against or not.
SECTION 3.13. NO BROKERS. Except as set forth on Schedule 3.13, the
Company has not employed any broker, finder, advisor or intermediary in
connection with the transactions contemplated hereby which would be entitled to
a broker's, finder's or similar fee or commission in connection therewith or
upon the consummation of the transactions contemplated by this Agreement or any
Related Agreement.
SECTION 3.14. NETWORK.
(a) Schedule 3.14 sets forth, as of September 30, 1999, (i) the
location of each switch owned by the Company and the switch's make and model and
(ii) the location of all of the Company's colocation sites.
(b) The Company's switches are (i) fully installed, (ii) interconnected
to the incumbent telephone company's local network and (iii) capable of carrying
commercial traffic.
(c) The Company's colocation 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.
SECTION 3.15. CUSTOMERS AND SUPPLIERS.
(a) Schedule 3.15 sets forth as of September 30, 1999 (i) the total
number of lines sold and (ii) the total number of lines in service.
(b) Less than three percent (3%) of the Company's consolidated revenues
is derived from local resale of telecommunications services.
SECTION 3.16. YEAR 2000 COMPLIANCE. The Company has performed an audit
to determine if the material hardware and software systems used by the Company
and the Company's key vendors and suppliers 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 3.16 (the "Year 2000 Compliance
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Plan"). The term "Year 2000 Compliant" as used herein means that the computer
systems at issue will accurately process, provide, and receive 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 its best 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.
SECTION 3.17. FINANCIAL REPORTS AND SEC DOCUMENTS. The Company's Annual
Reports on Form 10-K for the fiscal years ended December 31, 1998 and December
31, 1997, and all other reports, registration statements, definitive proxy
statements or information statements filed or to be filed by it under the
Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act,
in the form filed or to be filed with the SEC (collectively, "SEC Documents"),
as of the date filed, (A) complied or will comply as to form with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (B) did not and will not contain any 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, in the light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any of the Company's SEC Documents (including the
related notes and schedules thereto) fairly presents, or will fairly present,
the financial position of the Company and its Subsidiaries as of its date, and
each of the statements of income and changes in stockholders' equity and cash
flows or equivalent statements in the Company's SEC Documents (including any
related notes and schedules thereto) fairly presents, or will fairly present,
the results of operations, changes in stockholders' equity and changes in cash
flows, as the case may be, of the Company and its Subsidiaries for the period to
which they relate, in each case, in compliance with applicable accounting
requirements and with the published rules of the SEC with respect thereto and in
accordance with GAAP consistently applied during the periods involved, except,
in each case, as may be noted herein, subject to normal year-end audit
adjustments in the case of unaudited statements.
SECTION 3.18. DISCLOSURE. No representation, warranty or statement made
in this Agreement, any Purchased Security, any Related Agreement or any
agreement, certificate, statement or document furnished by or on behalf of the
Company in connection herewith or therewith when considered as a whole contains
any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances in which they were made, not misleading.
ARTICLE IV
PURCHASERS' REPRESENTATIONS
Each of the Purchasers hereby, severally and not jointly, represents
and warrants to the Company as follows:
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SECTION 4.1. ORGANIZATION AND GOOD STANDING. Such Purchaser is validly
existing and in good standing under the laws of the state of its formation.
SECTION 4.2. AUTHORIZATION. This Agreement and the Related Agreements
to which such Purchaser is a party have been executed by a duly authorized
Person on its behalf and the execution, delivery and performance hereof and
thereof (a) have been duly authorized by all appropriate action, and (b) will
not violate the provision of any material law or regulation of any Governmental
Authority applicable to it or constitute a violation of any material agreement
or instrument by which it is bound.
SECTION 4.3. ENFORCEABILITY. The execution and delivery of this
Agreement and the Related Agreements and the transactions contemplated
thereunder will result in legally binding obligations of such Purchaser
enforceable against such Purchaser in accordance with the respective terms and
provisions hereof and thereof, subject, however, to limitations with respect to
enforcement imposed by law in connection with bankruptcy or similar proceedings
or to the extent that equitable remedies such as specific performance and
injunction are in the discretion of the court from which they are sought.
SECTION 4.4. INVESTMENT INTENT. Such Purchaser (i) is an "accredited
investor" as defined in Regulation D of the Securities Act, (ii) is acquiring
the Purchased Securities to be purchased by such Purchaser pursuant to Section
2.1 hereof for investment and not with a view to the distribution thereof, and
(iii) has not engaged any broker, agent or finder who may claim a fee in
connection with the acquisition of the Purchased Securities.
ARTICLE V
CONDITIONS TO PURCHASERS' OBLIGATION TO PURCHASE AND
THE COMPANY'S OBLIGATION TO SELL
SECTION 5.1. PURCHASERS' CLOSING CONDITIONS. Each Purchaser's
obligation to purchase the Purchased Securities pursuant to Section 2.1 is
subject to compliance by the Company with its agreements herein contained, and
to the satisfaction, on or prior to the Closing Date of the following
conditions:
(a) Related Agreements. Each of the Related Agreements shall have been
executed and delivered in the form attached hereto or in such other form
satisfactory to the Purchasers. All covenants, agreements and conditions
contained in the Related Agreements which are to be performed or complied with
on or prior to the Closing Date shall have been performed or complied with in
all material respects.
(b) Charter Documents. The Purchasers shall have received from the
Company a copy, certified by the appropriate Governmental Authority to be true
and complete as of a date no more than twenty (20) days prior to the Closing
Date, of (a) the certificate of incorporation of the Company and (b) a
certificate, dated not more than twenty (20) days prior to the Closing Date, of
the relevant Governmental Authority or other appropriate official of each State
in which the
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Company is incorporated or qualified to do business, as to the Company's good
standing in such State or qualification to do business, as the case may be.
(c) Proof of Action. The Purchasers shall have received from the
Company copies, certified by a duly authorized officer thereof to be true and
complete as of the Closing Date, of the records of all action taken to authorize
the execution, delivery and performance of this Agreement and each of the
Related Agreements to which the Company is a party.
(d) Incumbency Certificate. The Purchasers shall have received from the
Company an incumbency certificate, dated the Closing Date, signed by a duly
authorized officer thereof and giving the name and bearing a specimen signature
of each individual who shall be authorized to sign, in the name and on behalf of
the Company, this Agreement and each of the Related Agreements to which the
Company is or is to become a party, and to give notices and to take other action
on behalf of the Company under each of such documents.
(e) Legal Opinion. The Purchasers shall have received from Ellis, Funk,
Goldberg, Labovitz & Dokson, P.C., counsel to the Company, an opinion
substantially in the form of Exhibit D attached hereto.
(f) Regulatory Opinion. The Purchasers shall have received from Kelley
Drye & Warren LLP, regulatory counsel to the Company, an opinion reasonably
satisfactory to the Purchasers, or otherwise substantially in the form of
Exhibit E attached hereto.
(g) Representations and Warranties; Covenants; Officers' Certificates.
The representations and warranties contained or incorporated by reference herein
shall be true and correct in all material respects (except those representations
and warranties qualified by materiality, which shall be true and correct in all
respects) on and as of the Closing Date. The Company shall have performed and
complied with all conditions and agreements required to be performed or complied
with by it prior to the Closing. The Purchasers shall have received on the
Closing Date a certificate with respect to the foregoing executed by an
authorized officer of the Company.
(h) Legality; Governmental and Other Authorizations. The purchase of
the Purchased Securities shall not be prohibited by any law or governmental
order or regulation, and shall not subject any Purchaser to any penalty, special
Tax, or other onerous condition. All necessary consents, approvals, Licenses,
orders and authorizations of, and registrations, declarations and filings with,
any Governmental Authority (including the FCC and any State Regulatory Agency)
or any other Person, with respect to any of the transactions contemplated by
this Agreement or any of the Related Agreements, shall have been duly obtained
or made and shall be in full force and effect. The Nasdaq Stock Market
("Nasdaq") shall have issued written confirmation to the Company satisfactory to
the Purchasers stating that stockholder approval of the transactions
contemplated hereby is not required by Nasdaq's rules and regulations or, if the
approval of the Company's stockholders is so required, then such approval shall
have been validly obtained.
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(i) Filing of Certificate of Designation. The Purchasers shall have
received satisfactory evidence of the filing of the Certificate of Designation
with the Secretary of State of Nevada.
(j) Payment of Certain Fees and Disbursements. The Purchasers shall
have been reimbursed for all reasonable costs and expenses (including, but not
limited to, legal, consulting and accounting) incurred by them through the
Closing Date in connection with the transactions contemplated by this Agreement.
(k) Amendment. The Certificate of Designation for the Series B
Preferred shall have been amended to read as set forth in Exhibit F hereto.
(l) General. All instruments and corporate proceedings in connection
with the transactions contemplated by this Agreement and the Related Agreements
shall be satisfactory in form and substance to the Purchasers and their counsel,
and the Purchasers shall have received copies of all documents, including,
without limitation, records of corporate or other proceedings, opinions of
counsel and consents which the Purchaser may have reasonably requested in
connection therewith.
The agreements, certificates, documents, other evidence of compliance
and opinions described in this Section 5.1 shall be in form and substance
reasonably acceptable to each Purchaser, and shall, except as otherwise
provided, be delivered to the Purchasers at the Closing; provided, however, any
one or more of the foregoing conditions may be waived with the prior written
consent of each Purchaser.
SECTION 5.2. COMPANY'S CLOSING CONDITIONS. The Company's obligation to
sell the Purchased Securities pursuant to Section 2.1 is subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
a. Representations and Warranties. The representations and warranties
of the Purchasers contained herein shall be true and correct in all material
respects (except those representations and warranties qualified by materiality,
which shall be true and correct in all respects) on and as of the Closing Date.
b. Sufficient Investment. The Purchasers shall be prepared to purchase
at least $35,000,000 of Purchased Securities pursuant to Section 2.1.
c. Certain Agreements. The Securityholders Agreement and Registration
Rights Agreement shall have been executed and delivered by the Purchasers.
d. Charter Amendment. The Company's Board of Directors and the holders
of a majority of the Company's outstanding Series B Preferred Stock shall have
approved the Certificate of Designation for the Series C Preferred and the
Amended and Restated Certificate of Designation for the Company's Series B
Preferred Stock.
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ARTICLE VI
COVENANTS APPLICABLE TO THE COMPANY WHILE ANY PURCHASED SECURITIES
ARE OUTSTANDING
The Company covenants that while any of the Purchased Securities are
held by any of the Purchasers or an assignee thereof, other than a transferee
pursuant to a public sale, the Company will cooperate with the Purchasers and
will execute, acknowledge and deliver, or cause to be executed, acknowledged or
delivered, all such further acts, deeds, documents, assignments, transfers,
conveyances, powers of attorney and assurances as the Purchasers shall
reasonably request to carry out to the satisfaction of the Purchasers the
transactions contemplated by this Agreement and the Related Agreements.
ARTICLE VII
DELIVERY OF FINANCIAL AND OTHER REPORTS WHILE ANY PURCHASED
SECURITIES ARE OUTSTANDING
The Company hereby agrees that so long as 250,000 shares of Series C
Preferred are outstanding (subject to adjustment for stock splits, stock
dividends and similar events) it will provide to each Purchaser holding at least
250,000 shares of Series C Preferred and/or Common Stock (subject to adjustment
for stock splits, stock dividends and similar events) (a "Qualified Purchaser")
the information called for by the following provisions, so long as such
Qualified Purchaser has acknowledged in writing that it will be precluded from
trading in the Company's stock while in possession of material information
concerning the Company that has not been disclosed to the public:
SECTION 7.1. MONTHLY STATEMENTS. Within thirty (30) days after the end
of each month, commencing with the month ending October 31, 1999, the Company
will deliver to each Qualified Purchaser internal, unaudited consolidated
balance sheet and statement of income and retained earnings and of cash flow of
the Company and its Subsidiaries as of the end of each such month, together with
comparative information to the results for the same month of the prior year, and
to the budget for such month and year to date results with a comparison of such
year-to-date information to budget and to the comparable period of the prior
year.
SECTION 7.2. OTHER FINANCIAL INFORMATION. The Company will deliver to
each Qualified Purchaser prior to the commencement of each fiscal year, an
annual budget and projected monthly balance sheets and statements of income and
quarterly statements of cash flow for such fiscal year, prepared on a
comparative basis to the previous year and as soon as practical after
preparation thereof, complete copies of all quarterly (if any) or annual
budgetary analyses or forecasts of the Company and its Subsidiaries in the form
customarily prepared by management for its own internal use or the use of the
Board of Directors of the Company.
SECTION 7.3. OFFICERS' CERTIFICATES. Together with delivery of the
financial statements of the Company and its Subsidiaries pursuant to Sections
7.1 and 7.2, the Company shall deliver to
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each Qualified Purchaser a certificate of the President, chief financial officer
or Treasurer of the Company to the effect that (a) such statements have been
prepared in accordance with GAAP and present fairly the financial position of
the Company and its Subsidiaries as of the dates specified and the results of
its operations and cash flow with respect to the periods specified (subject in
the case of interim financial statements and the year-end financials, when
delivered prior to their having been audited, only to normal year-end audit
adjustments), and (b) such officers have caused the provisions of this Agreement
and the Purchased Securities to be reviewed and have no knowledge of any
default, or if either such officer has such knowledge, specifying such default
and the nature thereof, and what action the Company has taken, is taking or
proposes to take with respect thereto.
SECTION 7.4. NOTICE OF LITIGATION, DEFAULTS, ETC. The Company will
promptly give notice to each Qualified Purchaser of any litigation or any
administrative proceeding to which the Company or any of its Subsidiaries may
hereafter become a party which may result in a Material Adverse Effect on the
Company or any of its Subsidiaries. Forthwith upon any officer of the Company
obtaining knowledge of any material default under a material agreement or any
default or event of default under this Agreement or any Related Agreement, the
Company will furnish a notice specifying the nature and period of existence
thereof, what action the Company has taken, is taking or proposes to take with
respect thereto. Promptly after the receipt thereof, the Company will provide
copies of any reports as to adequacies in accounting controls submitted by
independent accountants with respect to the Company and its Subsidiaries.
SECTION 7.5. OTHER INFORMATION. The Company will deliver to each
Qualified Purchaser copies of all papers distributed from time to time to the
members or stockholders of the Company at such time as such papers are so
distributed to them. In addition, from time to time upon the request of a
Qualified Purchaser, the Company will furnish such information regarding the
business, affairs, prospects and financial condition of the Company and its
Subsidiaries as the representatives or officers of a Qualified Purchaser may
reasonably request. Each such representative and officer shall have the right
during normal business hours to examine the books and records of the Company or
any of its Subsidiaries to make copies, notes and abstracts therefrom, and to
make an independent examination, at such Qualified Purchaser's cost, of the
books and records of the Company or any of its Subsidiaries, all at such
reasonable times and intervals as the applicable Qualified Purchaser may
reasonably request.
ARTICLE VIII
EXPENSES; INDEMNITY
SECTION 8.1. EXPENSES. The Company hereby agrees to pay at the Closing
all reasonable fees, costs and expenses incurred by the Purchasers in connection
with the transactions hereunder and in connection with any amendments or waivers
(whether or not the same become effective) hereof and all reasonable expenses
incurred by the Purchasers in connection with the enforcement of any rights
hereunder or with respect to any Purchased Security, including without
limitation (i) the cost and expenses of preparing and duplicating this
Agreement, each Related Agreement and the Purchased Securities; (ii) the cost of
delivering to each Purchaser's principal
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office, insured to such Purchaser's satisfaction, the Purchased Securities sold
to such Purchaser hereunder and any securities delivered to such Purchaser in
exchange therefor or upon any exercise, conversion or substitution thereof;
(iii) the reasonable fees, expenses and disbursements of one counsel for the
Purchasers, in connection with the preparation, administration or interpretation
of this Agreement and the Related Agreements and other agreements, documents and
instruments mentioned herein or therein, the Closing, any amendments,
modifications, approvals, consents or waivers hereto, thereto, hereunder or
thereunder; (iv) the out-of-pocket fees, expenses and costs incurred by the
Purchasers in connection with the Purchasers' due diligence investigation of the
Company and its Subsidiaries; and (v) all Taxes (other than Taxes determined
with respect to income and Taxes relating to any transfer of the Purchased
Securities to any Person other than to the Company) including, without
limitation, any recording fees, filing fees and documentary stamp and similar
Taxes at any time payable in respect of this Agreement or any Related Agreement
or the issuance of any of the Purchased Securities and any securities issued in
exchange therefor or upon any exercise, conversion or substitution thereof.
Further, the Company agrees to pay all reasonable legal, consulting, accounting,
appraisal and investment banking fees and charges incurred by any holder of the
Purchased Securities or their representatives in connection with the enforcement
of or preservation of rights under this Agreement or any Related Agreement in
the event of a breach or reasonably alleged breach by the Company of its
obligations hereunder or thereunder.
SECTION 8.2. INDEMNIFICATION. The Company hereby further agrees to
indemnify, exonerate and hold each Purchaser and its (if applicable) general and
limited partners and their respective shareholders, officers, directors,
employees and agents 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 the indemnities as a result of or relating to (i) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with proceeds from the sale of any of the Purchased Securities, (ii)
the execution, delivery, performance or enforcement of this Agreement, the
Related Agreements or any agreement, document or instrument contemplated hereby
or thereby (including, without limitation, any failure by the Company to comply
with any of the covenants thereunder), or (iii) any breach of any representation
or warranty of the Company in this Agreement or any Related Agreement.
SECTION 8.3. BROKERS' FEES. The Company hereby indemnifies each
Purchaser against and agrees that it will hold it harmless from any claim,
demand or liability for any broker's, finder's or similar fee or commission
alleged to have been incurred by the Company (and not by a Purchaser) in
connection with the transactions contemplated by this Agreement or any Related
Agreement.
ARTICLE IX
NOTICES
Any notices or other communications required to be given pursuant to
this Agreement shall be in writing and shall be deemed given: (i) upon delivery,
if by hand; (ii) three (3)
17
<PAGE> 20
Business Days after mailing, if sent by registered or certified mail, postage
prepaid, return receipt requested; (iii) one (1) Business Day after mailing, if
sent via overnight courier; or (iv) upon transmission, if sent by telex or
facsimile except that if such notice or other communication is received by telex
or facsimile after 5:00 p.m. on a Business Day at the place of receipt, it shall
be effective as of the following Business Day. All notices and other
communications hereunder shall be given as follows:
(a) If to the Company, to it at:
MGC Communications, Inc.
3301 North Buffalo Drive
Las Vegas, Nevada 89129
Attention: Maurice J. Gallagher, Jr.
Facsimile: (702) 310-5715
Telephone: (702) 310-1000
with a copy to:
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
3490 Piedmont Rd., Suite 400
Atlanta, GA 30305
Attention: Robert B. Goldberg, Esq.
Facsimile: 404-233-2188
Telephone: 404-233-2800 X222
(b) If to Providence Equity Partners III L.P. or Providence Equity
Operating Partners III L.P., to it at:
c/o Providence Equity Partners L.L.C.
901 Fleet Center
50 Kennedy Plaza
Providence, Rhode Island 02903
Attention: Mark Masiello
Facsimile: (401) 751-1790
Telephone: (401) 751-1700
with a copy to:
Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, Rhode Island 02903
Attention: David K. Duffell, Esq.
Facsimile: 401-276-6602
Telephone: 401-274-9200
18
<PAGE> 21
(c) If to another Purchaser, to it at the address set forth on
Schedule 2.1
Any party may change its address for receiving notice by written notice given to
the other names above in the manner provided above.
ARTICLE X
SURVIVAL OF COVENANTS, AGREEMENTS,
REPRESENTATIONS AND WARRANTIES, TRANSFER
All covenants, agreements, representations and warranties made herein
to the Purchasers or the Company or in any other document referred to herein or
delivered to the Purchasers or the Company pursuant hereto shall be deemed to
have been relied on by each of the Purchasers and the Company, notwithstanding
any investigation made by any of the Purchasers or on their behalf, or by the
Company, and shall survive the execution and delivery of this Agreement and
other such documents and the delivery to the Purchasers of the Purchased
Securities for a period of eighteen (18) months after the Closing Date, except
for the representations and warranties contained in Sections 3.1, 3.2, 3.3, and
3.8 which shall survive the Closing and continue in full force and effect
forever thereafter (subject to any applicable statute of limitations). Whether
or not any express assignment has been made in this Agreement, the provisions of
this Agreement that are for the benefit of any Purchaser as the holder of any
Purchased Securities are also for the benefit of, and enforceable by, all
subsequent holders of the Purchased Securities, and the provisions of this
Agreement that subject any Purchaser to obligations as the holder of any
Purchased Securities also subject all subsequent holders of Purchased Securities
thereto.
ARTICLE XI
AMENDMENTS AND WAIVERS
No modification to or amendment of any provision of this Agreement
shall be effective against the Company or any Purchaser unless such modification
or amendment is approved in writing by the Majority Purchasers and the Company.
No waiver of the rights and obligations hereunder of any party hereto shall be
effective unless such waiver is in writing and duly executed and delivered by
(a) the Majority Purchasers (in the event such waiver is sought by the Company),
or (b) the Company (in the event such waiver is sought by any Purchaser). The
failure of any party hereto to enforce any of provision of this Agreement shall
in no way be construed as a waiver of such provision and shall not affect the
right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms. Any amendment or waiver effected in
accordance with this Article XI shall be binding upon the Company and each
holder of any Purchased Security sold pursuant to this Agreement.
19
<PAGE> 22
ARTICLE XII
WAIVER OF JURY TRIAL
EACH OF THE COMPANY AND THE PURCHASERS HEREBY EXPRESSLY WAIVES ANY
RIGHT IT MAY HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING EXISTING
UNDER OR RELATING TO THIS AGREEMENT, THE PURCHASED SECURITIES OR ANY OF THE
RELATED AGREEMENTS.
ARTICLE XIII
GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF RHODE ISLAND WITHOUT GIVING EFFECT TO ANY CHOICE OR
CONFLICT OF LAW PROVISION OR RULE THAT WOULD CAUSE THE APPLICATION OF THE
SUBSTANTIVE LAWS OF ANY OTHER STATE, AND SHALL BIND AND INURE TO THE BENEFIT OF
THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
ARTICLE XIV
PUBLIC ANNOUNCEMENTS
The Company hereby acknowledges that each Purchaser will have the right
to publicize its investment in the Company as contemplated hereby by means of a
press release reasonably acceptable to the Company, a tombstone advertisement or
other customary advertisement in newspapers and other periodicals. The Majority
Purchasers shall have the right to reasonably approve in advance the content of
any public announcement by the Company regarding the transactions contemplated
hereby.
ARTICLE XV
TIME OF THE ESSENCE
Time shall be of the essence of this Agreement.
ARTICLE XVI
ENTIRE AGREEMENT; COUNTERPARTS; SECTION HEADINGS
This Agreement, the Purchased Securities and the Related Agreements set
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby and supersede any prior written or oral
understandings with respect thereto. This Agreement may be executed
simultaneously in one or more counterparts thereof, each of which shall be
deemed an
20
<PAGE> 23
original but all of which together shall constitute one and the same instrument.
Signatures sent by telecopy shall be deemed to constitute original signatures.
The headings in this Agreement are for convenience of reference only and shall
not alter or otherwise affect the meaning hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
21
<PAGE> 24
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below.
Very truly yours,
MGC COMMUNICATIONS, INC.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
Accepted and agreed to:
PROVIDENCE EQUITY PARTNERS III L.P.
By: Providence Equity Partners III L.L.C., its general partner
By:
----------------------------------------
Managing Director
PROVIDENCE EQUITY OPERATING PARTNERS III L.P.
By: Providence Equity Partners III L.L.C., its general partner
By:
------------------------------------------
Managing Director
JK&B CAPITAL III L.P.
By: JK&B Capital, LLC, its general partner
By:
-------------------------------------------
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
22
<PAGE> 25
SCHEDULE 2.1
LIST OF PURCHASERS
<TABLE>
<CAPTION>
Number of Purchased Aggregate Purchase
Securities to be Price of the Purchased
Name and Address Purchased * Securities
---------------- ----------- ----------
<S> <C> <C>
1. Providence Equity 886,259 shares of Series C $24,815,252
Partners III L.P. Convertible Preferred Stock
Suite 900, Fleet Center
50 Kennedy Plaza
Providence, RI 02903
2. Providence Equity Operating 6,598 shares of Series C $184,744
Partners III L.P. Convertible Preferred Stock
Suite 900, Fleet Center
50 Kennedy Plaza
Providence, RI 02903
3. JK&B Capital III L.P. 357,143 shares of Series C $10,000,004
205 N. Michigan Avenue Convertible Preferred Stock
Suite 808
Chicago, IL 60601
TOTAL: 1,250,000 $35,000,000
</TABLE>
* Subject to adjustment as provided in Section 2.1.
<PAGE> 26
EXHIBIT A
TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 19, 1999
CERTIFICATE OF DESIGNATION
<PAGE> 27
EXHIBIT B
TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 19, 1999
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 28
EXHIBIT C
TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 19, 1999
FORM OF SECURITYHOLDERS' AGREEMENT
<PAGE> 29
EXHIBIT D
TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 19, 1999
FORM OF COMPANY CORPORATE OPINION
<PAGE> 30
EXHIBIT E
TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 19, 1999
FORM OF COMPANY REGULATORY OPINION
<PAGE> 1
EXHIBIT 99.(B)
EXHIBIT (B)
AMENDED AND RESTATED
SECURITYHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED SECURITYHOLDERS' AGREEMENT is made as of
________, 1999, by and among MGC Communications, Inc., a Nevada corporation (the
"Company"), the Institutional Investors (as defined herein), and each of the
securityholders from time to time a party hereto (the "Securityholders") (as
amended from time to time, this "Agreement").
WHEREAS, the parties hereto are parties to that certain
Securityholders' Agreement dated as of April 5, 1999 (the "Original Agreement");
and
WHEREAS, Providence Equity Partners III L.P. ("PEP"), Providence Equity
Operating Partners III L.P. ("PEOP"), JK&B Capital III L.P. ("JK&B"), Wind Point
Partners III, L.P. and Wind Point Executive Advisor Partners III, L.P., and the
Company are parties to that certain Securities Purchase Agreement dated April 5,
1999 (the "Original Purchase Agreement"); and
WHEREAS, PEP, PEOP and JK&B are concurrently herewith purchasing shares
of the Company's Series C Convertible Preferred Stock, $.001 par value (the
"Series C Preferred"), pursuant to a Securities Purchase Agreement dated _____,
1999 (the "Securities Purchase Agreement"); and
WHEREAS, the execution and delivery of this Agreement is a condition to
the purchase of the Series C Preferred by PEP, PEOP and JK&B pursuant to the
Securities Purchase Agreement; and
WHEREAS, capitalized terms used herein but not otherwise defined herein
have the meaning given such terms in the Original Purchase Agreement; and
WHEREAS, the parties hereto desire to amend and restate in its entirety
the Original Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement, intending to be
legally bound, hereby agree as follows:
Section 1. Certain Definitions.
"Board" means the Company's Board of Directors.
"Institutional Investors" means those Persons holding Investor Shares.
<PAGE> 2
"Investor Designees" means those member(s) of the Board or Sub Board
that have been designated by the Required Investor Approval.
"Investor Shares" means the "Purchased Securities" as defined in the
Original Purchase Agreement and the "Purchased Securities" as defined in the
Securities Purchase Agreement.
"Original Agreement" has the meaning given such term in the recitals.
"Original Purchase Agreement" has the meaning given such term in the
recitals.
"Preferred Shares" means shares of Series B Preferred and Series C
Preferred.
"Required Board Approval" means the majority vote or written consent of
a majority of the directors of the Board or the Sub Board, as applicable,
including the approval of the Investor Designee, or, if there is more than one
Investor Designee, that Investor Designee that has been designated in writing by
the Required Investor Approval as the person whose approval is necessary for
purposes of this definition.
"Required Investor Approval" means, at any time, the affirmative vote
of the holders of more than fifty percent (50%) of the outstanding Investor
Shares held of record by the Institutional Investors at such time.
"Securities Purchase Agreement" has the meaning given such term in the
recitals.
"Series B Preferred" means the Company's Series B Convertible Preferred
Stock, $.001 par value per share.
"Series C Preferred" has the meaning given such term in the recitals.
"Subject Securities" has the meaning given to such term in Section 2
hereof.
Section 2. Board Composition.
(a) From and after the date hereof, and until the provisions
of this Section 2 cease to be effective, each Securityholder and Institutional
Investor shall vote all of its Common Stock, Investor Shares and other voting
securities of the Company over which such holder has voting control ("Subject
Securities") and shall take all other necessary or desirable actions within its
control (in its capacity as a securityholder or stockholder and, subject to any
fiduciary obligation owed by such Securityholder or Institutional Investor to
the Company, in its capacity as a director, member of a board committee or
officer of the Company or otherwise, and 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), and the Company shall
take all necessary or desirable actions within its control (including, without
limitation, calling special Board and stockholder meetings), so that the
following shall occur:
- 2 -
<PAGE> 3
(i) subject to the limitations contained in Section 2(a)(vi),
there shall be elected to the Board such number of
representatives designated by Required Investor Approval as
are necessary to result in the percentage representation by
Investor Designees on the Board equaling at least the
Institutional Investors' percentage ownership of outstanding
Common Stock of the Company arising out of their record
ownership of (x) Preferred Shares (assuming the conversion of
all outstanding shares of Series B Preferred and Series C
Preferred) and (y) shares of Common Stock that have been
issued on conversion of shares of Series B Preferred and
Series C Preferred; provided, subject to the limitations
contained in Section 2(a)(vi), in no event shall the initial
number of Investor Designees to the Board be less than two
(2);
(ii) the governing body of each of the Company's Subsidiaries (each
a "Sub Board") shall have at least one Investor Designee;
(iii) any committees of the Board or a Sub Board (to the extent not
yet created) shall be created only upon Required Board
Approval and each committee shall have at least one Investor
Designee;
(iv) the removal from the Board or a Sub Board or any committee
thereof without cause of any Investor Designee shall be
conditional on the Required Investor Approval;
(v) in the event that any Investor Designee ceases to serve as a
member of the Board or a Sub Board or any committee thereof
during his term of office, the resulting vacancy on the Board
or the Sub Board, and on each committee thereof, shall be
filled by an Investor Designee;
(vi) notwithstanding the provisions of Section 2(a)(i), the number
of Investor Designees on the Board shall not exceed the whole
number obtained by multiplying (A) the Institutional
Investors' percentage ownership of outstanding Common Stock of
the Company arising out of their record ownership of (x)
Preferred Shares (assuming the conversion of all outstanding
Series B Preferred and Series C Preferred) and (y) shares of
Common Stock that have been issued on conversion of shares of
Series B Preferred and Series C Preferred by (B) the total
number of directors on the Board (it being understood that for
purposes of determining the whole number, any decimal
beginning with 0-4 shall be rounded down to the nearest whole
number and any decimal beginning with 5-9 shall be rounded up
to the nearest whole number); and
(vii) in no event shall the number of directors on the Board be less
than seven (7).
(b) The Company shall pay the reasonable out-of-pocket
expenses incurred by each director in connection with attending (i) the meetings
of the Board, any Sub Board and any committee thereof and (ii) any other
meetings at the request of any Company or any of its
-3-
<PAGE> 4
Subsidiaries. So long as any Investor Designee serves on the Board or a Sub
Board and for six years thereafter, the Company shall maintain directors and
officers indemnity insurance coverage as currently in place or as otherwise
approved by the Required Investor Approval, and the constituent documents of the
Company and each of its Subsidiaries, as appropriate, shall provide for
indemnification and exculpation of directors to the fullest extent permitted
under applicable law.
(c) If any party or parties fail(s) (but is otherwise
entitled) to designate a representative to fill a directorship pursuant to the
terms of this Section 2, the election of an individual to such directorship
shall be accomplished in accordance with the Company's or the applicable
Subsidiary's constituent documents and applicable law; provided that the parties
shall take all necessary actions to remove such individual if the party or
parties which failed (and are otherwise entitled) to designate such director so
directs.
Section 3. Approval of Transaction. In the event a meeting of the
Company's stockholders is required under the General Corporation Law of the
State of Nevada or otherwise, including under the regulations of the Nasdaq
Stock Market (the "Nasdaq Rules"), for the approval of any aspect of the
transactions contemplated by the Securities Purchase Agreement, including the
issuance of shares of Series C Preferred (the "Stockholder Approval"), (i) the
Company shall promptly take all action necessary to convene a meeting of its
stockholders in accordance with the Nevada General Corporation Law and the
Company's Articles of Incorporation and By-laws, and shall provide to its
stockholders all proxy materials required by the Nasdaq Rules and the
regulations under the Securities Exchange Act of 1934, as amended, in order to
obtain the Stockholder Approval and (ii) each Securityholder shall promptly take
all necessary or desirable action within such Securityholder's control
(including, without limitation, attendance at stockholders' meetings in person
or by proxy for the purposes of obtaining a quorum and the execution of written
consents in lieu of meetings) to ensure that (i) all voting securities of the
Company (including the Common Stock) over which such Securityholder has control
shall be voted in favor of the Stockholder Approval and (ii) that any transferee
of any voting securities of the Company now held by such Securityholder (other
than a transferee who acquires such voting securities pursuant to public sale in
the Nasdaq Stock Market by such Securityholder, including sales made in
accordance with Rule 144 of the Securities Act) shall be obligated to vote in
favor of the Stockholder Approval. [NOTE: LET'S DETERMINE WHETHER WE CAN FIX
RECORD DATE FOR VOTE NOW.]
Section 4. Amendment and Waiver. Except as otherwise provided herein,
no modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or any of the Institutional Investors unless such
modification, amendment or waiver is approved in writing by the Company and the
Required Investor Approval, and upon receipt of such written approval, such
modification, amendment or waiver shall be binding upon all parties to this
Agreement. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
-4-
<PAGE> 5
Section 5. Representations and Warranties of the Securityholders.
Each Securityholder represents and warrants to each Institutional Investor (as
to itself but not as to any other party) upon becoming a party hereto as
follows:
(a) Authorization; No Breach. The execution, delivery and
performance by such Securityholder of this Agreement has been duly authorized by
or on behalf of such Securityholder. This Agreement constitutes a valid and
binding obligation of such Securityholder, enforceable in accordance with its
terms. The execution and delivery by such Securityholder of this Agreement, and
the fulfillment of and compliance with the terms hereof by such Securityholder,
do not and will not (a) conflict with or result in a breach of the terms,
conditions or provisions of, (b) result in a violation of, or (c) require any
consent that has not been obtained or made of, from, with or to, any Person
pursuant to, the constituent documents of such Securityholder, or any material
agreement, instrument or other documents, or any applicable material requirement
of law to which such Securityholder or any Affiliate is bound or to which any of
such Persons or its assets is subject.
(b) Record Owner; Proxy. Such Securityholder (i) is the record
owner of the number of Subject Securities set forth opposite its name on
Schedule A attached to this Agreement and (ii) is not a party to any proxy,
voting trust or other agreement which is inconsistent with, conflicts with or
violates any provision of this Agreement. No Securityholder shall grant any
proxy or become party to any voting trust or other agreement which is
inconsistent with, conflicts with or violates any provision of this Agreement.
Section 6. Representations and Warranties of the Company. The
Company represents and warrants to each Institutional Investor as follows:
(a) Authorization; No Breach. The execution, delivery and
performance of this Agreement has been duly authorized by or on behalf of the
Company. This Agreement constitutes a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms. The execution and delivery by
the Company of this Agreement, and the fulfillment of and compliance with the
terms hereof by the Company, does not and will not (a) conflict with or result
in a breach of the terms, conditions or provisions of, (b) result in a violation
of, or, (c) require any consent that has not been obtained or made of, from,
with or to, any Person pursuant to, the constituent documents of the Company or
any or its Subsidiaries, or any agreement, instrument or other document, or any
applicable material requirement of law to which the Company or any of its
Subsidiaries or any of its Affiliates is bound or to which any of such Persons
or its assets is subject.
Section 7. 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 invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other
-5-
<PAGE> 6
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had not
been contained herein.
Section 8. Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Company and the Institutional Investors and their respective successors
and assigns; provided that (i) a Person acquiring Investor Shares in a public
market transaction including a sale by an Institutional Investor of Investor
Shares in the Nasdaq Stock Market shall not be considered a successor or
assignee of the selling Institutional Investor as a result thereof, (ii) the
Institutional Investors shall give prompt written notice to the Company of the
name and address of their respective successors and assigns and (iii) the
Company may not assign any of its obligations under this Agreement without the
Required Investor Approval. This Agreement shall be binding upon the
Securityholders and Institutional Investors so long as they hold Subject
Securities.
Section 9. Counterparts; Fax Signatures. This Agreement may be
executed in multiple counterparts, each of which shall be an original and all of
which taken together shall constitute one and the same agreement. Signatures
sent by telecopy shall be deemed to constitute original signatures.
Section 10. Remedies. Each party to this Agreement shall be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of the Agreement and that the Company or any Institutional Investor
may in its sole discretion apply to any court of law or equity or competent
jurisdiction for specific performance and/or injunctive relief (without posting
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
Section 11. Notices. Any notice provided for in this Agreement shall be
in writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) or sent by telecopy to the Company at the address set forth below and
to any other recipient at the address indicated on the Schedule attached hereto
or at such address or to the attention of such other Person as the recipient
party has specified by prior written notice to the sending party. Notices shall
be deemed to have been given hereunder when delivered personally, when delivery
is confirmed by telecopy, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service.
MGC Communications, Inc.
3301 North Buffalo Drive
Las Vegas, Nevada 89129
Attention: Maurice J. Gallagher, Jr.
Facsimile: (702) 310-5715
Telephone: (702) 310-1000
-6-
<PAGE> 7
Section 12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Rhode Island, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of Rhode Island or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Rhode Island; provided that the General Corporation Law of the State of Nevada
shall govern all issues concerning the voting of the Subject Securities.
Section 13. Descriptive Headings; Interpretation. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a substantive part of this Agreement. Reference to any agreement,
document or instrument means such agreement, document or instrument as amended
or otherwise modified from time to time in accordance with the terms thereof
and, if applicable, hereof. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise specified herein, the term "or" has the inclusive meaning
represented by the term "and/or" and the term "including" is not limiting. All
references as to "Sections", "Subsections", "Articles", "Schedules" and
"Exhibits" shall be to Section, Subsections, Articles, Schedules and Exhibits,
respectively, of this Agreement unless otherwise specifically provided.
Section 14. No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
Section 15. No Third Party Beneficiaries. This Agreement is not
intended to confer any rights or remedies upon any Person other than the parties
hereto and their successors and permitted assigns.
Section 16. Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
Section 17. Termination. This Agreement shall terminate upon the
earlier to occur of (i) seven (7) years from the date hereof or (ii) the date
upon which (A) less than one-third (1/3) of both (x) the number of shares of
Series B Preferred initially issued remains outstanding and (y) the number of
shares of Series C Preferred initially issued remains outstanding and (B) the
number of Investor Shares outstanding represents less than five percent (5%) of
the outstanding Common Stock, assuming conversion of all outstanding shares of
Series B Preferred and Series C Preferred.
[THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY.]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
MGC COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
PROVIDENCE EQUITY PARTNERS III L.P.
By: Providence Equity Partners III LLC,
its general partner
By:
--------------------------------------
Managing Director
PROVIDENCE EQUITY OPERATING
PARTNERS III L.P.
By: Providence Equity Partners III LLC,
its general partner
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
J K & B CAPITAL III L.P.
By: JK&B Capital, LLC, its general partner
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[SIGNATURE PAGE TO SECURITYHOLDERS' AGREEMENT]
-8-
<PAGE> 9
WIND POINT PARTNERS III, L.P.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
WIND POINT EXECUTIVE ADVISOR
PARTNERS III, L.P.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[SIGNATURE PAGE TO SECURITYHOLDERS' AGREEMENT]
-9-
<PAGE> 10
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
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[SIGNATURE PAGE TO SECURITYHOLDERS' AGREEMENT]
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<PAGE> 11
SCHEDULE A TO SECURITYHOLDERS' AGREEMENT
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SHARES OF COMMON
STOCKHOLDER DETAIL STOCK OR PREFERRED
----------- ------ SHARES OWNED
------------
COMMON PREFERRED
------ ---------
<S> <C> <C> <C>
Maurice Gallagher Direct ownership - 22,500 3,190,546 -0-
Various trusts (1) - 1,478,146
Gallagher Family
Investments, LP - 1,650,000
Gallagher Corp. - 39,900
[NIELD MONTGOMERY] [736,500] -0-
Timothy Flynn Direct ownership - 790,500 892,500 -0-
Flynn Family Investments, LP
- 60,000
Flynn Corp. - 42,000
David Kronfeld JK&B Capital (2) - 968,143 1,145,371 555,556 Series B
357,143 Series C
Boston Capital Ventures III,
L.P. - 171,428
Direct ownership - 5,800
Thomas Neustaetter Strategic Investment [694,512] -0-
Partners Limited - 342,856
S-C Phoenix Holdings, LLC - 214,285
Winston Partners II LDC - 85,714
Winston Partners II LLC - 42,857
Direct Ownership - 8,800
Wind Point Executive Advisor [ ] 5,043 Series B
Partners III, L.P.
Wind Point Partners III, L.P. [685,714] 550,513 Series B
(Jim TenBroek)
Robert L./Carol A. Priddy 889,500 -0-
Hayden & Ladonna Fleming 140,369 -0-
Revocable Trust
Hayden Fleming IRA 4,000 -0-
Ladonna Fleming IRA 6,500 -0-
Circle F Ventures, LLC 664,400 -0-
Mitch Allee 470,500 -0-
John Boersma 64,000 -0-
Dave Clark 13,620 -0-
Providence Equity Partners III -0- 4,135,875 Series B
L.P. 886,259 Series C
Providence Equity Operating -0- 30,792 Series B
Partners III L.P. 6,598 Series C
TOTAL: [ ]
TOTAL OUTSTANDING: [ ]
PERCENTAGE: [ ]
(1) Gallagher Stock Trust dated 4/2/94
Gallagher Trust dated 10/20/92
(2) JK&B Capital, L.P.
JK&B Capital II, L.P.
</TABLE>
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