<PAGE> 1
As filed with the Securities and Exchange Commission on April 14, 2000
Registration No. 333-___________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
STATE COMMUNICATIONS, INC.
--------------------------
(TO BE RENAMED TRIVERGENT CORPORATION)
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(Exact name of registrant as specified in its charter)
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SOUTH CAROLINA 4813 58-2354282
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(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
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200 NORTH MAIN STREET
GREENVILLE, SOUTH CAROLINA 29601
(864) 370-4500
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(Address, including Zip code, and telephone number, including area code,
of Registrant's Principal Executive Offices)
RILEY M. MURPHY, ESQ.
GENERAL COUNSEL
TRIVERGENT CORPORATION
200 NORTH MAIN STREET
GREENVILLE, SOUTH CAROLINA 29601
(864) 370-4500
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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WILLIAM P. CRAWFORD, JR., ESQ. THOMAS R. BROME, ESQ. RICHARD D. TRUESDELL, JR., ESQ.
WYCHE, BURGESS, FREEMAN & PARHAM, P.A. CRAVATH, SWAINE & MOORE DAVIS POLK & WARDWELL
POST OFFICE BOX 728 WORLDWIDE PLAZA 450 LEXINGTON AVENUE
GREENVILLE, SOUTH CAROLINA 29602-0728 825 EIGHTH AVENUE NEW YORK, NEW YORK 10017
(864) 242-8200 (TELEPHONE) NEW YORK, NY 10019 (212) 450-4000 (TELEPHONE)
(864) 235-8900 (FACSIMILE) (212) 474-1000 (TELEPHONE) (212) 450-4800 (FACSIMILE)
(212) 474-3700 (FACSIMILE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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===================================================================================================
Title of Each Class of Securities Proposed Maximum Aggregate Amount of
to be Registered Offering Price (1) Registration Fee (2)
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Common Stock, par value $0.001....... $172,500,000 $45,540
===================================================================================================
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(a) based on estimate of the proposed
maximum aggregate offering price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
EXPLANATORY NOTE
SUBJECT TO SHAREHOLDER APPROVAL, THE REGISTRANT PLANS TO CHANGE ITS
NAME TO TRIVERGENT CORPORATION AND REINCORPORATE AS A DELAWARE CORPORATION
BEFORE CIRCULATING THE PROSPECTUS INCLUDED IN THIS FILING. REFERENCES TO THE
REGISTRANT IN THE PROSPECTUS ARE TO THE PROPOSED NEW NAME, AND TO DELAWARE AS
THE STATE OF INCORPORATION.
<PAGE> 3
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- APRIL 14, 2000
==============================================================================
PROSPECTUS
, 2000
[LOGO]
TRIVERGENT CORPORATION
SHARES OF COMMON STOCK
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TRIVERGENT CORPORATION:
- - We are a broadband telecommunications company offering web design and
web hosting, high-speed data and voice services.
- - TriVergent Corporation
200 North Main Street
Greenville, South Carolina 29601
PROPOSED SYMBOL AND MARKET:
- - We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "TRIV."
THE OFFERING:
- - We are offering shares of our common stock.
- - The underwriters have an option to purchase up to an additional
shares from us to cover over-allotments.
- - This is our initial public offering, and no public market currently
exists for our shares.
- - We anticipate that the initial public offering price for our shares
will be between $ and $ per share.
- - Closing: , 2000.
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Per Share Total
Public offering price: $ $
Underwriting fees:
Proceeds to TriVergent Corporation:
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THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 9.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
FIRST UNION SECURITIES, INC.
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.
<PAGE> 4
(Graphical depiction of TriVergent's network, overlayed on a map of
the southeastern United States. The map identifies the locations of our DMS
sites, ATM sites and transmission facilities.)
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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Prospectus Summary .................................... 3
Risk Factors .......................................... 9
Forward-Looking Statements ............................ 19
Use of Proceeds ....................................... 20
Dividend Policy ....................................... 20
Capitalization ........................................ 21
Dilution .............................................. 22
Selected Consolidated Financial Data .................. 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................... 26
Business .............................................. 35
Description of Our Indebtedness ....................... 52
Government Regulation ................................. 56
Management ............................................ 63
Certain Relationships and Related
Transactions ..................................... 73
Principal Stockholders ................................ 76
Description of Capital Stock .......................... 79
Shares Eligible for Future Sale ....................... 83
Underwriting .......................................... 85
Legal Matters ......................................... 89
Experts ............................................... 89
Available Information ................................. 89
Index to Financial Statements ......................... F-1
</TABLE>
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You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell shares of common
stock and seeking offers to buy shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or any sale of the common stock. In
this prospectus, "TriVergent," "we," "us" and "our" refer to TriVergent
Corporation.
We have applied to register the following trademarks which may appear
in this prospectus: Broadband Bundle(TM) and TrieWeb(TM). Our logo and certain
titles and logos of our services mentioned in this prospectus are our
trademarks.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and our common stock being sold in this offering,
especially "Risk Factors" beginning on page 9 and our consolidated financial
statements and the notes thereto, before deciding to invest in our common
stock. Except as otherwise noted, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
We are a broadband telecommunications company offering automated web
design and web hosting, high-speed data and voice services. Our goal is to
become the leading single-source, web-based communications company serving
small and medium-sized businesses in the southeastern United States. Our
principal product is our Broadband Bundle, which provides automated web design
and web hosting, high-speed data and Internet access using digital subscriber
line, or DSL, technology and local and long distance voice services. The
Broadband Bundle is sold for a single price based on the customer's selected
bandwidth capacity and number of access lines. We believe we are the only
company providing this all-inclusive bundle in our markets. Our Broadband
Bundle has been designed to increase customer loyalty and provide a
cost-effective, web-based communications solution to our target customers. To
complement our Broadband Bundle we will offer carrier grade data centers for
dedicated web hosting and bandwidth connectivity in 33 of our 36 target markets
by the end of 2001. We also offer network and data integration services, such
as dedicated server colocation, and local area network and wide area network
solutions, as well as on-premise voice and data equipment, hubs, routers and
cabling services.
As part of our Broadband Bundle, we offer our proprietary web
architecture service, TriEWeb, that enables our customers to design and
maintain their own websites using our template-driven web design Internet
application. Our customers can edit their web sites and update e-mail addresses
through a secure on-line, interactive control panel 24 hours a day without
contacting our customer care representatives. We also provide our customers
with high-speed Internet connectivity through our DSL services, unlimited local
service and 100 minutes of free long distance usage per line, as well as web
hosting. We believe this affordable, scalable solution enables our small and
medium-sized business customers to take advantage of web related and
connectivity services more typically utilized by larger companies. Since we
began offering the Broadband Bundle in January 2000, approximately 90% of our
new customers have entered into at least one-year contracts for service. At
March 31, 2000, approximately 50% of our Broadband Bundled customers had
three-year contracts. We also intend to release the second version of TriEWeb
in third quarter 2000, to allow our customers to develop e-commerce
applications and conduct transactions using their websites.
We currently offer our products and services in six markets across
South Carolina, North Carolina and Georgia. We intend to serve an additional 18
markets throughout nine southeastern states by the end of 2000, and a total of
36 markets by the end of 2001. We expect our total network footprint to cover
more than 70% of BellSouth's business access line market, encompassing 5.4
million business access lines. We believe our network will ultimately cover
over 90% of the business access lines in our target markets.
We believe the number and size of our colocations positions us with
the broadest colocation foot print in the BellSouth region. Our scale and
unified network design of converged voice and data services allow us to
accommodate future access line growth in our target markets both rapidly and
cost-effectively. At March 31, 2000, we had:
- secured 256 central office colocation facilities representing
approximately 50,000 square feet of caged-in space and passing over 10 million
access lines;
- installed voice and data equipment in 82 of these colocation
facilities, with 47 others under construction; and
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<PAGE> 7
- deployed three asynchronous transfer mode, or ATM, switches,
2,400 route miles of lit fiber optic capacity, and three Nortel voice-switching
platforms.
Our network is designed to include six voice switches complemented by
33 ATM switches to provide our Broadband Bundle to our customers throughout the
southeastern region. We currently have three voice switches installed and
expect to install three more by the end of 2000 which will complete the voice
switch deployment necessary to cover all of our currently planned markets. We
intend to construct data centers in substantially all of our markets to house
our ATM switches and provide dedicated and shared web hosting services to our
customers. Because many of the traditional data service providers have targeted
only the largest cities in our target market, we believe the market for data
centers in small and medium sized cities in this region is currently
underserved. We expect to house our carrier-grade data centers connected
directly to our ATM switch. These data centers will have auxiliary battery and
diesel power restoration, fire suppression, security clearance and access to
customers' workstations and access to the Internet through our fiber network.
We will offer our customers a complete solution that includes web hosting and
high-speed Internet connections. We believe we will be first to market this
service in many of our target markets.
Since our inception, we have raised approximately $137 million in
equity from a number of experienced investors in the telecommunications
industry, including Moore Capital, Richland Ventures, Boston Millenia Partners,
First Union Capital Partners, Bank of America Securities, CIT Group, TD
Securities, CIBC, Southeastern Technology Fund, Wachovia Bank and Nortel
Networks. Our management team, board of directors and affiliates have invested
over $7 million in us. We also have a $120 million senior credit facility from
a syndicate of financial institutions and a $45 million credit facility from
Nortel Networks.
BUSINESS STRATEGY
We have been pursuing our current business strategy since February 1999.
Prior to that time, our business strategy was to resell to residential
customers local and long distance voice services. With the exception of our
prepaid business, we discontinued marketing resold residential service in April
1999 and expect this business to decline over the next two years. Our current
business strategy is to become the leading single-source, web-based
communications company serving small and medium-sized businesses in the
southeastern United States. To achieve this goal, we have developed the
following business strategy:
- Offer a Complete, Bundled Broadband Internet Communications
Solution
- Target Small and Medium-Sized Businesses in the Southeastern
United States
- Capitalize on First Mover Advantage in Bundled Services and Data
Centers
- Leverage Proven Distribution Channels
- Capitalize on our Colocation Footprint
- Implement Scalable and Integrated Back Office Systems
- Leverage Management Expertise
- Accelerate Growth and Expand Product Offering through Acquisitions
In most of our target markets, we expect to have a locally based sales
force led by a sales manager and a team of six to 40 account executives
responsible for customer acquisition and retention in their market. We also
intend to use third-party agents to enhance the reach of our direct sales
force. We currently have developed strong relationships with voice and data
equipment distributors located throughout the southeastern region of the United
States, including those affiliated with Teleco, Inc.
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<PAGE> 8
Our management team is led by Charles S. Houser, our Chairman and
Chief Executive Officer, who has had a distinguished career in the
telecommunications industry, including serving as:
- chairman and chief executive officer of Corporate
Telemanagement Group, Inc., or CTG, a switch-based long
distance carrier acquired by LCI International, Inc.;
- chief executive officer of Tel/Man, a switch-based long
distance carrier;
- chief operating officer of SouthernNet, a facilities-based
long distance carrier that was acquired by MCI in 1989; and
- chairman of Teleco, Inc.
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THE OFFERING
The calculation of the number of shares outstanding after this
offering includes the automatic conversion of all outstanding shares of
preferred stock into common stock but does not reflect shares that may be
issued upon the exercise of options and warrants. Unless otherwise specifically
stated, information in this prospectus assumes the underwriters do not exercise
their option to purchase additional shares in this offering.
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Common stock offered by us.................... shares
Common stock outstanding after
this offering................................ shares
Use of proceeds............................... We plan to use the net proceeds from this offering:
- for capital expenditures relating to the planned
expansion of our network;
- to fund operating losses during the rollout of
services in new markets; and
- for working capital and other general corporate
purposes.
See "Use of Proceeds."
Dividend policy............................... We have never paid or declared any cash dividends on our common
stock and do not anticipate paying cash dividends in the
foreseeable future. We currently intend to retain all future
earnings, if any, for use in the operation of our business and
to fund future growth.
Proposed Nasdaq National Market symbol........ TRIV
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PRINCIPAL OFFICES
We are a Delaware corporation. Our predecessor was a South Carolina
corporation. Our principal executive offices are located at 200 North Main
Street, Greenville, South Carolina 29601. Our telephone number is (864)
370-4500.
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<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data
for the periods indicated. The consolidated statement of operations data for
the period from October 29, 1997 (date of inception) through December 31, 1997
and for the years ended December 31, 1998 and 1999 and the consolidated balance
sheet data as of December 31, 1999 have been derived from our consolidated
financial statements included elsewhere in this prospectus, which have been
audited by KPMG LLP, independent public accountants, as indicated in their
report included elsewhere in this prospectus. The results of our operations for
the periods indicated are not necessarily indicative of the results of
operations in the future.
The as adjusted balance sheet data gives effect to the following as if
each had taken place on December 31, 1999:
- the issuance of Series C preferred stock in February and
March 2000 for which we received total net proceeds of $67.1
million;
- the automatic conversion of Series A, B and C preferred stock
into shares of common stock and the issuance of
shares of common stock in payment of dividends
accrued on the Series A, B and C preferred stock through the
closing of this offering; and
- our receipt of net proceeds from the sale of shares
of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting estimated
underwriting discounts and commissions and offering expenses.
EBITDA, shown below under "Other Financial Data," consists of net loss
before extraordinary item, excluding net interest, taxes, depreciation and
amortization and noncash compensation expense. We have provided EBITDA because
it is a measure of financial performance commonly used for comparing companies
in the telecommunications industry in terms of operating performance, leverage
and ability to incur and service debt. EBITDA provides an alternative measure
of cash flow from operations as determined under generally accepted accounting
principles. You should not consider it as a substitute for operating loss, as
an indicator of our operating performance nor as an alternative to cash flows
from operating activities as a measure of liquidity. We may calculate EBITDA
differently from other companies. For further information, see our consolidated
financial statements and related notes included elsewhere in this prospectus.
7
<PAGE> 11
You should read the summary consolidated financial data set forth
below in conjunction with our consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
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PERIOD FROM
OCTOBER 29
(INCEPTION ) THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------------------
1997 1998 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
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CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues .............................................. $ -- $ 5,261 $ 25,037
Cost of services ...................................... -- 3,802 17,704
Selling, general and administrative ................... 40 12,166 23,523
Provision for uncollectible accounts .................. -- 1,976 7,285
Depreciation and amortization ......................... -- 150 1,318
Operating loss ........................................ (40) (12,833) (24,793)
Net loss .............................................. (40) (12,723) (25,664)
Net loss per common share ............................. (.01) (1.37) (2.60)
OTHER FINANCIAL DATA:
Net cash used in operating activities ................. $ (56) $(11,072) $(19,956)
Net cash used in investing activities ................. -- 1,465) (38,764)
Net cash provided by financing activities ............. 110 13,883 72,558
Capital expenditures .................................. -- 1,465 34,966
EBITDA ................................................ (40) (12,683) (23,475)
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and investments ................ $ 17,928 $
Working capital ....................................... 5,485
Net property and equipment ............................ 44,057 44,057
Total assets .......................................... 67,277
Long-term debt ........................................ 18,200 18,200
Redeemable preferred stock ............................ 65,780
Stockholders' deficit ................................. (31,158)
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8
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RISK FACTORS
An investment in our common stock involves a high degree of risk.
Before investing, you should consider carefully the risks described below,
together with all of the other information included in this prospectus.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY PROVIDING TELECOMMUNICATIONS SERVICES MAKES
EVALUATING OUR PERFORMANCE DIFFICULT.
We began operating as a telecommunications services provider in
October 1997 by reselling BellSouth's local telephone service. We changed our
business strategy from reselling local and long distance services to providing
a broadband bundle of services on our network in February 1999 and are
currently implementing this strategy in six markets. We are also beginning to
enter additional markets and plan to enter a total of 36 markets. As a result
of our limited operating history, you have limited historical financial
information upon which to evaluate how we will perform in the future. Many of
our services are new or have recently been introduced in new markets. We cannot
assure you that we will be able to compete successfully in the
telecommunications services provider business.
OUR FUTURE GROWTH WILL REQUIRE SIGNIFICANT AMOUNTS OF ADDITIONAL CAPITAL AND
OUR FAILURE TO OBTAIN ADDITIONAL CAPITAL COULD SIGNIFICANTLY IMPAIR OUR ABILITY
TO IMPLEMENT OUR BUSINESS STRATEGY.
The expansion and development of our business and the deployment of
our networks, services and systems will require significant amounts of
additional capital to fund debt service and cash flow deficits. Although we
anticipate that our existing funds and the net proceeds of this offering will
fund approximately 70% of our capital expenditures and operating losses to
finance our first 36 markets, we will need additional capital to complete these
markets. We may require additional financing or require financing sooner than
anticipated if our development plans change or prove to be inaccurate. If we
are not able to raise additional funds when needed (or obtain waivers of
provisions restricting future borrowings from our lenders under our credit
facilities) we would be required to significantly scale back our operations.
There can be no assurance that additional capital will be available on terms
acceptable to us, or available at all. Additional debt we may incur during the
next few years to finance our expansion could require us to dedicate a
substantial portion of our future cash flow from operations to the repayment of
that debt, thereby reducing the funds available for other business purposes,
limiting our ability to obtain additional financing and placing us at a
competitive disadvantage compared to competitors who have less debt than we do.
This could have an adverse effect on our business, operating results and
financial condition.
IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR FUTURE GROWTH, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
To implement our business plan, we intend to rapidly and significantly
expand our operations. Any future rapid expansion will challenge our
management, personnel, operational, financial and other resources. Failure to
manage our future growth effectively could adversely affect customer
satisfaction, service offerings and the continued implementation of our
business strategy. We cannot assure you that we can:
- improve existing and successfully implement new operations,
financial and management information controls, reporting
systems and procedures;
- hire, train and manage additional qualified personnel;
- expand and upgrade our core technologies;
- effectively allocate or obtain management resources; or
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<PAGE> 13
- effectively manage relationships with our customers,
suppliers and other third parties.
Any failure to successfully manage and expand these areas and to implement and
improve these systems, procedures and controls in an efficient manner at a pace
consistent with the growth of our business could have a material adverse effect
on our business, financial condition and results of operations.
WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW AND WE MAY NOT BE
PROFITABLE IN THE FUTURE.
We have incurred significant losses and experienced negative operating
cash flow for each month since we began operations as a telecommunications
provider and expect to continue to incur losses in the future as we expand our
network. As of December 31, 1999, we had an accumulated deficit of
approximately $38.4 million. The development of our business and the deployment
of our networks, services and systems will require significant capital
expenditures. We expect our operating losses to increase significantly during
our network, services and systems deployment, which will continue for the
foreseeable future. The prolonged effects of generating losses without
additional funding would be a restriction on our ability to pursue our business
strategy.
If we cannot achieve profitability from operations or alternative
funding sources, we may not be able to meet:
- our capital expenditure needs;
- our debt service obligations; or
- our working capital needs.
PROVIDING SERVICES TO CUSTOMERS WITH CRITICAL WEB SITES AND WEB-BASED
APPLICATIONS COULD POTENTIALLY EXPOSE US TO LAWSUITS FOR CUSTOMERS' LOST PROFITS
OR OTHER DAMAGES.
Because our web hosting and applications services are critical to many
of our customers' businesses, any significant interruption in our services
could result in lost profits or other indirect or consequential damages to our
customers. Although the standard terms and conditions of our customer contracts
disclaim our liability for any such damages, a customer could still bring a
lawsuit against us claiming lost profits or other consequential damages as the
result of a service interruption or other web site or web application problems
that the customer may ascribe to us. There can be no assurance that a court
would enforce any limitation on our liability, and the outcome of any lawsuit
would depend on the specific facts of the case and legal and policy
considerations. In some cases we could be liable for substantial damage awards.
These damage awards might exceed our liability insurance by unknown but
significant amounts, which would have an adverse effect on our business.
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<PAGE> 14
IF WE ARE UNABLE TO DEVELOP AND INTEGRATE OUR OPERATIONS SUPPORT SYSTEMS AND
INTERFACE WITH SYSTEMS OF THIRD PARTIES, WE WILL BE UNABLE TO MONITOR COSTS,
BILL CUSTOMERS, PROCESS CUSTOMER ORDERS AND PROVIDE GOOD CUSTOMER SERVICE.
We are developing and implementing our operational and support
systems, purchasing products and services offered by third party vendors and
integrating those products and services to produce efficient operational
solutions. If we are unable to identify our information and processing needs or
develop, integrate, maintain and upgrade our systems, these systems may not
perform as expected. In addition, our systems must interface with those of
third parties, such as BellSouth and other third parties, to exchange
information critical for ordering and provisioning our services to our
customers. We cannot assure you that these systems will be successfully
implemented on a timely basis, if at all, or that once implemented, they will
perform as expected. Risks to our business associated with our systems include:
- failure by these third party vendors to deliver their
products and services in a timely and effective manner and at
acceptable costs;
- our failure to identify all of our information and processing
needs;
- failure of our related processing or information systems to
function properly;
- failure to integrate new products or services effectively; or
- failure of the operations support systems of BellSouth and
other third parties to adequately exchange information with
our systems.
In addition, our right to use these systems is dependent upon license
agreements with third party vendors. Some of these agreements may be canceled
by the vendor and the cancelation or nonrenewal of these agreements may
interrupt our service until we find suitable alternative vendors.
OUR RELIANCE ON BELLSOUTH'S AND OTHER TRADITIONAL TELEPHONE COMPANIES'
FACILITIES AND INTERCONNECTIONS COULD ADVERSELY EFFECT OUR BUSINESS.
Our ability to deliver our services successfully requires
interconnection agreements with BellSouth and other traditional telephone
companies which are subject to federal and state regulation. These companies
are our competitors and currently dominate the provision of telecommunication
services in our markets. Federal legislation regulating the telecommunications
industry has enhanced competition in the local services market by requiring
traditional local telephone companies to provide access to their networks
through interconnection agreements and to offer unbundled elements of their
network and retail services at prescribed rates to other telecommunications
carriers, such as us. However, we still must negotiate required interconnection
agreements, including colocation provisions, or continue or renew existing
lease, interconnection and/or colocation arrangements provisions on terms
favorable to us. Otherwise, we could experience interruptions in service and,
in turn, customer dissatisfaction and the loss of existing and potential
customers. We cannot assure you that we will be able to negotiate such
arrangements on favorable terms or at all. If we are unable to renew our
interconnection agreements, or if the terms of these interconnection agreements
are not favorable to us, it could also have an adverse effect on our business.
We are and will continue to be dependent on traditional telephone
companies to assure uninterrupted service and competitive services. Blocked
calls, delays and problems in installing service result in customer
dissatisfaction and risk the loss of business. Many new carriers have
experienced difficulties in working with the traditional telephone companies
with respect to ordering, interconnecting, leasing premises and implementing
systems to order and receive unbundled network elements and wholesale services.
Furthermore, the rules governing which unbundled network elements the
traditional local telephone companies must provide and the cost methodology for
providing these elements are currently under Federal Communications Commission
and judicial review. If we are unable to obtain the cooperation of a
traditional telephone company, our ability to offer local services would be
adversely effected.
11
<PAGE> 15
We must use copper telephone lines controlled by BellSouth, or other
traditional telephone companies providing services in our target markets, to
provide connections to customers, including DSL. We also depend on the
traditional telephone company in each market for colocation, a substantial
portion of the transmission facilities used to connect our equipment in
traditional telephone companies' central offices to our network, and testing
and maintaining the quality of copper lines. Traditional telephone companies
may not provide timely cooperation because we are competitors. If this occurs,
we may not have alternate means of connecting our DSL and other equipment with
copper lines and/or connecting our equipment in central offices to our
switching centers, which could materially affect our business and operations.
Furthermore, we cannot assure you that we will be able to obtain copper
telephone lines and services we require from traditional telephone companies on
a timely basis or at quality levels, prices, terms and conditions satisfactory
to us. Delays in obtaining access to colocation space and telephone lines or
the rejection of our applications for colocation could result in delays in, and
increased expenses associated with, the implementation of our business
strategy.
Our ability to provide DSL-based and other services to potential
customers depends on the quality, physical condition, availability and
maintenance of telephone lines within the control of the traditional telephone
companies. DSL technology may not operate as expected on traditional telephone
companies' networks and may interfere with or be affected by other transport
technologies. All transport technologies using copper telephone lines have the
potential to interfere with, or to be interfered with by, other traffic on
adjacent copper telephone lines. This interference could degrade the
performance of our services or make us unable to provide service on selected
lines. We may be unable to negotiate successfully interference resolution
procedures with traditional telephone companies. Interference could adversely
affect the speed of deployment, our reputation and customer service, which
could cause us to lose our customers and have an adverse effect on our
business.
OUR DEPENDENCE ON THIRD PARTY VENDORS FOR EQUIPMENT, LEASED TRANSPORT
FACILITIES AND OTHER SERVICES MAY ADVERSELY AFFECT OUR BUSINESS.
Our network design strategy contemplates our owning and operating our
own switches but initially leasing a substantial portion of our transport
facilities, or network lines, from third parties. Currently, we use leased
facilities for a vast majority of our transport requirements. Although we have
begun to selectively acquire our own fiber transport capacity, we expect, for
the foreseeable future, to continue to lease a substantial portion of our
transport capacity from other carriers, many of which are competitors in our
service territories.
We currently purchase all of our equipment from a number of vendors
and outsource a significant portion of the installation and field service of
our networks to third parties, principally Nortel.
We currently lease a majority of our long haul transport facilities
from one carrier. Although we believe that adequate alternative sources of
transport facilities exist, if this carrier's facilities become unavailable,
our business could be disrupted. In addition, although we believe we have
protection against unexpected increases in the costs of our leased transport
facilities, an unexpected material increase in these costs could have an
adverse effect on our results. We also have minimum volume commitments, and our
failure to meet them may obligate us to pay underutilization changes.
We have entered into agreements with Nortel and other vendors to help
install our broadband network. We also have arrangements with Nortel to monitor
our network until we have installed our own network operations center. Any
failure or inability by these vendors to perform these functions in a timely
manner could cause significant delays and costs in providing services to our
existing and prospective customers and deploying our network in our target
markets. Any such failure could materially and adversely affect our business,
prospects, operating results and financial condition.
12
<PAGE> 16
We are also dependent on third-party supplies for substantial amounts
of fiber, conduit, computers, software, switches, routers and related
components that we use to expand and upgrade our network. If any of these
relationships is terminated or a supplier fails to provide reliable services or
equipment, and we are unable to reach suitable alternative arrangements quickly
or on favorable terms, we may experience significant delays and additional
costs. If that happens, it could have an adverse effect on us.
Our reliance on third party vendors involves a number of risks,
including the absence of guaranteed capacity and reduced control over delivery
schedules, quality assurance, production yields and costs. Any reduction or
interruption of supply or service could disrupt our business.
FAILURE TO MAINTAIN AND ADAPT OUR NETWORK COULD HAVE AN ADVERSE EFFECT ON OUR
BUSINESS.
Our success will depend upon the capacity, reliability and security of
our network. Our failure to maintain and expand our network infrastructure on a
timely basis or adapt it to either changing customer requirements or evolving
industry standards could have a material adverse effect on our business,
prospects, operating results and financial condition. Because we expect that a
substantial portion of our future revenues will be derived from providing
tailored applications and services to our customers, we must continue to expand
and adapt our network infrastructure as the number of end users and the amount
of information they wish to transfer increase and as customer requirements
change. If end user demand evolves to favor higher downstream transmission
speeds than those we currently offer, we cannot be sure that we will be able to
expand or adapt our network infrastructure to meet this additional demand or
our customers' changing requirements on a timely basis, at a commercially
reasonable cost or at all.
OUR FAILURE TO EFFECTIVELY MANAGE THE RISKS RELATED TO THE PROVISION OF
INTERNET SERVICES COULD HARM OUR BUSINESS.
In addition to our telephone and data service product offerings, we
act as an Internet service provider to our customers. The Internet is comprised
of many Internet service providers that operate their own networks and
interconnect with each other at various peering points. We are in the process
of developing relationships to permit us to exchange traffic with these
providers. We cannot assure you that we will be able to expand or adapt our
network infrastructure to meet the current requirements for Internet service
providers or any new requirements on a timely basis, at a commercially
reasonable cost, or at all. In addition, we cannot guarantee that other
national Internet service providers will maintain these types of relationships
with us.
The law in the United States relating to the liability of Internet
service providers for information carried on, disseminated through or hosted on
their systems is currently unsettled. Exposure to such liability could require
us to expend substantial resources or discontinue certain product or service
offerings. In addition, increased attention to liability issues, as a result of
lawsuits, legislation and legislative proposals, could adversely affect the
growth of Internet use and, in turn, our business and results of operations.
CLAIMS AGAINST US ALLEGING OUR INFRINGEMENT OF A THIRD PARTY'S INTELLECTUAL
PROPERTY COULD ADVERSELY AFFECT OUR BUSINESS.
We rely on a combination of licenses, confidentiality agreements and
other contracts to establish and protect our intellectual property rights. The
steps we have taken may be inadequate to protect our technology or other
intellectual property. Third parties may assert infringement claims against us
and, in the event of an unfavorable ruling on any claim, we may be unable to
obtain a license or similar agreement to use intellectual property we rely upon
to conduct our business. In addition, these claims may divert management's
attention away from the business and be costly to defend.
We have applied for service marks on certain terms and symbols that we
believe are important for our business. We also rely on unpatented trade
secrets and know-how to maintain our competitive positions,
13
<PAGE> 17
which we seek to protect, in part, by confidentiality agreements with
employees, consultants and others. However, these agreements may be breached or
terminated, and we may not have adequate remedies for any breach. In addition,
our competitors may otherwise learn or discover our trade secrets. We currently
have no patents or patent applications pending.
Many of our management and other personnel were previously employees
of other telecommunications companies. In many cases these individuals conduct
activities for us similar to those they conducted prior to joining us. These
employees could be subject to allegations of violations of trade secrets,
non-compete or confidentiality agreements or other similar claims.
THE TELECOMMUNICATIONS INDUSTRY IS UNDERGOING RAPID TECHNOLOGICAL CHANGES, AND
OUR FAILURE TO KEEP UP WITH THESE CHANGES COULD IMPEDE OUR ABILITY TO ATTRACT
NEW CUSTOMERS AND CAUSE US TO LOSE EXISTING CUSTOMERS.
The telecommunications industry is subject to rapid and significant
changes in technology, customer requirements and preferences. Our failure to
keep up with these changes could impede our ability to attract new customers
and cause us to lose existing customers. New technologies could reduce the
competitiveness of our network by reducing the cost or increasing the supply of
services that compete with those we plan to offer. One result may be that our
most significant future competitors may be new entrants into the communications
services industry.
The high-speed data communications industry is in the early stages of
development and is subject to rapid and significant technological change.
Because the industry is new and technologies available for high-speed data
communications services are rapidly evolving, the services we provide our
customers will need to change over time. Many providers of high-speed data
communication services are testing products from numerous suppliers for various
applications, and these suppliers have not broadly adopted an industry
standard. In addition, various industry groups are in the process of trying to
establish standards, which could limit the types of available technologies.
Certain critical issues concerning commercial use of DSL technology for
Internet access, including security, reliability, ease and cost of access and
quality of service, remain unresolved and may impact the growth of these
services.
IF WE ARE UNABLE TO RETAIN AND HIRE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO
SUCCESSFULLY ACHIEVE OUR OBJECTIVES.
Our future success depends on the performance of our key personnel and
of our senior management team in executing our business strategy, including the
continued services of our chief executive officer and chief operating officer.
Several members of our management have joined us very recently, and if they are
unable to integrate themselves into our business or work together as a
management team, our business will suffer. Our future success also depends in
large part on our ability to identify, attract, motivate and retain skilled and
qualified management personnel. Competition for qualified employees and
personnel in the telecommunications industry is intense, and there is a limited
number of persons with knowledge of and expertise in the industry. We cannot
assure you that we will be able to hire or retain necessary personnel in the
future. Loss of services of key personnel or our inability to attract
additional qualified personnel could adversely affect our business.
WE FACE RISKS INVOLVING ACQUIRED BUSINESSES, POTENTIAL ACQUISITIONS AND THE
DEVELOPMENT OF STRATEGIC ALLIANCES OR INVESTMENTS NEEDED TO COMPLEMENT OUR
EXISTING BUSINESS.
One of our business strategies contemplates growth through strategic
acquisitions. There can be no assurance that we will be able to successfully
compete with other bidders for targeted acquisitions. Our ability to finance
acquisitions may be constrained by our degree of leverage. In addition, our
credit facilities may significantly limit our ability to enter into strategic
alliances or acquisitions and to incur related indebtedness.
14
<PAGE> 18
Furthermore, the evaluation of potential acquisition targets may divert
management's time and resources away from current operations. The inability to
complete strategic acquisitions may have a negative impact on our planned
growth and expansion to additional markets. Integrating acquired businesses
into our operations can be difficult and require much of management's time and
attention. We cannot assure you that:
- we will be able to identify suitable targets in the future;
- we will be able to successfully integrate the network,
operations, personnel, products, technologies and financial
and other systems of the acquired businesses into our
operations;
- we will not encounter unexpected difficulties in entering
markets where we have little or no prior experience;
- we will be able to successfully enhance our customer support
resources to adequately service our existing customers and
the customers of the acquired businesses; or
- the integration of acquired businesses into our business will
not be more expensive or take longer than anticipated.
OUR FAILURE AND THE FAILURE OF OUR SUPPLIERS TO ADEQUATELY ADDRESS YEAR 2000
PROBLEMS COULD NEGATIVELY IMPACT OUR BUSINESS AND CAUSE US TO LOSE CUSTOMERS.
We have experienced no Year 2000 issues to date and we are not aware
of any material issues for our suppliers. However, we are continuing to
evaluate and determine whether our significant suppliers are in compliance or
have appropriate plans to remedy Year 2000 issues when their systems interact
with our systems. There can be no assurance that our systems or the systems of
other companies on which we rely are Year 2000 compliant, that another
company's failure to successfully convert, or that another company's conversion
to a system incompatible with our systems, would not have an adverse impact on
our operations.
OUR BUSINESS WILL SUFFER IF INTERNET USAGE DOES NOT CONTINUE TO INCREASE THE
DEMAND FOR OUR SERVICES OR IF THE INTERNET FAILS TO PERFORM RELIABLY CAUSING
OUR QUALITY OF SERVICE TO DECREASE.
Use of the Internet for retrieving, sharing and transferring
information among businesses, consumers, suppliers and partners has recently
begun to increase rapidly. The adoption of the Internet for information
retrieval and exchange, commerce and communications, particularly by those
enterprises that have historically relied upon alternative means of information
gathering, commerce and communications, generally requires the adoption of a
new medium of conducting business and exchanging information. If the Internet
as a commercial or business medium fails to develop further or develops more
slowly than expected, our business could be materially adversely affected.
Our success depends in large part on continued growth in the use of
the Internet which causes an increase in the demand for our services. We would
be adversely affected if Internet usage does not continue to grow. Internet
usage and growth may be inhibited for a number of reasons, such as:
- inadequate network infrastructure;
- security concerns;
- uncertainty of legal and regulatory issues concerning the use
of the Internet;
- inconsistent quality of service;
- lack of availability of cost-effective, reliable, high-speed
service; and
- failure of Internet usage to expand internationally.
If Internet usage grows, the Internet infrastructure may not be able
to support the demands placed on it by this growth, or its performance and
reliability may decline. For example, web sites have experienced interruptions
in service as a result of outages and other delays occurring throughout the
Internet network
15
<PAGE> 19
infrastructure. If these outages or delays occur frequently, use of the
Internet as a commercial or business medium could grow more slowly or decline
in the future, which would harm our business.
RISKS RELATED TO THIS OFFERING
INTENSE COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY MAY NEGATIVELY AFFECT
THE NUMBER OF OUR CUSTOMERS AND THE PRICING OF OUR SERVICES.
The telecommunications industry is highly competitive, and one of the
primary purposes of the Telecommunications Act is to foster further
competition. In each of our markets, we compete principally with BellSouth or
the traditional telephone company serving that market. It is likely that we
will also face competition from other communications providers, and competitive
local exchange carriers, cable companies, cellular carriers, interexchange
carriers, DSL providers and many other competitors. We currently do not have a
significant market share in any of our markets. BellSouth and other traditional
telephone companies have long-standing relationships with their customers,
financial, technical and marketing resources, including brand name recognition,
substantially greater than ours and the potential to fund competitive services
with cash flows from a variety of businesses. Additionally, they currently
benefit from existing regulations that favor the traditional telephone
companies over competitors. Furthermore, the regional Bell operating companies
recently have been granted, under particular conditions, pricing flexibility
from federal regulators with regard to some services with which we compete.
This may present BellSouth with an opportunity to subsidize services that
compete with our services and offer competitive services at lower prices.We
also expect to experience declining prices and increasing price competition. We
cannot assure you that we will be able to achieve or maintain adequate market
share or margins, or compete effectively, in any of our markets. Any of the
foregoing factors could have an adverse effect on us.
WE ARE SUBJECT TO SIGNIFICANT REGULATION THAT COULD CHANGE IN A MANNER ADVERSE
TO US.
Telecommunications services are subject to significant regulation at
the federal, state and local levels. The following factors may have an adverse
effect on us:
- delays in receiving required regulatory approvals or onerous
conditions imposed on these approvals;
- difficulties completing interconnection agreements with
traditional telephone companies; or
- the enactment of new and adverse federal and/or state
legislation or regulatory requirements or changes in the
interpretation of existing legislations and/or changes in
regulatory requirements.
Recent federal legislation governing the U.S. telecommunications
industry remains subject to judicial review and additional FCC rule-making. As
a result, we cannot predict the legislation's effect on our future operations
or results. Many regulatory actions regarding important items that impact us
are underway or are being contemplated by federal and state authorities.
Changes in current or future regulations adopted by federal, state or local
regulators, or other legislative or judicial initiatives relating to the
telecommunications industry, could have a material adverse effect on us.
Unlike some of our competitors, particularly the traditional telephone
companies, we are not currently subject to some of the burdensome regulations
imposed by federal legislation. Our ability to compete in the local exchange
market will depend upon a continued favorable, pro-competitive regulatory
environment, and could be adversely affected by new regulations or legislation
affording greater flexibility and regulatory relief to our competitors.
16
<PAGE> 20
In August 1998, the FCC requested comments on new rules that would
allow traditional telephone companies to provide their own DSL services through
a separate affiliate free from traditional regulation. The provision of DSL
services by a traditional telephone company affiliate not subject to
traditional regulation could have a material adverse effect on us.
We are currently required to publicly file with governmental
authorities our tariffs describing the prices we charge our customers and the
terms and conditions for some intrastate, interstate and international
services. Challenges to these tariffs by regulators or third parties could
cause us to incur substantial legal and administrative expenses.
Federal and state regulatory agencies also have the right to impose
sanctions and forfeitures, mandate refunds or impose other penalties for
regulatory non-compliance.
RISKS RELATED TO THIS OFFERING
THERE MAY BE A LACK OF A TRADING MARKET FOR OUR COMMON STOCK.
Our common stock has not been traded in the public market before this
offering. We cannot be sure that an active public market for our common stock
will develop or continue after this offering. Investors may not be able to sell
their common stock at or above our initial public offering price or at all.
Prices for our common stock will be determined in the marketplace and may be
influenced by many factors, including variations in our financial results,
changes in financial estimates or recommendations by industry research
analysts, investors' perceptions of us and our industry, announcements by us or
our competitors, future sales of our stock and general economic, industry and
market conditions. The trading price of our common stock is likely to be
volatile. The stock market has experienced extreme volatility and this
volatility has often been unrelated to the operating performance of particular
companies.
FUTURE SALES OF OUR COMMON STOCK MAY LOWER OUR STOCK PRICE.
If our existing stockholders and optionholders sell a large number of
shares of our common stock, the market price of our common stock could decline
significantly. The perception in the public market that these holders might
sell shares of common stock could alone depress our market price. Immediately
after this offering, approximately shares of our common stock will be
outstanding. The shares included in this offering will be available for
immediate resale in the public market. The remaining shares, or % of our total
outstanding shares, will become available for resale in the public market as
shown on the chart below, subject to performance by the stock. Although of
those shares are subject to lock-up agreements restricting their sale for 90,
135 or 180 days from the date of this prospectus, the underwriters may waive
this restriction at any time. For a more thorough discussion of shares that
will become available, see "Shares Eligible for Future Sale."
<TABLE>
<CAPTION>
ADDITIONAL SHARES AVAILABLE FOR RESALE DATE OF FIRST AVAILABILITY
-------------------------------------- --------------------------
<S> <C>
90 days after the date of this prospectus
subject, in some cases, to price and
volume limitations
135 days after the date of this prospectus
subject, in some cases, to price and
volume limitations
180 days after the date of this prospectus
subject, in some cases, to price and
volume limitations
</TABLE>
17
<PAGE> 21
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION OF $ PER SHARE
IN THE BOOK VALUE OF THEIR INVESTMENT.
If you purchase shares of our common stock at the public offering
price, you will experience immediate dilution of $ per share because the
price that you pay will be substantially greater than the net tangible book
value per share of the shares you acquire. This dilution is due in large part
to the fact that our earlier investors paid substantially less than the initial
public offering price when they purchased their shares and because we have
experienced significant operating losses. You will experience additional
dilution upon the exercise of outstanding stock options and warrants to
purchase common stock. For a more thorough discussion of dilution, see
"Dilution."
OUR CERTIFICATE OF INCORPORATION CONTAINS CERTAIN PROVISIONS THAT COULD DELAY
OR IMPEDE A CHANGE OF CONTROL AND THEREFORE COULD HAVE A NEGATIVE IMPACT ON OUR
STOCKHOLDERS.
Provisions of our certificate of incorporation and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be a benefit to our stockholders. For a more thorough discussion of our
certificate of incorporation and Delaware law, see "Description of Capital
Stock."
18
<PAGE> 22
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this prospectus. These
forward-looking statements include but are not limited to statements about our
plans, objectives, expectations, intentions, assumptions and other statements
that are not historical facts. Some of the forward-looking statements can be
identified by the use of words such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "estimates" or
"anticipates" or the negative of those words or other comparable terminology.
Forward-looking statements involve risks and uncertainties. These statements are
based on management's current views and assumptions and involve known and
unknown risks and uncertainties that could cause actual results, performance or
events to differ materially from those expressed or implied in those statements,
including:
- the rate of expansion of our network and our customer base;
- highly competitive market conditions;
- changes in or developments under laws, regulations, licensing
requirements or telecommunications standards;
- changes in the availability of colocation and transmission
facilities;
- changes in retail or wholesale communications rates;
- changes in technology;
- the loss of the services of key officers; and
- general economic conditions.
For a discussion of these, and of additional factors that could cause
actual results to differ, please see the preceding discussion under "Risk
Factors" contained in this prospectus. The forward-looking statements made in
this prospectus relate only to events as of the date on which the statements are
made.
19
<PAGE> 23
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $
million from the sale of our common stock in this offering, based upon the
midpoint of the filing range and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses of $ million
payable by us. If the underwriters' over-allotment option is exercised in full,
we estimate that such net proceeds would be approximately $ . See
"Underwriting."
We intend to use the net proceeds from this offering:
- for capital expenditures relating to the planned expansion of
our network;
- to fund operating losses during the rollout of services in new
markets; and
- for working capital and other general corporate purposes.
We may also use a portion of the net proceeds from this offering and
borrowings under our senior credit facility to acquire complementary businesses
or enter into strategic alliances, although we have no material specific
understandings, commitments or agreements to do so at this time.
Because of the number and variability of factors that may determine our
use of the net proceeds of this offering, our management will retain a
significant amount of discretion over the application of the net proceeds. The
actual net proceeds could also vary substantially from our current plans due to
market conditions.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock
and do not anticipate paying cash dividends in the foreseeable future. We
currently intend to retain all future earnings, if any, for use in the operation
of our business and to fund future growth.
Future dividends, if any, will be determined by our board of directors
and will depend upon our results of operations, financial condition and capital
expenditure plans, as well as other factors that our board of directors
considers relevant. Our senior credit facility and Nortel credit facility
currently limit the payment of dividends and future financing agreements are
likely to contain similar restrictions.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1999 on an actual basis and as adjusted to give effect to:
- the issuance of Series C preferred stock in February and March
2000 for which we received total net proceeds of $67.1 million;
- the automatic conversion of Series A, B and C preferred stock into
shares of common stock and the issuance of shares of
common stock in payment of dividends accrued on the Series A, B
and C preferred stock through the closing of this offering; and
- our receipt of net proceeds from the sale of shares of common
stock in this offering at an assumed initial public offering price
of $ per share, after deducting estimated underwriting
discounts and commissions and offering expenses.
This table should be read in conjunction with our consolidated
financial statements, notes to those statements, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Use of Proceeds"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and investments .......................... $ 17,928 $
======== ========
Long-term debt (excluding current portion of capital
lease obligations):
Term loan ................................................... $ 17,100 $ 17,100
Other ....................................................... 1,100 1,100
-------- --------
Total long-term debt ........................................ 18,200 18,200
Redeemable preferred stock:
Series A 5.5% cumulative convertible preferred stock,
$.01 par value; 10,000,000 shares authorized;
4,711,672 shares issued and outstanding; no shares
issued and outstanding (as adjusted).................... 12,685 --
Series B 5.5% cumulative convertible preferred stock,
$.01 par value; 14,133,329 shares authorized;
13,866,662 shares issued and outstanding (actual);
no shares issued and outstanding (as adjusted).......... 53,094 --
Stockholders' deficit:
Common stock, $0.001 par value, 100,000,000 shares
authorized; 11,147,920 shares issued and outstanding,
(actual)................................................ 11
Additional paid-in capital ............................. 7,466
Accumulated deficit .................................... (38,427) (38,427)
Treasury stock ......................................... (208) (208)
-------- --------
Total stockholders' deficit .............................. (31,158)
-------- --------
Total capitalization ........................... $ 52,821 $
======== ========
</TABLE>
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<PAGE> 25
DILUTION
Our net tangible book value as of December 31, 1999 was approximately
$31,341,991 million, or $0.69 per share of common stock after giving effect to
the issuance of Series C preferred stock in February and March 2000. Net
tangible book value per common share is equal to total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding,
assuming the conversion of all shares of preferred stock into common stock.
After giving effect to this offering and after deducting estimated underwriting
discounts and commissions and estimated expenses payable by us, our net tangible
book value as of December 31, 1999 would have been approximately $ million, or $
per share of common stock. This represents an immediate increase in net tangible
book value of $ per share of common stock to existing stockholders and an
immediate dilution in net tangible book value of $ per share of common stock to
new stockholders purchasing our common stock in this offering. The following
table illustrates this per share dilution as of December 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share........................ $
--------
Net tangible book value per share at December 31, 1999................. $0.69
Increase in net tangible book value per share attributable to new
stockholders...........................................................
-----
Pro forma net tangible book value per share after this offering........
--------
Dilution per share to new stockholders................................. $
========
</TABLE>
The following table summarizes on a pro forma basis as of December 31,
1999 after giving effect to the conversion of all outstanding shares of our
preferred stock and accrued dividends thereunder into an aggregate of 34,354,806
shares of common stock at the closing of this offering:
- the number of shares of our common stock purchased by existing
stockholders, the total consideration and the average price
per share paid to us for these shares;
- the number of shares of our common stock purchased by new
stockholders, the total consideration and the price per share
paid for these shares, valuing them at the midpoint of the
filing range; and
- the percentage of shares of our common stock purchased by the
existing stockholders and new stockholders and the percentage
of consideration paid to us for these shares.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
--------------------------- --------------------------- PER SHARE
NUMBER PERCENT AMOUNT PERCENT -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 45,502,726 $139,205,389.60 $3.06
% %
New stockholders....................
---------- --------------- -------
Total.......................... % %
========== ========== =============== =======
</TABLE>
The table above assumes that none of the stock options or warrants
outstanding upon the closing of this offering will be exercised, which at
December 31, 1999 include:
- 5,276,707 shares of common stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of
$2.68 per share; and
- 1,084,649 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of
$2.05 per share.
22
<PAGE> 26
If any of these stock options or warrants are exercised, there will be
further dilution to new investors. If all of these stock options and warrants
are exercised, the number of shares held by new investors will be reduced to
% of the shares purchased, for which new investors will have paid %
of the total consideration for shares purchased. Based on our pro forma net
tangible book value as of December 31, 1999 described above and giving effect to
the exercise of all of these stock options and warrants, the dilution per share
to new investors would be $ .
23
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data
for the periods indicated. The consolidated statement of operations data for the
period from October 29, 1997 (date of inception) through December 31, 1997 and
for the years ended December 31, 1998 and 1999, and the consolidated balance
sheet data as of December 31, 1998 and 1999 have been derived from our
consolidated financial statements included elsewhere in this prospectus, which
have been audited by KPMG LLP, independent public accountants, as indicated in
their report included elsewhere in this prospectus.
You should read the selected consolidated financial data set forth
below in conjunction with our consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
The as adjusted balance sheet data gives effect to the following as if
each had taken place on December 31, 1999:
- the issuance of Series C preferred stock in February and March
2000 for which we received total net proceeds of $67.1 million;
- the automatic conversion of Series A, B and C preferred stock into
shares of common stock and the issuance of shares of
common stock in payment of dividends accrued on the Series A, B
and C preferred stock through the closing of this offering; and
- our receipt of net proceeds from the sale of shares of common
stock in this offering at an assumed initial public offering price
of $ per share, after deducting estimated underwriting
discounts and commissions and offering expenses.
EBITDA, shown above under "Other Financial Data," consists of net loss
before extraordinary item, excluding net interest, taxes, depreciation and
amortization and noncash compensation expense. We have provided EBITDA because
it is a measure of financial performance commonly used for comparing companies
in the telecommunications industry in terms of operating performance, leverage
and ability to incur and service debt. EBITDA provides an alternative measure of
cash flow from operations as determined under generally accepted accounting
principles. You should not consider it as a substitute for operating loss, as an
indicator of our operating performance nor as an alternative to cash flows from
operating activities as a measure of liquidity. We may calculate EBITDA
differently from other companies. For further information, see our consolidated
financial statements and related notes included elsewhere in this prospectus.
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<PAGE> 28
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 29
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------- ---------------------------------
1997 1998 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues .............................................. $ -- $ 5,261 $ 25,037
Cost of services ...................................... -- 3,802 17,704
Operating expenses:
Selling, general and administrative ............... 40 12,166 23,523
Provision for uncollectible accounts .............. -- 1,976 7,285
Depreciation and amortization ..................... -- 151 1,318
---------- ---------- ----------
Total operating expenses ...................... 40 14,292 32,126
Operating loss ........................................ (40) (12,833) (24,793)
Interest income ....................................... -- 123 816
Interest expense ...................................... (13) (1,469)
---------- ---------- ----------
Loss before extraordinary item ........................ (40) (12,723) (25,446)
========== ========== ==========
Extraordinary item - early extinguishment of
debt .................................................. -- -- (218)
Net loss .............................................. (40) (12,723) (25,664)
Preferred stock accretion ............................. 0 (58) (2,603)
---------- ---------- ----------
Net loss to common stockholders ....................... $ (40) $ (12,781) $ (28,267)
========== ========== ==========
Net loss per common share (basic
and diluted) ...................................... $ (.01) $ (1.37) $ (2.60)
========== ========== ==========
Shares used in computing net loss per share
weighted average common shares outstanding
6,390,476 9,308,771 10,868,729
OTHER FINANCIAL DATA:
Net cash used in operating activities ................. $ (56) $ (11,072) $ (19,956)
Net cash used in investing activities ................. -- (1,465) (38,764)
Net cash provided by financing activities ............. 110 13,883 72,558
Capital expenditures .................................. -- 1,465 34,966
EBITDA ................................................ (40) (12,683) (23,475)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and investments......................................... $17,928 $
Working capital................................................................ 5,485
Net property and equipment..................................................... 44,057 44,057
Total assets................................................................... 67,277
Long-term debt................................................................. 18,200 18,200
Redeemable preferred stock..................................................... 65,780 --
Stockholders' deficit.......................................................... (31,158)
</TABLE>
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<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the "Selected
Consolidated Financial and Operating Data" and our consolidated financial
statements and notes thereto contained elsewhere in this prospectus.
Overview
From our inception in October 1997, through April 1999, our business
strategy was to target residential customers for the resale of local and long
distance voice services. These customers were solicited largely through direct
mail using an incentive check, generally for $20, to switch to our resold
services. This check (when cashed) served as authorization for transferring the
service from their existing telecommunications service providers to us. In March
1999, we changed our business strategy to become a single source, web-based
communications company serving small and medium-sized businesses in the
southeastern United States. As a result, in April 1999, with the exception of
our prepaid business we discontinued marketing our resale voice services, and
began to implement our new business strategy. To implement our new strategy, we
began to acquire a significant number of BellSouth central office colocations,
deploy data switches, build data centers, develop electronic operational support
systems and acquire data management expertise through the acquisition of
Internet-related companies.
Our historical financial statements reflect our financial and operating
performance under our former business strategy and do not reflect our new
business strategy of deploying our own network and data centers and focusing our
marketing on small and medium-sized businesses located in the southeastern
United States.
We expect our revenues from our original resale services to decline to
immaterial amounts over the next two years. We anticipate that in the future,
the majority of our revenues will come from the sale of our Broadband Bundle.
The Broadband Bundle is sold for a single price based on the customer selected
bandwidth capacity and number of access lines. We will also continue to sell
prepaid local telephone services, primarily through local check cashing
businesses. We expect this business to continue, but not to grow.
To date, we have experienced significant operating losses and negative
cash flow, substantially from our resale business. Under our new business
strategy, we do not anticipate achieving positive cash flow in any of our target
markets during the initial development, construction and expansion of our
telecommunications services until we establish a sufficient revenue-generating
customer base. We estimate that it will take approximately 24 months before a
typical target market becomes cash flow positive. As a result, we expect to
experience significant operating losses and negative cash flow as we expand
operations into our initial 36 markets.
Our business plan provides for six DMS switch sites and 33 ATM switch
sites to cover our initial 36 markets. Fixed costs associated with the buildout
of a particular market include:
- securing collocation facilities. We anticipate fixed costs of a
collocation facility will be approximately $390,000. This includes
non-recurring initial set up fees payable to BellSouth and the
costs associated with the switching and ancillary equipment
located there, not including a small ATM switch, which would cost
approximately $50,000.
- purchasing necessary voice and data switching equipment. Switch
costs associated with DMS switch sites are approximately $4.5
million and include approximately $3.5 million for the cost of a
Nortel DMS 100/500 switch and the related equipment. An ATM switch
site costs approximately $1.5 million, which includes $750,000 for
the cost of the switch and related equipment.
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<PAGE> 30
- leasehold improvements to switch sites. These costs are
approximately $1.0 million for Nortel DMS 100/500 switches and
$750,000 for ATM switches.
We acquire local telephone services on a wholesale basis from BellSouth
and other traditional telephone companies, both for our resale and prepaid
businesses. To provide our Broadband Bundle, we have interconnection agreements
with BellSouth for our network and our colocation facilities. Except for some
initial nonrecurring charges, we pay for these facilities on a monthly basis. We
also have agreements with a long haul telecommunications provider, to provide us
with long distance services both for our resale business and Broadband Bundle
service offering. We are charged for long distance services as used. We also
have the indefeasible right to use the lit fiber to connect our switches with
the same provider, for which we paid $14 million in March 2000. We will amortize
this cost over the 20-year life of the contract. We will also pay monthly
maintenance charges related to this indefeasible right of use.
To accelerate our new business strategy, we have acquired four data
communications and Internet companies in two of our target markets whose
customers we hope to migrate to our Broadband Bundle:
- Carolina Online, Inc., a Greenville, South Carolina provider of
Internet access to 7,000 customers (acquired in March 1999, for a
total purchase price of $1.8 million);
- DCS, Inc., a Greenville, South Carolina data integrator and
equipment provider (acquired in July 1999 for a total purchase
price of $1.0 million, including assumption of debt);
- Ester Communications, Inc., a Wilmington, North Carolina provider
of voice and data equipment and services to 3,000 small business
customers (acquired in February 2000, for a total purchase price
of $4.5 million, including assumption of debt); and
- Information Services and Advertising Corporation, a Wilmington,
North Carolina provider of Internet services to 1,200 customers
(acquired in February 2000, for a total purchase price of
$800,000).
While there were no significant revenues from these Internet and
equipment services in 1999, we expect to have revenue in future periods from
these businesses.
FACTORS AFFECTING RESULTS OF OPERATIONS
REVENUES
Our revenues through the end of 1999 consisted primarily of revenues
from the resale of local and long distance voice services to residential
customers, and to a lesser extent from prepaid local telephone services. There
were no revenues in this period from the sale of our Broadband Bundle or our
data center services. Through the end of 1999, our revenues were derived from:
- resale of local and long distance telephone services to
residential customers;
- prepaid local telephone services;
- dial-up Internet access services from Carolina Online; and
- small amounts of cabling equipment revenues from the local
area and wide area network equipment business of DCS.
In the future, we expect to continue to receive revenue from these sources,
although revenues associated with our residential resale business will decline
substantially.
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<PAGE> 31
With the change in our business strategy, we expect to generate most of
our future revenues from sales of our Broadband Bundle to small and medium-sized
businesses. We expect the increasing portion of our revenues will come from:
- our Broadband Bundle product, which includes high-speed Internet
access using DSL connections, website design, web hosting and
maintenance, and local and long distance telephone voice services;
- long distance services in excess of the 100 minutes per month
included in the Broadband Bundle;
- rental of space for customer servers at our data centers;
- compensation for termination of calls of other providers to our
customers over our network; and
- installation, equipment sale and cabling services.
COST OF SERVICES
The cost of services for our residential resale business consists
primarily of the purchase of wholesale local telephone services from BellSouth,
and the purchase of wholesale long distance services from a long haul
telecommunications provider.
As we deploy our network and begin selling our Broadband Bundle, we
will incur additional costs of services, primarily for:
- the lease of transport and customer connections;
- the costs of the indefeasible right to use;
- operating costs, such as rent and personnel costs, associated with
our colocation facilities, data centers and our own switching
sites; and
- payments to other carriers to terminate our customers' calls on
their networks.
We lease lines from the traditional telephone company in each market to
connect our customers with our colocation and switching facilities. We also
lease transmission lines from other communications companies, including
traditional telephone companies, to connect our switching and colocation
facilities.
We have an agreement with a long haul telecommunication provider for
the resale and transport of long distance services on a per minute basis which
contains minimum volume commitments. In the event we fail to meet our minimum
volume commitments, we may be obligated to pay under-utilization charges.
Similarly, in the event we underestimate our need for transmission capacity, we
may be required to obtain capacity through more expensive means. Transmission
capacity costs will increase as our customers' long distance calling volume
increases, and we expect these costs to be a significant portion of our cost of
long distance services.
We expect switch site lease costs and colocation costs to be a
significant part of our ongoing cost of services. Traditional telephone
companies typically charge both a start-up fee and a monthly recurring fee for
use of their central offices for colocation. Our primary expense associated with
providing Internet access to our customers is the cost of interconnecting our
network with a national Internet service provider.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our selling, general and administrative expenses include selling and
marketing costs, billing, corporate administration, human resources and network
maintenance.
For our residential resale business, we incurred costs associated with
our direct mailing and direct marketing agency commissions. We will no longer
incur these costs since we are no longer marketing these services. The incentive
checks used to solicit our residential customer resale business were recognized
as a
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<PAGE> 32
marketing expense as service was initiated and will no longer be incurred
in the future. For our remaining resale customers and our new businesses, we
will continue to incur costs associated with provisioning, customer care,
information technology, regulatory and facilities rental costs.
For our Broadband Bundle services we will incur additional selling,
general and administrative costs related to:
- our direct sales force, as well as commissions for our
independent sales agents;
- increased provisioning, customer care, information technology
and other personnel costs;
- our new network engineering department;
- outsourcing reciprocal compensation and access billings;
- increased general administrative overhead; and
- advertising and public relations.
We expect our selling and marketing costs to increase significantly as
we expand our operations. We will employ a large direct sales force in most
markets we enter with our Broadband Bundle. To attract and retain a highly
qualified sales force, we are offering our sales personnel a compensation
package emphasizing base salaries, commissions and stock options. In addition to
our direct sales force, we expect to make significant use of independent sales
agents in each of our markets to sell our broadband products. Our sales agents
are compensated with monthly residual payments based upon the monthly billings
of customers they service.
We are also developing an integrated information system and procedures
for operations support systems and other back office systems to enter, schedule,
provision and track a customer order from point of sale to the installation and
testing of service. This system will also include or interface with trouble
management, inventory, billing, collection and customer care service systems. We
also expect billing costs to increase as the number of our customers and call
volume increase.
We expect that other costs and expenses, including the costs associated
with the maintenance of our network, administrative overhead and office leases,
will grow significantly as we expand our operations, and that administrative
overhead will be a large portion of these expenses during the development phase
of our business. However, we expect these expenses to decrease as a percentage
of our revenue as we build our customer base.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS
Our provision for uncollectible accounts, particularly in 1999,
reflected the poor credit quality of our residential resale customers. Our
direct mail solicitation offered local and long distance services at a discount
from BellSouth's rates. Therefore, it attracted a number of consumers who were
poor credit risks and about whom we had no credit information. In addition, due
to the lag time between the transfer of billing information from BellSouth to
us, many of our customers received their initial bill after several months of
service. As a result, customers received one large bill for several months of
service causing a decrease in customer satisfaction that resulted in higher than
anticipated defaults and loss of business. We believe that our 1999 provision
for uncollectible accounts has adequately reflected these problems, and that our
remaining residential resale business will not require unusual uncollectible
provisions in future periods.
DEPRECIATION AND AMORTIZATION
Our depreciation and amortization expense includes depreciation of
switch related equipment and equipment colocated in BellSouth's central offices,
network infrastructure equipment, information systems, furniture and fixtures
and amortization of initial non-recurring charges from BellSouth for our
colocation
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<PAGE> 33
facilities. It also includes, for a portion of 1999, amortization of goodwill in
connection with our acquisitions of Carolina Online, Inc. and DCS, Inc. These
acquisitions were accounted for using the purchase method of accounting. The
amount of the purchase price in excess of the fair value of the net assets
acquired will be amortized over a 10-year period. We expect our depreciation and
amortization expense to increase as we continue to make capital expenditures and
consummate acquisitions which are accounted for using the purchase method of
accounting.
INCOME TAXES
We have not generated any taxable income to date and do not expect to
generate taxable income in the next few years. Our net operating loss
carryforwards will be available to offset future taxable income, if any, through
the year 2019, but its use may be limited by Section 382 of the Internal Revenue
Code. Therefore, we have not recorded a net deferred tax asset relating to these
net operating loss carryforwards.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Revenues for 1999 and 1998 consisted primarily of residential customer
billings for the resale of local and long distance voice services. These total
revenues were $25.0 million for 1999 compared to $5.3 million for 1998, an
increase of $19.7 million. This increase was primarily due to growth in sales to
existing residential customers and the addition of new residential customers.
COST OF SERVICES
Cost of services for 1999 and 1998 consisted primarily of the charges
from local and long distance providers for wholesale voice telephone services.
These costs were $17.7 million for 1999 compared to $3.8 million for 1998, an
increase of $13.9 million. This increase was primarily due to the increased
number of residential customers subscribing to our services and other increased
costs resulting from the addition of network operating personnel and the
expansion of our network.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $23.5 million for
1999 compared to $12.2 million for 1998, an increase of $11.3 million. This
increase was primarily due to expenses associated with sales growth and
additional personnel, including additional personnel to support the broadband
services we were developing.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS
Provision for uncollectible accounts was $7.3 million for 1999 compared
to $2.0 million for 1998, an increase of $5.3 million. This increase was
primarily due to the relatively poor credit quality of our initial residential
customers and to billing delays described under the heading "Factors Affecting
Results of Operations--Provision for Uncollectible Accounts."
DEPRECIATION AND AMORTIZATION
Our depreciation and amortization expense was $1.3 million for 1999
compared to $0.2 million for 1998, an increase of $1.1 million. This increase
was primarily due to increased capital expenditures for leasehold improvements
and computers and other equipment related to increased personnel, and to the
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<PAGE> 34
amortization of goodwill related to two acquisitions during 1999 for a portion
that year, plus depreciation for a full 12 months for equipment acquired in
1998.
INTEREST INCOME
Interest income was earned from the temporary investment of proceeds
from the sale of our preferred stock in investment grade securities.
INTEREST EXPENSE
Interest expense was $1.5 million for 1999 compared to $13,000 in 1998,
and was primarily interest on debt issued to finance purchases of network
equipment and interest on the Series 1999 Subordinated Notes.
INCEPTION THROUGH DECEMBER 31, 1997
During the period from our inception at October 29, 1997 through the
end of 1997, we were in the development stage of operations and did not generate
any revenue. Our principal activities during this period consisted of the
following:
- hiring management and other key personnel;
- raising capital;
- procuring governmental authorizations;
- acquiring equipment and facilities;
- developing, acquiring and integrating operations support
and other back office systems; and
- negotiating interconnection agreements.
This development stage continued through June of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The development of our Boadband Bundle business, the deployment and
start-up of switching facilities for that business and the establishment of
reliable operations support systems will require significant capital to fund the
following:
- capital expenditures;
- the cash flow deficits generated by operating losses;
- working capital needs; and
- debt service.
Our principal capital expenditure requirements will include:
- the purchase and installation of switches; and
- the development and integration of operations support systems.
To fund our business strategy, we expect to use a combination of stock, debt and
funds from operations.
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<PAGE> 35
EQUITY AND PREFERRED FINANCING
Our equity and preferred financing has consisted of approximately $137
million provided by our institutional investors and management. Of this amount,
approximately $130 million was for our preferred stock, including $67 million
received in February and March 2000. The remainder was for our common stock.
CREDIT FACILITIES
In January 2000, we entered into a senior credit facility with a group
of commercial banks which permits us to borrow up to $120 million, subject to
various conditions, through December 31, 2007. The senior credit facility is
comprised of an $80 million term loan facility and a $40 million revolving
credit facility. Any borrowings under the term loan facility must be completed
by December 31, 2000. Under the revolving credit facility, $20 million will not
be available unless specified financial results are achieved for the third
quarter of 2000. As of March 31, 2000, $25 million is outstanding under the term
loan facility and no amount is outstanding under the revolving credit facility.
This senior credit facility is described in greater detail in "Description of
Our Indebtedness."
We also have a credit facility with Nortel under which we may borrow up
to $45 million by March 31, 2001, subject to various conditions. Repayments of
principal will begin after March 31, 2001. As of March 31, 2000, no amount is
outstanding under the Nortel credit facility. The Nortel credit facility is
described in greater detail in "Description of Our Indebtedness."
CASH FLOWS
We have incurred significant operating and net losses since our
inception. We expect to experience increasing operating losses and negative cash
flow as we expand our operations and build our customer base. As of December 31,
1999, we had an accumulated deficit of $38.4 million. Net cash used in operating
activities was $11.1 million for 1998 and $20.0 million 1999. The net cash used
for operating activities during 1999 was primarily due to net losses.
Net cash provided by financing activities was $13.9 million for 1998
and $72.6 million for 1999. Net cash provided by financing activities for 1999
included $49.8 million from issuances of our preferred stock, $17.8 million from
a term loan and warrants and $10.5 million from private placements of notes and
warrants.
CAPITAL REQUIREMENTS
Net cash used in investing activities was $1.5 million for 1998 and
$38.8 million for 1999. Capital expenditures were $35.0 million, and cash paid
for acquisitions amounted to $1.1 million, for 1999. Capital expenditures were
$1.5 million for 1998. We expect that our capital expenditures will be
substantially higher in future periods in connection with the purchase of
equipment necessary for the development and expansion of our network, the
development of new markets and potential acquisitions and strategic alliances.
At December 31, 1999, we had purchased approximately $25 million of
Nortel switching equipment and services under a total current commitment of
approximately $100 million. In March 2000, we purchased an indefeasible right of
use from a long haul telecommunications provider for $14 million.
To expand and develop our business, we will need a significant amount
of cash. We estimate that our current business plan, including future capital
expenditures, operating losses associated with the roll out of our network in
our initial 36 target markets by December 31, 2001 and working capital needs,
will require
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<PAGE> 36
approximately $436 million, to the point when we anticipate these markets will
become cash flow positive. Upon completion of this offering, we will have
pre-funded approximately 70% of these capital requirements with:
- cash on hand;
- borrowing capacity under our credit facilities; and
- anticipated cash provided by operations.
The actual amount and timing of our future capital requirements may
differ materially from our estimates as a result of the demand for our services
and regulatory, technological and competitive developments, including additional
market developments and new opportunities in the industry and other factors. We
may also require additional financing in order to take advantage of
unanticipated opportunities, to effect acquisitions of businesses, to develop
new services or to otherwise respond to changing business conditions or
unanticipated competitive pressures. Sources of additional financing may include
commercial bank borrowings, vendor financing and the private or public sale of
equity or debt securities. Our ability to obtain additional financing is
uncertain. We cannot assure you that we will be able to raise sufficient debt or
equity capital on terms that we consider acceptable, if at all. If we are unable
to obtain adequate funds on acceptable terms, our ability to deploy and operate
our network, fund our future expansion plans or respond to competitive pressures
would be significantly impaired.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999, the carrying value of our debt obligations was
$17.2 million and of our capital lease obligations was $1.4 million. The
weighted average interest rate on our debt obligations at December 31, 1999 was
10.95%. Because the interest rates on our senior credit facility are at floating
rates, we are exposed to interest rate risks. If market interest rates had been
1% higher in 1999 our interest expenses for that year would have been increased
by $ .
We have not, in the past, used financial instruments in any material
respect as hedges against financial and currency risks or for trading. However,
as we expand our operations, we may begin to use various financial instruments,
including derivative financial instruments, in the ordinary course of business,
for purposes other than trading. These instruments could include letters of
credit, guarantees of debt and interest rate swap agreements. We do not intend
to use derivative financial instruments for speculative purposes. Interest rate
swap agreements would be used to reduce our exposure to risks associated with
interest rate fluctuations and are required by our credit facility. In March
2000 we entered into an interest rate swap agreement with a $60 million notional
amount related to our borrowings under our credit agreement. By their nature,
these instruments involve risk, including the risk of nonperformance by
counterparties, and our maximum potential loss may exceed the amount recognized
in our balance sheet. We would attempt to control our exposure to counterparty
credit risk through monitoring procedures and by entering into multiple
contracts.
YEAR 2000
While we have not experienced any Year 2000 problems to date and are
not aware of any material issues for our suppliers, we are continuing to
evaluate and determine whether our significant suppliers are in compliance or
have appropriate plans to remedy any Year 2000 issues that have not been
discovered. We cannot assure you that another company's failure to successfully
convert to a Year 2000 compliant system, or that another company's conversion to
a system incompatible with our systems, would not have a material adverse impact
on our operations.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement,
as subsequently amended, is effective on a prospective basis for interim periods
and fiscal years beginning January 1, 2001. This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging securities.
To the extent we enter into any such transactions in the future, we will adopt
the statement's disclosure requirements in the financial statements for the year
ending December 31, 2001.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101. This bulletin provides interpretive guidance on the
recognition, presentation and disclosure of revenue that must be applied to
financial statements no later than the second fiscal quarter of 2000. We do not
believe that our adoption of this bulletin will have a material impact on our
consolidated financial position or results of operations.
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<PAGE> 38
BUSINESS
We are a broadband telecommunications company offering automated web
design and web hosting, high-speed data and voice services. Our goal is to
become the leading single-source, web-based communications company serving small
and medium-sized businesses in the southeastern United States. Our principal
product is our Broadband Bundle, which provides automated web design and web
hosting, high-speed data and Internet access using digital subscriber line, or
DSL, technology and local and long distance voice services. The Broadband Bundle
is sold for a single price based on the customer's selected bandwidth capacity
and number of access lines. We believe we are the only company providing this
all-inclusive bundle in our markets. Our Broadband Bundle has been designed to
increase customer loyalty and provide a cost-effective, web-based communications
solution to our target customers. To complement our Broadband Bundle, we will
offer carrier grade data centers for dedicated web hosting and bandwidth
connectivity in 33 of our 36 target markets by the end of 2001. We also offer
network and data integration services, such as dedicated server colocation, and
local area network and wide area network solutions, as well as on-premise voice
and data equipment, hubs, routers and cabling services.
As part of our Broadband Bundle, we offer our proprietary web
architecture service, TrieWeb, that enables our customers to design and maintain
their own websites using our template-driven web design Internet application.
Our customers can edit their web sites and update e-mail addresses through a
secure on-line, interactive control panel 24 hours a day without contacting our
customer care representatives. Our Broadband Bundle also includes high-speed
Internet connectivity through our DSL services, unlimited local service and 100
minutes of free long distance usage per line, as well as web hosting. We believe
this affordable, scalable solution enables our small and medium-sized business
customers to take advantage of web related and connectivity services more
typically utilized by larger companies. Since we began offering the Broadband
Bundle in January 2000, approximately 90% of our new customers have entered into
at least one-year contracts for service. At March 31, 2000, approximately 50% of
our Broadband Bundled customers had three-year contracts. We also intend to
release the second version of TrieWeb in third quarter 2000, which will allow
customers to develop e-commerce applications and conduct transactions using
their websites.
We currently offer our products and services in six markets across
South Carolina, North Carolina and Georgia. We intend to serve an additional 18
markets throughout nine southeastern states by the end of 2000, and a total of
36 markets by the end of 2001. We expect our total network footprint to cover
more than 70% of BellSouth's business access line market, encompassing 5.4
million business access lines. We believe our network will ultimately cover over
90% of the business access lines in our target markets.
We believe the number and size of our colocations positions us with the
broadest colocation footprint in the BellSouth region. Our scale and unified
network design of converged voice and data services allow us to accommodate
future access line growth in our target markets both rapidly and
cost-effectively. At March 31, 2000, we had:
- secured 256 central office colocation facilities representing
approximately 50,000 square feet of caged-in space and passing
over 10 million access lines;
- installed voice and data equipment in 82 of these colocation
facilities, with 47 others under construction; and
- deployed three asynchronous transfer mode, or ATM, switches,
2,400 route miles of lit fiber optic capacity, three Nortel
voice-switching platforms and unified colocation facilities.
Our network is designed to include six voice switches complemented by
33 ATM switches. Our network design supports our Broadband Bundle, combining
data and voice service to our customers. We currently have three voice switches
installed and expect to install three more by the end of 2000 which will
complete the voice switch deployment necessary to cover all of our currently
planned markets. We anticipate in the future migrating to the soft switch
platform by Nortel called Succession Network, which is designed to
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<PAGE> 39
be compatible with our current network. Our colocation facilities are connected
using redundant routes to our ATM switches which then transmit the data to one
of our host switches. We believe this method of network deployment allows us to
build our target markets faster, use less capital and reduce ongoing circuit
costs.
We believe the Succession Network design, once implemented, will
enhance the functionality and efficiencies of our existing voice and data
switches by allowing us to:
- effectively switch voice and data traffic on our ATM network;
- extend our network to reach additional customers;
- lower our transmission costs; and
- reduce capital expenditures.
We intend to construct data centers in substantially all of our markets
to house our ATM switches and provide dedicated and shared web hosting services
to our customers. Because many of the traditional data service providers have
targeted only the largest cities in the Southeast, we believe the market for
data centers in small and medium-sized cities in this region is currently
underserved. We expect to house our data centers in 1,500 to 5,000 square foot
facilities connected directly to our ATM switch. These carrier-grade data
centers include auxiliary battery and diesel power restoration, fire
suppression, security clearance and access to customers' workstations. Our data
centers provide access to our Internet backbone, allowing us to provide a
complete solution that includes web hosting and high-speed Internet connections.
We believe we will be first to market this service in many of our target
markets.
In most of our target markets, we expect to have a locally based sales
force led by a sales manager and a team of six to 40 account executives
responsible for customer acquisition and retention in their markets. To support
our local sales force we employ:
- a centralized and local staff that include service order
coordinators, client development representatives and technical
consultants;
- a support staff that maintains competitive pricing
information, designs proposals and assists in post-sales
account management.
As of March 31, 2000, our sales and sales support staff consisted of 70
persons. We also intend to use third-party agents to enhance the reach of our
direct sales force. We currently have developed strong relationships with voice
and data equipment distributors located throughout the southeastern region of
the United States, including those affiliated with Teleco, Inc., a nationwide
distributor of telecommunications equipment.
Our management team is led by Charles S. Houser, our Chairman and Chief
Executive Officer, who has had a distinguished career in the telecommunications
industry, including serving as:
- chairman and chief executive officer of Corporate
Telemanagement Group, Inc., or CTG, a switch-based long
distance carrier that was acquired by LCI International, Inc.
in 1995;
- president and chief executive officer of Tel/Man, Inc., a
switch-based long distance carrier that was acquired by
SouthernNet;
- chief operating officer of SouthernNet, Inc., a
facilities-based long distance carrier that was acquired by
MCI in 1989; and
- chairman and chief executive officer of Teleco, Inc.
Mr. Houser has also served on the board of directors of LDDS
Communications, Comptel, CTG, Tel/Man, Teleco and was chairman of the
Telecommunications Resellers Association and presently serves on the board of
directors of Ibasis.
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<PAGE> 40
BUSINESS STRATEGY
We have been pursuing our current business strategy since February
1999. Prior to that time, our business strategy was to resell to residential
customers local and long distance voice services. With the exception of our
prepaid business, we discontinued marketing resold residential service in April
1999 and expect this business to decline over the next two years.
Our current business strategy is to become the leading single-source,
web-based communications company serving small and medium-sized businesses in
the southeastern United States. To achieve this goal, we have developed the
following business strategy:
OFFER A COMPLETE, BUNDLED BROADBAND INTERNET COMMUNICATIONS SOLUTION
Our Broadband Bundle is a complete Internet and communications solution
utilizing DSL technology. Our services include automated web design and web
hosting, with local and long distance telephone service for a single monthly
price based upon the number of access lines and transmission speed selected by
the customer. When customers purchase our bundled package, we become, in effect,
their Internet and telecommunications manager. We believe that bundling services
in this manner allows our customers to receive a high level of service and
enables us to leverage our sales force to generate higher revenues per account
executive. We believe we are the only company in our region that provides a
single bundle of DSL, automated web design and web hosting, and telephone
services to its customers.
An important component of our Broadband Bundle is our proprietary web
design software, TrieWeb, which allows a customer to design and maintain a fully
functional website integrated with our DSL and telephone services. Our service
allows small businesses that have not had the expertise or financial resources
to develop websites to take advantage of growing Internet and e-commerce
opportunities. We believe that no other telephone or DSL company in our target
markets offers services comparable to TrieWeb, which we believe will allow us to
differentiate ourselves from our competitors.
TARGET SMALL AND MEDIUM-SIZED BUSINESSES IN THE SOUTHEASTERN UNITED
STATES
We target small and medium-sized businesses in the southeastern United
States that we believe have been underserved by the traditional telephone
companies. In particular, we attempt to sell our services to businesses that
cannot afford to maintain a communications staff, but that have increasingly
complex telecommunications and Internet needs. When targeting these businesses,
we offer our customers a high bandwidth, a fixed price and a flexible
communications solution. With our Broadband Bundle, we believe we are able to
provide all of the services a typical small and medium-sized business needs to
have a presence on the worldwide web.
CAPITALIZE ON FIRST MOVER ADVANTAGE IN BUNDLED SERVICES AND DATA
CENTERS
We have typically been the first communications service provider in our
target markets to offer a full suite of data and telecommunications services as
a single bundle. This bundle includes automated web design and web hosting,
high-speed data and Internet access using digital subscriber line, or DSL,
technology and local and long distance voice services. We believe we will
maintain our first mover advantage by continuing to offer product innovations.
For example, we intend to release the second version of our TrieWeb in third
quarter 2000, which will allow customers to develop e-commerce applications and
conduct transactions using their websites. As a result of our first mover
advantage, we believe we will be able to capture larger portions of our target
markets before our competitors can provide comparable services.
We also believe we have a first-mover advantage by providing
carrier-grade data center space in many of the markets we serve. These
carrier-grade data centers include auxiliary battery and diesel power
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<PAGE> 41
restoration, fire suppression, security clearance and access to customers'
workstations. We will provide our customers with either dedicated or shared data
service and broadband connections. Our data centers provide access to our
Internet backbone allowing us to provide a complete solution that includes web
hosting and high-speed Internet connectivity.
LEVERAGE PROVEN DISTRIBUTION CHANNELS
We use both a direct sales force and authorized agents to distribute
our products and services. We believe that the key to our success will be
finding direct sales people and authorized agents with strong community
relationships and technical backgrounds.
In most markets, we will have a locally-based direct sales force that
uses a consultative approach to offer clients a full range of sophisticated,
cost-effective Internet, data and voice solutions. Our consultative approach
allows our sales force to work with new and existing customers to analyze their
needs and optimally configure the services each customer receives to ensure we
deliver superior customer care. Our sales staff is assisted by a support staff
that maintains competitive pricing information, develops proposals and assists
in post sales account management.
We believe authorized agents serve as an exceptional distribution
channel and will complement our direct sales force marketing efforts due to
their expertise in telephone and data-related products and their existing
customer bases. A number of our executives were former members of the senior
management team of CTG, a company that we believe successfully utilized
authorized agents such as equipment vendors, consultants and systems integrators
to sell its telecommunications services. We expect to target these agents
formerly associated with CTG to sell our Broadband Bundle.
CAPITALIZE ON OUR COLOCATION FOOTPRINT
We believe the number and size of our colocations will allow us to
accommodate future access line growth in our target markets both rapidly and
cost-effectively. With 256 central office colocation facilities representing
approximately 50,000 square feet of caged-in space and passing over 10 million
access lines, we believe we have the broadest colocation footprint for converged
voice and data services in the BellSouth region.
Within each colocation facility we have deployed, or are deploying
integrated voice and data switches to provide simultaneous voice and DSL
service. We believe this provides us significant competitive advantages over
competitors that deploy only voice or data. By designing our colocations in this
manner, we are able to allocate the overhead costs associated with deploying
colocations across multiple products and revenue streams. This unified
colocation architecture can be extended to support emerging applications as
customer requirements dictate.
IMPLEMENT SCALABLE AND INTEGRATED BACK OFFICE SYSTEMS
We are committed to having an efficient and scalable back office
system. We are developing an integrated strategy for our operations support
systems and other back-office systems that we believe will implement
state-of-the-art technologies and will provide superior customer service and
significant competitive advantages in terms of accuracy, efficiency, and
capacity to process large order volumes. In December 1999, we initiated our back
office system by installing the Metasolv operational support system and the
Daleen billing system. These systems, which are integrated and readily
expandable, will enable us to reduce our operating costs and shorten our
provisioning times by minimizing data entries and the potential for errors. We
are also attempting to achieve electronic bonding with BellSouth's and other
carriers' customer support and local service request systems.
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<PAGE> 42
LEVERAGE MANAGEMENT EXPERIENCE
We have assembled a strong management team with communications, network
design, web hosting and applications, operations and sales expertise. In
addition, we intend to strengthen our competitive position in the southeastern
region by hiring management with strong operating experience and local ties to
the communities we serve. Our board and its advisors also includes industry
veterans with significant telecommunications expertise who will continue to help
us in the development of products and services necessary to meet the
telecommunications requirements of our customers. Our 14 top executives and
board members have an average of 18 years of telecommunications experience.
ACCELERATE GROWTH AND EXPAND PRODUCT OFFERINGS THROUGH ACQUISITIONS
We intend to seek acquisitions of Internet and related
telecommunications companies to accelerate our market penetration and growth. We
also seek to acquire companies that offer products and services that complement
our current offerings and can be integrated into our existing operations and
networks, as well as those that will provide us with additional skilled
management and sales personnel.
RECENT ACQUISITIONS
To accelerate our business strategy, we have acquired several companies
with a customer base to which we believe we can successfully market our
Broadband Bundle including:
- In March 1999, we acquired Carolina Online, Inc., a regional
Internet service provider headquartered in Greenville, South
Carolina. Carolina Online currently provides Internet access
to approximately 7,000 business and residential customers.
- In July 1999, we acquired DCS, Inc., a data integrator and
equipment provider headquartered in Greenville, South
Carolina.
- In February 2000, we acquired Ester Communications, Inc., a
provider of voice and data equipment and services. Ester has
3,000 small business customers to which it provides equipment
and services, including local exchange and long distance
services through agency arrangements with various network
providers.
- In February 2000, we also acquired Information Services and
Advertising Corporation, a regional Internet service provider
headquartered in Wilmington, North Carolina that currently has
approximately 1,200 Internet access customers.
In March 2000, we entered into a letter of intent to acquire NetMCR,
Inc., a Greensboro, North Carolina based Internet service provider. NetMCR
serves approximately 2,800 businesses and consumers in the greater Greensboro,
North Carolina market. Although we cannot assure you that we will close this
acquisition, we expect to do so in the near future. We currently have no
definitive understandings relating to any other acquisitions.
MARKET OPPORTUNITY
We provide a broad range of services that include automated web design
and web hosting, high-speed data and voice services. We believe markets for
these services are growing rapidly, which will allow us to grow our business
quickly and expand the number of products and services that we offer our
customers.
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<PAGE> 43
OVERALL MARKET SIZE AND GROWTH
According to IDC, the overall market of unswitched data and voice
traffic is estimated to have generated a total of $212.8 billion in revenues in
1998 and is expected to grow to $252.2 billion by 2002. IDC estimates the number
of switched network access lines is expected to grow from 187.5 million lines in
1998 to 232.6 million lines by 2002. IDC also estimates competitive local
exchange carrier market share by revenue will grow from 2.6% in 1998 to 5.6% by
2002. Due to this rapid growth, estimates of data and Internet services revenue
are not as well established as those relating to traditional voice traffic
communications. However, we believe that a significant market opportunity exists
for providers of data and Internet services.
We believe that the rapid opening of the local market to competition,
accelerated growth rates in local traffic related to increases in Internet
access, and the desire for "one-stop shopping" by small and medium-sized
businesses and consumers, present an opportunity for new entrants to achieve
product differentiation and significant penetration into this growing market.
Success in this environment will depend primarily on speed-to-market, marketing
creativity and a new entrant's ability to provide competitively priced services
rapidly, and to issue concise, accurate integrated billing statements.
GROWTH AND EMERGENCE OF OUTSOURCED DATA SYSTEMS
We believe many small and medium-sized businesses lack the resources to
administer increasingly complex data networking systems. Outsourced solutions,
such as those we offer, allow these businesses to reduce costs and to focus
resources on their core business activities. We estimate, based on industry
sources, that spending in the United States on distributed networking, network
services and applications will grow from $54.2 billion in 1998 to $173.0 billion
in 2002.
GROWING MARKET DEMAND FOR HIGH-SPEED DIGITAL COMMUNICATIONS BANDWIDTH
According to public documents filed by BellSouth, the fastest growing
area in its underlying network is data and data-related access lines and
services. BellSouth's growth rates for the following services provide evidence
of the market opportunity:
<TABLE>
<CAPTION>
1998 PERCENT GROWTH
ACCESS LINE ---------------------------------------
SERVICE EQUIVALENTS 1997 VS. 1998 1996 VS. 1997
<S> <C> <C> <C>
Basic Rate ISDN........................... 175,000 34.3% 53.4%
Primary Rate ISDN......................... 458,000 103.9 49.0
DS-1...................................... 4,090,000 27.6 168.6
DS-3...................................... 6,646,000 48.1 59.5
</TABLE>
We believe these growth rates are attributable to the growth in data
traffic being transmitted over the BellSouth network. We believe this data is
consistent with growth rates for data services on a national basis.
High-speed data and Internet connectivity has become increasingly
important to small and medium-sized businesses due to the growth in Internet
usage and e-commerce. According to IDC, the number of Internet users worldwide
is estimated to have reached approximately 86.6 million in 1997 and is
forecasted to grow at a 36% compounded annual growth rate to approximately 398.6
million by 2002. IDC also estimates that the value of goods and services sold
worldwide through the Internet will increase from $15.4 billion in 1997 to over
$733.6 billion in 2002. The popularity of the Internet with consumers and
e-commerce applications has stimulated businesses to establish web sites and
corporate intranets and extranets to expand their client reach and improve their
communications efficiency. High-speed digital connections are also
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<PAGE> 44
becoming increasingly important to businesses and consumers as higher bandwidth
information and applications become available on the Internet. Growing use of
the Internet is also creating an increased demand for web design, web hosting
and data centers. Due to the increasingly complex nature of these services, our
customers have increasingly looked to outsource their service requirements to
emerging communications service providers like us.
DSL MARKET DEMAND
According to IDC, total DSL revenue is expected to increase in the U.S.
from $14.5 million in 1998 to $5.7 billion in 2003, for a 229% compounded annual
growth rate. By 2003, IDC estimates there will be 12.6 million DSL connections,
up from approximately 100,000 DSL connections in 1998.
FAVORABLE REGULATORY ENVIRONMENT
Until February 1996, the competitive local telecommunications industry
generally has been limited to providing interstate dedicated access, interstate
switched access and private line services, accounting for only approximately
one-fourth of the total local services market. The Telecommunications Act of
1996 established a legal framework that encourages the utilization of
traditional telephone company infrastructure to compete with those carriers. The
Telecommunications Act mandates that traditional telephone companies allow
competitors to lease telephone lines on a line-by-line basis, provide space in
their central offices for competitors' equipment to connect to the leased lines,
provide access to backbone fiber networks and provide access to operations
support systems to permit competitors to access customer databases. Under the
Telecommunications Act, in order to be able to offer long distance services in
their local service area, traditional telephone companies must demonstrate to
the satisfaction of state public utilities commissions that they have permitted
competitive access to their local telephone networks. Although DSL technology
predated the Telecommunications Act, by opening the local telephone loop to
competition, the Telecommunications Act made it possible for competitive
carriers focused on high-speed data communications to integrate their equipment
and service offerings with the public switched telephone network. However,
regulatory changes may also increase the competition with our services.
PRODUCTS AND SERVICES
Through our Broadband Bundle, we offer a complete package of
communications services, including automated web design and web hosting,
high-speed data and Internet access using digital subscriber line, or DSL,
technology and local and long distance voice services. These services are
offered for a single monthly price based on the number of access lines and
transmission speeds selected by the customer. Each Broadband Bundle also
includes ancillary features such as call waiting, hunting and three-way calling,
as well as 100 minutes per month of free long distance usage per telephone line.
BUNDLED SERVICES
Our current bundled package of broadband Internet communications
services includes the following:
Digital Subscriber Line - Through our unified colocation facilities we
provide DSL services at speeds up to one megabyte per second primarily through
Nortel's 1-Meg Modem. We provide simultaneous voice and DSL service over a
single unbundled network element. We also intend to offer voice-over-DSL
services through our relationship with Nortel and Jetstream Communications, Inc.
Web Page Design - Our proprietary web architecture software system,
TrieWeb, allows our customers to produce template-driven web pages. Our
customers have unlimited use of TrieWeb through our control panel function that
enables them to access their web site 24 hours a day to maintain and update
information, such as adding e-mail accounts or inserting new product offerings.
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<PAGE> 45
Web Hosting - We provide web hosting services for all customers that
sign up for the Broadband Bundle. We provide each customer with up to 24
megabytes of storage for their website. Customers have the ability to utilize
more storage capacity for an additional fee through our control panel in
TrieWeb.
Local Exchange Telephone Services - We provide local exchange telephone
service and the ancillary services typically provided by traditional telephone
companies, such as call waiting, caller ID and hunting.
Long Distance Telephone Service - We provide traditional long distance
telephone services and the ancillary services, such as calling cards, 800
numbers, account codes, online billing and various management reports. For the
basic fee, we provide each customer with 100 minutes of long distance service
per month. Customers who exceed the basic bundle are billed for overage on a
per-minute basis.
We offer our services on a bundled basis where our customers pay a
fixed price, based on the number of access lines and desired access speed, for
all of our services whether the customer takes one or all of the services
offered. The following is a sample monthly pricing matrix currently in effect
for our Greenville, South Carolina, market:
<TABLE>
<CAPTION>
NUMBER OF ACCESS LINES
--------------------------------------------------------------------
ACCESS SPEED 1 6 12 18 24
<S> <C> <C> <C> <C> <C>
160 kilobytes $ 195 $ 420 $ 690 $ 960 $1,230
320 kilobytes 285 510 780 1,050 1,320
640 kilobytes 375 600 870 1,140 1,410
1 megabyte 465 690 960 1,230 1,500
</TABLE>
OTHER SERVICES
Web Hosting Services - We offer a full range of web and managed server
web hosting services in geographically dispersed and environmentally and
technologically controlled carrier grade data facilities with both redundant
power and Internet access. Our web hosting includes vertical rack space, cabinet
units, security cage on NT and UNIX platforms with guaranteed bandwidth.
Network Equipment - We also provide voice and data networking design,
equipment sales and installation, including routers and hubs from Cisco Systems,
BayStack, NetGear and 3Com. This equipment allows customers to integrate their
DSL service with current or new local area networks.
Cabling Services - We also provide inside wiring services to customers
on a custom basis, including cable drops, telephone drops and other wire-based
installation services.
PLANNED SERVICES
We intend to maintain a leading position in developing Internet and web
based services for our customers. We plan to release new versions of our
software that will permit greater utilization of the Internet. These services
will revolve around customer content, delivered over our high-speed platforms,
as well as scalable e-commerce initiatives for product transactions through
TrieWeb.
Web Page e-commerce - We plan to release the second version of TriEWeb
in the second quarter of 2000. This version will have a catalogue feature
allowing our customers to develop a catalogue of their products and services. We
also expect to release version 3.0 of TriEWeb in the third quarter of 2000 that
will incorporate with our catalogue feature a new e-commerce initiative that
includes credit card processing and shopping cart functions.
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Broadband Internet Portal - We plan to release a custom Internet portal
application with broadband capabilities, including video streaming. This
application will include local news, sports and weather, along with access to
online pay-per-view events.
Remote Local Area Network Access Services - We believe that the desire
of businesses to have their employees access e-mail and conduct business
electronically from outside their offices will increase the demand for
high-speed digital communications for remote local area network access. We
intend to pursue opportunities to provide DSL services to equip employees of
targeted businesses with the ability to work at home and in other remote
locations through remote local area network access.
Virtual Private Network Services - We intend to combine our DSL and
dedicated T-1 access services with our virtual private network equipment to
provide clients with high-speed and secure connections to their corporate local
area network and the Internet. We believe this product will enable our customers
to have a flexible, cost-effective solution that supports both telecommuters and
site-to-site connections. Our virtual private network services will provide our
clients with the convenience of an always-on connection and the high-speed and
performance of DSL technology.
SALES AND MARKETING
We use both a direct sales force and authorized agents to distribute
our products and services. We believe that the key to our success will be our
ability to hire a direct sales force and authorized agents with strong community
relationships and technical backgrounds. We also believe that our chief
executive officer brings valuable relationships and contacts in our southeastern
region, and within the telecommunications and systems integration industries,
which will allow us more easily to gain access to customers in these markets.
In most markets we will have a locally-based sales force that uses a
consultative selling approach to offer clients a full range of sophisticated,
cost-effective Internet and data and voice solutions. Most of our sales teams
will be led by a sales manager and will include from six to 40 account
executives responsible for the acquisition and retention of all customers in
those markets. To support our sales force we have a central staff that includes
service order coordinators, client development representatives and technical
consultants. Our sales staff is assisted by a support staff that maintains
competitive pricing information, develops proposals and assists in post sales
account management. In addition to our internal sales staff at March 31, 2000,
our agent sales force consisted of 29 authorized agents.
Our authorized agents include interconnect dealers and data
integrators. We provide our agents with a training program and marketing
literature to help our agents become familiar with our bundles offering. Agents
typically sell our services into their existing customer bases using our brand
name. We provide the sales support, proposals, customer care, billing and
collections functions. Agents are compensated with monthly residual commissions,
based entirely on production. We intend to capitalize on prior relationships,
and utilize many of the agents formerly associated with CTG to sell our
services. CTG (where a number of our executives were previously employed)
achieved $100 million in revenues in approximately five years largely through
utilizing authorized agents, such as telecommunications equipment vendors,
consultants and systems integrators, to sell its services.
We believe that our bundle of services allows us to leverage our sales
force to produce higher revenue production because a single individual is able
to sell the multiple services. As we increase the number and square footage of
our colocation facilities, we intend to increase our sales and support staff
accordingly.
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<TABLE>
<CAPTION>
PROJECTED AT
AT DECEMBER 31, AT MARCH 31, DECEMBER 31,
SALES STAFF 1999 2000 2000
--------------- --------------- ---------------
<S> <C> <C> <C>
Account executives 15 38 230
Sales managers 2 8 30
Regional managers 0 4 10
Agent account managers 1 4 20
Sales support 6 13 70
Vice President of Sales 1 3 3
--------------- --------------- ---------------
Total 25 70 363
=============== =============== ===============
</TABLE>
Our Target Markets
We are targeting our sales and marketing efforts to cover 36 of the
largest markets in the southeastern United States. We presently serve six
markets with the Broadband Bundle and are scheduled to serve an additional 18
markets by the end of 2000. We expect to develop all additional 12 markets by
the end of 2001.
The following tables show our current operational and planned markets,
the number of colocation facilities we are planning to secure and build, and the
approximate number of addressable access lines:
OPERATIONAL MARKETS --Markets in which we currently offer the Broadband
Bundle:
<TABLE>
<CAPTION>
ESTIMATED DATA CENTERS
ESTIMATED TOTAL INSTALLED PLANNED ---------------------
ADDRESSABLE ADDRESSABLE COLOCATION COLOCATION INITIAL ESTIMATED OPENING
MARKET BUSINESS LINES ACCESS LINES FACILITIES FACILITIES SERVICE DATE SQ. FEET DATE
- ------ -------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Greenville, SC 79,489 201,255 7 7 1st Qtr. 00 1,500 2nd Qtr. 00
Spartanburg, SC 52,993 134,170 2 3 1st Qtr. 00 -- --
Atlanta, GA 824,586 1,656,506 10 29 1st Qtr. 00 1,000 2nd Qtr. 00
Greensboro, NC 90,630 204,116 6 6 1st Qtr. 00 1,500 2nd Qtr. 00
Burlington, NC 40,280 90,718 2 2 1st Qtr. 00 -- --
Winston-Salem, NC 70,490 158,757 3 3 1st Qtr. 00 -- --
</TABLE>
MARKETS UNDER CONSTRUCTION - Markets where we are currently installing
equipment to offer the Broadband Bundle:
<TABLE>
<CAPTION>
ESTIMATED DATA CENTERS
ESTIMATED TOTAL INSTALLED PLANNED -----------------------
ADDRESSABLE ADDRESSABLE COLOCATION COLOCATION INITIAL ESTIMATED OPENING
MARKET BUSINESS LINES ACCESS LINES FACILITIES FACILITIES SERVICE DATE SQ. FEET DATE
- ------ -------------- ------------ ---------- ---------- ------------
- -
<S> <C> <C> <C> <C> <C> <C> <C>
Wilmington, NC 40,709 97,920 2 3 2nd Qtr. 00 1,500 2nd Qtr. 00
Miami/Ft.
Lauderdale, FL 907,891 2,365,430 15 29 2nd Qtr. 00 1,500 2nd Qtr. 00
Charlotte, NC 221,469 504,291 11 11 3rd Qtr. 00 1,500 3rd Qtr. 00
Raleigh, NC 163,889 379,134 -- 12 3rd Qtr. 00 2,500 3rd Qtr. 00
Nashville, TN 210,500 499,833 8 13 3rd Qtr. 00 2,500 3rd Qtr. 00
</TABLE>
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MARKETS IN DEVELOPMENT -- Markets where we have secured colocation
space and are currently constructing or planning construction of switching
facilities to offer the Broadband Bundle:
<TABLE>
<CAPTION>
ESTIMATED DATA CENTERS
ESTIMATED TOTAL PLANNED ----------------------
ADDRESSABLE ADDRESSABLE COLOCATION PLANNED ESTIMATED OPENING
MARKET BUSINESS LINES ACCESS LINES FACILITIES SERVICE DATE SQ. FEET DATE
------ -------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Columbia, SC 93,471 203,624 5 3rd Qtr. 00 2,500 3rd Qtr. 00
Knoxville, TN 95,831 281,136 5 3rd Qtr. 00 2,500 3rd Qtr. 00
Charleston, SC 94,352 262,735 7 3rd Qtr. 00 2,500 3rd Qtr. 00
Asheville, NC 39,766 98,300 2 3rd Qtr. 00 2,500 3rd Qtr. 00
Jackson, MS 137,630 322,088 10 4th Qtr. 00 2,500 4th Qtr. 00
Augusta, GA 61,513 171,453 4 4th Qtr. 00 2,500 4th Qtr. 00
Jacksonville, FL(1) 213,917 590,926 16 4th Qtr. 00 2,500 4th Qtr. 00
Chattanooga, TN 92,992 237,482 5 4th Qtr. 00 2,500 4th Qtr. 00
Memphis, TN 222,231 603,909 11 4th Qtr. 00 2,500 4th Qtr. 00
Louisville, KY 182,620 474,245 12 4th Qtr. 00 2,500 4th Qtr. 00
Columbus, GA 41,252 140,637 3 4th Qtr. 00 2,000 4th Qtr. 00
Macon, GA 45,850 122,389 3 4th Qtr. 00 2,000 4th Qtr. 00
New Orleans, LA 228,924 575,701 13 4th Qtr. 00 2,500 4th Qtr. 00
</TABLE>
(1) In Jacksonville, FL, we have installed sixteen colocation facilities.
PLANNED MARKETS -- Markets in which we have either secured or applied
for colocation space and plan to offer the Broadband Bundle:
<TABLE>
<CAPTION>
ESTIMATED DATA CENTERS
ESTIMATED TOTAL PLANNED -------------------------
ADDRESSABLE ADDRESSABLE COLOCATION PLANNED ESTIMATED
MARKET BUSINESS LINES ACCESS LINES FACILITIES SERVICE DATE SQ. FEET OPENING DATE
- ------ -------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Birmingham, AL 20,248 484,580 15 1st Qtr. 00 2,500 1st Qtr. 01
Savannah, GA 64,910 139,750 3 1st Qtr. 00 2,500 1st Qtr. 01
Mobile, AL 62,767 174,048 5 1st Qtr. 01 2,500 1st Qtr. 01
Huntsville, AL 45,914 138,073 4 1st Qtr. 01 2,500 1st Qtr. 01
Baton Rouge, LA 93,579 233,025 6 1st Qtr. 01 2,500 1st Qtr. 01
Montgomery, AL 57,546 154,704 3 1st Qtr. 01 2,500 1st Qtr. 01
Daytona, Fl 45,306 157,841 4 1st Qtr. 01 2,500 1st Qtr. 01
Lafayette, LA 66,241 172,639 4 1st Qtr. 01 2,500 1st Qtr. 01
Shreveport, LA 101,868 285,339 7 1st Qtr. 01 2,500 1st Qtr. 01
Biloxi-Gulfport, MS 32,613 80,462 4 2nd Qtr. 01 2,500 2nd Qtr. 01
Gainesville, FL 29,685 87,957 1 2nd Qtr. 01 2,500 2nd Qtr. 01
Pensacola, FL 53,357 160,096 5 2nd Qtr. 01 2,500 2nd Qtr. 01
</TABLE>
The estimated addressable lines in the above tables are based on
reports filed by BellSouth with the FCC in 1998, increased based on our
assumptions of a 2.5% growth rate per year for residential lines and 10% a year
for business lines.
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<PAGE> 49
NETWORK INFRASTRUCTURE
We anticipate in the future migrating to the soft switch platform by
Nortel called Succession Network, which we expect to be compatible with our
current network.
We are deploying a unified voice and data network that allows us to
provide all services included in the Broadband Bundle. The planned network will
consist of six Nortel DMS 100/500 digital switches that are connected together
through our 2,400 mile fiber optic network that we purchased through a 20-year
indefeasible right of use from a long haul telecommunications service provider
in March 2000. We currently have three of these switches installed and expect to
install the other three by the end of 2000. The six Nortel switches will provide
the primary voice switching functions for all our planned markets throughout the
southeastern United States. We are also deploying asynchronous transfer mode, or
ATM, switches in all our planned primary and secondary markets. We plan to
connect our ATM switches with multiple redundant routes from various long haul
providers such as Global Crossing. The final step in our unified network is to
connect our unified colocation facilities with the ATM switches. This will be
accomplished through the lease of DS-1, DS-3 or OC-3 routes from BellSouth or
alternative fiber optic network providers. These are typically utilized through
a long-term lease arrangement.
Our fiber backbone will be connected to our switching platforms, which
will be connected to our colocation facilities, typically through multiple,
redundant DS-1, DS-3 or OC-3 circuits. Our colocation facilities are typically
secured in caged-in areas which contain primarily voice and data equipment. We
have deployed a unique method in building and designing our colocation
facilities. Our colocation facilities contain both voice and data equipment
instead of either voice or data equipment, independently. We believe these
unified colocation facilities will allow us to drive greater revenue over a
standard copper pair or leased unbundled network element. Currently, we are able
to provide simultaneous voice and data services over a single UNE, thus
significantly increasing the revenue per line in relation to voice only or data
only equipped colocations.
INFORMATION SYSTEMS
We are developing an integrated strategy for our operations support
systems and other back-office systems that we believe will implement
state-of-the-art technologies and will provide superior customer service and
significant competitive advantages in terms of accuracy, efficiency, and
capacity to process large order volumes. If our development is successful, we
expect that our seamless end-to-end back office system will enable us to
synchronize multiple activities such as circuit ordering and updating of
national databases. Upon completion of installation, we expect this system to
allow customer orders to be entered a single time, with the information then
shared between the various components of our systems.
We believe that our planned single entry system will be superior to
many existing systems, which generally require multiple entries of customer
information. Multiple information entry can result in billing problems, service
interruptions and delays in installation. Our single entry process should be
less labor intensive and reduce the margin for error. In addition, the sales to
billing interval should be significantly shortened.
ORDER ENTRY AND PROVISIONING
Order entry involves the initial loading of customer data into our
information systems. We utilize the Metasolv operations systems software for
this purpose. Our sales executives will be able to take orders and upload them
via the web to our provisioning representatives who enter the initial customer
information into our Metasolv system. When Metasolv is fully coupled with the
capabilities of our DSET gateways, orders can be submitted to business partners
electronically, thereby minimizing implementation time, coordination
complexities and installation costs.
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<PAGE> 50
In addition to cost benefits associated with electronic installation of
access lines and inventory management system, the Metasolv system should improve
our internal processes in various other ways through its "workflow" management
capabilities. The system routes tasks to the appropriate employee groups, tracks
order progress and is capable of alerting operations personnel of any "jeopardy"
situations. The system is designed to allow sales executives or customer care
coordinators to maintain installation schedules and notify customers of any
potential delays. Once an order has been completed, the Metasolv system
electronically updates our billing system to initiate billing of installed
services.
ELECTRONIC BONDING
Through our DSET and Metasolv software, we are implementing interfaces
with some BellSouth systems for the electronic exchange of order information. We
believe that we are one of the first competitive providers to do so with
BellSouth. While many of our competitors initiate service for a customer by
sending the traditional telephone company a fax or e-mail or by remote data
entry, the electronic interfaces, which we are in the process of implementing,
link our operations support systems directly to BellSouth's system, so that we
can process some types of orders on an automated basis. Additionally, once fully
installed and implemented, we will be able to confirm receipt and installation
of service on-line and in real-time. Due to issues relating to BellSouth's
internal operations support systems, we expect to experience some difficulties
with the electronic interfaces which may require some manual intervention. Other
traditional telephone companies in our region are just beginning to develop
automated interfaces on a limited basis. We anticipate establishing similar
connections with other traditional telephone companies.
We expect to have our operations support system and other back office
systems fully integrated by the third quarter of 2000. The following table lists
the status of each independent portion of our operations support systems:
<TABLE>
<CAPTION>
SYSTEM PURPOSE INSTALLATION DATE INTEGRATION DATE
------ ------- ----------------- ----------------
<S> <C> <C> <C>
Metasolv OSS 4th Qtr. 99 1st Qtr. 00
Daleen Billing 4th Qtr. 99 1st Qtr. 00
DSET Gateways 4th Qtr. 99 2nd Qtr. 00
BellSouth CSR Address Validation 1st Qtr. 00 2nd Qtr. 00
BellSouth LSR Local Service Request 1st Qtr. 00 1st Qtr. 00
SCC 911 Data 4th Qtr. 99 2nd Qtr. 00
Global Crossing Long Distance 1st Qtr. 00 2nd Qtr. 00
NPAC Local Number Portability 2nd Qtr. 00 2nd Qtr. 00
Illuminet LIDB/CNAM 1st Qtr. 00 2nd Qtr. 00
Vertex Tax Database 4th Qtr. 99 1st Qtr. 00
</TABLE>
BILLING SYSTEM
For billing, we utilize the Daleen BillPlex system, which provides our
customers with a consolidated invoice for all of our services. Customer
telecommunications usage generates billing records that are automatically
transmitted from the switch to the billing systems. These records are then
processed by the billing software that calculates usage costs, integrates fixed
monthly charges and assembles bills. For those customers who request electronic
billing, we will be adding the capability to provide the invoice and call detail
records in electronic form over the web. The Daleen system will allow us to add
advanced features such as special discounts based on "bundles" of service, call
volume, or number of services used. It will also allow us to calculate complex
local, state and federal taxation and discrete billing options by type of
service ordered.
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<PAGE> 51
CUSTOMER CARE AND TROUBLE MANAGEMENT
Our back office system and trouble management system will allow
customer care representatives to call a customer while simultaneously accessing
that customer's service profile. It will also enable our customer care personnel
to track customer problems proactively, assign repair work to the appropriate
technical teams and provide employees and management access to comprehensive
reports on the status of service activity. We have entered into a service
agreement with Nortel to assist us in the continuous monitoring and operating of
our switch network. The network management system is also designed to anticipate
failures and intervene before many service interruptions or service degradations
occur.
COMPETITION
OVERVIEW
We operate in a highly competitive environment and currently do not
have a significant market share in any of our markets. Most of our actual and
potential competitors have substantially greater financial, technical, marketing
and other resources, including brand name recognition. Further, the continuing
trend toward business alliances in the telecommunications industry, and the
increasingly reduced regulatory and technological barriers to entry in the data
and Internet services markets, could give rise to significant new competition.
We believe that the principal competitive factors affecting our business will be
pricing levels and clear pricing policies, customer service, accurate billing
and a variety of services. Our ability to compete effectively will depend upon
our ability to provide high quality services at prices generally equal to or
below those charged by our competitors. To maintain our competitive posture, we
believe that we must be able to reduce our prices in response to reductions in
rates, if any, by others.
Implementation of the Telecommunications Act and the related trend
towards business combinations and alliances in the telecommunications industry
may create significant new competitors for us. The Telecommunications Act was
designed to eliminate most barriers to local competition and to permit the
traditional local telephone companies, if they demonstrate compliance with
certain pro-competitive conditions, to provide in-region traditional long
distance services.
Our primary competitors in local service markets are the traditional
telephone companies that have long-standing relationships with customers and
regulatory authorities at the federal and state levels. In addition, traditional
telephone companies have existing fiber optic networks and switches. If future
regulatory or court decisions afford traditional telephone companies increased
rates for access or interconnection services, greater pricing flexibility, the
ability to refuse to offer particular services or network elements on an
unbundled basis or other regulatory relief, those decisions could have a
material adverse effect on us. Further, new competitive telecommunication
providers, cable television companies, electric utilities, microwave providers,
wireless telephone system operators and large customers who build private
networks also seek to compete in the local services market.
BELLSOUTH CORPORATION INC.
BellSouth has dominant market share of the local exchange business in
the most of markets where we plan to compete. We believe BellSouth maintains
control over 93% of the business access lines in the central offices where we
colocate our equipment. Because of its dominant presence, we must buy a
significant portion of our underlying network from BellSouth. Some of the
network pieces we purchase or lease from BellSouth include the unbundled network
element, inside wiring and SmartRing services. This significant reliance on our
primary competitor is burdensome and typically time consuming. Although federal
and state laws require BellSouth to provide us equal services, there is no way
to guarantee this will occur.
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<PAGE> 52
BellSouth currently offers digital subscriber line services as well as
Internet services. It is one of the larger competitors in these data oriented
markets as well. We expect BellSouth to compete aggressively to attempt to keep
as much business as possible. BellSouth has significantly more capital,
technological and management resources and poses a competitive threat to our
success.
DATA/INTERNET SERVICES PROVIDERS AND FIXED WIRELESS COMPANIES
Our competitors in our target markets also include Internet service
providers, other telecommunications companies, online services providers and
Internet software providers. In addition, we may face competition from companies
providing DSL services such as Bluestar Communications, and DSL.Net, Inc. The
FCC has authorized cellular, personal communications services and other
providers to offer wireless services to both fixed and mobile locations. These
providers can offer wireless and other services to fixed locations, such as
office and apartment buildings, in direct competition with us. Some of these
competitors such as WinStar Communications, Inc., Teligent, Inc. and Advanced
Radio Telecom, Inc., have already begun connecting high-rise buildings in some
of the largest cities in the United States. Many of these competitors have
greater financial technological and marketing resources than those available to
us.
COMPETITIVE TELECOMMUNICATIONS PROVIDERS
We face competition as well from long distance carriers seeking to
enter the local exchange market such as AT&T and WorldCom, and from resellers of
local exchange services and competitive access providers. We also face
competition from other competitive local exchange carriers with overlap in our
target markets, such as US LEC, Inc., Business Telecom, Inc. and ITC Deltacom,
Inc. Established telephone companies, particularly the regional Bell operating
companies, have established independent competitive local exchange carrier
subsidiaries to compete with their former Bell System cousins in local
competition. AT&T, WorldCom and Sprint have each begun to offer local
telecommunications services in major U.S. markets using their own facilities or
reselling the other providers' services. In addition, the continuing trend
toward consolidation of telecommunications companies, and the formation of
strategic alliances within the telecommunications industry and the development
of new technologies could give rise to significant new competitors. Such
combined entities may provide a bundled package of telecommunications products,
such as local, long distance and Internet telephone, that directly compete with
the products we offer.
OTHER COMPETITORS
Other companies that currently offer, or are capable of offering, local
switched services include: cable television companies, electric utilities,
microwave carriers and large business clients who build private networks. These
entities, upon entering into appropriate interconnection agreements or resale
agreements with traditional telephone companies, could offer single source local
and long distance services like those that we offer. We also expect to
increasingly face competition from companies offering long distance data and
voice services over the Internet. Such companies could enjoy a significant cost
advantage because they do not currently pay carrier access charges or universal
service fees.
SERVICES WHICH COMPETE WITH OUR DSL SERVICES
The traditional telephone companies represent significant competition
as they possess sufficient capital to deploy DSL equipment rapidly, have their
own telephone wires and can bundle digital data services with their existing
analog voice services to achieve economics of scale in serving customers.
Cable modem service providers such as Excite@Home and Road Runner are
deploying high-speed Internet services over cable networks. Where deployed,
these networks provide similar and in some cases higher-speed Internet access
than we provide. However, we believe that cable modem service providers are
faced with slower deployment and greater costs.
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<PAGE> 53
Many competitive telecommunications companies such as NorthPoint
Communications Group, Inc., Rhythms NetConnections Inc. and Bluestar
Communications, Inc. offer high-speed digital services. In addition, long
distance carriers, such as AT&T Corp., Sprint Corporation, WorldCom, Inc. and
Qwest Communications International Inc., have deployed large-scale Internet
access networks, and have high brand recognition. Internet services providers,
such as BellSouth.Net, Inc. and EarthLink Inc. also provide Internet access to
residential and business customers.
On-line service providers, such as AOL, and MSN, a subsidiary of
Microsoft, provide content and applications ranging from news and sports to
consumer video conferencing. Many of these on-line service providers have
developed their own access networks for modem connections. If these on-line
service providers were to extend their access networks to DSL or other
high-speed service technologies, they would become our competitors.
Wireless and satellite data service providers are developing wireless
and satellite-based Internet connectivity. We may face competition to provide
voice, data and videoconferencing services from terrestrial wireless service
providers such as Teligent, Inc., Advanced Radio Telecom Corp. and WinStar
Communications Inc.
Additionally, we also may face competition from satellite-based
systems. Motorola, Inc., Hughes Communications Satellite Services, Inc., a
subsidiary of General Motors Corporation, Teledesic LLC and others have planned
global satellite networks that can be used to provide broadband voice and data
services, and the FCC has authorized several of these applicants to operate
their proposed networks.
INTELLECTUAL PROPERTY
We regard our products, services and technology as proprietary and
attempt to protect them with copyrights, trademarks, trade secret laws,
restrictions on disclosure and other methods. We also generally enter into
confidentiality or license agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary information. Currently we have seven servicemark applications
pending. Despite our precautions, we may not be able to prevent misappropriation
or infringement of our products, services and technology.
Our logo and some titles and logos of our services mentioned in this
prospectus are either our service marks or service marks that have been licensed
to us. Each trademark, trade name or service mark of any other company appearing
in this prospectus belongs to its holder.
EMPLOYEES
At March 31, 2000, we had 369 full-time employees. We also hire
temporary employees and independent contractors as needed. In connection with
our growth strategy, we anticipate hiring a significant number of additional
personnel in sales and other areas of our operations by the end of 2000. Our
employees are not unionized, and we believe our relations with our employees are
good. Our success will continue to depend in part on our ability to attract and
retain highly qualified employees.
LEGAL PROCEEDINGS
From time to time the company becomes engaged in legal proceedings that
occur under the normal course of business. There are no pending legal
proceedings that we believe would individually or in the aggregate, have a
material adverse effect on our business or financial condition.
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<PAGE> 54
FACILITIES
We are headquartered in Greenville, South Carolina and lease offices
and space in a number of locations, primarily for sales offices and network
equipment installations. The table below lists our leased facilities, other than
colocation facilities, as of March 31, 2000:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION PURPOSE LEASE EXPIRATION SQUARE FOOTAGE
-------- ------- ---------------- --------------
<S> <C> <C> <C>
Greenville, SC Headquarters January 2004 9,600
Switch site July 2009 6,100
Atlanta, GA Sales office December 2004 4,500
Switch site July 2009 4,400
Greensboro, NC Sales office January 2005 3,500
Switch site October 2009 4,500
Jacksonville, FL Sales office January 2005 4,500
Switch site May 2010 5,000
Miami, FL Switch site July 2009 13,500
Charleston, SC Sales office June 2005 3,700
</TABLE>
We believe that our leased facilities are adequate to meet our current
needs and that additional facilities are available to meet our development and
expansion needs in existing and projected target markets.
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<PAGE> 55
DESCRIPTION OF OUR INDEBTEDNESS
THE SENIOR CREDIT FACILITY
TriVergent Communications, Inc., our wholly owned subsidiary, entered
into a loan agreement with Toronto Dominion (Texas), Inc., as administrative
agent, Newcourt Commercial Finance Corporation, as documentation agent, TD
Securities (USA), Inc. and Capital Syndication Corporation, as co-lead arrangers
and co-book runners, First Union National Bank, as syndication agent, and other
lenders.
Through this subsidiary, we conduct our original residential resale
business and will conduct our facilities-based business in our first five
markets, Greenville, Atlanta, Greensboro, Miami and Jacksonville. This
subsidiary owns the related assets.
The senior credit facility consists of two tranches:
- a term loan facility in the amount of $80 million which is
available to us through December 31, 2000; and
- a revolving facility in the amount of $40 million which has a
termination date of December 31, 2007.
As of March 31, 2000, approximately $25 million was outstanding under
the term loan facility and no amount was outstanding under the revolving
facility. The senior credit facility:
- bears interest at rates per annum equal to, at our option:
- LIBOR plus 4.50%; or
- 3.50% plus the greater of Toronto Dominion's prime rate and the
federal funds effective rate plus 0.50%, in each case subject
to reduction based on TriVergent Communications' financial
performance;
- is guaranteed by us and each of TriVergent Communications'
subsidiaries; and
- contains covenants that, among other things, require TriVergent
Communications to meet ongoing financial tests and restrict its
ability to incur additional indebtedness, incur liens, pay
dividends or repurchase capital stock.
The credit agreement requires TriVergent Communications to enter into
interest rate hedging agreements satisfactory to the lenders that will fix the
interest rate obligations of TriVergent Communications for at least the
following three years, on at least 50% of the outstanding loans.
We have guaranteed the obligations of TriVergent Communications under
the credit agreement and have pledged the stock of TriVergent Communications to
secure our guaranty. Under the guaranty agreement, we may not invest more than
$100 million in our other subsidiaries, and no more than two-thirds of those
investments may be financed by indebtedness.
These guarantees are secured by:
- a pledge by us of the capital stock of TriVergent Communications to
secure our guaranty;
- a pledge by TriVergent Communications of the capital stock of its
subsidiaries; and
- a lien on substantially all the assets of TriVergent Communications
and its subsidiaries.
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<PAGE> 56
MATURITY, AVAILABILITY AND REPAYMENT
The amount available under the term loan facility will be reduced if a
total of $50 million has not been borrowed by July 1, 2000, and no further
amounts may be borrowed after December 31, 2000. Unless TriVergent
Communications achieves specified financial results for the three months ending
September 30, 2000, $20 million of the revolving facility will not be available.
The amount available under the revolving facility reduces, at the end of each
quarter, starting on March 31, 2003, by amounts increasing from 3.125% in 2003
to 6.25% in 2007, and any excess outstanding amount must be repaid.
The outstanding amounts under the term loan facility must be repaid
quarterly, beginning on March 31, 2003, in amounts increasing from 3.125%
($2,500,000) per quarter in 2003 to 6.25% ($5,000,000) per quarter in 2007.
Amounts outstanding under the senior credit facility may be prepaid and
revolving credit commitments may be permanently reduced, in whole or in part, at
any time, subject to customary breakage charges.
TriVergent Communications is required to prepay amounts outstanding and
reduce revolving credit commitments in pro rata amounts equal to:
- 75% of excess cash flow of TriVergent Communications and its
subsidiaries for 2001 and 50% of their excess cash flow for each
subsequent year;
- 100% of the net cash proceeds in excess of $500,000 received by
TriVergent Communications and its subsidiaries from the sale of
assets; and
- 50% of the net proceeds of the issuance of equity securities, and
100% of the net proceeds from borrowed money, received by
TriVergent or any of its subsidiaries or by TriVergent (other than
up to $100 million raised by TriVergent for its other
subsidiaries).
COVENANTS
The senior credit facility also restricts the ability of TriVergent
Communications and its subsidiaries, among other things, to:
- make capital expenditures, investments, loans or advances or
acquisitions in excess of certain limits;
- dispose of assets in excess of $3,000,000 in aggregate value;
- guarantee obligations or pay dividends;
- create liens, other than certain permitted encumbrances, or incur
additional indebtedness, other than certain permitted indebtedness;
or
- engage in mergers or consolidations, transactions with affiliates
or materially change their lines of business.
The credit agreement also requires TriVergent Communications to satisfy
certain operating and financial tests. For this year and the next these are:
- minimum installed access lines (increasing from 21,900 at March 31,
2000, to 91,200 at December 31, 2001);
- minimum annualized revenues (increasing from $14.6 million at March
31, 2000, to $90.8 million at December 31, 2001);
- minimum annualized cash flows (increasing from negative $30.8
million at March 31, 2000, to $11.9 million at December 31, 2001);
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<PAGE> 57
- maximum capital expenditures ($56.2 million for 2000, and $9.0
million for 2001); and
- maximum debt to capitalization ratio (55% through December 31,
2001).
There are also requirements starting in 2002 for the ratio of operating
cash flow to cash interest expense, the fixed charge ratio, the leverage ratio
(maximum limits start on December 31, 2001) and the ratio of cash flow to debt
service.
THESE COVENANTS RELATE ONLY TO TRIVERGENT COMMUNICATIONS AND ITS
SUBSIDIARIES, AND NOT TO TRIVERGENT AND ITS OTHER SUBSIDIARIES.
The senior credit facility also contains customary events of default,
including failure to pay interest or principal, breach of covenants,
cross-default to other debt, material judgments, a change of control of
TriVergent or TriVergent Communications and bankruptcy or insolvency.
USE OF PROCEEDS
TriVergent Communications can use the senior credit facility to fund
capital expenditures for telecommunications equipment purchases, interest on the
loans and other general corporate purposes.
THE NORTEL FACILITY
In March 2000, TriVergent Communications South, Inc., our subsidiary
that conducts our business in the markets not part of the business of TriVergent
Communications, entered into a credit agreement with Nortel Networks Inc.
providing for up to $45 million in term loans to finance the acquisition of
network equipment and related software and services from Nortel. No amount is
currently outstanding under this facility and no amount may be borrowed without
the consent of the lenders under the senior credit facility, which we expect to
be able to obtain.
The Nortel facility:
- bears interest at rates equal to, at our option,
- the prime rate of Citibank, N.A. (New York), plus 3.75% or
- LIBOR plus 4.75%;
- is guaranteed by all current and future subsidiaries of TriVergent
Communications South; and
- contains covenants that, among other things, require TriVergent
Communications South and its subsidiaries to meet ongoing financial
covenants and restrict their ability to incur additional
indebtedness, incur liens and pay dividends.
The Nortel facility is secured by:
- a lien on substantially all the assets of TriVergent Communications
South and its subsidiaries; and
- a pledge by us of all the capital stock of TriVergent
Communications South
MATURITY, AVAILABILITY AND REPAYMENT
The amount outstanding under the Nortel facility is repayable in
quarterly principal payments of 8 1/3% beginning on June 30, 2001, with the
balance payable at maturity on June 30, 2004.
Amounts outstanding under the Nortel facility may be prepaid and
unutilized commitments may be reduced, in whole or in part, at any time. Amounts
prepaid may not be reborrowed.
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<PAGE> 58
TriVergent Communications South would be required to prepay amounts
outstanding equal to:
- 75% of excess cash flow for the preceding year on March 31 of each
year, commencing in 2002;
- 100% of net cash proceeds in excess of $100,000 from dispositions
of property by TriVergent Communications South or any of its
subsidiaries that are not reinvested in the business; and
- 100% of net cash proceeds received by TriVergent Communications
South from issuances of debt or equity securities.
COVENANTS
The Nortel facility also restricts the ability of TriVergent
Communications South and its subsidiaries, among other things, to:
- declare or pay dividends to the extent they are not payable in
capital stock or restrict any subsidiaries ability to pay
dividends;
- prepay debt, subject to certain exceptions;
- make payments to redeem, repurchase or retire capital stock,
subordinated debt, warrants or options;
- enter into sale/leaseback transactions;
- incur liens other than certain permitted encumbrances or materially
change their line of business; and
- engage in mergers or consolidations.
The Nortel facility also requires TriVergent Communications South to
maintain:
- maximum ratios, tested on a quarterly basis, of total debt to total
capitalization (not in excess of 67%) and total debt to annualized
EBITDA (starting in 2002);
- a maximum amount of cumulative capital expenditures (increasing
from $16.2 million at March 31, 2000, to $214 million at December
31, 2001);
- a quarterly fixed charge coverage ratio (1.1 for all periods) and a
minimum quarterly interest coverage ratio (starting in 2002);
- minimum annualized EBITDA, on a quarterly basis (decreasing to
negative $41.3 million for the first quarter of 2001 to negative
$3.5 million of the fourth quarter of 2001);
- a minimum number of access lines in service (increasing from none
at March 31, 2000 to 80,683 at December 31, 2001); and
- minimum quarterly revenue (increasing from none for the first
quarter of 2000 to $22 million for the fourth quarter of 2001).
The Nortel agreement requires TriVergent Communications South to enter
into interest rate hedging agreements satisfactory to Nortel to fix the interest
rate on at least 50% of its debt and that of its subsidiaries that has a
floating rate of interest.
THESE COVENANTS RELATE ONLY TO TRIVERGENT COMMUNICATIONS SOUTH AND ITS
SUBSIDIARIES, AND NOT TO TRIVERGENT AND ITS OTHER SUBSIDIARIES.
The Nortel facility contains customary events of default, including but
not limited to, cross default to the purchase agreement with Nortel, a change of
control event and cross default to other debt.
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<PAGE> 59
GOVERNMENT REGULATION
The following summary of regulatory developments and legislation
describes the primary present and proposed federal, state, and local regulation
and legislation that is related to the Internet service and telecommunications
industries and would have a material effect on our business. Existing federal
and state regulations are currently subject to judicial proceedings, legislative
hearings and administrative proposals that could change, in varying degrees, the
manner in which our industries operate. We cannot predict the outcome of these
proceedings or their impact upon the Internet service and telecommunications
industries or upon us.
OVERVIEW
Our telecommunications services are subject to regulation by federal,
state and local government agencies. Generally, Internet and certain data
services are not directly regulated, although the underlying telecommunications
services may be regulated in certain instances. We hold various federal and
state regulatory authorizations for our regulated service offerings. The FCC has
jurisdiction over our facilities and services to the extent those facilities are
used in the provision of interstate or international telecommunications. State
regulatory commissions also have jurisdiction over our facilities and services
to the extent they are used in intrastate telecommunications. Municipalities and
other local government agencies may require telecommunications services
providers to obtain licenses or franchises regulating use of public
rights-of-way necessary to install and operate their networks, although no such
local franchise authorizations are required for our current operations. The
networks also are subject to certain other local regulations such as building
codes and generally applicable public safety and welfare requirements. Many of
the regulations issued by these regulatory bodies may change and are the subject
of various judicial proceedings, legislative hearings and administrative
proposals. We cannot predict what impact, if any, these proceedings or changes
will have on our business or results of operations.
FEDERAL REGULATION
The FCC regulates us as a non-dominant common carrier, or one that is
not considered to be dominant over other service providers in the relevant
product or geographic markets in which it operates. Non-dominant carriers are
subject to lesser regulation than dominant carriers but remain subject to the
general requirements that they offer just and reasonable rates and terms of
service and do not unreasonably discriminate in the provision of services. We
have obtained authority from the FCC to provide domestic interstate long
distance services and international services between the United States and
foreign countries and have filed the required tariffs. While we believe we are
in compliance with applicable laws and regulations we cannot assure you that the
FCC or third parties will not raise issues with regard to our compliance.
THE TELECOMMUNICATIONS ACT
In February 1996, the Telecommunications Act was passed by the United
States Congress and signed into law by President Clinton. This comprehensive
telecommunications legislation was designed to increase competition in the long
distance and local telecommunications industries. The Telecommunications Act
imposes a variety of duties on competitive telecommunications providers to
facilitate competition in the provision of local telecommunications and access
services. Like all local telecommunications carriers, where we provide local
telephone services, we are required to:
- interconnect our networks with those of other telecommunications
carriers;
- originate calls to and terminate calls from competing providers on
a reciprocal basis;
- permit resale of our services;
- permit users to retain their telephone numbers when changing
providers; and
- provide competing providers with access to poles, ducts, conduits
and rights-of-way, if any.
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Traditional telephone companies, such as the regional Bell operating
companies, are subject to requirements in addition to these, including the duty
to:
- undertake additional obligations applicable to the interconnection
of their networks with those of competitors;
- permit colocation of competitors' equipment at their central
offices;
- provide access to individual network elements and "unbundled
elements," including network facilities, features and capabilities,
on non-discriminatory and cost-based terms; and
- offer their retail services for resale at wholesale rates.
The Telecommunications Act also eliminates certain pre-existing
prohibitions on the provision of traditional long distance services by the
regional Bell operating companies and GTE on a phased-in basis. Regional Bell
operating companies currently are permitted to provide long distance service
outside those states in which they provide local telecommunications service. In
order to provide this category of long distance services, the regional Bell
operating companies must receive all requisite state or federal regulatory
approvals customary to the provision of long distance services. Regional Bell
operating companies will be permitted to provide traditional long distance
service within the regions in which they also provide local telecommunications
service only upon demonstrating to the FCC, with input from state regulatory
agencies and the Department of Justice, that they have complied with a statutory
checklist of requirements intended to open local telephone markets to
competition. GTE and other non-Bell traditional telephone companies are not
limited by this regional restriction. To date only Bell Atlantic has been
granted approval to provide in-region long distance services and that is
restricted to long distance calls originating in New York. However, Bell
Atlantic has begun the process to obtain permission to provide long distance
services in other states and other Bell operating companies, including
BellSouth, either already have started or are expected to soon begin the process
of seeking long distance authority within their local operating territories.
Southwestern Bell filed an application with the FCC on January 12, 2000, seeking
permission to provide long distance services to customers in Texas. Entry of
BellSouth into the long distance business could result in substantial
competition to our services and may have a material adverse effect on us and our
customers. When the FCC permits BellSouth to provide traditional long distance
service in its local telephone service region, which is the same region we
serve, they will be able to offer integrated local and long distance services
and may enjoy a significant competitive advantage.
The FCC is charged with establishing national rules implementing
certain portions of the Telecommunications Act. In August 1996, the FCC released
an order adopting an extensive set of regulations governing network
interconnection, network unbundling and resale of traditional telephone company
services, under the Telecommunications Act. In July 1997, the United States
Court of Appeals for the Eighth Circuit issued a decision vacating substantial
portions of these rules, principally on the ground that the FCC had improperly
intruded into matters reserved for state jurisdiction. In January 1999, the
United States Supreme Court reversed many aspects of the Eighth Circuit's
decision, concluding that the FCC has jurisdiction to implement the local
competition provisions of the Telecommunications Act. In so doing, the Supreme
Court found that the FCC has authority to establish pricing guidelines
applicable to the provision of unbundled network elements and the resale of
traditional telephone company services, to prevent traditional telephone
companies from desegregating existing combinations of network elements, and to
establish rules enabling competitors to select all or portions of any existing
traditional telephone company interconnection agreements for use in their own
interconnection agreements with traditional telephone companies. The Supreme
Court, however, did not evaluate the specific pricing methodology adopted by the
FCC and has remanded the case to the Eighth Circuit for further consideration.
While the Supreme Court resolved many issues, including the FCC's jurisdictional
authority, other issues remain subject to further consideration by the courts
and the FCC. Although most of these FCC rules were upheld by the Supreme Court,
the Court found that the FCC had not adequately considered certain statutory
criteria for requiring traditional telephone companies to make unbundled network
elements available to competitive telecommunications providers. The FCC then
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conducted new proceedings to reexamine which unbundled network elements
traditional telephone companies must provide. On November 5, 1999, the FCC
released an order in which it required that traditional telephone companies make
available most, but not all, of the network elements specified in its initial
order, as well as certain new network elements not included on the original
list. The FCC also clarified the obligation of traditional telephone companies
to provide certain combinations of network elements. Various interested parties
have sought reconsideration and filed appeals of the FCC's order.
In the first half of 1998, four regional Bell operating companies,
including BellSouth, petitioned the FCC to be relieved of certain regulatory
requirements in connection with their provision of advanced telecommunications
services. Advanced telecommunications services are wireline, broadband
telecommunications services, as opposed to traditional voice services, and are
widely used for Internet access, often relying on DSL technology and
data-switched technology. In response, in August 1998, the FCC issued an order
and notice which clarified its views on the applicability to advanced services
of existing statutory requirements in the Telecommunications Act relating to
network interconnection and unbundling. The FCC also solicited public comments
on a wide variety of issues associated with the provision of advanced services
by wireline carriers. The FCC generally determined that advanced
telecommunications services are subject to its interconnection and unbundling
rules. The FCC has not yet ruled on a preliminary FCC proposal that would permit
traditional telephone companies to deploy advanced telecommunications services
through a separate affiliate, which would not be regulated as a traditional
telephone company and therefore would not be subject to the Telecommunications
Act's unbundling and resale provisions. These orders have been appealed and are
the subject of further FCC proceedings as well. Notably, in an order approving
the merger of SBC with Ameritech, the FCC authorized SBC to transfer some
advanced services, equipment and capabilities to a separate affiliate. If
BellSouth were authorized to do the same, we could encounter additional
difficulty obtaining access to network elements useful in providing DSL and
other advanced services.
In March 1999, the FCC adopted a further order strengthening the rights
of competitive telecommunications providers to obtain physical colocation for
purposes of interconnecting with traditional telephone company networks, as well
as requiring that traditional telephone companies permit competitive
telecommunications providers to collocate equipment used for interconnection
and/or access to unbundled network elements. The FCC also adopted rules designed
to limit traditional telephone companies' ability to deny competitive
telecommunications providers the ability to deploy transmission hardware in
colocation space by purporting that the equipment will cause electrical
interference with other wires, requiring the construction of caged enclosures,
and imposing large minimum space requirements and space preparation fees, among
other things, and it proposed rules making these requirements more specific. On
March 17, 2000 the U.S. Court of Appeals for the District of Columbia vacated
significant portions of these FCC colocation rules, and remanded the matter to
the FCC for further consideration. Among other things, the appeals court vacated
new FCC rules that would have required traditional telephone companies to permit
colocation of equipment usable to provide enhanced services, use colocation
space to cross connect to third party carriers, and collocate their equipment in
any unused space in their central offices. Further FCC and appellate proceedings
are expected.
Notably, rates charged for unbundled network elements are established
through negotiation or by state regulatory commissions, subject to general FCC
rules governing pricing methodology. FCC rules require traditional telephone
companies to establish geographically deaveraged pricing for network elements
soon, and such deaveraging could result in a substantial price increase for
network elements in certain non-urban markets served by the Company.
ACCESS REGULATION
The FCC regulates the interstate access rates charged by traditional
telephone companies for the origination and termination of interstate long
distance traffic. Those access rates make up a significant portion
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of the cost of providing these long distance services. Over the past few years,
the FCC has implemented changes in interstate access rules that result in the
restructuring of the access charge system and changes in access charge rate
levels. On remand from an appeals court, the FCC is conducting further
proceedings to explain and refine its recent reforms affecting access charge
rate levels. In addition, the FCC is considering several proposals to further
reform access charge rate structures, including a proposal submitted by a
coalition of long distance companies and regional Bell companies referred to as
"CALLS". These and related actions may change access rate structures and rate
levels. If access rates are reduced, access revenues of all local
telecommunications carriers, including us, could be reduced, and the costs to
traditional telephone companies and long distance carriers to provide long
distance services also could be reduced significantly. The impact of these new
changes will not be known until they are fully implemented.
The FCC has also raised the issue of whether it should begin to
regulate the access charges imposed by competitive telecommunications providers.
Currently, competitive telecommunications providers are free to charge access
rates at any levels they deem appropriate so long as they are "just and
reasonable" and nondiscriminatory. The current proceeding seeks comment from the
industry on whether competitive telecommunications providers should be required
to cost-justify the access charges they impose on long distance carriers or
whether such rates should be limited to a prescribed range of "reasonable"
charges. A decision by the FCC to regulate competitive telecommunications
providers' access charges could result in the reduction of those charges for all
competitive telecommunications providers, including ours. Over the past few
years, the FCC has granted traditional telephone companies significant
flexibility in pricing their interstate special and switched access services. We
anticipate that this pricing flexibility will result in traditional telephone
companies lowering their prices in high traffic density areas, the probable
areas of competition with us. We also anticipate that the FCC will grant
traditional telephone companies increasing pricing flexibility as the number of
potential competitors increases in each of these markets.
In August 1999, the FCC released an order that granted substantial
additional pricing flexibility to traditional telephone companies for certain
interstate services. Among other things, the FCC granted immediate pricing
flexibility to many traditional telephone companies in the form of streamlined
introduction of new services, the ability to change rates for certain interstate
services based on geographic location, and removal, after certain local toll
dialing restrictions are lifted, of certain interstate long distance services
from restrictive pricing regulation. The FCC also established a framework for
granting many traditional telephone companies greater flexibility in the pricing
of all interstate access services once they satisfy certain prescribed
competitive criteria. The FCC also invited public comment on proposals for yet
further traditional telephone company pricing flexibility.
In addition, in various contexts, certain traditional telephone
companies have asked the FCC to rule that certain calls made over the Internet
are subject to regulation as telecommunications services including the
assessment of interstate switched access charges and universal service fund
assessments. Although the FCC has suggested that Internet-based
telephone-to-telephone calls may be considered telecommunications services, it
has not reached a final decision on that issue.
UNIVERSAL SERVICE
In 1997, the FCC established a significantly expanded universal service
regime to subsidize the cost of telecommunications services to high-cost areas,
and to low-income customers and qualifying schools, libraries and rural health
care providers. Providers of telecommunications services, like us, as well as
certain other entities, must pay for these programs. Our share of the payments
into these subsidy funds will be based on our share of certain defined
telecommunications end-user revenues. Currently, the FCC is assessing these
payments on the basis of a telecommunications services provider's interstate and
international revenue for the previous year. Various states are also in the
process of implementing their own universal service programs. We are currently
unable to quantify the amount of subsidy payments we will be required to make in
the future
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or the effect that these requirement payments will have on our financial
condition. Moreover, the FCC's universal service rules remain subject to change,
which could increase our costs.
DETARIFFING
In November 1996, the FCC issued an order that required non-dominant,
long distance carriers, like us, to cease filing tariffs for our domestic long
distance services. Tariffing is a traditional requirement of telephone companies
whereby such companies publish for public inspection at state and federal
regulatory agencies all terms, conditions, pricing, and available services
governing the sale of all such services to the public. Traditional long distance
service tariffs are filed with the FCC and tariffs for local telephone services
are filed with state regulatory commissions. The FCC's order required mandatory
detariffing for long distance services and gave interstate long distance service
providers nine months to withdraw federal tariffs and move to contractual
relationships with their customers. This order subsequently was stayed by a
federal appeals court, and it is unclear at this time whether or when the
detariffing order will be implemented.
In June 1997, the FCC issued another order stating that non-dominant
local services providers may withdraw their tariffs for interstate access
services provided to long distance carriers. The FCC continues to require that
services providers obtain authority to provide service between the United States
and foreign points and file tariffs for international service.
In March 1999, the FCC adopted further rules that, while still
maintaining mandatory detariffing, required long distance carriers to make
specific public disclosures on the services providers' Internet websites of
their rates, terms and conditions for domestic interstate services. The
effective date of these rules also is delayed until a court decision is rendered
on the appeal of the FCC's detariffing order. If the FCC's orders become
effective, non-dominant interstate services providers will no longer be able to
rely on the filing of tariffs with the FCC as a means of providing notice to
customers of prices, terms and conditions under which they offer their domestic
interstate services, and will have to rely more heavily on individually
negotiated agreements with end-users.
RECIPROCAL COMPENSATION
In decisions rendered in late 1998 and early 1999, the FCC determined
that both dedicated access and dial-up calls from a customer to an Internet
service provider are primarily interstate in nature and therefore are to be
considered interstate calls, subject to the FCC's jurisdiction. The FCC's orders
were appealed to the U.S. Court of Appeals for the District of Columbia. On
March 17, 1999, the Court of Appeals vacated the FCC's order determining that
dial-up calls placed to Internet service providers are jurisdictionally
interstate, and remanded the matter to the FCC for further consideration. The
FCC has initiated a proceeding to determine the effect that this regulatory
classification will have on the obligation of a service provider to pay
reciprocal compensation for dial-up calls to Internet service providers that
originate on one service provider's network and terminate on another service
provider's network. Currently, the FCC has permitted existing reciprocal
compensation arrangements between service providers, as set forth in
interconnection agreements and approved by state regulatory commissions, to
remain intact.
The FCC is currently determining whether a new compensation mechanism
should be implemented. A decision which invalidates current reciprocal
compensation arrangements could result in the reduction, or elimination, of
potential revenues we may receive from reciprocal compensation payments for
traffic terminated over our network to Internet service providers.
CUSTOMER PRIVACY
The Communications Act of 1934 and FCC rules protect the privacy of
certain information that a telecommunications carrier such as us acquires by
providing telecommunications services to such customers.
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Such protected information known as Customer Proprietary Network Information,
includes information related to the quantity technological configuration, type,
destination and amount of use of a customer. Under the FCC's rules, a carrier
may not use this information acquired through one of its offerings of
telecommunications services to market certain other services without the
approval of the affected customers. The United States Court of Appeals for the
Tenth Circuit, however, recently overturned the FCC's rules regarding the use
and protection of this information. The FCC relaxed these rules recently, but
may seek review of the Tenth Circuit's decision by the U.S. Supreme Court.
STATE REGULATION
The Telecommunications Act preempts state and local statutes and
regulations that would tend to prohibit the provision of competitive
telecommunications services. As a result, we will be free to provide the full
range of local, long distance and data services in all states in which we
currently operate, and in any states into which we may wish to expand. While
this action greatly increases our potential for growth, it also increases the
amount of competition to which we may be subject. Because we provide intrastate
common carrier services, we are subject to various state laws and regulations.
Most state public utility and public service commissions require some form of
certification or registration. We must acquire this authority before commencing
service. In most states, we are also required to file tariffs or price lists
setting forth the terms, conditions and prices for services that are classified
as intrastate.
We are required to update or amend these tariffs when we adjust our
rates or add new products and are subject to various reporting and
record-keeping requirements in these states. Many states also require prior
approval for transfers of control of certified providers, corporate
reorganizations, acquisitions of telecommunications operations, assignment of
carrier assets, carrier stock offerings and incurrence of significant debt
obligations. States generally retain the right to sanction a service provider or
to revoke certification if a service provider violates applicable laws or
regulations. If any regulatory agency were to conclude that we are or were
providing intrastate services without the appropriate authority or in violation
of any regulation, the agency could initiate enforcement actions, which could
include the imposition of fines, a requirement to disgorge revenues or the
refusal to grant the regulatory authority necessary for the future provision of
intrastate telecommunications services.
We are authorized to provide competitive local telecommunications
services in South Carolina, North Carolina, Georgia, Kentucky, Tennessee,
Alabama, Louisiana, Florida and Mississippi. We have authority to provide
intrastate long distance services in all states where we hold local services
authority, and in several other states as well. We expect to apply for
additional state authority in the future. However, there can be no assurance
that we will receive such authorizations.
LOCAL INTERCONNECTION
The Telecommunications Act imposes a duty upon all traditional
telephone companies to negotiate in good faith with potential competitive
telecommunications providers to provide interconnection to their networks,
exchange local traffic, make unbundled network elements available and permit
resale of most local telephone services. In the event that negotiations do not
succeed, we have a right to seek arbitration with the state regulatory authority
of any unresolved issues. Arbitration decisions involving interconnection
arrangements in several states have been challenged and appealed to federal
courts. We may experience difficulty in obtaining timely traditional telephone
company implementation of local interconnection agreements, and we can provide
no assurance we will offer local services in these areas in accordance with our
projected schedule, if at all.
We have entered into interconnection agreements with BellSouth in all
of its territories. We have begun to negotiate similar agreements with other
traditional telephone companies where we have obtained status as a competitive
telecommunications provider. Moreover, a number of our interconnection
agreements
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will expire at various times over the next six months, after which
time, we will be required to renegotiate each such agreement. The initial term
of our interconnection agreement with BellSouth already has lapsed, but its
terms continue to apply until a successor agreement is established through
negotiation or state regulatory commission arbitration proceedings. It is
uncertain how successful we will be in negotiating the terms critical to our
provision of local data and voice services and we may be forced to arbitrate
certain provisions of such agreements.
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MANAGEMENT
The following sets forth information concerning our directors,
executive officers and selected key employees, including their ages, as of
March 31, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles S. Houser 56 Chairman of the Board of Directors and Chief Executive Officer
G. Michael Cassity 50 President and Chief Operating Officer, Director
Shaler P. Houser 30 Senior Vice President of Corporate Development and Strategy,
Director
Clark H. Mizell 44 Senior Vice President and Chief Financial Officer
Russell W. Powell 32 Senior Vice President of Sales
Riley M. Murphy 44 Senior Vice President of Law, General Counsel and Secretary
Judith C. Slaughter 54 Senior Vice President of Customer Operations
G. Randolph McDougald 40 Senior Vice President of Marketing
Vincent M. Oddo 42 Senior Vice President and Chief Information Officer
Ronald Kirby 48 Senior Vice President of Network Customer Operations
J. W. Adams 64 Senior Vice President of Network Engineering
Daniel E.H. Sterling 32 Vice President of Dealer Sales
William H. Oberlin 55 Director
Joseph A. Lawrence 51 Director
Jack Tyrrell 53 Director
Robert S. Sherman 54 Director
Alan N. Colner 45 Director
Watts Hamrick 40 Director
Lawrence J. Bouman 53 Senior Technology Advisor
</TABLE>
BIOGRAPHICAL SKETCHES
Charles S. Houser, a co-founder of TriVergent and our Chairman of the
board of directors and Chief Executive Officer, has more than fifteen years of
experience in the telecommunications industry as an investor and a senior
manager. In 1996 and 1997, Mr. Houser was a principal and co-founder of Seruus
Ventures, LLC and Seruus Telecom Fund LP, both venture capital firms
specializing in telecommunications companies. From 1989 to 1996, Mr. Houser was
chairman and chief executive officer of Corporate Telemanagement Group, Inc., a
long distance company that merged with LCI International Inc. in 1995. From
1987 to 1989, Mr. Houser was president of The Consilium Group, Inc., a venture
capital firm. From 1983 to 1987, he was chief executive officer of Tel/Man,
Inc., a long distance company that merged with SouthernNet, Inc., where he also
served as chief operating officer. Mr. Houser serves on the board of directors
of Seruus Ventures, LLC; Seruus Telecom Fund, L.P.; Teleco, Inc., a
telecommunications equipment distributor; iBasis, Inc., an Internet-based
communications carrier; and Summit Financial Corporation, a Greenville, South
Carolina-based bank holding company.
G. Michael Cassity became our President and Chief Operating Officer
and a Director in March 2000. From 1999 until joining TriVergent, Mr. Cassity
served as vice president and chief procurement officer for BellSouth
Telecommunications in Atlanta. From 1998 to 1999, Mr. Cassity was vice
president of network operations for BellSouth's northern states. Since 1971,
Mr. Cassity has also held other positions at BellSouth in Atlanta, including
vice president of the strategic management unit and vice president of
organization planning and development.
Shaler P. Houser, a co-founder of TriVergent, Senior Vice President of
Corporate Development and Strategy and a Director, has nine years of experience
in the telecommunications industry. Prior to co-founding our company in 1997,
Mr. Houser was senior vice president and co-founder of Seruus Ventures, LLC.
From 1991 to 1996, Mr. Houser served in various capacities, including product
development, business development, international development and carrier sales,
at Corporate Telemanagement Group and its
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successor parent company, LCI International, both long distance companies.
Shaler P. Houser is Charles S. Houser's son.
Clark H. Mizell has served as our Senior Vice President and Chief
Financial Officer since August 1998. From 1979 to 1984, Mr. Mizell was an
accountant with PriceWaterhouse in its Dallas, Texas office, covering both tax
and audit areas. In 1984, Mr. Mizell joined KPMG Peat Marwick, where he became
a partner in 1990 and served in that capacity until joining TriVergent.
Russell W. Powell serves as our Senior Vice President of Sales. From
December 1997 until March 2000, Mr. Powell served as our President. From August
until November 1997, Mr. Powell was vice president of sales for BTI Telecom
Corp., a facilities-based long distance and competitive local exchange services
provider. From 1991 to August 1997, Mr. Powell was employed by Corporate
Telemanagement Group and, following their merger by LCI International, in
various positions, including sales manager for its dealer sales division.
Riley M. Murphy became our Senior Vice President of Law, General
Counsel and Secretary in March 2000. Prior to joining TriVergent, she was
executive vice president of legal and regulatory affairs, general counsel and
secretary of e.spire Communications, Inc., an integrated services provider.
Prior to joining e.spire in 1994, Ms. Murphy was in private practice of
telecommunications regulatory law for 12 years.
Judith C. Slaughter has been our Senior Vice President of Customer
Operations since December 1997. From 1991 to 1997, Ms. Slaughter was employed
by Corporate Telemanagement Group and, following their merger, by LCI
International, in various management positions, including manager of sales
support, marketing and operations, director of customer service and
provisioning and director of operations for its dealer sales division. Prior to
1991, she served in various sales and operations positions with
telecommunications companies including Tel/Man, Inc., SouthernNet and Teleco,
Inc.
G. Randolph McDougald has been our Senior Vice President of Marketing
since April 1999. From October 1997 until March 1999, Mr. McDougald served as
president of Catalyst Telecom, the telecommunications and computer telephone
division of ScanSource, Inc., a point-of-sale equipment distributor. During the
years 1996 to 1997 and 1995 to 1996 Mr. McDougald served as regional vice
president of sales, southern division, and director of marketing, respectively,
for LCI International. Prior to LCI International's purchase of Corporate
Telemanagement Group in 1995, Mr. McDougald served as national director of
sales for Corporate Telemanagement Group.
Vincent M. Oddo has been our Senior Vice President and Chief
Information Officer since June 1999. From 1995 to May 1999, Mr. Oddo served as
senior vice president of operations for Conxus Communications, Inc., a wireless
communications firm. Prior to 1995, Mr. Oddo also served as vice president at
Geotek Communications.
Ronald Kirby has been our Senior Vice President of Network Operations
since July 1999. From 1990 to 1999, Mr. Kirby was president of Data and
Communications Solutions Inc., a South Carolina-based provider of data
integration products and services. Additionally, Mr. Kirby was a director of
network operations and support from 1987 to 1989 and director of carrier
support from 1989 to 1990 for Telecom USA. From 1982 to 1987, Mr. Kirby was
director of North Carolina and South Carolina network operations for
SouthernNet.
J. W. Adams has been our Senior Vice President of Network Engineering
since November 1999. From March 1996 to November 1999, he was president of
Diamond Consulting, LLC of Charlotte, North Carolina, a telecommunications
consulting firm. Mr. Adams has also held positions as vice president in the
areas of engineering and operations with various telecommunications companies
including Access/On
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Multimedia, Inc. in North Carolina, Intermedia Communications of Florida,
Norlight in Wisconsin and SouthernNet/Telecom USA in Atlanta, as well as
president of BellSouth Systems Technology.
Daniel E.H. Sterling serves as our Vice President of Dealer Sales.
Mr. Sterling joined TriVergent in December 1997, and has held such positions as
Vice President of Sales and Marketing and Vice President of Sales. From
September 1997 until December 1997, Mr. Sterling served as senior manager for
dealer sales with BTI Telecom Corp. From 1993 to 1997, Mr. Sterling was employed
by Corporate Telemanagement Group, and following their merger with LCI
International in various positions including sales support representative, sales
manager for the Mid-Atlantic regional dealer sales division and manager of
dealer sales for LCI's northeast region.
William H. Oberlin has been a Director on our board since September
1988. Mr. Oberlin is founder, chairman and chief executive officer of Bullseye
Telecom. From 1996 to 1998, Mr. Oberlin was president and chief executive
officer of Midcom Communications. Mr. Oberlin served as president and chief
operating officer of Frontier Communications, during 1995 after its acquisition
of Allnet where Mr. Oberlin had served as chief operating officer from 1988 to
1995. Mr. Oberlin has also worked at Bell System, Sprint, DHL Business Systems
and Cable and Wireless. Mr. Oberlin is a joint owner of Telecom Locator of Des
Moines, Iowa, and has served on the boards of directors of Savvis, LDMI, Allnet
and Frontier. Presently, Mr. Oberlin serves on the board of directors of
Bullseye, and is on the board of advisors of Western Integrated Networks, LLC.
Joseph A. Lawrence has been a Director on our board since July 1999.
Mr. Lawrence is currently retired. Mr. Lawrence became senior vice president of
finance and corporate development of LCI International in 1997 and served in
that capacity until LCI was acquired by Qwest Communications Corporation in
March 1998. Mr. Lawrence served as LCI's chief financial officer from 1993 to
1997. From 1983 to 1993, Mr. Lawrence was employed in numerous positions with
MCI Telecommunications Corporation including senior vice president of finance,
vice president of finance and administration for the Consumer Division and vice
president of finance for the Mid-Atlantic Division.
Jack Tyrrell has been a Director on our board since October 1998.
Currently a managing partner at Richland Ventures, Mr. Tyrrell has been a
founding partner of five venture capital funds since 1985. Mr. Tyrrell serves
on the boards of Genus.net, PRIMIS, Aperture Credentialing, Media1st.com,
TriVergent Communications, First Insight, Darwin Networks and National Health
Investors. Mr. Tyrrell has served on the boards of Regal Cinemas, Premier
Parks, Oxford Health Plans, Medaphis and Regent Communications. Mr. Tyrrell was
nominated to serve on our board by Richland Ventures II, L.P., which is
entitled to nominate one member of our board under our stockholders' agreement.
Robert S. Sherman has been a Director on our board since July 1999.
Mr. Sherman is a founding general partner of Boston Millennia Partners. Mr.
Sherman's previous experience includes five years at Boston Capital Ventures
and eight years as a general partner at Hambro International Venture Fund. Mr.
Sherman serves on the boards of several private companies. Mr. Sherman was
nominated to serve on our board by Boston Millennia Partners Limited
Partnership and Boston Millennia Associates I Partnership, which entities are
entitled to nominate one member of our board under our stockholders' agreement.
Alan N. Colner has been a Director on our board since July 1999. Since
August 1996, he has served as managing director, Private Equity Investments at
Moore Capital Management, Inc. Before joining Moore, he was a managing director
of Corporate Advisors, L.P., the general partner of Corporate Partners, a
private equity fund affiliated with Lazard Freres & Co. LLC. Mr. Colner also
serves as a director of GoTo.com, Inc., iVillage Inc. and Nextcard Inc. Mr.
Colner was nominated to serve on our board by Moore Global Investments, Ltd.
and Remington Investment Strategies, L.P., which entities are entitled to
nominate one member of our board under our stockholders' agreement.
Watts Hamrick has been a Director of our board since October 1998. Mr.
Hamrick has been a senior vice president with First Union Capital Partners, an
equity and mezzanine capital investment group of First Union Corp., since March
1995. Mr. Hamrick joined First Union Capital Partners in 1988. Prior to joining
First Union Capital Partners, Mr. Hamrick was a senior tax consultant at Price
Waterhouse in New York. Mr. Hamrick was nominated to serve on our board by
First Union Capital Partners, which is entitled to nominate one member of our
board under our stockholders' agreement.
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Lawrence J. Bouman has been our Senior Technology Advisor since
October 1999. In that capacity, Mr. Bouman advises the board of directors on
new technology to aid us in our development as a facilities-based service
provider. Mr. Bouman also works on a regular basis with our management and
employees in the analysis of technology. He was senior vice president and chief
technology officer of LCI International from October 1995 to January 1999.
Prior to that, Mr. Bouman spent twenty years at MCI, most recently holding
positions such as vice president for network operations in Richardson, Texas
and senior vice president for network engineering in Washington, DC.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors currently has three standing committees: an
executive committee, a compensation committee and an audit committee.
The executive committee has the authority to act as a liaison between
the board and executive management and exercise such powers as shall be
delegated to it from time to time by the board. Pursuant to our articles of
incorporation and the transaction agreement, the executive committee will be
comprised of our chief executive officer and may be comprised of four other
representatives. One member may be designated by each of Richland Ventures,
First Union Capital Partners, Boston Millenia Partners and Moore Capital
Management for as long as that investor is entitled to designate a director to
the board. The current members of the executive committee are Messrs. Hamrick,
Tyrrell, Colner and Sherman.
The compensation committee administers the 1998 Employee Incentive
Plan, or Plan, and reviews and recommends the compensation arrangements for
management, including salaries, bonus plans and options granted outside of the
Plan, if any. The current members of the compensation committee are Messrs.
Tyrrell, Hamrick and Colner.
The audit committee, among other things, recommends the firm to be
appointed as independent accountants to audit our financial statements,
discusses the scope and results of the audit with the independent accountants,
reviews with management and the independent accountants our interim and
year-end operating results, assesses the adequacy of our internal accounting
controls and audit procedures and reviews the non-audit services to be
performed by the independent accountants. The audit committee is currently
comprised of Messrs. Lawrence, Oberlin and Sherman.
COMPENSATION OF DIRECTORS
Joseph A. Lawrence and William H. Oberlin each receive $2,000 per
month for services provided as a director. Other members of our board of
directors currently receive no compensation for services provided as a director
or as a member of any board committee. We will reimburse the members of our
board of directors for their reasonable out-of-pocket expenses incurred in
connection with attending board or committee meetings and related activities.
Additionally, we are obligated to maintain our present level of directors' and
officers' liability insurance.
EXECUTIVE COMPENSATION
The following table sets forth compensation earned, awarded or paid
for services rendered to us in all capacities for the year ended December 31,
1999 by our Chief Executive Officer and our other executive officers whose
annual salary and bonus, on a prorated basis, exceeded $100,000 for all
services rendered to us during such period.
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<PAGE> 70
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------- OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SARS (#) COMPENSATION(1)
- --------------------------- ---- ---------------
<S> <C> <C> <C> <C> <C>
Charles S. Houser........ 1999(2) $ 62,188 $ 7,500 -- $ --
Chief Executive Officer and
Chairman of the Board
Shaler P. Houser......... 1999 156,380 18,000 -- 4,752
Sr. Vice President of
Corporate Development
Clark H. Mizell.......... 1999 131,050 13,200 -- 4,365
Sr. Vice President and Chief
Financial Officer
Russell W. Powell........ 1999 144,000 33,800 -- 4,320
Sr. Vice President of
Sales (3)
Daniel E.H. Sterling..... 1999 102,000 7,650 -- 3,289
Vice President of
Dealer Sales (4)
</TABLE>
- --------------------
(1) Reflects our matching contributions made under our 401(k) plan on
behalf of such executive officer.
(2) Mr. C. Houser joined us on May 13, 1999 and the compensation disclosed
is for the period from that date through December 31, 1999.
(3) During 1999, Mr. Powell served as President.
(4) During 1999, Mr. Sterling was Vice President of Sales.
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<PAGE> 71
The following table sets forth information regarding option grants
with respect to common stock made by us to certain executive officers during
the fiscal year ended December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED EMPLOYEES BASE PRICE EXPIRATION ------------------------
NAME (#) IN 1999 ($/SH)(1) DATE(2) 5% 10%
- ----------------------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles S. Houser 400,000 15.0% $3.75 8/13/09 $75,000 $150,000
40,000 1.5% 3.75 11/13/09 7,500 15,000
40,000 1.5% 3.75 12/15/09 7,500 15,000
Shaler P. Houser 50,000 1.9% 3.75 12/15/09 9,375 18,750
Clark H. Mizell 40,000 1.5% 2.40 1/1/09 4,800 9,600
1,041 0.1% 2.40 2/5/09 125 250
20,000 0.8% 3.75 12/15/09 3,750 7,500
Russell W. Powell 50,000 1.9% 3.75 12/15/09 9,375 18,750
Daniel E.H. Sterling 18,000 0.7% 2.40 1/1/09 2,160 4,320
</TABLE>
- ------------------------
(1) The exercise base price was set at our determination of the fair
market value of our common stock on the date of grant. All options set
forth in the table above vest with respect to 20% of the underlying
shares on each of the first five anniversaries following the grant
date and expire on the tenth anniversary of the grant date.
(2) The plan pursuant to which the options were granted sets forth certain
earlier expiration dates upon the option holder's termination of
employment.
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<PAGE> 72
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED ON OPTIONS AT OPTIONS AT
NAME EXERCISE (#) DECEMBER 31, 1999 DECEMBER 31, 1999(1)
- ---- ------------ ----------------- --------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C>
Charles S. Houser -- 0 480,000 $ -- $ --
Shaler P. Houser -- 160,000 690,000 216,000 864,000
Clark H. Mizell -- 38,000 213,041 57,000 283,405
Russell W. Powell -- 120,000 530,000 162,000 648,000
Daniel E.H. Sterling -- 60,222 258,888 135,333 565,632
</TABLE>
- --------------------
(1) Calculated based on a price of $3.75 per share, the fair market value
of our capital stock on December 31, 1999 as determined by our board
of directors, minus the per share exercise price, multiplied by the
number of shares underlying the option.
STOCK PLANS
EMPLOYEE INCENTIVE PLAN
In January 1998, we established our Employee Incentive Plan, under
which we may issue stock options, bonus stock awards and restricted stock
awards to our employees and certain other associated persons. The plan is
administered by our board of directors and terminates on January 12, 2008,
subject to our board's right to terminate it at an earlier date. Our board, in
its sole discretion, has the authority to determine the terms and provisions of
all options and stock awards, subject to specific limitations set forth in the
plan and applicable law. The plan provides for a maximum of ten million shares
of Company common stock to be issued thereunder. At March 31, 2000, we have
granted options to purchase 8,784,458 shares of common stock under the plan. No
bonus stock or restricted stock awards have been granted. In the event that any
options or awards granted under the plan terminate, expire or are canceled, new
options or awards may be granted with respect to the shares covered by such
options or awards. However, to the extent that options or awards granted under
the plan are exercised or become vested, the stock available for grant under
the plan is reduced. The plan contains standard anti-dilution provisions to
take into account stock dividends, stock splits, recapitalizations,
reorganizations, mergers, split ups and similar matters.
Incentive stock options, bonus stock awards and restricted stock
awards may be granted only to our employees. Non-incentive stock options may be
granted to employees and other persons selected by our board of directors.
Options granted under the employee option plan may be either incentive stock
options or non-incentive stock options, as determined by the board. Of the
total options granted through March 31, 2000, 4,903,125 were incentive stock
options and 3,881,333 were non-incentive stock options.
Incentive stock options granted under the plan are intended to qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code, and are subject to the provisions of the Internal Revenue Code
that applicable to such options. The exercise price of an incentive stock
option granted to an individual who owns shares possessing more than 10% of the
total combined voting power of all classes of our stock will be at least 110%
of the fair market value of a share of common stock on the date of grant. The
exercise price of an incentive stock option granted to an individual other than
a 10% owner and of a non-qualified stock options will be at least 100% of the
fair market value of a share of common stock on the date of grant (as
determined by the board of directors).
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<PAGE> 73
Stock Options. Both incentive and non-incentive stock options are
evidenced by written stock option agreements in such form as may be determined
by the board of directors. The term, vesting schedule and exercise price of
stock options are determined by the board (subject to the exercise price
limitations discussed above with respect to incentive stock options); however,
substantially all options to date have ten-year term and vest 20% per year over
the first five years of the term, and have a fair market value exercise price.
In the event of a merger of us and another company where we are not the
surviving corporation, the sale of substantially all of our assets, or a change
in our ownership by more than 50%, all outstanding options become immediately
exercisable.
All shares issued pursuant to the exercise of stock options are
subject to our right to buy back such shares within six months after the
optionee's employment with us is terminated for any reason. The purchase price
for such repurchased shares is generally the most recent evaluation of our
Common Stock which has been made for general stock transaction purposes (unless
the board determines that an appraisal by an independent appraiser should be
made). All shares issued pursuant to stock options are also subject to our
right of first refusal and may not be sold, assigned or otherwise transferred
unless first offered to us on the same terms and conditions.
The board may impose such conditions and restrictions upon the
exercise of options as it may deem advisable. However, special rules apply to
incentive stock options. The plan provides that if an employee dies while still
our employee, incentive stock options granted under the plan may be exercised
after his death only to the extent that they were exercisable at death and then
for a period not to exceed the lesser of (1) the remaining term of such option,
or (2) nine months after the employee's death. Except where employment is
terminated as a result of the death of the employee, incentive stock options
are not exercisable after the employee ceases to be our employee, unless the
board, in its sole discretion, extends the exercise date of such incentive
stock options for a period of 90 days following the date of such termination of
the employee's employment.
Options and awards are exercisable only by the employee to whom it is
granted and are not assignable other than by will or by the laws of descent and
distribution. Grants of tandem stock options are prohibited. Also, incentive
and non-incentive stock options may not be granted under any sort of
arrangement where the exercise of one affects the right to exercise the other.
Restricted Stock Awards. Restricted stock awards are evidenced by
written agreements in such form as may be determined by the board of directors.
The term, forfeiture schedule and purchase price of the restricted stock are
determined by the board. In the event of a merger of us and another company
where we are not the surviving corporation, the sale of substantially all of
our assets, or a change in our ownership by more than 50%, the risks of
forfeiture with respect to restricted stock lapses.
Shares of restricted stock are subject to the same assignability,
buyback and right of first refusal limitations are as applicable to the stock
options (described above). A grantee of restricted stock shall have the right
to vote such shares and to receive all dividends, cash or stock, paid or
delivered thereon. However, such shares may not be sold, assigned, pledged,
hypothecated or otherwise transferred prior to the vesting of such shares.
Bonus Stock Awards. Bonus stock awards are evidenced by written
agreements in such form as may be determined by the board of directors. Bonus
shares are awarded at the fair market value of such shares at date of award.
The bonus shares are issued without the payment of any cash consideration by
the grantee (subject to our right to require the grantee to pay to us certain
amounts to satisfy our withholding obligations with respect to federal and
state income taxes. The value of the bonus shares at the time of award is
reported on the grantee's W-2 for the year in which the award is made.
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<PAGE> 74
All shares of bonus stock are subject to our right to repurchase these
shares upon the termination of the grantee's employment for any reason, as
follows: (1) If termination of employment occurs within three years from date
of the award, the purchase price is the value of such bonus shares on the
initial award date, plus interest at the annual prime rate less 1% during the
period from the initial award date through the date of repurchase, or (2) if
termination of employment occurs after three years from date of award, the
price to be paid upon repurchase is the "fair market value" as described in the
repurchase right applicable to the stock options (described above). All shares
of bonus stock are also subject to the same right of first refusal applicable
to stock options.
401(k) PLAN
We have adopted a tax-qualified employee savings and retirement plan,
or 401(k) plan, covering all of our full-time employees. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation up to the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) plan. The 401(k) plan is intended to qualify under
Section 401 of the Code so that contributions by employees to the 401(k) plan
and income earned on plan contributions are not taxable to employees until
withdrawn from the 401(k) plan. The trustees under the 401(k) plan, at the
direction of each participant, invest such participant's assets in the 401(k)
plan in selected investment options. The employees' contributions are fully
vested and nonforfeitable at all times.
EMPLOYMENT AGREEMENTS
On September 17, 1999, we entered into an employment agreement with
Clark H. Mizell as Senior Vice President and Chief Financial Officer, on July
21, 1999 with Charles S. Houser as Chief Executive Officer, on September 9, 1999
with Daniel E.H. Sterling as Vice President of Dealer Sales, on July 20, 1999
with Russell W. Powell as President and on July 20, 1999 with Shaler P. Houser
as Senior Vice President of Corporate Development.
Pursuant to these agreements, each employee is paid an initial annual
base salary (which may be increased but not decreased), a bonus at the board's
discretion and certain benefits. These agreements contain standard
confidentiality and non-disclosure provisions, and standard provisions
providing for assignment of any intellectual property created by each employee
in his or her capacity as an officer of TriVergent.
The employment agreements have rolling terms of two years. We may fix
the term at any time. The agreement may be terminated immediately if the
employee is terminated for "cause," as defined in the agreement. The definition
of "cause" differs depending on whether it is considered before or after a
"change in control." After a "change in control" the standard for cause is more
difficult to achieve, and there are increased rights to cure. If the agreement
is terminated due to the employee's death or disability, he or she (or his or
her estate, as the case may be), is entitled to compensatory payments for the
remainder of the term. If we terminate the agreement prior to a "change in
control" for any reason other than for "cause" after it fixes the term, the
employee is entitled to receive the compensation and benefits payable under the
agreement for the remainder of the term. If the employee terminates the
agreement because we materially breach the agreement or there is an
"involuntary termination," as defined in the agreement, he or she is entitled
to severance payments of 24 months, immediate vesting of his or her options,
and other benefits. The employee is entitled to have his or her severance
payments grossed up for tax purposes if his or her termination occurs after a
"change in control."
A "involuntary termination" is generally defined to mean the
termination of the employee's employment by the employee following a "change in
control" which, in the sole judgment of the employee, is due to (i) a change of
the employee's responsibilities, position, authority or duties (including
changes resulting from the assignment to the employee of any duties
inconsistent with his or her positions, duties or responsibilities as in effect
immediately prior to the "change in control"); or (ii) a change in the terms or
71
<PAGE> 75
status (including the rolling term status) of the agreement; or (iii) a
reduction in the employee's compensation or benefits; or (iv) a forced
relocation of the employee outside the Greenville metropolitan area; or (v) a
significant increase in the employee's travel requirements.
NONCOMPETITION AGREEMENTS
We have entered into substantially identical, standard noncompetition
agreements with each of our executive officers that preclude such officer from
participating in, or in any respect being associated with, any
telecommunications business that competes with us within any metropolitan
statistical service area in which we provide services on the date of the
termination of the officer's employment. This period of noncompetition is
applicable during such officer's employment with us and for the two year period
following termination of his or her employment. The applicable officer may,
however, be a passive investor owning less than 5% of a competing business. The
agreement prohibits the solicitation of our employees or customers under
certain circumstances, and contains standard confidentiality provisions with
respect to proprietary and confidential information. The agreement also
contains certain provisions that treat as our property all property, including
intellectual property, created by the officer during his or her employment that
relates to our business.
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<PAGE> 76
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK PURCHASES
Since our inception, certain executive officers, directors and
shareholders beneficially owning 5% or more of a class or series of our stock
have purchased our capital stock. Each purchase of preferred stock was made
pursuant to a preferred stock purchase agreement containing representations,
warranties and covenants typical of transactions of this type. In these
transactions, we and the purchasers entered into registration rights agreements
and a stockholders' agreement. The stockholders' agreement will terminate
automatically on the closing of this offering. The registration rights
agreements are described below, under the heading "-Registration Rights
Agreements."
In October 1997, Shaler P. Houser, Charles S. Houser and Charles L.
Houser purchased 1,900,000, 1,200,000 and 1,800,000 shares of our common stock,
respectively, for $0.125 per share. Janie P. Houser, Jennifer L. Houser, and
Seruus Ventures, LLC purchased 600,000, 100,000 and 200,000 shares of
TriVergent common stock, respectively, for $0.098 per share. Russell Powell
purchased 800,000 shares of TriVergent common stock for $0.005 per share. Janie
P. Houser is the wife of Charles S. Houser and the mother of Shaler P. and
Charles L. Houser. Jennifer L. Houser is the daughter of Charles S. Houser and
the sister of Shaler P. and Charles L. Houser. Seruus Ventures, LLC is a
Greenville, South Carolina-based venture capital firm of which Charles S.
Houser and Shaler P. Houser are principals.
In March 1998, Seruus Telecom Fund, L.P., Russell W. Powell and Judith
C. Slaughter purchased 750,000, 100,000 and 100,000 shares of our common stock,
respectively, for $1.00 per share. Charles S. Houser and Shaler P. Houser are
principals of Seruus Capital Partners, LLC, which is the manager of Seruus
Telecom Fund, L.P.
In May 1998, Shaler P. Houser, Charles S. Houser, Seruus Telecom Fund,
L.P., the Houser Charitable Remainder Unitrust (of which Charles S. Houser and
Janie P. Houser are trustees), Jennifer L. Houser and Russell Powell purchased
4,000, 55,114, 111,110, 44,444, 44,446 and 4,000 shares of our common stock,
respectively, for $2.25 per share.
In October 1998, we sold 2,083,334 shares of our Series A Convertible
Preferred Stock to each of Richland Ventures II, L.P. and First Union Capital
Partners for $2.40 per share. In December 1998, we sold Charles S. Houser, the
Houser Charitable Remainder Unitrust and Willou & Co. 41,667, 41,667 and
416,670 shares of its Series A Convertible Preferred Stock, respectively, for
$2.40 per share.
In July 1999, Ronald Kirby and his wife Victoria Kirby received
126,219 and 136,739 shares of TriVergent common stock, respectively, in
connection with our acquisition of DCS, Inc. These shares were valued at $2.40
per share by the parties to the merger.
In July 1999, we sold Richland Ventures II, L.P., Richland Ventures
III, L.P. (an affiliate of Richland Ventures II, L.P.), First Union Capital
Partners, Inc., Moore Global Investments, Ltd., Remington Investment
Strategies, L.P. (an affiliate of Moore Global Investments, Ltd.), Boston
Millennia Partners Limited Partnership, Boston Millennia Associates I
Partnership (an affiliate of Boston Millennia Partners Limited Partnership),
John R. Tyrrell (an affiliate of Richland Ventures II, L.P. and Richland
Ventures III, L.P.), Charles S. Houser, the Houser Charitable Remainder
Unitrust, Joseph A. Lawrence and William H. Oberlin 666,666, 2,666,667,
1,466,667, 2,666,667, 2,666,667, 1,844,257, 22,410, 20,000, 166,666, 66,666,
53,333 and 26,667 shares of our Series B Convertible Preferred Stock,
respectively, at $3.75 per share.
In February 2000, we sold Richland Ventures II, L.P., Richland
Ventures III, L.P., First Union Capital Partners, Inc., Moore Global
Investments, Ltd., Remington Investment Strategies, L.P., Boston Millennia
Partners Limited Partnership, Boston Millennia Associates I Partnership,
Toronto Dominion Capital, Inc.,
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<PAGE> 77
Newcourt Commercial Finance, BancAmerica Capital Investors, William H. Oberlin
and Joseph A. Lawrence 588,235, 1,035,295, 1,176,471, 1,035,295, 1,035,295,
1,279,080, 15,038, 2,352,941, 1,176,471, 1,176,471, 70,588 and 50,000 shares of
our Series C Convertible Preferred Stock, respectively, for $4.25 per share.
In March 2000, we sold Moore Technology Venture Fund II L.P. (an
affiliate of Moore Global Investments, Ltd. and Remington Investment
Strategies, L.P.), CIBC WMC Inc., Nortel Networks Inc., John R. Tyrrell, Portia
B. Ortale, Laura Farish Chadwick Management Trust, The Chadwick 1998 Children's
Trust, Patrick S. Hale, Mark Eric Isaacs, Linda F. Swafford, Beverly Ann
Schrichte, G. Michael Cassity, Riley M. Murphy, Ronald Kirby, G. Randolph
McDougald and J.W. Adams 282,352, 1,764,706, 1,176,471, 51,765, 28,236, 11,765,
11,765, 5,882, 5,882, 1,176, 1,176, 212,940, 35,000, 52,941, 23,529 and 20,000
shares of our Series C Convertible Preferred Stock, respectively, for $4.25 per
share. Portia B. Ortale, Laura Farish Chadwick Management Trust, The Chadwick
1998 Children's Trust, Patrick S. Hale, Mark Eric Isaacs, Linda F. Swafford and
Beverly Ann Schrichte are all affiliates of Richland Ventures II, L.P. and
Richland Ventures III, L.P.
In April 1998, we issued Charles S. Houser a warrant for 100,000
shares of our common stock with an exercise price of $2.25 per share as
consideration for a personal guaranty of a $1,000,000 line of credit from a
commercial bank. In March 1999, we issued each of Charles S. Houser and the
Houser Charitable Remainder Unitrust warrants for 9,000 shares of our common
stock with an exercise price of $2.00 per share. In April 1999, we issued each
of Richland Ventures II, L.P. and First Union National Bank warrants for 18,000
shares of our common stock with an exercise price of $2.00 per share. In May
1999, TriVergent issued Nortel Networks Inc. a warrant for 652,089 shares of
our common stock with an exercise price of $2.00 per share. Charles S. Houser,
the Houser Charitable Remainder Unitrust, Richland Ventures II, L.P. and First
Union National Bank each purchased an aggregate principal amount of our Series
1999 Notes equal to $250,000, $250,000, $500,000 and $500,000 respectively.
Nortel Networks Inc. purchased our Series 1999A Note in the principal amount of
$4,000,000 and entered into a credit facility as TriVergent Communications,
Inc.'s creditor providing for a line of credit of up to $42,000,000.
REGISTRATION RIGHTS AGREEMENTS
We have entered into substantially similar registration rights
agreements with a number of the purchasers of our capital stock, including all
purchasers of our preferred stock. These agreements require us to register our
securities held by these shareholders, subject to specified conditions and
limitations. After completion of this offering, all our preferred stock will be
converted to common stock, and these registration rights will relate to the
sale of shares of our common stock. These agreements will continue in effect
after this offering. These agreements generally provide for three "types" of
registration rights: (1) "demand rights," where a specified percentage of the
shareholders party to an agreement can require us to register their shares, (2)
"S-3 rights," which is a short-form registration statement available under
certain circumstances and (3) "piggy-back rights," which entitle the holders to
include their shares in a primary or secondary registered public offering of
our stock. Subject to certain limitations, we are required to bear all
registration expenses, including the cost of independent legal counsel for the
selling holders of registrable shares, and other expenses in connection with
these registrations (but excluding underwriting discounts and commissions). We
must also provide appropriate indemnification to our selling shareholders under
these agreements. These registration rights also contain other provisions
typical of such agreements. The table below sets forth information with respect
to these registration rights agreements.
The registration rights under these agreements have been waived, and
the shareholders have agreed not to sell their shares for certain periods as
described under the heading "Shares Eligible for Future Sale--Lock-Up
Agreements."
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<TABLE>
<CAPTION>
AMOUNT SHARES OF COMMON
NUMBER OF SHELF (S-3) PIGGY-BACK REQUIRED TO STOCK SUBJECT TO THE
HOLDERS DEMAND RIGHTS RIGHTS RIGHTS DEMAND AGREEMENT
------- ------------- ----------- ----------- ----------- --------------------
<S> <C> <C> <C> <C> <C>
Seruus Telecom Fund, L.P. 1 None Yes Majority 880,500
50% of Series A
Holders of Series A registrable
Preferred Stock 3 Unlimited Yes shares 4,711,872
30% of Series B
Holders of Series B registrable
Preferred Stock 3 Unlimited Yes shares 13,866,663
30% of Series C
Holders of Series C registrable
Preferred Stock 3 Unlimited Yes shares 15,776,471
</TABLE>
TRANSACTIONS WITH AFFILIATES
On November 13, 1998, we entered into an arrangement with Seruus
Ventures, LLC, an investment services firm, to provide investment-related
services to us. During 1998 and 1999, we paid $13,788 and $61,448,
respectively, to Seruus Ventures under this arrangement. Charles S. Houser and
Shaler P. Houser are principals of Seruus Ventures, LLC.
In connection with Riley M. Murphy's employment, we loaned Ms. Murphy
$148,750 at an interest rate of 10% per year, with the principal on such loan
being due and payable on March 15, 2003. Interest payments are payable on each
anniversary of the note until maturity. The proceeds of this loan were used to
purchase our preferred stock.
In connection with Michael Cassity's employment, we loaned Mr. Cassity
$749,998 at an interest rate of 8.12% per year, with the principal on such loan
being due and payable on the earlier of March 6, 2003 and sixty days after the
termination of Mr. Cassity's employment with us. We, in our sole discretion,
may extend the maturity date of the note one or more times by a period of one
year. Interest is payable annually in arrears. The proceeds of this loan were
used to purchase our preferred stock.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock, including preferred stock on an as converted
basis, as of March 31, 2000, and the percentages of such stock held at that
date as adjusted to reflect the sale of the shares offered by us in this
offering for:
- each person who is known by us to own beneficially more than
5% of any class of our capital stock, including preferred
stock;
- each of our directors;
- each executive officer named in the compensation table; and
- all directors and executive officers as a group.
Unless otherwise indicated below, each entity or person listed below
maintains a mailing address of c/o TriVergent Corporation, 200 North Main
Street, Greenville, SC 29601. Unless otherwise indicated below, to our
knowledge each person or group identified possesses sole voting and investment
power with respect to the shares beneficially owned by such stockholder,
subject to community property laws where applicable.
The numbers of shares and percentages are determined on the basis of
(a) 11,864,960 shares of common stock outstanding on March 31, 2000, (b)
34,354,806 shares of common stock issuable on the automatic conversion, on the
issuance of the shares offered by this prospectus, of all outstanding shares of
preferred stock and accrued dividends thereunder (calculated on the basis of an
assumed public offering price of $ per share), (c) shares offered by this
prospectus, assuming no exercise of the underwriters' over-allotment option,
and (d) treating shares issuable pursuant to options or warrants that are
exercisable currently or within 60 days of March 31, 2000, as owned by the
person holding those securities and as outstanding for computing the percentage
ownership of that person, but not the percentage ownership of any other person.
<TABLE>
<CAPTION>
PERCENT OF COMMON STOCK
NUMBER OF OUTSTANDING
SHARES -----------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------ ------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Charles S. Houser 1,173,349 (1) 2.53% %
G. Michael Cassity 294,118 *
Shaler P. Houser 2,219,834 (2) 4.77%
Clark H. Mizell 56,208 (3) *
Russell W. Powell 1,144,000 (4) 2.46%
Riley M. Murphy 35,000 *
Judith C. Slaughter 224,044 (5) *
Randy McDougald 73,529 (6) *
Vincent M. Oddo 39,000 (7) *
Ronald Kirby 335,900 (8) *
J.W. Adams 20,000 *
William Oberlin 103,255 (9) *
Joseph Lawrence 103,333 *
Jack Tyrrell 7,044,510 (10) 15.24%
Robert S. Sherman 2,734,118 (11) 5.97%
Alan N. Colner 7,686,276 (12) 16.61%
Watts Hamrick 4,726,472 (13) 10.23%
ALL DIRECTORS & EXECUTIVE OFFICERS AS A GROUP 28,792,554 61.00%
(17 PEOPLE)
</TABLE>
76
<PAGE> 80
<TABLE>
<CAPTION>
PERCENT OF COMMON STOCK
NUMBER OF OUTSTANDING
SHARES -----------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------ ------------
<S> <C> <C> <C>
5% OWNERS (NOT INCLUDED ABOVE)
Houser Group 7,598,670 (14) 16.26%
Moore Group 7,686,276 (15) 16.61%
Richland Group 7,044,510 (16) 15.24%
First Union Capital Partners, Inc. 4,726,472 (17) 10.23%
Boston Millennia Group 2,760,785 (18) 5.97%
Toronto Dominion Capital (USA), Inc. 2,352,941 5.09%
</TABLE>
- ---------
* Denotes less than one percent.
(1) Includes only shares directly owned by Charles S. Houser and 109,000
shares issuable upon the exercise of options and warrants exercisable
within 60 days of March 31, 2000. See note 14 for a description of
other shares that might be construed as beneficially owned by Mr.
Houser.
(2) Includes only shares directly owned by Shaler P. Houser and 320,000
shares issuable upon the exercise of options and warrants exercisable
within 60 days of March 31, 2000. See note 14 for a description of
other shares that might be construed as beneficially owned by Mr.
Houser.
(3) Includes 10,000 shares in Mr. Mizell's SSB IRA Rollover and 46,208
shares issuable upon the exercise of options exercisable within 60
days of March 31, 2000.
(4) Includes 240,000 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 2000.
(5) Includes 124,444 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 2000.
(6) Includes 50,000 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 2000.
(7) Includes 29,000 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 2000.
(8) Includes 136,739 shares owned by Mr. Kirby's wife Victoria Kirby,
20,000 shares issuable upon the exercise of options held by Mr. Kirby
and exercisable within 60 days of March 31, 2000. Mr. Kirby disclaims
beneficial ownership of all shares beneficially owned by Ms. Kirby.
(9) Includes 6,000 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 2000.
(10) Includes 7,044,510 shares beneficially owned by the Richland Group
(see note 16 below). Mr. Tyrrell disclaims beneficial ownership of all
of these shares.
(11) Represents shares beneficially owned by the Boston Millennia Group
(see note 18 below). Mr. Sherman disclaims beneficial ownership of all
of these shares.
(12) Includes 7,686,276 shares beneficially owned by the Moore Group (see
note 15 below). Mr. Colner disclaims beneficial ownership of all of
these shares.
(13) Includes 4,726,472 shares beneficially owned by First Union Capital
Partners, Inc. (see note 17 below). Mr. Hamrick disclaims beneficial
ownership of all of these shares.
(14) The following table sets forth common stock beneficial ownership
information with respect to all members of the Houser family and
entities controlled by members of the Houser family. Each person
listed below disclaims beneficial ownership of all shares not shown on
the table below as being directly owned by that person.
77
<PAGE> 81
<TABLE>
<CAPTION>
PERCENT OF COMMON STOCK
NUMBER OF OUTSTANDING
SHARES -----------------------
BENEFICIALLY PRIOR TO AFTER
NAME RELATIONSHIP OWNED OFFERING OFFERING
- ---- ------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Charles S. Houser 1,173,349 2.53%
Shaler P. Houser Charles S. Houser's son 2,219,834 4.77%
Charles L. Houser Charles S. Houser's son 1,605,000 3.47%
Seruus Telecom Fund, L.P. Charles. S and Shaler P. Houser are 861,110 1.86%
principals
Janie P. Houser Charles S. Houser's wife 549,098 1.19%
Houser Enterprises, L.P. Family Limited Partnership 360,000 * *
Shaler P. Houser, general partner
Melissa Houser Charles L. Houser's wife 240,000 * *
Seruus Ventures, LLC Charles S. and Shaler P. Houser are 150,000 * *
principals
Jennifer L. Houser Charles S. Houser's daughter 100,000 * *
Houser Charitable Remainder Charles S. and Janie P. Houser are 152,777 * *
Unitrust trustees
Irrevocable Trust FBO Jennifer L. Trust for Charles S. Houser's 50,000 * *
Houser daughter
Charles Schwab & Co., Inc. FBO Trust for Charles S. Houser 44,446 * *
Charles S. Houser
Mr. & Mrs. Robert L. Sims Charles L. Houser's parents-in-law 35,000 * *
Charles S. Houser Family Trust Estate Planning Trust 13,333.33 * *
Agreement I
Charles S. Houser Family Trust Estate Planning Trust 13,333.33 * *
Agreement II
Charles S. Houser Family Trust Estate Planning Trust 13,333.33 * *
Agreement III
Nicole Houser Shaler P. Houser's wife 6,000 * *
Charles Davis Houser Shaler P. Houser's minor son 4,166 * *
Charles Davis Houser Trust Trust for Shaler P. Houser's son 4,000 * *
David R. Houser Charles S. Houser's brother 1,000 * *
John R. Houser Charles S. Houser's brother 1,000 * *
Morton Houser Charles S. Houser's brother 1,000 * *
Sue M. Houser Charles S. Houser's mother 1,000 * *
Total 7,598,670 16.26%
</TABLE>
- ----------------------
* Denotes less than one percent.
The number of shares shown as beneficially owned by the Houser
Charitable Remainder Unitrust includes 9,000 shares issuable upon
exercise or warrants. The numbers of shares shown as beneficially
owned by Charles S. Houser, Shaler P. Houser and Charles L. Houser
include 109,000, 320,000, and 80,000 shares, respectively, issuable
upon exercise of options which are exercisable within 60 days of March
31, 2000.
(15) Includes 1,850,981 shares owned by Moore Overseas Technology Venture
Fund, LDC, 1,850,981 owned by Moore Technology Venture Fund, LLC,
1,850,981 shares owned by Moore Global Investments, Ltd., 1,850,981
shares owned by Remington Investment Strategies, L.P. and 282,352
shares owned by Moore Technology Venture Fund II, L.P. All of the
foregoing entities are affiliates.
(16) Includes 3,701,962 shares owned by Richland Ventures III, L.P.,
3,204,901 shares owned by Richland Ventures II, L.P. and 18,000 shares
issuable upon exercise of warrants held by Richland Ventures II, L.P.,
71,765 shares owned by John R. Tyrrell, 28,236 shares owned by Portia
B. Ortale, 11,765 shares owned by the Laura Farish Chadwick Management
Trust, 11,765 shares owned by The Chadwick 1998 Children's Trust,
5,882 shares owned by Patrick S. Hale, 5,882 shares owned by Mark Eric
Isaacs, 1,176 shares owned by Linda Swafford and 1,176 shares owned by
Beverly Ann Schrichte. All of the foregoing entities and individuals
are affiliates.
(17) Includes 18,000 shares issuable upon exercise of warrants held by
First Union Capital Partners, Inc.
(18) Includes 2,696,670 shares owned by Boston Millennia Partners Limited
Partnership and 37,448 shares owned by Boston Millennia Associates I
Partnership.
78
<PAGE> 82
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Our total authorized capital stock consists of 100,000,000 shares of
common stock, par value $0.001 per share, and 50,000,000 shares of "blank
check" preferred stock. As of March 31, 2000, there were 11,864,960 shares of
our common stock outstanding, held of record by 68 stockholders. As of March
31, 2000, there were an aggregate of 34,354,806 shares of convertible preferred
stock outstanding consisting of 4,711,672 shares of Series A preferred stock,
13,866,663 shares of Series B preferred stock and 15,776,471 shares of Series C
preferred stock. All outstanding shares of preferred stock will be
automatically converted into an aggregate of 34,354,806 shares of common stock
upon the closing of this offering and will no longer be issued and outstanding.
After this conversion, we will have 50,000,000 shares of "blank check"
preferred stock authorized and unissued. After this offering, we will have
outstanding shares of common stock if the underwriters do not
exercise their over-allotment option, or shares of common stock if the
underwriters exercise their over-allotment option in full.
COMMON STOCK
The holders of outstanding shares of our common stock are entitled to
receive dividends out of assets legally available therefor at such time and in
such amounts as the board of directors may from time to time determine subject
to the prior rights of the holders of any preferred stock. The shares of common
stock are not convertible and the holders have no preemptive or subscription
rights to purchase any of our securities. However, our board of directors may,
without further action by our stockholders, grant such convertible preemptive
or subscription rights from time to time. Upon our liquidation, dissolution or
winding up, the holders of common stock are entitled to receive, pro rata, our
assets which are legally available for distribution, after payment of all debts
and other liabilities and subject to the rights of any holders of preferred
stock. Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of stockholders. There is no cumulative voting.
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "TRIV."
PREFERRED STOCK
At the closing of this offering, our outstanding shares of preferred
stock will be automatically converted into common stock. For a description of
the preferred stock please see note 7 to the notes to the financial statements
included elsewhere in the prospectus. Because there will be no shares of
preferred stock outstanding when we complete this offering, the following
information pertains to preferred stock we may issue in the future under our
certificate of incorporation.
Our board of directors has the sole authority, without shareholder
vote, to issue shares of authorized but unissued preferred stock to whomever
and for whatever purposes it, in its sole discretion, deems appropriate. The
relative rights, preferences and limitations of the preferred stock are
determined by our board of directors in its sole discretion. Among other
things, the Board may designate with respect to the preferred stock, without
further action of our shareholders, the dividend rate and whether dividends
shall be cumulative or participating or possess other special rights, the
voting rights, the rights and terms of redemption, the liquidation preferences,
any rights of conversion and any terms related thereto, and the price or other
consideration for which the preferred stock shall be issued. The preferred
stock could be utilized to impede the ability of third parties who attempt to
acquire control of us without the cooperation of our board of directors. Upon
completion of this offering, there will be no shares of preferred stock
outstanding, and we have no present intention to issue any shares of preferred
stock.
79
<PAGE> 83
WARRANTS
The table below lists all of the outstanding warrants to purchase our
common stock and the exercise prices and expiration dates of the warrants. All
of these warrants are currently exercisable.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF
UNDERLYING
NUMBER OF WARRANTS COMMON SHARES(#) EXERCISE PRICE EXPIRATION DATE
------------------ ------------- -------------- ---------------
<S> <C> <C> <C>
15 232,560 $ 2.00 from 3/16/02 to 5/3/02
2 652,089 2.00 5/27/06
2 200,000 2.25 none
</TABLE>
ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND DELAWARE GENERAL
CORPORATION LAW
OUR CERTIFICATE OF INCORPORATION AND DELAWARE GENERAL CORPORATION LAW
Certain provisions of Delaware law and our certificate of
incorporation could make the following more difficult:
- the acquisition of us by means of a tender offer;
- acquisition of us by means of a proxy contest or otherwise;
or
- the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
us to first negotiate with our board. We believe that the benefits of increased
protection of the potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
ELECTION AND REMOVAL OF DIRECTORS
Our certificate of incorporation provides that, except as otherwise
provided by law, newly created directorships resulting from an increase in the
authorized number of directors or vacancies on the board may be filled only by:
- a majority of the directors then in office, though less than
a quorum is then in office; or
- by the sole remaining director.
In addition, our certificate of incorporation states that directors
may only be removed for cause by at least two-thirds of the outstanding stock
entitled to vote.
STOCKHOLDER MEETINGS
Under our certificate of incorporation, only a majority of the board
of directors, which the corporation would have if there were no vacancies, may
call special meetings of stockholders.
80
<PAGE> 84
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS
Our by-laws will establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law,
an anti-takeover law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless the "business combination" or
the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder"
is a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held
by stockholders.
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT
Upon the completion of the offering, our certificate of incorporation
will eliminate the right of stockholders to act by written consent without a
meeting. This provision may have the effect of discouraging, delaying or making
more difficult a change in control of our company or preventing the removal of
incumbent directors even if a majority of our stockholders were to deem such an
action to be in our best interests.
UNDESIGNATED CAPITAL STOCK
The authorization of undesignated capital stock will make it possible
for our board of directors to issue stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
TriVergent. These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control of our company or management.
LIMITATION OF LIABILITY
As permitted by the Delaware general corporation law, our certificate
of incorporation provides that our directors shall not be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
- under Section 174 of the Delaware general corporation law,
relating to unlawful payment of dividends or unlawful stock
purchase or redemption of stock; or
- for any transaction from which the director derives an
improper personal benefit.
As a result of this provision, we and our stockholders may be unable
to obtain monetary damages from a director for breach of his or her duty of
care.
Our certificate of incorporation provides that we will indemnify of
our directors and officers to the fullest extent authorized by the Delaware
General Corporation Law, and we have purchased such insurance
81
<PAGE> 85
on behalf of our directors and officers. The indemnification provided under our
certificate of incorporation and bylaws includes the right to be paid expenses
in advance of any proceeding for which indemnification may be had, provided
that the payment of these expenses incurred by a director or officer in advance
of the final disposition of a proceeding may be made only upon delivery to us
of an undertaking by or on behalf of the director or officer to repay all
amounts so paid in advance if it is ultimately determined that the director or
officer is not entitled to be indemnified. If we do not pay a claim for
indemnification within 60 days after we have received a written claim, the
claimant may at any time thereafter bring an action to recover the unpaid
amount of the claim and, if successful, the director or officer will be
entitled to be paid the expense of prosecuting the action to recover these
unpaid amounts. In any such action, we shall have the burden of proving that
the claimant was not entitled to the requested indemnification or payment of
expenses under applicable law.
REGISTRATION RIGHTS
We are a party to certain registration rights agreements with certain
of our shareholders. See "Certain Relationships and Related
Transactions--Registration Rights Agreement."
STOCK TRANSFER AGENT
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C. New York, New York.
82
<PAGE> 86
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our common stock,
including shares issued upon the exercise of outstanding options, in the public
market following this offering, the market price of our common stock could
decline. These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
Upon completion of this offering, we will have outstanding an
aggregate of shares of our common stock, assuming the issuance of
shares of common stock offered by us, no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act; provided
however, that any shares purchased by our "affiliates" as that term is defined
in Rule 144 under the Securities Act, may be sold only in compliance with Rule
144 summarized below.
The additional shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act and are restricted shares.
Restricted shares can be resold pursuant to a registered transaction, or Rule
144 or 701. All these shares will be subject to lock-up agreements described
below, on the effective date of this offering. Giving effect to the lock-up
agreements, the restricted shares set forth in the table below will become
eligible for sale on the dates set forth below. In addition, holders of stock
options could exercise such options and sell certain of the restricted shares
issued for exercise as described below.
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED SHARES
NUMBER OF DAYS AFTER THE DATE OF THIS PROSPECTUS FOR SALE IN PUBLIC MARKET
------------------------------------------------ -------------------------
<S> <C>
Immediately after the date of this prospectus(1)
90 days, in some cases, to price and volume limitations
135 days, in some cases, to price and volume limitations
180 days, in some cases, to price and volume limitations
</TABLE>
- ---------------------
(1) Assumes no exercise of underwriters' option to purchase additional
shares in the offering or the sale of shares of underlying stock.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned shares
of our common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then
outstanding, which will equal approximately ___ shares
immediately after this offering; or
- the average weekly trading volume of our common stock on the
Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to
that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
83
<PAGE> 87
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, holders of shares of our common
stock will have the right to demand registration under the Securities Act of
1933 at our expense of all or a portion of the shares of common stock they own.
See "Certain Relationships and Related Transactions--Registration Rights
Agreements."
LOCK-UP AGREEMENTS
All of our officers, directors and stockholders have entered into
lock-up agreements under which they agreed not to offer, pledge, sell, contract
to sell, sell any contract or option to purchase, purchase any contract or
option to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of our common stock
or any securities convertible into or exercisable or exchangeable for shares of
our common stock, for a 180 day period after the date of this prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation Incorporated on behalf of the underwriters, subject to limited
exceptions. However, holders of such shares who have not been employees of ours
on or since the date of this prospectus may offer, sell or otherwise dispose of
25% of their shares on the later of the end of the 90-day period after the date
of this prospectus or on the second trading day after the first public release
of our quarterly results if the last reported sale price on the Nasdaq National
Market for 20 of the 30 trading days ending on the last trading day of this
90-day period is at least twice the price per share in the initial public
offering. These stockholders may also offer, sell or otherwise dispose of an
additional 25% of their shares after the end of the 135-day period after the
date of this prospectus if the price per share of common stock has achieved the
same target level. However, Donaldson, Lufkin & Jenrette Securities
Corporation, may in its sole discretion, at any time without notice, release
all or any portion of the shares subject to lock-up agreements. Furthermore,
any shares released under these conditions must be sold through Donaldson,
Lufkin & Jenrette Securities Corporation or any of its affiliates acting as
broker. For more information, please see "Underwriting."
RULE 701
In general, under Rule 701 of the Securities Act, any of our
employees, directors, consultants or advisors who purchases shares of our
common stock from us in connection with a compensatory stock or option plan or
other written agreement is eligible to resell those shares 90 days after the
effective date of this offering in reliance on Rule 144, without compliance
with some of the restrictions, including the holding period, contained in Rule
144.
Following this offering, we intend to file a registration statement on
Form S-8 under the Securities Act covering approximately shares of common
stock issued or issuable upon the exercise of stock options, subject to
outstanding options or reserved for issuance under the 1998 Employee Incentive
Plan. Accordingly, shares registered under such registration statement will,
subject to Rule 144 provisions applicable to affiliates, be available for sale
in the open market, except to the extent that such shares are subject to vesting
restrictions or the contractual restrictions described above. See
"Management--Stock Plans."
84
<PAGE> 88
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement dated , 2000, the underwriters named below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation, Credit Suisse First
Boston Corporation, First Union Securities, Inc., Thomas Weisel Partners LLC and
DLJdirect Inc., have severally agreed to purchase from us the respective number
of shares of common stock set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation........................................
Credit Suisse First Boston Corporation..................
First Union Securities, Inc.............................
Thomas Weisel Partners LLC..............................
DLJdirect Inc...........................................
----------------
Total..............................................
================
</TABLE>
The underwriting agreement provides that the obligations of the
several underwriters to purchase and accept delivery of the shares of our
common stock included in this offering are subject to approval of legal matters
by their counsel and to customary conditions. The underwriters are obligated to
purchase and accept delivery of all the shares of our common stock offered in
this prospectus, other than those covered by the over-allotment option
described below, if they purchase any of the shares of our common stock.
The underwriters propose to initially offer some of the shares of our
common stock directly to the public at the initial public offering price set
forth on the cover page of this prospectus and some of the shares of our common
stock to dealers (including the underwriters) at the initial public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and those dealers may reallow, a concession not in excess of $ per
share on sales to other dealers. After the initial public offering of our shares
to the public, the representatives of the underwriters may change the public
offering price and such concessions at any time without notice. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
Since December 1998, Thomas Weisel Partners has been named as a lead or
co-managing underwriter in 159 filed public offerings of equity securities, of
which 110 have been completed, and has acted as a syndicate member in an
additional 88 public offerings of equity securities. Thomas Weisel Partners
does not have any material relationship with us or any of our officers,
directors or other controlling persons, except with respect to its contractual
relationship with us pursuant to the underwriting agreement entered into in
connection with this offering.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation and a member of the selling group, is facilitating the
distribution of the shares sold in this offering over the Internet. The
underwriters have agreed to allocate a limited number of shares to DLJdirect
for sale to its brokerage account holders. An electronic prospectus is
available on the Internet site maintained by DLJdirect Inc. Other than the
prospectus in electronic format, the information on the Internet site relating
to our offering is not part of this prospectus, has not been approved or
endorsed by us or any underwriter and should not be relied on by prospective
purchasers.
85
<PAGE> 89
The following table shows the underwriting discount we will pay to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of our common stock:
<TABLE>
<CAPTION>
FEES PAID BY TRIVERGENT
-----------------------------------------------
<S> <C> <C>
NO FULL
EXERCISE EXERCISE
Per share............................ $ $
Total................................ $ $
</TABLE>
We have granted to the underwriters an option, exercisable for 30 days
after the date of the underwriting agreement, to purchase up to additional
shares of our common stock at the initial public offering price less the
underwriting fees. The underwriters may exercise their option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise their option, each underwriter will become
obligated, subject to conditions, to purchase a number of additional shares
approximately proportionate to their initial purchase commitment. We will pay
all of the offering expenses, estimated to be $ .
We have agreed to indemnify the underwriters against specified civil
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect of any of
those liabilities.
We, our executive officers and directors and substantially all of our
stockholders have agreed, for a period of 180 days after the date of this
prospectus, not to, without prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation:
- offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into
or exercisable or exchangeable for our common stock; or
- enter into any swap or other arrangement that transfers all
or a portion of the economic consequences associated with the
ownership of any common stock, regardless of whether any of
the transactions described in these clauses are to be settled
by the delivery of common stock, or such other securities, in
cash or otherwise.
However, 25% of the shares of common stock subject to the restrictions
described above (other than shares owned by our employees) will be released
from these restrictions if the reported last sale price of the common stock on
the Nasdaq National Market is at least twice the initial public offering price
for 20 of the 30 consecutive trading days ending on the last trading day of the
90-day period after the date of this prospectus. These shares will be released
on the later to occur of the end of the 90-day period after the date of this
prospectus or the second trading day after the first public release of our
quarterly results. An additional 25% of the shares subject to the restrictions
described above will be released from these restrictions if the reported last
sale price of the common stock on the Nasdaq National Market is at least twice
the initial public offering price for 20 of the 30 consecutive trading days
ending on the last trading day of the 135-day period after the date of this
prospectus. These shares will be released on the end of the 135-day period
after the date of this prospectus. Furthermore, any shares released under these
conditions must be sold through Donaldson, Lufkin & Jenrette Securities
Corporation or any of its affiliates acting as broker.
86
<PAGE> 90
However, we may:
- grant stock options or stock awards under our existing
benefit or compensation plans;
- issue shares of our common stock upon the exercise of
options, warrants or rights or the conversion of currently
outstanding securities; and
- issue, offer and sell shares of our common stock or
securities convertible into, or exercisable or exchangeable
for, our common stock in transactions not involving a public
offering, or in connection with future acquisitions, as long
as each recipient of the securities agrees in writing to be
bound by the restrictions in this paragraph.
In addition, during this period, we have agreed not to file any
registration statement with respect to, and each of our executive officers and
directors and a significant majority of our stockholders have agreed not to
make any demand for, or exercise any right with respect to, the registration of
any shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock (other than a registration statement registering
options or shares granted under a stock option plan) without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Prior to this offering, there was no established trading market for
our common stock. The initial public offering price for our common stock will
be determined by negotiation among us and the representatives of the
underwriters.
The factors to be considered in determining the initial public
offering price include:
- the history of and the prospects for the industry in which we
compete;
- the ability of our management;
- our past and present operations;
- our prospects for future earnings;
- the general condition of the securities markets at the time
of this offering; and
- the recent market prices of securities of generally comparable
companies.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of our common
stock offered in this prospectus in any jurisdiction where action for that
purpose is required. The shares of our common stock offered in this prospectus
may not be offered or sold, directly or indirectly, nor may this prospectus or
any other offering material or advertisements in connection with the offer and
sale of any shares of our common stock to be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with
the applicable rules and regulations of the jurisdiction. Persons who receive
this prospectus are advised to inform themselves about and to observe any
restrictions relating to the offering of our common stock and the distribution
of this prospectus. This prospectus is not an offer to sell or a solicitation
of an offer to buy any shares of our common stock included in this offering in
any jurisdiction where that would not be permitted or legal.
In connection with this offering, some underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of our common stock in the open market to cover syndicate
short positions or to stabilize the price of our common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed shares of our
common stock in syndicate covering transactions, stabilizing transactions or
otherwise. These activities may stabilize
87
<PAGE> 91
or maintain the market price of our common stock above independent market
levels. The underwriters are not required to engage in these activities and may
end any of these activities at any time.
At our request, the underwriters have reserved up to eight percent of
the shares offered by this prospectus for sale at the initial public offering
price to our employees, officers, directors and other individuals associated
with us and members of their families. The number of shares of common stock
available for sale to the general public will be reduced to the extent any
reserved shares are purchased. Any reserved shares not so purchased will be
offered by the underwriters on the same basis as the other shares of our common
stock. Any employees, directors or other persons purchasing such reserved
shares will be prohibited from selling, transferring, assigning, pledging or
hypothecating such shares for a period of three months following the effective
date of this offering.
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "TRIV."
88
<PAGE> 92
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by our counsel, Wyche, Burgess, Freeman & Parham, P.A.,
Greenville, South Carolina. At the time of completion of this offering,
attorneys of Wyche, Burgess, Freeman & Parham, P.A. are expected to own
approximately 33,333 shares of our common stock and warrants to purchase 4,500
shares at $2.00 per share. Certain legal matters will be passed on for us by
Cravath, Swaine & Moore, New York, New York. Various regulatory matters in
connection with this offering are being passed upon for us by Kelley Drye &
Warren LLP, Washington, D.C. Various legal matters in connection with this
offering will be passed upon for the underwriters by Davis Polk & Wardwell, New
York, New York.
EXPERTS
The consolidated financial statements and schedule of TriVergent
Corporation and subsidiaries as of December 31, 1998 and 1999, and for the
period from October 29, 1997 (date of inception) through December 31, 1997 and
for the years ended December 31, 1998 and 1999, have been included herein and in
the registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1, including exhibits and schedules, under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement or
the exhibits and schedules which are part of the registration statement. For
further information about us and our common stock, you should refer to the
registration statement. Any statements made in this prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the registration statement you should refer to the exhibit for
a more complete description of the matter involved, and each statement in this
prospectus shall be deemed qualified in its entirety by this reference.
You may read and copy all or any portion of the registration statement
or any reports, statements or other information in the files at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C., 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee by writing
to the Commission. You may call the Commission at 1-800-SEC-0330 for further
information on the operation of its public reference rooms. Our filings,
including the registration statement, will also be available to you on the
Internet site maintained by the Commission at http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy
statements and other information with the SEC. You can request copies of these
documents, for a copying fee, by writing to the SEC. We intend to furnish our
stockholders with annual reports containing financial statements audited by our
independent auditors.
89
<PAGE> 93
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999............................................ F-3
Consolidated Statements of Operations for the period from October 29, 1997 (date of inception)
through December 31, 1997 and for the years ended December 31, 1998 and 1999......................... F-4
Consolidated Statements of Stockholders' Equity for the period from October 29, 1997
(date of inception) through December 31, 1997 and for the years ended December 31, 1998 and 1999...... F-5
Consolidated Statements of Cash Flows for the period from October 29, 1997 (date of inception)
through December 31, 1997 and for the years ended December 31, 1998 and 1999......................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
Schedule I - Condensed Financial Information of Registrant............................................. F-23
</TABLE>
F-1
<PAGE> 94
Once the name of State Communications, Inc., has been changed to TriVergent
Corporation, we will be in a position to render the following report.
KPMG LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TriVergent Corporation:
We have audited the accompanying consolidated balance sheets of TriVergent
Corporation and subsidiaries as of December 31, 1998 and 1999 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the period from October 29, 1997 (date of inception) through December
31, 1997 and for the years ended December 31, 1998 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TriVergent Corporation and subsidiaries as of December 31, 1998 and 1999, and
the results of their operations and their cash flows for the period from October
29, 1997 (date of inception) through December 31, 1997 and for the years ended
December 31, 1998 and 1999 in conformity with generally accepted accounting
principles.
Greenville, South Carolina
February 25, 2000
F-2
<PAGE> 95
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 1,399,204 $ 15,236,706
Investments held to maturity........................... -- 2,691,377
Accounts receivable, net of allowance for uncollectible
accounts of $1,976,000 in 1998 and $186,000 in 1999... 2,603,643 1,316,695
Stock subscriptions receivable......................... 4,208,002 --
Prepaid expenses and other current assets.............. 222,933 694,829
------------ ------------
Total current assets.............................. 8,433,782 19,939,607
Property and equipment...................................... 1,464,939 45,362,889
Less accumulated depreciation.......................... (150,595) (1,305,658)
------------ ------------
Net property and equipment........................ 1,314,344 44,057,231
Goodwill, net of accumulated amortization of $163,214....... -- 2,283,087
Deferred financing costs and other assets................... 194,275 996,739
------------ ------------
Total assets...................................... $ 9,942,401 $ 67,276,664
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable....................................... $ 1,820,561 $ 10,564,550
Accrued expenses....................................... 2,684,205 3,498,294
Current portion of capital lease obligation............ -- 392,086
------------ ------------
Total current liabilities......................... 4,504,766 14,454,930
Term loan................................................... -- 17,099,889
Long-term portion of capital lease obligation............... -- 1,042,632
Note payable to bank........................................ 83,382 57,396
------------ ------------
Total liabilities................................. 4,588,148 32,654,847
------------ ------------
REDEEMABLE PREFERRED STOCK:
Series A 5.5% cumulative convertible preferred stock
$.01 par value; 10,000,000 shares authorized;
4,711,672 shares issued and outstanding in 1998 and
1999; (redemption value of $11,365,876 and $18,282,174
in 1998 and 1999)..................................... 11,295,468 12,685,163
Series B 5.5% cumulative convertible preferred stock
$.01 par value; 14,133,329 shares authorized;
13,866,662 shares issued and outstanding in 1999;
(redemption value of $53,213,327 in 1999)............. -- 53,094,446
------------ ------------
Total redeemable preferred stock.................. 11,295,468 65,779,609
------------ ------------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 50,000,000 shares
authorized in 1998 and 100,000,000 in 1999; 10,324,462
and 11,147,920 shares issued in 1998 and 1999,
respectively.......................................... 10,324 11,148
Additional paid-in-capital............................. 6,811,359 7,466,423
Accumulated deficit.................................... (12,762,898) (38,426,743)
Treasury stock, 69,540 common shares in 1999, at
cost.................................................. -- (208,620)
------------ ------------
Total stockholders' deficit....................... (5,941,215) (31,157,792)
------------ ------------
Total liabilities, redeemable preferred stock, and
stockholders' deficit........................... $ 9,942,401 $ 67,276,664
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 96
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 29, 1997 (DATE OF INCEPTION) THROUGH
DECEMBER 31, 1997 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
INCEPTION
THROUGH
DECEMBER 31,
1997 1998 1999
<S> <C> <C> <C>
REVENUES: .................................... $ -- $ 5,261,146 $ 25,037,450
Cost of services......................... -- 3,802,036 17,703,754
---------- ------------ ------------
Gross profit....................... -- 1,459,110 7,333,696
---------- ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative
expenses.............................. (39,851) (12,165,893) (23,523,165)
Provision for uncollectible accounts..... -- (1,976,000) (7,285,528)
Depreciation and amortization............ -- (150,595) (1,318,277)
---------- ------------ ------------
Total operating expenses........... (39,851) (14,292,488) (32,126,970)
---------- ------------ ------------
Operating loss..................... (39,851) (12,833,378) (24,793,274)
---------- ------------ ------------
INTEREST INCOME (EXPENSE):
Interest income.......................... -- 123,233 816,057
Interest expense......................... -- (12,902) (1,468,991)
---------- ------------ ------------
Interest income (expense), net..... -- 110,331 (652,934)
---------- ------------ ------------
Loss before extraordinary item..... (39,851) (12,723,047) (25,446,208)
Extraordinary item -- early extinguishment of
debt........................................ -- -- (217,637)
Net loss........................... (39,851) (12,723,047) (25,663,845)
Preferred stock accretion.......... -- (57,863) (2,603,040)
---------- ------------ ------------
Net loss to common stockholders.... $ (39,851) $(12,780,910) $(28,266,885)
========== ============ ============
Net loss per common share, basic
and dilutive..................... $ (.01) $ (1.37) $ (2.60)
========== ============ ============
Weighted average common shares
outstanding, basic and
dilutive......................... 6,390,476 9,308,771 10,868,729
========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 97
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM OCTOBER 29, 1997 (DATE OF INCEPTION) THROUGH
DECEMBER 31, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN- TOTAL
COMMON CAPITAL ACCUMULATED TREASURY STOCKHOLDERS'
STOCK AMOUNT DEFICIT STOCK EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C>
Balance, October 29, 1997 (date of
inception)........................... $ -- -- -- -- --
Issuance of common stock, 6,600,000
shares in initial private offering at
average.............................. 6,600 698,400 -- -- 705,000
price of $.11 per share
Net loss............................... -- -- (39,851) -- (39,851)
------- ---------- ----------- -------- -----------
Balance, December 31, 1997............. 6,600 698,400 (39,851) -- 665,149
Issuance of common stock, 1,761,000
shares at $1.00 per share............ 1,761 1,759,239 -- -- 1,761,000
Issuance of common stock, 1,963,462
shares at $2.25 per share, net of
$4,243 issue costs................... 1,963 4,411,583 -- -- 4,413,546
Net loss............................... -- -- (12,723,047) -- (12,723,047)
Accretion of preferred stock........... -- (57,863) -- -- (57,863)
------- ---------- ----------- -------- -----------
Balance, December 31, 1998............. 10,324 6,811,359 (12,762,898) -- (5,941,215)
Issuance of common stock in
acquisitions, 808,792 shares at $2.40
per share............................ 809 1,940,292 -- -- 1,941,101
Issuance of 14,666 shares of common
stock at $1.50 and $2.25 per share
pursuant to exercise of stock
options.............................. 15 22,484 -- -- 22,499
Issuance of 884,649 common stock
detachable warrants, net of $7,933
issue costs.......................... -- 1,295,328 -- -- 1,295,328
Acquisition of 69,540 shares of common
stock at $3.00 per share............. -- -- -- (208,620) (208,620)
Net loss............................... -- -- (25,663,845) -- (25,663,845)
Accretion of preferred stock........... -- (2,603,040) -- -- (2,603,040)
------- ---------- ----------- -------- -----------
Balance, December 31, 1999............. $11,148 7,466,423 (38,426,743) (208,620) (31,157,792)
======= ========== =========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 98
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 29, 1997 (DATE OF INCEPTION) THROUGH
DECEMBER 31, 1997 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
INCEPTION
THROUGH
DECEMBER 31,
1997 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(39,851) $(12,723,047) $(25,663,845)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for uncollectible accounts.............. -- 1,976,000 7,285,528
Depreciation and amortization..................... -- 150,595 1,318,277
Other amortization................................ -- -- 145,833
Amortization of debt discount..................... -- -- 339,727
Extraordinary item -- early extinguishment of
debt............................................ -- -- 217,637
Changes in operating assets and liabilities:
Accounts receivable............................. -- (4,579,643) (5,568,734)
Other assets.................................... -- (194,275) 194,275
Prepaid expenses and other current assets....... (16,607) (206,326) (229,100)
Accounts payable................................ -- 1,820,561 1,196,743
Accrued expenses................................ -- 2,684,205 807,198
-------- ------------ ------------
Net cash used in operating activities........ (56,458) (11,071,930) (19,956,461)
-------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments held to maturity......................... -- -- (2,691,377)
Purchases of property and equipment.................. -- (1,464,939) (34,965,980)
Cash paid for acquisition, net of cash acquired...... -- -- (1,106,630)
-------- ------------ ------------
Net cash used in investing activities........ -- (1,464,939) (38,763,987)
-------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable to bank....... -- 90,000 --
Principal payments on note payable to bank........... -- (6,618) (25,986)
Proceeds from Series 1999 notes payable and
warrants.......................................... -- -- 10,460,000
Payment of Series 1999 notes payable................. -- -- (4,210,000)
Purchase of treasury stock........................... -- -- (208,620)
Proceeds from exercise of stock options.............. -- -- 22,499
Proceeds from issuance of preferred stock............ -- 7,029,603 49,839,121
Proceeds from issuance of common stock............... 109,500 6,770,046 --
Deferred financing costs............................. -- -- (1,142,572)
Proceeds from term loan and warrants................. -- -- 17,834,394
Other................................................ -- -- (10,886)
-------- ------------ ------------
Net cash provided by financing activity...... 109,500 13,883,031 72,557,950
-------- ------------ ------------
Net increase in cash and cash equivalents............ 53,042 1,346,162 13,837,502
Cash and cash equivalents at beginning of year....... -- 53,042 1,399,204
-------- ------------ ------------
Cash and cash equivalents at end of year............. $ 53,042 $ 1,399,204 $ 15,236,706
======== ============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid........................................ $ -- $ 1,952 $ 939,381
======== ============ ============
Stock subscriptions receivable....................... $595,500 $ 4,208,002 $ --
======== ============ ============
Notes payable exchanged for preferred stock.......... $ -- $ -- $ 6,250,000
======== ============ ============
Accounts payable incurred for property and
equipment......................................... $ -- $ -- $ 7,380,319
======== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 99
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
TriVergent Corporation, formerly State Communications, Inc., (the
"Company") a broadband telecommunications provider, was organized in
October 1997 as a South Carolina corporation. The Company offers broadband
data and voice telecommunications services primarily to residential and
small and medium-sized business markets in the southeastern United States.
The Company's services include high speed data and Internet service,
principally utilizing digital subscriber line technology, local exchange
service and long distance service.
The Company has limited operating history and is changing certain of
its business strategies. As a result, the Company is in the process of
entering additional markets. Since inception, the Company has recognized
operating losses and negative cash flows and expects to incur losses in the
future as the Company expands its network. The expansion and development of
the Company's business and deployment of its networks, services and systems
will require significant amounts of additional capital.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries, which include TriVergent
Communications, Inc., TriVergent Communications South, Inc., TriVergent
Leasing LLC and Carolina OnLine, Inc. All significant intercompany
transactions are eliminated in consolidation.
(C) REVENUE RECOGNITION
The Company bills customers in advance for fixed monthly service fees
and in arrears for actual local and long-distance usage amounts. Revenues
are recognized ratably over the service period for fixed fees and on usage
for local and long distance services. Accounts receivable as of December
31, 1998 and 1999 include revenues of approximately $728,161 and $226,276,
respectively, for which services were provided in December and billed in
the subsequent period.
(D) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents, trade accounts receivable and investments held to maturity. In
determining the nature of the Company's cash and cash equivalents and held
to maturity investments, the Company's policy is to invest in highly rated
commercial paper and corporate bonds. Although the Company's customer base
is fairly centralized geographically, there is no particular concentration
of industry. As a result, management believes no additional credit risk
beyond amounts provided for collection losses is inherent in accounts
receivable.
F-7
<PAGE> 100
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(E) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with
maturities from time of purchase of three months or less. The cost
of the cash equivalents approximates fair market value.
The Company had letters of credit totaling $313,000 for vendor
guarantees as of December 31, 1999. Letters of credit are primarily
collateralized by cash.
(F) INVESTMENT SECURITIES
The Company does not have any trading securities or
available-for-sale securities at December 31, 1999 or December 31,
1998. The investments held-to-maturity include highly rated
corporate bonds with original maturities of six months or less and
are reported at amortized cost. The carrying value of the corporate
bonds approximates the fair value. The investments have been
classified as held-to-maturity because the Company has the intent
and the ability to hold all such securities until maturity.
(G) DEFERRED FINANCING COSTS
Deferred financing costs consist of legal fees and other fees
related to the Company's line of credit. These costs are being
amortized on a straight-line basis over the term of the related debt
(four years). Amortization expense for these costs is included as a
component of interest expense in the consolidated statements of
operations.
(H) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation on property
and equipment is calculated using the straight-line method over the
estimated useful lives of the assets ranging from 3 to 7 years.
Switch equipment will be depreciated when placed in service during
fiscal year 2000 using the straight-line method over a useful life
of 7 years.
(I) EQUIPMENT UNDER CAPITAL LEASE
The Company leases certain of its data communication equipment under
a lease agreement accounted for as a capital lease. The assets and
liabilities under capital leases are recorded at the lesser of the
present value of aggregate future minimum lease payments, including
estimated bargain purchase options, or the fair value of the assets
under lease. Assets under the capital lease are amortized over the
term of the lease and such amortization is included in depreciation
expense.
(J) GOODWILL
Goodwill represents the excess of the purchase price and related
costs over the value assigned to the net tangible and identifiable
intangible assets of businesses acquired. Goodwill is amortized on a
straight-line basis over 10 years.
F-8
<PAGE> 101
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(K) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company accounts for long-lived assets including goodwill in
accordance with the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. There have been no impairments through December 31,
1999. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(L) INCOME TAXES
The Company records income taxes under the asset and liability method.
As such, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and net operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(M) STOCK SPLIT
On May 1, 1998, the Company issued a two-for-one stock split of its
common stock in the form of a stock dividend. A total of 4,180,500 shares
of common stock were issued in connection with the two-for-one stock split.
The stated par value of each share was not changed from $.001. All common
stock share data have been retroactively adjusted to reflect this change.
(N) STOCK OPTION PLAN
SFAS No. 123 allows an entity to apply the provisions of APB Opinion
No. 25 and provide pro forma net loss and, if loss per share is presented,
pro forma loss per share disclosures for employee stock option grants made
as if the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the intrinsic-value-based
method under the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
F-9
<PAGE> 102
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(O) SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which requires a "management
approach" to segment information. The management approach designates the
internal reporting that is used by management for making operating
decisions and assessing performance as the source of reportable segments.
The Company operates in a single industry segment, "Communication
Services." Operations are managed and financial performance is evaluated
based on the delivery of multiple communications services to customers.
(P) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 requires that every derivative be recorded as
either an asset or liability in the balance sheet and measured at its fair
value. SFAS No. 133 also requires that changes in the derivative's fair
market value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company formally
document, designate and assess the effectiveness of transactions that
require hedge accounting. The Company is required to adopt SFAS No. 133, as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133," on a prospective basis for interim
periods and fiscal years beginning January 1, 2001. The Company does not
anticipate that adoption SFAS No. 133 will have a material effect on its
financial statements.
In December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition."
SAB 101 provides interpretive guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB 101 must be applied to
financial statements no later than the second fiscal quarter of 2000. The
Company does not believe adoption will have a material impact on its
consolidated financial position or results of operations.
(Q) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company considers the recorded value of its current assets and
liabilities, consisting primarily of cash and cash equivalents,
investments, accounts receivable, other current assets, accounts payable,
and accrued expenses to approximate fair value because of the short term
maturity of the instruments. The fair value of long-term debt, including
the current portion, is estimated based on quoted market prices for the
same or similar issues or on the current rates
F-10
<PAGE> 103
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
offered to the Company for debt of the same maturities. Due to the fact
that the Company's long-term debt has a variable interest rate, the
carrying value approximates fair value.
(R) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates, such as the allowance for uncollectible accounts, and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(S) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 established
reporting and disclosure requirements for comprehensive income and
its components within the financial statements. Other than net loss
applicable to common stockholders, there were no comprehensive
income components for the three years ended December 31, 1999.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Switch equipment.................................... $ -- $34,920,377
Computer equipment and software..................... 1,338,688 9,090,448
Furniture, fixtures and other equipment............. 126,251 986,645
Leasehold improvements.............................. -- 365,419
---------- -----------
1,464,939 45,362,889
Less accumulated depreciation....................... (150,595) (1,305,658)
---------- -----------
$1,314,344 $44,057,231
========== ===========
</TABLE>
No depreciation expense was recorded in 1999 on the switch equipment costs.
Depreciation of the switch equipment will begin once the switches are placed in
service in 2000. Depreciation expense amounted to $150,595 and $1,155,063 in
1998 and 1999, respectively.
3. ACQUISITIONS
In March 1999, the Company acquired the assets and liabilities of Carolina
Online, Inc., a South Carolina based internet service provider, for a total
purchase price of approximately $1.8 million which included cash and stock.
Common stock issued for the Carolina Online acquisition was 545,833 shares
valued at $2.40 per share. The Carolina Online acquisition has been accounted
for by the purchase method of accounting and, accordingly, the results of
operations of Carolina Online from the period after the acquisition are included
in the accompanying consolidated financial
F-11
<PAGE> 104
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
statements. The excess cost over the estimated fair value of net assets acquired
was allocated to goodwill. A total of approximately $1.6 million was allocated
to goodwill and is being amortized on a straight-line basis over 10 years. The
pro forma results for 1998 and 1999 as if Carolina Online were acquired at the
beginning of each year would not be significantly different than the actual
results.
In July 1999, the Company acquired the assets and liabilities of DCS, Inc.
for a total purchase price of approximately $1.0 million in cash, stock and the
assumptions of debt. DCS is a telecommunications equipment dealer that provides
data integration products and services. The Company issued 262,959 shares of
common stock valued at $2.40 per share. The DCS acquisition has been accounted
for by the purchase method of accounting and, accordingly, the results of
operations of DCS from the period after the acquisition are included in the
accompanying consolidated financial statements. The excess of cost over the
estimated fair value of net assets acquired of approximately $812,000 was
allocated to goodwill and is being amortized on a straight-line basis over 10
years. The pro forma results for 1998 and 1999 as if DCS were acquired at the
beginning of each year would not be significantly different than the actual
results.
In addition, the Company acquired two companies in February 2000 as
described in Note 15.
4. TERM LOAN
In May 1999, the Company entered into a term loan facility ("term loan")
with Nortel, a major equipment vendor. The term loan provides the Company with
maximum borrowings of $42.0 million at London interbank offered rate plus 4.75%
interest (10.75% at December 31, 1999). The term loan is due in May 2003. The
term loan is secured by all assets of the Company.
In conjunction with the term loan, the Company issued Nortel warrants to
purchase 508,089 shares of common stock at $2.00 per share, expiring on May 27,
2006. The fair value of the warrants was determined to be $1.67 per share. The
fair value of the warrants has been recorded as additional paid-in capital and
as debt discount. The total debt discount of $848,509 is being amortized over
the term of the loan as interest expense. As of December 31, 1999, the
unamortized discount amounted to $724,768.
In February 2000, the Company paid in full the balance of the term loan.
(See note 15).
5. NOTES PAYABLE
The Company borrowed $90,000 on September 29, 1998 from a bank. The loan
had an outstanding balance of $83,382 and $57,396 as of December 31, 1998 and
1999, respectively. The loan bears interest at 8.75%, matures September 29,
2001, and is collateralized by furniture and fixtures. This loan was paid in
full in January 2000.
In March 1999, the Company issued $6,460,000 of Series 1999 notes with a
stated interest rate of 13% due January 3, 2000. As part of the agreement, the
Company issued warrants to purchase 232,560 shares of common stock at $2.00 per
share expiring three years from issuance. The fair
F-12
<PAGE> 105
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
value of the warrants was determined to be $1.20 per share. The fair value of
the warrants was recorded as additional paid-in capital and as debt discount.
The debt discount was being amortized over the term of the loan as interest
expense. Notes payable of $6,250,000 were converted to Series B preferred stock
in July 1999, resulting in an extraordinary loss of $167,443 from early
extinguishment of debt. The remaining $210,000 was paid in full in October 1999.
In May 1999, the Company issued $4.0 million of Series 1999A notes to the
lender with detachable warrants. The notes had an original maturity of January
2000 and an interest rate of 13%. The warrants were issued to purchase 144,000
shares of common stock at $2.00 per share expiring on May 27, 2006. The fair
value of the warrants was determined to be $1.67 per share. The fair value of
the warrants was recorded as additional paid-in capital and as debt discount.
The debt discount was being amortized over the term of the loan as interest
expense. This loan was paid in full in October 1999, resulting in an
extraordinary loss of $50,194 from early extinguishment of debt.
6. REDEEMABLE PREFERRED STOCK
SERIES A PREFERRED STOCK
During October 1998, the Company privately sold 4,711,672 shares of its
Series A 5.5% cumulative convertible preferred stock for $2.40 per share. Net
proceeds from the subscriptions from this stock of $7,029,603 were received in
1998. The balance of $4,208,002 was received by the Company in January 1999.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series A preferred stock would be entitled to receive, prior
and in preference to the holders of common stock, (i) an amount for each share
of Series A preferred stock held by them equal to the Series A original purchase
price (as adjusted for stock dividends, splits, combinations, etc.) plus (ii)
any accrued and unpaid dividends.
Each holder of Series A preferred stock has the right to convert each share
into shares of common stock on a one-for-one basis subject to certain conversion
price adjustments. All shares of Series A preferred stock shall automatically be
converted into shares of common stock, (i) at the election of 75% of the holders
or (ii) in the event of a qualified public offering of the Company's common
stock as defined.
Each holder of Series A preferred stock may cause the Company to redeem up
to one-third of the preferred stock originally issued to such holder on the
following dates: (i) February 1, 2005, (ii) February 1, 2006 and (iii) February
1, 2007. In the event that there is a change in control or reorganization or
liquidation or insolvency of the Company, the holders of the Series A preferred
would have the right to request that their shares be redeemed. Such redemptions
would be at a price equal to the greater of fair market value of the Series A
preferred stock on the day of redemption or the original Series A preferred
price (as adjusted for stock dividends, splits, combinations, etc.) plus accrued
and unpaid dividends.
F-13
<PAGE> 106
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
Each share of Series A preferred stock is entitled to a single vote for
every share of common stock then issuable upon conversion. The holders of the
Series A preferred stock would vote with common stock on all matters except as
specifically provided herein or as otherwise required by law.
The holders of the Series A preferred stock would be entitled to receive
cumulative dividends in preference to any dividend on the common stock at the
rate of 5.5% of the original Series A purchase price when and as declared by the
Board of Directors. Any accrued unpaid dividends will be payable upon an initial
public offering, an acquisition or liquidation of the Company. Accrued unpaid
dividends at December 31, 1999 amounted to $671,267.
SERIES B PREFERRED STOCK
During July 1999, the Company privately sold 12,200,000 shares of its
Series B 5.5% cumulative convertible preferred stock for $3.75 per share. Gross
proceeds before expenses from the subscriptions for this stock of $45,750,000
were received during 1999. In addition, $6,250,000 notes payable, discussed in
note 5, were converted into 1,666,662 shares of Series B preferred stock. Total
consideration for the Series B issuance was $52.0 million.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series B preferred will be entitled to receive, prior and in
preference to the holders of Common Stock, (i) an amount for each share of
Series B preferred stock held by them equal to the Series B original purchase
price (as adjusted for stock dividends, splits, combinations, etc.) plus (ii)
any accrued and unpaid dividends.
Each holder of Series B preferred stock has the right to convert each share
into shares of common stock on a one-for-one basis subject to certain conversion
price adjustments. All shares of Series B preferred stock shall automatically be
converted into shares of common stock, (i) at the election of 50% of the holders
or (ii) in the event of a qualified public offering of the Company's common
stock as defined.
Each holder of Series B preferred stock may cause the Company to redeem up
to one-third of the preferred stock originally issued to such holder on the
following dates: (i) February 1, 2005, (ii) February 1, 2006 and (iii) February
1, 2007. In the event that there is a change in control or reorganization or
liquidation or insolvency of the Company, the holders of the Series B preferred
would have the right to request that their shares be redeemed. Such redemptions
would be at a price equal to the greater of fair market value of the Series B
preferred stock on the day of redemption or the original Series B preferred
price (as adjusted for stock dividends, splits, combinations, etc.) plus accrued
and unpaid dividends.
Each share of Series B preferred stock is entitled to a single vote for
every share of common stock then issuable upon its conversion. The holders would
vote with common stock on all matters except as specifically provided or as
otherwise required by law.
The holders would be entitled to receive cumulative dividends in preference
to any dividend on the common stock at the rate of 5.5% of the original Series B
purchase price when and as declared
F-14
<PAGE> 107
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
by the Board of Directors. Any accrued but unpaid dividends will be payable upon
an initial public offering, an acquisition or liquidation of the Company.
Accrued unpaid dividends at December 31, 1999 amounted to $1,213,345.
As of December 31, 1999 all preferred stock shareholders have deferred
their redemption rights until the repayment of the term loan described in note
4.
PREFERRED STOCK ACCRETION
The Company periodically increases the carrying amount of its redeemable
preferred stock through accretion using the interest method so that the carrying
amount will equal the expected redemption amount at the expected redemption
dates. In addition, the Company increases the carrying amount of its preferred
stock by amounts representing cumulative dividends not currently declared or
paid, but will be due and payable upon redemption. The Company recorded no
accretion for 1997 and accretion of $57,863 and $2,603,040 for the years ended
December 31, 1998 and 1999.
7. LEASES
The Company leases office space and other equipment. Rent expense for the
years ended December 31, 1998 and 1999 totaled $106,717 and $807,011,
respectively. Future minimum lease payments under capital and noncancelable
operating leases for the years subsequent to December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
<S> <C> <C>
2000................................................ $ 392,086 $ 2,169,464
2001................................................ 481,745 2,295,039
2002................................................ 481,745 2,162,030
2003................................................ 459,946 1,994,011
2004................................................ -- 1,851,443
Thereafter.......................................... -- 8,818,908
---------- -----------
Total minimum lease payments........................ 1,815,522 $19,290,895
===========
Less amount representing interest (12.5%)........... 380,804
----------
Present value of minimum lease payments............. 1,434,718
Less current portion of capital lease obligation.... 392,086
----------
Long-term portion of capital lease obligation....... $1,042,632
==========
</TABLE>
F-15
<PAGE> 108
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
8. INCOME TAXES
The income tax benefit for 1997, 1998 and 1999 differed from the amounts
computed by applying the Federal income tax rate of 34% as a result of the
following:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Computed "expected" tax benefit............ $(14,000) $(4,326,000) $(8,726,000)
Increase (decrease) in income taxes
resulting from:
State and local income taxes, net of
Federal income tax effect.......... (1,000) (420,000) (841,000)
Change in the valuation allowance for
deferred tax assets allocated to
income tax expense................. 15,000 4,742,000 9,506,000
Other, net............................ -- 4,000 61,000
-------- ----------- -----------
Actual tax benefit......................... $ -- $ -- $ --
======== =========== ===========
</TABLE>
The tax effect of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities as of December 31, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
DEFERRED TAX ASSETS:
Accrued liabilities and allowances............ $ 740,000 $ 72,000
Capitalized start-up costs.................... 436,000 337,000
Net operating loss carryforwards.............. 3,669,000 13,986,000
----------- ------------
Total gross deferred tax assets......... 4,845,000 14,395,000
Less valuation allowance................ (4,757,000) (14,263,000)
----------- ------------
Net deferred tax assets................. 88,000 132,000
----------- ------------
DEFERRED TAX LIABILITIES:
Prepaid expenses.............................. -- (18,000)
Property and equipment, principally due to
differences in depreciation................ (88,000) (114,000)
----------- ------------
Total gross deferred tax liabilities.... (88,000) (132,000)
----------- ------------
Net deferred tax asset (liability)...... $ -- $ --
=========== ============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1998 and
1999 was $4,757,000 and $14,263,000, respectively. The net change in the total
valuation allowance for the years ended December 31, 1998 and 1999 was an
increase of $4,742,000 and $9,506,000, respectively.
At December 31, 1999, the Company has a net operating loss carryforward for
Federal and state income tax purposes of approximately $37,495,000 which is
available to offset future taxable income, if any, through the year 2019.
F-16
<PAGE> 109
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. In order to fully realize
the deferred tax asset, the Company will need to generate future taxable income
prior to the expiration of the net operating loss carryforward. Management
considered the scheduled reversal of deferred tax liabilities in making this
assessment. Based upon the level of taxable losses incurred during the start-up
phase and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it has established an
appropriate valuation allowance at December 31, 1998 and 1999.
9. RELATED PARTY TRANSACTIONS
The Company purchased investing advice and other services from Seruus
Ventures, Inc., an entity in which two executive officers of the Company have an
ownership interest. Payments to Seruus totaled $13,788 and $61,448 for the years
ended December 31, 1998 and 1999, respectively.
As discussed in note 5, of the $6,460,000 Series 1999 notes payable,
$250,000 were issued to an executive officer of the Company. In July of 1999,
these notes were converted to preferred stock. During 1999, the Company
recognized interest expense of $12,187 related to these notes.
During 1999, the Company acquired 69,540 shares of its own stock for
$208,620 in satisfaction of a note receivable from an employee. The Company
recognized interest income of $14,346.
10. COMMITMENTS
The Company has a long-distance capacity agreement with a long haul
telecommunications provider. Under the agreement, the Company is liable for a
yearly minimum usage charge according to the schedule below:
<TABLE>
<S> <C>
2000........................................................ $30,000,000
2001........................................................ 7,000,000
2002........................................................ 5,000,000
2003........................................................ 4,000,000
2004........................................................ 4,000,000
</TABLE>
In the event such yearly commitments are not met, the Company is required
to remit 100% of the difference between the yearly commitment and actual usage.
Such amount, if necessary, would be recorded as cost of services in the period
incurred. The agreement extends through October 2004.
F-17
<PAGE> 110
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
11. NET LOSS PER COMMON SHARE
Basic and diluted loss per share amounts are presented below in accordance
with the requirements of SFAS No. 128, "Earnings Per Share." Basic net loss per
share is computed by dividing net loss applicable to common stockholders by the
weighted average number of shares of the Company's common stock outstanding
during the period. Diluted net loss per share is determined in the same manner
as basic net loss per share except that the number of shares is increased
assuming exercise of dilutive stock options and warrants using the treasury
stock method and conversion of the Company's convertible preferred stock.
Potential common stock (stock options and warrants) have been excluded from the
calculation of diluted loss per share, as they are antidilutive. The Series A
and Series B convertible preferred stock that are convertible into shares of
common stock also are excluded from the calculation of diluted loss per share as
they are antidilutive. The following table presents the calculation of basic and
diluted loss per share:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Loss before extraordinary item......... $ (39,851) $(12,723,047) $(25,446,208)
Preferred stock accretion.............. -- (57,863) (2,603,040)
---------- ------------ ------------
Loss to common stockholders before
extraordinary item................... (39,851) (12,780,910) (28,049,248)
Extraordinary item..................... -- -- (217,637)
---------- ------------ ------------
Net loss to common stockholders........ $ (39,851) (12,780,910) $(28,266,885)
========== ============ ============
Weighted average common shares
outstanding, basic and diluted....... 6,390,476 9,308,771 10,868,729
BASIC AND DILUTIVE LOSS PER SHARE:
Before extraordinary item......... $ (.01) $ (1.37) $ (2.58)
Extraordinary item................ -- -- (.02)
---------- ------------ ------------
Net loss.................... $ (.01) $ (1.37) $ (2.60)
========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
1999
<S> <C> <C> <C>
SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF:
Series A convertible preferred
stock.......................... 4,711,672
Series B convertible preferred
stock.......................... 13,866,662
Options for common stock issued to
employees...................... 5,276,707
Warrants for common stock issued
to non-employees............... 1,084,649
</TABLE>
12. EMPLOYEE INCENTIVE PLAN
On January 12, 1998, the Company established an employee incentive plan
under which options, bonus stock awards and restricted stock awards may be
issued at the discretion of the
F-18
<PAGE> 111
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
Board of Directors of the Company. Options and awards for no more than
10,000,000 shares of the Company's common stock may be granted pursuant to this
plan. The options vest at the rate of 20% per year for five years and are
exercisable for 10 years from date of grant.
The Company applies APB Opinion No. 25 in accounting for options granted
under its employee incentive plan. No compensation cost has been recognized for
option grants in the financial statements. Had the Company accounted for
compensation cost based on the fair value at the grant date for stock options in
the plan under SFAS No. 123, net loss and net loss per common share would have
been reported as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
NET LOSS:
As reported......................... $(39,851) $(12,723,047) $(25,663,845)
Pro forma........................... (39,851) (13,093,427) (26,598,856)
NET LOSS PER COMMON SHARE, BASIC AND
DILUTED:
As reported......................... $ (.01) $ (1.37) $ (2.60)
Pro forma........................... (.01) (1.41) (2.69)
</TABLE>
For purposes of the pro forma disclosure above, the fair value of each
option grant is estimated on the date of the grant using the Black-Scholes
option pricing model and the minimum value method permitted by SFAS No. 123 for
entities not publicly traded with the following weighted-average assumptions
used for grants in 1998 and 1999:
<TABLE>
<S> <C>
Dividend yield.............................................. 0 percent
Risk-free interest rate..................................... 5.00 percent
Expected life............................................... 7 years
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1998 and 1999 was $.62 and $.96 respectively.
The following is a summary of the activity in the Company's Plan during the
years ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Options outstanding, beginning of
period.............................. -- $ -- 2,997,104 $2.11
Options granted....................... 2,997,104 2.11 2,655,371 3.25
Options exercised..................... -- -- (14,666) 1.53
Options canceled...................... -- -- (361,102) 2.21
--------- ----- --------- -----
Options outstanding, end of period.... 2,997,104 $2.11 5,276,707 $2.68
========= ===== ========= =====
</TABLE>
F-19
<PAGE> 112
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
The weighted-average remaining contractual life of options outstanding was
8.9 years, with exercise prices ranging from $1.50 to $3.75, as of December 31,
1999. Options exercisable at December 31, 1999 were 548,530 shares at a weighted
average exercise price of $2.12. The weighted average remaining contractual life
of options outstanding was 9.1 years, with exercise prices ranging from $1.50 to
$2.40, as of December 31, 1998. None of the options granted were exercisable at
December 31, 1998.
Options outstanding as of December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
WEIGHTED
RANGE WEIGHTED AVERAGE
OF AVERAGE REMAINING
EXERCISE EXERCISE CONTRACTUAL
PRICE SHARES PRICE LIFE
<S> <C> <C> <C>
$1.50 818,000 $1.50 8.1
2.25 236,200 2.25 8.5
2.40 2,494,129 2.40 8.5
3.00 134,311 3.00 9.3
3.75 1,594,067 3.75 9.9
---------
5,276,707
=========
</TABLE>
13. EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan for all eligible employees
of the Company under the provisions of the Internal Revenue Code Section 401(k).
The TriVergent Communications, Inc. 401(k) Plan allows employee's to contribute
up to 15% of compensation and, upon annual approval of the Board of Directors,
the Company matches 50% of employee contributions up to 6% of total compensation
subject to certain adjustments and limitations. No contribution was made in
1997. A total of $24,332 and $100,086 was charged to operations for the
Company's matching contributions in 1998 and 1999, respectively.
14. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
Changes in the allowance for uncollectible accounts for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Balance, beginning of year.......................... $ -- $ -- $1,976,000
Provision for uncollectible accounts........... -- 1,976,000 7,285,528
Charge-offs.................................... -- -- 9,075,528
-------- ---------- ----------
Balance, end of year................................ $ -- $1,976,000 $ 186,000
======== ========== ==========
</TABLE>
F-20
<PAGE> 113
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
15. SUBSEQUENT EVENTS
In January 2000, the Company entered into a $40,000,000 senior secured
eight-year revolving credit facility and an $80,000,000 senior secured
eight-year delayed drawdown term loan facility. The interest rate is a sliding
scale based on financial performance and covenants. The interest rate starts at
LIBOR plus 4.50% or Prime plus 3.50%. The agreement establishes milestones where
the Company must borrow set dollar amounts during the year. The proceeds will be
used to fund capital expenditures for the Company's communications facilities
and the associated interest expense. The facility provides for certain
restrictive financial and operating covenants. The senior secured credit
facility is guaranteed by the Company and is secured by all of the assets of
TriVergent Communications, Inc. and its subsidiaries.
During February 2000, the Company privately sold 11,561,768 shares of
Series C 5.5% redeemable cumulative convertible preferred stock for $4.25 per
share for total proceeds of approximately $49,138,000. Each share of Series C
preferred is convertible into one share of common stock. A portion of the
proceeds were used to repay the Nortel term loan as discussed in note 4.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series C preferred would be entitled to receive, prior and in
preference to the holders of Common Stock, (i) an amount for each share of
Series C preferred stock held by them equal to the Series C original purchase
price (as adjusted for stock dividends, splits, combinations, etc.) plus (ii)
any accrued and unpaid dividends.
Each holder of Series C preferred stock has the right to convert each share
into shares of common stock on a one-for-one basis subject to certain conversion
price adjustments. All shares of Series C preferred stock shall automatically be
converted into shares of common stock, (i) at the election of 67% of the holders
or (ii) in the event of a qualified public offering of the Company's common
stock as defined.
Each holder of Series C preferred stock may cause the Company to redeem up
to one-third of the preferred stock originally issued to such holder on the
following dates: (i) February 1, 2005, (ii) February 1, 2006 and (iii) February
1, 2007. In the event that there is a change in control or reorganization or
liquidation or insolvency of the Company or the Company breaches a term of the
related financing documents, the holders of the Series C preferred would have
the right to request that their shares be redeemed. Such redemptions would be at
a price equal to the greater of fair market value of the Series C preferred
stock on the day of redemption or the original Series C preferred price (as
adjusted for stock dividends, splits, combinations, etc.) plus accrued and
unpaid dividends.
Each share of Series C preferred stock shall be entitled to a single vote
for every share of common stock then issuable upon its conversion. The holders
shall vote with common stock on all matters except as specifically provided or
as otherwise required by law.
F-21
<PAGE> 114
TRIVERGENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
The holders of the Series C preferred stock would be entitled to receive
cumulative dividends in preference to any dividend on the common stock at the
rate of 5.5% of the original Series C purchase price when and as declared by the
Board of Directors. Any accrued but unpaid dividends will be payable upon an
initial public offering, an acquisition or liquidation of the Company.
In February 2000, the Company purchased the assets and liabilities of two
companies. The Company purchased Ester Communications for a total purchase price
of $4.5 million. Ester Communications, provides local exchange, long distance
and integrated voice and data products. Cash of approximately $2.0 million and
587,755 shares of common stock valued at $4.25 per share were exchanged for the
company. The Company also purchased Information Services and Advertising
Corporation, an internet service provider, for a total purchase price of
$800,000. Cash of $300,000 and 117,647 shares valued at $4.25 per share of
common stock were exchanged for the company. The acquisitions were accounted for
using the purchase method of accounting. In March 2000, the Company also entered
into an agreement to purchase $100 million of Nortel switching equipment and
services.
16. EVENTS SUBSEQUENT TO AUDITORS' REPORT (UNAUDITED)
In March 2000, the Company entered into a multiple-advance term loan
facility with Nortel. The term loan provides the Company with maximum borrowings
of $45.0 million at LIBOR plus 4.75% interest or Prime plus 3.75%. The term loan
has a due date of March 2004. The term loan is secured by all assets of
TriVergent Communications South, Inc. and provides for certain restrictive
financial and operating covenants.
This subsidiary will own the assets acquired with the proceeds of the loan.
In March 2000, the Company also entered into an agreement to purchase $100
million of Nortel switching equipment and services.
In March 2000, the Company privately sold 4,214,703 shares of Series C 5.5%
redeemable cumulative convertible preferred stock for $4.25 per share for gross
proceeds before expenses of $17,912,487. See Note 15 for a description of the
Series C preferred stock.
In March 2000, the Company paid $14.0 million to a long haul
telecommunications provider for an indefeasible right to use fiber lines for
twenty years to connect switching equipment.
F-22
<PAGE> 115
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRIVERGENT CORPORATION
PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1999
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1999
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 10,584,386
Investment in subsidiaries.................................. 24,616,713
------------
TOTAL ASSETS..................................... $ 35,201,099
============
Liabilities, Redeemable Preferred Stock and Stockholders'
Deficit
Payable to subsidiaries..................................... 579,282
Redeemable preferred stock.................................. 65,779,609
Stockholders' deficit....................................... (31,157,792)
------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT........................... $ 35,201,099
============
</TABLE>
CONDENSED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MAY 27, 1999 THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1999
<S> <C>
Income
Equity in undistributed net loss of subsidiaries............ $(11,287,652)
Interest income from investments............................ 321,477
Interest income, other...................................... 5,845
------------
Total Income (Loss).............................. (10,960,330)
Interest expense............................................ (489,225)
------------
Loss before extraordinary item......................... (11,449,555)
Extraordinary item -- early extinguishment of debt.......... (217,637)
------------
Net loss............................................... $(11,667,192)
============
</TABLE>
F-23
<PAGE> 116
SCHEDULE I (CONTINUED)
TRIVERGENT CORPORATION
PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1999
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 27, 1999 THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1999
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(11,667,192)
Adjustments to reconcile net loss to net cash provided by
operations
Equity in undistributed net loss of subsidiaries....... 11,287,652
Amortization of debt discount.......................... 181,301
Extraordinary item -- early extinguishment of debt..... 217,637
Change in other operating assets....................... 202,775
------------
Net cash provided by operating activities................... 222,173
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in cash realized from:
Investment in subsidiaries............................. (30,000,000)
Cash paid for acquisition, net of cash acquired........ (368,898)
------------
Net cash used for investing activities...................... (30,368,898)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash realized from:
Borrowings from subsidiaries, net...................... 579,282
Payment of Series 1999 note payable.................... (4,210,000)
Payment of accrued interest on notes payable........... (114,859)
Payment of line of credit.............................. (779,557)
Proceeds of issuance of preferred stock................ 45,631,119
Purchase of treasury stock............................. (208,620)
Proceeds from exercise of stock options................ 22,499
Other.................................................. (188,753)
------------
Net cash provided by financing activities................... 40,731,111
------------
Net increase in cash and cash equivalents................... 10,584,386
Cash and cash equivalents at beginning of period............ --
------------
Cash and cash equivalents at end of year.................... $ 10,584,386
============
</TABLE>
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Effective May 27, 1999, the Company transferred substantially all of its
assets and liabilities to a subsidiary except for the following: note receivable
($202,775), Series 1999 notes payable ($10,574,859) and a balance due under a
line of credit ($779,557).
F-24
<PAGE> 117
SCHEDULE I (CONTINUED)
Once the name of State Communications, Inc. has been changed to TriVergent
Corporation, we will be in a position to render the following report.
KPMG LLP
The Board of Directors
TriVergent Corporation:
Under date of February 25, 2000, we reported on the consolidated balance
sheets of TriVergent Corporation and subsidiaries as of December 31, 1998 and
1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the period from October 29, 1997 (date of
inception) through December 31, 1997 and for the years ended December 31, 1998
and 1999, which are included in the prospectus. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule in the registration statement.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Greenville, South Carolina
February 25, 2000
F-25
<PAGE> 118
================================================================================
, 2000
TRIVERGENT CORPORATION
SHARES OF COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
DONALDSON, LUFKIN & JENRETTE
CREDIT SUISSE FIRST BOSTON
FIRST UNION SECURITIES, INC.
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.
----------------------------------------
We have not authorized any dealer, salesperson or other person to give
you written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of TriVergent
Corporation have not changed since the date hereof.
Until , 2000 (25 days after the date of this prospectus),
all dealers that effect transactions in these shares of common stock may be
required to deliver a prospectus. This is in addition to the dealer's obligation
to deliver a prospectus when acting as an underwriter in this offering and when
selling previously unsold allotments or subscriptions.
----------------------------------------
<PAGE> 119
PART-II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than the
underwriting discounts and commissions, paid or payable by the Registrant in
connection with the distribution of the securities being registered. All
expenses of the offering will be paid by the Registrant. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .............. $45,540
National Association of Securities Dealers, Inc. filing fee ...... 17,750
Nasdaq National Market listing fee ............................... *
Printing ......................................................... *
Legal fees and expenses .......................................... *
Accounting fees and expenses ..................................... *
Blue Sky qualifications, related legal fees and expenses ......... *
Transfer Agent and Registrar's fees .............................. *
Miscellaneous expenses ........................................... *
=======
Total ............................................................ $ *
=======
</TABLE>
- ---------------
* To be provided by amendment
ITEM 14: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") empowers a Delaware corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of such corporation or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Such indemnification may
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided that such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A Delaware corporation is permitted to indemnify directors, officers,
employees and other agents of such corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the person to
be indemnified has been adjudged to be liable to the corporation. Where a
director, officer, employee or agent of the corporation is successful on the
merits or otherwise in the defense of any action, suit or proceeding referred to
above or in defense of any claim, issue or matter therein, the corporation must
indemnify such person against the expenses (including attorneys' fees) which he
or she actually and reasonably incurred in connection therewith.
Trivergent's certificate of incorporation provides that TriVergent
shall indemnify, to the full extent and under the circumstances permitted by the
DGCL in effect from time to time, any past, present or future director or
officer, made or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, by reason of the fact that such person is
or was a director, officer, employee or agent, or was serving in such capacities
at another entity at the specific request of TriVergent, on the same conditions
II-1
<PAGE> 120
provided by the DGCL. Trivergent's certificate of incorporation further provides
that TriVergent shall indemnify any such person in any threatened, pending or
completed action or suit by or on behalf of TriVergent under similar conditions,
except that no indemnification is permitted without judicial approval if the
person to be indemnified has be adjudged to be liable to TriVergent. In
addition, Trivergent's certificate of incorporation provides that the board of
directors may also grant indemnification to any individual other than an officer
or director, as it may determine in its sole discretion. Pursuant to these
provisions, TriVergent has entered into an indemnity agreement with each of its
directors and executive officers.
As permitted by Section 102(b)(7) of the DGCL, TriVergent's certificate
of incorporation contains a provision eliminating the personal liability of a
director to TriVergent or its stockholders for monetary damages for breach of
fiduciary duty as a director, subject to certain exceptions.
TriVergent maintains policies insuring its officers and directors
against certain civil liabilities, including liabilities under the Securities
Act.
ITEM 15: RECENT SALES OF UNREGISTERED SECURITIES
Since its inception, the Registrant has issued the following securities
without registration under the Securities Act (the number of shares set forth
below does not give effect to the proposed stock split of the Registrant's
common stock referred to in the prospectus).
On October 31, 1997, in connection with the Registrant's
formation, the Registrant issued 6,600,000 shares of common stock to a
total of eight individuals and entities (all of whom were "accredited
investors") for aggregate consideration of $705,000. This transaction
is exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act, along with Rule 506 of the
accompanying regulations of the Securities Act, as transactions not
involving any public offering.
On March 1, 1998, the Registrant issued 1,761,000 shares of
common stock for $1.00 per share to a total of twelve individuals and
entities (all of whom were "accredited investors") for aggregate
consideration of $1,761,000. This transaction is exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act, along with Rule 506 of the accompanying regulations of
the Securities Act, as transactions not involving any public offering.
On April 1, 1998, the Registrant issued 200,000 warrants to
purchase shares of the Company's common stock at $2.25 per share to two
individuals who were "accredited investors" in exchange for each of
these investors giving a personal guarantee of the Company's
obligations under a $1,000,000 line of credit with a commercial bank.
This transaction is exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, along with Rule 506 of
the accompanying regulations of the Securities Act, as transactions not
involving any public offering.
On May 15, 1998, the Registrant issued 1,963,462 shares of
common stock for $2.25 per share to a total of 42 individuals and
entities (all of whom were "accredited investors") for aggregate
consideration of $4,417,789.50. This transaction is exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act, along with Rule 506 of the accompanying regulations of
the Securities Act, as transactions not involving any public offering.
In October 1998, the Registrant sold an aggregate of 4,166,668
shares of Series A Convertible Preferred Stock at $2.40 per share.
These securities were sold to two entities which were "accredited
investors" for aggregate consideration of $10,000,003.20. This
transaction is exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, along with Rule
II-2
<PAGE> 121
506 of the accompanying regulations of the Securities Act, as a
transaction not involving any public offering.
In December 1998, the Registrant sold an aggregate of 545,004
shares of Series A Convertible Preferred Stock at $2.40 per share.
These securities were sold to a total of four individuals and entities
(all of whom were "accredited investors") for aggregate consideration
of $1,308,009.60. This transaction is exempt from registration under
the Securities Act pursuant to Section 4(2) of the Securities Act,
along with Rule 506 of the accompanying regulations of the Securities
Act, as a transaction not involving any public offering.
In March 1999, the Registrant issued 545,833 shares of its
common stock to the five shareholders of Carolina Online, Inc., a South
Carolina corporation, in connection with the acquisition of Carolina
Online, Inc. by the Company. The parties to the merger ascribed a value
of $2.40 per share to the common stock. This transaction is exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act as a transaction not involving a public offering.
In March and April 1999, the Registrant sold an aggregate of
$6,460,000 Series 1999 Notes (convertible into common stock at $2.40
per share subject to adjustment) with accompanying Warrants to purchase
232,560 shares of common stock at an exercise price of $2.00 per share.
These securities were sold to a total of 15 individuals and entities
(all of whom were "accredited investors") for aggregate consideration
of $6,460,000. This transaction is exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act, along
with Rule 506 of the accompanying regulations of the Securities Act, as
transactions not involving any public offering.
On May 27, 1999, the Registrant sold a $4,000,000 Series 1999A
Note (convertible into common stock at $2.40 per share subject to
adjustment) and Warrants to purchase 652,089 shares of common stock at
an exercise price of $2.00 per share to Nortel Networks Inc., the
creditor under the Company's then existing credit facility. The
consideration provided by Nortel Networks Inc. included $4,000,000 in
cash and the entry of Nortel into the transactions contemplated in the
credit facility, including without limitation the commitment to extend
up to $42 million of credit to the Company pursuant to the terms of the
credit facility. This transaction is exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act as a
transaction not involving a public offering.
On July 20, 1999, the Registrant issued 262,958 shares of its
common stock to the two shareholders of DCS, Inc., a South Carolina
corporation, in connection with the acquisition of DCS, Inc. by the
Company. The parties to the merger ascribed a value of $2.40 per share
to the common stock. This transaction is exempt from registration under
the Securities Act pursuant to Section 4(2) of the Securities Act as a
transaction not involving a public offering.
On July 29 and August 4, 1999, the Registrant sold an
aggregate of 13,186,665 shares of Series B Convertible Preferred Stock
at $3.75 per share. These securities were sold to a total of nineteen
individuals and entities (all of whom were "accredited investors") for
aggregate consideration of $49,449,993.75. This amount included
cancellation of an aggregate principal amount of $6,249,978.75 of
Series 1999 Notes. This transaction is exempt from registration under
the Securities Act pursuant to Section 4(2) of the Securities Act,
along with Rule 506 of the accompanying regulations of the Securities
Act, as transactions not involving any public offering.
On February 1, 2000, the Registrant sold an aggregate of
11,561,768 shares of Series C Convertible Preferred Stock at $4.25 per
share. These securities were sold to a total of fifteen individuals and
entities (all of whom were "accredited investors") for aggregate
consideration of
II-3
<PAGE> 122
$49,137,514.00. This transaction is exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act, along
with Rule 506 of the accompanying regulations of the Securities Act, as
transactions not involving any public offering.
On February 8, 2000, the Registrant issued 117,647 shares of
its common stock to the sole shareholder of Information Services and
Advertising Corporation, a North Carolina corporation, in connection
with the acquisition of DCS, Inc. by the Company. The parties to the
merger ascribed a value of $4.25 per share to the common stock. This
transaction is exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act as a transaction not
involving a public offering.
On February 9, 2000, the Registrant issued 587,755 shares of
its common stock to the two shareholders of Ester Communications, Inc.,
a North Carolina corporation, in connection with the acquisition of
Ester Communications, Inc. by the Company. The parties to the merger
ascribed a value of $4.25 per share to the common stock. This
transaction is exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act as a transaction not
involving a public offering.
On March 20, 2000, the Registrant sold an aggregate of
4,214,703 shares of Series C Convertible Preferred Stock at $4.25 per
share. These securities were sold to a total of 23 individuals and
entities (all of whom were "accredited investors") for aggregate
consideration of $17,912,487.75. This transaction is exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act, along with Rule 506 of the accompanying regulations of
the Securities Act, as transactions not involving any public offering.
On January 12, 1998, the Registrant established its Employee
Incentive Plan. A total of 10,000,000 shares of common stock have been
reserved for issuance thereunder. Since January 14, 1998, the following
options have been issued (all of which were issued to employees of the
Company):
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE PER SHARE DATES ISSUED
--------- --------------- -----------------
<S> <C> <C>
888,000 $1.50 1/14/98 - 4/01/98
420,620 2.25 5/01/98 - 3/08/99
2,592,124 2.40 1/14/98 - 9/12/99
904,976 3.00 2/01/99 - 3/06/00
1,902,133 3.75 1/03/99 - 1/25/00
876,585 4.25 2/01/00 - 3/15/00
600,000 10.00 2/23/00
600,000 15.00 2/23/00
</TABLE>
Through the date hereof, a total of 8,878,458 options have
been granted, a total of 14,666 options have been exercised, and a
total of 388,843 options have been forfeited and returned to the plan.
These transactions were exempt from registration under the Securities
Act pursuant to Section 4(2) of the Securities Act, along with Rule 701
of the accompanying regulations of the Securities Act, as transactions
not involving any public offering.
II-4
<PAGE> 123
ITEM 16: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
Generally, schedules, exhibits, appendices and attachments to
documents included as exhibits which TriVergent believes are not material have
been omitted from the exhibits. TriVergent will provide the Commission with
such omitted schedules, exhibits, appendices and/or attachments upon request.
Exhibit No.
1.1 Form of Underwriting Agreement. *
3.1 Articles of Incorporation. *
3.2 By-Laws *
4.1.1 Form of Certificate for the Registrant's Common Stock. *
4.1.2 Form of Warrant.
4.2.1 State Communications, Inc. Second Amended and Restated Stockholders'
Agreement dated February 1, 2000.
4.2.2 Master Amendment Agreement (amending the agreements included as
Exhibits 4.2.1 & 4.3.5 hereto) dated March 20, 2000.
4.3.1 Amended and Restated Registration Rights Agreement dated February 19,
1998 between the Company and Seruus Telecom Fund, L.P.
4.3.2 Registration Rights Agreement dated May 27, 1999 between Registrant and
Nortel Networks Inc.
4.3.3 Registration Rights Agreement dated October 28, 1998, by and among
Registrant and each of the other parties listed on Schedule I thereto
(certain holders of Series A Convertible Preferred Stock).
4.3.4 Registration Rights Agreement dated July 29, 1999, by and among
Registrant and each of the other parties listed on Schedule I thereto
(certain holders of Series B Convertible Preferred Stock).
4.3.5 Registration Rights Agreement dated February 1, 2000, by and among
Registrant and each of the other parties listed on Schedule I thereto
(certain holders of Series C Convertible Preferred Stock).
4.4 Warrant Agreement dated as of May 27, 1999 by and between Registrant
and Nortel Networks Inc.
5.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. regarding legality of
shares of the Registrant.*
10.1 Amended and Restated State Communications Employee Incentive Plan
10.2.1 Loan Agreement dated February 1, 2000, (the "TD Facility") by and among
TriVergent Communications, Inc., the Financial Institutions Whose Names
Appear as Lenders on the Signature Pages thereof, TD Securities (USA),
Inc. and Capital Syndication Corporation, as affiliate of The CIT
Group, Inc., as co-lead arrangers and co-book runners, Newcourt
Commercial Finance Corporation, as affiliate of The CIT Group, Inc., as
documentation agent, First Union National Bank, as syndication agent,
and Toronto Dominion (Texas), Inc., as administrative agent for the
lenders and Assignment and Assumption Agreements dated March 9 and
March 30, 2000 adding additional Lenders.
10.2.2 Parent Guaranty of Registrant of the TD Facility dated February 1,
2000.
10.2.3 Parent Pledge Agreement dated February 1, 2000, by and among Registrant
and Toronto Dominion (Texas), Inc., as administrative agent for the
lenders.
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<PAGE> 124
10.3.1 Credit Agreement dated as of March 7, 2000, by and among TriVergent
Communications South, Inc., as Borrower, and Nortel Networks Inc., as
Administrative Agent, and the Lenders Named Therein.
10.3.2 Parent Pledge Agreement dated March 7, 2000, by and between Registrant
and Nortel Networks Inc.
10.4.1 Master Purchase Agreement dated May 26, 1999, by and between
State Communications, Inc. and Nortel Networks Inc. *
10.4.2 Amendment No. 1 to Master Purchase Agreement dated September 1, 1999,
by and between State Communications, Inc., Nortel Networks Inc. and
TriVergent Communications, Inc. *
10.4.3 Amendment No. 2 to Master Purchase Agreement dated March 7, 2000, by
and between TriVergent Communications, Inc. and Nortel Networks Inc. *
10.4.4 Master Asset Lease Agreement dated March 7, 2000 between TriVergent
Leasing South, LLC and TriVergent Communications South, Inc.
10.5.1 Preferred Stock Purchase Agreement for 4,166,668 Shares of Series A
Convertible Preferred Stock dated October 28, 1998.
10.5.2 Preferred Stock Purchase Agreement for 13,186,665 Shares of Series B
Convertible Preferred Stock dated July 29, 1999. Form of Joinder
Agreements of Joseph Lawrence, William Oberlin, David C. Poole, Terry
E. Richardson and Capital Insights Growth Investors, L.P.
10.5.3 Preferred Stock Purchase Agreement for 11,561,768 Shares of Series C
Convertible Preferred Stock dated February 1, 2000.
10.5.4 Preferred Stock Purchase Agreement for 4,214,703 Shares of Series C
Convertible Preferred Stock dated March 20, 2000.
10.9.1 Form of Employment Agreement dated October 28, 1998 of Charles S.
Houser, Shaler P. Houser, Russell W. Powell, and Clark H. Mizell and
schedule of material details for each such person.
10.9.2 Employment Agreement between G. Michael Cassity and State
Communications, Inc. dated March 10, 2000.
10.9.3 Employment Agreement between Riley Murphy and State Communications,
Inc. dated March 15, 2000.
10.10 Form of Non-Disclosure and Non-Competition Agreement between State
Communications, Inc., Richland Ventures II, L.P., First Union Capital
Partners, Inc. and each of Charles S. Houser, Shaler P. Houser, Russell
W. Powell and Clark H. Mizell and schedule of material details for each
such person.
10.11 Form of Indemnity Agreement by and between Registrant and each of its
directors and executive officers. *
10.12 Lease by and between TriVergent Communications, Inc., Alan B. Kahn and
Windsor City Partnership.
21.1 Listing of subsidiaries.
23.1 Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in Exhibit
5.1.
23.2 Consent of KPMG LLP, independent auditors.
24.1 The Power of Attorney: Contained on the signature page of the initial
filing of this Registration Statement.
27.1 Financial Data Schedule for the year ended December 31, 1999.
- ----------------
* To be filed by amendment.
II-6
<PAGE> 125
(B) FINANCIAL STATEMENT SCHEDULES.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
No other financial statement schedules are included. The information is
either included in the financial statements and notes thereto or is not
required.
ITEM 17: UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2)for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenville, State of
South Carolina, on April 12, 2000.
TRIVERGENT CORPORATION
By: /s/ Charles S. Houser
-----------------------------
Charles S. Houser
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles S. Houser and Clark H. Mizell,
and each of them, as true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement and any
additional registration statement filed pursuant to Rule 462(b), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all which said attorneys-in-fact and agents or any of them, or
their or his or her substitute or substitutes, may lawfully do, or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
-------------------------------------- --------------
<S> <C> <C>
Chairman of the Board of Directors;
Chief Executive Officer (principal
/s/ Charles S. Houser executive officer) April 12, 2000
- -------------------------------
Charles S. Houser
Senior Vice President, Chief Financial
Officer (principal financial and
/s/ Clark H. Mizell accounting officer) April 12, 2000
- -------------------------------
Clark H. Mizell
/s/ William H. Oberlin Director April 12, 2000
- -------------------------------
William H. Oberlin
/s/ Joseph A. Lawrence Director April 12, 2000
- -------------------------------
Joseph A. Lawrence
/s/ Jack Tyrrell Director April 12, 2000
- -------------------------------
Jack Tyrrell
</TABLE>
<PAGE> 127
<TABLE>
<S> <C> <C>
/s/ Robert S. Sherman Director April 12, 2000
- -------------------------------
Robert S. Sherman
/s/ Alan N. Colner Director April 12, 2000
- -------------------------------
Alan N. Colner
/s/ Watts Hamrick Director April 12, 2000
- -------------------------------
Watts Hamrick
/s/ Shaler P. Houser Director April 12, 2000
- -------------------------------
Shaler P. Houser
/s/ G. Michael Cassity Director April 12, 2000
- -------------------------------
G. Michael Cassity
</TABLE>
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
-----------
<S> <C>
1.1 Form of Underwriting Agreement. *
3.1 Articles of Incorporation. *
3.2 By-Laws *
4.1.1 Form of Certificate for the Registrant's Common Stock. *
4.1.2 Form of Warrant.
4.2.1 State Communications, Inc. Second Amended and Restated Stockholders'
Agreement dated February 1, 2000.
4.2.2 Master Amendment Agreement (amending the agreements included as
Exhibits 4.2.1 & 4.3.5 hereto) dated March 20, 2000.
4.3.1 Amended and Restated Registration Rights Agreement dated February 19,
1998 between the Company and Seruus Telecom Fund, L.P.
4.3.2 Registration Rights Agreement dated May 27, 1999 between Registrant and
Nortel Networks Inc.
4.3.3 Registration Rights Agreement dated October 28, 1998, by and among
Registrant and each of the other parties listed on Schedule I thereto
(certain holders of Series A Convertible Preferred Stock).
4.3.4 Registration Rights Agreement dated July 29, 1999, by and among
Registrant and each of the other parties listed on Schedule I thereto
(certain holders of Series B Convertible Preferred Stock).
4.3.5 Registration Rights Agreement dated February 1, 2000, by and among
Registrant and each of the other parties listed on Schedule I thereto
(certain holders of Series C Convertible Preferred Stock).
4.4 Warrant Agreement dated as of May 27, 1999 by and between Registrant
and Nortel Networks Inc.
5.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. regarding legality of
shares of the Registrant.*
10.1 Amended and Restated State Communications Employee Incentive Plan
10.2.1 Loan Agreement dated February 1, 2000, (the "TD Facility") by and among
TriVergent Communications, Inc., the Financial Institutions Whose Names
Appear as Lenders on the Signature Pages thereof, TD Securities (USA),
Inc. and Capital Syndication Corporation, as affiliate of The CIT
Group, Inc., as co-lead arrangers and co-book runners, Newcourt
Commercial Finance Corporation, as affiliate of The CIT Group, Inc., as
documentation agent, First Union National Bank, as syndication agent,
and Toronto Dominion (Texas), Inc., as administrative agent for the
lenders and Assignment and Assumption Agreements dated March 9 and
March 30, 2000 adding additional Lenders.
10.2.2 Parent Guaranty of Registrant of the TD Facility dated February 1,
2000.
10.2.3 Parent Pledge Agreement dated February 1, 2000, by and among Registrant
and Toronto Dominion (Texas), Inc., as administrative agent for the
lenders.
</TABLE>
<PAGE> 129
<TABLE>
<S> <C>
10.3.1 Credit Agreement dated as of March 7, 2000, by and among TriVergent
Communications South, Inc., as Borrower, and Nortel Networks Inc., as
Administrative Agent, and the Lenders Named Therein.
10.3.2 Parent Pledge Agreement dated March 7, 2000, by and between Registrant
and Nortel Networks Inc.
10.4.1 Master Purchase Agreement dated May 26, 1999, by and between
State Communications, Inc. and Nortel Networks Inc. *
10.4.2 Amendment No. 1 to Master Purchase Agreement dated September 1, 1999,
by and between State Communications, Inc., Nortel Networks Inc. and
TriVergent Communications, Inc. *
10.4.3 Amendment No. 2 to Master Purchase Agreement dated March 7, 2000, by
and between TriVergent Communications, Inc. and Nortel Networks Inc. *
10.4.4 Master Asset Lease Agreement dated March 7, 2000 between TriVergent
Leasing South, LLC and TriVergent Communications South, Inc.
10.5.1 Preferred Stock Purchase Agreement for 4,166,668 Shares of Series A
Convertible Preferred Stock dated October 28, 1998.
10.5.2 Preferred Stock Purchase Agreement for 13,186,665 Shares of Series B
Convertible Preferred Stock dated July 29, 1999. Form of Joinder
Agreements of Joseph Lawrence, William Oberlin, David C. Poole, Terry
E. Richardson and Capital Insights Growth Investors, L.P.
10.5.3 Preferred Stock Purchase Agreement for 11,561,768 Shares of Series C
Convertible Preferred Stock dated February 1, 2000.
10.5.4 Preferred Stock Purchase Agreement for 4,214,703 Shares of Series C
Convertible Preferred Stock dated March 20, 2000.
10.9.1 Form of Employment Agreement dated October 28, 1998 of Charles S.
Houser, Shaler P. Houser, Russell W. Powell, and Clark H. Mizell and
schedule of material details for each such person.
10.9.2 Employment Agreement between G. Michael Cassity and State
Communications, Inc. dated March 10, 2000.
10.9.3 Employment Agreement between Riley Murphy and State Communications,
Inc. dated March 15, 2000.
10.10 Form of Non-Disclosure and Non-Competition Agreement between State
Communications, Inc., Richland Ventures II, L.P., First Union Capital
Partners, Inc. and each of Charles S. Houser, Shaler P. Houser, Russell
W. Powell and Clark H. Mizell and schedule of material details for each
such person.
10.11 Form of Indemnity Agreement by and between Registrant and each of its
directors and executive officers. *
10.12 Lease by and between TriVergent Communications, Inc., Alan B. Kahn and
Windsor City Partnership.
21.1 Listing of subsidiaries.
23.1 Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in Exhibit
5.1.
23.2 Consent of KPMG LLP, independent auditors.
24.1 The Power of Attorney: Contained on the signature page of the initial
filing of this Registration Statement.
27.1 Financial Data Schedule for the year ended December 31, 1999.
</TABLE>
- ----------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 4.1.2
STOCK PURCHASE WARRANT
This Stock Purchase Warrant (this "Warrant") is issued this _______ day
of ________________, 1999, by State Communications, Inc., a South Carolina
corporation (the "Company"), to _____________________________ (such person or
entity and any subsequent assignee or transferee hereof are hereinafter referred
to collectively as "Holder" or "Holders").
WHEREAS, the Company is issuing up to $5 million in debt securities
designated "Series 1999 Notes" (the "Notes") in an offering to accredited
investors (the "Notes");
WHEREAS the agreement between the Company and purchasers of Notes is
that for each $1,000 of Notes purchased, the Company will grant to such
purchaser a warrant to purchase 36 shares of Company common stock (with lesser
amounts resulting in a pro rata reduction of the shares subject to the warrant);
WHEREAS Holder has purchased $______________ of Notes;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. The Company hereby grants to Holder the
right to purchase _______________ shares of the Company's common stock (the
"Common Stock," and the shares of Common Stock issuable upon exercise of this
Warrant being hereinafter referred to as the "Shares"). This Warrant shall be
exercisable at any time and from time to time from the date hereof until the
third anniversary of the date hereof.
2. EXERCISE PRICE; EXERCISE. (a) The exercise price (the "Exercise
Price") per share for which all or any of the Shares may be purchased pursuant
to the terms of this Warrant shall be Two Dollars and No Cents ($2.00). This
Warrant may be exercised by the Holder hereof (but only on the conditions
hereinafter set forth) at any time after the date hereof as to all or any
increment or increments of One Hundred (100) Shares (or the balance of the
Shares if less than such number), upon delivery of written notice of intent to
exercise to the Company at the following address: ______________________,
Greenville, SC 29601 or such other address as the Company shall designate in a
written notice to the Holder hereof, together with this Warrant and payment to
the Company of the aggregate Exercise Price of the Shares so purchased.
(b) The Exercise Price shall be payable, at the option of the
Holder, (i) by check, (ii) by the surrender of the Note or portion thereof
having an outstanding principal balance equal to the aggregate Exercise Price or
(iii) by the surrender of a portion of this Warrant where the Shares subject to
the portion of this Warrant that is surrendered have a fair market value (as
mutually agreed upon by the parties hereto) equal to the aggregate Exercise
Price. Upon exercise of this Warrant as aforesaid, the Company shall as promptly
as practicable, and in any event within fifteen (15) days thereafter, execute
and deliver to the Holder of this Warrant a certificate or certificates for the
total number of whole Shares for which this Warrant is being exercised in such
names and denominations as are requested by such Holder. If this Warrant shall
be exercised with respect to less than all of the Shares, the Holder shall be
entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised, which new Warrant shall in all
other respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which may be
payable in respect of the issuance of this Warrant or the issuance of any Shares
upon exercise of this Warrant.
(c) The Company shall at all times reserve and keep available
for issuance upon the exercise of this Warrant such number of authorized but
unissued shares of Common Stock as will be sufficient to permit the exercise in
full of this Warrant.
<PAGE> 2
3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants as follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of South Carolina, and
has the corporate power to own and operate its properties, to carry on its
business as now conducted, to execute, issue and deliver this Warrant, to issue
the Shares, and to perform its obligations under this Warrant. The Company is
duly qualified to do business and in good standing in each state in which a
failure to be so qualified would have a material adverse effect on the Company's
financial condition or its ability to conduct its business in the manner now
conducted.
(b) The execution and delivery of this Warrant and the
performance by the Company of its obligations hereunder, including the issuance
of the Shares, are within the corporate powers of the Company and have been duly
authorized by all necessary corporate action properly taken, have received all
necessary governmental approvals, if any were required, and do not and will not
contravene or conflict with any provision of law, any applicable judgment,
ordinance, regulation or order of any court or governmental agency, the charter
or bylaws of the Company, or any agreement binding upon the Company or its
properties. The officer(s) executing this Agreement, the Notes and all of the
other Loan Documents to which the Company is a party are duly authorized to act
on behalf of the Company.
(c) This Warrant has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to limitations imposed by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights of
creditors generally or the application of general equitable principles. All
Shares which may be issued upon exercise of this Warrant will, upon issuance and
payment therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes (other than income or an intangibles tax owed
by Holder), liens, charges and preemptive rights, if any, with respect thereto
or to the issuance thereof.
(d) Capitalization. The authorized capital stock of the
Company consists solely of (i) 50,000,000 shares of common stock, $0.001 par
value per share, of which 10,324,462 shares are currently outstanding, (ii)
10,000,000 shares of "blank check" preferred stock, of which 4,711,672 shares of
Series 1998 Preferred Stock are authorized, issued and outstanding (all such
outstanding common stock and preferred stock being hereinafter referred to as
the "Capital Stock"). All of the outstanding shares of Capital Stock are duly
authorized, validly issued and outstanding, fully paid and nonassessable, and
were issued free of preemptive rights. Except for the currently outstanding
shares of Capital Stock, there are no shares of capital stock or other
securities of the Company issued or outstanding. Except as set forth on Schedule
A or as contemplated in this Warrant, there are no outstanding options, warrants
or rights to purchase or acquire from the Company any securities of the Company.
4. COVENANTS AND CONDITIONS.
(a) Holder acknowledges as follows: Neither this Warrant nor
the Shares have been registered under the Securities Act of 1933, as amended
("Securities Act") or any state securities laws ("Blue Sky Laws"). This Warrant
has been acquired for investment purposes and not with a view to distribution or
resale and may not be sold or otherwise transferred without (i) an effective
registration statement for such Warrant under the Securities Act and such
applicable Blue Sky Laws, or (ii) an opinion of counsel, which opinion and
counsel shall be reasonably satisfactory to the Company and its counsel, that
registration is not required under the Securities Act or under any applicable
Blue Sky Laws. Transfer of the shares issued upon the exercise of this Warrant
shall be restricted in the same manner and to the same extent as the Warrant and
the certificates representing such Shares shall bear substantially the following
legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
2
<PAGE> 3
(b) The Holder hereof and the Company agree to execute such
other documents and instruments as counsel for the Company reasonably deems
necessary to effect the compliance of the issuance of this Warrant and any
shares of Common Stock issued upon exercise hereof with applicable federal and
state securities laws.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
Holder shall give the Company ten (10) days prior written notice of its
intention to transfer this Warrant.
6. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein
or in other agreements between the Company and the Holder, this Warrant does not
confer upon the Holder, as such, any right whatsoever as a shareholder of the
Company.
7. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization, combination of
shares of the Company, or other similar event, occurring after the date hereof,
then the Holder exercising this Warrant shall receive, for the aggregate price
paid upon such exercise, the aggregate number and class of shares which such
Holder would have received if this Warrant had been exercised immediately prior
to such stock split, stock dividend, recapitalization, combination of shares, or
other similar event. If any adjustment under this Section 7(a), would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares subject to this Warrant shall be the next higher number of shares,
rounding all fractions upward. Whenever there shall be an adjustment pursuant to
this Section 7(a), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event, occurring
after the date hereof, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or another
class or classes of securities of the Company or another entity, or the holders
of Common Stock are entitled to receive cash or other property, then the Holder
exercising this Warrant shall receive, for the aggregate price paid upon such
exercise, the aggregate number and class of shares, cash or other property which
such Holder would have received if this Warrant had been exercised immediately
prior to such merger, consolidation, exchange of shares, separation,
reorganization or liquidation, or other similar event. If any adjustment under
this Section 7(b) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares subject to this Warrant shall be the next
higher number of shares, rounding all fractions upward. Whenever there shall be
an adjustment pursuant to this Section 7(b), the Company shall forthwith notify
the Holder or Holders of this Warrant of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated.
3
<PAGE> 4
8. CERTAIN NOTICES. In case at any time the Company shall propose to
(i) declare any cash dividend upon its Common Stock; (ii) declare any dividend
upon its Common Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock; (iii) offer for subscription to
the holders of any of its Common Stock any additional shares of stock in any
class or other rights; (iv) reorganize, or reclassify the capital stock of the
Company, or consolidate, merge or otherwise combine with, or sell all or
substantially all of its assets to, another corporation; (v) voluntarily or
involuntarily dissolve, liquidate or wind up of the affairs of the Company; or
(vi) redeem or purchase any shares of its capital stock or securities
convertible into its capital stock; then, in any one or more of said cases, the
Company shall give to the Holder of the Warrant, by certified or registered
mail, (i) at least twenty (20) days' prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, and (ii) in the case of such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least twenty (20) days prior written notice of the
date when the same shall take place. Any notice required by clause (i) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and any notice required by clause (ii) shall specify the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
9. MISCELLANEOUS.
(a) Successors and Assigns Included in Parties. Except as
expressly provided herein, the rights and obligations under this Warrant shall
bind and inure to the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
(b) Severability. If any provision(s) of this Warrant or the
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
(c) Notices. Any and all notices, elections or demands
permitted or required to be made under this Warrant shall be in writing, signed
by the party giving such notice, election or demand and shall be delivered
personally, telecopied, telexed, or sent by certified mail or overnight via
nationally recognized courier service (such as Federal Express), to the other
party at the address set forth in the Loan Agreement, or at such other addresses
as may be provided in writing.
(d) Entire Agreement. This Warrant represents the entire
agreement between the parties concerning the subject matter hereof.
(e) Governing Law and Amendments. This Warrant shall be
construed and enforced under the laws of the State of South Carolina applicable
to contracts to be wholly performed in such State. This Warrant may not be
amended except by a writing signed by all parties hereto.
(f) Construction and Interpretation. Should any provision of
this Warrant require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that all parties and their respective agents have participated in the
preparation hereof.
END OF PAGE -- NEXT PAGE IS SIGNATURE PAGE
4
<PAGE> 5
SIGNATURE PAGE OF STOCK PURCHASE WARRANT
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
COMPANY: State Communications, Inc.,
a South Carolina corporation
By:______________________________________
Title:___________________________________
HOLDER: _________________________________ (print name)
By:_______________________________ (signature)
Title:________________________ (if applicable)
5
<PAGE> 6
SCHEDULE A
Outstanding options, warrants or rights to acquire from the Company any Company
securities.
6
<PAGE> 1
EXECUTION COPY
EXHIBIT 4.2.1
STATE COMMUNICATIONS, INC.
SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
This SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (the
"Agreement") is made and entered into this 1st day of February, 2000 by and
among STATE COMMUNICATIONS, INC., a South Carolina corporation (the "Company"),
and each of the other parties listed on Schedule I and Schedule II hereto.
W I T N E S S E T H:
WHEREAS, the Holders (as such term is hereinafter defined) own the
securities of the Company set forth opposite their respective names on Schedule
I; and
WHEREAS, in order to provide for continuity of management of the
Company and to provide for certain agreements with respect to the voting and
transfer of the securities of the Company, the Company and certain stockholders
entered into an Amended and Restated Stockholder's Agreement dated July 29, 1999
(the "Original Agreement"); and
WHEREAS, in connection with the issuance of the Series C Convertible
Preferred Stock by the Company, the parties to the Original Agreement desire to
amend and restate the Original Agreement on the terms and conditions set forth
herein to, among other things, add the holders of the Series C Convertible
Preferred Stock as parties to this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows:
DEFINITIONS
"Articles" means the Articles of Incorporation of the Company, as
amended, filed with the Office of the Secretary of State of South Carolina, on
the date of this Agreement.
"BancAmerica" means BancAmerica Capital Investors SBIC I, L.P.
"Board" means the Board of Directors of the Company.
"Boston" means Boston Millennia Partners Limited Partnership and Boston
Millennia Associates I Partnership.
<PAGE> 2
"Capital Stock" means the Common Stock and/or the Preferred Stock, as
the case may be, now owned or hereafter acquired.
"Common Stock" means the Common Stock, $.001 par value per share, of
the Company.
"Holders" mean the parties to this Agreement listed on Schedule I
attached hereto (including Permitted Transferees of such Holders).
"Investors" mean the parties to this Agreement identified on Schedule
II hereto (including permitted transferees of such Investors).
"First Union" means First Union Capital Partners, Inc., a Virginia
corporation.
"Founding Stockholder" means each of Shaler P. Houser and Charles L.
Houser.
"Moore" means Moore Global Investments, Ltd. and Remington Investments
Strategies, L.P.
"Newcourt" means Newcourt Commercial Finance Corporation, an affiliate
of The CIT Group, Inc..
"Permitted Transferee" shall mean (1) the Holder's or Investor's
immediate family, including his spouse and natural-born or adopted children
and/or his or their lineal descendants and any trust or custodianship having
that Holder or Investor as the sole trustee or custodian and having that Holder,
Investor and/or his spouse, natural-born or adoptive children, and/or his or
their lineal descendants as its sole beneficiaries; or (2) a personal
representative, trustee, executor or similar fiduciary acting on behalf of that
Holder or Investor following his death or incapacity.
"Preferred Stock" means the Series A Convertible Preferred Stock, the
Series B Convertible Preferred Stock and the Series C Convertible Preferred
Stock of the Company.
"Public Offering" means a bona fide firm commitment underwritten
offering of Common Stock, pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission.
"Richland" means Richland Ventures II, L.P., a Delaware limited
partnership.
"Securities" means the Common Stock and the Preferred Stock (and Common
Stock issued or issuable on conversion of the Preferred Stock and upon exercise
of options), whether now owned or hereafter acquired.
"Series A Preferred" means the Series A Convertible Preferred Stock of
the Company.
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"Series B Preferred" means the Series B Convertible Preferred Stock of
the Company.
"Series C Preferred" means the Series C Convertible Preferred Stock of
the Company.
"Toronto" means Toronto Dominion Capital (U.S.A.), Inc.
"Total Vote" means the total number of votes represented by (i) all
outstanding shares of Common Stock, and (ii) all outstanding shares of Preferred
Stock.
ARTICLE I
CORPORATE GOVERNANCE
1.1 Number of Directors; Quorum; Vote. The Bylaws of the Company shall
at all times provide that (i) the Board shall consist of nine members, or such
greater number approved by the unanimous vote of the Board; (ii) a majority of
the total number of directors shall constitute a quorum for the transaction of
business at any meeting of the Board; (iii) except as set forth herein, the vote
of a majority of the directors present and voting at any meeting shall
constitute the action of the Board; and (iv) regular meetings of the Board shall
be held no less frequently than quarterly.
1.2 Board Composition. (a) Subject to the terms of this Agreement:
(i) Richland shall be entitled (A) to nominate one
individual for election to the Board to serve as a
Director until his or her successor is elected and
qualifies, (B) to nominate each such successor, and
(C) to propose the removal from the Board of any
director nominated under the foregoing clause (A) or
(B);
(ii) First Union shall be entitled (A) to nominate one
individual for election to the Board to serve as a
Director until his or her successor is elected and
qualifies, (B) to nominate each such successor, and
(C) to propose the removal from the Board of any
director nominated under the foregoing clause (A) or
(B);
(iii) Moore shall be entitled (A) to nominate one
individual for election to the Board to serve as a
Director until his or her successor is elected and
qualifies, (B) to nominate each such successor, and
(C) to propose the removal from the Board of any
director nominated under the foregoing clause (A) or
(B);
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(iv) Boston shall be entitled (A) to nominate one
individual for election to the Board to serve as a
Director until his or her successor is elected and
qualifies, (B) to nominate each such successor, and
(C) to propose the removal from the Board of any
director nominated under the foregoing clause (A) or
(B).
(b) Each nomination or any proposal to remove from the Board any
director shall be made by delivering to the Company a notice signed by the party
or parties entitled to such nomination or proposal. As promptly as practicable
after delivery of such notice, the Company shall take or cause to be taken such
corporate actions as may be reasonably required to cause the election or removal
proposed in such notice. Such corporate actions may include calling a meeting or
soliciting the written consent of the Board, or calling a meeting or soliciting
the written consent of the shareholders of the Company.
(c) Each Holder and each Investor agrees to vote all of his, her or its
Capital Stock for the election to the Board of all individuals nominated in
accordance with this Section 1.2 and for the removal from the Board of all
directors proposed to be removed in accordance herewith. Each Holder and each
Investor shall cause each director nominated by such shareholder to vote for the
election to the Board of all individuals nominated in accordance with this
Section 1.2.
(d) In the event the size of the Board is increased to a number of
directors greater than nine, the Investors shall have the right to approve any
nominees to fill such additional Board seats.
(e) Moore, Toronto, Newcourt and BancAmerica shall have the right, at
the Company's expense, to have an observer present at all meetings of the Board
of Directors of the Company and any Committees thereof, subject to such
confidentiality or other restrictions as may be imposed by the Board. Such
observers shall be entitled to the same notice of meetings as directors and
shall be entitled to receive all information or correspondence provided to the
directors by the Company.
1.3 Stockholder Meetings: Consents. The Bylaws of the Company shall at
all times provide that stockholders who hold ten percent of the Total Vote shall
have the right to call a meeting of stockholders upon the shortest notice
permitted by law.
1.4 Obligation of Holders. Each Holder shall devote substantially all
of his or her professional efforts to the Company and shall promptly disclose to
the Board (i) any and all investments or other participations in any business
entities which compete or may compete with the Company (other than ownership of
shares that are traded on a national securities exchange or the National
Association of Securities Dealers Automated Quotation System); and (ii) all
transactions or agreements between the Company or any of its subsidiaries and
such Holder or any affiliate of such Holder. Each Founding
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Stockholder acknowledges that the Board will provide all such information to the
Investors.
1.5 Further Assurances. Each Holder and Investor shall vote all of its
Capital Stock, shall execute and deliver such further documents, shall take such
further action, and shall use its best efforts to cause the Board to vote in
such a manner as may be necessary or desirable to carry out the purposes and
intent of this Agreement.
1.6 No Other Voting Arrangements. Each party hereto represents and
warrants to each other party that such party has no knowledge of any written or
oral agreements or arrangements, with respect to the voting of Securities of the
Company, other than as set forth in this Agreement or as set forth in that
certain Investment Agreement by and among the Company, Seruus Telecom Fund, L.P.
("Seruus") and the individuals named therein, dated February 19, 1998. Any other
such agreements or arrangements shall be void as against, and shall not be
recognized or given effect by, the parties hereto. Each party shall promptly
notify each other party upon learning of the existence of any such agreement or
arrangement.
1.7 Compensation Decisions. Notwithstanding anything to the contrary
contained herein, all increases in compensation to the executive officers and
key managers of the Company, including, but not limited to, all increases in
salary, bonus and all future stock option grants to such individuals, shall not
be effective unless approved by not less than 80% of the members of the Board of
Directors.
1.8 Participation in Certain Transactions.
(a) In the event of a Sale of the Company, as hereinafter defined,
which is approved by the holders of a majority of the then outstanding Preferred
Stock (voting as a single class), the Investors shall have the right to require
each Holder to vote all shares of Capital Stock held by him in favor of the Sale
of the Company. For purposes of the foregoing, Sale of the Company shall mean
(i) the purchase of substantially all of the assets of the Company, or (ii) the
sale, transfer or exchange of all or substantially all of the Company's issued
and outstanding Capital Stock, whether by merger, share exchange, consolidation,
sale of all of the outstanding Capital Stock or otherwise.
(b) By execution of this Agreement, each Holder hereby agrees to vote
all shares of Capital Stock held by him in accordance with Section 1.8(a) hereof
and to take such further actions as may be reasonably necessary to effect the
provisions of Section 1.8(a).
1.9 Directed Share Plan. In the event the Company elects to sell shares
of Common Stock in an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, the Company
shall sell at least 10% of the shares of Common Stock being sold in the offering
(the "Directed Shares") to the Investors at the price at which the shares of
Common Stock are being sold to the public. Each Investor shall be permitted to
acquire a proportion of the Directed Shares equal to the Investor's percentage
ownership of the Common Equivalent Shares. To the
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extent one or more Investors elects not to participate in the purchase of the
Directed Shares, or elects to participate as to some but not all of the Directed
Shares, the right to purchase any remaining Directed Shares shall be allocated
among the participating Investors in proportion to their ownership of Common
Stock Equivalent Shares (as defined in Section 3.2(b)).
1.10 Non-Competes. Richland and First Union hereby agree not to
terminate or approve any amendment to those Non-Disclosure and Non-Competition
Agreements required by Section 4.18 of that certain Stock Purchase Agreement,
dated October 28, 1998, between the Company, First Union and Richland without
the approval of the holders of a majority of the Preferred Stock.
ARTICLE II
STOCK CERTIFICATES
2.1 Stock Certificates. Each of the Holders agrees that the stock
certificate or certificates from time to time representing the respective shares
of Capital Stock shall be registered in the individual name of such Holder and
shall bear, in addition to any other legend required to be placed thereon, a
legend in substantially the following form:
"THIS SECURITY IS SUBJECT TO THE TERMS OF THE SECOND
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED JANUARY
___, 2000, AND ANY AMENDMENTS THERETO, COPIES OF WHICH ARE ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. ANY ATTEMPTED
SALE, PLEDGE, BEQUEST, TRANSFER, ASSIGNMENT OR ANY OTHER
DISPOSITION OR ENCUMBRANCE OF THIS SECURITY OTHERWISE THAN AS
EXPRESSLY PERMITTED BY SAID AGREEMENT IS INVALID."
ARTICLE III
TRANSFER RIGHTS AND RESTRICTIONS
3.1. General Restriction. No Holder may sell, exchange, give, devise,
pledge, encumber or otherwise dispose of ("Transfer"), either voluntarily or
involuntarily or by operation of law (including a transfer pursuant to equitable
distribution proceedings), any of the Capital Stock, or any rights or interest
related thereto, whether now owned or hereafter acquired, except as permitted by
this Agreement.
3.2. Voluntary Transfer. A Holder may voluntarily transfer Capital
Stock pursuant to and as permitted by this Section 3.2 but not otherwise.
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(a) First Offer Rights. If any Holder shall desire to sell any Capital
Stock held by him or it, such Holder (a "Selling Shareholder") shall first offer
such Capital Stock (the "Offered Stock") to the Investors and then to the
Company in accordance with the provisions hereof.
(b) Notice. The Selling Shareholder shall give written notice to the
Company and each Investor setting forth (i) the terms and conditions upon which
the Selling Shareholder proposes to sell the Offered Stock (the "Offer Terms")
and (ii) to the extent a proposed buyer has been identified, the name of the
proposed buyer. As used herein, the term "Common Stock Equivalent Shares" held
by any person shall be all shares of the Company's Common Stock held by such
person and all shares of Common Stock issuable upon conversion or exchange of
any convertible or exchangeable security held by such person or issuable upon
exercise of any option, warrant or other right held by such person, in each case
whether or not such security, option, warrant or right is by its terms then
convertible, exchangeable or exercisable.
(c) Option to the Investors. The Investors shall have the exclusive
right during the period of twenty (20) days next following receipt of such
notice to elect to purchase any or all of the Offered Stock proposed to be sold
in accordance with the Offer Terms and Section 3.2(f); provided that, as set
forth in Section 3.2(e) below, an election by the Investors to purchase less
than all of the Offered Stock shall not be effective unless the option in
Section 3.2(d) is exercised as to all of the Offered Stock not elected to be
purchased by the Investors under this Section 3.2(c). In the event that more
than one Investor wishes to purchase the Offered Stock to be sold, the right to
purchase shall be allocated among such Investors in proportion to their
ownership of Common Stock Equivalent Shares. To the extent one or more Investors
elect not to participate in the purchase of the Offered Stock to be sold, or
elect to participate as to some but not all of the Offered Stock to which it or
they would otherwise be entitled, the right to purchase any remaining Offered
Stock shall be allocated among the participating Investors in proportion to
their ownership of Common Stock Equivalent Shares. If any Investor does not
timely deliver notice within such twenty (20) day period, it shall be deemed to
have irrevocably waived its right to purchase any or all of the Offered Stock
unless such sale is not consummated within the 180 day period set forth in
Section 3.2(e).
(d) Option to Company. If the Investors do not exercise their right to
purchase all of the Offered Stock proposed to be sold, the Company shall have
the exclusive right during the period of thirty (30) days next following the
twenty (20) day period provided for in subsection 3.2(c) hereof to elect to
purchase all (but not less than all) of the Offered Stock proposed to be sold
and not purchased by the Investors pursuant to subsection 3.2(c) above in
accordance with the Offer Terms and Section 3.2(f). If the Company does not
timely deliver notice within such thirty (30) day period to purchase all of the
balance of the Offered Stock, it shall be deemed to have irrevocably waived its
respective rights to purchase any or all of the Offered Stock unless such sale
is not consummated within the 180 day period set forth in Section 3.2(e).
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(e) Non-Exercise. If there shall be any default in making payment in
full for all of the Offered Stock to be sold as aforesaid, in accordance with
the applicable requirements of this Article III, by either of the Investors or
the Company, or if the Company and/or the Investors do not timely elect to
purchase all of the Offered Stock, then neither the Company nor any Investor may
purchase any of the Offered Stock and the Selling Shareholder may (subject to
the co-sale rights of the other Shareholders in Section 3.3 hereof, if any) sell
the shares of Offered Stock so offered hereunder to any person on terms no more
favorable to such person than the Offer Terms. However, if the Selling
Shareholder does not effect such sale within 180 days after the termination (by
passage of time or default) of the first refusal rights created under subsection
3.2(a) through (d) hereof, the Selling Shareholder may not thereafter transfer
any such shares without again complying with the provisions of this Section 3.2.
(f) Closing. All purchase transactions between and among the parties
hereto (or their assignees) pursuant to this Section 3.2 shall be consummated at
a closing to be held not later than five (5) days after the expiration of the
thirty (30) day option period provided for in subsection 3.2(d) hereof. At the
closing, the purchaser shall deliver to the seller the consideration (cash or
other, as agreed to by the parties to the transfer) against delivery of the
appropriate stock certificate(s) (or voting trust certificate(s)) duly endorsed
for transfer.
3.3. Co-Sale Obligations of Holders.
(a) None of the Holders so long as they are employed by the Company
shall enter into any transaction that would result in the sale or contract or
option for sale by him or it of any Capital Stock now or hereafter owned by him
or it (including, without limitation, any sale to another Holder or a third
party pursuant to the terms of Section 3.2 of this Agreement, but not including
a sale of shares to the Company pursuant to the first offer rights contained in
Section 3.2 of this Agreement) unless prior to such sale or contract or option
for sale and simultaneously with the giving of notice required by Section 3.2(b)
the Selling Shareholder shall give notice to the Investors and Seruus of his
intention to effect such sale or contract or option for sale in order that the
Investors and Seruus may exercise their rights under this Section 3.3 as
hereinafter described. Such notice shall set forth (i) the number of shares to
be sold, contracted to be sold or optioned by the Selling Shareholder; (ii) the
principal terms of the sale, including the price at which the shares are
intended to be sold; (iii) the percentage such number of shares constitutes with
respect to the aggregate number of Common Stock Equivalent Shares then held by
the Selling Shareholder (the "Sale Portion"); and (iv) an offer by the Selling
Shareholder to cause to be included with the shares to be sold by him or it in
the sale, on the same terms and conditions, that number of Common Stock
Equivalent Shares then held by the Investors and Seruus, which number shall be
equal to (x) the Sale Portion of the Common Stock Equivalent Shares then held by
the Investors and Seruus, (y) at the option of each Investor or Seruus, as the
case may be, a lesser number of shares or (z) such number of shares as
determined in subparagraph (c) below.
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(b) Subject to the provisions of Section 3.2 hereof, if neither the
Investors nor Seruus shall have accepted such co-sale offer in writing within a
period of thirty (30) days from the date beginning upon the end of the thirty
(30) day period in Section 3.2(d), the Selling Shareholder shall thereafter be
free for a period of one hundred twenty (120) days to sell up to the number of
shares specified in such notice, at a price no greater than the price set forth
in such notice and on otherwise no more favorable terms to the Selling
Shareholder than as set forth in such notice, without any further obligation to
the Investors or Seruus in connection with such sale under this Section 3.3. In
the event that the Selling Shareholder fails to consummate such sale within such
120-day period, the shares specified in such notice shall continue to be subject
to this Agreement. If any Investor or Seruus fails to timely deliver notice of
its acceptance within such thirty (30) day period, it shall be deemed to have
irrevocably waived such right of co-sale under this Section 3.3.
(c) Subject to the provisions of Section 3.2 hereof, if any Investor or
Seruus shall have accepted such co-sale offer in writing within such thirty (30)
day period set forth in Section 3.3(b) (a "Participating Shareholder"), such
acceptance by such Participating Shareholder shall be irrevocable unless the
Selling Shareholder shall be unable to cause to be included in his or its sale
the number of shares set forth in such Participating Shareholder's written
acceptance, in which case the Selling Shareholder and all of the Participating
Shareholders shall participate in the sale pro rata, with the Selling
Shareholder and each Participating Shareholder selling the number of shares to
be sold in the sale as shall equal the product obtained by multiplying (x) the
total number of shares to be sold in the sale by (y) a fraction, the numerator
of which shall be the number of shares desired to be included in the sale by the
Selling Shareholder or by the Participating Shareholder, as the case may be, and
the denominator of which shall be the total number of shares desired to be sold
in the sale by the Selling Shareholder and the Participating Shareholders. No
Selling Shareholder shall complete any sale of Capital Stock unless all
Participating Shareholders are included in such transaction as contemplated in
this Section 3.3. If any Investor or Seruus exercises its co-sale rights under
this Section 3.3, it shall sell Capital Stock of the same class as that proposed
to be sold by the Selling Shareholder.
(d) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 3.3 shall not apply to any transfer or sale
transaction by the Investors. Any transfer or attempted transfer of Capital
Stock by a Holder in breach or violation of this Section 3.3 shall be void.
3.4. Certain Exclusions. Notwithstanding the foregoing, the provisions
of Section 3.2 and 3.3 shall not apply to any transfer to a Permitted Transferee
or a sale by a Holder in an underwritten public offering under an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
nor shall any Investor purchasing any Capital Stock pursuant to Section 3.2
hereof be permitted to exercise the right of co-sale under Section 3.3 with
respect to the same transaction. Any Capital Stock transferred to a Permitted
Transferee shall remain subject to this Agreement and the Permitted Transferees,
as a condition to receiving Capital Stock, shall acknowledge the continued
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applicability of this Agreement to such Permitted Transferee's Capital Stock to
the same extent that this Agreement applied to the Holder. All references in
this Agreement to Capital Stock or to the number of shares of Capital Stock held
or owned by any Holder shall be deemed to include Capital Stock owned by any
Permitted Transferee of such Holder, and the Permitted Transferee shall be
treated as the Holder thereof for all purposes.
3.5 Co-Sale Obligations of Investors.
(a) If any Investor (the "Selling Investor") proposes to enter into a
transaction that would result in the sale of Capital Stock (the "Proposed
Sale"), such Investor shall at least 30 days before such sale deliver a notice
(the "Sale Notice") to the other Investors specifying the identity of the
proposed transferee and disclosing in reasonable detail the terms and conditions
of the Proposed Sale. Within 30 days after receipt of the Sale Notice each
Investor may elect to participate in the Proposed Sale by delivering to the
Selling Investor a notice specifying the Capital Stock with respect to which
such Investor exercises its rights under this Section.
(b) If any Investor shall have accepted such co-sale offer in writing
within such 30-day period (a "Participating Investor"), the acceptance by such
Participating Investor shall be irrevocable unless the Selling Investor shall be
unable to cause to be included in his or its sale the number of shares set forth
in such Participating Investor's written acceptance, in which case the Selling
Investor and all of the Participating Investors shall participate in the
Proposed Sale pro rata, with the Selling Investor and each Participating
Investor selling the number of shares to be sold in the Proposed Sale as shall
equal the product obtained by multiplying (x) the total number of shares to be
sold in the Proposed Sale by (y) a fraction, the numerator of which shall be the
number of shares desired to be included in the Proposed Sale by the Selling
Investor or by the Participating Investor, as the case may be, and the
denominator of which shall be the total number of shares desired to be sold in
the Proposed Sale by the Selling Investor and the Participating Investors. No
Selling Investor shall complete any sale of Capital Stock unless all
Participating Investors are included in such transaction as contemplated in this
Section 3.5. If any Investor exercises its co-sale rights under this Section
3.5, it shall sell Capital Stock of the same class as that proposed to be sold
by the Selling Investor. Any transfer or attempted transfer of Capital Stock by
a Holder in breach or violation of this Section 3.5 shall be void.
(c) Notwithstanding the foregoing, the provisions of Section 3.5 shall
not apply to any transfer to (i) a Permitted Transferee or any of its affiliates
or any member, shareholder, partner or affiliate of an Investor; or (ii) a sale
by an Investor in an underwritten public offering under an effective
registration statement under the Securities Act of 1933, as amended (the "Act").
Any Capital Stock transferred to a Permitted Transferee or a member, shareholder
or partner of an Investor shall remain subject to this Agreement and the
transferee, as a condition to receiving Capital Stock, shall acknowledge the
continued applicability of this Agreement to such transferee's Capital Stock to
the same extent that this Agreement applied to the Investor.
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ARTICLE IV
PREEMPTIVE RIGHTS
4.1 Grant of Preemptive Rights. Except as set forth in Section 4.3
hereof, the Company shall not issue or sell any shares of Common Stock, any
rights or options to purchase Common Stock, or any debt or shares convertible
into or exchangeable for Common Stock, whether now or hereafter authorized and
whether unissued or in treasury (collectively, "Preemptive Shares"), unless each
Investor who at such time holds any Preferred Stock or Common Stock issued on
conversion of Preferred Stock (including any permitted transferee of an
Investor) shall first have been given a special right to acquire, at a price no
less favorable than that at which such shares, rights, options or obligations
are to be offered to others, a proportion of the offered shares, rights, options
or obligations as provided in Section 4.2.
4.2 Method of Exercising Preemptive Rights. The Company shall give each
Investor prior written notice of any proposed issuance or sale described in
Section 4.1 and each such Investor shall have 20 days from the giving of such
notice within which to elect to acquire a proportion of the Preemptive Shares
being offered equal to such Investor's percentage ownership of the outstanding
Common Stock (which shall be determined as if all outstanding Preferred Stock
had been converted into Common Stock) immediately preceding such issuance or
sale. Upon expiration of such 20-day period, the Company shall send a notice to
each Investor setting forth which Investors have exercised such preemptive
rights ("Electing Holders") and which have not exercised such rights, and the
number of Preemptive Shares as to which preemptive rights were and were not
exercised. Electing Holders shall then have an additional 20 days in which to
elect to acquire additional Preemptive Shares as to which preemptive rights were
not exercised. In the event that the total number of additional Preemptive
Shares which Electing Holders desire to purchase exceeds the number as to which
preemptive rights were not exercised, then such additional number of Preemptive
Shares shall be allocated among such Electing Holders (i) as nearly as possible
in proportion to each Electing Holder's percentage ownership of outstanding
Common Stock (which shall be determined as if all outstanding Preferred Stock
had been converted into Common Stock), (ii) thereafter, to those Electing
Holders that elected to acquire a greater number of Preemptive Shares than
allocated to such Electing Holders under clause (i) , in proportion to the
number of shares of Common Stock (determined as in clause (i)) held by each such
Electing Holder, and (iii) thereafter, in like manner until all such additional
Preemptive Shares have been allocated; provided, however, in no event shall any
Electing Holder be allocated a greater number of Preemptive Shares than such
Electing Holder has elected to purchase. If any transaction specified by the
Company in any such notice shall not be consummated within six months from the
date of such notice, the Company shall again comply with the provisions of this
Section 4.2 with respect to such transaction, and all Investors shall again have
preemptive rights hereunder with respect thereto, regardless of whether any such
Investor had previously exercised or failed to exercise such rights. Any
purchase of securities pursuant to the exercise of preemptive rights shall be
consummated simultaneously with,
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and shall be conditioned upon, consummation of the transaction proposed by the
Company.
4.3 Exceptions. The restrictions contained in, and preemptive rights
granted to Investors under Sections 4.1 and 4.2 shall not apply to shares issued
or issuable by the Company (i) in connection with a merger or consolidation of
the Company into or with another corporation or a business combination effected
through an exchange of the Company's shares for the securities or substantially
all of the assets of another corporation; (ii) upon conversion of Preferred
Stock; (iii) to an Investor pursuant to this Article IV; (iv) to persons
pursuant to a stock option plan or other employee benefit plans approved by a
majority of the members of the Board of Directors of the Company and by each of
the directors nominated and elected in accordance with Section 1.2 of this
Agreement; or (v) shares issued in a Public Offering.
ARTICLE V
MISCELLANEOUS
5.1 Binding Effect. Subject to the limitations on transfer set forth
herein, this Agreement and all the provisions hereof shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
5.2 Amendment. This Agreement may be amended or supplemented, and the
observance of any term hereof or thereof may be waived, with the written consent
of (i) the Company, (ii) each of the Investors, and (iii) holders of a majority
of the Securities held by all Holders and Investors as a group.
5.3 Termination. This Agreement shall terminate and have no further
force or effect upon the earlier of (i) closing of a Qualified Public Offering
(as such term is defined in the Certificate of Designations, Rights and
Preferences of the Series C Preferred), (ii) twenty (20) years from the date
hereof, or (iii) the written consent of (a) the Company, (b) the Investors, and
(c) holders of a majority of the Securities held by all Holders and Investors as
a group.
5.4 Governing Law. The interpretation, validity and performance of the
terms of this Agreement shall be governed by the laws of the State of South
Carolina, regardless of the law that might be applied under principles of
conflicts of law.
5.5 Notices. All communications under this Agreement shall be in
writing and (i) sent by facsimile transmission and by certified or registered
mail, return receipt requested, courier or overnight mail, or (ii) sent by
certified or registered mail, return receipt requested, courier or overnight
mail, (1) if to a Holder as of the date hereof, to such Holder's address set
forth in Schedule I, or at such other address as such Holder may have furnished
to the other parties hereto in writing, (2) if to a Holder who became such after
the date hereof, to it at its facsimile number or address listed in the
securities transfer books of the Company, or at such other address as such
Holder shall have
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furnished to the other parties hereto in writing, (3) if to an Investor, to it
at such address as shall be listed in the securities transfer books of the
Company, or at such other address as such Investor shall have furnished to the
Company in writing, and (4) if to the Company, to 200 North Main Street, Suite
303, Greenville, South Carolina 29601, Attention: Hamilton Russell II, Esq., or
at such other address or facsimile number as it shall have furnished to the
other parties hereto in writing. Any written communication so addressed, sent by
facsimile transmission or certified or registered mail, return receipt
requested, courier or overnight mail, shall be deemed to have been given when
sent via facsimile or mailed. All other written communications shall be deemed
to have been given upon receipt thereof.
5.6 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
5.7 Counterparts. This Agreement may be executed and delivered in two
or more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same agreement.
5.8 Specific Performance. The parties hereto acknowledge that payment
of monetary damages may not be sufficient to adequately remedy a breach or
prospective breach of the terms and provisions of this Agreement and, therefore,
the parties hereto consent to the application of equitable remedies, including,
without limitation, specific performance, to enforce the terms and provisions of
this Agreement.
[remainder of page intentionally blank]
-13-
<PAGE> 14
IN WITNESS WHEREOF, the Company and each of the parties listed on
Schedule I or Schedule II hereto have executed this Stockholders' Agreement as
of the date first above written.
STATE COMMUNICATIONS, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By:
----------------------------------------------
Title:
-------------------------------------------
RICHLAND VENTURES III, L.P.
By: Richland Partners III, Inc., General Partner
By:
----------------------------------------------
Title:
-------------------------------------------
FIRST UNION CAPITAL PARTNERS, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc., Trading Advisor
By:
----------------------------------------------
Title:
-------------------------------------------
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C., General Partner
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-14-
<PAGE> 15
IN WITNESS WHEREOF, the Company and each of the parties listed on
Schedule I or Schedule II hereto have executed this Stockholders' Agreement as
of the date first above written.
BOSTON MILLENNIA PARTNERS LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership,
General Partner
By:
----------------------------------------------
Title:
-------------------------------------------
BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP
By:
----------------------------------------------
Title:
-------------------------------------------
CITIZENS CAPITAL, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-15-
<PAGE> 16
IN WITNESS WHEREOF, the Company and each of the parties listed on
Schedule I or Schedule II hereto have executed this Stockholders' Agreement as
of the date first above written.
SOUTHEASTERN TECHNOLOGY FUND
By:
------------------------------------------
By:
------------------------------------------
Title:
---------------------------------------
(SEAL)
---------------------------------------
Shaler P. Houser
(SEAL)
---------------------------------------
Charles L. Houser
(SEAL)
---------------------------------------
Charles S. Houser
(SEAL)
---------------------------------------
Russell W. Powell
(SEAL)
---------------------------------------
Daniel H. Sterling
(SEAL)
---------------------------------------
Judith C. Slaughter
(SEAL)
---------------------------------------
Thomas Houlihan
(SEAL)
---------------------------------------
Clark Mizell
SERUUS TELECOM FUND, L.P.
By: , its General Partner
--------------------
By:
------------------------------------------
Title:
---------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-16-
<PAGE> 17
IN WITNESS WHEREOF, the Company and each of the parties listed on
Schedule I or Schedule II hereto have executed this Stockholders' Agreement as
of the date first above written.
SERUUS VENTURES, LLC.
By:
---------------------------------------
Title:
------------------------------------
(SEAL)
------------------------------------
Hamilton E. Russell III
(SEAL)
------------------------------------
John R. Tyrrell
------------------------------------------
John T. Mills, Sr.
WYCHE BURGESS PROFIT SHARING PLAN FUND II
By:
---------------------------------------
By:
---------------------------------------
Title:
------------------------------------
WILLOU & CO.
By:
---------------------------------------
Title:
------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-17-
<PAGE> 18
IN WITNESS WHEREOF, the Company and each of the parties listed on
Schedule I or Schedule II hereto have executed this Stockholders' Agreement as
of the date first above written.
HOUSER CHARITABLE REMAINDER UNITRUST
By:
---------------------------------------
Title:
------------------------------------
VFO PARTNERS, LTD.
By:
---------------------------------------
By:
---------------------------------------
Title:
------------------------------------
TORONTO DOMINION CAPITAL (U.S.A.), INC.
By:
---------------------------------------
Title:
------------------------------------
NEWCOURT COMMERCIAL FINANCE
CORPORATION, an affiliate of The
CIT Group, Inc.
By:
---------------------------------------
Title:
------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-18-
<PAGE> 19
IN WITNESS WHEREOF, the Company and each of the parties listed on
Schedule I or Schedule II hereto have executed this Stockholders' Agreement as
of the date first above written.
BANCAMERICA CAPITAL INVESTORS SBIC I, L.P.
By: BancAmerica Capital Management SBIC I, LLC,
Its general partner
By: BancAmerica Capital Management I, L.P.,
Its sole member
By: BACM I GP, LLC,
Its general partner
By:
---------------------------------------
Name: Robert H. Sheridan, III
Title: Member
CAPITAL INSIGHTS GROWTH INVESTORS, L.P.
By:
---------------------------------------
Title:
------------------------------------
------------------------------------------
Terry E. Richardson, Jr.
------------------------------------------
David C. Poole
------------------------------------------
William Oberlin
[SIGNATURES CONTINUED ON NEXT PAGE]
-19-
<PAGE> 20
IN WITNESS WHEREOF, the Company and each of the parties listed on
Schedule I or Schedule II hereto have executed this Stockholders' Agreement as
of the date first above written.
------------------------------------
Joseph A. Lawrence
[SIGNATURES CONTINUED ON NEXT PAGE]
-20-
<PAGE> 21
IN WITNESS WHEREOF, the Company and each of the parties listed on
Schedule I or Schedule II hereto have executed this Stockholders' Agreement as
of the date first above written.
------------------------------------
Larry Bouman
-21-
<PAGE> 22
EXECUTION COPY
Schedule I
STOCKHOLDERS
Name Issued Shares Options
---- ------------- -------
Shaler P. Houser 1,904,000 800,000
17 Crescent Avenue
Greenville, South Carolina 29601
Charles L. Houser 1,800,000 200,000
35 Rockwood Drive
Greenville, South Carolina 29605
Charles S. Houser 1,255,114 100,000
11866 Magnolia Street
Magnolia Springs, Alabama 36555
Russell W. Powell 904,000 600,000
610 Crescent Avenue
Greenville, South Carolina 29601
Daniel H. Sterling 300,000 300,000
101 Longview Terrace
Greenville, South Carolina 29605
Judith C. Slaughter 100,000 300,000
530 Spalding Farms Road
Greenville, South Carolina 29615
Seruus Ventures, LLC 200,000 0
200 North Main Street, Suite 301
Greenville, South Carolina 29601
Seruus Telecom Fund, L.P. 861,110 0
200 North Main Street, Suite 301
Greenville, South Carolina 29601
Hamilton E. Russell 26,000 80,000
11 North Brookwood Drive
Greenville, South Carolina 29605
Clark Mizell 0 190,000
2031 Harris Grove Church Road
Gray Court, South Carolina 29645
Thomas Houlihan 40,000 180,000
200 North Main Street, Suite 303
Greenville, South Carolina 29601
-------------------------------
TOTAL 7,390,224 2,750,000
-1-
<PAGE> 23
EXECUTION COPY
Schedule II
INVESTORS
<TABLE>
<CAPTION>
Name Series A Convertible Series B Convertible Series C Convertible
---- Preferred Stock Preferred Stock Preferred Stock
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Richland Ventures II, L.P. 2,083,334 666,666 588,235
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
Richland Ventures III, L.P. 0 2,666,667 1,035,295
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
First Union Capital Partners, Inc. 2,083,334 1,466,667 1,176,471
One First Union Center
301 South College Street
Floor 5
Charlotte, NC 28288-0732
(704) 374-4948
Fax: (704) 374-6711
Moore Global Investments, Ltd. 0 2,666,667 1,035,295
c/o Citco Fund Services
(Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
Remington Investments Strategies, 0 2,666,667 1,035,295
L.P.
1251 Avenue of the Americas
New York, NY 10025
(212) 782-7033
Fax: (212) 575-6832
Southeastern Technology Fund 0 533,333 117,647
7910 South Memorial Parkway,
Suite F
Huntsville, AL 35802
(256) 883-8711
Fax: (256) 883-8558
</TABLE>
-1-
<PAGE> 24
<TABLE>
<CAPTION>
Name Series A Convertible Series B Convertible Series C Convertible
---- Preferred Stock Preferred Stock Preferred Stock
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Boston Millennia Partners Limited 0 1,844,257 1,279,080
Partnership
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 528-5160
Boston Millennia Associates I 0 22,410 15,038
Partnership
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
Citizens Capital, Inc. 0 400,000 352,941
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
John R. Tyrrell 0 20,000 0
c/o Richland Ventures
200 31st Avenue North, Suite 200
Nashville, Tennessee 37205
Charles S. Houser 41,667 166,666 0
101 River Route
11866 Magnolia Street
Magnolia Springs, AL 36555
Houser Charitable Trust 41,667 66,666 0
c/o Cornerstone Management
Attn: Bryan Taylor
7076 Peachtree Industrial Blvd.
Suite 100
Norcross, GA 30071
John T. Mills, Sr. 0 100,000 0
504 Hidden Hills Drive
Greenville, SC 29602
Willou & Co. 416,670 266,666 0
c/o Frank Maybank
P.O. Box 10856 FS
Greenville, SC 29602
VFO Partners, Ltd. 45,000 0 0
C/O James McKissick
13 Thornwood Lane
Greenville, SC 29605
</TABLE>
-2-
<PAGE> 25
<TABLE>
<CAPTION>
Name Series A Convertible Series B Convertible Series C Convertible
---- Preferred Stock Preferred Stock Preferred Stock
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Wyche Burgess Profit Sharing Plan 0 33,333 0
Fund II
c/o Cary Hall
P.O. Box 728
Greenville, SC 29603
Toronto Dominion Capital 0 0 2,352,941
(U.S.A.), Inc.
Newcourt Commercial Finance 0 0 1,176,471
Corporation, an affiliate of the
CIT Group, Inc.
BancAmerica Capital Investors 0 0 1,176,471
SBIC I, L.P.
Capital Insights Growth 0 66,666 0
Investors, L.P.
888 S. Pleasantburg Drive
Suite 2-D
Post Office Box 27162
Greenville, SC 29616-2162
Terry E. Richardson, Jr. 0 266,666 0
Ness, Motley, Loadholt,
Richardson & Poole
1730 Jackson Street
Barnwell, SC 29812
David C. Poole 0 266,666 0
Post Office Box 2107
Greenville, SC 29602
Joseph A. Lawrence 0 53,333 0
1121 Bellview Road
McLean, VA 22102
William Oberlin 0 26,667 70,588
257 Chestnut Circle
Bloomfield Hills, MI 48304
Larry Bouman 0 0 100,000
C/o
</TABLE>
-3-
<PAGE> 1
EXHIBIT 4.2.2
STATE COMMUNICATIONS, INC.
MASTER AMENDMENT AGREEMENT & CONSENT
This MASTER AMENDMENT AGREEMENT & CONSENT (the "Agreement") is made and
entered into this 20th day of March, 2000 by and among STATE COMMUNICATIONS,
INC., a South Carolina corporation (the "Company"), the holders of the Company's
common stock listed on SCHEDULE I (the "Holders"), the Existing Investors listed
on SCHEDULE II (the "Existing Investors"), the New Investors listed on SCHEDULE
III (the "New Investors"), Dorothy Sadler ("Sadler"), Moore Overseas Technology
Venture Fund, LDC and Moore Technology Venture Fund, LLC, and Seruus Telecom
Fund, L.P. ("Seruus").
WHEREAS, the Company and certain of the Existing Investors are parties
to that certain Preferred Stock Purchase Agreement dated February 1, 2000, (the
"First Preferred Stock Purchase Agreement") and that certain Registration Rights
Agreement, dated February 1, 2000 (the "Registration Rights Agreement"); and
WHEREAS, the Company, the Holders and the Existing Investors are
parties to a Second Amended and Restated Stockholders' Agreement, dated February
1, 2000 (the "Stockholders' Agreement", and collectively with the Registration
Rights Agreement, the "Agreements"); and
WHEREAS, pursuant to the terms of a Preferred Stock Purchase Agreement
of even date herewith, the form of which is attached hereto as EXHIBIT A (the
"Second Preferred Stock Purchase Agreement"), between the Company, certain
Existing Investors and the New Investors, the Company has agreed to issue
4,214,703 shares (the "New Shares") of its Series C Convertible Preferred Stock
to the New Investors; and
WHEREAS, the Company desires to amend the Agreements in order to add
the New Investors as parties and to reflect the issuance of the New Shares by
the Company; and
WHEREAS, the Existing Investors desire to consent to the issuance of
the New Shares pursuant to the Second Preferred Stock Purchase Agreement to the
New Investors and waive any preemptive rights they may have with respect to the
issuance of the New Shares; and
WHEREAS, Richland Ventures II, L.P. has transferred 133,334 of its
shares of the Company's Series B Convertible Preferred Stock, par value $0.01
per share (the "Series B Stock") to Sadler; and
WHEREAS, Moore Global Investments, Ltd. has transferred 1,333,333 of
its shares of its Series B Stock and 517,648 of its shares of Series C Stock to
its affiliate Moore Overseas Technology Venture Fund, LDC and Remington
Investment Strategies, L.P. has transferred 1,333,333 of its shares of its
Series B Stock and 517,648 of its shares of Series C Stock to its affiliate
Moore Technology Venture Fund, LLC; and
<PAGE> 2
WHEREAS, Boston Millennia Partners Limited Partnership has transferred
400,000 of its shares of Series B Stock to its affiliate Citizens Capital
Corporation; and
WHEREAS, the parties hereto desire that Sadler, Moore Overseas
Technology Venture Fund, LDC and Moore Technology Venture Fund, LLC become
parties to the Stockholders' Agreement; and
WHEREAS, Citizens Capital Corporation desires to have the rights and
obligations of a Holder under, and as defined in, the Registration Rights
Agreement dated July 29, 1999 by and among the Company and the parties listed on
Schedule I thereto (the "Series B Registration Rights Agreement"), and Moore
Overseas Technology Venture Fund, LDC and Moore Technology Venture Fund, LLC
desire to have the rights and obligations of a Holder under, and as defined in,
the Series B Registration Rights Agreement with respect to their Series B Stock
and the rights and obligations of a Holder under, and as defined in, the
Registration Rights Agreement with respect to their Series C Stock;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Amendments to Stockholders' Agreement
1.1 Substitution of Schedules I & II. Schedule I to the Stockholders'
Agreement is hereby deleted in its entirety and, in lieu thereof, new Schedule I
attached hereto as EXHIBIT B is hereby inserted. Schedule II to the
Stockholders' Agreement is hereby deleted in its entirety and, in lieu thereof,
new Schedule II attached hereto as EXHIBIT C is hereby inserted.
1.2 Addition of New Investors. Upon the execution and delivery of this
Agreement, the New Investors, Sadler, Moore Overseas Technology Venture Fund,
LDC and Moore Technology Venture Fund, LLC shall be deemed parties to the
Stockholders' Agreement and agree to be bound as Investors (as defined therein)
by the terms and conditions contained therein, except that George Michael
Cassity shall be bound as a Holder (as defined therein) with respect to shares
of the Company's Common Stock, par value $0.001 per share (the "Common Stock")
and options to purchase Common Stock held by him.
1.3 Super-Majority Approval for Future Amendments. Section 5.2 of the
Stockholders' Agreement is hereby deleted in its entirety and replaced with the
following:
5.2 Amendment. This Agreement may be amended or supplemented, and the
observance of any term hereof or thereof may be waived, with the
written consent of (i) the Company, (ii) Investors holding 66.66% of
the Securities held by the Investors, and (iii) holders of a majority
of the Securities held by all Holders and Investors as a group;
provided that in the case of any amendment, supplementation or waiver
that adversely affects any Investor and does not similarly adversely
affect all Investors, such amendment, supplementation or waiver must be
approved by each adversely-affected Investor.
-2-
<PAGE> 3
ARTICLE II
Amendment to Registration Rights Agreement
2.1 Substitution of Schedule I. Schedule I to the Registration Rights
Agreement is hereby deleted in its entirety and, in lieu thereof, new Schedule I
attached hereto as EXHIBIT D is hereby inserted.
2.2 Addition of New Investors. Upon the execution and delivery of this
Agreement, the New Investors shall be deemed parties to the Registration Rights
Agreement and agree to be bound by the terms and conditions contained therein.
ARTICLE III
AGREEMENT TO BE BOUND AS HOLDERS UNDER
REGISTRATION RIGHTS AGREEMENT &
SERIES B REGISTRATION RIGHTS AGREEMENT
3.1 Affiliate Transferees of Series B Holders. As provided in Paragraph
11(b) of the Series B Registration Rights Agreement, Citizens Capital
Corporation, Moore Overseas Technology Venture Fund, LDC and Moore Technology
Venture Fund, LLC, each as an affiliate transferee of a Holder, as defined in
the Series B Registration Rights Agreement, hereby agrees to be bound by the
obligations imposed upon such a Holder to the same extent as if it was such a
Holder.
3.2 Affiliate Transferees of Series C Holders. As provided in Paragraph
11(b) of the Registration Rights Agreement, Moore Overseas Technology Venture
Fund, LDC and Moore Technology Venture Fund, LLC, each as an affiliate
transferee of a Holder, as defined in the Registration Rights Agreement, hereby
agrees to be bound by the obligations imposed upon such a Holder to the same
extent as if it was such a Holder.
ARTICLE IV
CONSENT TO ISSUANCE OF NEW SHARES
& WAIVER OF PREEMPTIVE RIGHTS
4.1 Consent to Issuance of New Shares. Each Existing Investor, Sadler,
Moore Overseas Technology Venture Fund, LDC and Moore Technology Venture Fund,
LLC hereby consent to the issuance of the New Shares to the New Investors as
contemplated in the Second Preferred Stock Purchase Agreement.
4.2 Waiver of Preemptive Rights and Notice of Issuance of New Shares.
Each Existing Investor, Sadler, Moore Overseas Technology Venture Fund, LDC and
Moore Technology Venture Fund, LLC hereby waive any preemptive rights with
respect to the issuance of the New Shares to the New Investors and any rights to
notice of the proposed issuance of the
-3-
<PAGE> 4
New Shares to the New Investors they may have pursuant to the Shareholders'
Agreement or otherwise.
4.3 Consent of Series A and Series B Preferred Stock Holders and Seruus
to Grant of Registration Rights to New Investors. Each Existing Investor who is
a holder of any of the Company's Series A Convertible Preferred Stock and/or the
Company's Series B Convertible Preferred Stock (each, a "Series A Holder" and/or
a "Series B Holder" respectively), Sadler (who is a Series B Holder), Moore
Overseas Technology Venture Fund, LDC and Moore Technology Venture Fund, LLC
(each of whom are Series B Holders) and Seruus hereby consent to the grant by
the Company of the registration rights set forth in the Registration Rights
Agreement to the New Investors with respect to the New Shares. Without limiting
the foregoing, each Series A Holder, each Series B Holder, and Seruus
specifically consent to the alteration of the priority provisions set forth in
all other registration rights agreements to which they are parties and which
pertain to securities of the Company and agree that this Agreement shall
constitute an amendment to each such person's existing registration rights
agreements with the Company to the extent necessary to harmonize such
registration rights agreements with the Registration Rights Agreement as amended
hereby.
ARTICLE V
Miscellaneous
5.1 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute but one agreement.
5.2 Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
5.3 All Other Terms and Conditions Ratified. All other terms and
conditions of the Agreements are hereby ratified and confirmed by the parties
and shall remain in full force and effect.
5.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, without giving effect
to principles governing conflicts of laws.
[SIGNATURES BEGIN ON NEXT PAGE]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
STATE COMMUNICATIONS, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
EXISTING INVESTORS
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By:
----------------------------------------------
Title:
-------------------------------------------
RICHLAND VENTURES III, L.P.
By: Richland Partners III, Inc., General Partner
By:
----------------------------------------------
Title:
-------------------------------------------
FIRST UNION CAPITAL PARTNERS, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc.,
Trading Advisor
By:
----------------------------------------------
Title:
-------------------------------------------
REMINGTON INVESTMENT STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C.,
General Partner
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
BOSTON MILLENNIA PARTNERS LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership,
General Partner
By:
----------------------------------------------
Title:
-------------------------------------------
BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP
By:
----------------------------------------------
Title:
-------------------------------------------
CITIZENS CAPITAL, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
SOUTHEASTERN TECHNOLOGY FUND
By:
----------------------------------------------
By:
----------------------------------------------
Title:
-------------------------------------------
(SEAL)
-------------------------------------------
Shaler P. Houser
(SEAL)
-------------------------------------------
Charles L. Houser
(SEAL)
-------------------------------------------
Charles S. Houser
(SEAL)
-------------------------------------------
Russell W. Powell
(SEAL)
-------------------------------------------
Daniel H. Sterling
(SEAL)
-------------------------------------------
Judith C. Slaughter
(SEAL)
-------------------------------------------
Thomas Houlihan
(SEAL)
-------------------------------------------
Clark Mizell
SERUUS TELECOM FUND, L.P.
By: , its General Partner
-----------------------
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
SERUUS VENTURES, LLC.
By:
----------------------------------------------
Title:
-------------------------------------------
(SEAL)
-------------------------------------------
Hamilton E. Russell III
(SEAL)
-------------------------------------------
John R. Tyrrell
-------------------------------------------------
John T. Mills, Sr.
WYCHE BURGESS PROFIT SHARING PLAN FUND II
By:
----------------------------------------------
By:
----------------------------------------------
Title:
-------------------------------------------
WILLOU & CO.
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
HOUSER CHARITABLE REMAINDER UNITRUST
By:
----------------------------------------------
Title:
-------------------------------------------
VFO PARTNERS, LTD.
By:
----------------------------------------------
By:
----------------------------------------------
Title:
-------------------------------------------
TORONTO DOMINION CAPITAL (U.S.A.), INC.
By:
----------------------------------------------
Title:
-------------------------------------------
NEWCOURT COMMERCIAL FINANCE
CORPORATION, an affiliate of The CIT
Group, Inc.
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-9-
<PAGE> 10
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
BANCAMERICA CAPITAL INVESTORS SBIC I, L.P.
By: BancAmerica Capital Management SBIC I, LLC,
Its general partner
By: BancAmerica Capital Management I, L.P.,
Its sole member
By: BACM I GP, LLC,
Its general partner
By:
----------------------------------------------
Name: Robert H. Sheridan, III
Title: Member
CAPITAL INSIGHTS GROWTH INVESTORS, L.P.
By:
----------------------------------------------
Title:
-------------------------------------------
-------------------------------------------------
Terry E. Richardson, Jr.
-------------------------------------------------
David C. Poole
-------------------------------------------------
William Oberlin
[SIGNATURES CONTINUED ON NEXT PAGE]
-10-
<PAGE> 11
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
-------------------------------------------------
Joseph A. Lawrence
-------------------------------------------------
Larry Bouman
***************************
-------------------------------------------------
Dorothy Sadler
MOORE OVERSEAS TECHNOLOGY VENTURE FUND, LDC
By:
----------------------------------------------
By:
----------------------------------------------
Title:
-------------------------------------------
MOORE TECHNOLOGY VENTURE FUND, LLC
By:
----------------------------------------------
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-11-
<PAGE> 12
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
NEW INVESTORS
CIBC WMC INC.
By:
----------------------------------------------
Title:
-------------------------------------------
NORTEL NETWORKS INC.
By:
----------------------------------------------
Title:
-------------------------------------------
WACHOVIA CAPITAL INVESTMENTS, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
-------------------------------------------------
Randy McDougald
-------------------------------------------------
Vincent Oddo
-------------------------------------------------
William Adams
-------------------------------------------------
Ronald Kirby
-------------------------------------------------
Hamilton E. Russell, III
[SIGNATURES CONTINUED ON NEXT PAGE]
-12-
<PAGE> 13
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
-------------------------------------------------
James Dunn
-------------------------------------------------
John C. West Trustee for Ernest F. Hollings
-------------------------------------------------
Riley Murphy
-------------------------------------------------
JoAnn Langston
-------------------------------------------------
G. Michael Cassity
CLARK H. MIZELL SSB IRA ROLLOVER
By:
----------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-13-
<PAGE> 14
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
- -------------------------------
Portia B. Ortale
- ------------------------------- ----------------------------------
Patrick S. Hale Mark Eric Isaacs
- ------------------------------- ----------------------------------
Linda F. Swafford Beverly Ann Schrichte
Laura Farish Chadwick Management Trust The Chadwick 1998 Children's Trust
By: By:
---------------------------- -------------------------------
Name: Name:
-------------------------- -----------------------------
Title: Title:
------------------------- ----------------------------
-14-
<PAGE> 15
IN WITNESS WHEREOF, the Company and each of the parties hereto have
executed this Master Amendment Agreement as of the date first above written.
MOORE TECHNOLOGY VENTURE FUND II L.P.
By:
---------------------------------------------
By:
---------------------------------------------
Title:
------------------------------------------
-15-
<PAGE> 16
EXHIBIT A
FORM OF
SECOND PREFERRED STOCK PURCHASE AGREEMENT
-16-
<PAGE> 17
EXHIBIT B
SCHEDULE I
[TO STOCKHOLDERS' AGREEMENT AS AMENDED HEREBY]
STOCKHOLDERS
Name Issued Shares Options
---- ------------- -------
Shaler P. Houser 1,904,000 850,000
17 Crescent Avenue
Greenville, South Carolina 29601
Charles L. Houser 1,800,000 250,000
35 Rockwood Drive
Greenville, South Carolina 29605
Charles S. Houser 1,255,114 1,680,000
11866 Magnolia Street
Magnolia Springs, Alabama 36555
Russell W. Powell 904,000 650,000
610 Crescent Avenue
Greenville, South Carolina 29601
Daniel H. Sterling 300,000 319,110
101 Longview Terrace
Greenville, South Carolina 29605
Judith C. Slaughter 100,000 349,110
530 Spalding Farms Road
Greenville, South Carolina 29615
Seruus Ventures, LLC 200,000 0
200 North Main Street, Suite 301
Greenville, South Carolina 29601
Seruus Telecom Fund, L.P. 861,110 0
200 North Main Street, Suite 301
Greenville, South Carolina 29601
Hamilton E. Russell 26,000 121,110
11 North Brookwood Drive
Greenville, South Carolina 29605
Clark Mizell 0 251,041
-17-
<PAGE> 18
2031 Harris Grove Church Road
Gray Court, South Carolina 29645
Thomas Houlihan 102,260 0
200 North Main Street, Suite 303
Greenville, South Carolina 29601
George Michael Cassity 81,178 750,000
[Address to be provided]
---------------------------------------
TOTAL 7,533,662 5,220,371
-18-
<PAGE> 19
EXHIBIT C
SCHEDULE II
[TO STOCKHOLDERS' AGREEMENT AS AMENDED HEREBY]
INVESTORS
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible Series C Convertible
Name Preferred Stock Preferred Stock Preferred Stock
---- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Richland Ventures II, L.P. 2,083,334 533,332 588,235
3100 West End Avenue, Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
Richland Ventures III, L.P. 0 2,666,667 1,035,295
3100 West End Avenue, Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
Portia B. Ortale 0 0 28,236
Laura Farish Chadwick Management Trust 0 0 11,765
The Chadwick 1998 Children's Trust 0 0 11,765
c/o Merrill Lynch & Co., Inc.
World Financial Center
North Tower - 29th Floor
New York, NY 10281-1329
Attn: Mark C. Brueggen, Trustee
(212) 449-4896
Fax: (212) 449-9120
Patrick S. Hale 0 0 5,882
Mark Eric Isaacs 0 0 5,882
Linda F. Swafford 0 0 1,176
Beverly Ann Schrichte 0 0 1,176
First Union Capital Partners, Inc. 2,083,334 1,466,667 1,176,471
One First Union Center
</TABLE>
-1-
<PAGE> 20
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible Series C Convertible
Name Preferred Stock Preferred Stock Preferred Stock
---- -------------------- -------------------- --------------------
<S> <C> <C> <C>
301 South College Street, Floor 5
Charlotte, NC 28288-0732
(704) 374-4948
Fax: (704) 374-6711
Moore Global Investments, Ltd. 0 1,333,334 517,647
C/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
Moore Overseas Technology 0 1,333,333 517,648
Venture Fund, LDC
c/o Moore Capital Management, Inc.
1251 Avenue of the Americas, 53rd Floor
New York, NY 10020
(212) 782-7075
Fax: (212) 382-9813
Remington Investments Strategies, L.P. 0 1,333,334 517,647
1251 Avenue of the Americas
New York, NY 10025
(212) 782-7033
Fax: (212) 575-6832
Moore Technology Venture Fund, LLC 0 1,333,333 517,648
c/o Moore Capital Advisors, L.L.C.
1251 Avenue of the Americas, 53rd Floor
New York, NY 10020
(212) 782-7075
Fax: (212) 382-9813
Moore Technology Venture Fund II L.P. 0 0 282,352
1251 Avenue of the Americas
New York, NY 10020
Attn: Savvas Savvinidis
(212) 782-7017
Fax: (212) 382-9813
Southeastern Technology Fund 0 533,333 117,647
7910 South Memorial Parkway, Suite F
Huntsville, AL 35802
</TABLE>
-2-
<PAGE> 21
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible Series C Convertible
Name Preferred Stock Preferred Stock Preferred Stock
---- -------------------- -------------------- --------------------
<S> <C> <C> <C>
(256) 883-8711
Fax: (256) 883-8558
Boston Millennia Partners Limited Partnership 0 1,444,257 1,279,080
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
Boston Millennia Associates I Partnership 0 22,410 15,038
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
Citizens Capital, Inc. 0 400,000 352,941
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
John R. Tyrrell 0 20,000 51,765
c/o Richland Ventures
200 31st Avenue North, Suite 200
Nashville, Tennessee 37205
Charles S. Houser 41,667 166,666 0
101 River Route
11866 Magnolia Street
Magnolia Springs, AL 36555
Houser Charitable Trust 41,667 66,666 0
C/o Cornerstone Management
Attn: Bryan Taylor
7076 Peachtree Industrial Blvd.
Suite 100
Norcross, GA 30071
John T. Mills, Sr. 0 100,000 0
501 East Seven Oaks Drive
Greenville, SC 29605
Willou & Co. 416,670 266,666 0
</TABLE>
-3-
<PAGE> 22
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible Series C Convertible
Name Preferred Stock Preferred Stock Preferred Stock
---- -------------------- -------------------- --------------------
<S> <C> <C> <C>
C/o Frank Maybank
P.O. Box 10856 FS
Greenville, SC 29602
VFO Partners, Ltd. 45,000 0 0
C/O James McKissick
13 Thornwood Lane
Greenville, SC 29605
Wyche Burgess Profit Sharing Plan Fund II 0 33,333 0
c/o Cary Hall
P.O. Box 728
Greenville, SC 29603
</TABLE>
-4-
<PAGE> 23
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible Series C Convertible
Name Preferred Stock Preferred Stock Preferred Stock
---- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Toronto Dominion Capital (U.S.A.), Inc.
31 West 52nd Street, 20th Floor 0 0 2,352,941
New York, NY 10019
Newcourt Commercial Finance Corporation,
an affiliate of
the CIT Group, Inc. 0 0 1,176,471
2 Gatehall Drive
Parsippany, NJ 07054
BancAmerica Capital Investors SBIC I, L.P.
100 N. Tryon Street, 25th Floor 0 0 1,176,471
Charlotte, NC 28255
Capital Insights Growth Investors, L.P.
888 S. Pleasantburg Drive, Suite 2-D 0 66,666 0
Post Office Box 27162
Greenville, SC 29616-2162
Terry E. Richardson, Jr. 0 266,666 0
Ness, Motley, Loadholt, Richardson & Poole
1730 Jackson Street
Barnwell, SC 29812
David C. Poole 0 266,666 0
Post Office Box 2107
Greenville, SC 29602
Joseph A. Lawrence 0 53,333 50,000
1121 Bellview Road
McLean, VA 22102
William Oberlin 0 26,667 70,588
257 Chestnut Circle
Bloomfield Hills, MI 48304
Larry Bouman 0 0 100,000
7428 Old Maple Square
McLean, VA 22102
Dorothy Sadler 0 133,334 0
CIBC WMC Inc. 0 0 1,764,706
</TABLE>
-5-
<PAGE> 24
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible Series C Convertible
Name Preferred Stock Preferred Stock Preferred Stock
---- -------------------- -------------------- --------------------
<S> <C> <C> <C>
c/o CIBC Capital Partners
425 Lexington Avenue
New York, NY 10017
Attn: Richard White
(212) 856-4032
Fax: (212) 697-1544
Nortel Networks Inc. 0 0 1,176,471
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Mitchell L. Stone
Director, Customer Finance North America
(972) 684-0395
Fax: (972) 684-3679
Wachovia Capital Investments,Inc. 0 0 470,588
191 Peachtree Street, NE
GA 423, 26th Floor
Atlanta, Georgia 30303
Attention: Andrew Rose
(404) 332-1176
Fax: (404) 332-1392
Randy McDougald 0 0 23,529
Vincent Oddo 0 0 10,000
William Adams 0 0 20,000
Ronald Kirby 0 0 52,941
Hamilton E. Russell, III 0 0 5,000
James Dunn 0 0 23,529
John C. West Trustee for Ernest F. Hollings 0 0 5,000
Post Office Drawer 13 (29938)
</TABLE>
-6-
<PAGE> 25
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible Series C Convertible
Name Preferred Stock Preferred Stock Preferred Stock
---- -------------------- -------------------- --------------------
<S> <C> <C> <C>
23-B Shelter Cove Lane, Suite 400
Hilton Head, SC 29928
(843) 785-4300
Fax: (843) 785-5545
Riley Murphy 0 0 35,000
9008 Potomac Forest Drive
Great Falls, VA 2206
Fax: (703) 757-9476
JoAnn Langston 0 0 5,000
G. Michael Cassity 0 0 212,940
Clark H. Mizell SSB IRA Rollover 0 0 10,000
</TABLE>
-7-
<PAGE> 26
EXHIBIT D
SCHEDULE I
[TO REGISTRATION RIGHTS AGREEMENT AS AMENDED HEREBY]
INVESTORS
Richland Ventures II, L.P.
Richland Ventures III, L.P.
John Ryan Tyrrell
Portia B. Ortale
Laura Farish Chadwick Management Trust
The Chadwick 1998 Children's Trust
Patrick S. Hale
Mark Eric Isaacs
Linda F. Swafford
Beverly Ann Schrichte
First Union Capital Partners, Inc.
Moore Global Investments, Ltd.
Moore Overseas Technology Venture Fund, LDC
Remington Investments Strategies, L.P.
Moore Technology Venture Fund, LLC
Moore Technology Venture Fund II L.P.
Southeastern Technology Fund
Boston Millennia Partners Limited Partnership
Boston Millennia Associates I Partnership
Toronto Dominion Capital (U.S.A.), Inc.
Newcourt Commercial Finance Corporation
BancAmerica Capital Investors SBIC I, L.P.
CIBC WMC Inc.
Nortel Networks Inc.
Wachovia Capital Investments, Inc.
Randy McDougald
Vincent Oddo
William Adams
Ronald Kirby
Hamilton E. Russell, III
James Dunn
John C. West Trustee for Ernest F. Hollings
Riley Murphy
JoAnn Langston
G. Michael Cassity
Clark H. Mizell SSB IRA Rollover
<PAGE> 27
Schedule I
HOLDERS
Shaler P. Houser
Charles L. Houser
Charles S. Houser
Russell W. Powell
Daniel H. Sterling
Judith C. Slaughter
Seruus Ventures, LLC
Seruus Telecom Fund, L.P.
Hamilton E. Russell
Clark Mizell
Thomas Houlihan
<PAGE> 28
Schedule II
EXISTING INVESTORS
RICHLAND VENTURES II, L.P.
RICHLAND VENTURES III, L.P.
FIRST UNION CAPITAL PARTNERS, INC.
MOORE GLOBAL INVESTMENTS, LTD.
REMINGTON INVESTMENTS STRATEGIES, L.P.
BOSTON MILLENNIA PARTNERS LIMITED PARTNERSHIP
BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP
CITIZENS CAPITAL INCORPORATED
SOUTHEASTERN TECHNOLOGY FUND
Charles S. Houser
SERUUS TELECOM FUND, L.P.
John R. Tyrrell
John T. Mills, Sr.
WYCHE BURGESS PROFIT SHARING PLAN FUND II
WILLOU & CO.
HOUSER CHARITABLE REMAINDER UNITRUST
VFO PARTNERS, LTD.
TORONTO DOMINION CAPITAL (U.S.A.), INC.
NEWCOURT COMMERCIAL FINANCE CORPORATION,
an affiliate of The CIT Group, Inc.
BANCAMERICA CAPITAL INVESTORS SBIC I, L.P.
CAPITAL INSIGHTS GROWTH INVESTORS, L.P.
Terry E. Richardson, Jr.
David C. Poole
William Oberlin
Joseph A. Lawrence
Larry Bouman
<PAGE> 29
Schedule III
NEW INVESTORS
John Ryan Tyrrell
Portia B. Ortale
Laura Farish Chadwick Management Trust
The Chadwick 1998 Children's Trust
Patrick S. Hale
Mark Eric Isaacs
Linda F. Swafford
Beverly Ann Schrichte
MOORE TECHNOLOGY VENTURE FUND II L.P.
CIBC WMC INC.
NORTEL NETWORKS INC.
WACHOVIA CAPITAL INVESTMENTS, INC.
Randy McDougald
Vincent Oddo
William Adams
Ronald Kirby
Hamilton E. Russell, III
James Dunn
John C. West Trustee for Ernest F. Hollings
Riley Murphy
JoAnn Langston
G. Michael Cassity
Clark H. Mizell SSB IRA Rollover
<PAGE> 1
EXHIBIT 4.3.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into
as of this 19th day of February, 1998 by and among State Communications, Inc.
("SCI") and Seruus Telecom Fund, L.P. ("Seruus").
WHEREAS Seruus, through the date hereof, has purchased 375,000 shares
of SCI's common stock, par value $.001 per share (the "Securities"); WHEREAS SCI
desires to grant to Seruus the registration rights set forth herein; NOW,
THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement, except as
otherwise specifically provided herein, the following capitalized terms (in
their singular and plural forms as applicable) shall have the meanings set forth
below:
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Majority in Interest" means Seruus, their successors and assigns
holding a majority of the then outstanding Securities.
The terms "register," "registered," and "registration" refer to a
registration effected by preparing the filing of a registration statement in
compliance with the Securities Act, and the declaration or order by the
Commission of the effectiveness of such registration statement.
"Registrable Securities" means the shares of SCI Common Stock entitled
to the registration provisions hereof. Notwithstanding anything to the contrary
herein, no securities otherwise entitled to the benefits hereof shall be
considered "Registrable Securities" (a) when a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of thereunder, (b)
when such securities shall have been disposed of pursuant to Rule 144 (or any
successor provision to such Rule) under the Securities Act, or (c) when such
securities shall have been disposed of to a person other than one who meets the
conditions for assignment under Section 2(h) hereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shareholder" means each holder of record of the Securities.
"Underwritten Public Offering" means a public offering of Common Stock
for cash which is offered and sold in a registered transaction pursuant to an
agreement between SCI and one or more underwriters.
SECTION 2. REGISTRATION RIGHTS. (a) Demand Registration Rights. At any
time, on one (1) occasion, a Majority in Interest may request the registration
of all or at least 30% of the Registrable Securities outstanding and held by all
Shareholders, provided that SCI shall not be obligated to accept such demand
unless SCI has previously effected a registration of its shares of Common Stock
under the Securities Act, or unless SCI at the time of such demand is otherwise
a company reporting to the Commission under the Securities Exchange 1934 Act.
Upon receipt of notice of such demand (and, as applicable, a determination that
the proposed offering may reasonably meet such minimum criteria), SCI agrees to:
(i) promptly give written notice of the proposed registration
to all other Shareholders; and
(ii) use its best efforts to effect, as soon as practicable,
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualifications under
the applicable blue sky or other state securities laws and appropriate
compliance with exemptive regulations issued under the Securities Act and any
other governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion of
such requesting Shareholders' Registrable Securities as is specified in the
request by the Shareholder to SCI, together with all or such portion of the
Securities of any other Shareholders joining in such request as is specified in
further requests received by SCI within thirty (30) days after such written
notice is given; and
(iii) SCI shall use its best efforts to prepare and file a
registration statement covering the Registrable Securities so requested to be
registered within ninety (90) days after the initial request is received.
<PAGE> 2
(b) Registration Rights of SCI. SCI shall be entitled to include in any
registration statement referred to in Section 2(a) for sale in accordance with
the method of disposition specified by the requesting holders, shares of Common
Stock to be sold by SCI for its own account, except as and to the extent that,
in the opinion of the managing underwriter or underwriters (if such method of
disposition shall be an Underwritten Public Offering), such inclusion would
result in more than fifty percent (50%) of the Registrable Securities proposed
to be sold by requesting Shareholder being excluded from the offering or would
materially adversely affect the marketing of such Registrable Securities
proposed to be sold.
(c) Piggyback Registration. If at any time or from time to time after
the date hereof, SCI shall register any shares of Common Stock, other than
pursuant to Section 2(a) or pursuant to a registration statement on Form S-4 or
S-8 (or similar form), or pursuant to any dividend or interest reinvestment
plan, it shall promptly give to each Shareholder written notice thereof (which
shall include, to the extent available, a list of the jurisdictions in which SCI
intends to attempt to qualify the offer and sale of such securities under the
applicable blue sky or other state securities laws) and shall use its reasonable
efforts to include in such registration (and any related qualification under
blue sky laws or other compliance), and in any Underwritten Public Offering
associated therewith, all the Registrable Securities specified in any written
request or requests by any Shareholders received by SCI within thirty (30) days
after such written notice is given. If at any time prior to the effective date
of any Registration Statement filed pursuant to this subsection 2(c), the Issuer
shall determine for any reason not to proceed with such registration, the Issuer
may, at its election, may delay or withdraw such registration and without
liability to the Shareholders.
(d) Registration Expenses. All expenses of any registrations permitted
pursuant to this Agreement and of all other offerings by SCI (including, but not
limited to, the expenses of any interim audit required by any underwriters in
the event of an offering requested pursuant to Section 2(a) or 2(c) hereof, any
qualifications under the blue sky or other state securities laws, compliance
with governmental requirements of preparing and filing any post-effective
amendments required for the lawful distribution of any securities to the public
in connection with registration, of supplying prospectuses, offering circular or
other documents but excluding fees of any special counsel retained by the
Shareholders and underwriting fees and discounts and selling commissions
applicable to the sale of the Registrable Securities) will be paid by SCI.
(e) Registration Procedures. In the case of such registration,
qualification or compliance effected by SCI pursuant to this Agreement in which
any Shareholder's Registrable Securities are included pursuant to this
Agreement, SCI will, at its expense:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become and remain effective for such
period as may be reasonably necessary to effect the sale of the Registrable
Securities, not to exceed nine (9) months;
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained therein
as may be necessary to keep such registration statement effective for such
period as may be reasonably necessary to effect the sale of such Registrable
Securities, not to exceed nine (9) months;
(iii) furnish to the Shareholders participating in such
registration and to the underwriters of Registrable Securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
Registrable Securities;
(iv) use its diligent good faith efforts to register or
qualify the Registrable Securities covered by such registration statement under
such state securities or blue sky laws of such jurisdictions as such
participating Shareholders may reasonably request in writing within twenty (20)
days following the original filing of such registration statement; provided,
however, that in the case of an Underwritten Public Offering, the managing
underwriter or underwriters shall advise SCI with respect to blue sky
qualification and related matters;
(v) notify counsel for the Shareholders participating in such
registration, promptly after it shall receive notice thereof, of the time when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(vi) notify counsel for such Shareholders promptly of any
request by the Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(vii) prepare and file with the Commission, promptly upon the
request of any Shareholders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Shareholders
(and concurred in by counsel for SCI), is required under the Securities Act or
the rules and regulations thereunder in connection with the distribution of the
Common Stock other than an amendment
2
<PAGE> 3
or supplement required solely as a result of a change by such Shareholder in the
method of distribution of the Registrable Securities; and (viii) prepare and
promptly file with the Commission and promptly notify counsel for such
Shareholders of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such Registrable
Securities is required to be delivered under the Securities Act, any event other
than a change in the method of distribution of the Registrable Securities
selected by the Shareholders shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect would include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading.
(f) Related Registration Matters. SCI will use its best efforts to
enter into an underwriting agreement in connection with any registration subject
to the provisions of Section 2(a) in which any Registrable Securities are
included, which agreement shall be with an underwriter or underwriters
acceptable to a Majority in Interest and contain such terms, provisions and
agreements which are customary and appropriate for such registration. In
connection with any Underwritten Public Offering in which any Registrable
Securities are included, to the extent not provided in the underwriting
agreement related to such offering, SCI shall use its reasonable efforts to:
(i) list the shares of Common Stock included in such offering
on any national securities exchange on which the Common Stock has previously
been approved for listing;
(ii) engage a bank or other company to act as transfer agent
and registrar for the Common Stock, unless SCI has already engaged a transfer
agent and registrar;
(iii) cause customary opinions of counsel, comfort letters of
accountants and other appropriate documents to be delivered by representatives
of SCI; and
(iv) as soon as practicable after the effective date of the
registration statement, and, in any event, within sixteen (16) months
thereafter, make "generally available to its securities holders" (within the
meaning of Rule 158 under the Securities Act) an earnings statement (which need
not be audited) complying with Section 11(a) of the Securities Act and covering
a period of at least twelve (12) consecutive months beginning after the
effective date of the registration statement.
(g) Information by Shareholders. Each Shareholder requesting to be
included in any registration shall furnish to SCI such information regarding
such Shareholder and the distribution proposed by such Shareholder as SCI may
reasonably require in connection with any registration, qualification or
compliance referred to in Section 2.
(h) Transfer of Registration Rights. The rights to cause SCI to
register Registrable Securities under this Section 2 may be assigned in tandem
with any direct or successive transfer of the Securities, provided that SCI is
notified of such assignment. Upon any such assignment and the agreement of the
holder of the Securities so assigned to be bound by this Agreement, such holder
shall become a Shareholder for purposes of this Agreement; provided, however,
that unless such assignee is a partner of Seruus, such assignee shall not become
a Shareholder for purposes of this Agreement unless such assignee holds more
than 5% of the original Securities.
(i) Notice Requirements. Any notice from a holder of Registrable
Securities requesting registration of some or all of such Registrable Securities
pursuant to Sections 2(a) and 2(c) shall (A) specify the number of shares of
Registrable Securities intended to be included in such registration; (B)
describe the nature and method of the proposed offering and sale; (C) include an
undertaking to provide all information and materials concerning such holder and
the method of distribution and to take any other actions reasonably requested by
SCI to enable SCI to comply with the Securities Act, any state securities law
and/or the applicable requirements of the Commission or any state securities
commissioner or similar agency or official; and (D) if such holder is not a
party to this Agreement, include such holder's agreement to be bound by the
provisions of this Agreement applicable to holders of the Registrable
Securities.
(j) Conversion. In the event that a Shareholder elects to register and
sell Registrable Securities which will result from the conversion of Securities,
it may make such election but, to the extent possible, delay conversion or
exercise until registration is effected and the sale occurs.
SECTION 3. IMPLEMENTATION. (a) Effect of Sale. Any Shareholder who
sells all of its Securities pursuant to the terms of this Agreement shall cease
to have any further rights under this Agreement.
(b) Priority. SCI shall not grant registration rights which are
superior to the registration rights set
3
<PAGE> 4
forth in Section 2(c) hereof except upon the consent of Seruus. SCI shall not
grant registration rights to its executive officers which are equal to the
registration rights set forth in Section 2(c) hereof except upon the consent of
Seruus.
(c) Amendment and Waiver. The provisions of this Agreement may be
amended from time to time by an instrument in writing signed by SCI and a
Majority in Interest. Any receipt of benefit of the Shareholders hereunder may
be waived by a Majority in Interest.
(d) Lockup Agreement. In consideration for SCI agreeing to its
obligations under this Agreement, each Shareholder agrees in connection with any
registration of SCI's common equity securities (whether or not such Shareholder
is participating in such registration) upon the request of SCI and the
underwriters managing any underwritten offering of SCI's equity securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of SCI or such underwriters,
as the case may be, for such period of time from the effective date of such
registration as SCI and the underwriters may specify, so long as all executive
officers of SCI are bound by a comparable obligation. Notwithstanding the
foregoing, Seruus shall not be required to refrain from sales as contemplated
under this paragraph if it is not allowed to sell at least $750,000 in such
offering.
(e) Adjustments. In the event SCI shall declare a stock split, stock
dividend or other distribution of capital stock in respect of, or issue capital
stock in replacement of or exchange for, any Securities, such Securities shall
be subject to this Agreement and the provisions of this Agreement providing for
calculations based on the number of shares of Securities shall be adjusted
accordingly to account for the shares issued in respect of the Securities.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
STATE COMMUNICATIONS, INC.
By:
--------------------------------
Shaler P. Houser, CEO
SERUUS TELECOM FUND, L.P.
By: Seruus Capital Partners, LLC,
Its General Partner
By:
--------------------------------
Myron J. Goins, Manager
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EXHIBIT 4.3.2
REGISTRATION RIGHTS AGREEMENT
Dated as of May 27, 1999
by and among
STATE COMMUNICATIONS, INC.
and
NORTEL NETWORKS INC.
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of May 27, 1999, by and among STATE COMMUNICATIONS, INC., a
South Carolina corporation (the "Company") and NORTEL NETWORKS INC., a Delaware
corporation ("Nortel Networks").
WHEREAS, the Company has agreed to issue Common Stock warrants (the
"Warrants") to Nortel Networks, representing the right to purchase an aggregate
amount of 652,089 shares of the Common Stock, par value $.001 per share, of the
Company (the "Common Stock").
WHEREAS, the Warrants have been issued pursuant to the Warrant
Agreement dated as of the date hereof by and between the Company and Nortel
Networks (the "Warrant Agreement").
WHEREAS, the Company has issued to Nortel Networks its Series 1999A
Note (the "Series 1999A Note") in the original principal amount of $4,000,000,
which Series 1999A Note provides, upon the happening of certain conditions, for
the issuance of Common Stock upon the conversion thereof.
NOW, THEREFORE, in consideration of the foregoing and the premises and
mutual agreements herein set forth, the parties hereto hereby agree as follows:
Section 1. Definitions. Capitalized terms used in this Agreement and
not otherwise defined herein shall have the meanings given to those terms in the
Warrant Agreement. As used in this Agreement, the following terms shall have the
following respective meanings:
"Business Day" shall mean a day that is not a Legal Holiday.
"Common Stock" has the meaning ascribed to such term in the preamble
hereof.
"Demand Registration" has the meaning ascribed to such term in Section
2.1(a) hereof.
<PAGE> 2
"DTC" has the meaning ascribed to such term in Section 4(i) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, and the rules and regulations
promulgated thereunder.
"Expiration Date" has the meaning ascribed to such term in the Warrant
Agreement.
"Holder" shall mean a Person who is the owner as shown on the Warrant
register maintained by the Company.
"Included Securities" has the meaning ascribed to such term in Section
2.1(a) hereof.
"Indemnified Party" has the meaning ascribed to such term in Section
5(c) hereof.
"Indemnifying Party" has the meaning ascribed to such term in Section
5(c) hereof.
"Inspectors" has the meaning ascribed to such term in Section 4(n)
hereof.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
banking institutions in the City of New York are authorized or required by law,
regulation or executive order to remain closed.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Piggy-Back Registration" has the meaning ascribed to such term in
Section 2.2 hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective Registration Statement in reliance upon
Rule 430A under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means any of (i) the Warrant Shares, (ii) any
shares of Common Stock issued upon the conversion of a Series 1999A Note, and
(iii) any other securities issued or issuable with respect to any Warrant Shares
or any conversion shares referred to in clause (ii) above, by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise,
unless, in each case, such Warrant Shares and securities, if any, have been
offered and sold to the Holder pursuant to an effective Registration Statement
under the Securities Act declared effective prior to the exercisability of the
Warrants or such Warrant Shares and securities, if any, may be sold to the
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<PAGE> 3
public pursuant to Rule 144 without any restriction on the amount of securities
which may be sold by such Holder or the satisfaction of any condition. As to any
particular Registrable Securities held by a Holder, such securities shall cease
to be Registrable Securities when (i) a Registration Statement with respect to
the exercise or offering of such securities by the Holder thereof shall have
been declared effective under the Securities Act and such securities shall have
been exercised and/or disposed of by such Holder pursuant to such Registration
Statement, (ii) such securities may at the time of determination be sold to the
public pursuant to Rule 144 without any restriction on the amount of securities
which may be sold by such Holder (or any similar provision then in force, but
not Rule 144A) promulgated under the Securities Act without the lapse of any
further time or the satisfaction of any condition, (iii) such securities shall
have been otherwise transferred by such Holder and new certificates for such
securities not bearing a legend restricting further transfer shall have been
delivered by the Company or its transfer agent and subsequent disposition of
such securities shall not require registration or qualification under the
Securities Act or any similar state securities or blue sky laws then in force or
(iv) such securities shall have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including, without
limitation, all SEC and stock exchange or National Association of Securities
Dealers, Inc. registration and filing fees and expenses, fees and expenses of
compliance with state securities or blue sky laws (including, without
limitation, reasonable fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities), printing
expenses, messenger, telephone and delivery expenses, fees and disbursements of
counsel for the Company and all independent certified public accountants, the
fees and disbursements of underwriters customarily paid by issuers or sellers of
securities (but not including any underwriting discounts or commissions or
transfer taxes, if any, attributable to the sale of Registrable Securities) and
other reasonable out-of-pocket expenses of Holders (including the reasonable
fees and expenses of one counsel for the Holders to be selected by a majority of
such Holders).
"Registration Statement" shall mean any appropriate registration
statement of the Company filed with the SEC pursuant to the Securities Act which
covers any of the Registrable Securities pursuant to the provisions of this
Agreement and all amendments and supplements to any such Registration Statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Requisite Securities" shall mean a number of Registrable Securities
equal to not less than twenty-five percent ((25%) of the Registrable Securities
held in the aggregate by all Holders; provided, however, that with respect to
any action to be taken at the request of the Holders of the Registrable
Securities prior to such time as the Warrants have expired pursuant to the terms
thereof and of the Warrant Agreement, each Warrant outstanding shall be deemed
to represent that number of Registrable Securities for which such Warrant would
be then exercisable (without giving effect to the cashless (net) exercise
feature referred to in the Warrant Agreement).
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<PAGE> 4
"Rule 144" shall mean Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent Holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144) or regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, or any successor statute, and the rules and regulations
promulgated thereunder.
"Selling Holder" shall mean a Holder who is selling Registrable
Securities in accordance with the provisions of Section 2.1 or 2.2 hereof.
"Warrants" has the meaning ascribed to such term in the preamble
hereof.
"Warrant Agreement" has the meaning ascribed to such term in the
preamble hereof.
"Warrant Shares" means the shares of Common Stock delivered or
deliverable upon exercise of the Warrants.
Section 2. Registration Rights.
Section 2.1. Demand Registration.
(a) General. At any time and from time to time from and after the date
of the Warrant Agreement, Holders owning, individually or in the aggregate, not
less than the Requisite Securities may make a written request, on (subject to
Sections 2.1(b), 2.1(e) and 2.3(a)) no more than two occasions (each, a "Demand
Registration"), that the Company register the resale of the Warrant Shares,
under the Securities Act. The Company shall file with the SEC and use
commercially reasonable efforts to cause to become effective under the
Securities Act a Registration Statement with respect to such Registrable
Securities within (i) sixty (60) days of receipt of such written request for a
Demand Registration if the Company is then eligible to register an offering
pursuant to Form S-3 under the Securities Act or (ii) ninety (90) days of
receipt of such written request for a Demand Registration if the Company is not
then eligible to register an offering pursuant to Form S-3 under the Securities
Act but is then qualified as a reporting company under the Exchange Act.
Notwithstanding anything to the contrary herein, no Demand Registration may be
made earlier than (A) 30 days after the Company becomes a reporting company
under Section 12(b) or 12(g) or Section 15(c) of the Exchange Act, or (B) in the
event that the Company becomes a reporting
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<PAGE> 5
company under the Exchange Act through an underwritten initial public offering
of securities, 180 days after the closing of the initial public offering. Any
such request will specify the number of Registrable Securities proposed to be
sold and will also specify the intended method of disposition thereof. The
Company shall give written notice of such registration request to all other
Holders of Registrable Securities within fifteen (15) Business Days after the
receipt thereof. Within ten (10) days after receipt by any Holder of Registrable
Securities of such notice from the Company, such Holder may request in writing
that such Holder's Registrable Securities be included in such Registration
Statement and the Company shall include in such Registration Statement the
Registrable Securities of any such Holder requested to be so included (the
"Included Securities"). Each such request by such other Holders shall specify
the number of Included Securities proposed to be sold and the intended method of
disposition thereof. Subject to Sections 2.1(b), 2.1(e) and 2.3(a) hereof, the
Company shall be required to register Registrable Securities pursuant to this
Section 2.1(a) on a maximum of two separate occasions.
Subject to Section 2.1(e) hereof, no other securities of the Company
except (i) Registrable Securities held by any Holder, (ii) equity securities to
be offered and sold for the account of the Company and (iii) any equity
securities of the Company held by any Person having "piggy-back" registration
rights pursuant to any contractual obligation of the Company shall be included
in a Demand Registration. The inclusion of any such securities for the account
of the Company or any other Person shall be on the same terms as that of the
Registrable Securities.
(b) Effective Registration. A Registration Statement will not be deemed
to have been effected as a Demand Registration unless it has been declared
effective by the SEC and the Company has complied in all material respects with
all of its obligations under this Agreement with respect thereto; provided,
however, that if, after such Registration Statement has become effective, the
offering of Registrable Securities pursuant to such Registration Statement is or
becomes the subject of any stop order, injunction or other order or requirement
of the SEC order, injunction or other order or requirement of the SEC or any
other governmental or administrative agency or court that prevents, restrains or
otherwise limits the sale of Registrable Securities pursuant to such
Registration Statement for any reason not attributable to any Holder
participating in such registration and such restraint is not lifted within sixty
(60) days after being imposed, such Registration Statement will be deemed not to
have been effected. If (i) a registration requested pursuant to this Section 2.1
is deemed not to have been effected or (ii) a Demand Registration does not
remain effective under the Securities Act until at least the earlier of (A) an
aggregate of six months after the effective date thereof or (B) the consummation
of the distribution by the Holders of all of the Registrable Securities covered
thereby, then such registration shall not count towards determining if the
Company has satisfied its obligation to effect two Demand Registrations pursuant
to this Section 2.1. For purposes of calculating the six month period referred
to in the preceding sentence, any period of time during which such Registration
Statement was not in effect shall be excluded. The Holders of Registrable
Securities shall be permitted to withdraw all or any part of the Registrable
Securities from a Demand Registration at any time prior to the effective date of
such Demand Registration; provided, however, that should the Holders of
Registrable Securities remaining after such withdrawal own, individually or in
the aggregate, less than the
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<PAGE> 6
Requisite Securities, the Company shall have the right to terminate or withdraw
any registration initiated by it under Section 2.1 prior to the effectiveness of
such registration.
(c) Restrictions on Sale by Holders. Each Holder of Registrable
Securities whose Registrable Securities are covered by a Registration Statement
filed pursuant to Section 2.1 agrees, if and to the extent reasonably requested
by the managing underwriter or underwriters in an underwritten offering of
Common Stock or common equivalents the gross proceeds of which equal at least
$30,000,000, not to effect any public sale or distribution of Registrable
Securities of the Company of the same class as any securities included in such
Registration Statement, including a sale pursuant to Rule 144 (except as part of
such underwritten offering), during the 10-day period prior to, and during the
180-day period beginning on, the commencement of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or such managing underwriter or underwriters.
The foregoing provisions of Section 2.1(c) shall not apply to any
Holder of Registrable Securities if such Holder is prevented by an applicable
statute or regulation from entering into any such agreement; provided, however,
that any such Holder shall undertake, in its request to participate in any such
underwritten offering, not to effect any public sale or distribution of any
Registrable Securities commencing on the date of sale of such Registrable
Securities unless it has provided forty-five (45) days' prior written notice of
such sale or distribution to the underwriter or underwriters.
(d) Underwritten Registrations. If any of the Registrable Securities
covered by a Demand Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Company and will be reasonably acceptable
to the Holders of not less than a majority of the Registrable Securities to be
sold thereunder.
No Holder of Registrable Securities may participate in any underwritten
registration pursuant to a Registration Statement filed under this Agreement
unless such Holder (a) agrees to (i) sell such Holder's Registrable Securities
on the basis provided in and in compliance with the underwriting arrangements
and (ii) comply with Rules 101, 102 and 104 of Regulation M promulgated under
the Exchange Act and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required by the Company or the investment bankers under the terms of such
underwriting arrangements.
(e) Priority in Demand Registration. In a registration pursuant to
Section 2.1 hereof involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders who have requested such Demand
Registration or who have sought inclusion therein that in such underwriter's or
underwriters' opinion the total number of securities which the Selling Holders
and any other Person entitled to participate in such registration pursuant to
Section 2.1(a) hereof intend to include in such offering is such as to adversely
affect the success of such offering,
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<PAGE> 7
including the price at which such securities can be sold, then the Company will
be required to include in such registration only the amount of securities which
it is so advised should be included in such registration. In such event,
securities shall be registered in such registration in the following order of
priority: (i) first, the securities which have been requested to be included in
such registration by the Holders of Registrable Securities and the securities of
other Persons entitled to exercise "piggy-back" registration rights pursuant to
contractual commitments of the Company (pro rata based on the amount of
securities sought to be included in the registration by the Holders of
Registrable Securities and such Persons), and (ii) second, provided that no
securities sought to be included by the Holders or any other Person sought to be
included therein have been excluded from such registration, securities to be
offered and sold for the account of the Company.
If twenty-five percent (25%) or more of the Registrable Securities
which the Holders have requested to be included in a Registration Statement
pursuant to Section 2.1 hereof have been excluded from such Registration
Statement pursuant to the provisions of the foregoing paragraph, then such
registration shall not count towards determining whether the Company has
satisfied its obligation to effect two Demand Registrations pursuant to Section
2.1 hereof.
Section 2.2. Piggy-Back Registration.
(a) General. If at any time the Company proposes to file a Registration
Statement under the Securities Act with respect to an offering by the Company
for its own account of any of its common equity securities which are either the
same class as the Registrable Securities or securities of a class into which
Registrable Securities are convertible (other than (i) a Registration Statement
on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC or
other form of limited purpose), (ii) a Registration Statement filed in
connection with an exchange offer or offering of securities solely to the
Company's existing security holders, (iii) a Registration Statement filed
pursuant to the exercise of "demand" registration rights of existing security
holders pursuant to a contractual commitment of the Company, or (iv) a
registration relating to the sale of indebtedness of the Company in which case
the Company may issue equity (or rights to acquire equity) in the Company in the
same transaction constituting no more than 10% of its outstanding equity on a
fully-diluted basis) then the Company shall give written notice of such proposed
filing to the Holders of Registrable Securities as soon as practicable (but in
no event fewer than fifteen (15) days before the anticipated filing date of ten
(10) days if the Company is subject to filing reports under the Exchange Act and
able to use Form S-3 under the Securities Act), and such notice shall offer such
Holders the opportunity to register such number of shares of Registrable
Securities as each such Holder may request in writing not later than five (5)
days prior to the anticipated filing date of the Registration Statement (so long
as the Holder has received such written notice in accordance with the foregoing
time periods from the Company) (which request shall specify the Registrable
Securities intended to be disposed of by such Selling Holder and the intended
method of distribution thereof) (a "Piggy-Back Registration"). The Company shall
use commercially reasonable efforts to keep such Piggy-Back Registration
continuously effective under the Securities Act until at least the earlier of
(A) ninety (90) days after the effective date thereof
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or (B) the consummation of the distribution by the Holders of all of the
Registrable Securities covered thereby. The Company shall use its commercially
reasonable efforts to cause the managing underwriter or underwriters, if any, of
such proposed offering to permit the Registrable Securities requested to be
included in a Piggy-Back Registration to be included on the same terms and
conditions as any similar securities of the Company or any other security holder
included therein, subject to the restrictions set forth in Section 2.2(b), and
to permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof. Any Selling Holder
shall have the right to withdraw its request for inclusion of its Registrable
Securities in any Registration Statement pursuant to this Section 2.2 by giving
timely written notice to the Company of its request to withdraw. The Company may
withdraw a Piggy-Back Registration at any time prior to the time it becomes
effective or the Company may elect to delay the registration; provided, however,
that the Company shall give prompt written notice thereof to participating
Selling Holders. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
Section 2.2, and each Holder of Registrable Securities shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to a
Registration Statement effected pursuant to this Section 2.2.
No Registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligation to effect a registration pursuant to Section 2.1 hereof, and no
failure to effect a registration under this Section 2.2 and to complete the sale
of securities registered thereunder in connection therewith shall relieve the
Company of any other obligation under this Agreement.
(b) Priority in Piggy-Back Registration. In a registration pursuant to
Section 2.2 hereof involving an underwritten offering, if the managing
underwriter of underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders requesting inclusion in such
offering that in such underwriter's or underwriters' opinion the total number of
securities which the Company, the Selling Holders and any other Persons desiring
to participate in such registration intend to include in such offering is such
as to adversely affect the success of such offering, including the price at
which such securities can be sold, then the Company will be required to include
in such registration only the amount of securities which it is so advised should
be included in such registration. In such event, securities shall be registered
in such offering in the following order of priority: (i) first, the securities
which the Company proposes to register, and (ii) second, provided that no
securities sought to be included by the Company has been excluded from such
registration, the securities which have been requested to be included in such
registration by the Holders of Registrable Securities and other Persons entitled
to exercise "piggy-back" registration rights pursuant to contractual commitments
of the Company (pro rata based on the amount of securities held by the Holders
of Registrable Securities requesting such inclusion and such Persons); provided,
however, that the Holders of Registrable Securities shall be subject to a prior
rights of Seruus Telecom Fund, L.P., Richland Ventures II, L.P. and First Union
Capital Partners and their permitted successors and assigns, existing on the
date hereof to be
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included prior to the Holders of Registrable Securities in a piggy-back
registration that is curtailed in size at the direction of the managing
underwriter.
If, as a result of the provisions of this Section 2.2(b), any Selling
Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Selling Holder has requested to be included,
such Selling Holder may elect to withdraw his request to include Registrable
Securities in such registration.
Section 2.3. Limitations, Conditions and Qualifications to Obligations
Under Registration Covenants. The obligations of the Company set forth in
Sections 2.1 and 2.2 hereof are subject to each of the following limitations,
conditions and qualifications:
(a) Subject to the next sentence of this paragraph, the Company shall
be entitled to postpone, for a reasonable period of time, the filing or
effectiveness of, or suspend the rights of any Holders to make sales pursuant
to, any Registration Statement otherwise required to be prepared, filed and made
and kept effective by it pursuant to Section 2.1 or 2.2 thereunder; provided,
however, that the duration of such postponement or suspension may not exceed the
earlier to occur of (A) fifteen (15) days after the cessation of the
circumstances described in the next sentence of this paragraph on which such
postponement or suspension is based or (B) ninety (90) days after the date of
the determination of the Board of Directors referred to in the next sentence,
and the duration of postponement or suspension shall be excluded from the
calculation of the six month period described in Section 2.1(b). Such
postponement or suspension may be effected only if the Board of Directors of the
Company makes a reasonable and good faith determination that the filing or
effectiveness of, or sale pursuant to, such Registration Statement would
materially impede, delay or interfere with any material financing, offer or sale
of securities, acquisition, corporate reorganization or other significant
transaction involving the Company or any of its Subsidiaries which material
financing, offer or sale of securities, acquisition, corporate reorganization or
other significant transaction is under active consideration at the time of such
postponement or suspension; provided, however, that the Company shall not be
entitled to such postponement or suspension more than twice in any twelve-month
period. If the Company shall so postpone the filing of a Registration Statement
it shall, as promptly as possible, deliver a certificate signed by the Chief
Executive Officer or President of the Company to the Selling Holders as to such
determination, and the Selling Holders shall (y) have the right, in the case of
a postponement of the filing or effectiveness of a Registration Statement, upon
the affirmative vote of the Holders of not less than a majority of the
Registrable Securities to be included in such Registration Statement, to
withdraw the request for registration by giving written notice to the Company
within ten (10) days after the receipt of such notice or (z) in the case of a
suspension of the right to make sales, receive an extension of the registration
period equal to the number of days of the suspension. Any Demand Registration as
to which the withdrawal election referred to in the preceding sentence has been
effected shall not be counted for purposes of the two Demand Registrations the
Company is required to effect pursuant to Section 2.1 hereof.
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(b) The Company shall not be required by this Agreement to file a
registration statement with respect to a Demand Registration during the period
starting with the date of filing of, and within one-hundred eighty (180) days
immediately following, the effective date of any Registration Statement under
the Securities Act pertaining to a firmly underwritten offering of equity
securities of the Company for its own account.
(c) The Company shall not be required by this Agreement to file a
Registration Statement with respect to a Demand Registration during the period
starting with the date of notice of a proper demand for the registration of
Common Stock of the Company, pursuant to a firmly underwritten offering, for the
account of any security holder of the Company in accordance with the terms of
the contractual arrangements governing such registration, and ending at the
earlier of:
(i) the withdrawal of any such registration statement or the
withdrawal of the request to file such Registration Statement by the security
holder requesting such registration; or
(ii) ninety (90) days after the effective date of any such
Registration Statement; provided, however, that the Company shall not be
entitled to invoke this clause (c) more than once during any 12-month period.
(d) The Company's obligations shall be subject to the obligations of
the Selling Holders, which the Selling Holders acknowledge, to furnish all
information and materials required of such Selling Holders and to take any and
all actions required of such Selling Holders as may be required under such
applicable federal and state securities laws and regulations to permit the
Company to comply with all applicable requirements of the SEC and to obtain any
acceleration of the effective date of such Registration Statement; and
(e) The Company shall not be obligated to cause any special audit to be
undertaken in connection with any registration pursuant to this Agreement unless
such audit is required by the SEC or requested by the underwriters with respect
to such registration.
Section 2.4. Restrictions on Sale by the Company and Others. The
Company covenants and agrees that (i) during the 10-day period prior to, and
during the 60-day period beginning on, the commencement of any underwritten
offering or Registrable Securities pursuant to a Demand Registration which has
been requested pursuant to this Agreement, it shall use its reasonable efforts
not to effect any public sale or distribution of any securities of the same
class as any of the Registrable Securities or any securities convertible into or
exchangeable or exercisable for such securities (or any option or other right
for such securities), other than any Common Stock and/or options, Warrants or
other Common Stock purchase rights, and the Common Stock issued pursuant to such
option, Warrants or other rights, to employees, officers or directors of, or
consultants or advisors to the Company or any Subsidiary pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors of the Company, prior to the Company or any of its
Subsidiaries publicly announcing its intention to effect any such
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public sale or distribution; and (ii) the Company will not, and the Company will
not cause or permit any of its Subsidiaries to, after the date hereof, enter
into any agreement or contract that conflicts with or limits or prohibits the
full and timely exercise by the Holders of Registrable Securities of the rights
herein to request a Demand Registration or to join in any Piggy-Back
Registration subject to the other terms and provisions hereof; provided,
however, that the Company's "reasonable efforts" undertaking under clause (i)
above shall not be construed to limit or prohibit the Company from making a
public sale or distribution that the Board of Directors believes is material to
the interests of the Company during such period.
Section 2.5. Rule 144 and Rule 144A. The Company covenants that it will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder in a
timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder or beneficial owner of
Registrable Securities, make available such information necessary to permit
sales pursuant to Rule 144A under the Securities Act. The Company further
covenants that it will take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144(k) and Rule 144A under the Securities Act, as such Rules may be amended from
time to time, or (b) any similar rule or regulation hereafter adopted by the SEC
(it being expressly understood that the foregoing shall not create any
obligation on the part of the Company to file periodic reports or other reports
under the Exchange Act at any time that it is not then required to file such
reports pursuant to the Exchange Act). Upon the reasonable request of any Holder
of Registrable Securities, the Company will in a timely manner deliver to such
Holder a written statement as to whether it has complied with such information
requirements.
Section 3. "Market Stand-Off" Agreement.
(a) Each Holder hereby agrees that it shall not, to the extent
requested by a managing underwriter of Common Stock or common equivalents of the
Company, sell or otherwise transfer or dispose of any Registrable Securities of
the Company then owned by such Holder (other than to donees or partners of the
Holder who agree to be similarly bound) for up to one-hundred eighty (180) days
following the date of the final Prospectus in connection with each Registration
Statement of the Company filed under the Securities Act; provided, however, that
such agreement (i) shall not be applicable to Registrable Securities sold
pursuant to such registration, and (ii) shall only be applicable if the managing
underwriters request such agreement from each Holder.
(b) In order to enforce the foregoing covenant, the Company shall have
the right to impose stop transfer instructions with respect to the Registrable
Securities (and the Registrable Securities of every other Person subject to the
foregoing restriction) until the end of such period. The provisions of this
Section 3 shall be binding upon any transferee of any Registrable Securities.
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Section 4. Registration Procedures. In connection with the obligations
of the Company with respect to any Registration Statement pursuant to Sections
2.1, 2.2 and 2.5 hereof, the Company shall, except as otherwise provided:
(a) Prepare and file with the SEC as soon as practicable each
Registration Statement (but in any event on or prior to the date of filing
thereof required under this Agreement) and use commercially reasonable efforts
to cause such Registration Statement to become effective and remain effective as
provided herein; provided, however, that before filing any such Registration
Statement or any Prospectus (for registrations pursuant to Sections 2.1 and 2.2
hereof) or any amendments or supplements thereto (only for registrations
pursuant to Section 2.1 hereof), the Company shall make available to the Holders
of the Registrable Securities covered by such Registration Statement, and the
managing underwriter or underwriters, if any, copies of all such documents
proposed to be filed, which documents will be subject to the review and comment
of such Holders and underwriters in connection with such sale, if any, for a
period of at least five (5) Business Days, and the Company will not file any
such Registration Statement or amendment or supplement to any such Registration
Statement (including all such documents incorporated by reference) to which the
Holders of the Registrable Securities covered by such Registration Statement or
the underwriters in connection with such sale, if any, shall reasonably object
within five (5) Business Days after the receipt thereof. A participating Holder
or underwriter, if any, shall be deemed to have reasonably objected to such
filing if such Registration Statement, amendment or supplement, as applicable,
as proposed to be filed, contains a material misstatement or omission or fails
to comply with the applicable requirements of the Securities Act;
(b) Prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the time periods prescribed
hereby; cause the related Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
and comply with the provisions of the Securities Act, the Exchange Act and the
rules and regulations of the SEC promulgated thereunder applicable to it with
respect to the disposition of all securities covered by such Registration
Statement as so amended or in such prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities, their counsel and the
managing underwriter or underwriters, if any, promptly (but in any event within
two (2) Business Days), and confirm such notice in writing, (i) when a
Prospectus or any prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective (including in such notice a
written statement that any Holder may, upon request, obtain, without charge, one
conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules and exhibits), (ii) of the issuance
by the SEC of any stop order suspending the effectiveness of such Registration
Statement or any preliminary prospectus or the initiation or threatening of any
proceedings for that purpose, (iii) of the receipt by the Company of any
notification with respect to (A) the suspension of the qualification or
exemption from qualification of the Registration
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<PAGE> 13
Statement or any of the Registrable Securities covered thereby for offer or sale
in any jurisdiction, or (B) the initiation of any proceeding for such purpose,
(iv) of the happening of any event, the existence of any condition or
information becoming known to the Company that requires the making of any
changes in such Registration Statement, Prospectus or documents so that, in the
case of such Registration Statement, it will conform in all material respects
with the requirements of the Securities Act and it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, not misleading, and
that in the case of the Prospectus, it will conform in all material respects
with the requirements of the Securities Act and it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, not misleading, and
(v) of the Company's reasonable determination that a post-effective amendment to
such Registration Statement would be appropriate.
(d) Use commercially reasonable efforts to prevent the issuance of any
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Securities covered
thereby for sale in any jurisdiction, and, if any such order is issued, to
obtain the withdrawal of any such order at the earliest practicable moment.
(e) If requested by the managing underwriter or underwriters, if any,
or the Holders of a majority of the Registrable Securities being sold in
connection with an underwritten offering (only for registrations pursuant to
Section 2.1 hereof), (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or
underwriters, if any, or such Holders reasonably request to be included therein
to comply with applicable law, (ii) make all effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post effective amendment, and
(iii) supplement or make amendments to such Registration Statements.
(f) Furnish to each Holder of Registrable Securities who so requests
and to counsel for the Holders of Registrable Securities and each managing
underwriter, if any, without charge, upon request, one conformed copy of the
Registration Statement and each post effective amendment thereto, including
financial statements and schedules, and of all documents incorporated or deemed
to be incorporated therein by reference and all exhibits (including exhibits
incorporated by reference).
(g) Deliver to each Holder of Registrable Securities, their counsel and
each underwriter, if any, without charge, as many copies of each Prospectus
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and, subject to the last paragraph of this
Section 4, the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the Holders of Registrable Securities
and the underwriter or underwriters or agents, if any in connection with the
offering and
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<PAGE> 14
sale of the Registrable Securities covered by such Prospectus and any amendment
or supplement thereto.
(h) Prior to any offering of Registrable Securities, to register or
qualify, and cooperate with the Holders of Registrable Securities, the
underwriter or underwriters, if any, and their respective counsel in connection
with the registration or qualification (or exemption from such registration or
qualification) of, such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
the managing underwriter or underwriters reasonably request in writing, or, in
the event of a non-underwritten offering, as the Holders of a majority of the
Registrable Securities may request; provided, however, that where Registrable
Securities are offered other than through an underwritten offering, the Company
agrees to cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
4(h); keep such registration or qualification (or exemption therefrom) effective
during the effectiveness period and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
securities covered thereby; provided, however, that the Company will not be
required to (A) qualify generally to do business in any jurisdiction where it
has not then so qualified, (B) take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
(C) become subject to taxation in any jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders of Registrable Securities and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, which certificates shall not bear any restrictive legends whatsoever
and shall be in a form eligible for deposit with The Depository Trust Company
("DTC"); and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any, or
Holders may reasonably request at least two (2) Business Days prior to any sale
of Registrable Securities in a firm commitment underwritten public offering.
(j) Pay all Registration Expenses in connection with the registrations
requested pursuant to Sections 2.1 and 2.2 hereof. Each Holder of Registrable
Securities shall pay all underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to a Registration Statement requested pursuant to Section
2.1.
(k) Upon the occurrence of any event contemplated by Section 4(c)(iv)
or 4(c)(v) above, as promptly as practicable prepare a supplement or
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and, subject to Section 4(a) hereof, file such with the
SEC so that, as thereafter delivered to the purchasers of Registrable Securities
being sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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<PAGE> 15
(l) Prior to the effective date of a Registration Statement, (i)
provide the registrar for the Registrable Securities with certificates for such
securities in a form eligible for deposit with DTC and (ii) provide a CUSIP
number for such securities.
(m) If the offering provided for herein is conducted by means of an
underwriting, enter into an underwriting agreement in form, scope and substance
as is customary in underwritten offerings and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in order to
expedite or facilitate the registration or disposition of such Registrable
Securities in any underwritten offering to be made of the Registrable Securities
in accordance with this Agreement, and in such connection, (i) make such
representations and warranties to the underwriter or underwriters, with respect
to the business of the Company and its Subsidiaries, and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance and scope as
are customarily made by issuers to underwriters in underwritten offerings, and
confirm the same if and when requested; (ii) use reasonable efforts to obtain an
opinion of counsel to the Company, addressed to the underwriter or underwriters
covering the matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by underwriters;
(iii) use reasonable efforts to obtain "cold comfort" letters from the
independent certified public accountants of the Company (and, if applicable, the
Subsidiaries of the Company) and, if necessary, any other independent certified
public accountants of any Subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included in the Registration Statement, addressed to each of the
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by the
managing underwriter or underwriters and as permitted by the underwriting
agreement is entered into, the same shall contain customary indemnification
provisions and procedures with respect to all parties to be indemnified pursuant
to said Section. The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder.
(n) Make available for inspection by a representative of the Holders of
Registrable Securities being sold, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney or account
retained by such representative of the Holders or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable business
hours, at the Inspector's expense, all financial and other records, pertinent
corporate documents and properties of the Company and its Subsidiaries as
reasonably requested by the Inspector, and cause the officers, directors and
employees of the Company and its Subsidiaries to supply all information in each
case reasonably requested by any such Inspector in connection with such
Registration Statement; provided, however, that all such information shall be
kept confidential by such Inspector and shall not be used for any purpose other
than as contemplated hereby, except to the extent that (i) the disclosure of
such information is necessary or advisable to avoid or correct a misstatement or
omission in the Registration Statement or in any Prospectus; provided, however,
that prior notice is given to the Company, and the Company's legal counsel
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<PAGE> 16
and such Holder's legal counsel concur that disclosure is required, (ii) the
release of such information is ordered pursuant to a subpoena or other order
from court of competent jurisdiction, (iii) disclosure of such information is
necessary or advisable in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such Inspector and
arising out of, based upon, relating to or involving this Agreement or any of
the transactions contemplated hereby or arising hereunder; provided, however,
that prior notice shall be provided as soon as practicable to the Company of the
potential disclosure of any information by such Inspector pursuant to clauses
(ii) or (iii) of this sentence to permit the Company to obtain a protective
order (or waive the provisions of this paragraph (n)) and that such Inspector
shall take all actions as are reasonably necessary to protect the
confidentiality of such information (if practicable) to the extent such action
is otherwise not inconsistent with, an impairment of or in derogation of the
rights and interests of the Holder or any Inspector, or (iv) such information
has been made generally available to the public.
(o) Comply with all applicable rules and regulations of the SEC and
make generally available to its security holders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than
forty-five (45) days after the end of any 12-month period (or ninety (90) days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to an underwriter or to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to an underwriter or to underwriters
in such an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of the relevant Registration Statement,
which statements shall cover said 12-month periods.
(p) Use commercially reasonable efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on each
securities exchange, if any, on which similar securities issued by the Company
are then listed.
(q) Cooperate with the Selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends and
registered in such names as the Selling Holders may reasonably request at least
two (2) Business Days prior to the closing of any sale of Registrable
Securities.
Each seller of Registrable Securities as to which any registration is
being effected agrees, as a condition to the registration obligations with
respect to such seller provided herein, to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request in writing
to comply with the Securities Act and other applicable law. The Company may
exclude from such registration the Registrable Securities of any seller for so
long as such seller fails to furnish such information within a reasonable time
after receiving such request. If the identity of a seller of Registrable
Securities is to be disclosed in the Registration Statement, such seller shall
be permitted to include all information regarding such seller as it shall
reasonably request.
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<PAGE> 17
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii),
4(c)(iv), or 4(c)(v) hereof, such Holder will forthwith discontinue disposition
of such Registrable Securities covered by the Registration Statement or
Prospectus until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 4(k) hereof, or until it is advised
in writing by the Company that the use of the applicable prospectus may be
resumed, and has received copies of any amendments or supplements thereto, and,
if so directed by the Company, such Holder will, at the Company's expense,
deliver to the Company all copies, other than permanent file copies, then in
such Holder's actual possession of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; provided, however,
that nothing herein shall create any obligation on the part of any Holder to
undertake unreasonable efforts to retrieve or return any such Prospectus not
within the actual possession or control of such Holder. In the event the Company
shall give any such notice, the period of time for which a Registration
Statement is required thereunder to be effective shall be extended by the number
of days during such periods from and including the date of the giving of such
notice to and including the date when each seller of Registrable Securities
covered by such Registration Statement shall have (x) received the copies of the
supplemented or amended Prospectus contemplated by Section 4(k) hereof or (y)
been in advised in writing by the Company that the use of the applicable
prospectus may be resumed.
Section 5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Holder, its
officers and directors, and each Person, if any, who controls such Holder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, or is under common control with, or is controlled by, such Holder,
from and against all losses, claims, damages and liabilities (including, without
limitation, and subject to clause (c) of this Section 5 below, the reasonable
legal fees and other reasonable out-of-pocket expenses actually incurred by any
Holder or any such controlling or affiliated Person in connection with any suit,
action or proceeding or any claim asserted), caused by, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto) pursuant to
which Registrable Securities were registered under the Securities Act, or caused
by any omission or alleged omission to state in any such Registration Statement
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or caused by any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state in any such preliminary prospectus or Prospectus a material
fact required to be stated in any such preliminary prospectus or Prospectus or
necessary to make the statements in any such preliminary prospectus or
Prospectus in light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omissions made in reliance upon and in conformity with information relating to
any Holder furnished to the Company in writing by such
17
<PAGE> 18
Holder expressly for use in any such Registration Statement, Preliminary
Prospectus or Prospectus; provided, however, that the Company shall not be
required to indemnify any such Person if such untrue statement or omission or
alleged untrue statement or omission was contained or made in any preliminary
prospectus and corrected in the Prospectus, or any amendment or supplement
thereto and the Prospectus does not contain any other untrue statement or
omission or alleged untrue statement or omission of a material fact that was the
subject matter of the related proceeding and any such loss, liability, claim,
damage or expense suffered or incurred by such indemnified Person resulted from
any action, claim or suit by any Person who purchased Registrable Securities
which are the subject thereof from such indemnified Person and it is established
in the related proceeding that such indemnified Person failed to deliver or
provide a copy of the Prospectus (as amended or supplemented) to such Person
with or prior to the confirmation of the sale of such Registrable Securities
sold to such Person if required by applicable law, unless such failure to
deliver or provide a copy of the Prospectus (as amended or supplemented) was a
result of noncompliance by the Company with Section 4 hereof or as a result of
the failure of the Company to provide such Prospectus.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign any Registration
Statement, and each Person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Holder, but
only with reference to information furnished by such Holder to the Company
expressly for use in any Registration Statement (or any amendment thereto) or
any Prospectus (or any amendment or supplement thereto). The liability of any
Holder under this paragraph shall in no event exceed the proceeds received by
such Holder from sales of Registrable Securities giving rise to such
obligations.
(c) In case any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to either paragraph
(a) or (b) above, such Person (the "Indemnified Party") shall promptly notify
the Person against which such indemnity may be sought (the "Indemnifying Party")
in writing and the Indemnifying Party, upon request of the Indemnified Party,
shall retain counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any others the Indemnifying Party may
reasonably designate in such proceeding and shall pay the reasonable fees and
expenses actually incurred of such counsel relating to such proceeding;
provided, however, that the failure to so notify the Indemnifying Party shall
not relieve it of any obligation or liability which it may have thereunder or
otherwise unless the Indemnifying Party has been materially prejudiced by such
failure. In any such proceeding, any Indemnified Party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the contrary, (ii) the
Indemnifying Party shall have failed to retain within a reasonable period of
time counsel reasonably satisfactory to such Indemnified Party or parties or
(iii) the named parties to any such proceeding (including any impleaded parties)
include both such Indemnified Party or parties and the Indemnifying Parties or
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<PAGE> 19
any affiliate of the Indemnifying Parties or such Indemnified Parties and
counsel for the Indemnifying Parties or Indemnified Parties shall have concluded
such written opinion that representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
the Indemnifying Party or parties and the Indemnified Party or parties. It is
understood that the Indemnifying Parties shall not, in connection with any one
such proceeding or separate but substantially similar or related proceedings in
the same jurisdiction, arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm or attorneys (together with appropriate local counsel) at any time for such
Indemnified Party or parties and that all such fees and expenses shall be
reimbursed within reasonable time of the request after the incurrence thereof.
Any such separate firm for the Holders and such control Persons of the Holders
shall be designated in writing by Holders who sold a majority in interest of
Registrable Securities sold by all such Holders and shall be reasonably
acceptable to the Company and any such separate firm for the Company, its
directors, its officers and such control Persons of the Company shall be
designated in writing by the Company. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its prior written consent
(which consent shall not be unreasonably withheld or delayed) but if settled
with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify and hold harmless the Indemnified Party
from and against any loss or liability by reason of such settlement or judgment.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld), effect any
settlement or compliance of any pending or threatened proceeding in respect of
which any Indemnified Party is or could have been a party, or indemnity could
have been sought thereunder by such Indemnified Party, unless such settlement or
compliance involves only the payment of money damages that are actually paid by
the Indemnifying Party or includes an unconditional written release of such
Indemnified Party in form and substance reasonably satisfactory to such
Indemnified Party of such Indemnified Party from all liability or claims that
are the subject matter of such proceeding.
(d) To the extent the indemnification provided for a paragraph (a) or
(b) of this Section 5 is unavailable to, or insufficient to hold harmless, an
Indemnified Party in respect of any losses, claims, damages or liabilities, then
each Indemnifying Party under such paragraph, in lieu of indemnifying such
Indemnified Party thereunder and in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages or liabilities in such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Company on the one hand and the
Holders on the other hand from the offering of such Registrable Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Company on the one hand and the Holders on the other hand in connection with
the statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Holders on the other shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of discounts and commissions but before the deducting expenses)
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<PAGE> 20
received by the Company bears to the total proceeds received by such Holder from
the sale of Registrable Securities, as the case may be. The relative fault of
the Company on the one hand and the Holders on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 5(d) above. The amount paid
or payable by an Indemnified Party is a result of the losses, claims, damages
and liabilities referred to in Section 5(d) above shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expense actually incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, in no event shall a Holder be required to
contribute any amount in excess of the amount by which proceeds received by such
Holder from sales of Registrable Securities exceeds the amount of any damages
that such Holder has otherwise been required to pay or has paid by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Section 5 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any Indemnified Party at law or in
equity.
(f) Any losses, claims, damages, liabilities or expenses for which an
Indemnified Party is entitled to indemnification or contribution under this
Section 5 shall be paid by the Indemnifying Party to the Indemnified Party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 5 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any Person who controls a
Holder, the Company, their respective directors or officers or any Person
controlling the Company and (ii) any termination of this Agreement.
Section 6. Miscellaneous.
(a) No Inconsistent Agreements. Except as specifically set forth in
Section 2.2(b) above, the Company represents and warrants to the Holders that it
has not entered into nor will the Company on or after the date of this Agreement
enter into, or cause or permit any of its Subsidiaries to enter into, any
agreement which conflicts with or limits or prohibits the exercise of the rights
granted to the Holders of Registrable Securities in this Agreement. The rights
granted to the Holders hereunder do not in any way conflict with or limit or
prohibit the exercise
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<PAGE> 21
of any rights granted to the holders of the Company's other issued and
outstanding securities, if any, under such agreements.
(b) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given without the consent of the Company and
the prior written consent of Holders of not less than a majority in number of
the then outstanding Warrants and Registrable Securities not resold to the
public for the purpose of adding any provision to or changing in any manner or
eliminating any of the provisions of the Agreement or modifying in any manner
the rights of the Holders of the outstanding Warrants; provided, however, that
Section 5 hereof and this Section 6(b) may not be amended, modified or
supplemented without the prior written consent of each Holder (including any
Person who was a Holder of Registrable Securities disposed of pursuant to any
Registration Statement) affected by such amendment, modification of supplement.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect, impair,
limit or compromise the rights of other Holders of Registrable Securities may be
given the Company by the Holders of not less than a majority of the Registrable
Securities proposed to be sold by such Holders pursuant to such Registration
Statement.
(c) Notices. All notices and other communications provided for or
permitted thereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery, (i) if to a Holder, at the most current address of Holder as set forth
in the register for the Warrants or the Warrant Shares, which address initially
is, with respect to Nortel Networks, the addresses set forth below; and (ii) if
to the Company, initially at the address set forth below the Company name on the
signature pages hereto and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 6(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five (5) Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next Business Day, if timely
delivered to an air courier guaranteeing overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
agreement, subsequent Holders and subsequent holders of a Series 1999A Note;
provided, however, that this Agreement shall not, without the written consent of
the Company, inure to the benefit of a transferee of Warrants, Warrant Shares or
conversion shares under the Series 1999A Note, if such transferee acquires
rights related to less than an aggregate amount of 100,000 shares of Common
Stock. If any transferee of any Holder shall acquire Warrants and/or Registrable
Securities, or any Holder of the Series 1999A Note shall acquire conversion
shares, in any manner which entitles such transferee to the benefits of this
21
<PAGE> 22
Agreement, whether by operation of law or otherwise, such Warrants and/or
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Warrants and/or Registrable Securities
or such conversion shares such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The heading in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Each of the parties hereto hereby irrevocably and unconditionally: (i)
submits itself and its property in any legal action or proceeding relating to
this Agreement or for recognition and enforcement of any judgment in respect
hereof, to the non-exclusive jurisdiction of the courts of the State of New York
and the courts of the United States of America for the Southern District of New
York, and appellate courts thereof, and consents and agrees to such action or
proceeding being brought in such courts; and (ii) waives any objection that it
may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in any inconvenient
court and agrees not to plead or claim the same.
(h) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(i) Entire Agreement. This Agreement, together with the Warrant
Agreement, is intended by the parties as a final expression of their agreement,
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. This Agreement, together with the Warrant Agreement,
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
22
<PAGE> 23
(j) Attorneys' Fees. As between the parties to this Agreement, in any
action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
(k) Securities Held by the Company or its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities or Warrants is required thereunder, Registrable Securities or
Warrants held by the Company or any of its affiliates (as such term is defined
in Rule 405 under the Securities Act) shall not be counted (in either the
numerator or the denominator) in determining whether such consent or approval
was given by the Holders of such required percentage.
(l) Remedies. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights provided herein, or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement.
The Holders are the third-party beneficiaries of this Agreement.
Nothing in this Agreement shall be construed to give to any Person other than
the Company and the Holders any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company and the Holders from time to time.
[Signature pages follow]
23
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
STATE COMMUNICATIONS, INC.
By:
---------------------------------------
Name: Clark H. Mizell
Title: Executive Vice President and Chief
Financial Officer
Address for Notices:
200 N. Main Street, Suite 303
Greenville, South Carolina 29601
Attention: Hamilton Russell III
Telephone: (864) 271-6335
Telecopy: (864) 271-7810
NORTEL NETWORKS INC.
By:
---------------------------------------
Name: Michael W. McCorkle
Title: Director, Customer Finance
Address for Notices:
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
24
<PAGE> 25
Nortel Networks Inc.
GMS 991 04 B30
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Vice President,
Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe,
Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
25
<PAGE> 1
EXHIBIT 4.3.3
STATE COMMUNICATIONS, INC.
Registration Rights Agreement
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into on this 28th day of October, 1998, by and among STATE
COMMUNICATIONS, INC., a South Carolina corporation, and each of the other
parties listed on Schedule I hereto.
1. Certain Definitions. As used in this Agreement, the following terms shall
mean:
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $.001 par value per share, of
the Company.
"Company" means State Communications, Inc., a South Carolina
corporation.
"Conversion Price" means the Conversion Price of the Preferred Stock as
defined in the Company's Articles of Amendment, as filed with the Office of the
Secretary of State of South Carolina on October 28, 1998.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission issued thereunder, as they each may, from time to time, be in effect.
"Holders" means holders of any of the Preferred Stock or the
Registrable Shares.
"Non-Recoverable Expenses" means salaries and expenses of the Company's
officers and employees performing legal and accounting duties in connection with
the Company's obligations under this Agreement.
"Preferred Stock" means the Series A Convertible Preferred Stock of the
Company, $.01 par value per share.
"Public Offering" means a bona fide offering of Common Stock pursuant
to a Registration Statement.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of shares of Preferred Stock and (ii) any other shares
of Common Stock
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<PAGE> 2
of the Company issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations or similar events).
"Registration Expenses" means all expenses incurred by the Company in
complying with this Agreement, including, without limitation, (i) all Commission
and any National Association of Securities Dealers, Inc. registration and filing
fees and expenses, fees and expenses of compliance with securities and blue sky
laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Shares), expenses relating to the preparation and printing of documents and of
certificates representing the Registrable Shares, fees and expenses of any
escrow agent, trustee or custodian acting for the Company, fees and
disbursements of counsel and independent certified public accountants of the
Company (including the expenses of any special audit or "cold comfort" letters
required by or incident to such compliance), fees and disbursements of counsel
retained in connection with each registration under Section 2 or 3 hereunder by
the holders of at least a majority of the Registrable Shares being registered
(which counsel shall be reasonably satisfactory to the Company), and fees and
expenses of any other persons, including special experts retained by the
Company, but excluding the fees and disbursements of any counsel or other
advisors or experts retained by holders of Registrable Shares (severally or
jointly), other than the counsel and experts specifically referred to above, and
excluding any underwriter discounts, fees or commissions attributable to the
sale of the Registrable Shares; and (ii) Non-Recoverable Expenses.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a Public Offering and sale of Common Stock of
the Company (other than (i) a registration statement on Form S-4 or Form S-8, or
their successors, or any other form for a limited purpose, (ii) any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation, (iii) a Registration Statement
filed in connection with an interest or dividend reinvestment plan, (iv) a
registration relating solely to employee benefit plans or to a transaction
subject to Rule 145 of the Securities Act, (v) a registration relating to the
sale of indebtedness of the Company, or (vi) a "selling shareholder"
registration statement which does not involve an underwritten public offering).
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
issued thereunder, as they each may, from time to time, be in effect.
2. Demand Registrations.
(a) At any time after the expiration of 180 days after the closing of a
Public Offering, one or more Holders representing in the aggregate in excess of
50% of the Registrable Shares then held by all Holders, may request, in writing,
that the Company file a Registration Statement under the Securities Act. Upon
receipt of any such request,
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<PAGE> 3
the Company shall promptly give written notice of such proposed registration to
all Holders. Each Holder shall have the right, by giving written notice to the
Company within 15 days after the Company provides its notice, to elect to have
included in such registration such of its Registrable Shares as such Holder may
request in such notice of election. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration under
the Securities Act of all Registrable Shares which the Company has been
requested so to register.
(b) If the Holders initiating the registration request hereunder (the
"Initiating Holders") intend to distribute the Registrable Shares covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to this Section 2 and the Company shall
include such information in the written notice referred to in Section 2(a)
hereof. In such event, the right of any Holder to include his or its Registrable
Shares in such registration shall be conditioned upon the inclusion of such
Holder's Registrable Shares in the underwriting. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2(b), if the managing underwriter with respect to the proposed offering
advises the Holders proposing to sell Registrable Shares that would otherwise be
included in the underwriting that marketing factors require a limitation on the
number of shares to be underwritten, the number of Registrable Shares that may
be included in the underwriting shall be allocated among all such Holders,
including the Initiating Holders, in proportion (as nearly as practicable) to
the amount of Registrable Shares proposed to be included in the Registration
Statement by each such Holder.
(c) The Company shall not be required to effect more than three
registrations of Registrable Shares pursuant to Section 2(a) hereof.
(d) At the time of any request to register Registrable Shares pursuant
to this Section 2, the Company may at its option direct that such request be
delayed for a period not in excess of three months if, in the opinion of the
Company's Board of Directors, the filing of such Registration Statement would
adversely affect the Company's ability to complete any pending or proposed
material transaction, provided that such right to delay a request may be
exercised by the Company not more than once in any twelve-month period.
(e) The Initiating Holders of any Registration Statement filed pursuant
to this Section 2 shall designate the method of distribution of the Registrable
Shares. The Initiating Holders may designate the managing underwriter (who shall
be the lead underwriter) for any Registration Statement filed pursuant to this
Section, provided such designee is reasonably satisfactory to the Company, and
the Company may designate a co-managing underwriter in such offering, provided
such designee is reasonably satisfactory to Holders representing a majority of
the Registrable Shares to be included in
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<PAGE> 4
the Registration. The Company shall afford the underwriters, their accountants
and attorneys full access to its personnel and offices for the purpose of
confirming the accuracy and completeness of the Registration Statement, in
accordance with the provisions of Section 4 hereof.
(f) If in the opinion of the underwriters selected to manage the
underwriting, more Common Stock could be sold than is represented by the
Registrable Shares included in the registration without adversely affecting the
price per share, or with the consent of Holders representing two-thirds of the
Registrable Shares to be included, the Company shall be entitled to expand the
offering to include newly issued Common Stock or Common Stock held by third
parties. If the Common Stock so included represents more than half of all Common
Stock to be offered in the Registration Statement, the registration may, at the
option of the Initiating Holders, be deemed to be an incidental registration
under Section 3, rather than a required registration under this Section 2, and
the registration rights of the Holders provided in Section 2(c) shall remain
fully available as if the registration had originated under Section 3 rather
than under Section 2.
(g) Notwithstanding anything set forth elsewhere in this Section 2, the
Company shall have no responsibility to cause a Registration Statement to become
effective (i) at a time when it would be required under the rules and
regulations of the Securities and Exchange Commission to prepare and file
audited financial statements for a period other than a completed fiscal year,
(ii) when the Company would be required to prepare and file audited financial
statements for a completed fiscal year prior to 90 days following the end of
such year, or (iii) within 180 days of the effective date of any prior
Registration Statement filed by the Company.
(h) If any Registration Statement prepared pursuant to this Section 2
is not filed or does not become effective as a result of the decision of the
Initiating Holders or any underwriter designated by them, the obligation of the
Company to prepare and file a Registration Statement at the request of such
Initiating Holders shall nevertheless have been satisfied. If the Registration
Statement otherwise fails to become effective, the registration rights of the
Holders provided in Section 2(c) remain fully available as if the registration
had not been requested by the Initiating Holders.
3. Incidental Registration.
(a) In connection with the filing of a Registration Statement, and at
any time and from time to time following the closing thereof, whenever the
Company proposes to file a Registration Statement it shall, at least 30 days
prior to such filing, give written notice to all Holders of its intention to do
so and, upon the written request of a Holder or Holders given within 10 days
after the Company provides such notice (which request shall state the intended
method of disposition of such Registrable Shares), the Company shall use its
best efforts to cause all Registrable Shares that the Company has been requested
by such Holder or Holders to register to be registered under the Securities Act
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<PAGE> 5
to the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
Holder or Holders; provided, that the Company shall have the right to postpone
or withdraw any registration effected pursuant to this Section 3 without
obligation to any Holder.
(b) In connection with any offering under this Section 3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the Holders holding such Registrable Shares
thereof accept the terms of the underwriting as agreed upon between the Company
and the underwriters selected by it and enter into a customary underwriting
agreement, and then only in such quantity as will not, in the opinion of the
managing underwriter, jeopardize the success of the offering by the Company. If
in the opinion of the managing underwriter the registration of all, or any part
of, the Registrable Shares which Holders have requested to be included would
adversely affect such Public Offering, then the Company shall be required to
include in the underwriting only that number of Registrable Shares, if any, that
the managing underwriter believes may be sold without causing such adverse
effect. If the number of Registrable Shares to be included in the underwriting
in accordance with the foregoing is less than the total number of Registrable
Shares that Holders have requested to be included, then the amount of securities
to be offered for the accounts of all persons seeking to include securities of
the Company in the Registration Statement shall be reduced in the following
order of priority to the extent necessary to cause the amount to be included in
the Registration Statement not to exceed the amount recommended by such managing
underwriter:
(i) first, the amount of securities to be offered for the
accounts of Company shareholders other than Holders ("Other Shareholders") that
do not have a contractual right to require the Company to include the securities
held by them in a registration shall be reduced pro rata (based upon the amount
of securities each such person sought to include in the offering) to zero, if
necessary,
(ii) next, the amount of securities to be offered for the
account of Other Shareholders that have a contractual right (subordinate to the
Holders rights hereunder) to require the Company to include the securities held
by them in a registration shall be reduced pro rata (based upon the amount of
securities each such person sought to include in the offering) to zero, if
necessary, and
(iii) finally, the amount of securities to be offered for the
account of Holders of Registrable Shares and all Other Shareholders that have a
contractual right (on parity with Holders' rights hereunder) to require the
Company to include the securities held by them in a registration shall be
reduced pro rata (based upon the amount of securities each such Person sought to
include in the offering).
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<PAGE> 6
4. Registrations on Form S-3. Notwithstanding any other term or provision of
this Agreement, at such time as the Company shall have qualified for the use of
Form S-3 promulgated under the Securities Act, the Holders shall have the right
to request in writing an unlimited number of registrations on Form S-3 (or such
successor form) of Registrable Shares, which request or requests shall (i)
specify the number of Registrable Shares intended to be sold or disposed of;
(ii) state the intended method of disposition of such Registrable Shares; and
(iii) relate to Registrable Shares having an anticipated aggregate offering
price of not less than $500,000, provided, however, the Holders may only make
one such request in any 12-month period. A requested registration on Form S-3
pursuant to this Section 4 shall not count as a registration demanded pursuant
to Section 2 hereof. During the pendency of any offering under this Section 4 if
the Company shall inform the Holders that there is material non-public
information regarding the Company, the Holders shall cease selling activities in
such offering and the Company shall promptly advise the members of its Board of
Directors of the material non-public information (to the extent not previously
disclosed to them) and a decision shall be made whether or when such information
should be publicly disclosed. The Holders shall not recommence selling
activities until the Company shall inform the Holders that there is no material
non-public information regarding the Company; provided, however, the Company
shall use its best efforts to insure that the delay arising out of the failure
to disclose such information does not persist for more than 30 days.
5. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective for such reasonable period of time as
required to complete the Public Offering;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for such reasonable period of time as required
to complete the Public Offering and comply with the provisions of the Securities
Act with respect to the disposition of all shares covered by such Registration
Statement;
(c) provide the selling stockholders and the underwriters (which term,
for purposes of this Agreement, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if any,
of the shares being sold and counsel for such underwriters and counsel for such
selling stockholders (which counsel shall be subject to approval by the Company,
such approval not to be unreasonably withheld) the opportunity to participate in
the preparation of the Registration Statement, each prospectus included therein
or filed with the Commission, and each amendment or
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<PAGE> 7
supplement thereto; and make available for inspection by such selling
stockholders or other persons such financial and other information, books and
records of the Company and cause the officers, directors and employees of the
Company and counsel and independent certified public accountants of the Company
to respond to such inquiries as shall be reasonably necessary, in the opinion of
respective counsel to such selling stockholders and such underwriters, to
conduct a reasonable investigation within the meaning of the Securities Act;
(d) promptly notify (in writing, if so requested) the selling
stockholders and the underwriters, if any, (i) when the Registration Statement,
the prospectus or any prospectus supplement or post-effective amendment has been
filed, and with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any material comments by
the Commission with respect thereto or any request by the Commission for
amendments or supplements to the Registration Statement or the prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the occurrence of any
event, at any time during which the Registration Statement remains effective,
that causes the representations and warranties of the Company contemplated by
Section 8 hereof to cease to be true and correct in all material respects, (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification of the Registrable Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose, or (vi) of the
occurrence or failure to occur of any event, or change in circumstance, at any
time when a prospectus is required to be delivered under the Securities Act, as
a result of which the Registration Statement, prospectus, any prospectus
supplement, or any document incorporated by reference in any of the foregoing
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(e) make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement hereunder or any
post-effective amendment thereto at the earliest practicable date;
(f) if requested by the managing underwriter or underwriters or by
selling stockholders representing at least a majority of the Registrable Shares
being included in the Registration Statement, promptly incorporate in a
prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters or such selling stockholders reasonably
specify should be included therein relating to the sale of the Registrable
Shares, including, without limitation, information with respect to the number or
amount of Registrable Shares being sold to such underwriters, the purchase price
being paid therefor by such underwriters and with respect to any other terms of
the underwritten (or best efforts underwritten) offering of the Registrable
Shares to be sold in such offering; and make all required filings of such
prospectus supplement or post-
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<PAGE> 8
effective amendment promptly after notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment; provided
that the Company and its counsel are reasonably satisfied that such additional
information does not constitute an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(g) as expeditiously as possible furnish to each selling stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling stockholder may reasonably request in order to
facilitate the Public Offering; and furnish to each selling stockholder and each
underwriter, if any, such number of copies of the Registration Statement, each
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in the Registration Statement (including each
preliminary prospectus and any summary prospectus) , in conformity with the
requirements of the Securities Act, and such other documents as such selling
stockholder and underwriter, if any, may reasonably request in order to
facilitate the Public Offering; the Company consents to the use of the
prospectus or any amendment or supplement thereto by each of the selling
stockholders and the underwriters in connection with the offering and sale of
the Registrable Shares covered by the prospectus or any supplement or amendment
thereto;
(h) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or blue sky laws of such states as the underwriters shall reasonably
request, and do any and all other acts and things that may be reasonably
necessary or desirable to enable the Public Offering to be consummated;
provided, however, that the Company shall not be required in connection with
this Section 5(h) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction;
(i) use its best efforts to cause all of the Registrable Shares to be
included in a Registration Statement hereunder to be registered with or approved
by such other governmental agencies or authorities as may be necessary by virtue
of the business and operations of the Company to enable the Public Offering to
be consummated;
(j) facilitate the timely preparation and delivery of certificates
representing Registrable Shares to be sold; and
(k) provide a CUSIP number for all Registrable Shares, not later than
the effective date of the Registration Statement.
If the Company has delivered preliminary or final prospectuses to the
selling stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling
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<PAGE> 9
stockholders and, if requested, the selling stockholders shall immediately cease
making offers of Registrable Shares and return all prospectuses to the Company.
The Company shall promptly provide the selling stockholders with revised
prospectuses and, following receipt of the revised prospectuses, the selling
stockholders shall be free to resume making offers of the Registrable Shares.
6. Allocation of Expenses. The Company shall pay all Registration Expenses of
all registrations under this Agreement including, without limitation,
Registration Statements that are not declared effective as contemplated in
Section 2(h) hereof. All underwriting discounts and selling commissions
applicable to the sale of the Registrable Shares shall be borne by the
participating sellers in proportion to the number of shares sold by each or as
shall otherwise be agreed to by such participating sellers other than the
Company (except to the extent the Company shall be a seller).
7. Indemnification.
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless the seller of such Registrable Shares, each director and
officer of such seller, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages
or liabilities, joint or several, including, without limitation, subject to
Section 7(c) hereof, any amounts paid in settlement, to which such seller,
underwriter or controlling person may become subject under the Securities Act,
the Exchange Act, state securities laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company shall reimburse such seller, underwriter and each such controlling
person for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, (i) that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or omission made in such Registration Statement, preliminary
prospectus or prospectus, or any such amendment or supplement, in reliance upon
and in conformity with information furnished to the Company, in writing, by or
on behalf of such seller or underwriter or controlling person specifically for
use in the preparation thereof and (ii) provided, however, that the indemnity
agreement contained in this Section 7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company.
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<PAGE> 10
Such indemnification and reimbursement of expenses shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller,
its directors or officers, such underwriter, its directors or officers, or such
controlling person, and shall survive the transfer of any or all Registrable
Shares by such seller.
(b) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, shall indemnify and hold harmless the
Company, each of its directors and officers, each other seller and each
underwriter, if any, and each person, if any, who controls the Company or any
such underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the Securities Act, Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement; and each such
seller shall reimburse the Company, each of its directors and officers, each
underwriter and each controlling person for any legal or any other expenses
reasonably incurred by the Company, such directors and officers, underwriters
and controlling persons in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such seller; provided, further,
however, that, to the extent permitted by law, the indemnification obligation of
each seller or Registrable Shares shall be limited to the net proceeds received
by such selling shareholder in the Public Offering in dispute. Such
indemnification and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company, its
officers or directors, any such other seller, its officers or directors, or any
such controlling person, and shall survive the transfer of any or all
Registrable Shares by any such other seller.
(c) Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom;
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<PAGE> 11
provided, however, that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld); provided, however,
that an Indemnified Party shall have the right to retain its own counsel
(limited to one counsel for all Indemnified Parties), with the fees and expenses
of such counsel to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. The failure by an Indemnified Party to deliver written notice to the
Indemnifying Party within a reasonable time of the Indemnified Party's discovery
of such claim, if materially prejudicial to its ability to defend such claim,
shall relieve the Indemnifying Party of its obligations under this Section 7.
The Indemnified Party may participate in such defense at such party's expense.
No Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation.
(d) (i) If for any reason the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under this Section 7 in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to herein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims damages or liabilities (or
actions in respect thereof), in such proportion as is appropriate to reflect the
relative fault of each Indemnifying Party and the Indemnified Party as well as
any other relevant equitable considerations. The relative fault of each
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages or liabilities referred to above shall be deemed to include, subject to
the limitations set forth in Section 7(c), any legal or other fees or expenses
reasonably incurred by such party.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the sellers or any underwriters or all of them were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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<PAGE> 12
(iii) The contribution provided for in this Section 7(d) shall
survive, with respect to a Holder, the transfer of Registrable Shares by such
Holder and with respect to a Holder or the Company shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Indemnified Party.
(e) The indemnification required by this Section 7 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred, subject to refund in the event any such payments are determined not
to have been due and owing hereunder.
8. Agreements with Respect to Underwritten Offering. In the event that
Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2 hereof, the Company agrees to enter
into such customary agreements (including an underwriting agreement) and take
such other actions in connection therewith as the Holders representing at least
a majority of Registrable Shares to be included in a Registration Statement
hereunder shall reasonably request in order to expedite or facilitate the Public
Offering and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten registration
(i) make such representations and warranties to the selling stockholders and the
underwriters, if any, in form, substance and scope as are customarily made in
such a registration; (ii) obtain an opinion of counsel to the Company in
customary form and covering such matters of the type customarily covered by such
opinion as the Holders representing at least a majority of Registrable Shares to
be included in such registration and the underwriters, if any, may reasonably
request, addressed to each selling stockholder and the underwriters, if any, and
dated the effective date of such Registration Statement (or, if such
registration includes an underwritten offering, dated the date of the closing
under the underwriting agreement); (iii) obtain a "cold comfort" letter from the
independent certified public accountants of the Company addressed to the selling
stockholders and the underwriters, if any, (and which may also be addressed to
the Board of Directors of the Company) dated the effective date of such
Registration Statement (and, if such registration includes an underwritten
offering, dated the date of the closing under the underwriting agreement), such
letter to be in customary form and covering such matters of the type customarily
covered by such letter; and (iv) deliver such documents and certificates as may
be reasonably requested by the Holders representing at least a majority of
Registrable Shares being sold and the managing underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company.
9. Information by Holder. It shall be a condition precedent to the obligations
of the Company under this Agreement that each Holder of Registrable Shares to be
included in any registration shall furnish to the Company such information
regarding such Holder
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<PAGE> 13
and the distribution proposed by such Holder as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
10. Rule 144 Requirements. After the registration by the Company of a class of
securities under Section 12 of the Exchange Act, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 (or any successor rule) under the Securities
Act;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any Holder upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the closing of the first sale of securities by
the Company pursuant to a Registration Statement), and of the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
11. Transfer of Rights.
(a) The rights granted to a Holder under this Agreement may be
transferred by such Holder to another Holder or to any transferee if (i) there
is transferred to such transferee at least 10% of the Registrable Shares
originally issued by the Company to the transferring Holder and (ii) the Company
is given written notice by the transferee at the time of such transfer stating
the name and address of the transferee and identifying the securities with
respect to which such rights are being assigned; provided, however, that the
rights granted to a Holder under this Agreement may not in any event be
transferred by any Holder with respect to securities which at the time of filing
of any Registration Statement are eligible for sale by the Holder under Rule
144(k) under the Securities Act. Any transferee to whom rights under this
Agreement are transferred shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be bound by the
obligations imposed upon Holders under this Agreement to the same extent as if
such transferee were a Holder hereunder.
(b) Notwithstanding anything to the contrary herein, any Holder may
transfer rights granted to such Holder under this Agreement to any affiliate of
such Holder, any liquidating trust established with respect to such Holder or
any limited partner of such Holder in connection with a distribution of assets
to such Holder's partners if such
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<PAGE> 14
transferee is a transferee of shares of Preferred Stock or Registrable Shares
and such transferee delivers to the Company a written instrument by which such
transferee agrees to be bound by the obligations imposed upon Holders under this
Agreement to the same extent as if such transferee were a Holder hereunder. In
the event of such transfer, such transferee shall be deemed a Holder for
purposes of this Section 11 and may again transfer such rights to any other
person or entity which acquires shares of Preferred or Registrable Shares from
such transferee, subject to and in accordance with Section 11(a) hereof.
12. Other Registration Rights. Except (i) as provided in that certain
Registration Rights Agreement between the Company and Seruus Telecom Fund, L.P.
("Seruus"), dated February 19, 1998 (the "Seruus Registration Rights
Agreement"), and (ii) the Company's right to grant selling shareholders
registration rights on Form S-3 subject to the limitations set forth in Section
4 hereof, the Company shall not grant demand registration rights to any party or
any incidental registration rights that are superior to or pari passu with the
incidental registration rights of the Holders or Seruus, without the written
consent of Holders representing in the aggregate more than 66-2/3% of the
Registrable Shares. The Company and the Holders acknowledge and agree that the
registration rights granted to Seruus under the Seruus Registration Rights
Agreement shall be deemed to be pari passu with the registration rights granted
hereunder.
13. Suspension Rights. Notwithstanding the provisions of this Agreement, the
Company's obligation to file a Registration Statement, or cause such
Registration Statement to become and remain effective, shall be suspended for a
period of 90 days in any 12 month period if there exists at the time material
non-public information relating to the Company which, in the reasonable opinion
of counsel to the Company, should not be disclosed.
14. Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived, either generally or in a
particular instance and either retroactively or prospectively, with the written
consent of the Company and Holders representing in the aggregate more than 50%
of the Registrable Shares, provided that no such amendment or waiver of any term
of this Agreement shall affect any outstanding Registrable Shares on a
disproportionate basis without the specific consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this Section 14
shall be binding upon each Holder, each future Holder and the Company. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instance, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.
15. Entire Agreement: Successors and Assigns of the Company.
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<PAGE> 15
(a) This Agreement embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter.
(b) This Agreement shall be binding, in accordance with its terms, upon
any successor, by way of merger, consolidation, sale of assets or otherwise, of
the Company.
16. Counterparts. This Agreement may be executed in several counterparts, all of
which need not be signed by all the parties hereto, and each of which shall be
deemed an original, but all of which together constitute one and the same
agreement.
17. Headings. The headings of the sections of this Agreement have been added for
convenience only and shall not be deemed to be a part of this Agreement.
18. Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other severable
provision.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, without regard for the
conflict of laws rules thereof.
20. Notices. All notices and other communications under this Agreement shall be
in writing and shall be (i) sent by facsimile transmission and by certified or
registered mail, return receipt requested, courier or overnight mail, or (ii)
sent by certified or registered mail, return receipt requested, courier or
overnight mail (1) if to any Holder, at the registered facsimile number and
address of such holder as set forth in the register kept at the principal office
of the Company, or (2) if to the Company, to 200 North Main Street, Suite 303,
Greenville, South Carolina 29601, Attention: Hamilton Russell II, Esq., or at
such other address or facsimile number as it shall have furnished in writing to
all holders of Registrable Shares at the time outstanding. Any written
communication so addressed, sent by facsimile transmission or certified or
registered mail, return receipt requested, courier or overnight mail, shall be
deemed to have been given when sent via facsimile or mailed. All other written
communications shall be deemed to have been given upon receipt thereof.
[Signatures on Next Page]
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<PAGE> 16
IN WITNESS WHEREOF, the Company and each of the Holders have executed
this Agreement as of the date first above written.
STATE COMMUNICATIONS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By:
---------------------------------------------
Title:
------------------------------------------
FIRST UNION CAPITAL PARTNERS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
ACKNOWLEDGEMENT AND CONSENT
The undersigned party consents to the registration
rights granted pursuant to the terms of this
Agreement.
SERUUS TELECOM FUND, L.P.
By: , its General Partner
------------------------
By:
-----------------------------------------
Title:
--------------------------------------
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<PAGE> 17
Schedule I
INVESTORS
Richland Ventures II, L.P.
First Union Capital Partners, Inc.
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<PAGE> 1
EXHIBIT 4.3.4
STATE COMMUNICATIONS, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into on this 29th day of July, 1999, by and among STATE COMMUNICATIONS,
INC., a South Carolina corporation, and each of the other parties listed on
Schedule I hereto.
1. Certain Definitions. As used in this Agreement, the following terms shall
mean:
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $.001 par value per share, of
the Company.
"Company" means State Communications, Inc., a South Carolina
corporation.
"Conversion Price" means the Conversion Price of the Preferred Stock as
defined in the Company's Articles of Amendment, as filed with the Office of the
Secretary of State of South Carolina on July ___, 1999.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission issued thereunder, as they each may, from time to time, be in effect.
"Holders" means holders of any of the Preferred Stock or the
Registrable Shares.
"Non-Recoverable Expenses" means salaries and expenses of the Company's
officers and employees performing legal and accounting duties in connection with
the Company's obligations under this Agreement.
"Preferred Stock" means the Series B Convertible Preferred Stock of the
Company, $.01 par value per share.
"Public Offering" means a bona fide offering of Common Stock pursuant
to a Registration Statement.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of shares of Preferred Stock and (ii) any other shares
of Common Stock of the Company issued in respect of such shares (because of
stock splits, stock dividends, reclassifications, recapitalizations or similar
events).
<PAGE> 2
"Registration Expenses" means all expenses incurred by the Company in
complying with this Agreement, including, without limitation, (i) all Commission
and any National Association of Securities Dealers, Inc. registration and filing
fees and expenses, fees and expenses of compliance with securities and blue sky
laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Shares), expenses relating to the preparation and printing of documents and of
certificates representing the Registrable Shares, fees and expenses of any
escrow agent, trustee or custodian acting for the Company, fees and
disbursements of counsel and independent certified public accountants of the
Company (including the expenses of any special audit or "cold comfort" letters
required by or incident to such compliance), fees and disbursements of counsel
retained in connection with each registration under Section 2 or 3 hereunder by
the holders of at least a majority of the Registrable Shares being registered
(which counsel shall be reasonably satisfactory to the Company), and fees and
expenses of any other persons, including special experts retained by the
Company, but excluding the fees and disbursements of any counsel or other
advisors or experts retained by holders of Registrable Shares (severally or
jointly), other than the counsel and experts specifically referred to above, and
excluding any underwriter discounts, fees or commissions attributable to the
sale of the Registrable Shares; and (ii) Non-Recoverable Expenses.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a Public Offering and sale of Common Stock of
the Company (other than (i) a registration statement on Form S-4 or Form S-8, or
their successors, or any other form for a limited purpose, (ii) any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation, (iii) a registration statement
filed in connection with an interest or dividend reinvestment plan, (iv) a
registration relating solely to employee benefit plans or to a transaction
subject to Rule 145 of the Securities Act, or (v) a registration relating to the
sale of indebtedness of the Company.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
issued thereunder, as they each may, from time to time, be in effect.
2. Demand Registrations.
(a) At any time after the expiration of 180 days after the closing of a
Public Offering, one or more Holders representing in the aggregate in excess of
30% of the Registrable Shares then held by all Holders, may request, in writing,
that the Company file a Registration Statement under the Securities Act. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Holders. Each Holder shall have the right, by
giving written notice to the Company within 15 days after the Company provides
its notice, to elect to have included in such registration such of its
Registrable Shares as such Holder may request in such notice of
2
<PAGE> 3
election. Thereupon, the Company shall, as expeditiously as possible, use its
best efforts to effect the registration under the Securities Act of all
Registrable Shares which the Company has been requested so to register.
(b) If the Holders initiating the registration request hereunder (the
"Initiating Holders") intend to distribute the Registrable Shares covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to this Section 2 and the Company shall
include such information in the written notice referred to in Section 2(a)
hereof. In such event, the right of any Holder to include his or its Registrable
Shares in such registration shall be conditioned upon the inclusion of such
Holder's Registrable Shares in the underwriting. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2(b), if the managing underwriter with respect to the proposed offering
advises the Holders proposing to sell Registrable Shares that would otherwise be
included in the underwriting that marketing factors require a limitation on the
number of shares to be underwritten, the number of Registrable Shares that may
be included in the underwriting shall be allocated among all such Holders,
including the Initiating Holders, in proportion (as nearly as practicable) to
the amount of Registrable Shares proposed to be included in the Registration
Statement by each such Holder.
(c) The Company shall not be required to effect more than three
registrations of Registrable Shares pursuant to Section 2(a) hereof.
(d) At the time of any request to register Registrable Shares pursuant
to this Section 2, the Company may at its option direct that such request be
delayed for a period not in excess of three months if, in the opinion of the
Company's Board of Directors, the filing of such Registration Statement would
adversely affect the Company's ability to complete any pending or proposed
material transaction, provided that such right to delay a request may be
exercised by the Company not more than once in any twelve-month period.
(e) The Initiating Holders of any Registration Statement filed pursuant
to this Section 2 shall designate the method of distribution of the Registrable
Shares. The Initiating Holders may designate the managing underwriter (who shall
be the lead underwriter) for any Registration Statement filed pursuant to this
Section, provided such designee is reasonably satisfactory to the Company, and
the Company may designate a co-managing underwriter in such offering, provided
such designee is reasonably satisfactory to Holders representing a majority of
the Registrable Shares to be included in the Registration. The Company shall
afford the underwriters, their accountants and attorneys full access to its
personnel and offices for the purpose of confirming the accuracy and
completeness of the Registration Statement, in accordance with the provisions of
Section 4 hereof.
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<PAGE> 4
(f) If in the opinion of the underwriters selected to manage the
underwriting, more Common Stock could be sold than is represented by the
Registrable Shares included in the registration without adversely affecting the
price per share, or with the consent of Holders representing two-thirds of the
Registrable Shares to be included, the Company shall be entitled to expand the
offering to include newly issued Common Stock or Common Stock held by third
parties. If the Common Stock so included represents more than half of all Common
Stock to be offered in the Registration Statement, the registration may, at the
option of the Initiating Holders, be deemed to be an incidental registration
under Section 3, rather than a required registration under this Section 2, and
the registration rights of the Holders provided in Section 2(c) shall remain
fully available as if the registration had originated under Section 3 rather
than under Section 2.
(g) Notwithstanding anything set forth elsewhere in this Section 2, the
Company shall have no responsibility to cause a Registration Statement to become
effective (i) at a time when it would be required under the rules and
regulations of the Securities and Exchange Commission to prepare and file
audited financial statements for a period other than a completed fiscal year,
(ii) when the Company would be required to prepare and file audited financial
statements for a completed fiscal year prior to 90 days following the end of
such year, or (iii) within 180 days of the effective date of any prior
Registration Statement filed by the Company in which the Holders could
participate.
(h) If any Registration Statement prepared pursuant to this Section 2
is not filed or does not become effective as a result of the decision of the
Initiating Holders or any underwriter designated by them, the obligation of the
Company to prepare and file a Registration Statement at the request of such
Initiating Holders shall nevertheless have been satisfied; provided that if the
decision not to file the Registration Statement or to withdraw the Registration
Statement prior to it becoming effective is the result of a material adverse
change in the business of the Company, the registration rights of the Holders
provided in Section 2(c) shall remain fully available as if the registration had
not been requested by the Initiating Holders. If the Registration Statement
otherwise fails to become effective, the registration rights of the Holders
provided in Section 2(c) remain fully available as if the registration had not
been requested by the Initiating Holders.
3. Incidental Registration.
(a) In connection with the filing of a Registration Statement, and at
any time and from time to time following the closing thereof, whenever the
Company proposes to file a Registration Statement it shall, at least 30 days
prior to such filing, give written notice to all Holders of its intention to do
so and, upon the written request of a Holder or Holders given within 10 days
after the Company provides such notice (which request shall state the intended
method of disposition of such Registrable Shares), the Company shall use its
best efforts to cause all Registrable Shares that the Company has been requested
by such Holder or Holders to register to be registered under the Securities Act
to the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
Holder or Holders;
4
<PAGE> 5
provided, that the Company shall have the right to postpone or withdraw any
registration effected pursuant to this Section 3 without obligation to any
Holder.
(b) In connection with any offering under this Section 3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the Holders holding such Registrable Shares
thereof accept the terms of the underwriting as agreed upon between the Company
and the underwriters selected by it and enter into a customary underwriting
agreement, and then only in such quantity as will not, in the opinion of the
managing underwriter, jeopardize the success of the offering by the Company. If
in the opinion of the managing underwriter the registration of all, or any part
of, the Registrable Shares which Holders have requested to be included would
adversely affect such Public Offering, then the Company shall be required to
include in the underwriting only that number of Registrable Shares, if any, that
the managing underwriter believes may be sold without causing such adverse
effect. If the number of Registrable Shares to be included in the underwriting
in accordance with the foregoing is less than the total number of Registrable
Shares that Holders have requested to be included, then the amount of securities
to be offered for the accounts of all persons seeking to include securities of
the Company in the Registration Statement shall be reduced in the following
order of priority to the extent necessary to cause the amount to be included in
the Registration Statement not to exceed the amount recommended by such managing
underwriter:
(i) first, the amount of securities to be offered for the
accounts of Company shareholders other than Holders ("Other Shareholders") that
do not have a contractual right to require the Company to include the securities
held by them in a registration shall be reduced pro rata (based upon the amount
of securities each such person sought to include in the offering) to zero, if
necessary,
(ii) next, the amount of securities to be offered for the
account of Other Shareholders that have a contractual right (subordinate to the
Holders rights hereunder) to require the Company to include the securities held
by them in a registration shall be reduced pro rata (based upon the amount of
securities each such person sought to include in the offering) to zero, if
necessary, and
(iii) finally, the amount of securities to be offered for the
account of Holders of Registrable Shares and all Other Shareholders that have a
contractual right (on parity with Holders' rights hereunder) to require the
Company to include the securities held by them in a registration shall be
reduced pro rata (based upon the amount of securities each such Person sought to
include in the offering); provided, that (i) the rights granted in Sections 3
and 4 of the Registration Rights Agreement dated October 28, 1998 between the
Company and the holders of the Company's Series A Convertible Preferred Stock
(the "Series A Registration Rights Agreement") shall be subordinate to the
rights granted in Section 2(a) of this Agreement; and (ii) the rights granted in
Sections 3 and 4 of this Agreement shall be subordinate to the rights granted in
Section 2(a) of the Series A Registration Rights Agreement.
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<PAGE> 6
4. Registrations on Form S-3. Notwithstanding any other term or provision of
this Agreement, at such time as the Company shall have qualified for the use of
Form S-3 promulgated under the Securities Act, the Holders shall have the right
to request in writing an unlimited number of registrations on Form S-3 (or such
successor form) of Registrable Shares, which request or requests shall (i)
specify the number of Registrable Shares intended to be sold or disposed of;
(ii) state the intended method of disposition of such Registrable Shares; and
(iii) relate to Registrable Shares having an anticipated aggregate offering
price of not less than $500,000, provided, however, the Holders may only make
one such request in any 12-month period. A requested registration on Form S-3
pursuant to this Section 4 shall not count as a registration demanded pursuant
to Section 2 hereof. During the pendency of any offering under this Section 4 if
the Company shall inform the Holders that there is material non-public
information regarding the Company, the Holders shall cease selling activities in
such offering and the Company shall promptly advise the members of its Board of
Directors of the material non-public information (to the extent not previously
disclosed to them) and a decision shall be made whether or when such information
should be publicly disclosed. The Holders shall not recommence selling
activities until the Company shall inform the Holders that there is no material
non-public information regarding the Company; provided, however, the Company
shall use its best efforts to insure that the delay arising out of the failure
to disclose such information does not persist for more than 30 days.
5. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective for such reasonable period of time as
required to complete the Public Offering;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for such reasonable period of time as required
to complete the Public Offering and comply with the provisions of the Securities
Act with respect to the disposition of all shares covered by such Registration
Statement;
(c) provide the selling stockholders and the underwriters (which term,
for purposes of this Agreement, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if any,
of the shares being sold and counsel for such underwriters and counsel for such
selling stockholders (which counsel shall be subject to approval by the Company,
such approval not to be unreasonably withheld) the opportunity to participate in
the preparation of the Registration Statement, each prospectus included therein
or filed with the Commission, and each amendment or
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<PAGE> 7
supplement thereto; and make available for inspection by such selling
stockholders or other persons such financial and other information, books and
records of the Company and cause the officers, directors and employees of the
Company and counsel and independent certified public accountants of the Company
to respond to such inquiries as shall be reasonably necessary, in the opinion of
respective counsel to such selling stockholders and such underwriters, to
conduct a reasonable investigation within the meaning of the Securities Act;
(d) promptly notify (in writing, if so requested) the selling
stockholders and the underwriters, if any, (i) when the Registration Statement,
the prospectus or any prospectus supplement or post-effective amendment has been
filed, and with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any material comments by
the Commission with respect thereto or any request by the Commission for
amendments or supplements to the Registration Statement or the prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the occurrence of any
event, at any time during which the Registration Statement remains effective,
that causes the representations and warranties of the Company contemplated by
Section 8 hereof to cease to be true and correct in all material respects, (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification of the Registrable Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose, or (vi) of the
occurrence or failure to occur of any event, or change in circumstance, at any
time when a prospectus is required to be delivered under the Securities Act, as
a result of which the Registration Statement, prospectus, any prospectus
supplement, or any document incorporated by reference in any of the foregoing
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(e) make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement hereunder or any
post-effective amendment thereto at the earliest practicable date;
(f) if requested by the managing underwriter or underwriters or by
selling stockholders representing at least a majority of the Registrable Shares
being included in the Registration Statement, promptly incorporate in a
prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters or such selling stockholders reasonably
specify should be included therein relating to the sale of the Registrable
Shares, including, without limitation, information with respect to the number or
amount of Registrable Shares being sold to such underwriters, the purchase price
being paid therefor by such underwriters and with respect to any other terms of
the underwritten (or best efforts underwritten) offering of the Registrable
Shares to be sold in such offering; and make all required filings of such
prospectus supplement or post-effective amendment promptly after notification of
the matters to be incorporated in such
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<PAGE> 8
prospectus supplement or post-effective amendment; provided that the Company and
its counsel are reasonably satisfied that such additional information does not
constitute an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
(g) as expeditiously as possible furnish to each selling stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling stockholder may reasonably request in order to
facilitate the Public Offering; and furnish to each selling stockholder and each
underwriter, if any, such number of copies of the Registration Statement, each
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in the Registration Statement (including each
preliminary prospectus and any summary prospectus) , in conformity with the
requirements of the Securities Act, and such other documents as such selling
stockholder and underwriter, if any, may reasonably request in order to
facilitate the Public Offering; the Company consents to the use of the
prospectus or any amendment or supplement thereto by each of the selling
stockholders and the underwriters in connection with the offering and sale of
the Registrable Shares covered by the prospectus or any supplement or amendment
thereto;
(h) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or blue sky laws of such states as the underwriters shall reasonably
request, and do any and all other acts and things that may be reasonably
necessary or desirable to enable the Public Offering to be consummated;
provided, however, that the Company shall not be required in connection with
this Section 5(h) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction;
(i) use its best efforts to cause all of the Registrable Shares to be
included in a Registration Statement hereunder to be registered with or approved
by such other governmental agencies or authorities as may be necessary by virtue
of the business and operations of the Company to enable the Public Offering to
be consummated;
(j) facilitate the timely preparation and delivery of certificates
representing Registrable Shares to be sold; and
(k) provide a CUSIP number for all Registrable Shares, not later than
the effective date of the Registration Statement.
If the Company has delivered preliminary or final prospectuses to the
selling stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling stockholders and, if requested, the selling stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company
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<PAGE> 9
shall promptly provide the selling stockholders with revised prospectuses and,
following receipt of the revised prospectuses, the selling stockholders shall be
free to resume making offers of the Registrable Shares.
6. Allocation of Expenses. The Company shall pay all Registration Expenses of
all registrations under this Agreement including, without limitation,
Registration Statements that are not declared effective as contemplated in
Section 2(h) hereof. All underwriting discounts and selling commissions
applicable to the sale of the Registrable Shares shall be borne by the
participating sellers in proportion to the number of shares sold by each or as
shall otherwise be agreed to by such participating sellers other than the
Company (except to the extent the Company shall be a seller).
7. Indemnification.
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless the seller of such Registrable Shares, each director and
officer of such seller, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages
or liabilities, joint or several, including, without limitation, subject to
Section 7(c) hereof, any amounts paid in settlement, to which such seller,
underwriter or controlling person may become subject under the Securities Act,
the Exchange Act, state securities laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company shall reimburse such seller, underwriter and each such controlling
person for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, (i) that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or omission made in such Registration Statement, preliminary
prospectus or prospectus, or any such amendment or supplement, in reliance upon
and in conformity with information furnished to the Company, in writing, by or
on behalf of such seller or underwriter or controlling person specifically for
use in the preparation thereof and (ii) provided, however, that the indemnity
agreement contained in this Section 7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company. Such indemnification
and reimbursement of expenses shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller, its directors or
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<PAGE> 10
officers, such underwriter, its directors or officers, or such controlling
person, and shall survive the transfer of any or all Registrable Shares by such
seller.
(b) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, shall indemnify and hold harmless the
Company, each of its directors and officers, each other seller and each
underwriter, if any, and each person, if any, who controls the Company or any
such underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the Securities Act, Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement; and each such
seller shall reimburse the Company, each of its directors and officers, each
underwriter and each controlling person for any legal or any other expenses
reasonably incurred by the Company, such directors and officers, underwriters
and controlling persons in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such seller; provided, further,
however, that, to the extent permitted by law, the indemnification obligation of
each seller of Registrable Shares shall be limited to the net proceeds received
by such selling shareholder in the Public Offering in dispute. Such
indemnification and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company, its
officers or directors, any such other seller, its officers or directors, or any
such controlling person, and shall survive the transfer of any or all
Registrable Shares by any such other seller.
(c) Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, however, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); provided, however, that an Indemnified
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<PAGE> 11
Party shall have the right to retain its own counsel (limited to one counsel for
all Indemnified Parties), with the fees and expenses of such counsel to be paid
by the Indemnifying Party, if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between such Indemnified Party and any other
party represented by such counsel in such proceeding. The failure by an
Indemnified Party to deliver written notice to the Indemnifying Party within a
reasonable time of the Indemnified Party's discovery of such claim, if
materially prejudicial to its ability to defend such claim, shall relieve the
Indemnifying Party of its obligations under this Section 7. The Indemnified
Party may participate in such defense at such party's expense. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation.
(d) (i) If for any reason the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under this Section 7 in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to herein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims damages or liabilities (or
actions in respect thereof), in such proportion as is appropriate to reflect the
relative fault of each Indemnifying Party and the Indemnified Party as well as
any other relevant equitable considerations; provided, however, that to the
extent permitted by law, the indemnification obligation of each seller of
Registrable Shares shall be limited to the net proceeds received by such Selling
Shareholders in the Public Offering in dispute. The relative fault of each
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages or liabilities referred to above shall be deemed to include, subject to
the limitations set forth in Section 7(c), any legal or other fees or expenses
reasonably incurred by such party.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the sellers or any underwriters or all of them were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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(iii) The contribution provided for in this Section 7(d) shall
survive, with respect to a Holder, the transfer of Registrable Shares by such
Holder and with respect to a Holder or the Company shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Indemnified Party.
(e) The indemnification required by this Section 7 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred, subject to refund in the event any such payments are determined not
to have been due and owing hereunder.
8. Agreements with Respect to Underwritten Offering. In the event that
Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2 hereof, the Company agrees to enter
into such customary agreements (including an underwriting agreement) and take
such other actions in connection therewith as the Holders representing at least
a majority of Registrable Shares to be included in a Registration Statement
hereunder shall reasonably request in order to expedite or facilitate the Public
Offering and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten registration
(i) make such representations and warranties to the selling stockholders and the
underwriters, if any, in form, substance and scope as are customarily made in
such a registration; (ii) obtain an opinion of counsel to the Company in
customary form and covering such matters of the type customarily covered by such
opinion as the Holders representing at least a majority of Registrable Shares to
be included in such registration and the underwriters, if any, may reasonably
request, addressed to each selling stockholder and the underwriters, if any, and
dated the effective date of such Registration Statement (or, if such
registration includes an underwritten offering, dated the date of the closing
under the underwriting agreement); (iii) obtain a "cold comfort" letter from the
independent certified public accountants of the Company addressed to the selling
stockholders and the underwriters, if any, (and which may also be addressed to
the Board of Directors of the Company) dated the effective date of such
Registration Statement (and, if such registration includes an underwritten
offering, dated the date of the closing under the underwriting agreement), such
letter to be in customary form and covering such matters of the type customarily
covered by such letter; and (iv) deliver such documents and certificates as may
be reasonably requested by the Holders representing at least a majority of
Registrable Shares being sold and the managing underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company.
9. Information by Holder. It shall be a condition precedent to the obligations
of the Company under this Agreement that each Holder of Registrable Shares to be
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may request in writing and
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as shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
10. Rule 144 Requirements. After the registration by the Company of a class of
securities under Section 12 of the Exchange Act, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 (or any successor rule) under the Securities
Act;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any Holder upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the closing of the first sale of securities by
the Company pursuant to a Registration Statement), and of the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
11. Transfer of Rights.
(a) The rights granted to a Holder under this Agreement may be
transferred by such Holder to another Holder or to any transferee if (i) there
is transferred to such transferee at least 10% of the Registrable Shares
originally issued by the Company to the transferring Holder and (ii) the Company
is given written notice by the transferee at the time of such transfer stating
the name and address of the transferee and identifying the securities with
respect to which such rights are being assigned; provided, however, that the
rights granted to a Holder under this Agreement may not in any event be
transferred by any Holder with respect to securities which at the time of filing
of any Registration Statement are eligible for sale by the Holder under Rule
144(k) under the Securities Act. Any transferee to whom rights under this
Agreement are transferred shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be bound by the
obligations imposed upon Holders under this Agreement to the same extent as if
such transferee were a Holder hereunder.
(b) Notwithstanding anything to the contrary herein, any Holder may
transfer rights granted to such Holder under this Agreement to any affiliate of
such Holder, any liquidating trust established with respect to such Holder or
any limited partner, shareholder or member of such Holder in connection with a
distribution of assets to such Holder's partners, shareholders or members if
such transferee is a transferee of shares of Preferred Stock or Registrable
Shares and such transferee delivers to the Company a
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<PAGE> 14
written instrument by which such transferee agrees to be bound by the
obligations imposed upon Holders under this Agreement to the same extent as if
such transferee were a Holder hereunder. In the event of such transfer, such
transferee shall be deemed a Holder for purposes of this Section 11 and may
again transfer such rights to any other person or entity which acquires shares
of Preferred or Registrable Shares from such transferee, subject to and in
accordance with Section 11(a) hereof.
12. Other Registration Rights. Except (i) as provided in that certain
Registration Rights Agreement between the Company and Seruus Telecom Fund, L.P.
("Seruus"), dated February 19, 1998 (the "Seruus Registration Rights
Agreement"), (ii) as provided in that certain Registration Rights Agreement
between the Company and the holders of the Company's Series A Convertible
Preferred Stock (the "Series A Holders") dated October 28, 1998 (the "Series A
Registration Rights Agreement") and (iii) the Company's right to grant selling
shareholders registration rights on Form S-3 subject to the limitations set
forth in Section 4 hereof, the Company shall not grant demand registration
rights to any party or any incidental registration rights that are superior to
or pari passu with the incidental registration rights of the Holders, the Series
A Holders or Seruus, without the written consent of Holders representing in the
aggregate more than 50% of the Registrable Shares. The Company and the Holders
acknowledge and agree that the registration rights granted to Seruus under the
Seruus Registration Rights Agreement and the Series A Holders under the Series A
Registration Rights Agreement shall be deemed to be pari passu with the
registration rights granted hereunder.
13. Suspension Rights. Notwithstanding the provisions of this Agreement, the
Company's obligation to file a Registration Statement, or cause such
Registration Statement to become and remain effective, shall be suspended for a
period of 90 days in any 12 month period if there exists at the time material
non-public information relating to the Company which, in the reasonable opinion
of counsel to the Company, should not be disclosed.
14. Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived, either generally or in a
particular instance and either retroactively or prospectively, with the written
consent of the Company and Holders representing in the aggregate more than 50%
of the Registrable Shares, provided that no such amendment or waiver of any term
of this Agreement shall affect any outstanding Registrable Shares on a
disproportionate basis without the specific consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this Section 14
shall be binding upon each Holder, each future Holder and the Company. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instance, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision. Notwithstanding
the foregoing, each of the parties to this Agreement hereby agrees that William
Oberlin, Joseph Lawrence, David C. Poole, Terry E. Richardson and Capital
Insights Growth Investors, L.P. shall become parties to this Agreement upon
execution of a Joinder Agreement as contemplated by Section 9.5 of the Stock
Purchase Agreement, dated as of
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<PAGE> 15
the date hereof, between the Company and those parties identified on Schedule I
hereto. Upon execution of a Joinder Agreement and the issuance of shares to such
parties, Schedule I hereto shall be modified to reflect such issuance.
15. Entire Agreement: Successors and Assigns of the Company.
(a) This Agreement embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter.
(b) This Agreement shall be binding, in accordance with its terms, upon
any successor, by way of merger, consolidation, sale of assets or otherwise, of
the Company.
16. Counterparts. This Agreement may be executed in several counterparts, all of
which need not be signed by all the parties hereto, and each of which shall be
deemed an original, but all of which together constitute one and the same
agreement.
17. Headings. The headings of the sections of this Agreement have been added for
convenience only and shall not be deemed to be a part of this Agreement.
18. Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other severable
provision.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, without regard for the
conflict of laws rules thereof.
20. Notices. All notices and other communications under this Agreement shall be
in writing and shall be (i) sent by facsimile transmission and by certified or
registered mail, return receipt requested, courier or overnight mail, or (ii)
sent by certified or registered mail, return receipt requested, courier or
overnight mail (1) if to any Holder, at the registered facsimile number and
address of such holder as set forth in the register kept at the principal office
of the Company, or (2) if to the Company, to 200 North Main Street, Suite 303,
Greenville, South Carolina 29601, Attention: Hamilton Russell II, Esq., or at
such other address or facsimile number as it shall have furnished in writing to
all holders of Registrable Shares at the time outstanding. Any written
communication so addressed, sent by facsimile transmission or certified or
registered mail, return receipt requested, courier or overnight mail, shall be
deemed to have been given when sent via facsimile or mailed. All other written
communications shall be deemed to have been given upon receipt thereof.
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
STATE COMMUNICATIONS, INC.
By:
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Title:
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RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By:
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Title:
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RICHLAND VENTURES III, L.P.
By: Richland Partners III, Inc., General Partner
By:
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Title:
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FIRST UNION CAPITAL PARTNERS, INC.
By:
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Title:
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MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc., Trading Advisor
By:
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Title:
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REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C., General Partner
By:
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Title:
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
BOSTON MILLENNIA PARTNERS LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership, General Partner
By:
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Title:
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BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP
By:
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Title:
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
SOUTHEASTERN TECHNOLOGY FUND
By:
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Title:
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JOHN R. TERRELL
WYCHE BURGESS PROFIT SHARING PLAN
FUND II
By:
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By:
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Title:
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CHARLES S. HOUSER
HOUSER CHARITABLE REMAINDER UNITRUST
By:
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Title:
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JOHN T. MILLS, SR.
[SIGNATURES CONTINUED ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
WILLOU & CO.
By:
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Title:
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[SIGNATURES CONTINUED ON NEXT PAGE]
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ACKNOWLEDGEMENT AND CONSENT
The undersigned party consents to the registration
rights granted pursuant to the terms of this
Agreement.
SERUUS TELECOM FUND, L.P.
By: , its General Partner
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By:
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Title:
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RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By:
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Title:
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FIRST UNION CAPITAL PARTNERS, INC.
By:
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Title:
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Schedule I
INVESTORS
Richland Ventures II, L.P.
Richland Ventures III, L.P.
First Union Capital Partners, Inc.
Moore Global Investments, Ltd.
Remington Investments Strategies, L.P.
Southeastern Technology Fund
Boston Millennia Partners Limited Partnership
Boston Millennia Associates I Partnership
John R. Tyrell
Wyche Burgess Profit Sharing Plan Fund II
Charles S. Houser
Houser Charitable Remainder Unitrust
John T. Mills, Sr.
Willou & Co.
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<PAGE> 1
EXHIBIT 4.3.5
EXECUTION COPY
STATE COMMUNICATIONS, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into on this 1st day of February, 2000, by and among STATE
COMMUNICATIONS, INC., a South Carolina corporation, and each of the other
parties listed on Schedule I hereto.
1. Certain Definitions. As used in this Agreement, the following terms shall
mean:
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $.001 par value per share, of
the Company.
"Company" means State Communications, Inc., a South Carolina
corporation.
"Conversion Price" means the Conversion Price of the Preferred Stock as
defined in the Company's Articles of Amendment relating to the Preferred Stock,
as filed with the Office of the Secretary of State of South Carolina.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission issued thereunder, as they each may, from time to time, be in effect.
"Holders" means holders of any of the Preferred Stock or the
Registrable Shares.
"Non-Recoverable Expenses" means salaries and expenses of the Company's
officers and employees performing legal and accounting duties in connection with
the Company's obligations under this Agreement.
"Preferred Stock" means the Series C Convertible Preferred Stock of the
Company, $.01 par value per share.
"Public Offering" means a bona fide offering of Common Stock pursuant
to a Registration Statement.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of shares of Preferred Stock and (ii) any other shares
of Common Stock of the Company issued in respect of such shares (because of
stock splits, stock dividends, reclassifications, recapitalizations or similar
events).
<PAGE> 2
"Registration Expenses" means all expenses incurred by the Company in
complying with this Agreement, including, without limitation, (i) all Commission
and any National Association of Securities Dealers, Inc. registration and filing
fees and expenses, fees and expenses of compliance with securities and blue sky
laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Shares), expenses relating to the preparation and printing of documents and of
certificates representing the Registrable Shares, fees and expenses of any
escrow agent, trustee or custodian acting for the Company, fees and
disbursements of counsel and independent certified public accountants of the
Company (including the expenses of any special audit or "cold comfort" letters
required by or incident to such compliance), fees and disbursements of counsel
retained in connection with each registration under Section 2 or 3 hereunder by
the holders of at least a majority of the Registrable Shares being registered
(which counsel shall be reasonably satisfactory to the Company), and fees and
expenses of any other persons, including special experts retained by the
Company, but excluding the fees and disbursements of any counsel or other
advisors or experts retained by holders of Registrable Shares (severally or
jointly), other than the counsel and experts specifically referred to above, and
excluding any underwriter discounts, fees or commissions attributable to the
sale of the Registrable Shares; and (ii) Non-Recoverable Expenses.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a Public Offering and sale of Common Stock of
the Company (other than (i) a registration statement on Form S-4 or Form S-8, or
their successors, or any other form for a limited purpose, (ii) any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation, (iii) a registration statement
filed in connection with an interest or dividend reinvestment plan, (iv) a
registration relating solely to employee benefit plans or to a transaction
subject to Rule 145 of the Securities Act, or (v) a registration relating to the
sale of indebtedness of the Company).
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
issued thereunder, as they each may, from time to time, be in effect.
"Series A Registration Rights Agreement" means the Registration Rights
Agreement dated October 28, 1998 between the Company and the holders of the
Company's Series A Convertible Preferred Stock.
"Series B Registration Rights Agreement" means the Registration Rights
Agreement dated July 29, 1999 between the Company and the holders of the
Company's Series B Convertible Preferred Stock.
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<PAGE> 3
2. Demand Registrations.
(a) At any time after the expiration of 180 days after the closing of a
Public Offering, one or more Holders representing in the aggregate in excess of
30% of the Registrable Shares then held by all Holders, may request, in writing,
that the Company file a Registration Statement under the Securities Act. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Holders. Each Holder shall have the right, by
giving written notice to the Company within 15 days after the Company provides
its notice, to elect to have included in such registration such of its
Registrable Shares as such Holder may request in such notice of election.
Thereupon, the Company shall, as expeditiously as possible, use its best efforts
to effect the registration under the Securities Act of all Registrable Shares
which the Company has been requested so to register.
(b) If the Holders initiating the registration request hereunder (the
"Initiating Holders") intend to distribute the Registrable Shares covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to this Section 2 and the Company shall
include such information in the written notice referred to in Section 2(a)
hereof. In such event, the right of any Holder to include his or its Registrable
Shares in such registration shall be conditioned upon the inclusion of such
Holder's Registrable Shares in the underwriting. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2(b), if the managing underwriter with respect to the proposed offering
advises the Holders proposing to sell Registrable Shares that would otherwise be
included in the underwriting that marketing factors require a limitation on the
number of shares to be underwritten, the number of Registrable Shares that may
be included in the underwriting shall be allocated among all such Holders,
including the Initiating Holders, in proportion (as nearly as practicable) to
the amount of Registrable Shares proposed to be included in the Registration
Statement by each such Holder.
(c) The Company shall not be required to effect more than three
registrations of Registrable Shares pursuant to Section 2(a) hereof.
(d) At the time of any request to register Registrable Shares pursuant
to this Section 2, the Company may at its option direct that such request be
delayed for a period not in excess of three months if, in the opinion of the
Company's Board of Directors, the filing of such Registration Statement would
adversely affect the Company's ability to complete any pending or proposed
material transaction, provided that such right to delay a request may be
exercised by the Company not more than once in any twelve-month period.
(e) The Initiating Holders of any Registration Statement filed pursuant
to this Section 2 shall designate the method of distribution of the Registrable
Shares. The Initiating Holders may designate the managing underwriter (who shall
be the lead
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<PAGE> 4
underwriter) for any Registration Statement filed pursuant to this Section,
provided such designee is reasonably satisfactory to the Company, and the
Company may designate a co-managing underwriter in such offering, provided such
designee is reasonably satisfactory to Holders representing a majority of the
Registrable Shares to be included in the Registration. The Company shall afford
the underwriters, their accountants and attorneys full access to its personnel
and offices for the purpose of confirming the accuracy and completeness of the
Registration Statement, in accordance with the provisions of Section 4 hereof.
(f) If in the opinion of the underwriters selected to manage the
underwriting, more Common Stock could be sold than is represented by the
Registrable Shares included in the registration without adversely affecting the
price per share, or with the consent of Holders representing two-thirds of the
Registrable Shares to be included, the Company shall be entitled to expand the
offering to include newly issued Common Stock or Common Stock held by third
parties. If the Common Stock so included represents more than half of all Common
Stock to be offered in the Registration Statement, the registration may, at the
option of the Initiating Holders, be deemed to be an incidental registration
under Section 3, rather than a required registration under this Section 2, and
the registration rights of the Holders provided in Section 2(c) shall remain
fully available as if the registration had originated under Section 3 rather
than under Section 2.
(g) Notwithstanding anything set forth elsewhere in this Section 2, the
Company shall have no responsibility to cause a Registration Statement to become
effective (i) at a time when it would be required under the rules and
regulations of the Securities and Exchange Commission to prepare and file
audited financial statements for a period other than a completed fiscal year,
(ii) when the Company would be required to prepare and file audited financial
statements for a completed fiscal year prior to 90 days following the end of
such year, or (iii) within 180 days of the effective date of any prior
Registration Statement filed by the Company in which the Holders could
participate.
(h) If any Registration Statement prepared pursuant to this Section 2
is not filed or does not become effective as a result of the decision of the
Initiating Holders or any underwriter designated by them, the obligation of the
Company to prepare and file a Registration Statement at the request of such
Initiating Holders shall nevertheless have been satisfied; provided that if the
decision not to file the Registration Statement or to withdraw the Registration
Statement prior to it becoming effective is the result of a material adverse
change in the business of the Company, the registration rights of the Holders
provided in Section 2(c) shall remain fully available as if the registration had
not been requested by the Initiating Holders. If the Registration Statement
otherwise fails to become effective, the registration rights of the Holders
provided in Section 2(c) remain fully available as if the registration had not
been requested by the Initiating Holders.
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<PAGE> 5
3. Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement it
shall, at least 30 days prior to such filing, give written notice to all Holders
of its intention to do so and, upon the written request of a Holder or Holders
given within 10 days after the Company provides such notice (which request shall
state the intended method of disposition of such Registrable Shares), the
Company shall use its best efforts to cause all Registrable Shares that the
Company has been requested by such Holder or Holders to register to be
registered under the Securities Act to the extent necessary to permit their sale
or other disposition in accordance with the intended methods of distribution
specified in the request of such Holder or Holders; provided, that the Company
shall have the right to postpone or withdraw any registration effected pursuant
to this Section 3 without obligation to any Holder.
(b) In connection with any offering under this Section 3 involving an
underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the Holders holding such Registrable Shares
thereof accept the terms of the underwriting as agreed upon between the Company
and the underwriters selected by it and enter into a customary underwriting
agreement, and then only in such quantity as will not, in the opinion of the
managing underwriter, jeopardize the success of the offering by the Company. If
in the opinion of the managing underwriter the registration of all, or any part
of, the Registrable Shares which Holders have requested to be included would
adversely affect such Public Offering, then the Company shall be required to
include in the underwriting only that number of Registrable Shares, if any, that
the managing underwriter believes may be sold without causing such adverse
effect. If the number of Registrable Shares to be included in the underwriting
in accordance with the foregoing is less than the total number of Registrable
Shares that Holders have requested to be included, then the amount of securities
to be offered for the accounts of all persons seeking to include securities of
the Company in the Registration Statement shall be reduced in the following
order of priority to the extent necessary to cause the amount to be included in
the Registration Statement not to exceed the amount recommended by such managing
underwriter:
(i) first, the amount of securities to be offered for the
accounts of Company shareholders other than Holders ("Other Shareholders") that
do not have a contractual right to require the Company to include the securities
held by them in a registration shall be reduced pro rata (based upon the amount
of securities each such person sought to include in the offering) to zero, if
necessary,
(ii) next, the amount of securities to be offered for the
account of Other Shareholders that have a contractual right (subordinate to the
Holders rights hereunder) to require the Company to include the securities held
by them in a registration shall be reduced pro rata (based upon the amount of
securities each such person sought to include in the offering) to zero, if
necessary, and
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<PAGE> 6
(iii) finally, the amount of securities to be offered for the
account of Holders of Registrable Shares and all Other Shareholders that have a
contractual right (on parity with Holders' rights hereunder) to require the
Company to include the securities held by them in a registration shall be
reduced pro rata (based upon the amount of securities each such Person sought to
include in the offering); provided, that the rights granted in Sections 3 and 4
of the Series A Registration Rights Agreement and the Series B Registration
Rights Agreement and Section 2 of the Registration Rights Agreement between the
Company and Seruus Telecom Fund, L.P., dated February 19, 1998 shall be
subordinate to the rights granted in Section 2(a) of this Agreement.
4. Registrations on Form S-3. Notwithstanding any other term or provision of
this Agreement, at such time as the Company shall have qualified for the use of
Form S-3 promulgated under the Securities Act, the Holders shall have the right
to request in writing an unlimited number of registrations on Form S-3 (or such
successor form) of Registrable Shares, which request or requests shall (i)
specify the number of Registrable Shares intended to be sold or disposed of;
(ii) state the intended method of disposition of such Registrable Shares; and
(iii) relate to Registrable Shares having an anticipated aggregate offering
price of not less than $500,000, provided, however, the Holders may only make
one such request in any 12-month period. A requested registration on Form S-3
pursuant to this Section 4 shall not count as a registration demanded pursuant
to Section 2 hereof. During the pendency of any offering under this Section 4 if
the Company shall inform the Holders that there is material non-public
information regarding the Company, the Holders shall cease selling activities in
such offering and the Company shall promptly advise the members of its Board of
Directors of the material non-public information (to the extent not previously
disclosed to them) and a decision shall be made whether or when such information
should be publicly disclosed. The Holders shall not recommence selling
activities until the Company shall inform the Holders that there is no material
non-public information regarding the Company; provided, however, the Company
shall use its best efforts to insure that the delay arising out of the failure
to disclose such information does not persist for more than 30 days.
5. Registration Procedures. If and whenever the Company is required by Sections
2, 3, or 4 of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective for such reasonable period of time as
required to complete the Public Offering;
(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for such reasonable period of time as required
to complete the Public Offering and comply with the provisions of the Securities
Act with respect to the disposition of all shares covered by such Registration
Statement;
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<PAGE> 7
(c) provide the selling stockholders and the underwriters (which term,
for purposes of this Agreement, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if any,
of the shares being sold and counsel for such underwriters and counsel for such
selling stockholders (which counsel shall be subject to approval by the Company,
such approval not to be unreasonably withheld) the opportunity to participate in
the preparation of the Registration Statement, each prospectus included therein
or filed with the Commission, and each amendment or supplement thereto; and make
available for inspection by such selling stockholders or other persons such
financial and other information, books and records of the Company and cause the
officers, directors and employees of the Company and counsel and independent
certified public accountants of the Company to respond to such inquiries as
shall be reasonably necessary, in the opinion of respective counsel to such
selling stockholders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act;
(d) promptly notify (in writing, if so requested) the selling
stockholders and the underwriters, if any, (i) when the Registration Statement,
the prospectus or any prospectus supplement or post-effective amendment has been
filed, and with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any material comments by
the Commission with respect thereto or any request by the Commission for
amendments or supplements to the Registration Statement or the prospectus or for
additional information, (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the occurrence of any
event, at any time during which the Registration Statement remains effective,
that causes the representations and warranties of the Company contemplated by
Section 8 hereof to cease to be true and correct in all material respects, (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification of the Registrable Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose, or (vi) of the
occurrence or failure to occur of any event, or change in circumstance, at any
time when a prospectus is required to be delivered under the Securities Act, as
a result of which the Registration Statement, prospectus, any prospectus
supplement, or any document incorporated by reference in any of the foregoing
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(e) make reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement hereunder or any
post-effective amendment thereto at the earliest practicable date;
(f) if requested by the managing underwriter or underwriters or by
selling stockholders representing at least a majority of the Registrable Shares
being included in the Registration Statement, promptly incorporate in a
prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters or
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such selling stockholders reasonably specify should be included therein relating
to the sale of the Registrable Shares, including, without limitation,
information with respect to the number or amount of Registrable Shares being
sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or best
efforts underwritten) offering of the Registrable Shares to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment promptly after notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment; provided
that the Company and its counsel are reasonably satisfied that such additional
information does not constitute an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(g) as expeditiously as possible furnish to each selling stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling stockholder may reasonably request in order to
facilitate the Public Offering; and furnish to each selling stockholder and each
underwriter, if any, such number of copies of the Registration Statement, each
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in the Registration Statement (including each
preliminary prospectus and any summary prospectus) , in conformity with the
requirements of the Securities Act, and such other documents as such selling
stockholder and underwriter, if any, may reasonably request in order to
facilitate the Public Offering; the Company consents to the use of the
prospectus or any amendment or supplement thereto by each of the selling
stockholders and the underwriters in connection with the offering and sale of
the Registrable Shares covered by the prospectus or any supplement or amendment
thereto;
(h) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or blue sky laws of such states as the underwriters shall reasonably
request, and do any and all other acts and things that may be reasonably
necessary or desirable to enable the Public Offering to be consummated;
provided, however, that the Company shall not be required in connection with
this Section 5(h) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction;
(i) use its best efforts to cause all of the Registrable Shares to be
included in a Registration Statement hereunder to be registered with or approved
by such other governmental agencies or authorities as may be necessary by virtue
of the business and operations of the Company to enable the Public Offering to
be consummated;
(j) facilitate the timely preparation and delivery of certificates
representing Registrable Shares to be sold; and
(k) provide a CUSIP number for all Registrable Shares, not later than
the effective date of the Registration Statement.
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If the Company has delivered preliminary or final prospectuses to the
selling stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling stockholders and, if requested, the selling stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling stockholders shall be free to resume making offers of
the Registrable Shares.
6. Allocation of Expenses. The Company shall pay all Registration Expenses of
all registrations under this Agreement including, without limitation,
Registration Statements that are not declared effective as contemplated in
Section 2(h) hereof. All underwriting discounts and selling commissions
applicable to the sale of the Registrable Shares shall be borne by the
participating sellers in proportion to the number of shares sold by each or as
shall otherwise be agreed to by such participating sellers other than the
Company (except to the extent the Company shall be a seller).
7. Indemnification.
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless the seller of such Registrable Shares, each director and
officer of such seller, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages
or liabilities, joint or several, including, without limitation, subject to
Section 7(c) hereof, any amounts paid in settlement, to which such seller,
underwriter or controlling person may become subject under the Securities Act,
the Exchange Act, state securities laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company shall reimburse such seller, underwriter and each such controlling
person for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, (i) that
the Company shall not be liable to any such seller, underwriter or controlling
person in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission made
in such Registration Statement, preliminary prospectus or prospectus, or any
such amendment or supplement, in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of such seller
or underwriter or controlling person specifically for use in the preparation
thereof and (ii) provided, however, that the
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indemnity agreement contained in this Section 7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld. Such indemnification and reimbursement of expenses
shall remain in full force and effect regardless of any investigation made by or
on behalf of such seller, its directors or officers, such underwriter, its
directors or officers, or such controlling person, and shall survive the
transfer of any or all Registrable Shares by such seller.
(b) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, shall indemnify and hold harmless the
Company, each of its directors and officers, each other seller and each
underwriter, if any, and each person, if any, who controls the Company or any
such underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the Securities Act, Exchange Act, state securities laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement; and each such
seller shall reimburse the Company, each of its directors and officers, each
underwriter and each controlling person for any legal or any other expenses
reasonably incurred by the Company, such directors and officers, underwriters
and controlling persons in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such seller; provided, further,
however, that, to the extent permitted by law, the indemnification obligation of
each seller of Registrable Shares shall be limited to the net proceeds received
by such selling shareholder in the Public Offering in dispute. Such
indemnification and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company, its
officers or directors, any such other seller, its officers or directors, or any
such controlling person, and shall survive the transfer of any or all
Registrable Shares by any such other seller.
(c) Each party entitled to indemnification under this Section 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying
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Party to assume the defense of any such claim or any litigation resulting
therefrom; provided, however, that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld); provided,
however, that an Indemnified Party shall have the right to retain its own
counsel (limited to one counsel for all Indemnified Parties), with the fees and
expenses of such counsel to be paid by the Indemnifying Party, if representation
of such Indemnified Party by the counsel retained by the Indemnifying Party
would be inappropriate due to actual or potential differing interests between
such Indemnified Party and any other party represented by such counsel in such
proceeding. The failure by an Indemnified Party to deliver written notice to the
Indemnifying Party within a reasonable time of the Indemnified Party's discovery
of such claim, if materially prejudicial to its ability to defend such claim,
shall relieve the Indemnifying Party of its obligations under this Section 7 but
only to the extent of such material prejudice. The Indemnified Party may
participate in such defense at such party's expense. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation.
(d) (i) If for any reason the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under this Section 7 in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to herein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims damages or liabilities (or
actions in respect thereof), in such proportion as is appropriate to reflect the
relative fault of each Indemnifying Party and the Indemnified Party as well as
any other relevant equitable considerations; provided, however, that to the
extent permitted by law, the indemnification obligation of each seller of
Registrable Shares shall be limited to the net proceeds received by such Selling
Shareholders in the Public Offering in dispute. The relative fault of each
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages or liabilities referred to above shall be deemed to include, subject to
the limitations set forth in Section 7(c), any legal or other fees or expenses
reasonably incurred by such party.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the sellers or any underwriters or all of them were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
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<PAGE> 12
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(iii) The contribution provided for in this Section 7(d) shall
survive, with respect to a Holder, the transfer of Registrable Shares by such
Holder and with respect to a Holder or the Company shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Indemnified Party.
(e) The indemnification required by this Section 7 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred, subject to refund in the event any such payments are determined not
to have been due and owing hereunder.
8. Agreements with Respect to Underwritten Offering. In the event that
Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2 hereof, the Company agrees to enter
into such customary agreements (including an underwriting agreement) and take
such other actions in connection therewith as the Holders representing at least
a majority of Registrable Shares to be included in a Registration Statement
hereunder shall reasonably request in order to expedite or facilitate the Public
Offering and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten registration
(i) make such representations and warranties to the selling stockholders and the
underwriters, if any, in form, substance and scope as are customarily made in
such a registration; (ii) obtain an opinion of counsel to the Company in
customary form and covering such matters of the type customarily covered by such
opinion as the Holders representing at least a majority of Registrable Shares to
be included in such registration and the underwriters, if any, may reasonably
request, addressed to each selling stockholder and the underwriters, if any, and
dated the effective date of such Registration Statement (or, if such
registration includes an underwritten offering, dated the date of the closing
under the underwriting agreement); (iii) obtain a "cold comfort" letter from the
independent certified public accountants of the Company addressed to the selling
stockholders and the underwriters, if any, (and which may also be addressed to
the Board of Directors of the Company) dated the effective date of such
Registration Statement (and, if such registration includes an underwritten
offering, dated the date of the closing under the underwriting agreement), such
letter to be in customary form and covering such matters of the type customarily
covered by such letter; and (iv) deliver such documents and certificates as may
be reasonably requested by the Holders representing at least a majority of
Registrable Shares being sold and the managing underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company.
9. Information by Holder. It shall be a condition precedent to the obligations
of the Company under this Agreement that each Holder of Registrable Shares to be
included in any registration shall furnish to the Company such information
regarding such Holder
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<PAGE> 13
and the distribution proposed by such Holder as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
10. Rule 144 Requirements. After the registration by the Company of a class of
securities under Section 12 of the Exchange Act, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 (or any successor rule) under the Securities
Act;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any Holder upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days after the closing of the first sale of securities by
the Company pursuant to a Registration Statement), and of the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
11. Transfer of Rights.
(a) The rights granted to a Holder under this Agreement may be
transferred by such Holder to another Holder or to any transferee if (i) there
is transferred to such transferee at least 10% of the Registrable Shares
originally issued by the Company to the transferring Holder and (ii) the Company
is given written notice by the transferee at the time of such transfer stating
the name and address of the transferee and identifying the securities with
respect to which such rights are being assigned; provided, however, that the
rights granted to a Holder under this Agreement may not in any event be
transferred by any Holder with respect to securities which at the time of filing
of any Registration Statement are eligible for sale by the Holder under Rule
144(k) under the Securities Act. Any transferee to whom rights under this
Agreement are transferred shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be bound by the
obligations imposed upon Holders under this Agreement to the same extent as if
such transferee were a Holder hereunder.
(b) Notwithstanding anything to the contrary herein, any Holder may
transfer rights granted to such Holder under this Agreement to any affiliate of
such Holder, any liquidating trust established with respect to such Holder or
any limited partner, shareholder or member of such Holder in connection with a
distribution of assets to such Holder's partners, shareholders or members if
such transferee is a transferee of shares of Preferred Stock or Registrable
Shares and such transferee delivers to the Company a
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<PAGE> 14
written instrument by which such transferee agrees to be bound by the
obligations imposed upon Holders under this Agreement to the same extent as if
such transferee were a Holder hereunder. In the event of such transfer, such
transferee shall be deemed a Holder for purposes of this Section 11 and may
again transfer such rights to any other person or entity which acquires shares
of Preferred or Registrable Shares from such transferee, subject to and in
accordance with Section 11(a) hereof.
12. Other Registration Rights. Except (i) as provided in that certain
Registration Rights Agreement between the Company and Seruus Telecom Fund, L.P.
("Seruus"), dated February 19, 1998 (the "Seruus Registration Rights
Agreement"), (ii) as provided in the "Series A Registration Rights Agreement,
(iii) as provided in the Series B Registration Rights Agreement, and (iv) the
Company's right to grant selling shareholders registration rights on Form S-3
subject to the limitations set forth in Section 4 hereof, the Company shall not
grant demand registration rights to any party or any incidental registration
rights that are superior to or pari passu with the incidental registration
rights of the Holders, the holders of Series A or Series B Preferred Stock or
Seruus, without the written consent of Holders representing in the aggregate
more than 50% of the Registrable Shares. Except as set forth in Section
3(b)(iii) of this Agreement, the Company and the Holders acknowledge and agree
that the registration rights granted under the Seruus Registration Rights
Agreement, the Series A Registration Rights Agreement and the Series B
Registration Rights Agreement shall be deemed to be pari passu with the
registration rights granted hereunder.
13. Suspension Rights. Notwithstanding the provisions of this Agreement, the
Company's obligation to file a Registration Statement, or cause such
Registration Statement to become and remain effective, shall be suspended for a
period not to exceed 90 days in any 12 month period if there exists at the time
material non-public information relating to the Company which, in the reasonable
opinion of counsel to the Company, should not be disclosed.
14. Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived, either generally or in a
particular instance and either retroactively or prospectively, with the written
consent of the Company and Holders representing in the aggregate more than 66
2/3% of the Registrable Shares, provided that no such amendment or waiver of any
term of this Agreement shall affect any outstanding Registrable Shares on a
disproportionate basis without the specific consent of each Holder affected
thereby. Any amendment or waiver effected in accordance with this Section 14
shall be binding upon each Holder, each future Holder and the Company. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instance, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.
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<PAGE> 15
15. Entire Agreement: Successors and Assigns of the Company.
(a) This Agreement embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter.
(b) This Agreement shall be binding, in accordance with its terms, upon
any successor, by way of merger, consolidation, sale of assets or otherwise, of
the Company.
16. Counterparts. This Agreement may be executed in several counterparts, all of
which need not be signed by all the parties hereto, and each of which shall be
deemed an original, but all of which together constitute one and the same
agreement.
17. Headings. The headings of the sections of this Agreement have been added for
convenience only and shall not be deemed to be a part of this Agreement.
18. Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other severable
provision.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, without regard for the
conflict of laws rules thereof.
20. Notices. All notices and other communications under this Agreement shall be
in writing and shall be (i) sent by facsimile transmission and by certified or
registered mail, return receipt requested, courier or overnight mail, or (ii)
sent by certified or registered mail, return receipt requested, courier or
overnight mail (1) if to any Holder, at the registered facsimile number and
address of such holder as set forth in the register kept at the principal office
of the Company, or (2) if to the Company, to 200 North Main Street, Suite 303,
Greenville, South Carolina 29601, Attention: Hamilton Russell II, Esq., or at
such other address or facsimile number as it shall have furnished in writing to
all holders of Registrable Shares at the time outstanding. Any written
communication so addressed, sent by facsimile transmission or certified or
registered mail, return receipt requested, courier or overnight mail, shall be
deemed to have been given when sent via facsimile or mailed. All other written
communications shall be deemed to have been given upon receipt thereof.
[remainder of page intentionally blank]
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
STATE COMMUNICATIONS, INC.
By: __________________________________
Title: _______________________________
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc.,
General Partner
By: __________________________________
Title: _______________________________
RICHLAND VENTURES III, L.P.
By: Richland Partners III, Inc.,
General Partner
By: __________________________________
Title: _______________________________
FIRST UNION CAPITAL PARTNERS, INC.
By: __________________________________
Title: _______________________________
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc.,
Trading Advisor
By: __________________________________
Title: _______________________________
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C.,
General Partner
By: __________________________________
Title: _______________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
BOSTON MILLENNIA PARTNERS
LIMITED PARTNERSHIP
By: Glen Partners Limited
Partnership, General Partner
By: __________________________________
Title: _______________________________
BOSTON MILLENNIA ASSOCIATES I
PARTNERSHIP
By: __________________________________
Title: _______________________________
CITIZENS CAPITAL, INC.
By: __________________________________
Title: _______________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
17
<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
SOUTHEASTERN TECHNOLOGY FUND
By: __________________________________
Title: _______________________________
________________________________(SEAL)
Shaler P. Houser
________________________________(SEAL)
Charles L. Houser
________________________________(SEAL)
Charles S. Houser
________________________________(SEAL)
Russell W. Powell
________________________________(SEAL)
Daniel H. Sterling
________________________________(SEAL)
Judith C. Slaughter
________________________________(SEAL)
Thomas Houlihan
________________________________(SEAL)
Clark Mizell
SERUUS TELECOM FUND, L.P.
By: _____________, its General Partner
By: __________________________________
Title: _______________________________
SIGNATURES CONTINUED ON NEXT PAGE
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
SERUUS VENTURES, LLC.
By: __________________________________
Title: _______________________________
________________________________(SEAL)
Hamilton E. Russell III
________________________________(SEAL)
John R. Tyrrell
________________________________(SEAL)
John T. Mills, Sr.
WYCHE BURGESS PROFIT SHARING PLAN
FUND II
By: __________________________________
By: __________________________________
Title: _______________________________
WILLOU & CO.
By: __________________________________
Title: _______________________________
SIGNATURES CONTINUED ON NEXT PAGE
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
HOUSER CHARITABLE REMAINDER UNITRUST
By: __________________________________
Title: _______________________________
VFO PARTNERS, LTD.
By: __________________________________
By: __________________________________
Title: _______________________________
TORONTO DOMINION CAPITAL
(U.S.A.), INC.
By: __________________________________
Title: _______________________________
NEWCOURT COMMERCIAL FINANCE
CORPORATION, an affiliate of The
CIT Group, Inc.
By: __________________________________
Title: _______________________________
SIGNATURES CONTINUED ON NEXT PAGE
20
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
BANCAMERICA CAPITAL INVESTORS SBIC I, L.P.
By: BancAmerica Capital Management
SBIC I, LLC,
Its general partner
By: BancAmerica Capital Management I,
L.P.,
Its sole member
By: BACM I GP, LLC,
Its general partner
By: ______________________________________
Name: Robert H. Sheridan, III
Title: Member
CAPITAL INSIGHTS GROWTH INVESTORS, L.P.
By: ______________________________________
Title: ___________________________________
__________________________________________
Terry E. Richardson, Jr.
__________________________________________
David C. Poole
__________________________________________
William Oberlin
SIGNATURES CONTINUED ON NEXT PAGE
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first above written.
__________________________________________
Joseph A. Lawrence
SIGNATURES CONTINUED ON NEXT PAGE
22
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first above written.
__________________________________________
Larry Bouman
SIGNATURES CONTINUED ON NEXT PAGE
23
<PAGE> 24
ACKNOWLEDGEMENT AND CONSENT
The undersigned party consents to the registration rights granted pursuant to
the terms of this Agreement.
SERUUS TELECOM FUND, L.P.
By: ___________________, its General Partner
By: ________________________________________
Title: _____________________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
24
<PAGE> 25
EXECUTION COPY
ACKNOWLEDGEMENT AND CONSENT
The undersigned party consents to the registration
rights granted pursuant to the terms of this Agreement.
STATE COMMUNICATIONS, INC.
By: _____________________________________
Title: __________________________________
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By: _____________________________________
Title: __________________________________
RICHLAND VENTURES III, L.P.
By: Richland Partners III, Inc., General Partner
By: _____________________________________
Title: __________________________________
FIRST UNION CAPITAL PARTNERS, INC.
By: _____________________________________
Title: __________________________________
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc., Trading Advisor
By: _____________________________________
Title: __________________________________
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C., General Partner
By: _____________________________________
Title: __________________________________
<PAGE> 26
ACKNOWLEDGEMENT AND CONSENT
The undersigned party consents to the registration
rights granted pursuant to the terms of this Agreement.
BOSTON MILLENNIA PARTNERS LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership, General Partner
By: _____________________________________
Title: __________________________________
BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP
By: _____________________________________
Title: __________________________________
SOUTHEASTERN TECHNOLOGY FUND
By: _____________________________________
Title: __________________________________
_________________________________________
John R. Tyrrell
WYCHE BURGESS PROFIT SHARING PLAN
FUND II
By: _____________________________________
By: _____________________________________
Title: __________________________________
_________________________________________
Charles S. Houser
HOUSER CHARITABLE REMAINDER UNITRUST
By: _____________________________________
Title: __________________________________
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<PAGE> 27
ACKNOWLEDGEMENT AND CONSENT
The undersigned party consents to the registration
rights granted pursuant to the terms of this Agreement.
_________________________________________
John T. Mills, Sr.
WILLOU & CO.
By: _____________________________________
Title: __________________________________
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<PAGE> 28
EXECUTION COPY
Schedule I
INVESTORS
Richland Ventures II, L.P.
Richland Ventures III, L.P.
First Union Capital Partners, Inc.
Moore Global Investments, Ltd.
Remington Investments Strategies, L.P.
Southeastern Technology Fund
Boston Millennia Partners Limited Partnership
Boston Millennia Associates I Partnership
Toronto Dominion Capital (U.S.A.), Inc.
Newcourt Commercial Finance Corporation
BancAmerica Capital Investors SBIC I, L.P.
<PAGE> 1
EXHIBIT 4.4
WARRANT AGREEMENT
Dated as of May 27, 1999
by and between
STATE COMMUNICATIONS, INC.
and
NORTEL NETWORKS INC.
WARRANT AGREEMENT (this "Agreement") is made and entered into as of May
27, 1999 by and between STATE COMMUNICATIONS, INC., a South Carolina corporation
(the "Company"), NORTEL NETWORKS INC., a Delaware corporation ("Nortel
Networks") and the Holders of the Warrants from time to time.
WHEREAS, in consideration for, among other things, the execution of the
Credit Agreement (as defined below) and the purchase of the Series 1999A Note
(as defined below), the Company agrees to issue Common Stock warrants as
hereinafter described (the "Warrants") to purchase shares Common Stock (as
defined below), in such number and at such price determined in accordance with
this Agreement. Each Warrant entitles the holder thereof to purchase one share
of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and for the purpose of defining the respective
rights and obligations of the Company and Nortel Networks, the parties hereto
agree as follows:
Section 1. Certain Definitions. Capitalized defined terms used in this
Agreement and not otherwise defined herein shall have the meanings given to
those terms in the Credit Agreement. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission.
"Common Equity Securities" means Common Stock and securities
convertible into, or exercisable or exchangeable for, Common Stock or rights or
options to acquire Common Stock or such other securities, excluding the
Warrants.
<PAGE> 2
"Common Stock" means the common stock, par value $.001 per share, of
the Company, and any other capital stock of the Company into which such common
stock may be converted or reclassified or that may be issued in respect of, in
exchange for, or in substitution for, such common stock by reason of any stock
splits, stock dividends, distributions, mergers, consolidations or other like
events.
"Credit Agreement" means the Credit Agreement dated as of May 27, 1999,
by and between State Communications Telecom, Inc. (the "Borrower"), the lenders
named therein and Nortel Networks Inc., as agent, as the same may be amended,
renewed, extended, restated, replaced, substituted, supplemented or otherwise
modified from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated thereunder.
"Exercise Price" means the purchase price per share of Common Stock to
be paid upon the exercise of each Warrant in accordance with the terms hereof,
which price shall initially be $2.00 per share, subject to adjustment from time
to time pursuant to Section 12 hereof.
"Expiration Date" means May 27, 2006, as the same may be extended
pursuant to Section 6 hereof.
"Holder" or "Warrant Holder" means a Person who is the owner as shown
on the Warrant register maintained by the Company.
"Issue Date" means the date of the initial issuance of the Warrants,
which shall be the Closing Date under the Credit Agreement.
"Registrable Securities" means any of (i) the Warrant Shares, (ii) any
shares of Common Stock issued upon the conversion of the Series 1999A Note, and
(iii) any other securities issued or issuable with respect to any Warrant Shares
or any conversion shares referred to in clause (ii) above, by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise,
unless, in each case, such Warrant Shares and securities, if any, have been
offered and sold to the Holders pursuant to an effective Registration Statement
under the Securities Act declared effective prior to the date of exercisability
of the Warrants or the date such Warrant Shares and securities, if any, may be
sold to the public pursuant to Rule 144 without any restriction on the amount of
securities which may be sold by such Holders or the satisfaction of any
condition. As to any particular Registrable Securities held by a Holder, such
securities shall cease to be Registrable Securities when (i) a Registration
Statement with respect to the exercise or offering of such securities by the
Holder thereof shall have been declared effective under the Securities Act and
such securities shall have been exercised and/or disposed of by such Holder
pursuant to such Registration Statement, (ii) such securities may at the time of
determination be sold to the public pursuant to Rule 144 without any restriction
on the amount of securities which may be sold by such Holder (or any similar
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<PAGE> 3
provision then in force, but not Rule 144A) without the lapse of any further
time or the satisfaction of any condition, (iii) such securities shall have been
otherwise transferred by such Holder and new certificates for such securities
not bearing a legend restricting further transfer shall have been delivered by
the Company or its transfer agent and subsequent disposition of such securities
shall not require registration or qualification under the Securities Act or any
similar state law then in force or (iv) such securities shall have ceased to be
outstanding.
"Registration Rights Agreement" means the registration rights
agreement, dated as of the date hereof by and between the Company and Nortel
Networks relating to the Warrants and the Warrant Shares.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the Commission providing for offers and
sales of securities made in compliance therewith resulting in offers and sales
by subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144) or regulation hereafter adopted by the Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute and the rules and regulations promulgated thereunder.
"Series 1999A Note" means the Series 1999A Note in the original
principal amount of $4,000,000 dated as of May 27, 1999, issued by the Company
to Nortel Networks Inc.
"Warrant Holder" or "Holder" means a Person who is the owner as shown
on the Warrant register maintained by the Company.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon the exercise of the Warrants.
Section 2. Issuance of Warrants; Warrant Certificates.
(a) The Warrants will be issued in the form of definitive certificates,
substantially in the form of Exhibit A (the "Warrant Certificates"). Each
Warrant shall provide that it shall represent the aggregate amount of
outstanding Warrants from time to time endorsed thereon and that the aggregate
amount of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate.
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<PAGE> 4
(b) The Warrants shall be initially issued on the Issue Date in the
aggregate amount of 652,089 shares of Common Stock, subject to adjustment as
herein provided, and shall be issued under two Warrant Certificates in the
amount of 508,089 and 144,000 shares of Common Stock. .
Section 3. Execution of Warrant Certificates. Warrant Certificates
shall be signed on behalf of the Company by the Company's President or a Vice
President and by its Secretary or an Assistant Secretary under its corporate
seal. Each such signature upon the Warrant Certificates may be in the form of a
facsimile signature of the present or any future President, Vice President,
Secretary or Assistant Secretary and may be imprinted or otherwise reproduced on
the Warrant Certificates and for that purpose the Company may adopt and use the
facsimile signature of any person who shall have been President, Vice President,
Secretary or Assistant Secretary, notwithstanding the fact that at the time the
Warrant Certificates shall be countersigned and delivered or disposed of, such
person shall have ceased to hold such office. The seal of the Company may be in
the form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been disposed of by the Company, such Warrant
Certificates nevertheless may be countersigned and delivered or disposed of as
though such person had not ceased to be such officer of the Company; and any
Warrant Certificate may be signed on behalf of the Company by any person who, at
the actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date of
the execution of this Warrant Agreement any such person was not such officer.
Section 4. Registration. The Company shall number and register the
Warrant Certificates in a register as they are issued by the Company.
The Company may deem and treat the person in whose name any Warrant is
registered as the absolute owner(s) thereof, for all purposes, and the Company
shall not be affected by any notice to the contrary.
Section 5. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Warrants and Registrable Securities. When
Warrants or Registrable Securities are presented to the Company with a request
to register their transfer; or to exchange such Warrants for an equal number of
Warrants of other authorized denominations, the Company shall register the
transfer or make the exchange as requested if the following requirements are
met:
(i) the Warrants presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in
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<PAGE> 5
form satisfactory to the Company, duly executed by the Holder thereof
or by his attorney-in-fact, duly authorized in writing; and
(ii) in the case of Registrable Securities, such request shall
be accompanied by the following additional information and documents
(all of which may be submitted by facsimile), as applicable:
(A) if such Registrable Security is being delivered
to the Company by a Holder for registration in the name of
such Holder, without transfer, a certification from such
Holder to that effect (in substantially the form of Exhibit B
hereto);
(B) if such Registrable Security is being transferred
(1) to a "qualified institutional buyer" (as defined in Rule
144A) in accordance with Rule 144A or (2) pursuant to an
exemption from registration in accordance with Rule 144 (and
based on an opinion of counsel if the Company so requests) or
(3) pursuant to an effective registration statement under the
Securities Act, a certification to that effect (in
substantially the form of Exhibit B hereto);
(C) if such Registrable Security is being transferred
pursuant to an exemption from registration in accordance with
Rule 904 under the Securities Act (and based on an opinion of
counsel if the Company so requests), a certification to that
effect (in substantially the form of Exhibit B hereto); or
(D) if such Registrable Security is being transferred
in reliance on another exemption from the registration
requirements of the Securities Act (and based on an opinion of
counsel if the Company so requests), a certification to that
effect (in substantially the form of Exhibit B hereto).
(b) Legends.
(i) Except for any Registrable Security sold or transferred as
discussed in clause (ii) below, each Warrant Certificate (and all
Warrants issued in exchange therefor or substitution thereof) and each
certificate representing the Warrant Shares shall bear a legend in
substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY AND THE SECURITIES DELIVERED
UPON EXERCISE THEREOF MAY NOT BE EXERCISED, OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION
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<PAGE> 6
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY AND THE
SECURITIES DELIVERED UPON THE EXERCISE THEREOF IS HEREBY NOTIFIED THAT
THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT
(A) SUCH SECURITY AND THE SECURITIES DELIVERED UPON EXERCISE HEREOF MAY
BE EXERCISED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO
A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A U.S.
PERSON (AS DEFINED IN RULE 902 UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES
ACT, OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (IN THE CASE OF (b), (c) or (d),
UPON AN OPINION OF COUNSEL AND WRITTEN CERTIFICATION IF THE ISSUER,
REGISTRAR OR TRANSFER AGENT FOR THE SECURITIES SO REQUESTS), (2) TO THE
ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY AND THE SECURITIES
DELIVERED UPON EXERCISE HEREOF OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE."
(ii) Upon any sale or transfer of a Registrable Security
pursuant to an effective registration statement under the Securities
Act, pursuant to Rule 144(A) or pursuant to an opinion of counsel
reasonably satisfactory to the Company that no legend is required, the
Holder thereof shall be permitted to exchange such Registrable Security
for a Warrant that does not bear the legend set forth in clause (i)
above and rescind any restriction on the transfer of such Registrable
Security.
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<PAGE> 7
(c) Obligations With Respect to Transfers and Exchanges of Warrants.
(i) To permit registrations of transfers and exchanges, the
Company shall execute in accordance with the provisions of Section 4
and this Section 5, Warrants as required pursuant to the provisions of
this Section 5. Notwithstanding anything to the contrary contained
herein, the Company shall refuse to register any transfer of the
Warrants not made in accordance with Regulation S, pursuant to
registration under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities Act;
provided, however, that if a foreign law prevents the Company from
refusing to register securities transfers, the Company shall implement
other reasonable measures designed to prevent transfers of the Warrants
not made in accordance with Regulation S, pursuant to registration
under the Securities Act or pursuant to an available exemption from the
registration requirements of the Securities Act.
(ii) All Warrants issued upon any registration of transfer or
exchange of Warrants shall be the valid obligations of the Company,
entitled to the same benefits under this Warrant Agreement, as the
Warrants surrendered upon such registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of
any Warrant, the Company may deem and treat the person in whose name
any Warrant is registered as the absolute owner of such Warrant and the
Company shall not be affected by notice to the contrary.
(iv) No service charge shall be made to a Holder for any
registration of transfer or exchange.
Section 6. Terms of Warrants; Exercise of Warrants. Subject to the
terms of this Agreement, each Warrant Holder shall have the right, which may be
exercised at any time and from time to time, in whole or in part, commencing on
the date hereof and ending at 5:00 p.m., New York City time, on the Expiration
Date, to receive from the Company the number of fully paid and nonassessable
Warrant Shares which the Holder may at the time be entitled to receive on
exercise of such Warrants and payment of the Exercise Price then in effect for
such Warrant Shares; provided, however, that no Warrant Holder shall be entitled
to exercise such Holder's Warrants at any time, unless, at the time of exercise,
(i) a registration statement under the Securities Act relating to the Warrant
Shares has been filed with, and declared effective by, the Commission, and no
stop order suspending the effectiveness of such registration statement has been
issued by the Commission or (ii) the issuance of the Warrant Shares is permitted
pursuant to an exemption from the registration requirements of the Securities
Act. Subject to the provisions of the following paragraph of this Section 6,
each Warrant not exercised prior to 5:00 p.m., New York City time, on the
Expiration Date shall become void and all rights thereunder and all rights in
respect thereof under this Agreement shall cease as of such time. No adjustments
as to dividends will be made upon exercise of the Warrants.
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<PAGE> 8
The Company shall give notice not less than 90, and not more than 120,
days prior to the Expiration Date to the Holders of all then outstanding
Warrants to the effect that the Warrants will terminate and become void as of
5:00 p.m., New York City time, on the Expiration Date. If the Company fails to
give such notice, the Warrants will not expire until 90 days after the Company
gives such notice, provided, however, in no event will Holders be entitled to
any damages or other remedy for the Company's failure to give such notice other
than any such extension.
A Warrant may be exercised upon surrender to the Company of the
certificate or certificates evidencing the Warrant to be exercised with the form
of election to purchase on the reverse thereof properly completed and signed,
which signature shall be guaranteed by a bank or trust company having an office
or correspondent in the United States or a broker or dealer which is a member of
a registered securities exchange or the National Association of Securities
Dealers, Inc., and upon payment to the Company of the Exercise Price as adjusted
as herein provided, for each of the Warrant Shares in respect of which such
Warrants are then exercised. Payment of the aggregate Exercise Price shall be
made in cash or by certified or official bank check, payable to the order of the
Company. In the alternative, each Holder may exercise its right to receive
Warrant Shares (i) on a net basis, such that without the exchange of any funds,
the Holder receives that number of Warrant Shares otherwise issuable upon
exercise of its Warrants less that number of Warrant Shares having a fair market
value equal to the aggregate Exercise Price that would otherwise have been paid
by the Holder for the Warrant Shares being issued, (ii) by any Holder to whom
the Company is indebted, by tendering indebtedness having an aggregate principal
amount, plus accrued but unpaid interest, if any, thereon, to the date of
exercise equal to the aggregate Exercise Price that would otherwise have been
paid by the Holder for the Warrant Shares being issued, or (iii) by a
combination of the procedures in clauses (i) and (ii). For purposes of the
foregoing sentence, "fair market value" of the Warrant Shares shall be as
determined by the Board of Directors of the Company in good faith and evidenced
by a resolution thereof. The Company shall notify the Holders in writing of any
such determination of fair market value.
Subject to the provisions of Section 7 hereof, upon surrender of
Warrants and payment of the Exercise Price as provided above, the Company shall
promptly transfer to the Holder of such Warrant a certificate or certificates
for the appropriate number of Warrant Shares or other securities or property
(including any money) to which the Holder is entitled, registered or otherwise
placed in, or payable to the order of, such name or names as may be directed in
writing by the Holder, and shall deliver such certificate or certificates
representing the Warrant Shares and any other securities or property (including
any money) to the Person or Persons entitled to receive the same, together with
an amount in cash in lieu of any fraction of a share as provided in Section 13.
Any such certificate or certificates representing the Warrant Shares shall be
deemed to have been issued and any Person so designated to be named therein
shall be deemed to have become a Holder of record of such Warrant Shares as of
the later of the date of the surrender of such Warrants and payment of the
Exercise Price.
8
<PAGE> 9
The Warrants shall be exercisable commencing on the Issue Date, at the
election of the Holders thereof, either in full or from time to time in part
and, in the event that a certificate evidencing Warrants is exercised in respect
of fewer than all of the Warrant Shares issuable on such exercise at any time
prior to the date of expiration of the Warrants, a new certificate evidencing
the remaining Warrant or Warrants will be issued and delivered pursuant to the
provisions of this Section and of Section 3 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall be
cancelled. Such cancelled Warrant Certificates shall then be disposed of in
accordance with customary procedures.
Section 7. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the issuance of the Warrant Certificates or the
initial issuance of Warrant Shares upon the exercise of Warrants; provided,
however, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any transfer involved in the issue of any
certificates for Warrant Shares in a name other than that of the Holder of a
Warrant Certificate surrendered upon the exercise of a Warrant.
Section 8. Mutilated or Missing Warrant Certificates. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and, if
requested, indemnity reasonably satisfactory to them. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
Section 9. Reservation of Warrant Shares. The Company will at all times
reserve and keep available, free from any preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The transfer agent for the Common Stock (the "Transfer Agent") and
every subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any of the rights of purchase aforesaid will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Company will
supply such Transfer Agent with duly executed certificates for such purposes and
will provide or otherwise make available any cash which may be payable as
provided in Section 13. The Company will furnish such Transfer Agent a copy of
9
<PAGE> 10
all notices of adjustments and certificates related thereto, transmitted to each
Holder of the Warrants pursuant to Section 14 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 11 hereof that would reduce the Exercise Price below the then par value
(if any) of the Warrant Shares, the Company will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares at the
Exercise Price as so adjusted.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants in accordance with the terms of this Agreement (including
the payment of the Exercise Price) will, upon issue, be duly and validly issued,
fully paid, nonassessable, and free of preemptive rights and Liens.
Section 10. Obtaining Stock Exchange Listings. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets (including, without limitation,
the Nasdaq National or SmallCap Markets) within the United States of America, if
any, on which other shares of Common Stock are then listed. Upon the listing of
such Warrant Shares, the Company shall notify the Holders in writing. The
Company will obtain and keep all required permits and records in connection with
such listing.
Section 11. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The number and kind of shares purchasable upon the exercise of
Warrants and the Exercise Price shall be subject to adjustment from time to time
(as set forth in the notices required by Section 14 hereof) as follows:
(a) Stock Splits, Combinations, etc. In case the Company shall
hereafter (A) pay a dividend or make a distribution on its Common Stock in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (B) subdivide its outstanding shares of Common Stock, (C)
combine its outstanding shares of Common Stock into a smaller number of shares,
or (D) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, the Exercise Price in effect and the number of
Warrant Shares issuable upon exercise of each Warrant immediately prior to such
action shall be adjusted so that the Holder of any Warrant thereafter exercised
shall be entitled to receive the number of shares of capital stock of the
Company which such Holder would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. Any adjustment made
pursuant to this paragraph shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this paragraph, the Holder of
any Warrant thereafter exercised shall become entitled to receive shares of two
or more classes of capital stock of the Company, the Board of Directors of the
Company (whose
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<PAGE> 11
determination shall be conclusive and evidenced by a Board resolution) shall
determine the allocation of the adjusted Exercise Price between or among shares
of such classes of capital stock.
(b) Reclassification, Combinations, Mergers, etc. In case of any
reclassification or change of outstanding shares of Common Stock issuable upon
exercise of the Warrants (other than as set forth in paragraph (a) above and
other than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants) or in case of any sale or conveyance to another
corporation of all or substantially all of the assets of the Company, then, as a
condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company or such a successor or purchasing corporation, as the
case may be, shall forthwith make lawful and adequate provision whereby the
Holder of each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a Holder of the number of shares of
Common Stock issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and enter
into a supplemental warrant agreement so providing. Such provisions shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 11. If the issuer of
securities deliverable upon exercise of Warrants under the supplemental warrant
agreement is an affiliate of the formed, surviving or transferee corporation,
that issuer shall join in the supplemental warrant agreement. The above
provisions of this paragraph (b) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(c) Issuance of Additional Shares of Common Stock. In the event the
Company shall, at any time or from time to time after the date hereof, issue,
sell, distribute or otherwise grant in any manner (including by assumption) any
additional shares of Common Stock without consideration or for a price per share
less than the current market price per share of Common Stock on the date of the
issuance, sale, distribution or granting of such additional shares, then,
effective upon such issuance or sale, (I) the Exercise Price shall be reduced to
the price (calculated to the nearest 1/1,000 of one cent) determined by
multiplying the Exercise Price in effect immediately prior to such issuance or
sale by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding (exclusive of any treasury shares)
immediately prior to such issuance or sale multiplied by the current market
price per share of Common Stock on the date of such issuance or sale plus (ii)
the consideration, if any, received by the Company in respect of such issuance
or sale, and the denominator of which shall be the product of (A) the total
number of shares of Common Stock outstanding (exclusive of any treasury shares)
immediately after such issuance or sale multiplied by (B) the current market
price per share of Common Stock on the record date for such issuance or sale and
(II) the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be increased to a number
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<PAGE> 12
determined by multiplying the number of shares of Common Stock so purchasable
immediately prior to the record date for such issuance or sale by a fraction,
the numerator of which shall be the Exercise Price in effect immediately prior
to the adjustment required by clause (I) of this sentence and the denominator of
which shall be the Exercise Price in effect immediately after such adjustment.
The Holder hereof acknowledges and agrees that the Designations, Rights and
Preferences of the Series A Convertible Preferred Stock of the Company provides
the owners of the Series A Convertible Preferred Stock with rights to adjustment
similar to those provided the Holder in this clause (c) and agrees that in the
event all owners of Series A Convertible Preferred Stock waive such rights to
adjustment in connection with an issuance or sale of Common Stock of the
Company, that the Holder will waive its rights to adjustment under this clause
(c). In addition, Holder's rights under this clause (c) shall terminate upon
written notice from the Company that the similar rights of the Series A
Convertible Preferred Stock have terminated (for whatever reason) on any date
prior to the conversion of the Series A Convertible Preferred Stock.
(d) Issuance of Options or Convertible Securities. In the event the
Company shall, at any time or from time to time after the date hereof, issue,
sell, distribute or otherwise grant in any manner (including by assumption) any
rights to subscribe for or to purchase, or any warrants or options for the
purchase of, Common Stock or any stock or securities convertible into or
exchangeable for Common Stock (any such rights, warrants or options being herein
called "Options" and any such convertible or exchangeable stock or securities
being herein called "Convertible Securities") or any Convertible Securities
(other than upon exercise of any Option), whether or not such Options or the
rights to convert or exchange such Convertible Securities are immediately
exercisable, and if the price per share at which Common Stock is issuable upon
the exercise of such Options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (i) the aggregate amount, if any,
received or receivable by the Company as consideration for the issuance, sale,
distribution or granting of such Options or any such Convertible Security, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of all such Options or upon conversion or exchange of
all such Convertible Securities, plus, in the case of Options to acquire
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange of all such
Convertible Securities, by (ii) the total maximum number of shares of Common
Stock issuable upon the exercise of all such Options or upon the conversion or
exchange of all such Convertible Securities or upon the conversion or exchange
of all Convertible Securities issuable upon the exercise of all such Options)
shall be less than the current market price per share of Common Stock on the
date for the issuance, sale, distribution or granting of such Options or
Convertible Securities (any such event being herein called a "Distribution"),
then, effective upon such Distribution, (I) the Exercise Price shall be reduced
to the price (calculated to the nearest 1/1,000 of one cent) determined by
multiplying the Exercise Price in effect immediately prior to such Distribution
by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock outstanding (exclusive of any treasury shares)
immediately prior to such Distribution multiplied by the current market price
per share of Common Stock on the date of such Distribution plus (ii) the
consideration, if any, received by the Company in respect of such Distribution,
and the denominator of which shall be the product of (A) the total number of
shares
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<PAGE> 13
of Common Stock outstanding (exclusive of any treasury shares) immediately after
such Distribution multiplied by (B) the current market price per share of Common
Stock on the record date for such Distribution and (II) the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall be increased to
a number determined by multiplying the number of shares of Common Stock so
purchasable immediately prior to the record date for such Distribution by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (I) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately after
such adjustment. For purposes of the foregoing, the total maximum number of
shares of Common Stock issuable upon exercise of all such Options or upon
conversion or exchange of all such Convertible Securities or upon the conversion
or exchange of the total maximum amount of the Convertible Securities issuable
upon the exercise of all such Options shall be deemed to have been issued as of
the date of such Distribution and thereafter shall be deemed to be outstanding
and the Company shall be deemed to have received as consideration therefor such
price per share, determined as provided above. Except as provided in paragraphs
(j) and (k) below, no additional adjustment of the Exercise Price shall be made
upon the actual exercise of such Options or upon conversion or exchange of the
Convertible Securities or upon the conversion or exchange of the Convertible
Securities issuable upon the exercise of such Options. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this paragraph if Holders
(concurrently with all holders of Common Stock) receive, as if the Warrants had
been exercised, the securities issued, sold, distributed or otherwise granted to
such holders of Common Stock on the same terms as holders of Common Stock and in
connection therewith there is no diminution of the economic value of the
Warrants and the Holders of the Warrants do not incur, or become obligated for,
additional cost or expense.
(e) Dividends and Distributions. In the event the Company shall, at any
time or from time to time after the date hereof, distribute to all the holders
of Common Stock any dividend or other distribution of cash, evidences of its
indebtedness, other securities or other properties or assets (in each case other
than (i) dividends payable in Common Stock, Options or Convertible Securities
and (ii) any cash dividend that, when added to all other cash dividends paid
with respect to Common Stock in the one year prior to the declaration date of
such dividend (excluding any such other dividend included in a previous
adjustment of the Exercise Price pursuant to this paragraph (e) and excluding
any cash dividends or other cash distributions from current or retained
earnings), does not exceed 5% of the current market price per share of Common
Stock on such declaration date), or any options, warrants or other rights to
subscribe for or purchase any of the foregoing, then (A) the Exercise Price
shall be decreased to a price determined by multiplying the Exercise Price then
in effect by a fraction, the numerator of which shall be the current market
price per share of Common Stock on the record date for such distribution less
the sum of (X) the cash portion, if any, of such distribution per share of
Common Stock outstanding (exclusive of any treasury shares) on the record date
for such distribution plus (Y) the then fair market value (as determined in good
faith by the Board of Directors of the Company) per share of Common Stock
outstanding (exclusive of any treasury shares) on the record date for such
distribution of that portion, if any, of such distribution consisting of
evidences of indebtedness, other securities, properties, assets, options,
warrants or subscription or purchase rights, and the denominator of
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<PAGE> 14
which shall be such current market price per share of Common Stock and (B) the
number of shares of Common Stock purchasable upon the exercise of each Warrant
shall be increased to a number determined by multiplying the number of shares of
Common Stock so purchasable immediately prior to the record date for such
distribution by a fraction, the numerator of which shall be the Exercise Price
in effect immediately prior to the adjustment required by clause (A) of this
sentence and the denominator of which shall be the Exercise Price in effect
immediately after such adjustment. The adjustments required by this paragraph
(e) shall be made whenever any such distribution occurs retroactive to the
record date for the determination of stockholders entitled to receive such
distribution.
(f) Current Market Price. For the purpose of any computation of current
market price under this Section 11 and Section 13, the current market price per
share of Common Stock at any date shall be (x) for purposes of Section 13, the
closing price on the business day immediately prior to the exercise of the
applicable Warrant pursuant to Section 6 and (y) in all other cases, the average
of the daily closing prices for the shorter of (i) the 20 consecutive trading
days ending on the last full trading day on the exchange or market specified in
the second succeeding sentence prior to the Time of Determination (as defined
below) and (ii) the period commencing on the date next succeeding the first
public announcement of the issuance, sale, distribution or granting in question
through such last full trading day prior to the Time of Determination. The term
"Time of Determination" as used herein shall be the time and date of the earlier
to occur of (A) the date as of which the current market price is to be computed
and (B) the last full trading day on such exchange or market before the
commencement of "ex-dividend" trading in the Common Stock relating to the event
giving rise to the adjustment required by paragraph (a), (b), (c), (d) or (e)
above. The closing price for any day shall be the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each
case (1) on the principal national securities exchange on which the shares of
Common Stock are listed or to which such shares are admitted to trading or (2)
if the Common Stock is not listed or admitted to trading on a national
securities exchange, in the over-the-counter market as reported by Nasdaq
National or SmallCap Markets or any comparable system or (3) if the Common Stock
is not listed on Nasdaq National or SmallCap Markets or a comparable system, as
furnished by two members of the NASD selected from time to time in good faith by
the Board of Directors of the Company for that purpose. In the absence of all of
the foregoing, or if for any other reason the current market price per share
cannot be determined pursuant to the foregoing provisions of this paragraph (f),
the current market price per share shall be the fair market value thereof as
determined in good faith by the Board of Directors of the Company and evidenced
by a resolution of such Board, subject to the following dispute resolution right
of the Holders of the Warrants. In the event that Holders of a majority of the
Warrants dispute the determination of the Board of Directors, such Holders shall
notify the Company and the current market price shall be determined in a
reasonably prompt manner as follows:
(1) The Company and Holders of a majority of the Warrants shall each
appoint an independent, experienced appraiser who is a member of a
recognized professional association of business appraisers. The two
appraisers shall determine the value of shares
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<PAGE> 15
of Common Stock at the relevant date, assuming a sale between a willing
buyer and a willing seller, both of whom have full knowledge of the
financial and other affairs of the Company, and neither of whom is
under any compulsion to sell or to buy.
(2) If the higher of the two appraisals is not more than 20% more than
the lower of the appraisals, the current market price per share shall
be the average of the two appraisals. If the higher of the two
appraisals is 20% or more than the lower of the two appraisals, then a
third appraiser shall be appointed by the two appraisers, and if they
cannot agree on a third appraiser, the American Arbitration Association
shall appoint the third appraiser. The third appraiser, regardless of
who appoints him or her, shall have the same qualifications as the
first two appraisers.
(3) The current market price per share after the appointment of the
third appraiser shall be the average of the two appraisals that are
closest in value to each other.
(4) The fees and expenses of the appraisers shall be paid one-half by
the Company and one-half by the Holders.
(g) Certain Distributions. If the Company shall pay a dividend or make
any other distribution payable in Options or Convertible Securities, then, for
purposes of paragraph (d) above, such Options or Convertible Securities shall be
deemed to have been issued or sold without consideration.
(h) Consideration Received. If any shares of Common Stock, Options or
Convertible Securities shall be issued, sold or distributed for a consideration
other than cash, the amount of the consideration other than cash received by the
Company in respect thereof shall be deemed to be the then fair market value of
such consideration (as determined in good faith by the Board of Directors of the
Company and evidenced by a Board resolution). If any Options shall be issued in
connection with the issuance and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued without consideration; provided, however, that if
such Options have an exercise price equal to or greater than the current market
price of the Common Stock on the date of issuance of such Options, then such
Options shall be deemed to have been issued for consideration equal to such
exercise price.
(i) Deferral of Certain Adjustments. No adjustment to the Exercise
Price (including the related adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant) shall be required hereunder
unless such adjustment, together with other adjustments carried forward as
provided below, would result in an increase or decrease of at least one percent
of the Exercise Price; provided that any adjustments which by reason of this
paragraph (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. No adjustment need be made for a
change in the par value of the Common Stock.
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<PAGE> 16
All calculations under this Section shall be made to the nearest 1/1,000 of one
cent or to the nearest 1/1000 of a share, as the case may be.
(j) Changes in Options and Convertible Securities. If the exercise
price provided for in any Options referred to in paragraph (d) above, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in paragraph (d) or (e) above, or the rate at
which any Convertible Securities referred to in paragraph (d) or (e) above are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Section 11), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock so
purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be, but only with respect to
such Options and Convertible Securities as then remain outstanding.
(k) Expiration of Options and Convertible Securities. If, at any time
after any adjustment to the number of shares of Common Stock purchasable upon
the exercise of each Warrant shall have been made pursuant to paragraph (d), (e)
or (j) above or this paragraph (k), any Options or Convertible Securities shall
have expired unexercised, the number of such shares so purchasable shall, upon
such expiration, be readjusted and shall thereafter be such as they would have
been had they been originally adjusted (or had the original adjustment not been
required, as the case may be) as if (i) the only shares of Common Stock deemed
to have been issued in connection with such Options or Convertible Securities
were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such Options or Convertible Securities and (ii) such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the aggregate consideration, if
any, actually received by the Company for the issuance, sale, distribution or
granting of all such Options or Convertible Securities, whether or not
exercised; provided that no such readjustment shall have the effect of
decreasing the number of such shares so purchasable by an amount (calculated by
adjusting such decrease to account for all other adjustments made pursuant to
this Section 11 following the date of the original adjustment referred to above)
in excess of the amount of the adjustment initially made in respect of the
issuance, sale, distribution or granting of such Options or Convertible
Securities.
(l) Other Adjustments. In the event that at any time, as a result of an
adjustment made pursuant to this Section 11, the Holders shall become entitled
to receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
the Warrants and the Exercise Price applicable to such exercise shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
16
<PAGE> 17
practicable to the provisions with respect to the shares of Common Stock
contained in this Section 11.
Section 12. Statement on Warrants. Irrespective of any adjustment in
the number or kind of shares issuable upon the exercise of the Warrants or the
Exercise Price, Warrants theretofore or thereafter issued may continue to
express the same number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
Section 13. Fractional Interest. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full shares of Common Stock which shall be issuable
upon such exercise shall be computed on the basis of the aggregate number of
shares of Common Stock acquirable on exercise of the Warrants so presented. If
any fraction of a share of Common Stock would, except for the provisions of this
Section, be issuable on the exercise of any Warrant (or specified portion
thereof), the Company shall direct the Transfer Agent to pay an amount in cash
calculated by it equal to (i) the then current market price per share multiplied
by such fraction computed to the nearest whole cent, less (ii) an amount equal
to the Exercise Price multiplied by such fraction computed to the nearest whole
cent. The Holders, by their acceptance of the Warrant Certificates, expressly
waive any and all rights to receive any fraction of a share of Common Stock or a
stock certificate representing a fraction of a share of Common Stock.
Section 14. Notices to Warrant Holders. Upon any adjustment of the
Exercise Price pursuant to Section 11, the Company shall promptly thereafter
cause to be given to each of the registered Holders by first-class mail, postage
prepaid, a certificate executed by the Chief Financial Officer of the Company
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence, absent manifest error, of the
correctness of the matters set forth therein.
In case:
(a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for
or purchase shares of Common Stock or of any other subscription rights
or warrants; or
(b) the Company shall authorize the distribution to all
holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares
of Common Stock or distributions referred to in Section 11 hereof); or
17
<PAGE> 18
(c) of any consolidation or merger to which the Company is a
party for which approval of any shareholders of the Company is required
and following which the shareholders of the Company before such
consolidation or merger no longer hold at least 50% of the outstanding
capital stock of the Company following the merger or consolidation, or
of the conveyance or transfer of all or substantially all of the
properties and assets of the Company, or of any reclassification or
change of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock, or other transaction that would result in a change in control;
or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company proposes to take any other action that would
require an adjustment of the Exercise Price or the number of Warrant
Shares pursuant to Section 11; then the Company shall cause to be given
to each of the registered Holders of the Warrants at such Holder's
address appearing on the Warrant register, at least 20 days (or 10 days
in any case specified in clauses (a) or (b) above) prior to the
applicable record date hereinafter specified, or promptly in the case
of events for which there is no record date, by first-class mail,
postage prepaid, a written notice stating (i) the date as of which the
holders of record of shares of Common Stock to be entitled to receive
any such rights, options, warrants or distribution are to be
determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date
on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up or change of control is expected
to become effective or consummated, and the date as of which it is
expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if
any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up or change
of control. The failure to give the notice required by this Section 14
or any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or change
of control or the vote upon any action. Nothing contained in this
Agreement or in any of the Warrant Certificates shall be construed as
conferring upon the Holders thereof the right to vote or to consent or
to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other
matter, or any rights whatsoever as shareholders of the Company.
Section 15. Registration. The Company acknowledge that Holders of
Warrants shall have the registration rights set forth in the Registration Rights
Agreement.
18
<PAGE> 19
Section 16. Reports. For each fiscal quarter and each fiscal year of
the Company, the Company will transmit by mail to all Warrant Holders, as their
names and addresses appear in the register, without cost to such Warrant
Holders, unaudited quarterly and audited annual financial statements of the
Company prepared in accordance with GAAP. Beginning with the initial public
offering of the Company and thereafter, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall prepare the annual and quarterly reports and other
information, and documents ("SEC Reports") as the Commission shall prescribe
pursuant to such Section 13(a) or 15(d) and which the Company is or would be (if
they were so subject) required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provision thereto (on or prior to the
respective dates (the "Required Filing Dates") by which the Company is or would
(if they were so subject) be required so to file such SEC Reports) and shall,
within 15 days of the Required Filing Date transmit by mail to all Warrant
Holders, as their names and addresses appear in the register, without cost to
such Warrant Holders, copies of such annual and quarterly reports.
Section 17. Rule 144A. The Company hereby agrees with each Holder, for
so long as any Registrable Securities remain outstanding and the Company is not
subject to Section 13(a) or 15(d) of the Exchange Act, to make available, upon
request of any Holder of Registrable Securities, to any Holder or beneficial
owner of Registrable Securities in connection with any sale thereof and any
prospective purchaser of such Registrable Securities designated by such Holder
or beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Securities
pursuant to Rule 144A.
Section 18. Notices to Company. Any notice or demand authorized by this
Agreement to be given or made by the Holder of any Warrants to or on the Company
shall be sufficiently given or made when and if deposited in the mail,
first-class or registered, postage prepaid, addressed (until another address is
filed in writing by the Company), as follows:
State Communications, Inc.
200 N. Main Street, Suite 303
Greenville, South Carolina 29601
Attention: Clark H. Mizell
Telephone: (864) 271-6335
Telecopy: (864) 271-7810
Any notice pursuant to this Agreement to be given by the Company to the
Holders shall be sufficiently given when and if deposited in the mail,
first-class or registered, postage prepaid, addressed (until another address is
filed in writing with the Company) to the addresses of the Holders provided to
the Company from time to time.
Section 19. Supplements and Amendments. The Company and Nortel Networks
may from time to time supplement or amend this Agreement without the approval of
any Holders of Warrants in order to cure any ambiguity or to correct or
supplement any provision contained
19
<PAGE> 20
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company and Nortel Networks may deem necessary or desirable
and which shall not in any way adversely affect the interests of the Holders of
Warrants. Any amendment or supplement to this Agreement that has a material
adverse effect on the interests of Holders shall require the written consent of
Holders representing a majority of the then outstanding Warrants (excluding
Warrants held by the Company or any of its Affiliates); provided, however, that
the consent of each Holder of a Warrant affected shall be required for any
amendment pursuant to which the Exercise Price would be increased or the number
of Warrant Shares purchasable upon exercise of Warrants would be decreased
(other than pursuant to adjustments provided for in Section 11 hereof). Nortel
Networks shall be entitled to receive and shall be fully protected in relying
upon an officer's certificate and opinion of counsel as conclusive evidence that
any such amendment or supplement is authorized or permitted hereunder, that it
does or does not, as the case may be, require the written consent of Holders to
be effective hereunder, that it is not inconsistent herewith, and that it will
be valid and binding upon the Company in accordance with its terms.
Section 20. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company shall bind and inure to the
benefit of its respective successors and assigns hereunder.
Section 21. Termination. This Agreement (other than any party's
obligations with respect to Warrants previously exercised and with respect to
indemnification) shall terminate at 5:00 p.m., New York City time on the
Expiration Date.
Section 22. Governing Law. THIS AGREEMENT AND EACH WARRANT CERTIFICATE
ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF SAID STATE, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF.
Section 23. Benefits of This Agreement.
(a) The Holders are the third-party beneficiaries of this Agreement.
Nothing in this Agreement shall be construed to give to any Person other than
the Company, Nortel Networks and the Holders of the Warrants any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, Nortel Networks and the
Holders of the Warrants from time to time.
(b) Prior to the exercise of the Warrants, no Holder of a Warrants, as
such, shall be entitled to any rights of a stockholder of a Company, including,
without limitation, the right to receive dividends or subscription rights, the
right to vote, to consent, to exercise any preemptive right, to receive any
notice of or to participate in meetings of stockholders for the election of
directors of the Company or any other matter or to receive any notice of any
proceedings of the
20
<PAGE> 21
Company, except as may be specifically and expressly provided for herein. The
Holders of the Warrants are not entitled to share in the assets of the Company
in the event of the liquidation, dissolution or winding up of the Company's
affairs.
(c) All rights of action in respect of this Agreement are vested in the
Holders of the Warrants, and any Holder of any Warrant, without the consent of
the Holder of any other Warrant, may, on such Holder's own behalf and for such
Holder's own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company suitable to enforce, or otherwise in respect
of, such Holder's rights hereunder, including the right to exercise, exchange or
surrender for purchase such Holder's Warrants in the manner provided in this
Agreement.
Section 24. Representations and Warranties.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of South Carolina, has the
corporate power and authority to conduct its business as currently conducted and
as intended to be conducted, has the corporate power and authority to execute
and deliver this Agreement and the Warrant Certificates, to issue the Warrants
and to perform its obligations under this Agreement and the Warrant
Certificates, has the corporate power and authority and legal right to own and
lease its properties and is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which it owns or leases real property or in
which the conduct of its business requires such qualification, except where
failure to be so qualified could not be reasonably expected to have a material
adverse effect on the business, properties, financial condition or results of
operations of the Company and its subsidiaries taken as a whole.
(b) The execution, delivery and performance by the Company of this
Agreement and the Warrant Certificates, the issuance of the Warrants and the
issuance of the Warrant Shares upon exercise of the Warrants have been duly
authorized by all necessary corporate action and do not and will not violate, or
result in a breach of, or constitute a default under, or require any consent
under, or result in the creation of any lien, charge of encumbrance upon any of
the assets of the Company pursuant to, any law, statute, ordinance, rule,
regulation, order or decree of any court, governmental body or regulatory
authority or administrative agency having jurisdiction over the Company or its
subsidiaries or the Company's Articles of Incorporation or any contract,
mortgage, loan agreement, note, lease or other instrument binding upon the
Company or its subsidiaries or by which any of their respective properties are
bound.
(c) This Agreement and the Warrant Certificates executed and delivered
on the date hereof have been duly executed and delivered by the Company. This
Agreement, the Warrant Certificates and the Warrants constitute legal, valid,
binding and enforceable obligations of the Company. The Warrant Shares, when
issued upon exercise of the Warrants in accordance with the terms hereof, will
be duly authorized, validly issued, fully paid, nonassessable and free of any
lien or encumbrance not created by the Holder thereof. The Warrants and the
Warrant Shares are not subject to any preemptive right or right of first
refusal.
21
<PAGE> 22
(d) The authorized capital stock of Company consists solely of (x)
50,000,000 shares of Common Stock, of which 10,870,295 shares are currently
issued and outstanding, and (y) 10,000,000 shares of preferred stock (the
"Preferred Stock"), of which 4,791,668 shares of Series A Convertible Preferred
Stock, par value of $.01 per share, are currently issued and outstanding (the
Common Stock and the Preferred Stock being, collectively, the "Capital Stock").
Except for the Warrants, and except as set forth on Schedule 1 attached hereto,
there are outstanding on the date hereof no options, warrants or other
securities exercisable or exchangeable for or convertible into shares of Capital
Stock of the Company or any other rights to acquire Capital Stock of the
Company.
(e) The representations and warranties as to the financial statements
of the Company set forth in Section 7.2 of the Credit Agreement are true and
correct.
Section 25. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
STATE COMMUNICATIONS, INC.
By:
-------------------------------------
Name: Clark H. Mizell
Title: Executive Vice President and Chief
Financial Officer
NORTEL NETWORKS INC.
By:
-------------------------------------
Name: Michael W. McCorkle
Title: Director, Customer Finance
22
<PAGE> 23
Exhibit A
FORM OF WARRANT CERTIFICATE
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY AND THE SECURITIES DELIVERED UPON EXERCISE THEREOF MAY NOT BE
EXERCISED, OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY AND THE SECURITIES DELIVERED UPON THE EXERCISE THEREOF
IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A. THE HOLDER
OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A)
SUCH SECURITY AND THE SECURITIES DELIVERED UPON EXERCISE HEREOF MAY BE
EXERCISED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A U.S.
PERSON (AS DEFINED IN RULE 902 UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT, OR (d) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (IN THE CASE OF (b), (c) or (d), UPON AN OPINION OF COUNSEL AND
WRITTEN CERTIFICATION IF THE ISSUER, REGISTRAR OR TRANSFER AGENT FOR THE
SECURITIES SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY AND THE SECURITIES
DELIVERED UPON EXERCISE HEREOF OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.
_________ Shares of Common Stock Warrant Certificate No. __
WARRANT CERTIFICATE
For the Purchase of Common Stock of
STATE COMMUNICATIONS, INC.
1. Certificate. THIS IS TO CERTIFY THAT _________________, or its
registered assigns ("Holder"), is entitled to exercise this Warrant Certificate
to purchase from State Communications, Inc., a South Carolina corporation (the
"Company"), ____________________ (________) shares of common stock, par value
$0.001 per share, of the Company (the "Common Stock"), all on the terms and
conditions and pursuant to the provisions hereinafter set forth. This Warrant
Certificate is executed pursuant to the terms
<PAGE> 24
of that certain Warrant Agreement of even date herewith (the "Agreement")
between the Company and the Holder. Any capitalized terms not defined herein
will have the meanings set forth in the Agreement.
2. Exercise Price. The exercise price per share of Common Stock shall
be $2.00 (the "Exercise Price"). Such Exercise Price and the number of shares of
Common Stock into which this Warrant Certificate is exercisable are subject to
adjustment from time to time as provided in the Agreement.
3. Exercise. This Warrant Certificate may be exercised at any time or
from time to time on or after the date hereof; provided, however, that this
Warrant Certificate shall be void and all rights represented hereby shall cease
unless exercised in full before May 27, 2006, as such date may be extended
pursuant to Section 6 of the Agreement (the "Expiration Date").
In order to exercise this Warrant Certificate, in whole or in part, the
Holder hereof shall deliver to the Company at its principal office, or at such
other office as shall be designated by the Company pursuant to the Agreement:
(a) written notice of Holder's election to exercise this Warrant
Certificate, which notice shall specify the number of shares of Common Stock to
be purchased pursuant to such exercise;
(b) payment of the Exercise Price in cash or by certified check or on a
"net basis" as set forth in Section 6 of the Agreement; and
(c) this Warrant Certificate, properly indorsed.
Upon receipt thereof, the Company shall promptly execute or cause to be executed
and deliver to such Holder a certificate or certificates representing the
aggregate number of full shares of Common Stock issuable upon such exercise. The
stock certificate or certificates so delivered shall be registered in the name
of such Holder, or such other name as shall be designated in said notice. If the
exercise is for less than all of the shares of Common Stock issuable as provided
in the Warrant Certificate, the Company will issue a new Warrant Certificate of
like tenor and date for the balance of such shares issuable hereunder to the
Holder.
4. Transfer. This Warrant Certificate and all options and rights
hereunder are transferable, as to all or any part of the number of shares of
Common Stock purchasable upon its exercise, in accordance with the Agreement.
5. Registration Rights. If this Warrant Certificate represents a right
to purchase greater than _____ shares of Common Stock pursuant to the Agreement,
the Common Stock into which this Warrant Certificate is exercisable is subject
to registration rights as provided in the Registration Rights Agreement.
6. Successors and Assigns. This Warrant Certificate and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Holder hereof and, shall be enforceable by any
such Holder.
<PAGE> 25
7. Headings. Headings of the paragraphs in this Warrant Certificate are
for convenience and reference only and shall not, for any purpose, be deemed a
part of this Warrant Certificate.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed and issued.
DATED as of ___________, ____.
STATE COMMUNICATIONS, INC.
By: ______________________________
Name: ______________________________
Title: ______________________________
ATTEST:
By: ______________________________
Name: ______________________________
Title: ______________________________
CORPORATE SEAL:
<PAGE> 26
Exhibit B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF WARRANTS
Re: _______ Warrants to Purchase Common Stock (the "Warrants") of State
Communications, Inc.
This Certificate relates to ________ Warrants held in _____ book-entry
or _____ definitive form by _______________ (the "Transferor"). The Transferor:
[ ] has requested the Company by written order to exchange or register
the transfer of a Warrant or Warrant(s).
In connection with such request and in respect of each such Warrant,
the Transferor does hereby certify that the Transferor is familiar with the
Warrant Agreement relating to the above captioned Warrants and that the transfer
of each such Warrant does not require registration under the Securities Act of
1933, as amended (the "Securities Act"), because:
[ ] Each such Warrant is being acquired for the Transferor's own
account without transfer.
[ ] Each such Warrant is being transferred (i) to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act), in
reliance on Rule 144A or (ii) pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act (and, in the case of clause
(ii), based on an opinion of counsel and written certification if the Company so
requests).
[ ] Each such Warrant is being transferred (i) in accordance with Rule
144 under the Securities Act (and based on an opinion of counsel if the Company
so requests) or (ii) pursuant to an effective registration statement under the
Securities Act.
[ ] Each such Warrant is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company so requests).
[INSERT NAME OF TRANSFEROR]
By: ______________________________
Name: ______________________________
Title: ______________________________
Date:
<PAGE> 27
Schedule 1
OUTSTANDING OPTIONS, WARRANTS, CONVERTIBLE SECURITIES OR RIGHTS TO
ACQUIRE CAPITAL STOCK
[To be provided by State Communications]
<PAGE> 1
EXHIBIT 10.1
STATE COMMUNICATIONS
AMENDED & RESTATED
EMPLOYEE INCENTIVE PLAN
(AS LAST AMENDED ON DECEMBER 14, 1999)
1. Purpose. The purpose of the State Communications Employee Incentive
Plan is to provide additional incentives to employees and others to advance the
interest of State Communications ("State") and to enable State to attract and
retain the services of other highly competent employees and others.
2. Eligibility. Qualified Options, Bonus Stock Awards and Restricted
Stock Awards hereunder may be granted to employees of State or any subsidiary or
affiliate of State. Non-Qualified Options hereunder may be granted to employees,
or any others that the Board of Directors, in its sole discretion, shall
determine. The Board of Directors, in its sole discretion, shall also determine
the nature of the Options and Restricted Stock Awards to be granted and the
terms and provisions of such Restricted Stock Awards and Options, subject to the
limitations set forth in this Plan.
3. Amount of Stock. Options and/or Awards for no more than 10,000,000
shares of State common stock may be granted pursuant to this Plan. In the event
that any Options or Awards granted under this Plan shall terminate, expire or be
canceled, new Options or Awards may be granted with respect to the shares
covered by such Options or Awards. However, to the extent that Options or Awards
granted under this Plan are exercised or become vested, the stock available for
grant under the Plan shall be reduced.
4. Administration of Plan. This Plan shall be administered by the State
Board of Directors.
5. Terms and Conditions of Options Intended to Qualify as Incentive
Stock Options Under the Internal Revenue Code. ("Qualified Options"). All
Qualified Options approved for grant by the Board of Directors shall be
evidenced by written stock option agreements in such form as the Board of
Directors may designate. Each such agreement shall incorporate the terms of this
Plan and shall also be subject to the provisions of the Internal Revenue Code
applicable to "incentive stock options," as that term is defined in Section 422A
of the Internal Revenue Code. Each Qualified Option shall be subject to the
following terms and conditions, in addition to such other terms and conditions
as the Board of Directors may deem advisable:
(a) Option Price. The option price for each share of State
Common Stock under a Qualified Option shall not be less than the fair market
value of such share on the date that the Qualified Option is granted; provided,
however, that a Qualified Option granted to an employee who is a ten percent
(10%) or more shareholder of State shall not be less than one hundred and ten
percent (110%) of the fair market value of such share on such date. Unless the
Board of Directors determines that an appraisal by an independent appraiser must
be made as of the date the Qualified Option is granted, fair market value shall
be the most recent evaluation of State Common Stock made for general stock
transaction purposes. If a Qualified Option is granted after the fiscal year end
of State, but before the evaluation as of such date is received, the option
price shall be determined when such evaluation is received by State. Each option
agreement shall state the number of shares to which it pertains and the option
price of such shares.
(b) Option Period. The option agreement shall set forth the
period for which each Qualified Option is granted. It is anticipated that
Qualified Options shall be exercisable with respect to twenty percent (20%) of
the shares covered by such Qualified Option on each anniversary date of the
grant
1
<PAGE> 2
of such shares, beginning with the first anniversary date of such grant, and
shall be exercisable with respect to one hundred percent (100%) of the shares
covered by such Qualified Option after the expiration of five (5) years from the
date of grant. The Board of Directors shall have the discretion to vary the
schedule pursuant to which such Qualified Options shall be exercisable,
provided, that no Qualified Option shall be exercisable after the expiration of
(i) ten (10) years from the date of grant, with respect to an employee who is
less than a ten percent (10%) shareholder of State, or (ii) five (5) years from
the date of grant with respect to an employee who is a ten percent (10%) or more
shareholder of State. Except as otherwise provided below in the case of death of
an employee, if the employee ceases to be employed by State, all of that
employee's Qualified Options that have become exercisable according to the terms
of this Plan shall be exercisable for a period of sixty (60) days following the
date of termination of the employee's employment after which time they shall
expire. However, the Board of Directors, in its sole discretion may extend the
exercise date of Qualified Options granted hereunder for a period of ninety (90)
days following the date of termination of the employee's employment.
If the employee dies while in the employ of State, Qualified
Options granted under this Plan may be exercised in whole or in part, but only
to the extent that the employee would have been entitled to exercise them if he
had been living, for a period not to exceed the lesser of (i) the remaining term
of such Qualified Option, or (ii) nine (9) months after the employee's death.
Any Qualified Options not exercisable within such period shall expire. Such
Qualified Options may be exercised by the executor or administrator of the
employee's estate or such other person as the employee may designate in his
Will.
(c) Assignability. A Qualified Option granted pursuant to this
Plan shall be exercisable only by the employee to whom it is granted and shall
not be assignable by him otherwise than by will or by the laws of descent and
distribution.
(d) Manner of Exercise. The Board of Directors may impose such
conditions and restrictions upon the exercise of Qualified Options as it may
deem advisable. In addition, it shall be a condition to the obligation of State
to issue or transfer shares of stock upon exercise of a Qualified Option or upon
the disposition of shares acquired pursuant to a Qualified Option that the
employee pay to State, upon its demand, such amount as may be requested by State
in order to satisfy its obligation to withhold Federal and State income taxes
with respect to such disposition. The taxable value of the Qualified Option at
the time of disposition shall be reported on the grantee's W-2 for the year in
which disposition occurs.
(e) Rights as a Shareholder. The holder of a Qualified Option
granted under this Plan shall not by reason thereof have any right as a
shareholder.
(f) Restrictions Upon Shares Issued Pursuant to Qualified
Options. All shares issued pursuant to the exercise of Qualified Options granted
hereunder shall be subject to the following restrictions, and certificates
evidencing such shares shall be appropriately legended to give notice of such
restrictions:
(i) If such shares are issued to an employee of State
and such employee's employment is terminated for any reason,
then, and any time within six (6) months after the termination
of such employee's employment, State may, at its option,
require such employee to sell all or any portion of such
shares to State at their then fair market value, as defined in
Section 5.(a) hereof.
(ii) All shares acquired pursuant to Qualified
Options hereunder shall be subject to a right of first refusal
in favor of State and may not be sold, assigned or otherwise
transferred unless first offered to State on the same terms
and conditions.
2
<PAGE> 3
(g) Adjustment in the Event of Change in Stock. In the event
of any change in the outstanding stock of State by reason of stock dividend,
stock split, recapitalization, reorganization, merger, split up or the like, the
number and kind of shares under outstanding option agreements pursuant to this
Plan and the option price shall be appropriately adjusted so as to preserve, but
not increase, the benefits to the holders of such Qualified Options.
(h) Acceleration of Exercise Rights. In the event of (i) a
merger of State with another company in which State is not the surviving
corporation, (ii) sale of substantially all of State's assets, or (iii) change
in ownership of State of more than fifty percent (50%), then in either of such
events, all outstanding Qualified Options shall immediately become exercisable.
(i) Prohibition of Tandem Options. No grant of tandem stock
options may be made, nor may Qualified Options and Non-Qualified Options be
granted under any sort of arrangement where the exercise of one affects the
right to exercise the other.
6. Terms and Conditions of Non-Qualified Options. All Non-Qualified
Options approved for grant by the Board of Directors shall be evidenced by
written stock option agreements in such form as the Board of Directors may
designate. Each such option agreement shall incorporate the terms of this Plan
and shall be subject to the following terms and conditions, in addition to such
other terms and conditions as the Board of Directors may deem advisable:
(a) Option Price. The option price for each share of State
Common Stock under a Non-Qualified Option shall be the fair market value of such
share, as defined in Section 5.(a) hereof, subject to the authority of the Board
of Directors to designate an option price either less than or more than such
fair market value.
(b) Option Period. The option agreement shall set forth the
period for which each Non-Qualified Option is issued. In General, subject to the
discretion of the Board of Directors to set some other period, a Non-Qualified
Option may be exercised with respect to twenty percent (20%) of the shares
covered by such Non-Qualified Option on each anniversary date of the grant of
such shares, beginning with the first anniversary date of such grant, and shall
be exercisable with respect to one hundred percent (100%) of the shares covered
by such Non-Qualified Option after the expiration of five (5) years from the
date of grant. If the employee ceases to be employed by State, all of that
employee's Non-Qualified Options that have become exercisable according to the
terms of this Plan shall be exercisable for a period of sixty (60) days
following the date of termination of the employee's employment after which time
they shall expire.
(c) Assignability. A Non-Qualified Option granted pursuant to
this Plan shall be exercisable only by the individual to whom it is granted and
shall not be assignable by him otherwise than by will or by the laws of descent
and distribution.
(d) Manner of Exercise. The Board of Directors may impose such
conditions and restrictions upon the exercise of Non-Qualified Options as it may
deem advisable. In addition, it shall be a condition to the obligation of State
to issue or transfer shares of stock upon grant of Non-Qualified Option, upon
exercise of a Non-Qualified Option or upon the disposition of shares acquired
pursuant to a Non-Qualified Option that the individual pay to State, upon its
demand, such amount as may be requested by State in order to satisfy its
obligation to withhold Federal and State income taxes with respect to such
grant, exercise or disposition. The taxable value of the Non-Qualified Option at
the time of grant, exercise or disposition, as the case may be, shall be
reported on the grantee's W-2 or a Form 1099 for the year in which
3
<PAGE> 4
grant, exercise or disposition occurs.
(e) Rights as a Shareholder. The holder of a Non-Qualified
Option granted under this Plan shall not by reason thereof have any right as a
shareholder.
(f) Restrictions Upon Shares Issued Pursuant to Non-Qualified
Options. All shares issued pursuant to the exercise of Non-Qualified Options
granted hereunder shall be subject to the following restrictions, and
certificates evidencing such shares shall be appropriately legended to give
notice of such restrictions:
(i) If such shares are issued to an employee of State
and such employee holder's employment is terminated for any
reason, or if such shares are issued to a holder who is not an
employee of State, then, at any time within six (6) months
after the termination of such employee holder's employment or
at any time within six (6) months after such issuance of
shares to a non-employee holder, State may, at its option,
require such holder to sell all or any portion of such shares
to State at their then fair market value, as defined in
Section 5.(a) hereof.
(ii) All shares acquired pursuant to Non-Qualified
Options hereunder shall be subject to a right of first refusal
in favor of State and may not be sold, assigned or otherwise
transferred unless first offered to State on the same terms
and conditions.
(g) Adjustment in the Event of Change in Stock. In the event
of any change in the outstanding stock of State by reason of stock dividend,
stock split, recapitalization, reorganization, merger, split up or the like, the
number and kind of shares under outstanding option agreements pursuant to this
Plan and the option price shall be appropriately adjusted so as to preserve, but
not increase, the benefits to the holders of such Non-Qualified Options.
(h) Acceleration of Exercise Rights. In the event of (i) a
merger of State with another company in which State is not the surviving
corporation, (ii) sale of substantially all of State's assets, or (iii) change
in ownership of State or more than fifty percent (50%), then in either of such
events, all outstanding Non-Qualified Option shall immediately become
exercisable.
7. Terms and Conditions of Restricted Stock Awards. Each share of
Restricted Stock which may be awarded to an employee shall be subject to the
following terms and conditions, in addition to such other terms and conditions
as the Board of Directors may deem advisable:
(a) Price. Shares of Restricted Stock may be sold to employees
for such price as the Board of Directors may determine or may be awarded for non
consideration other than the employee's past and future services or other
considerations, as the Board of Directors, in its sole discretion, shall deem
appropriate,
(b) Risk of Forfeiture. All shares of Restricted Stock shall
be forfeited and returned to State for cancellation if the employee ceases to be
employed by State for any reason prior to the scheduled lapse of such risk of
forfeiture as provided by the Board of Directors. Upon making any grant of
Restricted Stock, the Board of Directors shall determine the schedule for lapse
of such risk of forfeiture, which is anticipated to call for a lapse of the risk
of forfeiture with respect to twenty percent (20%) of such shares on each
anniversary of the grant of such shares, beginning with the first anniversary of
such grant, until none of such shares are subject to such risk of forfeiture.
The Board of Directors, however, shall have complete discretion to determine the
manner in which such risk of forfeiture shall lapse.
4
<PAGE> 5
(c) Assignability. No shares of Restricted Stock shall be
sold, assigned or transferred by an employee so long as it remains subject to a
risk of forfeiture hereunder.
(d) Rights as a Shareholder. A grantee, as owner of Restricted
Stock, shall have the right to vote such shares and to receive all dividends,
cash or stock, paid or delivered thereon. Such shares, however, may not be sold,
assigned, pledged, hypothecated or otherwise transferred prior to the vesting of
such shares.
(e) Buy Back and Right of First Refusal. If an employee
leaves the employ of State for any reason, State may, it its option, purchase
any shares of Restricted Stock which are not forfeited by reason of such
termination of employment. Such option shall lapse unless exercised within six
(6) months after such termination of employment. The purchase price shall be the
fair market value, as defined in Section 5.(a) hereof, of such shares at the
date of such termination of employment. All shares of stock awarded to employees
hereunder shall permanently be subject to a right of refusal in favor of State
and may not be sold, assigned or transferred to any person unless first offered
for sale to State upon the same terms and conditions.
(f) Acceleration of Vesting. In the event of (i) a merger of
State with another company in which State is not the surviving corporation, (ii)
sale of substantially all of State's assets, or (iii) change in ownership of
State of more than fifty percent (50%), then in either of such events, all
outstanding Restricted Stock shall immediately become vested.
(g) All certificates representing shares of Restricted Stock
shall be appropriately legended to reflect the above restrictions.
(h) An employee to whom shares of Restricted Stock are awarded
shall be required to remit to State, upon demand, such amounts of money as may
be required by State to satisfy Federal and State income tax withholding
requirements with respect to such Restricted Stock. The value of the Restricted
Stock at the time of vesting shall be reported on the grantee's W-2 for the year
in which vesting occurs.
8. Terms and Conditions of Bonus Stock Awards. All Bonus Shares which
may be awarded to an employee shall be subject to the following terms and
conditions, in addition to such other terms and conditions as the Board of
Directors may deem advisable:
(a) Price. Bonus Shares shall be awarded at the fair market
value of such shares at date of award, as defined in Section 5.(a) hereof, and
shall be issued in the name of the grantee. The Bonus Shares shall be issued
without the payment of any cash consideration by the grantee. However, it shall
be a condition to issuance of the Bonus Shares that the grantee pay to State,
upon its demand, such amount as may be requested by State in order to satisfy
its obligation to withhold Federal and State income taxes with respect to such
grant. The value of the Bonus Shares at the time of award shall be reported on
the grantee's W-2 for the year in which the award is made.
(b) The Bonus Shares shall be issued against execution by the
grantee of an Award Agreement.
(c) Shareholder of Rights. A grantee, as owner of Bonus
Shares, shall have all of the rights of a shareholder, including the right to
vote such shares and to receive all dividends, cash or stock, paid or delivered
thereon.
5
<PAGE> 6
(d) Buy Back and Right of First Refusal. All Bonus Shares
awarded are subject to repurchase by State upon termination of the grantee's
employment, for any reason, as follows:
(i) If termination of employment occurs within three
(3) years from date of award of the Bonus Shares, the price to
be paid upon repurchase shall be the value of such Bonus
Shares at date of award, plus interest at the annual prime
rate less one percent (1%) during the period from date of
award to date of repurchase, or
(ii) If termination of employment occurs after three
(3) years from date of award of the Bonus Shares, the price to
be paid upon repurchase shall be their then fair market value
as defined in Section 5.(a) hereof.
All shares of stock awarded to employees hereunder shall
permanently be subject to a right of refusal in favor of State and may not be
sold, assigned or transferred to any person unless first offered for sale to
State upon the same terms and conditions.
9. Governmental Regulations. This Plan and the options and rights
granted hereunder shall be subject to all applicable Federal and State laws.
State shall not be required to issue stock prior to satisfaction of applicable
registration requirements or necessary qualifications.
10. Non-Uniform Determinations. Determinations by the Board of
Directors with respect to Options, Awards, stock values and all other matters
under this Plan need not be uniform or consistent and may be made selectively
among employees, including among employees who are similarly situated, or
others, at the sole discretion of the Board of Directors.
11. Term of the Plan. This Plan shall become effective on the date of
its approval by a majority of the shareholders of State and shall terminate on
ten (10) years, or such earlier date as may be determined by the Board of
Directors. Termination of the Plan shall not affect the rights of holders of
outstanding Qualified Options, Non-Qualified Options or Restricted Stock Awards.
12. Amendment of the Plan. This Plan may be amended by the Board of
Directors without shareholder approval; provided, that the Board of Directors
shall have no power to increase the total number of shares that may be issued
pursuant to the Plan, or to amend the provisions of the Plan which establish the
price of Qualified Options as the fair market value at date of grant or award.
6
<PAGE> 1
EXHIBIT 10.2.1
LOAN AGREEMENT
AMONG TRIVERGENT COMMUNICATIONS, INC.;
THE FINANCIAL INSTITUTIONS WHOSE NAMES APPEAR AS
LENDERS ON THE SIGNATURE PAGES HEREOF;
TD SECURITIES (USA), INC.
AND
CAPITAL SYNDICATION CORPORATION,
AN AFFILIATE OF THE CIT GROUP, INC.,
AS
CO-LEAD ARRANGERS
AND
CO-BOOK RUNNERS;
NEWCOURT COMMERCIAL FINANCE CORPORATION,
AN AFFILIATE OF THE CIT GROUP, INC.,
AS
DOCUMENTATION AGENT;
FIRST UNION NATIONAL BANK,
AS
SYNDICATION AGENT;
AND
TORONTO DOMINION (TEXAS), INC.
AS
ADMINISTRATIVE AGENT
FOR THE LENDERS
<PAGE> 2
<TABLE>
<S> <C> <C>
ARTICLE 1 Definitions..................................................................................1
ARTICLE 2 Loans.......................................................................................18
Section 2.1 The Loans.........................................................................18
Section 2.2 Manner of Borrowing and Disbursement..............................................19
Section 2.3 Interest..........................................................................23
Section 2.4 Scheduled Commitment Reduction and Repayment......................................24
Section 2.5 Fees..............................................................................25
Section 2.6 Optional Prepayments and Reductions...............................................26
Section 2.7 Mandatory Prepayments.............................................................27
Section 2.8 Notes; Loan Accounts..............................................................28
Section 2.9 Manner of Payment.................................................................28
Section 2.10 Reimbursement.....................................................................29
Section 2.11 Pro Rata Treatment................................................................30
Section 2.12 Capital Adequacy..................................................................30
Section 2.13 Lender Tax Forms..................................................................31
ARTICLE 3 Conditions Precedent........................................................................31
Section 3.1 Conditions Precedent to Initial Advance of Loans..................................31
Section 3.2 Conditions Precedent to Each Advance..............................................35
ARTICLE 4 Representations and Warranties..............................................................36
Section 4.1 Representations and Warranties....................................................36
Section 4.2 Survival of Representations and Warranties, etc...................................44
ARTICLE 5 General Covenants...........................................................................44
Section 5.1 Preservation of Existence and Similar Matters.....................................44
Section 5.2 Business; Compliance with Applicable Law..........................................44
Section 5.3 Maintenance of Properties.........................................................44
Section 5.4 Accounting Methods and Financial Records..........................................45
Section 5.5 Insurance.........................................................................45
Section 5.6 Payment of Taxes and Claims.......................................................46
Section 5.7 Visits and Inspections............................................................46
Section 5.8 Payment of Indebtedness; Loans....................................................46
Section 5.9 Use of Proceeds...................................................................46
Section 5.10 Real Estate.......................................................................46
Section 5.11 Indemnity.........................................................................47
Section 5.12 Interest Rate Hedging.............................................................48
Section 5.13 Covenants Regarding Formation of Subsidiaries and the Making of
Acquisitions......................................................................48
Section 5.14 Payment of Wages..................................................................49
Section 5.15 Year 2000 Problem.................................................................49
ARTICLE 6 Information Covenants.......................................................................49
Section 6.1 Quarterly Financial Statements and Information....................................49
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 6.2 Annual Financial Statements and Information.......................................49
Section 6.3 Performance Certificates..........................................................50
Section 6.4 Monthly Operating Report..........................................................50
Section 6.5 Copies of Other Items.............................................................50
Section 6.6 Notice of Litigation and Other Matters............................................51
ARTICLE 7 Negative Covenants..........................................................................52
Section 7.1 Indebtedness of the Borrower and its Subsidiaries.................................52
Section 7.2 Limitation on Liens...............................................................53
Section 7.3 Amendment and Waiver..............................................................53
Section 7.4 Liquidation, Merger or Disposition of Assets......................................53
Section 7.5 Limitation on Guaranties..........................................................54
Section 7.6 Investments and Acquisitions......................................................54
Section 7.7 Restricted Payments and Purchases.................................................54
Section 7.8 Implementation Phase - Total Debt to Total Capital Ratio..........................54
Section 7.9 Implementation Phase - Minimum Access Lines Installed and Billed..................54
Section 7.10 Implementation Phase - Minimum Annualized Revenue.................................55
Section 7.11 Implementation Phase - Minimum Annualized Operating Cash Flow.....................55
Section 7.12 Implementation Phase - Maximum Capital Expenditures...............................55
Section 7.13 Operating Phase - Ratio of Annualized Operating Cash Flow to Cash Interest
Expense...........................................................................55
Section 7.14 Operating Phase - Fixed Charge Coverage Ratio.....................................56
Section 7.15 Operating Phase - Total Leverage Ratio............................................56
Section 7.16 Operating Phase - Annualized Operating Cash Flow to Pro Forma Debt Service
Ratio.............................................................................56
Section 7.17 Affiliate Transactions............................................................57
Section 7.18 Real Estate.......................................................................57
Section 7.19 ERISA Liabilities.................................................................57
ARTICLE 8 Default.....................................................................................57
Section 8.1 Events of Default.................................................................57
Section 8.2 Remedies..........................................................................59
Section 8.3 Payments Subsequent to Declaration of Event of Default............................60
ARTICLE 9 The Administrative Agent, Etc...............................................................61
Section 9.1 Appointment and Authorization.....................................................61
Section 9.2 Interest Holders..................................................................61
Section 9.3 Consultation with Counsel.........................................................61
Section 9.4 Documents.........................................................................62
Section 9.5 Administrative Agent, Documentation Agent, Syndication Agent and
Affiliates........................................................................62
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 9.6 Responsibility of the Administrative Agent and the Documentation Agent............62
Section 9.7 Security Documents................................................................62
Section 9.8 Action by the Administrative Agent and the Documentation Agent....................63
Section 9.9 Notice of Default or Event of Default.............................................63
Section 9.10 Responsibility Disclaimed.........................................................64
Section 9.11 Indemnification...................................................................64
Section 9.12 Credit Decision...................................................................64
Section 9.13 Successor Administrative Agent....................................................65
Section 9.14 Delegation of Duties..............................................................65
Section 9.15 Other Agents and Titles...........................................................65
ARTICLE 10 Change in Circumstances Affecting Eurodollar Advances.......................................66
Section 10.1 Eurodollar Basis Determination Inadequate or Unfair...............................66
Section 10.2 Illegality........................................................................66
Section 10.3 Increased Costs...................................................................67
Section 10.4 Effect On Other Advances..........................................................68
ARTICLE 11 Miscellaneous...............................................................................68
Section 11.1 Notices...........................................................................68
Section 11.2 Expenses..........................................................................70
Section 11.3 Waivers...........................................................................70
Section 11.4 Set-Off...........................................................................71
Section 11.5 Assignment........................................................................71
Section 11.6 Accounting Principles.............................................................73
Section 11.7 Counterparts......................................................................74
Section 11.8 Governing Law.....................................................................74
Section 11.9 Severability......................................................................75
Section 11.10 Interest..........................................................................75
Section 11.11 Table of Contents and Headings....................................................75
Section 11.12 Amendment and Waiver..............................................................75
Section 11.13 Entire Agreement..................................................................76
Section 11.14 Other Relationships...............................................................76
Section 11.15 Directly or Indirectly............................................................76
Section 11.16 Reliance on and Survival of Various Provisions....................................76
Section 11.17 Senior Debt.......................................................................76
Section 11.18 Obligations Several...............................................................76
Section 11.19 Confidentiality...................................................................76
ARTICLE 12 Waiver of Jury Trial........................................................................77
Section 12.1 Waiver of Jury Trial..............................................................77
</TABLE>
iii
<PAGE> 5
EXHIBITS
Exhibit A - Form of Assignment and Assumption Agreement
Exhibit B - Form of Borrower Pledge Agreement
Exhibit C - Form of Certificate of Financial Condition
Exhibit D Form of Collateral Assignment of Leases
Exhibit E - Form of Parent Guaranty
Exhibit F - Form of Parent Pledge Agreement
Exhibit G - Form of Performance Certificate
Exhibit H - Form of Request for Advance
Exhibit I - Form of Revolving Note
Exhibit J - Form of Security Agreement
Exhibit K - Form of Subsidiary Guaranty
Exhibit L - Form of Subsidiary Security Agreement
Exhibit M - Form of Term Note
Exhibit N - Form of Use of Proceeds Letter
Exhibit O - Form of Borrower's Loan Certificate
Exhibit P - Form of Subsidiary Loan Certificate
Exhibit Q - Form of Parent Loan Certificate
Exhibit R - Form of Monthly Operating Report
SCHEDULES
Schedule 1 - Shareholders
Schedule 2 - Commitments of the Lenders, Commitment Ratios, and
Lenders' Addresses for Notice
Schedule 3 - Interconnection Agreements
Schedule 4 - Licenses
Schedule 5 - Liens of Record as of the Agreement Date
Schedule 6 - Subsidiaries
Schedule 7 [Intentionally Omitted]
Schedule 8 - Litigation
Schedule 9 - Agreements with Affiliates
Schedule 10 - Investments
Schedule 11 - Real Estate
Schedule 12 - Intellectual Property
iv
<PAGE> 6
LOAN AGREEMENT
This LOAN AGREEMENT (the "Agreement") is made as of this 1st day of
February, 2000, by and among TRIVERGENT COMMUNICATIONS, INC., a South Carolina
corporation (the "Borrower"), the financial institutions whose names appear as
Lenders on the signature pages hereof (the "Lenders"), TD SECURITIES (USA), INC.
and CAPITAL SYNDICATION CORPORATION, an affiliate of The CIT Group, Inc., as
co-lead arrangers (collectively, the "Co-Lead Arrangers") and co-book runners
(collectively, the "Co-Book Runners"), NEWCOURT COMMERCIAL FINANCE CORPORATION,
an affiliate of The CIT Group, Inc., as documentation agent (the "Documentation
Agent"), FIRST UNION NATIONAL BANK, as Syndication Agent (the "Syndication
Agent"), and TORONTO DOMINION (TEXAS), INC., as administrative agent for the
Lenders (the "Administrative Agent"). The parties to this Agreement agree as
follows:
ARTICLE 1
Definitions
For the purposes of this Agreement:
"Access Lines" shall mean the total number of business or residential
lines that provide service to a business or residential customer of the Borrower
including "resale," "on-net" and "unbundled network element."
"Acquisition" shall mean (whether by purchase, exchange, issuance of
stock or other equity or debt securities, contribution, merger, reorganization
or any other method) (i) any acquisition by the Parent or any of its Restricted
Subsidiaries of any other Person or (ii) any purchase by the Parent or any of
its Restricted Subsidiaries of all or a substantial portion of the assets of any
other Person or any division or other business unit of any Person.
"Administrative Agent" shall mean Toronto Dominion (Texas), Inc., as
Administrative Agent for the Lenders, together with any successor Administrative
Agent hereunder.
"Administrative Agent's Office" shall mean the office of Toronto
Dominion (Texas), Inc., as Administrative Agent hereunder, located at 909 Fannin
Street, Suite 1700, Houston, Texas 77010, or such other office as may be
designated pursuant to the provisions of Section 11.1 of this Agreement.
"Advance" or "Advances" shall mean amounts advanced by the Lenders to
the Borrower pursuant to Article 2 hereof on the occasion of any borrowing.
<PAGE> 7
"Affiliate" shall mean, with respect to a Person, any other Person
directly or indirectly controlling, controlled by, or under common control with,
such first Person. For purposes of this definition, "control" when used with
respect to any Person includes, without limitation, the direct or indirect
beneficial ownership of more than ten percent (10%) of the voting securities or
voting equity of such Person or the power to direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
Unless otherwise specified, "Affiliate" shall mean an Affiliate of the Parent.
In no event shall any Lender be deemed an Affiliate of the Parent or the
Borrower.
"Agreement" shall mean this Loan Agreement.
"Agreement Date" shall mean the date as of which this Agreement is
dated.
"Anniversary Date" shall mean February 1, 2001.
"Annualized Operating Cash Flow" shall mean, as of any calculation
date, the product of (a) consolidated Operating Cash Flow of the Borrower and
its Subsidiaries for the most recently completed two-fiscal quarter period, (b)
multiplied by two (2).
"Applicable Law" shall mean, in respect of any Person, all provisions
of constitutions, statutes, rules, regulations, ordinances, and orders of
governmental bodies or regulatory agencies applicable to such Person, including,
without limiting the foregoing, the Licenses, the Communications Act and all
Environmental Laws, and all orders, decisions, judgments and decrees of all
courts and arbitrators in proceedings or actions to which the Person in question
is a party or by which it is bound.
"Applicable Margin" shall mean the interest rate margin applicable to
Advances hereunder as determined in accordance with Section 2.3(f) hereof.
"Approved Fund" shall mean, with respect to any Lender that is a fund
that invests in commercial loans, any other fund that invests in commercial
loans and is managed or advised by the same investment advisor as such Lender or
by an affiliate of such investment advisor.
"Assignment and Assumption Agreement" shall mean an agreement for the
assignment and assumption of Loans and Commitments hereunder, in substantially
the form of Exhibit A.
"Authorized Signatory" shall mean such senior personnel of the Borrower
as may be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower.
"Base Rate" shall mean, at any time, the higher of (a) the rate of
interest adopted by The Toronto-Dominion Bank, New York Branch as the reference
rate for the determination of interest rates for loans of varying maturities in
United States dollars to United States residents of varying degrees of
creditworthiness and being quoted at such time by the Administrative Agent or
any of its Affiliates as its "base rate" or "prime rate," and (b) the Federal
Funds Rate plus one-half of one percent (1/2%). The Base Rate
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is not necessarily the lowest rate of interest charged to borrowers of the
Administrative Agent or its Affiliates.
"Base Rate Advance" shall mean an Advance which the Borrower requests
to be made as a Base Rate Advance or which is reborrowed as a Base Rate Advance,
and which bears interest at the Base Rate Basis in accordance with the
provisions of Section 2.2 hereof.
"Base Rate Basis" shall mean a simple interest rate equal to the sum of
(i) the Base Rate and (ii) the Applicable Margin. The Base Rate Basis shall be
adjusted automatically as of the opening of business on the effective date of
each change in the Base Rate to account for such change, and shall also be
changed to reflect adjustments in the Applicable Margin.
"Borrower" shall mean TriVergent Communications, Inc., a South Carolina
corporation.
"Borrower Pledge Agreement" shall mean that certain Borrower Pledge
Agreement dated as of the Agreement Date, between the Borrower and the
Administrative Agent, substantially in the form of Exhibit B.
"Borrowing Base" shall have the meaning set forth in the definition of
Request for Advance.
"Business Day" shall mean a day on which banks and foreign exchange
markets are open for the transaction of business required for this Agreement in
London, England, Houston, Texas and New York, New York, as relevant to the
determination to be made or the action to be taken.
"Capital Expenditures" shall mean, in respect of any Person,
expenditures for the purchase of assets of long-term use (other than an
Acquisition) which should be capitalized in accordance with GAAP, including all
Capitalized Lease Obligations.
"Capitalized Lease Obligation" shall mean that portion of any
obligation of a Person as lessee under a lease that at the time would be
required to be capitalized on the balance sheet of such lessee in accordance
with GAAP.
"Cash Interest Expense" shall mean, for any period, the sum of (i) for
the Borrower and its Subsidiaries on a consolidated basis, cash interest
payments for such period accrued in respect of Total Debt, after giving effect
to any Interest Hedge Agreements, and shall include the interest component of
payments for such period in respect of Capitalized Lease Obligations, all as
determined in accordance with GAAP, plus (ii) any Restricted Payment made to the
Parent, by the Borrower, to the extent permitted or consented to under Section
7.7, to permit the Parent to make cash interest payments on its Indebtedness for
Money Borrowed.
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"Certificate of Financial Condition" shall mean a certificate,
substantially in the form of Exhibit C attached hereto, signed by an Authorized
Signatory, together with any schedules, exhibits or annexes appended thereto.
"Change of Control" shall mean (a) the Parent no longer owns directly
one hundred percent (100%) of the stock of the Borrower, (b) other than with
respect to any issuance of equity securities by the Parent (which does not
result in the issuance of equity securities holding more than forty-nine percent
(49%) of the voting control of the Parent) in order to capitalize the
Unrestricted Subsidiaries as permitted under the Parent Guaranty, any "person"
or "group" as such terms are used for purposes of Sections 13(d) and 14(d) of
the Exchange Act, whether or not applicable, other than certain specified
shareholders of the Parent as of the Agreement Date, as shown on Schedule 1, is
or becomes the "beneficial owner" (as that term is used in Rules 13d-3 and 13d-5
under the Exchange Act, whether or not applicable, except that a Person shall be
deemed to have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than twenty percent (20%)
of the aggregate number of votes of all classes of stock of the Parent which
ordinarily have voting power for the election of the directors of the Parent,
(c) during any period of twenty-four (24) consecutive months, individuals who at
the beginning of such period constituted the board of directors of the Parent
(together with any new directors whose election by such board or whose
nomination for election by the shareholders of the Parent was approved by a vote
of a majority of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved), cease for any reason to constitute a majority of the
board of directors of the Parent then in office or (d) the exercise by the
preferred shareholders of the Parent at any time prior to the fifth (5th)
anniversary of the Agreement Date of their right to control the Parent's board
of directors, or the exercise of such right after such anniversary if a majority
of the preferred shareholders at the time of such exercise were not preferred
shareholders as of the Agreement Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean any property of any kind constituting
collateral for the Obligations under any of the Security Documents.
"Collateral Assignment of Leases" shall mean that certain Collateral
Assignment of Leases executed and delivered by the Borrower and its Subsidiaries
in favor of the Administrative Agent, in the form of Exhibit D.
"Commitment Ratios" shall mean the percentages in which the Lenders are
severally bound from time to time (giving effect to assignments made as
permitted under Section 11.5(b) hereof) to make Advances to the Borrower under
the Commitments which, as of the Agreement Date, are set forth (together with
dollar amounts) on Schedule 2 attached hereto, and after the Agreement Date,
shall be maintained by the Administrative Agent in the Register.
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<PAGE> 10
"Commitment Letter" shall mean that certain Commitment Letter dated as
of December 22, 1999, among the Borrower, the Administrative Agent, the
Syndication Agent and the Documentation Agent, and certain of their Affiliates.
"Commitments" shall mean, collectively, the Revolving Loan Commitment
and the Term Loan Commitment.
"Communications Law" shall mean the Communications Act of 1934, as
amended, and all rules and regulations thereunder, or any successor statute or
statutes thereto (including, without limitation, the Telecommunications Act of
1996) and all rules and regulations thereunder, and all rules and regulations of
the FCC, any applicable PUC or any other applicable governmental authority
related to the provision of telecommunication or broadcast services, each as
amended or supplemented from time to time.
"Conduit Lender" shall mean any special purpose corporation organized
and administered by any Lender for the purpose of making Loans hereunder
otherwise required to be made by such Lender and designated by such Lender in a
written instrument, subject to the consent of the Administrative Agent; provided
that the designation by any Lender of a Conduit Lender shall not relieve the
designating Lender of any of its obligations to fund an Advance under the
Agreement if, for any reason, its Conduit Lender fails to fund any such Loan,
and the designating Lender (and not the Conduit Lender) shall have the full
right and responsibility to deliver all consents and waivers required or
requested under this Agreement with respect to its Conduit Lender, and provided
further that no Conduit Lender shall (a) be entitled to receive any greater
amount pursuant to Section 2.10, 2.12, or 9.11 or Article 10 than the
designating Lender would have been entitled to receive in respect of the
extensions of credit made by such Conduit Lender or (b) be deemed to have any
Commitment hereunder.
"Debt Service" shall mean, for any period, the amount of all principal
and Cash Interest Expense, together with fees associated therewith, of the
Borrower and its Subsidiaries on a consolidated basis in respect of Indebtedness
for Money Borrowed (for both the Borrower and its Subsidiaries and, to the
extent permitted to be serviced by Restricted Payments made by the Borrower to
the Parent, for the Parent) required to be paid during such period. For purposes
of this definition, `principal' shall include the principal component of
payments for such period in respect of Capitalized Lease Obligations.
"Default" shall mean any Event of Default, and any of the events
specified in Section 8.1, regardless of whether there shall have occurred any
passage of time or giving of notice, or both, that would be necessary in order
to constitute such event an Event of Default.
"Default Rate" shall mean a simple per annum interest rate equal to the
sum of the otherwise applicable interest rate for advances set forth under
Section 2.3(f) plus two percent (2%).
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"Dollars" or "$" shall mean lawful money of the United States of
America.
"Eligible Assignee" shall mean (i) any Lender, any Affiliate of any
Lender and (ii) any commercial bank, insurance company, investment or mutual
fund, finance company or other entity that (A) with respect to any assignment of
any Term Loans, or portion thereof, is an institutional "accredited investor"
(as defined in Regulation D promulgated under the Securities Act of 1933, as
amended), and (B) with respect to any assignment of any Revolving Loan,
Revolving Loan Commitment or any portion thereof, has capital and surplus on a
combined basis with its Affiliates of at least $250,000,000 and which extends
credit or buys loans as one of its businesses; provided, no affiliate of the
Borrower shall be an Eligible Assignee.
"Environmental Laws" shall mean all applicable federal, state or local
laws, statutes, rules, regulations or ordinances, codes, common law, consent
agreements, orders, decrees, judgments or injunctions issued, promulgated
approved or entered thereunder relating to public health, safety or the
pollution or protection of the environment, including, without limitation, those
relating to releases, discharges, emissions, spills, leaching, or disposals to
air, water, land or ground water, to the withdrawal or use of ground water, to
the use, handling or disposal of polychlorinated biphenyls, asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, to exposure to
toxic, hazardous or other controlled, prohibited, or regulated substances,
including, without limitation, any such provisions under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. ss. 9601 et seq.), or the Resource Conservation and Recovery Act of 1976,
as amended (42 U.S.C. ss. 6901 et seq.).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.
"ERISA Affiliate" shall mean any Person, including a Subsidiary or an
Affiliate of the Parent, that is a member of any group of organizations (within
the meaning of Code Section 414(b), 414(c), 414(m), or 414(o)) of which the
Borrower is a member.
"Eurodollar Advance" shall mean an Advance which the Borrower requests
to be made as a Eurodollar Advance or which is reborrowed as a Eurodollar
Advance, and which bears interest at the Eurodollar Basis in accordance with the
provisions of Section 2.2 hereof.
"Eurodollar Basis" shall mean a simple per annum interest rate (rounded
upward, if necessary, to the nearest one-sixteenth (1/16th) of one percent)
equal to the sum of (a) the quotient of (i) the Eurodollar Rate divided by (ii)
one minus the Eurodollar Reserve Percentage, stated as a decimal, plus (b) the
Applicable Margin. The Eurodollar Basis shall apply to Interest Periods of one
(1), two (2), three (3) or six (6) months, and, once determined, shall remain
unchanged during the applicable Interest Period, except for
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<PAGE> 12
changes to reflect adjustments in the Eurodollar Reserve Percentage and the
Applicable Margin.
"Eurodollar Rate" shall mean, for any Interest Period, the average of
the interest rates per annum (rounded upward to the nearest one-sixteenth of one
percent (1/16%)) which appear on Telerate Page 3750 (or, if unavailable, any
generally accepted successor rate reasonably selected by the Administrative
Agent), as of 11:00 a.m. (London time) two (2) Business Days before the first
day of such Interest Period, in an amount approximately equal to the principal
amount of, and for a length of time approximately equal to the Interest Period
for, the Eurodollar Advance sought by the Borrower.
"Eurodollar Reserve Percentage" shall mean the percentage which is in
effect from time to time under Regulation D of the Board of Governors of the
Federal Reserve System, as such regulation may be amended from time to time, as
the maximum reserve requirement applicable with respect to Eurocurrency
liabilities (as that term is defined in Regulation D), whether or not any Lender
has any such Eurocurrency liabilities subject to such reserve requirement at
that time. The Eurodollar Basis for any Eurodollar Advance shall be adjusted as
of the effective date of any change in the Eurodollar Reserve Percentage.
"Event of Default" shall mean any of the events specified in Section
8.1, provided that any requirement for notice or lapse of time or both has been
satisfied.
"Excess Cash Flow" shall mean, with respect to the Borrower and its
Subsidiaries on a consolidated basis, as of the end of any fiscal year of the
Parent and based on the audited financial statements required to be provided
under Section 6.2 hereof, the remainder of (a) Operating Cash Flow for such
fiscal year minus (b) the sum, without duplication, of the following items for
such fiscal year: (i) Capital Expenditures actually made for such fiscal year to
the extent permitted hereunder; (ii) Restricted Payments permitted to be made
and actually made notwithstanding Section 7.7 hereof during such fiscal year;
(iii) Debt Service permitted hereunder; and (iv) cash taxes paid.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor act thereto.
"Facilities" shall mean the credit facilities made available to the
Borrower hereunder pursuant to the Revolving Loan Commitment and the Term Loan
Commitment.
"FCC" shall mean the Federal Communications Commission, or any other
similar or successor agency of the federal government administering the
Communications Act.
"Federal Funds Rate" shall mean, as of any date, the weighted average
of the rates on overnight federal funds transactions with the members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent
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<PAGE> 13
or its Affiliate from three (3) federal funds brokers of recognized standing
selected by the Administrative Agent or its Affiliate.
"Fee Letters" shall mean, collectively, those certain letter agreements
dated as of December 22, 1999 setting forth the applicable facility fee for the
Administrative Agent and each of the Lenders relating to this Agreement and the
Loans and Commitments created hereunder.
"Financial Covenants" shall mean the financial covenants contained in
Sections 7.8 through 7.16 hereof.
"First Pay" shall mean THE FIRST PAY DIVISION of the Borrower as
identified in the Borrower's internal financial statements.
"Fixed Charge Coverage Ratio" shall mean, for any calculation date, for
the Borrower and its Subsidiaries on a consolidated basis, the ratio of (a)
Annualized Operating Cash Flow to (b) Fixed Charges.
"Fixed Charges" shall mean for the Borrower and its Subsidiaries on a
consolidated basis with respect to the most recently completed fiscal
four-quarter period the sum of (a) Debt Service, plus (b) Capital Expenditures,
plus (c) taxes.
"GAAP" shall mean generally accepted accounting principles in the
United States, consistently applied and as in effect from time to time.
"Guaranty" or "Guaranteed," as applied to an obligation, shall mean (a)
a guaranty, direct or indirect, in any manner, of all or any part of such
obligation, and (b) any agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, any reimbursement
obligations as to amounts drawn down by beneficiaries of outstanding letters of
credit.
"ICP Business" shall mean the Borrower's full-service integrated
communications provider business, providing residential consumer and small
business customers with local exchange, long distance, internet, and high speed
services for both voice and data.
"Indebtedness" shall mean, with respect to any Person, and without
duplication, (a) all items, except items of partners' equity or capital stock or
surplus or general contingency or deferred tax reserves, which in accordance
with GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of such Person, including, without limitation,
secured non-recourse obligations of such Person, (b) all direct or indirect
obligations of any other Person secured by any Lien to which any property or
asset owned by such Person is subject, but only to the extent of the higher of
the fair market value or the book value of the property or asset subject to such
Lien if the obligation secured thereby shall not have been assumed, (c) to the
extent not otherwise included, all Capitalized Lease Obligations of such Person
and all obligations of such
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<PAGE> 14
Person with respect to leases constituting part of a sale and lease-back
arrangement, and (d) all Guaranties and all reimbursement obligations with
respect to outstanding letters of credit.
"Indebtedness for Money Borrowed" shall mean, without duplication with
respect to any Person, Indebtedness for money borrowed and Indebtedness
represented by notes payable and drafts accepted representing extensions of
credit, all obligations evidenced by bonds, debentures, notes or other similar
instruments, all Indebtedness upon which interest charges are customarily paid,
all Capitalized Lease Obligations, all reimbursement obligations with respect to
outstanding letters of credit, all Indebtedness issued or assumed as full or
partial payment for property or services (other than accrued expenses and trade
payables arising in the ordinary course of business, but only if and so long as
such accounts are payable on trade terms customary in the industry), whether or
not any such notes, drafts, obligations or Indebtedness represent Indebtedness
for money borrowed, and, without duplication, Guaranties of any of the
foregoing. For purposes of this definition, interest which is accrued but not
paid on the scheduled due date for such interest shall be deemed Indebtedness
for Money Borrowed.
"Indemnitee" shall have the meaning ascribed to it in Section 5.11
hereof.
"Interconnection Agreements" means each of the interconnection
agreements between the applicable incumbent local exchange carrier and the
Borrower. The Interconnection Agreements in effect as of the Agreement Date are
listed on Schedule 3 hereto.
"Interest Hedge Agreements" shall mean any interest rate swap, cap,
collar, floor, caption or swaption agreements, or any similar arrangements
designed to hedge the risk of variable interest rate volatility or to reduce
interest costs, arising at any time (including prior to the Agreement Date)
between the Borrower, on the one hand, and any of the Administrative Agent or
one or more of the Lenders, or any other Person (other than an Affiliate of the
Borrower), on the other hand, as such agreement or arrangement may be modified,
supplemented and in effect from time to time.
"Interest Period" shall mean (a) in connection with any Base Rate
Advance, the period beginning on the date such Advance is made and ending on the
last day of the calendar quarter in which such Advance is made; provided,
however, that if a Base Rate Advance is made on the last day of any calendar
quarter, it shall have an Interest Period ending on, and its Payment Date shall
be, the last day of the following calendar quarter, and (b) in connection with
any Eurodollar Advance, the term of such Advance selected by the Borrower or
otherwise determined in accordance with this Agreement. Notwithstanding the
foregoing, however, (i) any applicable Interest Period which would otherwise end
on a day which is not a Business Day shall be extended to the next succeeding
Business Day unless, with respect to Eurodollar Advances only, such Business Day
falls in another calendar month, in which case such Interest Period shall end on
the next preceding Business Day, (ii) any applicable Interest Period, with
respect to Eurodollar Advances only, which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall
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<PAGE> 15
(subject to clause (i) above) end on the last day of such calendar month, and
(iii) no Interest Period shall extend beyond the applicable scheduled Maturity
Date. Interest shall be due and payable with respect to any Advance as provided
in Section 2.3 hereof.
"Interest Rate Basis" shall mean the Base Rate Basis or the Eurodollar
Basis, as appropriate.
"Investment" shall mean, with respect to any Person, any loan, advance
or extension of credit (other than to customers and employees in the ordinary
course of business) by such Person to, or any Guaranty or other contingent
liability with respect to the capital stock, Indebtedness or other obligations
of, or any contributions to the capital of, any other Person, or any ownership,
purchase or other acquisition by such Person of any interest in any capital
stock, limited partnership interest, general partnership interest, membership
interest, or other securities of any such other Person, other than an
Acquisition. "Investment" shall also include the total cost of any future
commitment or other obligation binding on any Person to make an Investment or
any subsequent Investment.
"Lenders" shall mean the financial institutions whose names appear as
"Lenders" on the signature pages hereof and any other Person which becomes a
"Lender" hereunder after the Agreement Date; and "Lender" shall mean any one of
the foregoing Lenders.
"Licenses" shall mean any government license, authorization,
certificate of compliance, franchise, approval or permit, for the provision of
competitive local exchange carrier telephony service, data transport, internet
access and other related services and any other license, permit, consent,
certificate of compliance, franchise, approval, waiver, or authorization granted
or issued by the FCC or other applicable state, federal or local governmental
authority, including, without limitation, any applicable PUC Authorization and
any of the foregoing authorizing or permitting the acquisition, construction or
operation of any Network Facility or any other system for the provision of
competitive local exchange carrier telephony service, data transfer, internet
connectivity and other related services, required to be obtained in order to
conduct the ICP Business of the Borrower and its Subsidiaries, all of which are
listed as of the Agreement Date on Schedule 4.
"Lien" shall mean, with respect to any property, any mortgage, lien,
pledge, negative pledge or other agreement not to pledge, assignment, charge,
security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property, whether created by statute, contract, the common law or otherwise, and
whether or not choate, vested or perfected.
"Loan Documents" shall mean this Agreement, the Notes, the Security
Documents, the Fee Letters, all Requests for Advance, all Interest Hedge
Agreements between the Borrower or any Subsidiaries, on the one hand, and the
Administrative Agent or its Affiliate (acting in the capacity of a lender or
depository institution) or the Lenders, or any of them or their respective
Affiliates, on the other hand, and all other documents, certificates and
agreements executed and delivered to the Administrative
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Agent or the Lenders by or on behalf of the Borrower in connection with or
contemplated by this Agreement, in each case as amended, supplemented or
otherwise modified from time to time as permitted hereunder.
"Loans" shall mean, collectively, the Revolving Loans and the Term
Loans.
"Majority Lenders" shall mean (i) prior to the occurrence of an Event
of Default and the termination of unfunded Commitments, Lenders the sum of whose
Revolving Loan Commitment amount plus Term Loan Commitment equals or exceeds
two-thirds (66.67%) of the sum of such items, or (ii) at any time that there
exists an Event of Default hereunder, Lenders the total of whose Loans
outstanding equals or exceeds two-thirds (66.67%) total principal amount of the
Loans then outstanding hereunder.
"Materially Adverse Effect" shall mean (i) any materially adverse
effect upon the business, assets, liabilities, condition (financial or
otherwise), prospects, results of operations, or properties of the Parent, the
Borrower and its Subsidiaries, taken as a whole, or (ii) a material adverse
effect upon (x) the binding nature, validity, or enforceability of this
Agreement, or (y) the ability of the Borrower and its Subsidiaries (including
the Borrower) to perform the payment obligations or other material obligations
under this Agreement or any other Loan Document, or (z) a material portion (by
value) of the Collateral or material diminution of the remedies, rights,
benefits or interests of the Lenders in and to the Loans or the rights of the
Administrative Agent and the Lenders in the Collateral; in any case, whether
resulting from any single act, omission, situation, status, event or
undertaking, or taken together with other such acts, omissions, situations,
statuses, events or undertakings.
"Maturity Date" shall mean the earlier of (a) December 31, 2007, or (b)
any date on which all outstanding Obligations shall be due (whether by
acceleration or otherwise).
"Mortgage" shall mean any mortgage, deed of trust or other similar
instrument or agreement, between the Borrower or any of its Subsidiaries and the
Administrative Agent, pursuant to which the Borrower or such Subsidiary grants
to the Administrative Agent, for its benefit and for the ratable benefit of the
Lenders, a Lien on any real property owned or leased by the Borrower or such
Subsidiary, as amended, supplemented or otherwise modified from time to time.
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
"Necessary Authorizations" shall mean all grants, approvals, and
licenses from, and all filings and registrations with, any governmental or other
regulatory authority, local, state or federal, including, without limiting the
foregoing, the Licenses and all grants, approvals, licenses, filings and
registrations under the Communications Act, necessary in order to enable the
Borrower and its Subsidiaries to own, construct, maintain, and operate its ICP
Business.
"Net Income" shall mean, for the Borrower and its Subsidiaries on a
consolidated basis, for any period, net income determined in accordance with
GAAP.
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"Net Proceeds" shall mean, with respect to any sale, lease, transfer or
other disposition of assets by the Borrower or any of its Subsidiaries or any
issuance by the Parent or any of its Restricted Subsidiaries (including the
Borrower) of any capital stock or other equity or debt securities permitted
hereunder, the aggregate amount of cash received for such assets or securities
(including, without limitation, any payments received by such Person for
non-competition covenants, consulting or management fees, and any portion of the
amount received evidenced by a buyer promissory note or other evidence of
Indebtedness), net of (i) amounts reserved, if any, for taxes payable with
respect to any such sale or payment (after application of any available losses,
credits or other offsets), (ii) reasonable and customary transaction costs
properly attributable to such transaction and payable by such Person (other than
to an Affiliate) in connection with such sale, lease, transfer or other
disposition of assets or issuance of any capital stock or other securities,
including, without limitation, commissions and underwriting discounts, and (iii)
until actually received by such Person, any portion of the amount received held
in escrow or evidenced by a buyer promissory note or non-compete agreement or
covenant for which compensation is paid over time. Upon release of any reserves
held under item (i) of the preceding sentence, or receipt by such Person of
amounts referred to in item (iii) of the preceding sentence, such amounts shall
then be deemed to be "Net Proceeds."
"Network Agreement" shall mean any document or agreement entered into
by the Borrower or any of its Subsidiaries regarding the use, operation or
maintenance of, or otherwise concerning, any of the Network Facilities.
"Network Facilities" shall mean the switches and network of digital and
analog facilities owned or leased by the Borrower or any of its Subsidiaries for
use in its ICP Business.
"Notes" shall mean, collectively, the Revolving Notes and the Term
Notes.
"Obligations" shall mean (i) all payment and performance obligations of
every kind, nature and description of the Parent and its Restricted Subsidiaries
(including the Borrower) owed or owing to the Lenders, the Administrative Agent
or its Affiliate, or any of them, under this Agreement (or their respective
Affiliates in the case of Interest Hedge Agreements entered into with any such
Affiliates) and the other Loan Documents (including any interest, fees and other
charges on the Loans or otherwise under the Loan Documents that would accrue but
for the filing of a bankruptcy action with respect to the Parent, any such
Restricted Subsidiary (including the Borrower) or any such other obligor whether
or not such claim is allowed in such bankruptcy action), as they may be amended
from time to time, or as a result of making the Loans, whether such obligations
are direct or indirect, absolute or contingent, due or not due, contractual or
tortious, liquidated or unliquidated, arising by operation of law or otherwise,
now existing or hereafter arising, and (ii) the obligation to pay an amount
equal to the amount of any and all damage which the Lenders, the Administrative
Agent, or any of them, may suffer by reason of a breach by the Parent, any of
its Restricted Subsidiaries, or any other obligor, of any obligation, covenant
or undertaking with respect to this Agreement or any other Loan Document.
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<PAGE> 18
"Operating Cash Flow" shall mean, for any period, for the Borrower and
its Subsidiaries on a consolidated basis, Net Income for such period (after
eliminating any extraordinary gains and losses, including gains and losses from
the sale of assets), plus, to the extent deducted in determining Net Income, the
sum of the following for such period: (i) depreciation and amortization
allowances, (ii) interest charges paid and accrued, and (iii) reserves for
deferred taxes not payable currently and income taxes paid by the Borrower and
its Restricted Subsidiaries, and (iv) other non-cash charges.
"Parent" shall mean State Communications, Inc., a South Carolina
corporation.
"Parent Guaranty" shall mean that certain Parent Guaranty dated as of
the Agreement Date, in favor of the Administrative Agent, for itself and for the
ratable benefit of the Lenders, given by Parent, in substantially the form of
Exhibit E.
"Parent Pledge Agreement" shall mean that certain Parent Pledge
Agreement dated as of the Agreement Date, between Parent and the Administrative
Agent, substantially in the form of Exhibit F attached hereto.
"Payment Date" shall mean the last day of any Interest Period.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Performance Certificate" shall mean a certificate of an Authorized
Signatory as to the Borrower's financial performance and compliance with this
Agreement, in substantially the form of Exhibit G.
"Permitted Liens" shall mean, as applied to any Person:
(a) Any Lien in favor of the Administrative Agent given to secure the
Obligations;
(b) (i) Liens on real estate for real estate taxes not yet delinquent
and (ii) Liens for taxes, assessments, judgments, governmental charges or levies
or claims, in each case the non-payment of which is being diligently contested
in good faith by appropriate proceedings and for which reserves (if any)
required in accordance with GAAP have been set aside on such Person's books, but
only so long as no foreclosure, distraint, sale or similar proceedings have been
commenced with respect thereto and remain unstayed for a period of thirty (30)
days after their commencement;
(c) Liens of landlords, carriers, warehousemen, mechanics, laborers and
materialmen incurred in the ordinary course of business for sums not yet due or
being diligently contested in good faith, if reserves (if any) required in
accordance with GAAP or appropriate provisions shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection
with worker's compensation and unemployment insurance (other than Liens to
secure obligations created under ERISA;
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(e) Restrictions on the transfer of assets imposed by any of the
Licenses or by the Communications Act, any applicable state laws, and any
regulations thereunder;
(f) elements, rights-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of such Person, or Liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not incurred in connection with Indebtedness or other extensions of
credit and which do not in the aggregate detract from the value of such
properties or impair their use in the operation of the business of such Person;
(g) Purchase money security interests, which are perfected
automatically by operation of law (and as to which no Uniform Commercial Code
financing statement is filed) only for the period (not to exceed twenty (20)
days) of automatic perfection under the law of the applicable jurisdiction, and
limited to Liens on assets so purchased;
(h) Liens reflected by Uniform Commercial Code financing statements
filed in respect of Capitalized Lease Obligations permitted under Section 7.1(c)
hereof or in respect of true leases of the Borrower or any of its Subsidiaries;
and
(i) Any other Liens, including Liens existing as of the Agreement Date
and listed on Schedule 5 attached hereto, which Liens secure Indebtedness
permitted under Section 7.1.
"Person" shall mean an individual, corporation, limited liability
company, association, partnership, joint venture, trust or estate, an
unincorporated organization, a government or any agency or political subdivision
thereof, or any other entity.
"Plan" shall mean, with respect to any Person, an employee benefit plan
within the meaning of Section 3(3) of ERISA or any other employee benefit plan
maintained for employees of such Person or any Affiliate of such Person.
"Pro Forma Debt Service" shall mean Debt Service for the Parent and its
Restricted Subsidiaries on a consolidated basis projected to be paid during the
next succeeding complete fiscal four-quarter period following the calculation
date, and after giving effect to any Interest Hedge Agreements and to existing
Eurodollar Advances. For purposes of this definition, where interest payments on
Indebtedness for Money Borrowed for such period are not fixed by way of Interest
Hedge Agreements, Eurodollar Advances, or otherwise for the entire period, such
interest shall be calculated at the Base Rate Basis in effect on the calculation
date, based on the Applicable Margin also in effect on such calculation date.
"PUC" shall mean any state, provincial or other local regulatory agency
or body that exercises jurisdiction over the rates or services or the ownership,
construction or operation of any Network Facilities or competitive local
exchange carrier telephony system or over Persons who own, construct or operate
Network Facilities or any such system, in each case by reason of the nature or
type of the business subject to regulation and not pursuant to laws and
regulations of general applicability to Persons conducting business in any such
jurisdiction.
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"PUC Authorizations" shall mean all applications, filings, reports,
documents, recordings and registrations with, and all validations, exemptions,
franchises, waivers, approvals, orders or authorizations, consents, licenses,
certificates and permits from, any PUC.
"Register" shall have the meaning ascribed to it in Section 11.5(c)
hereof.
"Reportable Event" shall have the meaning set forth in Title IV of
ERISA.
"Request for Advance" shall mean a certificate designated as a "Request
for Advance," signed by an Authorized Signatory requesting an Advance hereunder,
which shall be in substantially the form of Exhibit H attached hereto and shall,
among other things, and as more fully set forth therein, (i) specify the date of
the Advance, which shall be a Business Day prior to the Maturity Date, the
amount of the Advance, the type of Advance, the Commitment under which the
Advance is being requested, and, with respect to Eurodollar Advances, the
Interest Period selected by the Borrower, (ii) state that there shall not exist,
on the date of the requested Advance and after giving effect thereto, a Default
and (iii) as to Advances which will increase the principal amount of the Loans
then outstanding, demonstrate that (through the use of (x) invoices for
Telecommunications Equipment purchases, (y) invoices or other documentary
support for Capital Expenditures involving Telecommunications Equipment, and (z)
invoices or other documentary support for equipment, third-party labor, permits,
other third-party costs and all capitalized internal costs of the Borrower
pertaining to the acquisition and installation of Telecommunications Equipment,
as permitted under GAAP (the dollar sum of items (x), (y) and (z) constituting
the "Borrowing Base")), the outstanding principal balance of the Loans, after
giving effect to the requested Advance, does not exceed the Borrowing Base.
"Restricted Payment" shall mean any direct or indirect distribution,
dividend or other cash payment to any Person on account of any general or
limited partnership interest in, or membership interest in, or shares of capital
stock (including any preferred stock) or other securities of, the Parent or any
of its Subsidiaries (other than stock dividends and stock splits), including,
without limitation, any warrants or other rights or options to acquire shares of
capital stock or partnership interests or membership interests of the Parent or
any of its Subsidiaries and shall include any type of payment or payment-in-kind
by the Parent or any of its Restricted Subsidiaries to any of the Unrestricted
Subsidiaries.
"Restricted Purchase" shall mean any payment on account of the
purchase, redemption or other acquisition or retirement of any general or
limited partnership interest in, or membership interest in, or shares of capital
stock or other securities of, the Parent or any of its Subsidiaries, including,
without limitation, any warrants or other rights or options to acquire shares of
capital stock or partnership interests or membership interests of the Parent or
any of its Subsidiaries.
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"Restricted Subsidiary" shall mean any Subsidiary of the Borrower other
than an Unrestricted Subsidiary.
"Revolving Loans" shall mean, collectively, the amounts advanced from
time to time by the Lenders participating in the Revolving Loan Commitment to
the Borrower under the Revolving Loan Commitment, not to exceed in the aggregate
the amount of the Revolving Loan Commitment, and evidenced by the Revolving Loan
Notes.
"Revolving Loan Commitment" shall mean the several obligations of the
Lenders participating in the Revolving Loan Commitment to advance the sum of up
to $40,000,000 to the Borrower, in accordance with their respective Commitment
Ratios relating to the Revolving Loan, pursuant to the terms hereof, as such
amount may be reduced from time to time pursuant to the terms hereof.
"Revolving Notes" shall mean those certain promissory notes in the
aggregate original principal amount of $40,000,000, one issued by the Borrower
to each of the Lenders participating in the Revolving Loan Commitment hereunder,
each one substantially in the form of Exhibit I, and any extensions,
modifications, renewals or replacements of or amendments to any of the
foregoing.
"Security Agreement" shall mean that certain Security Agreement dated
as of the Agreement Date, between the Borrower and the Administrative Agent,
substantially in the form of Exhibit J.
"Security Documents" shall mean the Borrower Pledge Agreement, the
Parent Pledge Agreement, the Parent Guaranty, the Subsidiary Guaranty, the
Security Agreement, the Subsidiary Security Agreement, the Mortgages, any other
agreement or instrument providing collateral for the Obligations whether now or
hereafter in existence, and any filings, instruments, agreements, and documents
related thereto or to this Agreement, and providing the Administrative Agent,
for itself and for the ratable benefit of the Lenders, with Collateral for the
Obligations.
"Security Interest" shall mean all Liens in favor of the Administrative
Agent, for itself and for the ratable benefit of the Lenders, created hereunder
or under any of the Security Documents to secure the Obligations.
"Solvent" shall mean, at any time of determination, with respect to any
Person, that: (i) the assets of such Person, at a fair valuation, are in excess
of the total amount of its debts (including, without limitation, contingent
liabilities); (ii) the present fair saleable value of its assets is greater than
its probable liability on its existing debts as such debts become absolute and
matured; (iii) it is then able and expected to be able to pay its debts
(including without limitation, contingent debts and other commitments) as they
mature; and (iv) it has sufficient capital to carry on its business as
conducted. For purposes of determining whether a Person is Solvent, the amount
of any contingent liability shall be computed as the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
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"Subsidiary" shall mean, as applied to any Person, (a) any corporation
of which more than fifty percent (50%) of the outstanding securities (other than
directors' qualifying shares) having ordinary voting power to elect a majority
of its board of directors, regardless of the existence at the time of a right of
the holders of any class or classes of securities of such corporation to
exercise such voting power by reason of the happening of any contingency, or any
partnership of which more than fifty percent (50%) of the outstanding
partnership interests, is at the time owned directly or indirectly by such
Person, or by one or more Subsidiaries of such Person, or by such Person and one
or more Subsidiaries of such Person, or (b) any other entity which is directly
or indirectly controlled (other than solely by virtue of a management agreement)
by such Person, or by one or more Subsidiaries of such Person, or by such Person
and one or more Subsidiaries of such Person. The Subsidiaries of the Parent are
listed, as of the Agreement Date, on Schedule 6.
"Subsidiary Guaranty" shall mean that certain Subsidiary Guaranty dated
as of the Agreement Date, in favor of the Administrative Agent, for itself and
for the ratable benefit of the Lenders, given by the each Subsidiary of the
Borrower, in substantially the form of Exhibit K.
"Subsidiary Security Agreement" shall mean that certain Subsidiary
Security Agreement dated as of the Agreement Date, between each Subsidiary of
the Borrower, on the one hand, and the Administrative Agent, on the other hand,
substantially in the form of Exhibit L.
"Telecommunications Equipment" shall mean fiber optic cable,
telecommunications switches or other comparable switches, transmission
equipment, and other ancillary hardware necessary for the installation and
operation of a switch room or central office and co-location with other
telecommunications providers which will enable the Borrower and its Subsidiaries
to offer telephony data transport, internet access and other related services,
as well as all software and hardware associated with the network operating
center and back office systems (including without limitation OSS, billing
systems, customer service and data services), and other related software and
hardware products integral to developing viable telephony, data transport,
internet access and related businesses, together with all related support and
installation costs associated with an operational system (including, without
limitation, costs to co-locate with other telecommunications providers),
provided that such costs are capitalized according to GAAP (generally accepted
accounting principles).
"Term Loan Commitment" shall mean the several obligations of certain of
the Lenders to advance the sum of up to $80,000,000 to the Borrower on or after
the Agreement Date in accordance with their respective Commitment Ratios for the
Term Loans, all pursuant to the terms hereof, as such amount may reduced from
time to time pursuant to the terms hereof.
"Term Loans" shall mean, collectively, the amounts advanced by certain
of the Lenders to the Borrower in an aggregate amount of up to $80,000,000, and
evidenced by the Term Notes.
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"Term Notes" shall mean those certain term notes in the aggregate
original principal amount of $80,000,000, one issued by the Borrower to each of
the Lenders issuing a Term Loan Commitment in accordance with each such Lender's
Commitment Ratio for the Term Loan Commitment, each one substantially in the
form of Exhibit M attached hereto, and any extensions, modifications, renewals
or replacements of or amendments to any of the foregoing.
"Total Capital" shall mean, at any date of determination, the sum of
(i) aggregate amount of cash contributed as common equity capital to the
Borrower (determined in accordance with GAAP as of such date), plus (ii) Total
Debt.
"Total Debt" shall mean, for the Borrower and its Subsidiaries on a
consolidated basis as of any calculation date, the sum (without duplication) of
(i) the outstanding principal amount of the Loans, and (ii) all other
Indebtedness for Money Borrowed.
"Total Debt to Total Capital Ratio" shall mean as of any calculation
date the ratio of Total Debt to Total Capital.
"Total Leverage Ratio" shall mean, as of any calculation date, the
ratio of Total Debt to Annualized Operating Cash Flow.
"Unrestricted Subsidiary" shall mean any subsidiaries of the Parent
(but not of the Borrower) designated as Unrestricted Subsidiaries on Schedule 6.
"Use of Proceeds Letter" shall mean that certain Use of Proceeds
Letter, substantially in the form of Exhibit N, delivered to the Administrative
Agent and the Lenders on the Agreement Date pursuant to Article 3 hereof.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Each definition of an agreement or instrument in this Article 1 shall
include such agreement or instrument as amended, restated, supplemented or
otherwise modified from time to time in accordance herewith. Each reference to
Section, Article, Exhibit or Schedule shall refer, unless otherwise expressly
stated, to a Section or Article of this Agreement, or an Exhibit or Schedule to
this Agreement.
ARTICLE 2
Loans
Section 2.1 The Loans.
(a) Revolving Loans. The Lenders who participate in the
Revolving Loan Commitment agree, severally in accordance with their respective
Commitment Ratios relating to the Revolving Loan Commitment and not jointly,
upon the terms and subject to the conditions of this Agreement, to lend and
re-lend to the Borrower, at any
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<PAGE> 24
time on and after the Agreement Date through but excluding the Maturity Date,
subject to Section 2.1(d) an amount not to exceed, in the aggregate, the amount
of the Revolving Loan Commitment as in effect from time to time. Advances under
the Revolving Loan Commitment may be repaid and reborrowed as provided in
Section 2.2 hereof in order to reborrow Eurodollar Advances for new Interest
Periods, to effect changes in the Interest Rate Bases applicable to the Advances
hereunder, or otherwise. Revolving Loans will bear interest at the Eurodollar
Basis or the Base Rate Basis as provided in Section 2.3 hereof.
(b) Term Loans. The Lenders who have agreed to make Term Loans
agree, severally in accordance with their respective Commitment Ratios for the
Term Loan Commitment and not jointly, upon the terms and subject to the
conditions of this Agreement, to lend to the Borrower, at any time on or after
the Agreement Date, through and including December 31, 2000, an amount not to
exceed, in the aggregate, the amount of the Term Loan Commitment as in effect
from time to time. Term Loans will bear interest at the Eurodollar Basis or the
Base Rate Basis as provided in Section 2.3 hereof.
(c) Expiration and Availability of Term Loan Commitment. The
Term Loan Commitment shall be permanently reduced as follows:
(i) If, prior to April 1, 2000, the Lenders shall not
have made Term Loans to the Borrower in an aggregate amount in excess of
$20,000,000, the Term Loan Commitment shall be permanently reduced on such date
by an amount equal to (i) $20,000,000 less (ii) the principal amount of the Term
Loans advanced prior to April 1, 2000;
(ii) If, prior to July 1, 2000, the Lenders shall not
have made Term Loans to the Borrower in an aggregate amount in excess of
$50,000,000, the Term Loan Commitment shall be permanently reduced on that date
by an amount equal to (i) $50,000,000 less (ii) the principal amount of the Term
Loans advanced prior to July 1, 2000; and
(iii) The remaining $30,000,000 of Term Loan
Commitment shall expire if not drawn on or prior to December 31, 2000.
(d) Expiration and Availability of Revolving Loan Commitment.
$20,000,000 of the Revolving Loan Commitment shall not be available to the
Borrower until the Borrower provides the Lenders with its quarterly financial
statements and Performance Certificate demonstrating compliance with the
Financial Covenants for the quarter ended September 30, 2000, and shall
thereafter be available for borrowing in whole or in part hereunder.
Section 2.2 Manner of Borrowing and Disbursement.
(a) Choice of Interest Rate, Etc. Any Advance (i) under the
Revolving Loan Commitment shall, at the option of the Borrower, be made as a
Base Rate Advance or a Eurodollar Advance, and (ii) under the Term Loans shall
be made as a Base Rate Advance or a Eurodollar Advance; provided, however, that
at such time as there shall
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have occurred and be continuing a Default hereunder, the Borrower shall not have
the right to rollover any Eurodollar Advances, and all subsequent Advances
during the period such Default continues, whether under the Revolving Loan
Commitment or the Term Loans, shall be made as Base Rate Advances. Any notice
given to the Administrative Agent in connection with a requested Advance
hereunder shall be given to the Administrative Agent prior to 10:00 a.m.
(Houston time) in order for such Business Day to count toward the minimum number
of Business Days required.
(b) Base Rate Advances.
(i) Initial Advances. The Borrower shall give the
Administrative Agent in the case of Base Rate Advances at least one (1) Business
Day's prior written notice in the form of a Request for Advance, or telephonic
notice followed immediately by a Request for Advance; provided, however, that
the Borrower's failure to confirm any telephonic notice with a Request for
Advance shall not invalidate any notice so given.
(ii) Continuations. Upon at least one (1), with
respect to items (B) and (C) of this sentence, or three (3), with respect to
item (A) of this sentence, Business Days' prior written notice to the
Administrative Agent, the Borrower may (A) designate all or a portion (meeting
the minimum Advance requirement) of the principal amount of any Base Rate
Advance as a Eurodollar Advance, or (B) continue all or a portion of the
principal amount thereof as one or more Base Rate Advances, or (C) repay all or
any portion of such Base Rate Advance. On such Payment Date or the date
indicated by the Borrower, as the case may be, such Base Rate Advance shall be
so designated, continued or paid. If the Borrower shall give no such written
notice before the applicable Payment Date, the principal portion of such Base
Rate Advance shall be continued for one additional thirty (30) day Interest
Period.
(iii) Failure to Borrow. If the Borrower shall fail
or refuse to borrow on the date and in the manner set forth in a Request for
Advance under subsection (i) above, or if the Borrower shall fail to repay any
Advance on the date identified in writing by the Borrower in the manner set
forth under subsection (ii) above, the Borrower shall pay the Lender's losses
and expenses in the manner and to the extent set forth in Section 2.10 of this
Agreement.
(iv) Minimum Amount. Each Base Rate Advance shall be
in a minimum principal amount of $500,000, and in integral multiples of
$250,000.
(c) Eurodollar Advances.
(i) Initial Advances. The Borrower shall give the
Administrative Agent in the case of Eurodollar Advances at least three (3)
Business Days' prior written notice in the form of a Request for Advance, or
telephonic notice followed immediately by a Request for Advance; provided,
however, that the Borrower's failure to confirm any telephonic notice with a
Request for Advance shall not invalidate any notice so given. The Administrative
Agent, whose determination shall be conclusive
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absent manifest error, shall determine the available Eurodollar Bases and shall
notify the Borrower of such Eurodollar Bases. The Borrower shall promptly notify
the Administrative Agent by telephone or telecopy, and shall immediately confirm
any such telephonic notice in writing, of its selection of a Eurodollar Basis
and Interest Period for such Advance; provided, however, that the Borrower's
failure to confirm any such telephonic notice in writing shall not invalidate
any notice so given.
(ii) Rollovers. Upon at least one (1), with respect
to items (B) and (C) of this sentence or three (3), with respect to item (A) of
this sentence, Business Days' prior written notice to the Administrative Agent,
the Borrower shall specify whether all or a portion of such Eurodollar Advance
outstanding on the Payment Date (A) is to be rolled over as a Eurodollar Advance
(specifying the applicable Interest Period), (B) is to be continued in whole or
in part as a Base Rate Advance, or (C) is to be repaid. Upon such Payment Date
such Eurodollar Advance will, subject to the provisions hereof, be so
designated, continued, rolled over, or repaid. If the Borrower shall give no
such written notice before the applicable Payment Date, or shall be unable to
rollover a Eurodollar Advance, the principal portion of such Eurodollar Advance
shall be converted into and continued as a Base Rate Advance.
(iii) Failure to Borrow. If the Borrower shall fail
or refuse to borrow on the date and in the manner set forth in a Request for
Advance under subsection (i) above, or if the Borrower shall fail to repay any
Advance on the date identified in writing by the Borrower in the manner set
forth under subsection (ii) above, the Borrower shall pay the Lenders' losses
and reasonable out-of-pocket expenses in the manner and to the extent set forth
in Section 2.10 of this Agreement.
(iv) Minimum Amount. Each Eurodollar Advance shall be
in a minimum principal amount of $2,000,000, and in integral multiples of
$500,000.
(d) Notification of Lenders. Upon receipt of a Request for
Advance, or a notice from the Borrower with respect to a selection of an
Interest Period, or a notice from the Borrower with respect to any outstanding
Advance prior to the Payment Date for such Advance, the Administrative Agent
shall promptly notify each Lender by telephone and telecopy of the contents
thereof and the amount of such Lender's portion of the Advance. Each Lender
shall, not later than 12:00 noon (Houston time) on the date of borrowing
specified in such notice, make available to the Administrative Agent at the
Administrative Agent's Office, or at such account as the Administrative Agent
shall designate, the amount of its portion of any Advance which represents an
additional borrowing hereunder in immediately available funds.
(e) Disbursement.
(i) Prior to 2:00 p.m. (Houston time) on the date of
an Advance hereunder, the Administrative Agent shall, subject to the
satisfaction of the conditions set forth in Article 3, disburse the amounts made
available to it by the Lenders in like funds by (a) transferring the amounts so
made available by wire transfer pursuant to the Borrower's instructions, or (b)
in the absence of such instructions, crediting the
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amounts so made available to the account of the Borrower maintained with the
Administrative Agent.
(ii) Unless the Administrative Agent shall have
received notice from a Lender prior to 12:00 noon (Houston time) on the date of
any Advance that such Lender will not make available to the Administrative Agent
such Lender's ratable portion of such Advance, the Administrative Agent may
assume that such Lender has made or will make such portion available to the
Administrative Agent on the date of such Advance, and the Administrative Agent
may in its sole discretion and in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent the
Lender does not make such ratable portion available to the Administrative Agent,
such Lender agrees to repay to the Administrative Agent on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent, (A) for the first three (3) days following
such date at the Federal Funds Rate and (B) from and after the fourth (4th) day
following such date at the Federal Funds Rate plus one percent (1%).
(iii) If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's portion of the applicable Advance for purposes of this
Agreement. If such Lender does not repay such corresponding amount immediately
upon the Administrative Agent's demand therefor, the Administrative Agent shall
notify the Borrower and the Borrower shall immediately pay such corresponding
amount to the Administrative Agent, together with interest thereon at the
otherwise applicable Interest Rate Basis. The failure of any Lender to fund its
portion of any Advance shall not relieve any other Lender of its obligation
hereunder to fund its respective portion of the Advance on the date of such
borrowing, but no Lender shall be responsible for any such failure of any other
Lender.
(iv) In the event that, at any time when the Borrower
is not in Default and has otherwise satisfied any necessary conditions under
Article 3, a Lender for any reason fails or refuses to fund its portion of an
Advance, then, until such time as such Lender has funded its portion of such
Advance, or all other Lenders have received payment in full (whether by
repayment or prepayment) of the principal and interest due in respect of such
Advance, such non-funding Lender shall not have the right (i) to vote regarding
any issue on which voting is required or advisable under this Agreement or any
other Loan Document and the amount of the Loans of such Lender shall not be
counted as outstanding for purposes of determining "Lenders" or "Majority
Lenders" hereunder, except that, at any time when there exists an Event of
Default hereunder, such Lender's vote shall count and be required for any
all-Lender action under Section 11.12 hereof, and (ii) to receive payments of
principal, interest or fees from the Borrower in respect of its unfunded
Advances (the commitment fee portion of which shall be forfeited by the
applicable Lender for each day for which such Lender has not funded a portion of
an Advance).
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Section 2.3 Interest.
(a) On Base Rate Advances. Interest on each Base Rate Advance
shall be computed on the basis of a year of 365/366 days for the actual number
of days elapsed and shall be payable at the Base Rate Basis for such Advance, in
arrears on the applicable Payment Date for the period through the date
immediately preceding such Payment Date. Interest on Base Rate Advances then
outstanding shall also be due and payable on the Maturity Date.
(b) On Eurodollar Advances. Interest on each Eurodollar
Advance shall be computed on the basis of a 360-day year for the actual number
of days elapsed and shall be payable at the Eurodollar Basis for such Advance,
in arrears on the applicable Payment Date for the period through the day
immediately preceding such Payment Date, and, in addition, if the Interest
Period for a Eurodollar Advance exceeds three (3) months, interest on such
Eurodollar Advance shall also be due and payable in arrears on every three-month
anniversary of the beginning of such Interest Period. Interest on Eurodollar
Advances then outstanding shall also be due and payable on the Maturity Date.
(c) Interest if no Notice of Selection of Interest Rate Basis.
If the Borrower fails to give the Administrative Agent timely notice of its
selection of a Eurodollar Basis for any Advance, or if for any reason a
determination of a Eurodollar Basis for any Advance is not timely concluded, the
Base Rate Basis shall apply to such Advance.
(d) Interest Upon Default. Immediately upon the occurrence of
a Default hereunder (whether or not declared) the outstanding principal balance
of the Loans shall bear interest at the Default Rate. Such interest shall be
payable on the earlier of demand or the Maturity Date and shall accrue until the
earlier of (a) waiver (to the satisfaction of the Lenders required under Section
11.12 hereof to waive) of the applicable Event of Default, or (b) agreement by
the Majority Lenders to rescind the charging of interest at the Default Rate, or
(c) payment in full of the Obligations.
(e) Eurodollar Advances. At no time may the number of
outstanding Eurodollar Advances exceed six (6).
(f) Applicable Margin.
(i) Prior to the Anniversary Date. Prior to the
Anniversary Date, (1) the Applicable Margin for Base Rate Advances shall be
3.50% and (2) the Applicable Margin for Eurodollar Advances shall be 4.50%.
(ii) After the Anniversary Date.
(1) After the Anniversary Date and when (i)
the Total Debt to Total Capital Ratio for the most recent fiscal
quarter end equals or exceeds 45.0%, and (ii) the Total Leverage Ratio
for the most recent fiscal quarter end is a positive number that equals
or exceeds 10.00:1.00, the Applicable Margin
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for Base Rate Advances shall be 3.50% and the Applicable Margin for
Eurodollar Advances shall be 4.50%.
(2) After the Anniversary Date and when (i)
the Total Debt to Total Capital Ratio for the most recent fiscal
quarter end is less than 45.0%, or (ii) the Total Leverage Ratio for
the most recent fiscal quarter end is less than 10.00:1.00 but equals
or exceeds 6.00:1.00, the Applicable Margin for Base Rate Advances
shall be 3.00% and the Applicable Margin for Eurodollar Advances shall
be 4.00%.
(3) After the Anniversary Date and when the
Total Leverage Ratio for the most recent fiscal quarter end is less
than 6.00:1.00, the Applicable Margin for Base Rate Advances and the
Applicable Margin for Eurodollar Advances shall be as set forth on the
grid below:
Base Rate Advance Eurodollar Advance
Total Leverage Ratio Applicable Margin Applicable Margin
-------------------- ----------------- ------------------
Greater than or equal to 5.00 2.500% 3.500%
but less than 6.00
Greater than or equal to 4.00 2.250% 3.250%
but less than 5.00
Greater than or equal to 3.00 2.000% 3.000%
but less than 4.00
Less than 3.00 1.750% 2.750%
Any adjustments to the Applicable Margin shall be effective on second Business
Day after the financial statements referred to in and complying with Section 6.1
hereof are required to be furnished and have been furnished by the Borrower to
the Administrative Agent and each Lender, for the fiscal quarter most recently
ended.
Section 2.4 Scheduled Commitment Reduction and Repayment. Commencing
March 31, 2003, and at the end of each calendar quarter thereafter, the
Revolving Loan shall be reduced by an amount equal to the percentages and
amounts (for such quarter and year) set forth below, and the outstanding
principal balance of the Term Loans shall be repaid by an amount equal to the
percentages and amounts (for such quarter and year) set forth below:
<TABLE>
<CAPTION>
Percentage and Amount of
Percentage and Amount of Revolving Loan Commitment to be
Revolving Loan Commitment to Reduced Each Twelve-Month Period
Quarters Ending be Reduced Each Quarter: Ending December 31:
- --------------- ---------------------------- --------------------------------
<S> <C> <C>
March 31, 2003 through and including 3.125% /$1,250,000 12.500% /$5,000,000
December 31, 2003
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C> <C>
March 31, 2004 through and including 4.375% /$1,750,000 17.500% /$7,000,000
December 31, 2004
March 31, 2005 through and including 5.000% /$2,000,000 20.000% /$8,000,000
December 31, 2005
March 31, 2006 through and including 6.250% /$2,500,000 25.000% /$10,000,000
December 31, 2006
March 31, 2007 through and including 6.250% /$2,500,000 25.000% /$10,000,000
December 31, 2007
</TABLE>
<TABLE>
<CAPTION>
Percentage and Amount of Term
Percentage and Amount of Loans Outstanding as of December
Term Loans Outstanding as of 31, 2002 to be Reduced Each
December 31, 2002 to be Twelve-Month Period Ending
Quarters Ending Reduced Each Quarter: December 31:
- --------------- ---------------------------- -------------------------------
<S> <C> <C>
March 31, 2003 through and including 3.125% /$2,500,000 12.500% /$10,000,000
December 31, 2003]
March 31, 2004 through and including 4.375% /$3,500,000 17.500% /$14,000,000
December 31, 2004
March 31, 2005 through and including 5.000% /$4,000,000 20.000% /$16,000,000
December 31, 2005
March 31, 2006 through and including 6.250% /$5,000,000 25.000% /$20,000,000
December 31, 2006
March 31, 2007 through and including 6.250% /$5,000,000 25.000% /$20,000,000
December 31, 2007
</TABLE>
On the date of each reduction of the Revolving Loan Commitment as shown above,
the Borrower shall pay to the Administrative Agent, for the ratable benefit of
the Lenders, the amount necessary to reduce the principal amount of the then
outstanding Revolving Loans to not more than the amount of the Revolving Loan
Commitment, as so reduced, together with the accrued interest on the amount so
repaid. Any remaining unpaid principal and interest of the Revolving Loan shall
be due and payable in full on the Maturity Date. In addition, any unpaid
principal and interest of the Term Loans and any other outstanding Obligations
under the Term Loan Commitment shall be due and payable in full on the Maturity
Date.
Section 2.5 Fees.
(a) Fees Payable Under the Fee Letters. The Borrower agrees to
pay (i) to the Administrative Agent, for the benefit of itself and the Lenders,
such fees as are mutually agreed upon and as are described in the Fee Letters,
and (ii) to the Administrative Agent for its services hereunder such fees as may
be mutually agreed upon.
(b) Commitment Fee. In addition, the Borrower agrees to pay to
the Administrative Agent, for the benefit of each of the Lenders participating
in the
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<PAGE> 31
Commitments hereunder, in accordance with their respective Commitment Ratios, a
commitment fee on the aggregate unborrowed balance of the Commitments, for each
day from the Agreement Date until the Maturity Date, as follows:
(i) If the aggregate outstanding principal amount of
the Loans equals or exceeds 67% of the Commitments, an amount equal to
0.625% per annum of the Commitments;
(ii) If the aggregate outstanding principal amount of
the Loans equals or exceeds 33%, but is less than 67%, of the
Commitments, an amount equal to 1.000% per annum of the Commitments;
and
(iii) If the aggregate outstanding principal amount
of the Loans is less than 33% of the Commitments, an amount equal to
1.500% per annum.
Such commitment fee shall be payable quarterly in arrears on the last day of
each calendar quarter, commencing on the last day of the calendar quarter in
which the Agreement Date occurs, and on the Maturity Date, shall be fully earned
when due, and shall be non-refundable when paid.
Section 2.6 Optional Prepayments and Reductions.
(a) Prepayment of Advances. The principal amount of any Base
Rate Advance may be prepaid in full or in part at any time, without penalty and
without regard to the Payment Date for such Advance, upon one (1) Business Days'
prior written notice to the Administrative Agent of such prepayment. Eurodollar
Advances may be prepaid prior to the applicable Payment Date, upon three (3)
Business Days' prior written notice to the Administrative Agent, provided that
the Borrower shall reimburse the Lenders and the Administrative Agent, on the
earlier of demand (accompanied by a certificate of the Administrative Agent or
the Lender or Lenders seeking reimbursement) or the Maturity Date, for any loss
or expense incurred by any Lender or the Administrative Agent in connection with
such prepayment, in the manner and to the extent set forth in Section 2.10
hereof. Partial prepayments shall be in a principal amount of not less than
$2,000,000, and in an integral multiple of $500,000. A notice of prepayment
shall be irrevocable unless the Majority Lenders shall otherwise agree upon the
written request of the Borrower to cancel such a notice of prepayment. Upon
receipt of any notice of prepayment, the Administrative Agent shall promptly
notify each Lender of the contents thereof by telephone and telecopy and of such
Lender's portion of the prepayment.
(b) Reduction of Commitment. The Borrower may, by giving at
least five (5) Business Days' prior written notice to the Administrative Agent,
permanently terminate or reduce either the Revolving Loan Commitment or the Term
Loan Commitment, at any time in a minimum amount of $2,000,000 and in $500,000
increments thereafter. The Borrower shall also make any required repayment or
prepayment of the Loans outstanding under the Commitment being so terminated or
reduced, plus accrued interest on such outstanding Loans and any amounts due
under Section 2.10 hereof, on or before the effective date of the reduction or
termination of the
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<PAGE> 32
affected Commitment, so that the principal amount of Loans outstanding under
such affected Commitment does not exceed the amount of the affected Commitment
as so reduced. The Borrower shall not have any right to rescind any notice of
termination or reduction pursuant to this Section 2.6(b). Upon receipt of any
notice of prepayment or reduction, the Administrative Agent shall promptly
notify each Lender by telephone and telecopy of the contents thereof and of such
Lender's portion of the anticipated prepayment.
Section 2.7 Mandatory Prepayments. In addition to the scheduled
repayments and Commitment reductions provided for in Section 2.4 hereof, the
Borrower shall prepay the Loans as follows:
(a) Repayment From Excess Cash Flow. On or prior to April 30,
2002, the Borrower shall make a prepayment of the outstanding principal amount
of the Loans in an amount equal to seventy-five percent (75%) of Excess Cash
Flow (for the fiscal year then most recently ended) and on or prior to each
April 30th thereafter during the term of this Agreement, the Borrower shall make
an additional prepayment of the outstanding principal amount of the Loans in an
amount equal to fifty percent (50%) of Excess Cash Flow for the fiscal year then
most recently ended. Amounts so prepaid shall be applied to the Revolving Loan
Commitment and the outstanding Term Loans on a pro rata basis and shall reduce
the remaining Revolving Loan Commitment reductions and the remaining Term Loan
required repayments due under Section 2.4, in reverse order of maturity. Accrued
interest on the principal amount of the Loans being prepaid pursuant to this
Section 2.7(a) to the date of such prepayment, together with any amounts owing
under Section 2.10 hereof, will be paid by the Borrower concurrently with such
principal prepayment.
(b) From Permitted Asset Sales. The Net Proceeds from any sale
of assets together with any proceeds of insurance under Section 5.5,
collectively in excess of $500,000 in the aggregate in any calendar year, or
securities as permitted hereunder or consented to by the Lenders, shall be
applied, on the Business Day of receipt thereof by the Borrower or the affected
Subsidiary, as follows:
(i) Except as otherwise provided in Section
2.7(b)(ii) hereof, to permanently reduce the Revolving Loan Commitment
and the outstanding Term Loans, on a pro rata basis, and shall reduce
the remaining Revolving Loan Commitment reductions and the remaining
Term Loan required repayments due under Section 2.4, in inverse order
of maturity; or
(ii) Net Proceeds from the sale of Borrower's First
Pay division in excess of $4,000,000 only shall be required to be used
to prepay the Loans and reduce the Commitments outstanding hereunder.
(c) From Net Proceeds. Fifty percent (50%) of any Net Proceeds
from the issuance of equity securities, and one hundred percent (100%) of the
Net Proceeds from the issuance of Indebtedness for Money Borrowed, by the
Borrower or the Parent (other than up to $100,000,000 to be raised by the Parent
for the benefit of its
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<PAGE> 33
Unrestricted Subsidiaries, of which no more than $67,000,000 may be Indebtedness
for Money Borrowed) shall be applied, on the Business Day of receipt thereof by
the Parent or the Borrower to permanently reduce the Revolving Loan Commitment
and the outstanding Term Loans, on a pro rata basis, and shall reduce the
remaining Revolving Loan Commitment reductions and the remaining Term Loan
required repayments due under Section 2.4 in inverse order of maturity.
Section 2.8 Notes; Loan Accounts.
(a) The Loans shall be repayable in accordance with the terms
and provisions set forth herein and shall be evidenced by the Notes. Term Notes
shall be issued by the Borrower and payable to the order of each Lender listed
on Schedule 2 as making a Term Loan, and one Revolving Note shall be issued by
the Borrower and payable to the order of each such Lender issuing a Revolving
Loan Commitment. The Notes shall be issued by the Borrower to the Lenders and
shall be duly executed and delivered by one or more Authorized Signatories.
(b) Each Lender may open and maintain on its books in the name
of the Borrower a loan account with respect to the Loans and interest thereon.
Each Lender which opens such a loan account shall debit such loan account for
the portion of the principal amount of each Advance made by it and accrued
interest thereon and shall credit such loan account for each payment on account
of principal of or interest on its Loans. The records of a Lender with respect
to the loan account maintained by it shall be prima facie evidence of the Loans
and accrued interest thereon, but the failure of any Lender to make any such
notations or any error or mistake in such notations shall not affect the
Borrower's repayment obligations with respect to such Loans.
Section 2.9 Manner of Payment.
(a) Each payment (including any prepayment) by the Borrower on
account of the principal of or interest on the Loans, commitment fees and any
other amount owed to the Lenders and the Administrative Agent or any of them
under this Agreement or the Notes shall be made not later than 1:00 p.m.
(Houston time) on the date specified for payment under this Agreement to the
Administrative Agent at the Administrative Agent's Office, for the account of
the Lenders or the Administrative Agent, as the case may be, in Dollars in
immediately available funds. Any payment received by the Administrative Agent
after 1:00 p.m. (Houston time) shall be deemed received on the next Business
Day. Receipt by the Administrative Agent of any payment intended for any Lender
or Lenders hereunder prior to 1:00 p.m. (Houston time) on any Business Day shall
be deemed to constitute receipt by such Lender or Lenders on such Business Day.
In the case of a payment for the account of a Lender, the Administrative Agent
will promptly thereafter (and, if such amount is received before 1:00 p.m.
(Houston time), on the same day) distribute the amount so received in like funds
to such Lender. If the Administrative Agent shall not have received any payment
from the Borrower as and when due, the Administrative Agent will promptly notify
the Lenders accordingly.
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<PAGE> 34
(b) The Borrower agrees to pay principal, interest, fees and
all other amounts then due and payable hereunder, under the Fee Letters, or
under the Notes, without set-off or counterclaim or any deduction whatsoever
other than any amount properly withheld in accordance with Section 2.13 in
respect of income taxes payable by such Lender.
(c) Prior to the acceleration of the Loans under Section 8.2
hereof, if some but less than all amounts due from the Borrower are received by
the Administrative Agent with respect to the Obligations, the Administrative
Agent shall distribute such amounts in the following order of priority, all on a
pro rata basis to the Lenders: (i) to the payment on a pro rata basis of any
fees or expenses then due and payable to the Administrative Agent, the Lenders,
or any of them; (ii) to the payment of interest then due and payable on the
Loans; (iii) to the payment of all other amounts not otherwise referred to in
this Section 2.9(c) then due and payable to the Administrative Agent or the
Lenders, or any of them, hereunder or under the Notes; and (iv) to the payment
of principal then due and payable on the Notes.
(d) Subject to any contrary provisions in the definition of
Interest Period, if any payment under this Agreement or any of the other Loan
Documents is specified to be made on a day which is not a Business Day, it shall
be made on the next Business Day, and such extension of time shall in such case
be included in computing interest and fees, if any, in connection with such
payment.
Section 2.10 Reimbursement.
(a) Whenever any Lender shall sustain or incur any losses or
expenses in connection with (i) failure by the Borrower to borrow or convert
into a Eurodollar Advance after having given notice of its intention to borrow
in accordance with Section 2.2 hereof (whether by reason of the Borrower's
election not to proceed or the non-fulfillment of any of the conditions set
forth in Article 3 or otherwise), or (ii) prepayment of any Eurodollar Advance
in whole or in part for any reason, the Borrower agrees to pay to such Lender,
so long as notice as described below is provided, upon the earlier of such
Lender's demand or the Maturity Date, an amount sufficient to compensate such
Lender for all such losses and expenses. Such Lender's good faith determination
of the amount of such losses or expenses, set forth in writing and accompanied
by calculations in reasonable detail demonstrating the basis for its demand, set
forth in a certificate and delivered after the occurrence of the event giving
rise to such Lender's losses or expenses, shall be conclusive, absent manifest
error.
(b) Losses subject to reimbursement hereunder shall be the
excess, if any, of (i) the interest or other costs to such Lender of the deposit
or other source of funding used to make such Eurodollar Advance, for the
remainder of its putative Interest Period, over (ii) the interest earned (or to
be earned) by such Lender upon the re-lending or re-deployment of the amount of
such Eurodollar Advance for the remainder of its putative Interest Period.
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<PAGE> 35
Section 2.11 Pro Rata Treatment.
(a) Advances. Each Advance of the Revolving Loans or the Term
Loans from the Lenders shall be made pro rata on the basis of the respective
Commitment Ratios of the Lenders issuing and holding Commitments for such Loans,
as set forth as of the Agreement Date on Schedule 2 hereof.
(b) Payments. Except as provided in Section 2.2(e)(iv) or
Article 10 hereof, each payment and prepayment of principal of the Loans, and
each payment of interest on the Loans, shall be made to the Lenders pro rata on
the basis of their respective unpaid principal amounts outstanding under the
applicable Facility immediately prior to such payment or prepayment. If any
Lender shall obtain any payment (whether involuntary, through the exercise of
any right of set-off, or otherwise) on account of the Loans made by it in excess
of its ratable share of the Loans under the applicable Facility, such Lender
shall forthwith purchase from the other Lenders for such Facility such
participations in the Loans made by them under such Facility as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and each such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery. The
Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.11(b) may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
Section 2.12 Capital Adequacy. If, after the date hereof, the adoption
of any Applicable Law regarding the capital adequacy of banks or bank holding
companies, or any change in Applicable Law (whether adopted before or after the
Agreement Date), other than in connection with income taxes, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender with any directive
regarding capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on any Lender's capital as a consequence
of its obligations hereunder with respect to the Loans and the Commitments to a
level below that which it could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's policies with respect to
capital adequacy immediately before such adoption, change or compliance and
assuming that such Lender's capital was fully utilized prior to such adoption,
change or compliance) by an amount deemed by such Lender to be material, then,
so long as notice as described below is timely provided, upon the earlier of
demand by such Lender or the Maturity Date, the Borrower shall promptly pay to
such Lender such additional amounts as shall be sufficient to compensate such
Lender for such reduced return, together with interest on such amount from the
date of demand until payment in full thereof at the Default Rate. A certificate
of such Lender setting forth the amount to be paid to such Lender by the
Borrower as a result of any event referred to in this paragraph and supporting
calculations in reasonable detail
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<PAGE> 36
demonstrating the basis therefor shall be delivered by such Lender to the
Borrower (with a copy to the Administrative Agent) after such Lender's learning
of the existence of such claim and (ii) shall be conclusive, absent manifest
error.
Section 2.13 Lender Tax Forms. On or prior to the date such party
becomes a "Lender" party to this Agreement and on or prior to the first Business
Day of each calendar year thereafter, each Lender that is organized in a
jurisdiction other than the United States or any state thereof shall provide
each of the Administrative Agent and the Borrower with either (a) two (2)
properly executed originals of Form 4224 or Form 1001 (or any successor forms)
prescribed by the Internal Revenue Service or other documents satisfactory to
the Borrower and the Administrative Agent, and properly executed Internal
Revenue service Form W-8 or Form W-9, as the case may be, certifying (i) as to
such Lender's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Lender
hereunder and under the Notes or (ii) that all payments to be made to such
Lender hereunder and under the Notes are subject to such taxes at a rate reduced
to zero by an applicable tax treaty, or (b) (i) a certificate executed by such
Lender certifying that such Lender is not a "bank" and that such Lender
qualifies for the portfolio interest exemption under 881(c) of the Internal
Revenue Code of 1986, as amended, and (ii) two (2) properly executed originals
of Internal Revenue Service Form W-8 (or any successor form) prescribed
certifying such Lender's entitlement to an exemption from United States
withholding tax with respect to payments of interest to be made under this
Agreement and under any Note. Each such Lender agrees to provide the
Administrative Agent and the Borrower with new forms to the same effect
prescribed by the Internal Revenue Service upon the expiration or obsolescence
of any previously delivered form, or after the occurrence of any event requiring
a change in the most recent forms delivered by it to the Administrative Agent
and the Borrower.
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to Initial Advance of Loans. The
obligations of the Lenders to undertake the Commitments and to make the initial
Advances of the Loans hereunder are subject to the prior fulfillment of each of
the following conditions:
(a) The Administrative Agent shall have received each of the
following (with sufficient copies for each of the Lenders), in form and
substance satisfactory to the Administrative Agent and each of the Lenders:
(i) the loan certificate of the Borrower, in
substantially the form attached hereto as Exhibit O, including a certificate of
incumbency with respect to each Authorized Signatory, together with appropriate
attachments which shall include without limitation, the following items: (A) a
certified copy of the Articles of Incorporation of the Borrower, certified as of
a recent date to be true, complete and
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<PAGE> 37
correct by the Secretary of State of the State of South Carolina, (B) a
certificate of good standing as of a recent date for each other state in which
the Borrower is required to qualify or has qualified to do business, (C) a
certificate of the secretary of the Borrower, certifying to the accuracy of the
Borrower's (i) certificate or articles of incorporation, (ii) by-laws, (iii)
shareholders agreement, if any, (iv) incumbency of officers and (v) authorizing
resolutions, and (D) a true, complete and correct copy of any agreement in
effect with respect to the voting rights, ownership interests, or management of
the Borrower;
(ii) the duly executed Notes;
(iii) the duly executed Security Agreement, together
with appropriate UCC-1 financing statement forms for filing;
(iv) the duly executed Subsidiary Security Agreement,
executed and delivered by each Subsidiary of the Borrower, together with
appropriate UCC-1 financing statement forms for filing;
(v) the duly executed Parent Pledge Agreement,
together with the certificates representing all of the capital stock of the
Borrower and Parent's Restricted Subsidiaries and stock powers duly endorsed in
blank, together with any intercompany notes held by the Parent;
(vi) the duly executed Borrower Pledge Agreement,
together with the certificates representing all of the capital stock of each of
the Borrower's Subsidiaries and stock powers duly endorsed in blank, together
with any intercompany notes held by the Borrower;
(vii) duly executed Collateral Assignment of Leases,
together with appropriate landlord waivers and consents and UCC financing
statement forms to be filed in connection therewith;
(viii) Copies of insurance binders or certificates
covering the assets of the Borrower and its Subsidiaries, and otherwise meeting
the requirements of Section 5.5 hereof;
(ix) Legal opinions of (i) Wyche, Burgess, Freeman &
Parham, P.A., general counsel to the Borrower, and (ii) Nowalsky & Bronston,
regulatory counsel to the Borrower; each as counsel to the Parent, the Borrower
and the Restricted Subsidiaries, addressed to each Lender and the Administrative
Agent, in form and substance satisfactory to the Documentation Agent and the
Administrative Agent and counsel, and dated as of the Agreement Date;
(x) duly executed Request for Advance for the initial
Advance of the Loans;
(xi) duly executed Use of Proceeds Letter;
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<PAGE> 38
(xii) duly executed Certificate of Financial
Condition for the Parent and its Restricted Subsidiaries on a consolidated
basis, given by the chief financial officer of the Parent;
(xiii) any Necessary Authorizations or other required
consents to the closing of this Agreement or to the execution, delivery and
performance of this Agreement and the other Loan Documents, each of which shall
be in form and substance satisfactory to the Administrative Agent and the
Lenders;
(xiv) duly executed Parent Guaranty;
(xv) duly executed Subsidiary Guaranty executed and
delivered by each Subsidiary of the Borrower;
(xvi) a loan certificate from each Subsidiary of the
Borrower, in substantially the form attached hereto as Exhibit P, including a
certificate of incumbency with respect to each officer authorized to execute
Loan Documents on behalf of such Subsidiary, together with appropriate
attachments which shall include, without limitation, the following items, if a
corporation, and the analogous items, if a partnership or a limited liability
company: (A) a copy of the Certificate or Articles of Incorporation of such
Subsidiary, certified as of a recent date to be true, complete and correct by
the Secretary of State from the jurisdiction of incorporation of such
Subsidiary, (B) certificates of good standing as of a recent date for such
Subsidiary as of a recent date issued by the Secretary of State or similar state
official for each state in which such Subsidiary is incorporated or required to
qualify to do business, (C) a true, complete and correct copy of the by-laws of
such Subsidiary, as in effect on the Agreement Date, (D) a true, complete and
correct copy of the resolutions of the Board of Directors or general partners,
as applicable, of such Subsidiary authorizing it to execute, deliver and perform
the Loan Documents to which it is a party, (E) a true, complete and correct copy
of any shareholders' agreements or voting trust agreements in effect with
respect to the stock of such Subsidiary, (F) a true, complete and correct
description of all Liens of record on the Agreement Date with respect to the
assets of such Subsidiary, and (G) a true, complete and correct description of
all litigation pending or threatened against such Subsidiary;
(xvii) a loan certificate from the Parent, in
substantially the form attached hereto as Exhibit Q, including a certificate of
incumbency with respect to each officer authorized to execute Loan Documents on
behalf of the Parent, together with appropriate attachments which shall include,
without limitation, the following items: (A) a copy of the Certificate or
Articles of Incorporation of the Parent, certified as of a recent date to be
true, complete and correct by the Secretary of State of the State of South
Carolina, (B) certificates of good standing as of a recent date for the Parent
issued by the Secretary of State or similar state official for each state in
which the Parent is incorporated or required to qualify to do business, (C) a
true, complete and correct copy of the by-laws of the Parent, as in effect on
the Agreement Date, (D) a true, complete and correct copy of the resolutions of
the Board of Directors of the Parent authorizing it to execute, deliver and
perform the Loan Documents to which it is a party, (E) a true, complete and
correct copy of any shareholders' agreements or voting trust agreements in
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<PAGE> 39
effect with respect to the stock of the Parent, (F) a true, complete and correct
description of all Liens of record on the Agreement Date with respect to the
assets of the Parent, and (G) a true, complete and correct description of all
litigation pending or threatened against the Parent;
(xviii) UCC-11 title search results with respect to
the Parent and its Restricted Subsidiaries, together with payoff letters and
appropriate UCC-3 termination statements relating to Liens in favor of Nortel
and Carolina First Bank, and relating to other Liens which are not Permitted
Liens; and
(xix) all such other documents as either the
Administrative Agent or the Documentation Agent may request, certified by an
appropriate governmental official or an Authorized Signatory if so requested.
(b) The Administrative Agent and the Lenders shall have
received evidence satisfactory to them that all Necessary Authorizations,
including all necessary consents to the closing of this Agreement, have been
obtained or made, are in full force and effect and are not subject to any
pending or threatened reversal or cancellation, and the Administrative Agent
shall have received (with sufficient copies for the Lenders) a certificate of an
Authorized Signatory so stating.
(c) The Lenders, the Administrative Agent, and Paul, Hastings,
Janofsky & Walker LLP, special counsel to the Documentation Agent and the
Administrative Agent, shall have received payment of all fees due and payable on
the Agreement Date pursuant to the terms hereof and pursuant to the terms of the
Fee Letters in respect of the closing of the transaction contemplated hereby.
(d) The chief financial officer of the Parent shall have
presented the Administrative Agent and the Lenders with a certificate to the
effect that the (i) there has occurred no event having a Materially Adverse
Effect since December 31, 1998, (ii) the Parent and, to the extent applicable,
its Restricted Subsidiaries are in compliance with all of the terms and
conditions of all of the conditions and covenants under their existing
agreements with respect to any outstanding Indebtedness incurred by the Parent
or its Restricted Subsidiaries, and (iii) upon consummation of this transaction
and the other transactions contemplated hereby, the Parent or the Borrower, as
the case may be, shall be in compliance on a pro forma basis with the Financial
Covenants hereof. Such certificate shall contain as attachments the calculations
required to demonstrate to such compliance with such Financial Covenants.
(e) Senior management of the Borrower shall have provided the
Lenders with eight (8) year operating and financial projections, in form and
substance acceptable to the Lenders, indicating future compliance with all
Financial Covenants contained herein during the term of the Facilities.
(f) The Borrower will have received, on a cumulative basis, a
minimum of $100,000,000 of Net Proceeds from equity issued by the Parent,
including, without limitation, preferred stock issued by the Parent to an
Affiliate of the
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Administrative Agent and to the Documentation Agent or an Affiliate thereof as
shown on the Parent's financial statements or otherwise to the satisfaction of
the Administrative Agent, the Syndication Agent, and the Documentation Agent;
(g) The Lenders shall have reviewed and approved the terms
(including the elimination or extension beyond the Maturity Date of any right to
put) of the Parent's existing and new Series C preferred stock.
(h) There shall have occurred, or shall occur simultaneously
with the closing of this Agreement, the repayment and cancellation of any
existing Indebtedness for Money Borrowed of the Parent and any of its
Subsidiaries.
(i) The review and approval by the Lenders of environmental
audits, questionnaires and Phase I environmental assessments for all properties
owned by the Borrower and its Subsidiaries shall have been satisfactory.
(j) The Borrower shall have delivered copies of all material
contracts (including those with Nortel Networks and its Affiliates, which shall
be in form and substance satisfactory to the Administrative Agent, the
Documentation Agent and the Syndication Agent) and related consents to
collateral assignment of such contracts, duly executed by the parties thereto.
Section 3.2 Conditions Precedent to Each Advance. The obligation of the
Lenders to make each Advance is subject to the fulfillment of each of the
following conditions immediately prior to or contemporaneously with such
Advance:
(a) All of the representations and warranties of the Borrower
under this Agreement (including, without limitation, all representations and
warranties with respect to Restricted Subsidiaries), which, pursuant to Section
4.2 hereof, are made at and as of the time of such Advance, shall be true and
correct at such time in all respects, both before and after giving effect to the
application of the proceeds of such Advance, and after giving effect to any
updates to information provided to the Lenders in accordance with the terms of
such representations and warranties, and no Default hereunder shall then exist
or be caused thereby;
(b) With respect to Advances which, if funded, would increase
the aggregate principal amount of Loans outstanding hereunder, the
Administrative Agent and the Lenders shall have received a duly executed Request
for Advance;
(c) The Administrative Agent shall have received, in form
satisfactory to the Administrative Agent and each of the Lenders:
(i) A certificate of the chief financial officer of
the Borrower to the effect that (1) there has occurred no event having
a Materially Adverse Effect since December 31, 1998, the date as of
which the Parent's financial statements were most recently audited and
given an unqualified opinion by the Parent's certified public
accounting firm, (2) the Borrower and its Subsidiaries, are in
compliance with all of the terms and conditions of all of the
conditions and
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covenants under their existing agreements with respect to any
Indebtedness incurred by the Borrower or its Subsidiaries, and (3) upon
consummation of this transaction and the other transactions
contemplated hereby, the Borrower, as the case may be, shall be in
compliance on a pro forma basis with the Financial Covenants hereof.
Such certificate shall contain as attachments the calculations required
to demonstrate to such compliance with such Financial Covenants; and
(ii) A duly executed Use of Proceeds Letter.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrower hereby agrees,
represents and warrants in favor of the Administrative Agent and each Lender
that:
(a) Organization; Ownership; Power; Qualification. The
Borrower is a corporation duly organized and validly existing under the laws of
the State of South Carolina. The Borrower has the corporate power and authority
to own its properties and to carry on its business as now being and hereafter
proposed to be conducted. Each Subsidiary of the Borrower is a corporation,
limited liability company or a partnership duly organized, validly existing and
in good standing under the laws of the state of its incorporation or formation,
and has the corporate or partnership or other power and authority, as the case
may be, to own its properties and to carry on its business as now being and
hereafter proposed to be conducted. The Borrower and each of its Subsidiaries
are duly qualified, in good standing and authorized in all respects to do
business in each jurisdiction in which the character of their respective
properties or the nature of their respective businesses requires such
qualification or authorization.
(b) Authorization; Enforceability. The Borrower has the
corporate power and has taken all necessary action to authorize it to borrow
hereunder, to execute, deliver and perform this Agreement and each of the other
Loan Documents to which it is a party in accordance with their respective terms,
and to consummate the transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by the Borrower and each of the
other Loan Documents to which the Borrower is a party have been duly executed
and delivered by the Borrower, and each of the foregoing is a legal, valid and
binding obligation of the Borrower enforceable against it in accordance with its
terms, subject, as to enforcement of remedies, to the following qualifications:
(i) an order of specific performance, an injunction, and other equitable
remedies are discretionary remedies and, in particular, may not be available
where damages are considered an adequate remedy at law, and (ii) enforcement may
be limited by bankruptcy, insolvency, liquidation, reorganization,
reconstruction and other similar laws affecting enforcement of creditors' rights
generally (insofar as any such law relates to the bankruptcy, insolvency or
similar event of the Borrower).
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(c) Subsidiaries; Authorization; Enforceability. The Parent's
Subsidiaries, including the Unrestricted Subsidiaries, if any, and its direct
and indirect ownership thereof are set forth as of the Agreement Date on
Schedule 6 attached hereto, and the Parent has the unrestricted right to vote
the issued and outstanding shares of the corporate Subsidiaries, and the right
to vote its partnership or limited liability company interests, as applicable,
in the partnership or limited liability company Subsidiaries in accordance with
the terms of the applicable partnership or limited liability company agreement,
shown thereon; such shares of such corporate Subsidiaries, and such interests of
such partnership or limited liability company Subsidiaries, have been duly
authorized and issued and are fully paid and nonassessable and are free and
clear of Liens, other than Liens granted to the Administrative Agent to secure
the Obligations. Each Subsidiary of the Parent has the corporate, partnership or
limited liability company power and authority, as the case may be, and has taken
all necessary corporate, partnership or limited liability company action to
authorize it to execute, deliver and perform each of the Loan Documents to which
it is a party in accordance with their respective terms and to consummate the
transactions contemplated by this Agreement and by such Loan Documents. Each of
the Loan Documents to which any Subsidiary of the Borrower is a party is a
legal, valid and binding obligation of such Subsidiary enforceable against such
Subsidiary in accordance with its terms, subject, as to enforcement of remedies,
to the following qualifications: (i) an order of specific performance, an
injunction and other equitable remedies are discretionary remedies and, in
particular, may not be available where damages are considered an adequate remedy
at law, and (ii) enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, reconstruction and other similar laws affecting
enforcement of creditors' rights generally (insofar as any such law relates to
the bankruptcy, insolvency or similar event of such Subsidiary).
(d) Compliance with Other Loan Documents and Contemplated
Transactions. The execution, delivery and performance, in accordance with their
respective terms, by the Borrower of this Agreement and the Notes, and by the
Borrower and its Subsidiaries of each of the other Loan Documents to which they
are respectively party, and the consummation of the transactions contemplated
hereby and thereby, do not and will not (i) require any consent or approval,
governmental or otherwise, not already obtained, (ii) violate, in any respect,
any Applicable Law respecting the Borrower or any Subsidiary of the Borrower,
(iii) conflict with, result in a breach of, or constitute a default under the
certificate or articles of incorporation or by-laws, or the partnership
agreement, or the operating agreement, as the case may be, as such documents are
amended, of the Borrower or of any Subsidiary of the Borrower, (iv) conflict
with, result in a breach of, or constitute a default, in any respect, under any
indenture, agreement, or other instrument, including, without limitation, the
Licenses, to which the Borrower or any of its Subsidiaries is a party or by
which any of them or their respective properties may be bound, or (v) result in
or require the creation or imposition of any Lien upon or with respect to any
asset now owned or hereafter acquired by the Borrower or any of its
Subsidiaries, except for Permitted Liens.
(e) Business. The Borrower, together with its Subsidiaries, is
engaged in the ICP Business, servicing residential consumer and small business
markets for local
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exchange, long distance, internet and high-speed data services and other
business activities incidental thereto.
(f) Licenses, Etc. Each of the Licenses of the Borrower and
its Subsidiaries is listed on Schedule 4 attached hereto. After the Agreement
Date, Licenses acquired by the Borrower or any Subsidiary shall be added to such
Schedule 4 upon the effective date of such Acquisition after written notice
thereof has been given to the Administrative Agent and the Lenders. The Licenses
have been duly authorized by the grantors thereof and are in full force and
effect. The Borrower and its Subsidiaries are in compliance in all respects with
all of the provisions thereof. The Borrower and its Subsidiaries have secured
all Necessary Authorizations and all such Necessary Authorizations are in full
force and effect. Neither any License nor any Necessary Authorization is the
subject of any pending or, to the best of the Borrower's knowledge, threatened
revocation except as may be disclosed in writing to the Administrative Agent and
the Lenders.
(g) Compliance with Law. The Borrower and its Subsidiaries are
in substantial compliance with all Applicable Law.
(h) Title to Assets. The Borrower has good and legal title to,
or a valid leasehold or licensee interest in, all of its assets and each of its
Subsidiaries has good and legal title to, or a valid leasehold or licensee
interest in, all of its assets. None of such properties or assets is subject to
any Liens, except for Permitted Liens. Except for financing statements
evidencing Permitted Liens, no financing statement under the Uniform Commercial
Code as in effect in any jurisdiction and no other filing which names the
Borrower or any of its Subsidiaries as debtor or which covers or purports to
cover any of the assets of the Borrower or any of its Subsidiaries is currently
effective and on file in any state or other jurisdiction, and neither the
Borrower nor any of its Subsidiaries has signed any such financing statement or
filing or any security agreement authorizing any secured party thereunder to
file any such financing statement or filing.
(i) Litigation. There is no action, suit, proceeding or, to
the best of the Borrower's knowledge, investigation pending against or
threatened against or in any other manner relating adversely to, the Borrower or
any of its Subsidiaries or any of their respective properties, in any court or
before any arbitrator of any kind or before or by any governmental body
(including without limitation the FCC), except (x) as described on Schedule 8
attached hereto as of the Agreement Date or (y) as subsequently disclosed to the
Administrative Agent and the Lenders pursuant to Section 6.5 hereof or (z) with
respect to any action, suit, proceeding or investigation commenced subsequent to
the Agreement Date, which seeks damages of less than $500,000; and no such
action, suit, proceeding or investigation (i) calls into question the validity
of this Agreement or any other Loan Document, (ii) challenges the continued
possession and use of any License by the Borrower or any of its Subsidiaries, or
(iii) could be expected to result in an adverse decision to the Borrower or any
of its Subsidiaries, which adverse decision could be expected to have a
Materially Adverse Effect.
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(j) Taxes. All federal, state and other tax returns (including
information returns) of the Borrower and each of its Subsidiaries required by
law to be filed have been duly filed and all federal, state and other taxes,
including, without limitation, withholding taxes, assessments and other
governmental charges or levies required to be paid by the Borrower or any of its
Subsidiaries or imposed upon the Borrower or any of its Subsidiaries or any of
their respective properties, income, profits or assets, which are due and
payable, have, prior to the date on which penalties attach, been paid, except
any such taxes (i) the payment of which the Borrower or any of its Subsidiaries
is diligently contesting in good faith by appropriate proceedings, (ii) the
payment of which is not yet due because of any extension the Borrower or its
Subsidiaries may have duly received by the applicable governmental authority,
(iii) for which reserves (if any) required in accordance with GAAP have been
provided on the books of the Borrower or the Subsidiary of the Borrower
involved, and (iv) as to which no Lien other than a Permitted Lien has attached
and no foreclosure, distraint, sale or similar proceedings have been commenced.
The charges, accruals and reserves on the books of Borrower and each of its
Subsidiaries in respect of taxes are, in the judgment of Borrower, adequate.
(k) Financial Statements. The Borrower has furnished or caused
to be furnished to the Administrative Agent and the Lenders copies of the
audited financial statements of the Borrower for the fiscal year ended December
31, 1998, and unaudited financial statements for the Borrower and its
Subsidiaries on a consolidated basis for the quarter ended September 30, 1999,
which, together with other financial statements furnished to the Administrative
Agent and the Lenders subsequent to the Agreement Date, are to the best
knowledge of the Borrower, complete and correct in all respects and present
fairly in accordance with GAAP the financial position of such Persons on and as
at such dates and the results of operations for the periods then ended. Neither
the Borrower nor any of its Subsidiaries has any liabilities, contingent or
otherwise, other than as disclosed in the financial statements referred to in
the preceding sentence, as otherwise disclosed in writing to the Administrative
Agent and the Lenders or as set forth or referred to in this Agreement, and, as
of the Agreement Date, there are no unrealized losses of Borrower or any of its
Subsidiaries and no anticipated losses of Borrower or any of its Subsidiaries
other than those which have been disclosed in writing prior to the Agreement
Date to the Administrative Agent and the Lenders and identified as such.
(l) No Adverse Change. Since December 31, 1998, there has
occurred no event which has had or which could be expected to have a Materially
Adverse Effect.
(m) ERISA. Borrower and each Subsidiary of the Borrower and
each of their respective Plans are in compliance with ERISA and the Code and
neither the Borrower nor any of its Subsidiaries has incurred any accumulated
funding deficiency with respect to any such Plan within the meaning of ERISA or
the Code. The Borrower, each of its Subsidiaries, and each other ERISA Affiliate
has complied in all respects with all requirements of Section 4980B of the Code.
Neither the Borrower nor any of its Subsidiaries has made any promises of
retirement or other benefits to employees, except as set forth in the Plans, in
written agreements with such employees, or in the Borrower's
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employee handbook and memoranda to employees. Neither the Borrower nor any of
its Subsidiaries has incurred any liability to PBGC in connection with any such
Plan. The assets of each such Plan which is subject to Title IV of ERISA are
sufficient to provide the benefits under such Plan, the payment of which PBGC
would guarantee if such Plan were terminated, and such assets are also
sufficient to provide all other "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) due under the Plan upon termination. No Reportable Event
(other than a Reportable Event waived by regulation) has occurred and is
continuing with respect to any such Plan other than any Reportable Event that
has been disclosed in writing to the Lenders and determined by the Majority
Lenders not to be material. No such Plan or trust created thereunder, or party
in interest (as defined in Section 3(14) of ERISA), or any fiduciary (as defined
in Section 3(21) of ERISA), has engaged in a "prohibited transaction" (as such
term is defined in Section 406 of ERISA or Section 4975 of the Code) which would
subject such Plan or any other Plan of the Borrower or any of its Subsidiaries,
any trust created thereunder, or any such party in interest or fiduciary, or any
party dealing with any such Plan or any such trust, to the tax or penalty on
"prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of the
Code.
(n) Compliance with Regulations T, U, and X. Neither the
Borrower nor any of its Subsidiaries is engaged principally in or has as one of
its important activities the business of purchasing or carrying, or extending
credit for the purpose of purchasing or carrying, any margin stock within the
meaning of Regulations T, U, and X of the Board of Governors of the Federal
Reserve System; nor will any proceeds of the Loans be used for such purpose.
(o) Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is required to register under the provisions of the Investment
Company Act of 1940, as amended, and neither the entering into or performance by
the Borrower and its Subsidiaries of this Agreement and the Loan Documents
violates any provision of such Act or requires any consent, approval or
authorization of, or registration with, the Securities and Exchange Commission
or any other governmental or public body or authority pursuant to any provisions
of such Act.
(p) Governmental Regulation. Neither the Borrower nor any of
its Subsidiaries is required to obtain any consent, approval, authorization,
permit or license which has not already been obtained from, or effect any filing
or registration which has not already been effected with, any federal, state or
local regulatory authority in connection with the execution, delivery, and
performance of this Agreement and the other Loan Documents and in connection
with the operation of the business of the Borrower and its Subsidiaries.
(q) Absence of Default, Etc. The Borrower and its Subsidiaries
are in compliance in all respects with all of the provisions of their respective
certificates or articles of incorporation and by-laws, or their partnership
agreements, or their operating agreements, as the case may be, and no event has
occurred or failed to occur (including, without limitation, any matter which
could create a Default hereunder by cross-default) which has not been remedied
or waived, the occurrence or non-occurrence of which
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constitutes, or with the passage of time or giving of notice or both would
constitute, a default by the Borrower or any of its Subsidiaries under any
indenture, agreement or other instrument relating to Indebtedness of the
Borrower or any of its Subsidiaries, or any judgment, decree or order to which
the Borrower or any of its Subsidiaries is a party or by which the Borrower or
any of its Subsidiaries or any of their respective properties may be bound or
affected.
(r) Accuracy and Completeness of Information. All information,
reports, prospectuses and other papers and data relating to the Borrower or any
of its Subsidiaries produced by or on behalf of the Borrower and its
Subsidiaries to the Administrative Agent or the Lenders were, at the time
furnished, true, complete and correct in all material respects to the extent
necessary to give a true and accurate presentation of the subject matter; and
such information does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein not misleading. The Borrower is not aware of any facts having
a Materially Adverse Effect, or insofar as the Borrower can now foresee, that
could reasonably be expected to have a Materially Adverse Effect.
(s) Agreements with Affiliates and Management Agreements.
Except as set forth on Schedule 9 attached hereto as of the Agreement Date and,
after the Agreement Date, except as permitted by Section 7.12 of this Agreement,
neither the Borrower nor any of its Subsidiaries has (i) any written agreements
or binding arrangements of any kind with any Affiliate or (ii) any management or
consulting agreements of any kind with any Affiliate.
(t) Payment of Wages. The Borrower and each of its
Subsidiaries are in compliance with the Fair Labor Standards Act, as amended, in
all respects, and the Borrower and each of its Subsidiaries have paid all
minimum and overtime wages required by law to be paid to their respective
employees.
(u) Priority. The Security Interest is a valid security
interest in the Collateral in favor of the Administrative Agent, for itself and
for the ratable benefit of the Lenders, securing, in accordance with the terms
of the Security Documents, the outstanding Obligations, and the Collateral is
subject to no Liens other than Permitted Liens. With respect to Collateral as to
which the filing of UCC-1 financing statements is an appropriate method of
perfection, subject to the filing of such UCC-1 financing statements, the
Security Interest is a perfected and, other than with respect to any prior
Permitted Liens, first priority security interest in such Collateral. With
respect to Collateral as to which the filing of a UCC-1 financing statement is
not an appropriate method of perfection, and with respect to which the taking of
certain ministerial actions described in the applicable Security Document is the
appropriate method of perfection, upon the taking of such ministerial action,
the Security Interest is a perfected and, other than with respect to any prior
Permitted Liens, first priority security interest in such Collateral. The Liens
created by the Security Documents are enforceable as security for the
outstanding Obligations in accordance with their terms with respect to the
Collateral subject, as to enforcement of remedies, to the following
qualifications: (i) an order of specific performance, an injunction, and other
equitable remedies are discretionary
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remedies and, in particular, may not be available where damages are considered
an adequate remedy at law, and (ii) enforcement may be limited by bankruptcy,
insolvency, liquidation, reorganization, reconstruction and other similar laws
affecting enforcement of creditors' rights generally (insofar as any such law
relates to the bankruptcy, insolvency or similar event of the Borrower or any of
its Subsidiaries, as the case may be).
(v) Indebtedness; Solvency. Except as permitted pursuant to
Section 7.1 hereof, neither the Borrower nor any of its Subsidiaries has
outstanding any Indebtedness for Money Borrowed. The Borrower is, and each of
its Subsidiaries is, Solvent.
(w) Investments. All Investments of the Borrower and its
Subsidiaries as of the Agreement Date are shown on Schedule 10.
(x) Real Estate. As of the Agreement Date neither the Borrower
nor any of its Subsidiaries owns any real property, other than as listed and
described on Schedule 11 attached hereto. No single parcel of such real estate
owned by the Borrower or any of its Subsidiaries has a fair market value in
excess of $250,000.
(y) Intellectual Property; etc. The rights of the Borrower and
its Subsidiaries with respect to the ownership and use of intellectual property,
including without limitation all patents, trademarks, trademark rights,
tradenames, tradename rights, service marks and copyrights, and any other form
of intellectual property, are set forth on Schedule 12. Except as disclosed on
Schedule 12, the Borrower and each of its Subsidiaries owns, possesses or has
the right to use all licenses and rights to all patents, trademarks, trademark
rights, trade names, trade name rights, service marks and copyrights, and rights
with respect thereto, necessary to conduct its business in all respects as
presently being conducted, without any known conflict with any patent,
trademark, trade name, trade name right, service mark, license or copyright of
any other Person, and in each case, with respect to patents, trademarks,
trademark rights, trade names, trade name rights, service marks and copyrights,
and licenses with respect thereto, owned by the Borrower and its Subsidiaries,
such items are subject to no Lien, other than as otherwise permitted hereunder.
Such licenses and rights with respect to patents, trademarks, trademark rights,
trade names, trade name rights, service marks and copyrights are in full force
and effect, and to the extent applicable, the Borrower and its Subsidiaries are
in full compliance in all respects of all the provisions thereof. Except as set
forth in Schedule 12, no such patent, trademark, trademark right, trade name,
trade name right, service mark, copyright or license is subject to any pending,
or to the best of the Borrower's knowledge, threatened, attack or revocation.
Except as set forth in Schedule 12, neither the Borrower nor any of its
Subsidiaries owns any registered patents or trademarks.
(z) Year 2000 Problem. The Borrower (i) assessed all areas
within its and each of its Subsidiaries' business and operations (including
those affected by suppliers, vendors and customers) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower or any of its
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Subsidiaries (or suppliers, vendors and customers) may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) implemented that
plan in accordance with that timetable. Based on the foregoing, all computer
applications of the Borrower and its Subsidiaries, and, to the best of the
Borrower's knowledge, those of its suppliers, vendors and customers that are
material to its or any of its Subsidiaries' business and operations, are
expected on a timely basis to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000.
(aa) Communications Regulatory Matters.
(i) Each Network Agreement has been duly executed and
delivered by the respective parties thereto, is in full force and effect and
neither the Borrower, any Subsidiary thereof nor, to the best knowledge of the
Borrower, any of the other parties thereto, is in default of any of the
provisions thereof in any material respect.
(ii) Schedule 4 hereto sets forth, as of the date hereof, a
true and complete list of the following information for each License issued to
the Borrower or any its Subsidiaries: (A) for all Licenses other than PUC
Authorizations, the name of the licensee, the type of service and the expiration
dates; and (B) for each PUC Authorization only, the geographic area covered by
such PUC Authorization, the services that may be provided thereunder and the
expiration date, if any.
(iii) Neither the Borrower nor any of its Subsidiaries is in
violation of any Communications Law applicable thereto. The Licenses specified
on Schedule 4 hereto are valid and in full force and effect without conditions
except for such conditions as are generally applicable to holders of such
Licenses and except as set forth on such Schedule. No event has occurred and is
continuing which could reasonably be expected to (A) result in the imposition of
a material forfeiture or the revocation, termination or adverse modification of
any such License or (B) materially and adversely affect any rights of the
Borrower or any of its Subsidiaries thereunder. The Borrower has no reason to
believe and has no knowledge that Licenses will not be approved or renewed, as
applicable, in the ordinary course.
(iv) All of the Network Facilities and other material
properties, equipment and systems owned, leased or managed by the Borrower and
its Subsidiaries are, and all such property, equipment and systems to be
acquired or added in connection with any contemplated system expansion or
construction will be, in good repair, working order and condition (reasonable
wear and tear excepted) and are and will be in compliance with all terms and
conditions of the Licenses and all standards or rules imposed by applicable
Communications Law and any governmental authority or as imposed under any
agreements with telephone companies and customers.
(v) The Borrower and its Subsidiaries have paid all franchise,
license or other fees and charges which have become due pursuant to any
governmental approval
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in respect of their business and have made appropriate provision as is required
by GAAP for any such fees and charges which have accrued.
(vi) Each Interconnection Agreement has been duly executed and
delivered by the respective parties thereto, is in full force and effect and
neither the Borrower nor any of its Subsidiaries is in default of any of the
provisions thereof in any material respect.
Section 4.2 Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement shall be deemed to be
made, and shall be true and correct in all respects, at and as of the Agreement
Date and on the date of each Advance, except to the extent any representation or
warranty is made solely as of the Agreement Date, in accordance with the terms
hereof. All representations and warranties made under this Agreement shall
survive, and not be waived by, the execution hereof by the Lenders and the
Administrative Agent, any investigation or inquiry by any Lender or the
Administrative Agent, or the making of any Advance under this Agreement.
ARTICLE 5
General Covenants
So long as the Borrower has the right to borrow hereunder (whether or
not the conditions to borrowing have been or can be fulfilled), or any Loans are
outstanding hereunder, and unless the Majority Lenders, or such greater number
of Lenders as may be expressly provided herein, shall otherwise consent in
writing:
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
will, and will cause each of its Subsidiaries to:
(a) except as otherwise permitted by this Agreement, preserve
and maintain its existence, rights, franchises, licenses and privileges in the
state of its incorporation or organization, including, without limiting the
foregoing, the Licenses and all other Necessary Authorizations; and
(b) qualify and remain qualified and authorized to do business
in each jurisdiction in which the character of its properties or the nature of
its business requires such qualification or authorization.
Section 5.2 Business; Compliance with Applicable Law. The Borrower
will, and will cause each of its Subsidiaries to, (a) engage solely in the ICP
Business and other business activities incidental thereto, and (b) comply in all
respects with the requirements of all Applicable Law.
Section 5.3 Maintenance of Properties. The Borrower will, and will
cause each of its Subsidiaries to, maintain, repair or replace or cause to be
maintained, repaired or replaced in the ordinary course of business in good
repair, working order and condition
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(reasonable wear and tear excepted) all properties used in its businesses
(whether owned or held under lease), and from time to time make or cause to be
made all needed and appropriate repairs, renewals, replacements, additions,
betterments and improvements thereto.
Section 5.4 Accounting Methods and Financial Records. The Borrower
will, and will cause each of its Subsidiaries on a consolidated basis to,
maintain a system of accounting established and administered in accordance with
GAAP, keep adequate records and books of account in which complete entries will
be made in accordance with GAAP and reflecting all transactions required to be
reflected by GAAP and keep accurate and complete records of its properties and
assets. The Borrower and its Subsidiaries will maintain a fiscal year ending on
December 31.
Section 5.5 Insurance. The Borrower will, and will cause each of its
Subsidiaries to:
(a) Maintain insurance including, but not limited to, all risk
physical damage and business interruption coverage and commercial general
liability coverage insurance from responsible companies in such amounts and
against such risks to the Borrower and each of its Subsidiaries as are prudent
for the telecommunications industry and acceptable to the Administrative Agent,
the Syndication Agent and the Documentation Agent (including, without
limitation, larceny, embezzlement, employee fidelity, or other criminal
misappropriation insurance), all premiums thereon to be paid by the Borrower and
its Subsidiaries.
(b) Keep their assets insured by insurers on terms and in a
manner acceptable to the Administrative Agent, the Syndication Agent and the
Documentation Agent against loss or damage by fire, theft, burglary, pilferage,
loss in transit, explosions and hazards insured against by extended coverage, on
a replacement cost basis, in amounts that are prudent for the telecommunications
industry and reasonably satisfactory to the Administrative Agent, all premiums
thereon to be paid by the Borrower and its Subsidiaries.
(c) Require that each insurance policy, as to the interests of
the Administrative Agent shall not be invalidated by any act of the Borrower or
others and shall provide for at least thirty (30) days' prior written notice to
the Administrative Agent, the Syndication Agent and the Documentation Agent of
any termination of or proposed cancellation or nonrenewal of such policy, or
reduction in the amount of coverage, and name the Administrative Agent as
additional named loss payee and each Lender as an additional insured to the
extent of the Obligations.
(d) Proceeds of insurance paid to the Administrative Agent
shall be applied to the payment or prepayment of the Obligations as provided
under Section 2.7(b) or Section 8.3 hereof, as applicable. Any balance thereof
remaining after payment in full of the Obligations shall be paid to the Borrower
or as otherwise required by law.
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Section 5.6 Payment of Taxes and Claims. The Borrower will, and will
cause each of its Subsidiaries to, pay and discharge all taxes, including,
without limitation, withholding taxes, assessments and governmental charges or
levies required to be paid by it or imposed upon its or their income or profits
or upon any properties belonging to it, prior to the date on which penalties
attach thereto, and all lawful claims for labor, materials and supplies which,
if unpaid, might become a Lien or charge upon any of its properties; except that
no such tax, assessment, charge, levy or claim need be paid which is being
diligently contested in good faith by appropriate proceedings and for which
reserves (if any) required in accordance with GAAP shall have been set aside on
the appropriate books, but only so long as such tax, assessment, charge, levy or
claim does not become a Lien or charge other than a Permitted Lien and no
foreclosure, distraint, sale or similar proceedings shall have been commenced.
The Borrower will, and will cause each of its Subsidiaries to, timely file or
obtain permitted extensions to file all information returns required by federal,
state or local tax authorities.
Section 5.7 Visits and Inspections. The Borrower will, and will cause
each of its Subsidiaries to permit representatives of the Administrative Agent
and any of the Lenders, at Borrower's expense, to (i) visit and inspect the
properties of the Borrower or any of its Subsidiaries, (ii) inspect and make
extracts from and copies of its books and records, and (iii) discuss with their
respective principal officers, their respective businesses, assets, liabilities,
financial positions, results of operations and business prospects. The Borrower
and each of its Subsidiaries will also permit representatives of the
Administrative Agent and any of the Lenders to discuss with its auditors its
businesses, assets, liabilities, financial positions, results of operations and
business prospects.
Section 5.8 Payment of Indebtedness; Loans. Subject to any provisions
regarding subordination herein or in any other Loan Document, the Borrower will,
and will cause each of its Subsidiaries to, pay any and all of its Indebtedness
when and as it becomes due, other than amounts diligently disputed in good faith
and for which adequate reserves, if any, required by GAAP have been set aside.
Section 5.9 Use of Proceeds. The Borrower will use the aggregate
proceeds of all Advances under the Revolving Loan and the Term Loans (i) to fund
the Telecommunications Equipment Capital Expenditure requirements of the ICP
Business, (ii) to fund interest payments hereunder, and (iii) for transaction
expenses, and other general corporate purposes; provided, however, that the
outstanding principal balance of all Loans outstanding hereunder shall in no
event exceed the Borrowing Base. No proceeds of Advances hereunder shall be used
for the purchase or carrying, or the extension of credit for the purpose of
purchasing or carrying, any margin stock within the meaning of Regulations T, U,
and X of the Board of Governors of the Federal Reserve System. No proceeds of
Advances hereof shall be used, directly or indirectly, for the benefit of the
Unrestricted Subsidiaries of the Parent.
Section 5.10 Real Estate. The Borrower will, and will cause each of its
Subsidiaries to, grant to the Administrative Agent, for its benefit and for the
ratable benefit of the Lenders, a mortgage (or collateral assignment of
leasehold, as applicable,
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securing the Obligations in form and substance reasonably satisfactory to the
Administrative Agent and the Documentation Agent, covering any parcel of real
estate (or leasehold interest) having an estimated fair market value (as of the
later of the Agreement Date or the date of acquisition), exclusive of equipment,
in excess of $250,000, whether now owned (or leased) or hereafter acquired by
the Borrower or any of its Restricted Subsidiaries after the Agreement Date and
landlord or mortgagee waivers or consents, in form and substance reasonably
satisfactory to the Administrative Agent and the Documentation Agent with
respect to any leasehold interests of the Borrower or any of its Restricted
Subsidiaries, whether now leased or hereafter acquired by the Borrower on any of
its Restricted Subsidiaries. The Borrower will, and will cause its Subsidiaries
to, deliver to the Administrative Agent all documentation, including, without
limitation, UCC financing statements (including without limitation, fixture
filings), opinions of counsel, policies of title insurance or current surveys,
which in the reasonable opinion of the Administrative Agent and the
Documentation Agent is appropriate with each such grant, and any Phase I
environmental audit requested by the Administrative Agent or any of the Lenders.
Section 5.11 Indemnity. The Borrower, for itself and on behalf of each
of its Subsidiaries, agrees to indemnify and hold harmless each Lender and the
Administrative Agent, the Documentation Agent, the Syndication Agent, the
Co-Lead Arrangers and the Co-Book Runners, and each of their respective
affiliates, employees, representatives, officers and directors (any of the
foregoing shall be an "Indemnitee") from and against any and all claims,
liabilities, losses, damages, actions, attorneys' fees and expenses (as such
fees and expenses are incurred) and demands by any third party, including the
costs of investigating and defending such claims and the costs of responding to
any discovery served on such Indemnitee, whether or not the Borrower, any of its
Subsidiaries, or the Person seeking indemnification is a party to any such
action or is the prevailing party (a) resulting from any breach or alleged
breach by the Borrower or any Subsidiary of the Borrower of any representation
or warranty made hereunder; or (b) arising out of (i) the Commitments or
otherwise under this Agreement, including the use of the proceeds of Loans
hereunder in any fashion by the Borrower or the performance of its obligations
under the Loan Documents by the Parent or any of its Restricted Subsidiaries
(other than disputes among the Lenders and the Agents), (ii) allegations of any
participation by the Lenders, the Administrative Agent, the Documentation Agent,
the Syndication Agent, the Co-Lead Arrangers and the Co-Book Runners, or any of
them, in the affairs of the Borrower or any of its Subsidiaries, or allegations
that any of them has any joint liability with the Borrower or any of its
Subsidiaries for any reason, or (iii) any claims against the Lenders, the
Administrative Agent, the Documentation Agent, the Syndication Agent, the
Co-Lead Arrangers and the Co-Book Runners, or any of them, by any shareholder,
partner, member or other investor in or lender to the Borrower or any of its
Subsidiaries, by any brokers or finders or investment advisers or investment
bankers retained by the Borrower or by any other third party, arising out of the
Commitments or otherwise under this Agreement; unless the Indemnitee or another
Indemnitee hereunder is determined in such case by a final, non-appealable
judicial order to have acted with gross negligence or willful misconduct. The
obligations of the Borrower and its Subsidiaries under this Section 5.11 are in
addition to, and shall not otherwise limit, any liabilities which the Borrower
or its Subsidiaries might otherwise have in connection with any warranties or
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similar obligations of the Borrower or such Subsidiary in any other agreement or
instrument or for any other reason.
Section 5.12 Interest Rate Hedging. Within one hundred eighty (180)
days of the Agreement Date, and at all times thereafter within ninety (90) days
from the date of any new borrowing, the Borrower shall have entered into one or
more Interest Hedge Agreements which result in the fixing of a limit on the
Borrower's interest obligations on an aggregate principal amount of not less
than fifty percent (50%) of the principal amount of the Facilities from time to
time outstanding. Such Interest Hedge Agreements shall provide interest rate
protection on terms reasonably acceptable to the Documentation Agent, the
Syndication Agent and the Administrative Agent for an initial period of at least
three (3) years from the date of such Interest Hedge Agreement or Agreements,
such terms to include consideration of the creditworthiness of the other party
to the proposed Interest Hedge Agreement; provided, however, that during the
last three (3) years during which the Facilities are outstanding, the required
duration of such Interest Hedge Agreements shall be the remaining term of the
Facilities. All obligations of the Borrower to any of the Lenders (or any of
their Affiliates) pursuant to any Interest Hedge Agreement shall rank pari passu
with all other Obligations.
Section 5.13 Covenants Regarding Formation of Subsidiaries and the
Making of Acquisitions. At the time of any Acquisition permitted or consented to
hereunder, or the formation of any new Subsidiary of the Borrower or of any of
the Borrower's Subsidiaries which is permitted (or consented to) under this
Agreement, the Borrower will, and will cause its Subsidiaries, as appropriate,
to (a) in the case of the formation or Acquisition of a new Subsidiary, provide
to the Administrative Agent an executed Subsidiary Security Agreement for such
new Subsidiary, in substantially the form of Exhibit L attached hereto, together
with appropriate UCC-1 financing statements, as well as an executed Subsidiary
Guaranty for such new Subsidiary, in substantially the form of Exhibit K
attached hereto, which shall constitute both Security Documents and Loan
Documents for purposes of this Agreement, as well as a loan certificate for such
new Subsidiary, substantially in the form of Exhibit P attached hereto, together
with appropriate attachments; (b) in the case of any Acquisition or the
formation of any new Subsidiary, provide to the Administrative Agent an executed
pledge agreement, in form and substance satisfactory to the Administrative Agent
and the Documentation Agent, pledging to the Administrative Agent all of the
stock (or other instruments or securities evidencing ownership) of such
Subsidiary or Person which is acquired or formed, beneficially owned by the
Borrower or any of the Borrower or any of its Subsidiaries, as the case may be,
as additional Collateral for the Obligations, and execute and deliver to the
Administrative Agent all such additional documentation for such pledge as, in
the reasonable opinion of the Administrative Agent and the Documentation Agent,
is appropriate; and (c) in any case, provide all other documentation, including,
without limitation, one or more opinions of counsel reasonably satisfactory to
the Administrative Agent and the Documentation Agent which in its opinion is
appropriate with respect to such Acquisition or the formation of such
Subsidiary. Investments made by the Borrower or any of its Subsidiaries after
the Agreement Date shall also be treated as additional Collateral and shall be
subject to the provisions of appropriate Security Documents. Any
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document, agreement or instrument executed or issued pursuant to this Section
5.13 shall be a "Security Document" and a "Loan Document" for purposes of this
Agreement.
Section 5.14 Payment of Wages. The Borrower and each of its
Subsidiaries shall at all times comply, in all respects, with the requirements
of the Fair Labor Standards Act, as amended, including, without limitation, the
provisions of such Act relating to the payment of minimum and overtime wages as
the same may become due from time to time.
Section 5.15 Year 2000 Problem. The Borrower agrees to remain
substantially in compliance with the plan dealing with the "Year 2000 Problem"
described in Section 4.1(z).
ARTICLE 6
Information Covenants
So long as the Borrower has the right to borrow hereunder (whether or
not the conditions to borrowing have been or can be fulfilled), or any Loans are
outstanding hereunder, and unless the Majority Lenders, or such greater number
of Lenders as may be expressly provided herein, shall otherwise consent in
writing, the Borrower will furnish, or cause to be furnished, to each Lender and
the Administrative Agent, at their respective offices:
Section 6.1 Quarterly Financial Statements and Information. Within
forty-five (45) days after the last day of each quarter of each fiscal year of
the Borrower, the balance sheet of the Borrower on a consolidated basis with its
Subsidiaries as at the end of such quarter and as of the end of the preceding
fiscal year, and the related statement of operations and the related statement
of cash flows of the Borrower on a consolidated basis with its Subsidiaries for
such quarter and for the elapsed portion of the year ended with the last day of
such quarter, which shall set forth in comparative form such figures as at the
end of and for such quarter and the appropriate prior period and shall be
certified by the chief financial officer of the Borrower, to be, in his or her
opinion on behalf of the Borrower, complete and correct in all respects and to
present fairly, in accordance with GAAP, the financial position of the Borrower
on a consolidated basis with its Subsidiaries as at the end of such period and
the results of operations for such period, and for the elapsed portion of the
year ended with the last day of such period, subject only to normal year-end
adjustments and the absence of footnotes.
Section 6.2 Annual Financial Statements and Information. Within ninety
(90) days after the end of each fiscal year of the Borrower, the audited
consolidated balance sheet of the Borrower and its Subsidiaries as of the end of
such fiscal year and the related audited consolidated statements of operations
for such fiscal year and for the previous two (2) fiscal years, the related
audited consolidated statements of changes in shareholders' equity for such
fiscal year and for the previous two (2) fiscal years, and related audited
consolidated statements of cash flows of such fiscal year and for the previous
two (2) fiscal years, which shall be accompanied by an unqualified opinion of
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independent certified public accountants of recognized national standing
acceptable to the Administrative Agent, together with a statement of such
accountants that in connection with their audit, nothing came to their attention
that caused them to believe that the Borrower was not in compliance with the
terms, covenants, provisions or conditions of Section 7.1, Section 7.5 or the
Financial Covenants hereof.
Section 6.3 Performance Certificates. At each time financial statements
are furnished pursuant to Sections 6.1 and 6.2, a certificate of the president
or chief financial officer of the Borrower as to its financial performance, in
substantially the form attached hereto as Exhibit G:
(a) setting forth as at the end of such quarterly period or
fiscal year, as the case may be, the arithmetical calculations required to
establish (i) the Applicable Margin as provided for in Section 2.3(f), and (ii)
whether or not the Borrower was in compliance with the requirements of the
Financial Covenants hereof;
(b) stating that, to the best of his or her knowledge, no
Default or Event of Default has occurred and is continuing as at the end of such
quarterly period or year, as the case may be, or, if a Default or an Event of
Default has occurred, disclosing each such Default or Event of Default and its
nature, when it occurred, whether it is continuing and the steps being taken by
the Borrower (or the Parent) with respect to such Default or Event of Default.
Section 6.4 Monthly Operating Report. The Borrower agrees to provide
the Administrative Agent and the Lenders, within thirty (30) days from the end
of each calendar month, a monthly operating report in substantially the form of
Exhibit R, such report to provide revenues, expenses, new access lines added,
existing access lines disconnected, and gross additions or losses for such
month.
Section 6.5 Copies of Other Items.
(a) Promptly upon receipt thereof, copies of all reports, if
any, submitted to the Borrower by the Borrower's independent public accountants
regarding the Borrower, including, without limitation, any management report
prepared in connection with the annual audit referred to in Section 6.2.
(b) Promptly upon receipt thereof, copies of any adverse
notice or report regarding any License from the FCC.
(c) From time to time and promptly upon each request such
data, certificates, reports, statements, opinions of counsel prepared for the
Administrative Agent and the Lenders, or any of them, documents or further
information regarding the business, assets, liabilities, financial position,
projections, results of operations, business prospects, or the "Year 2000
Problem" described in Section 4.1(z) hereof, of the Borrower or any of its
Subsidiaries, as the Administrative Agent or any Lender may reasonably request.
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(d) Annually, a certificate of insurance indicating that the
requirements of Section 5.5 hereof remain satisfied for such fiscal year.
(e) As soon as practicable and in any event within five (5)
Business Days after its approval by the board of directors of the Borrower, each
annual budget, in each case accompanied by a certificate from an Authorized
Signatory to the effect that, to the best of such person's knowledge, the
projections contained therein are good faith estimates of the expected financial
condition and results of operations of the Borrower and its Subsidiaries for
such period prepared on a monthly basis and displaying anticipated statements of
income and cash flows and balance sheets and budgeted Capital Expenditures in
form and substance satisfactory to the Majority Lenders.
Section 6.6 Notice of Litigation and Other Matters. Notice specifying
the nature and status of any of the following events, promptly, but in any event
not later than five (5) Business Days after the Borrower becomes aware of the
occurrence of any of the following events:
(a) the commencement of all proceedings and investigations by
or before any governmental body and all actions and proceedings in any court or
before any arbitrator against, or to the extent known to the Borrower, in any
other way relating materially adversely to the Borrower or any of its
Subsidiaries, or any of their respective properties, assets or businesses or any
License;
(b) any adverse change with respect to the business, assets,
liabilities, financial position, prospects or results of operations of the
Borrower or any of its Subsidiaries;
(c) any amendment or change to the financial projections
provided to the Lenders by the Borrower prior to the Agreement Date;
(d) any Default or the occurrence or non-occurrence of any
event (A) which constitutes, or which with the passage of time or giving of
notice or both would constitute a default by the Borrower or any of its
Subsidiaries under any agreement other than this Agreement to which the Borrower
or any of its Subsidiaries of the Borrower is a party or by which any of their
respective properties may be bound, or (B) which could be expected to have a
Materially Adverse Effect; giving in each case the details thereof and
specifying the action proposed to be taken with respect thereto;
(e) the occurrence of any Reportable Event or a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) with respect to any Plan of the Borrower or any of its Subsidiaries or
the institution or threatened institution by PBGC of proceedings under ERISA to
terminate or to partially terminate any such Plan or the commencement or
threatened commencement of any litigation regarding any such Plan or naming it
or the trustee of any such Plan with respect to such Plan;
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(f) the occurrence of any event subsequent to the Agreement
Date which, if such event had occurred prior to the Agreement Date, would have
constituted an exception to the representation and warranty in Section 4.1(l) of
this Agreement; and
(g) the enactment or promulgation after the date hereof of any
federal, state, provincial or local statute, regulation or ordinance or judicial
or administrative decision or order having a material effect or relating to the
operation of the Network Facilities and the conduct of their ICP Business by the
Borrower and its Subsidiaries (including, without limitation, any statutes,
decisions or orders affecting long distance telecommunication resellers
generally and not directed against the Borrower or any of its Subsidiaries
specifically) which have been issued or adopted (or which have been proposed)
and which could reasonably be expected to have a Materially Adverse Effect.
ARTICLE 7
Negative Covenants
So long as the Borrower has the right to borrow hereunder (whether or
not the conditions to borrowing have been or can be fulfilled), or any Loans are
outstanding hereunder, and unless the Majority Lenders, or such greater number
of Lenders as may be expressly provided herein, shall otherwise consent in
writing:
Section 7.1 Indebtedness of the Borrower and its Subsidiaries. The
Borrower shall not, and shall cause each of its Subsidiaries not to, create,
assume, incur or otherwise become or remain obligated in respect of, or permit
to be outstanding, any Indebtedness except:
(a) The Obligations;
(b) Current accounts payable, accrued expenses and customer
advance payments incurred in the ordinary course of business;
(c) Secured (including purchase money security Indebtedness)
and unsecured Indebtedness, Capitalized Lease Obligations and Indebtedness in
the form of a sale-leaseback transaction in an amount for the Borrower on a
consolidated basis with its Subsidiaries not in excess of $5,000,000 in the
aggregate at any one time outstanding;
(d) Obligations of the Borrower under Interest Hedge
Agreements;
(e) Indebtedness permitted under Section 7.5 hereof;
(f) Subject to the prior written approval of the Majority
Lenders and the requirements of Section 2.7, unsecured and contractually
subordinated Indebtedness for Money Borrowed incurred by the Borrower after the
Agreement Date, having no amortization of principal prior to the date which is
six (6) months after the Maturity Date, that would not result in a pro forma
breach of the Financial Covenants, and otherwise in
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form and substance satisfactory to the Administrative Agent, the Syndication
Agent and the Documentation Agent; and
(g) Indebtedness representing judgments that do not otherwise
result in an Event of Default.
Section 7.2 Limitation on Liens. The Borrower shall not, and shall
cause each of its Subsidiaries not to, create, assume, incur or permit to exist
or to be created, assumed, incurred or permitted to exist, directly or
indirectly, any Lien on any of its properties or assets, whether now owned or
hereafter acquired, except for Permitted Liens. The Borrower shall cause each of
its Subsidiaries not to, create, assume, incur or permit to exist or to be
created, assumed, incurred or permitted to exist, directly or indirectly, any
Lien on any of its properties or assets, whether now owned or hereafter
acquired, except for purchase money security interests, which are perfected
automatically by operation of law (and as to which no Uniform Commercial Code
financing statement is filed) only for the period (not to exceed twenty (20)
days) of automatic perfection under the law of the applicable jurisdiction, and
limited to Liens on assets so purchased.
Section 7.3 Amendment and Waiver. The Borrower shall not, and shall
cause each of its Subsidiaries not to, enter into any amendment of, or agree to
or accept or consent to any waiver of any of the provisions of its articles or
certificate of incorporation or partnership agreement or operating agreement, as
appropriate, or its material equipment purchase agreements (except that the
Borrower may add additional equipment to such agreement), other than any such
amendment, consent, or waiver that is not adverse to the interests of the
Administrative Agent and the Lenders.
Section 7.4 Liquidation, Merger or Disposition of Assets.
(a) Disposition of Assets. The Borrower shall not, and shall
cause each of its Subsidiaries not to, at any time sell, lease, abandon, or
otherwise dispose of all or any substantial part of its assets; provided,
however, that (i) sales of inventory, the disposition of non-material obsolete
assets in the ordinary course of business, and the disposition of equipment and
items of inventory, shall be permitted, provided that such Person has acquired
or is acquiring, in a contemporaneous transaction, replacement equipment or
inventory of greater value, (ii) the Borrower and its Subsidiaries may make such
dispositions without consent or approval hereunder, provided that such
dispositions do not, in the aggregate, exceed $3,000,000 in value, (iii) the
Borrower may sell its First Pay division, subject to Section 2.7(b)(ii), and
(iv) dispositions not otherwise permitted under clauses (i) and (ii) hereof
shall be permitted with the prior written consent of the Majority Lenders,
provided that the Net Proceeds therefrom are applied as provided in Section
2.7(b) hereof.
(b) Liquidation or Merger. The Borrower shall not, and shall
cause each of its Subsidiaries not to, at any time liquidate or dissolve itself
(or suffer any liquidation or dissolution) or otherwise wind up, or enter into
any merger except as permitted in Section 7.6.
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Section 7.5 Limitation on Guaranties. The Borrower shall not, and shall
cause each of its Subsidiaries not to, at any time guarantee, assume, be
obligated with respect to, or permit to be outstanding any Guaranty of, any
obligation of any other Person (including, without limitation, any Subsidiary)
other than (a) a guaranty by endorsement of negotiable instruments for
collection in the ordinary course of business, or (b) as may be contained in any
Loan Document including, without limitation, the Parent Guaranty and the
Subsidiary Guaranty.
Section 7.6 Investments and Acquisitions. The Borrower shall not, and
shall cause each of its Subsidiaries not to, make any loan or advance, or make
any Investment or otherwise acquire for consideration evidences of Indebtedness,
capital stock or other securities of any Person, or make any Acquisition unless
(i) the Borrower shall have demonstrated its pro forma compliance with the
Financial Covenants hereof, after giving effect to such Acquisition or
Investment, and shall have certified to the Administrative Agent and the Lenders
that such Acquisition or Investment shall not have a Materially Adverse Effect,
or otherwise cause or result in any Default hereunder, (ii) the Borrower shall
provide the Lenders with notice, not less than twenty (20) days with respect to
Acquisitions or ten (10) days with respect to Investments, prior to the proposed
closing thereof, and with copies of all information pertaining to such
Acquisition or Investment, and a certificate signed by the chief financial
officer of the Borrower, certifying the Borrower's pro forma compliance with the
Financial Covenants, together with any calculations necessary to demonstrate
such compliance, (iii) the Borrower shall have complied with the applicable
provisions of Section 5.13 hereof, and (iv) the Borrower shall have obtained the
prior written consent of the Majority Lenders.
Section 7.7 Restricted Payments and Purchases. The Borrower shall not,
and shall cause each of its Subsidiaries not to, directly or indirectly declare
or make any Restricted Payment or Restricted Purchase.
Section 7.8 Implementation Phase - Total Debt to Total Capital Ratio.
The Borrower shall not permit the Total Debt to Total Capital Ratio to exceed
55% at any time prior to December 31, 2001.
Section 7.9 Implementation Phase - Minimum Access Lines Installed and
Billed. The Borrower shall not permit the number of installed and billed
"on-network" and reseller access line equivalents as of the end of any quarter
to be less than those indicated below for such quarter:
--------------------------------------------------------------
QUARTER ENDING NUMBER OF ACCESS LINES
--------------------------------------------------------------
03/31/00 21,900
--------------------------------------------------------------
06/30/00 28,500
--------------------------------------------------------------
09/30/00 35,800
--------------------------------------------------------------
12/31/00 44,200
--------------------------------------------------------------
03/31/01 55,500
--------------------------------------------------------------
06/30/01 67,200
--------------------------------------------------------------
09/30/01 79,500
--------------------------------------------------------------
12/31/01 91,200
--------------------------------------------------------------
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Section 7.10 Implementation Phase - Minimum Annualized Revenue. The
Borrower shall not permit the revenues for itself and its Subsidiaries,
determined on a consolidated basis for the most recent two fiscal quarter
period, multiplied by two (2), to be less than the numbers set forth for such
period below:
--------------------------------------------------------------
QUARTER ENDING MINIMUM ANNUALIZED REVENUES
--------------------------------------------------------------
03/31/00 $14,600,000
--------------------------------------------------------------
06/30/00 $17,400,000
--------------------------------------------------------------
09/30/00 $26,000,000
--------------------------------------------------------------
12/31/00 $36,700,000
--------------------------------------------------------------
03/31/01 $48,500,000
--------------------------------------------------------------
06/30/01 $62,200,000
--------------------------------------------------------------
09/30/01 $76,600,000
--------------------------------------------------------------
12/31/01 $90,800,000
--------------------------------------------------------------
Section 7.11 Implementation Phase - Minimum Annualized Operating Cash
Flow. The Borrower shall not permit its Annualized Operating Cash Flow to be
less than the numbers set forth for such period below:
-------------------------------------------------------------
QUARTER ENDING ANNUALIZED OPERATING CASH FLOW
-------------------------------------------------------------
03/31/00 ($30,800,000)
-------------------------------------------------------------
06/30/00 ($34,900,000)
-------------------------------------------------------------
09/30/00 ($30,100,000)
-------------------------------------------------------------
12/31/00 ($21,800,000)
-------------------------------------------------------------
03/31/01 (13,700,000)
-------------------------------------------------------------
06/30/01 ($4,500,000)
-------------------------------------------------------------
09/30/01 $4,600,000
-------------------------------------------------------------
12/31/01 $11,900,000
-------------------------------------------------------------
Section 7.12 Implementation Phase - Maximum Capital Expenditures.
During the periods set forth below, the Borrower shall not, and shall cause its
Subsidiaries not to, make Capital Expenditures in excess in the aggregate of the
amounts set forth below:
------------------------------------------------------------
YEAR MAXIMUM CAPITAL EXPENDITURES
------------------------------------------------------------
2000 $56,200,000
------------------------------------------------------------
2001 $9,000,000
------------------------------------------------------------
2002 $26,500,000
------------------------------------------------------------
Provided, however, that the Borrower may carry forward the unused portion of the
previous year's Capital Expenditures limit in an amount not to exceed the lesser
of: (i) the unused portion of the previous year's Capital Expenditures limit or
(ii) 25% of the previous year's Capital Expenditures limit.
Section 7.13 Operating Phase - Ratio of Annualized Operating Cash Flow
to Cash Interest Expense. The Borrower shall not permit the ratio, as of the end
of any fiscal quarter, of (i) Annualized Operating Cash Flow to (ii) Cash
Interest Expense for the four-quarter period then ended, to be less than the
ratio set forth below for any fiscal quarter ending during the periods
indicated:
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Period Ratio
------ -----
March 31, 2002 through June 29, 2002 1.35:1
June 30, 2002 through September 29, 2002 1.75:1
September 30, 2002 through December 30, 2002 2.25:1
December 31, 2002 through and thereafter 3.00:1
Section 7.14 Operating Phase - Fixed Charge Coverage Ratio. The
Borrower shall not as of the end of any fiscal quarter commencing with the
fiscal quarter ended June 30, 2002, permit the Fixed Charge Coverage Ratio to be
less than 1:00:1.
Section 7.15 Operating Phase - Total Leverage Ratio. The Borrower shall
not at any time permit the Total Leverage Ratio to exceed the ratio set forth
below for any fiscal quarter ending during the periods indicated:
Period Ratio
------ -----
December 31, 2001 through March 30, 2002 9.00:1
March 31, 2002 through June 29, 2002 6.00:1
June 30, 2002 through September 29, 2002 4.50:1
September 30, 2002 through December 30, 2002 3.50:1
December 31, 2002 through March 30, 2003 3.00:1
March 31, 2003 and thereafter 2.25:1
Section 7.16 Operating Phase - Annualized Operating Cash Flow to Pro
Forma Debt Service Ratio. The Borrower shall not as of the end of any fiscal
quarter permit the ratio of Annualized Operating Cash Flow to Pro Forma Debt
Service to be less than the ratio set forth below for any fiscal quarter ending
during the periods indicated:
Period Ratio
------ -----
March 31, 2002 through March 30, 2003 1.25:1
March 31, 2003 through March 30, 2004 1.50:1
March 31, 2004 and thereafter 2.00:1
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Section 7.17 Affiliate Transactions. The Borrower shall not, and shall
cause each of its Subsidiaries not to, at any time engage in any transaction
with an Affiliate, or make an assignment or other transfer of any of its
properties or assets to any Affiliate, on terms less advantageous to the
Borrower or such Subsidiary than would be the case if such transaction had been
effected with a non-Affiliate.
Section 7.18 Real Estate. Neither the Borrower nor any of its
Subsidiaries shall purchase or become obligated to purchase any real estate
having a purchase price in excess of $250,000, without complying with Section
5.10 hereof.
Section 7.19 ERISA Liabilities. The Borrower shall not, and shall cause
each of its Subsidiaries not to, (i) permit the assets of any of their
respective Plans to be less than the amount necessary to provide all accrued
benefits under such Plans, except to the extent permitted under Applicable Law,
or (ii) enter into any Multiemployer Plan.
ARTICLE 8
Default
Section 8.1 Events of Default. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under this Agreement
or any other Loan Document shall prove incorrect or misleading in any material
respect when made or deemed to be made pursuant to Section 4.2 hereof, or there
shall occur any Default under Article 7 hereof;
(b) The Borrower shall default in the payment of principal
amount or of any interest on any of the Notes, or in the payment of any fees or
other amounts (other than principal) payable to the Lenders, the Administrative
Agent or any of them, when due;
(c) The Borrower or any of its Restricted Subsidiaries shall
default in the performance or observance of any agreement or covenant (other
than as specifically referred to in other clauses of this Section 8.1) contained
herein, which Default shall not be cured within a period of twenty (20) days
from the occurrence of such Default;
(d) There shall occur any default in the performance or
observance of any agreement or covenant or breach of any representation or
warranty contained in any of the Loan Documents by the Parent, any of its
Subsidiaries, or any other obligor thereunder, including without limitation, the
Parent Guaranty, which Default shall not be cured within a period of twenty (20)
days from the occurrence of such Default;
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(e) There shall be entered and remain unstayed a decree or
order for relief in respect of the Parent or any of its Subsidiaries under Title
11 of the United States Code as now constituted or hereafter amended, or any
other applicable Federal or state bankruptcy law or other similar law, or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
similar official of the Parent or any of its Subsidiaries, or of any substantial
part of their respective properties, or ordering the winding-up or liquidation
of the affairs of the Parent or any of its Subsidiaries; or an involuntary
petition shall be filed against the Parent or any of its Subsidiaries and a
temporary stay entered, and (i) such petition and stay shall not be diligently
contested, or (ii) such petition and stay shall continue undismissed for a
period of thirty (30) consecutive days;
(f) The Parent or any of its Subsidiaries shall file a
petition, answer or consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable Federal
or state bankruptcy law or other similar law, or the Parent or any of its
Subsidiaries shall consent to the institution of proceedings thereunder or to
the filing of any such petition or shall seek, or consent to, the appointment or
taking of possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Parent or any of its Subsidiaries
or of any substantial part of their respective properties, or the Parent or any
of its Subsidiaries shall fail generally to pay their respective debts as they
become due, or the Parent or any of the its Subsidiaries shall take any action
in furtherance of any such action;
(g) An uninsured judgment shall be entered by any court
against the Borrower or any of its Subsidiaries for the payment of money which
exceeds singly or in the aggregate with other such judgments, $500,000, or a
warrant of attachment or execution or similar process shall be issued or levied
against property of the Borrower or any of its Subsidiaries which, together with
all other such property of the Borrower or any of its Subsidiaries subject to
other such process, exceeds in value $500,000 in the aggregate, and if, within
thirty (30) days after the entry, issue or levy thereof, such judgment, warrant
or process shall not have been paid or discharged or stayed pending appeal, or
if, after the expiration of any such stay, such judgment, warrant or process
shall not have been paid or discharged;
(h) There shall be at any time any "accumulated funding
deficiency," as defined in ERISA or in Section 412 of the Code in excess of
$500,000, with respect to any Plan maintained by the Parent or any of its
Subsidiaries, or to which the Parent or any of its Subsidiaries has any
liabilities, or any trust created thereunder; or a trustee shall be appointed by
a United States District Court to administer any such Plan; or PBGC shall
institute proceedings to terminate any such Plan; or the Parent or any of its
Subsidiaries shall incur any liability to PBGC in connection with the
termination of any such Plan; or any Plan or trust created under any Plan of the
Parent or any of its Subsidiaries shall engage in a "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section 4975 of the Code) which
would subject any such Plan, any trust created thereunder, any trustee or
administrator thereof, or any party dealing with any such Plan or trust to a tax
or penalty on "prohibited transactions" imposed by Section 502 of ERISA or
Section 4975 of the Code;
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(i) Any event shall occur which has a Materially Adverse
Effect;
(j) There shall occur (i) any default permitting the holder to
accelerate any Indebtedness of the Parent or any of the its Restricted
Subsidiaries in an aggregate principal amount exceeding $500,000; or (ii) any
default under any Interest Hedge Agreement;
(k) There shall occur a Change of Control;
(l) Any Note, Security Document or other Loan Document, or any
provision thereof, shall at any time and for any reason be declared by a court
of competent jurisdiction to be null and void, or a proceeding shall be
commenced by the Parent or any of its Subsidiaries, or by any governmental
authority having jurisdiction over the Parent or any of its Subsidiaries,
seeking to establish the invalidity or unenforceability thereof (exclusive of
questions of interpretation of any provision thereof), or the Parent or any of
its Subsidiaries shall deny that it has any liability or obligation for the
payment of principal or interest or any other amounts purported to be created
under any Loan Document;
(m) Any Security Document shall for any reason fail or cease
to create a valid Lien on or Security Interest in any significant portion of the
Collateral purported to be covered thereby or any significant portion of the
Collateral shall, for any reason cease to be perfected; or
(n) Any License shall be terminated or revoked.
Section 8.2 Remedies.
(a) If an Event of Default specified in Section 8.1 (other
than an Event of Default under Section 8.1(e) or Section 8.1(f)) shall have
occurred and shall be continuing, the Administrative Agent, at the request of
the Majority Lenders, shall formally declare that an Event of Default has
occurred and (i) terminate the Commitments and (ii) declare the principal of and
interest on the Loans and the Notes and all other amounts owed to the Lenders
and the Administrative Agent under this Agreement, the Notes and the other Loan
Documents to be forthwith due and payable without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived, anything in
this Agreement, the Notes and the other Loan Documents to the contrary
notwithstanding, and the Commitments shall thereupon forthwith terminate, and
all such amounts payable in respect of the Loans shall be due and payable.
(b) Upon the occurrence and during the continuance of an Event
of Default specified in Section 8.1(e) or Section 8.1(f), all principal,
interest and other amounts due hereunder and under the Notes, and all other
Obligations, shall thereupon and concurrently therewith become due and payable
and the Commitments shall forthwith terminate and the principal amount of the
Loans outstanding hereunder shall bear interest at the Default Rate, all without
any action by the Administrative Agent or the Lenders or the Majority Lenders or
any of them and without presentment, demand,
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protest or other notice of any kind, all of which are expressly waived, anything
in this Agreement or in the other Loan Documents to the contrary
notwithstanding.
(c) Upon acceleration of the Notes, as provided in subsection
(a) or (b) of this Section 8.2, the Administrative Agent and the Lenders shall
have all of the post-default rights granted to them, or any of them, under the
Loan Documents and under Applicable Law.
(d) Upon acceleration of the Notes, as provided in subsection
(a) or (b) of this Section 8.2, the Administrative Agent shall have the right
(but not the obligation) upon the request of the Majority Lenders to operate the
ICP Business of the Borrower and its Subsidiaries and pursuant to the terms and
subject to any limitations contained in the Security Documents and, within any
guidelines established by the Majority Lenders, to make any and all payments and
expenditures necessary or desirable in connection therewith. Such payments and
expenditures in excess of receipts shall constitute Advances under the Revolving
Loan Commitment, not in excess of the amount of the Revolving Loan Commitment.
Advances made pursuant to this Section 8.2(d) shall bear interest as provided in
Section 2.3(d) and shall be payable on demand. The making of one or more
Advances under this Section 8.2(d) shall not create any obligation on the part
of the Lenders to make any additional Advances hereunder. No exercise by the
Administrative Agent of the rights granted to it under this Section 8.2(d) shall
constitute a waiver of any other rights and remedies granted to the
Administrative Agent and the Lenders, or any of them, under this Agreement or
any other Loan Document or at law. The Borrower hereby irrevocably appoints the
Administrative Agent, as collateral agent for the Lenders, the true and lawful
attorney of the Borrower, in its name and stead and on its behalf, to execute,
receipt for or otherwise act in connection with any and all contracts,
instruments or other documents in connection with the completion and operation
of the ICP Business in the exercise of the Administrative Agent's and the
Lenders' rights under this Section 8.2(d). Such power of attorney is coupled
with an interest and is irrevocable.
(e) Upon acceleration of the Notes, as provided in subsection
(a) or (b) of this Section 8.2, the Administrative Agent, upon request of the
Majority Lenders, shall have the right to the appointment of a receiver for the
properties and assets of the Borrower and its Subsidiaries hereby consents to
such right and such appointment and hereby waives any objection the Borrower or
any Subsidiary may have thereto or the right to have a bond or other security
posted by the Administrative Agent on behalf of the Lenders, in connection
therewith.
(f) The rights and remedies of the Administrative Agent and
the Lenders hereunder shall be cumulative and not exclusive.
Section 8.3 Payments Subsequent to Declaration of Event of Default.
Subsequent to the acceleration of the Loans under Section 8.2 hereof, payments
and prepayments under this Agreement made to any of the Administrative Agent or
the Lenders or otherwise received by any of such Persons (from realization on
Collateral for the Obligations or otherwise) shall be paid over to the
Administrative Agent (if
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necessary) and distributed by the Administrative Agent as follows: first, to the
costs and expenses, if any, incurred in connection with the collection of such
payment or prepayment including, without limitation, any costs incurred by the
Administrative Agent in connection with the sale or disposition of any
Collateral for the Obligations; second, to the Lenders and the Administrative
Agent for any fees hereunder or under any of the other Loan Documents then due
and payable; third, to damages incurred by the Administrative Agent or any
Lender by reason of any breach hereof or of any other Loan Document; fourth, to
the Lenders pro rata on the basis of their respective unpaid principal amounts
(except as provided in Section 2.2(e)(iv)), to the payment of any unpaid
interest which may have accrued on the Obligations; fifth, to the Lenders (and
their Affiliates, in the case of Obligations under the Interest Hedge
Agreements) pro rata on the basis of their respective unpaid amounts, to the
payment of any other unpaid Obligations; and sixth, upon satisfaction in full of
all Obligations, to the Borrower or as otherwise required by law.
ARTICLE 9
The Administrative Agent, Etc.
Section 9.1 Appointment and Authorization. Each Lender hereby
irrevocably appoints and authorizes, and hereby agrees that it will require any
transferee of any of its interest in the Loans and in its Notes irrevocably to
appoint and authorize, the Administrative Agent and the Documentation Agent to
take such actions as its agents on its behalf and to exercise such powers
hereunder and under the Security Documents as are delegated by the terms hereof
and thereof, together with such powers as are reasonably incidental thereto.
Neither the Administrative Agent nor the Documentation Agent nor any of their
respective directors, officers, employees or agents, shall be liable for any
action taken or omitted to be taken by it or them hereunder or thereunder or in
connection herewith or therewith, except for its or their own gross negligence
or willful misconduct.
Section 9.2 Interest Holders. The Administrative Agent and the
Documentation Agent may treat each Lender, or the Person designated in the last
notice filed with the Administrative Agent, as the holder of all of the
interests of such Lender in the Loans and in its Notes until written notice of
transfer, signed by such Lender (or the person designated in the last notice
filed with the Administrative Agent) and by the Person designated in such
written notice of transfer, in form and substance satisfactory to the
Administrative Agent, shall have been filed with the Administrative Agent. The
Administrative Agent shall keep a Register of all Lenders hereunder, as provided
in Section 11.5 hereof.
Section 9.3 Consultation with Counsel. The Administrative Agent and the
Documentation Agent each may consult with Paul, Hastings, Janofsky & Walker LLP,
Atlanta, Georgia, special counsel to the Administrative Agent and the
Documentation Agent, or with other legal counsel and shall not be liable for any
action taken or suffered
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by it in good faith in consultation with the Majority Lenders and in reasonable
reliance on such consultations with such legal counsel.
Section 9.4 Documents. The Administrative Agent and the Documentation
Agent shall be under no duty to examine, inquire into, or pass upon the
validity, effectiveness or genuineness of this Agreement, any Note, any other
Loan Document, or any other instrument, document or communication furnished
pursuant hereto or in connection herewith, and the Administrative Agent and the
Documentation Agent shall be entitled to assume that they are valid, effective
and genuine, have been signed or sent by the proper parties and are what they
purport to be.
Section 9.5 Administrative Agent, Documentation Agent, Syndication
Agent and Affiliates. With respect to the Commitments and the Loans, Affiliates
of the Administrative Agent, the Syndication Agent and the Documentation Agent
each shall have the same rights and powers hereunder as any other Lender, and
the Administrative Agent, the Syndication Agent and the Documentation Agent and
Affiliates of the Administrative Agent, the Syndication Agent and the
Documentation Agent each may accept deposits from, lend money to and generally
engage in any kind of business with the Borrower, any of its Subsidiaries or any
Affiliates of, or Persons doing business with, the Borrower, as if they were not
affiliated with the Administrative Agent, the Syndication Agent, or the
Documentation Agent and without any obligation to account therefor.
Section 9.6 Responsibility of the Administrative Agent and the
Documentation Agent. The duties and obligations of the Administrative Agent and
the Documentation Agent under this Agreement and the Security Documents are only
those expressly set forth in this Agreement and the Security Documents. The
Administrative Agent and the Documentation Agent shall be entitled to assume
that no Default has occurred and is continuing unless such agent has been
notified by the Borrower of such fact, or has been notified by a Lender in
writing that such Lender considers that a Default has occurred and is
continuing, and such Lender shall specify in detail the nature thereof. The
Administrative Agent shall not be liable hereunder for any action taken or
omitted to be taken except for such agent's own gross negligence or willful
misconduct. The Administrative Agent shall provide each Lender with copies of
such documents received from the Borrower as such Lender may request.
Section 9.7 Security Documents. The Administrative Agent is hereby
authorized to act on behalf of the Lenders, acting for the ratable benefit of
the Lenders, in its own capacity and through other agents and sub-agents
appointed by it, under the Security Documents, provided that the Administrative
Agent shall not agree to the release of any collateral, or any property
encumbered by any mortgage, pledge or security interest except in compliance
with Section 11.12 hereof or as otherwise contemplated by this Agreement. Each
Lender hereby irrevocably authorizes the Administrative Agent, at its option and
in its discretion, but only upon receipt by the Administrative Agent of a
certificate from the Borrower that no Default then exists or would be caused
thereby, to release any and all Guaranties of the Obligations and any Lien
granted to or held by the Administrative Agent upon any Collateral (i) upon the
irrevocable payment in full in cash
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of all outstanding Obligations; (ii) constituting Collateral being sold or
disposed of if the sale or disposition is made in compliance with the terms of
this Agreement, as certified by an Authorized Signatory of the Borrower; or
(iii) if approved, authorized or ratified in writing by the Administrative Agent
at the direction of each of the Lenders in accordance with this Agreement. Upon
request by the Administrative Agent at any time, each Lender will confirm in
writing the Administrative Agent's authority to release particular types or
items of Collateral pursuant to this Section 9.7.
Section 9.8 Action by the Administrative Agent and the Documentation
Agent.
(a) The Administrative Agent and the Documentation Agent shall
be entitled to use such agent's discretion with respect to exercising or
refraining from exercising any rights which may be vested in it, and with
respect to taking or refraining from taking any action or actions which it may
be able to take under or in respect of, this Agreement or any other Loan
Document, unless the Administrative Agent shall have been instructed by the
Majority Lenders to exercise or refrain from exercising such rights or to take
or refrain from taking such action; provided that the Administrative Agent shall
not exercise any rights under Section 8.2(a) of this Agreement without the
request of the Majority Lenders. The Administrative Agent and the Documentation
Agent shall incur no liability under or in respect of this Agreement with
respect to anything which it may do or refrain from doing in the exercise of its
judgment or which may seem to it to be necessary or desirable in the
circumstances, except for such agent's gross negligence or willful misconduct.
(b) The Administrative Agent and the Documentation Agent shall
not be liable to the Lenders or to any Lender in acting or refraining from
acting under this Agreement or any other Loan Document in accordance with the
instructions of the Majority Lenders (unless the instructions of all the Lenders
are expressly required hereby or thereby) and any action taken or failure to act
pursuant to such instructions shall be binding on all Lenders.
Section 9.9 Notice of Default or Event of Default. In the event that
any Lender shall acquire actual knowledge, or shall have been notified, of any
Default (other than through a notice by one party hereto to all other parties),
such Lender shall promptly notify the Administrative Agent, and the
Administrative Agent shall take such action and assert such rights under this
Agreement as the Majority Lenders shall request in writing, and the
Administrative Agent shall not be subject to any liability by reason of its
acting pursuant to any such request, except for its own gross negligence or
willful misconduct. If the Majority Lenders shall fail to request the
Administrative Agent to take action or to assert rights under this Agreement in
respect of any Default within ten (10) days after their receipt of the notice of
any Default from the Administrative Agent or any Lender, or shall request
inconsistent action with respect to such Default, the Administrative Agent may,
but shall not be required to, take such action and assert such rights (other
than rights under Article 8 hereof) as it deems in its discretion, acting in a
manner that is not grossly negligent and does not constitute willful misconduct,
to be advisable for the protection of the Lenders, except that, if the Majority
Lenders have instructed the Administrative
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Agent not to take such action or assert such right, in no event shall the
Administrative Agent act contrary to such instructions.
Section 9.10 Responsibility Disclaimed. The Administrative Agent and
the Documentation Agent shall not be under any liability or responsibility
whatsoever as Administrative Agent or Documentation Agent (as the case may be):
(a) To the Borrower or any other Person as a consequence of
any failure or delay in performance by or any breach by, any Lender or Lenders
of any of its or their obligations under this Agreement;
(b) To any Lender or Lenders, as a consequence of any failure
or delay in performance by, or any breach by, (i) the Borrower of any of its
obligations under this Agreement or the Notes or any other Loan Document, or
(ii) any Subsidiary of the Borrower or any other obligor under any other Loan
Document; or
(c) To any Lender or Lenders, for any statements,
representations or warranties in this Agreement, or any other document
contemplated by this Agreement or any information provided pursuant to this
Agreement (other than, with respect to the Administrative Agent only,
calculations made by it as Administrative Agent hereunder), any other Loan
Document, or any other document contemplated by this Agreement, or for the
validity, effectiveness, enforceability or sufficiency of this Agreement, the
Notes, any other Loan Document, or any other document contemplated by this
Agreement.
Section 9.11 Indemnification. The Lenders agree to indemnify the
Administrative Agent, the Syndication Agent and the Documentation Agent (to the
extent not reimbursed by the Borrower) pro rata according to their respective
Commitment Ratios, from and against any and all liabilities, obligations, losses
(other than the loss of principal and interest hereunder in the event of a
bankruptcy or out-of-court `work-out' of the Loans or otherwise), damages,
penalties, actions, judgments, suits, costs, expenses (including fees and
expenses of experts, agents, consultants and counsel), or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent, the Syndication Agent and the Documentation
Agent in any way relating to or arising out of this Agreement, any other Loan
Document, or any other document contemplated by this Agreement or any action
taken or omitted by the Administrative Agent, the Syndication Agent or the
Documentation Agent under this Agreement, any other Loan Document, or any other
document contemplated by this Agreement, except that no Lender shall be liable
to the Administrative Agent, the Syndication Agent or the Documentation Agent
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements resulting from the
gross negligence or willful misconduct of such agent.
Section 9.12 Credit Decision. Each Lender represents and warrants to
the other Lenders and to the Administrative Agent and the Documentation Agent
that:
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(a) In making its decision to enter into this Agreement and to
make its Advances it has independently taken whatever steps it considers
necessary to evaluate the financial condition and affairs of the Borrower and
that it has made an independent credit judgment, and that it has not relied upon
the Administrative Agent or the Documentation Agent or any other Lender or
information provided by the Administrative Agent or the Documentation Agent
(other than, with respect to the Administrative Agent only, information provided
to the Administrative Agent by the Borrower and forwarded by the Administrative
Agent to the Lenders); and
(b) So long as any portion of the Loans remains outstanding,
it will continue to make its own independent evaluation of the financial
condition and affairs of the Borrower.
Section 9.13 Successor Administrative Agent. The Administrative Agent
may resign at any time by giving written notice thereof to the Lenders and the
Borrower. Upon any such resignation, the Majority Lenders shall have the right
to appoint a successor Administrative Agent. If, within thirty (30) days after
the retiring Administrative Agent gives notice of resignation, no successor
Administrative Agent shall have been so appointed by the Majority Lenders and
shall have accepted such appointment, the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent which shall be
any Lender or a commercial bank organized under the laws of the United States of
America or any political subdivision thereof which has combined capital and
reserves in excess of $250,000,000. Upon the appointment hereunder of a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges,
duties and obligations of the retiring Administrative Agent and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent.
Section 9.14 Delegation of Duties. The Administrative Agent and the
Documentation Agent may execute any of such agent's duties under the Loan
Documents by or through agents or attorneys selected by such agent using
reasonable care, and shall be entitled to advice of counsel concerning all
matters pertaining to such duties.
Section 9.15 Other Agents and Titles. Other than the Administrative
Agent, the Syndication Agent and the Documentation Agent, Lenders (or their
Affiliates) awarded titles in this Agreement, such as Co-Lead Arrangers,
Co-Agents and the like, shall have no duties or responsibilities hereunder, and
no liability shall result from such titles, which are purely honorary in nature.
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ARTICLE 10
Change in Circumstances Affecting Eurodollar Advances
Section 10.1 Eurodollar Basis Determination Inadequate or Unfair.
(a) Inadequate. If with respect to any proposed Eurodollar
Advance for any Interest Period, the Administrative Agent determines after
consultation with the Lenders that deposits in dollars (in the applicable
amount) are not being offered to each of the Lenders in the relevant market for
such Interest Period, and are thus not available, the Administrative Agent shall
forthwith give notice thereof to the Borrower and the Lenders, whereupon until
the Administrative Agent notifies the Borrower that the circumstances giving
rise to such situation no longer exist, the obligations of any affected Lender
to make such Eurodollar Advance shall be suspended.
(b) Unfair. If with respect to any proposed Eurodollar Advance
for any Interest Period, the Administrative Agent determines after consultation
with the Lenders that the Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to any
Lender of making or maintaining its affected Eurodollar Advances during such
Interest Period, the Administrative Agent shall forthwith give notice thereof to
the Borrower and the Lenders, whereupon until the Administrative Agent notifies
the Borrower that the circumstances giving rise to such situation no longer
exist, the obligations of any affected Lender to make such Eurodollar Advance
shall be suspended.
Section 10.2 Illegality. If after the date hereof, the adoption of any
Applicable Law, or any change in any Applicable Law (whether adopted before or
after the Agreement Date), or any change in interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
with any directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, shall make it unlawful or
impossible for any Lender to make, maintain or fund Eurodollar Advances, such
Lender shall so notify the Administrative Agent, and the Administrative Agent
shall forthwith give notice thereof to the other Lenders and the Borrower.
Before giving any notice to the Administrative Agent pursuant to this Section
10.2, such Lender shall designate a different lending office if such designation
will avoid the need for giving such notice and will not, in the sole, good faith
judgment of such Lender, be otherwise disadvantageous to such Lender. Upon
receipt of such notice, notwithstanding anything contained in Article 2 hereof,
the Borrower shall repay in full the then outstanding principal amount of each
Eurodollar Advance of such Lender, together with accrued interest thereon, on
either (a) the last day of the then current Interest Period applicable to such
Eurodollar Advances if such Lender may lawfully continue to maintain and fund
such Eurodollar Advances to such day or (b) immediately if such Lender may not
lawfully continue to fund and maintain such Eurodollar Advances to such day.
Concurrently with repaying each Eurodollar Advance of such Lender,
notwithstanding anything contained in Article 2 or Article 3 hereof, the
Borrower may, if no Default then exists or would be caused thereby, borrow a
Base Rate
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Advance from such Lender, and such Lender shall make such Advance, if so
requested, in an amount such that the outstanding principal amount of the
affected Note or Notes held by such Lender shall equal the outstanding principal
amount of such Note or Notes immediately prior to such repayment.
Section 10.3 Increased Costs.
(a) If after the date hereof, the adoption of any Applicable
Law, or any change in any Applicable Law (whether adopted before or after the
Agreement Date), or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof or compliance
by any Lender with any directive (whether or not having the force of law) of any
such authority, central bank or comparable agency:
(i) shall subject any Lender to any tax, duty or
other charge with respect to its obligation to make Eurodollar
Advances, or its Eurodollar Advances, or shall change the basis of
taxation of payments to any Lender of the principal of or interest on
its Eurodollar Advances or in respect of any other amounts due under
this Agreement, in respect of its Eurodollar Advances or its obligation
to make Eurodollar Advances (except for changes in the rate or method
of calculation of tax on the overall net income of such Lender); or
(ii) shall impose, modify or deem applicable any
reserve (including, without limitation, any imposed by the Board of
Governors of the Federal Reserve System, but excluding any included in
an applicable Eurodollar Reserve Percentage), special deposit, capital
adequacy, assessment or other requirement or condition against assets
of, deposits with or for the account of, or commitments or credit
extended by, any Lender or shall impose on any Lender or the London
interbank borrowing market any other condition affecting its obligation
to make Eurodollar Advances or its Eurodollar Advances;
and the result of any of the foregoing is to increase the cost to such Lender of
making or maintaining such Eurodollar Advances, or to reduce the amount of any
sum received or receivable by such Lender under this Agreement or under any of
its Notes with respect thereto, then, on the earlier of a date within five (5)
days after demand by such Lender, or the Maturity Date, the Borrower agrees to
pay to such Lender such additional amount or amounts as will compensate such
Lender for such increased costs. Each Lender will notify the Borrower and the
Administrative Agent of any event of which it has knowledge, which will entitle
such Lender to compensation pursuant to this Section 10.3 and will designate a
different lending office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole judgment of such
Lender, made in good faith, be otherwise disadvantageous to such Lender.
(b) Any Lender claiming compensation under this Section 10.3
shall provide the Borrower required for notice under the foregoing subsection
(a), with a written certificate setting forth the additional amount or amounts
to be paid to it
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hereunder and calculations therefor in reasonable detail. Such certificate shall
be conclusively correct, absent manifest error. In determining such amount, such
Lender may use any reasonable averaging and attribution methods. If any Lender
demands compensation under this Section 10.3, the Borrower may at any time, upon
at least five (5) Business Days' prior notice to such Lender, prepay in full the
then outstanding Eurodollar Advances of such Lender, together with accrued
interest thereon to the date of prepayment, along with any reimbursement
required under Section 2.10 hereof. Concurrently with prepaying such Eurodollar
Advances, the Borrower may borrow, if no Default then exists or would be caused
thereby, a Base Rate Advance and such Lender shall, if so requested, make such
Advance in an amount such that the outstanding principal amount of the affected
Note or Notes held by such Lender shall equal the outstanding principal amount
of such Note or Notes immediately prior to such prepayment.
Section 10.4 Effect On Other Advances. If notice has been given
pursuant to Section 10.1, 10.2 or 10.3 suspending the obligation of any Lender
to make Eurodollar Advances, or requiring Eurodollar Advances of any Lender to
be repaid or prepaid, then, unless and until such Lender notifies the Borrower
that the circumstances giving rise to such repayment no longer apply, all
Advances which would otherwise be made by such Lender as Eurodollar Advances
shall, at the option of the Borrower, be made instead as Base Rate Advances.
ARTICLE 11
Miscellaneous
Section 11.1 Notices.
(a) Except as otherwise expressly provided herein, all notices
and other communications under this Agreement shall be in writing and shall be
deemed to have been given three (3) days after deposit in the mail, designated
as certified mail, return receipt requested, postage-prepaid, or one (1) day
after being entrusted to a reputable commercial overnight delivery service for
overnight delivery, or when sent by telecopy addressed to the party to which
such notice is directed at its address determined as provided in this Section
11.1 (except that notices under Article 2 shall be effective only upon receipt).
All notices and other communications under this Agreement shall be given to the
parties hereto at the following addresses:
(i) If to the Borrower, to it at:
TriVergent Communications, Inc.
200 N. Main Street, Suite 303
Greenville, South Carolina 29601
Attn: Clark Mizell
Chief Financial Officer
with a copy to:
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Wyche, Burgess, Freeman & Parham, P.A.
44 East Camperdown Way
Greenville, South Carolina 29601
Attn: Will Crawford, Esq.
(ii) If to the Administrative Agent, to it at:
Toronto Dominion (Texas), Inc.
909 Fannin, Suite 1700
Houston, Texas 77010
Attn: Ambreen Salters, Vice President
with a copy to:
TD Securities (USA), Inc.
31 West 52nd Street
New York, NY 10019-6101
Attn: Melissa Glass, Managing Director,
Communications Finance
cc: John Bown, Vice President
and:
Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street, Suite 2400
Atlanta, Georgia 30308
Attn: Kevin Conboy, Esq.
(iii) If to the Documentation Agent, to it at:
Newcourt Commercial Finance Corporation
c/o The CIT Group, Inc. - Structured
Finance Group
2 Gatehall Drive
Parsippany, New Jersey 07054
Attn: Vice President - Credit
Fax: 973-355-7643
cc: Vice President - Legal
Fax: 973-355-7645
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street, Suite 2400
Atlanta, Georgia 30308
Attn: Kevin Conboy, Esq.
(iv) If to the Syndication Agent, to it at:
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First Union National Bank
One First Union Center
301 South College Street, DC-5
Charlotte, NC 28288
Attn: Mark Cook
Fax: 704-374-4092
(v) If to the Lenders, to them at the addresses
set forth beside their names on Schedule 2.
Copies (which shall not constitute notice) shall be provided to Persons other
than parties hereto only in the case of notices under Article 8 hereof.
(b) Any party hereto may change the address to which notices
shall be directed under this Section 11.1 by giving ten (10) days' written
notice of such change to the other parties.
Section 11.2 Expenses. The Borrower will promptly pay or reimburse:
(a) all reasonable out-of-pocket expenses incurred by the
Administrative Agent, the Syndication Agent, and the Documentation Agent in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, and the transactions contemplated
hereunder and thereunder and the making of the initial Advance hereunder
(whether or not such Advance is made), including, but not limited to, the fees
and disbursements of Paul, Hastings, Janofsky & Walker LLP, special counsel for
the Administrative Agent and the Documentation Agent; and
(b) any reasonable out-of-pocket expenses of the
Administrative Agent and the Documentation Agent which are incurred in
connection with the administration of the transactions contemplated in this
Agreement or the other Loan Documents, the restructuring and "work out" of such
transactions, and the preparation, negotiation, execution and delivery of any
waiver, amendment or consent or in connection with obtaining performance under
this Agreement or the other Loan Documents as well as expenses of collection or
enforcement incurred by the Administrative Agent, the Documentation Agent, the
Syndication Agent, and the Lenders while any Event of Default has occurred and
is continuing, including, but not limited to, the fees and disbursements of any
experts, agents, consultants, or special counsel for the Administrative Agent,
the Syndication Agent, and the Documentation Agent, and out-of-pocket expenses
for each of the Lenders.
Section 11.3 Waivers. The rights and remedies of the Administrative
Agent and the Lenders under this Agreement and the other Loan Documents shall be
cumulative and not exclusive of any rights or remedies that they would otherwise
have. No failure or delay by the Administrative Agent, the Documentation Agent,
the Majority Lenders or the Lenders, or any of them, in exercising any right,
shall, except as otherwise provided
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herein, operate as a waiver of such right. The Administrative Agent, the
Documentation Agent, and the Lenders expressly reserve the right to require
strict compliance with the terms of this Agreement in connection with any future
funding of a request for an Advance. In the event the Lenders decide to fund an
Advance at a time when the Borrower is not in strict compliance with the terms
of this Agreement, such decision by the Lenders shall not be deemed to
constitute an undertaking by the Lenders to fund any further Advances or
preclude the Lenders or the Administrative Agent from exercising any rights
available under the Loan Documents or at law or equity. Any waiver or indulgence
granted by the Administrative Agent, the Lenders or the Majority Lenders shall
not constitute a modification of this Agreement, except to the extent expressly
provided in such waiver or indulgence, or constitute a course of dealing at
variance with the terms of the Agreement such as to require further notice of
their intent to require strict adherence to the terms of the Agreement in the
future.
Section 11.4 Set-Off. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon the occurrence of an Event of Default and during the continuation thereof,
the Administrative Agent and the Lenders are hereby authorized by the Borrower
at any time or from time to time, without notice to the Borrower or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, Indebtedness evidenced by certificates of
deposit, in each case whether matured or unmatured) and any other Indebtedness
at any time held or owing by any Lender or the Administrative Agent, to or for
the credit or the account of the Borrower or any of its Subsidiaries, against
and on account of the Obligations, irrespective of whether (a) any Lender or the
Administrative Agent shall have made any demand hereunder or (b) any Lender or
the Administrative Agent shall have declared the principal of and interest on
the Loans and other amounts due hereunder to be due and payable as permitted by
Section 8.2 and although such obligations and liabilities or any of them, shall
be contingent or unmatured. Upon direction by the Administrative Agent with the
consent of the Majority Lenders, each Lender holding deposits of the Borrower or
any of its Subsidiaries shall exercise its set-off rights as so directed.
Section 11.5 Assignment.
(a) The Borrower may not assign or transfer any of its rights
or obligations hereunder without the prior written consent of each of the
Lenders.
(b) Each Lender may enter freely into participation agreements
with respect to or otherwise grant participations in the Loans to one or more
banks or other financial institutions; provided, however, that (i) such Lender's
obligations hereunder shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) the participant shall not be entitled by the benefit of its
participation to vote or otherwise take action under this Agreement or any other
Loan Document, except with respect to the matters referred to in items (a), (b),
(c), (d), and (g) of Section 11.12 hereof, and (iv) the Borrower shall continue
to deal solely and directly with such Lender in connection with such Lender's
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rights and obligations hereunder. In addition, each Lender (x) may also assign
up to one hundred percent (100%) of its rights hereunder and under the other
Loan Documents to the Federal Reserve Bank or an Eligible Assignee without
limitation and without any consent of the Borrower, the Documentation Agent or
the Administrative Agent, and (y) otherwise sell or assign up to one hundred
percent (100%) of its rights hereunder and under the other Loan Documents on an
assignment basis, provided that, (A) such assignment is to another Lender, or
the Borrower, the Documentation Agent and the Administrative Agent have given
their prior written consent to the identity of the proposed assignee of a Lender
hereunder, which consent shall not be unreasonably withheld (except that consent
of the Borrower shall not be required at any time when there exists an Event of
Default), (B) the assignee assumes a pro rata share of the assignor Lender's
obligations hereunder determined by the percentage of the applicable Commitments
assigned, for the period from the date of the assignment through the applicable
Maturity Date, and (C) each such assignment (other than to an existing Lender or
by any Lender to an Affiliate of such Lender) shall be in a principal amount of
not less than the lesser of the entire amount of such Lender's interest
hereunder or $5,000,000. Each Lender who sells or assigns a portion of its Loans
pursuant hereto, other than to an Affiliate, other Lender or any Federal Reserve
Bank, shall pay to the Administrative Agent an assignment fee of $3,500 with
respect to each assignment, such fee to be paid to the Administrative Agent not
later than the effective date of the assignment of the Loans relating thereto.
Each assignment hereunder shall be without cost or expense to the Borrower. Each
Lender agrees to provide the Administrative Agent and the Borrower with written
notice of the assignment of all or part of its rights hereunder, and the
Administrative Agent shall keep a record of all such assignments in order to be
able to calculate the Commitment Ratios for the respective Facilities of the
Lenders as of any time. All assignments by any of the Lenders of any interests
hereunder shall be made pursuant to an Assignment and Assumption Agreement
substantially in the form attached hereto as Exhibit A. Each Lender may provide
any proposed participant or assignee with confidential information provided to
such Lender regarding the Borrower and its Subsidiaries on a confidential basis,
so long as such proposed participant or assignee shall have agreed to maintain
such confidentiality. Further, each permitted assignee of any portion of the
Loans shall be entitled to the benefits of Sections 2.10 and 2.12 and Article 10
hereof and all other provisions hereof and of the other Loan Documents as a
'Lender' hereunder.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower shall maintain a copy of each Assignment and Assumption
Agreement delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitments of, and the principal amount of
the Loans owing to, each Lender pursuant to the terms hereof from time to time
(the "Register"). The entries in the Register shall be conclusive, and the
Borrower, Documentation Agent, the Administrative Agent, and the Lenders may
treat each person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding
notice to the contrary. The Register shall be available for inspection at the
offices of the Administrative Agent by the Borrower or any Lender, at any
reasonable time during normal business hours and from time to time upon
reasonable prior notice. Upon the Administrative Agent's receipt of a duly
completed Assignment
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and Assumption Agreement executed by an assigning Lender and an assignee Lender,
the assignee's completed administrative questionnaire (unless the assignee is
already a Lender, or an Affiliate of any Lender), the fee referred to in Section
11.5(b) above, and any written consent to such assignment required by such
subsection, the Administrative Agent shall accept such Assignment and Assignment
Agreement and record the information contained therein in the Register. No
assignment shall be affected for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(d) In addition to any other assignment permitted pursuant to this
Agreement, any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender, and its Notes for or in connection with
any loan or financing, or as part of any securitization or other similar
transaction; provided, however, that no Lender, as between Borrower and such
Lender, shall be relieved of any of its obligations hereunder as a result of any
such assignment and pledge, and provided further, in no event shall the
applicable Federal Reserve Bank or trustee be considered to be a "Lender" or be
entitled to require the assigning Lender to take or omit to take any action
hereunder.
(e) In the event that: (i) any Lender fails or refuses to fund its
portion of an Advance hereunder at a time when the conditions precedent to an
Advance have been satisfied, or (ii) any Lender (but no other Lender) requests
compensation from the Borrower under Section 2.12 or Article 10 hereof, so long
as no Default has occurred and is then continuing, the Borrower shall be
entitled to arrange (subject to the prior written consent of the Administrative
Agent and the Documentation Agent as to the identity of any prospective
assignee, which consent shall not be unreasonably withheld) for the purchase of
such Lender's interests in the Loans outstanding hereunder and the assumption of
its Commitments by any of the other Lenders or by another third party financial
institution meeting the requirements for assignees of the Lenders set forth
above. The purchase price for the interest being purchased shall be the
outstanding principal balance of such Lender's interest plus any outstanding
accrued interest and fees due and payable to such Lender. Any costs incurred
pursuant to and payable under Section 2.10, Section 2.12 or Article 10 hereof at
the time of or prior to the purchase of such Lender's interests in connection
with the Borrower's exercise of its rights under this Section 11.5(c) shall be
borne by the Borrower except in the case of clause (i) above.
(f) Except as specifically set forth in Section 11.5(b) hereof, nothing
in this Agreement or the Notes, expressed or implied, is intended to or shall
confer on any Person other than the respective parties hereto and thereto and
their successors and assignees permitted hereunder and thereunder any benefit or
any legal or equitable right, remedy or other claim under this Agreement or the
Notes.
(g) The provisions of this Section 11.5 shall not apply to any purchase
of participations among the Lenders pursuant to Section 2.11 hereof.
Section 11.6 Accounting Principles.
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(a) GAAP, Generally. All accounting terms used herein without
definition shall be used as defined under GAAP. In the event that a Default
occurs under any of Sections 7.8, 7.9, 7.10, 7.11, 7.12, 7.13, 7.14, 7.15 or
7.16 solely as a consequence of a change in GAAP occurring after the Agreement
Date, the parties agree (1) to negotiate in good faith towards an appropriate
change to the applicable financial covenant in order to approximate the economic
results originally intended to be measured by such covenant, and (2) that such
Default shall be waived by the Lenders until the ninetieth (90th) day following
the occurrence of such Default. In the event of any change in GAAP which affects
the Borrower's calculation of one or more of its financial covenants, the
Borrower shall calculate its Financial Covenants using then current GAAP, but
shall provide by way of footnote information additional calculations
demonstrating its performance, had there not been a change in GAAP.
(b) As Applicable to the Borrower. All references to financial
statements and to financial and accounting terms and to Operating Cash Flow,
Total Debt, Fixed Charges, Debt Service, and other such terms shall be deemed to
refer to such items of the Borrower and its Subsidiaries on a fully consolidated
basis, unless otherwise specified.
Section 11.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
In proving this agreement in any judicial proceedings, it shall not be necessary
to produce or account for more than one such counterpart signed by the party
against whom such enforcement is sought. Any signatures delivered by a party by
facsimile transmission shall be deemed an original signature hereto.
Section 11.8 Governing Law. This Agreement and the Notes shall be
construed in accordance with and governed by the internal laws of the State of
New York applicable to agreements made and to be performed in New York. If any
action or proceeding shall be brought in order to enforce any right or remedy
under this Agreement or under any Note, each of the Borrower, the Administrative
Agent, the Documentation Agent, and each Lender hereby consents to and will, and
the Borrower will cause each Subsidiary to, submit to the jurisdiction of any
state or federal court of competent jurisdiction sitting within the area
comprising the Southern District of New York on the date of this Agreement. Each
of the Borrower, the Administrative Agent, the Documentation Agent, and each
Lender (the Borrower acting for itself and on behalf of its Subsidiaries) hereby
agrees that service of the summons and complaint and all other process which may
be served in any such suit, action or proceeding may be effected by mailing by
registered mail a copy of such process to the address given in Section 11.1
hereof and that personal service of process shall not be required. Nothing
herein shall be construed to prohibit service of process by any other method
permitted by law or the bringing of any suit, action or proceeding in any other
jurisdiction. Each of the Borrower, the Administrative Agent, the Documentation
Agent, and each of the Lenders agrees that final judgment in such suit, action
or proceeding shall be conclusive and may be enforced in any other jurisdiction
by suit on the judgment or in any other manner provided by Applicable Law.
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Section 11.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.10 Interest.
(a) In no event shall the amount of interest due or payable
hereunder or under the Notes exceed the maximum rate of interest allowed by
Applicable Law, and in the event any such payment is inadvertently made by the
Borrower or inadvertently received by any Lender, then such excess sum shall be
credited as a payment of principal, unless the Borrower shall notify the
Administrative Agent or such Lender in writing that it elects to have such
excess returned forthwith. It is the express intent hereof that the Borrower not
pay and the Lenders not receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may legally be paid by the Borrower
under Applicable Law.
(b) Notwithstanding the use by the Lenders of the Base Rate,
the Federal Funds Rate and the Eurodollar Rate as reference rates for the
determination of interest on the Loans, the Lenders shall be under no obligation
to obtain funds from any particular source in order to charge interest to the
Borrower at interest rates related to such reference rates.
Section 11.11 Table of Contents and Headings. The table of contents and
the headings of the various subdivisions used in this Agreement are for
convenience only and shall not in any way modify or amend any of the terms or
provisions hereof, nor be used in connection with the interpretation of any
provision hereof.
Section 11.12 Amendment and Waiver. Neither this Agreement nor any term
hereof may be amended orally, nor may any provision hereof be waived orally but
only by an instrument in writing signed by the Majority Lenders and, in the case
of an amendment, by the Borrower, except that in the event of any amendment or
modification which purports to effect (a) any increase in the amount of any
Commitment, (b) any forgiveness of principal or any delay or extension in the
terms of repayment of the Loans provided in Section 2.4 hereof (including
reductions in the amount, or delay of any scheduled commitment reductions), (c)
any reduction in the rate of interest or fees due hereunder or postponement of
the scheduled payment thereof, (d) any release of any substantial portion of the
Collateral for the Loans other than in connection with a sale or disposition
permitted hereunder, (e) any waiver of any of the conditions set forth in
Section 3.1, (f) any waiver of any Default due to the failure by the Borrower to
pay any sum due to any of the Lenders hereunder , (g) any subordination of the
principal or interest on any Loan, (h) any release of any Guaranty of all or any
portion of the Obligations, except in connection with a merger, sale or other
disposition otherwise permitted hereunder (in which case, such release shall
require no further approval by the Lenders), or (i) any amendment of this
Section 11.12 or of the definition of Majority Lenders, any amendment or waiver
or consent may be made only by an instrument in writing signed by each of the
Lenders and, in the case of an amendment, by the Borrower. Any amendment to any
provision hereunder governing the rights, obligations, or liabilities of the
Administrative Agent, the Syndication Agent or the Documentation Agent, in their
respective capacities as such, may be made only by an instrument in
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writing signed by such affected Person or Persons and by each of the Lenders.
Section 11.13 Entire Agreement. Except as otherwise expressly provided
herein, this Agreement and the other documents described or contemplated herein
embody the entire agreement and understanding among the parties hereto and
thereto and supersede all prior agreements and understandings (including,
without limitation, to the extent provided for therein, the Commitment Letter)
relating to the subject matter hereof and thereof.
Section 11.14 Other Relationships. No relationship created hereunder or
under any other Loan Document shall in any way affect the ability of the
Administrative Agent or the Documentation Agent and each Lender to enter into or
maintain business relationships with the Borrower or any of its Affiliates
beyond the relationships specifically contemplated by this Agreement and the
other Loan Documents.
Section 11.15 Directly or Indirectly. If any provision in this
Agreement refers to any action taken or to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such Person, whether or not
expressly specified in such provision.
Section 11.16 Reliance on and Survival of Various Provisions. All
covenants, agreements, statements, representations and warranties made herein or
in any certificate delivered pursuant hereto (i) shall be deemed to have been
relied upon by the Administrative Agent and the Documentation Agent and each of
the Lenders notwithstanding any investigation heretofore or hereafter made by
them, and (ii) shall survive the execution and delivery of the Notes and shall
continue in full force and effect so long as any Obligations remain outstanding
and unpaid. Any right to indemnification hereunder, including, without
limitation, rights pursuant to Sections 2.10, 2.12, 5.11, 10.3 and 11.2 hereof,
shall survive the termination of this Agreement and the payment and performance
of all other Obligations.
Section 11.17 Senior Debt. The Indebtedness of the Borrower evidenced
by the Notes is secured by the Security Documents, is intended by the parties
hereto to be in parity with obligations under the Interest Hedge Agreements in
effect from time to time between the Borrower and any Lender, and senior in
right of payment to all other Indebtedness of the Borrower other than purchase
money Indebtedness for Money Borrowed permitted hereunder.
Section 11.18 Obligations Several. The obligations of the
Administrative Agent and the Documentation Agent and each of the Lenders
hereunder are several, not joint.
Section 11.19 Confidentiality. Each Lender agrees to protect the
confidentiality of confidential information regarding the Borrower and its
Subsidiaries, to prevent
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unauthorized disclosures, to take steps necessary to hold all non-public,
proprietary or confidential information (which has been adequately identified as
such by the Parent or the Borrower) obtained pursuant to this Agreement in
accordance with its customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices; however,
the Lenders may communicate with each other, and may make disclosure of any such
information to their own employees, officers and directors, and to other outside
examiners, Affiliates, any other Lender, outside auditors, counsel, consultants,
appraisers and other professional advisors in connection with this Agreement or
as reasonably required by any proposed syndicate member or any proposed
transferee or participant in connection with the contemplated transfer of any
Note or participation therein so long as such Person agrees to be bound by this
Section 11.19 or as required or requested by any governmental authority or
representative thereof or in connection with the enforcement hereof or of any
Loan Document or related document or pursuant to legal process or with respect
to any litigation between or among the Borrower or any of its Subsidiaries and
any of the Lenders. In no event shall any Lender be obligated or required to
return any materials furnished to it by the Borrower. The foregoing provisions
shall not apply to a Lender with respect to information that (i) is or becomes
generally available to the public (other than through such Lender), (ii) is
already in the possession of such Lender on a nonconfidential basis, (iii) comes
into the possession of such Lender in a manner not known to such Lender to
involve a breach of a duty of confidentiality owing to the Borrower, or (iv)
must be disclosed as required by law, any court of competent jurisdiction, or
bank regulator.
ARTICLE 12
Waiver of Jury Trial
Section 12.1 Waiver of Jury Trial. THE BORROWER, FOR ITSELF AND ON
BEHALF OF ITS SUBSIDIARIES, THE DOCUMENTATION AGENT, AND THE ADMINISTRATIVE
AGENT AND EACH OF THE LENDERS, HEREBY AGREE TO WAIVE AND HEREBY WAIVES THE RIGHT
TO A TRIAL BY JURY IN ANY COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE IN
WHICH THE BORROWER, ANY OF THE BORROWER'S SUBSIDIARIES, ANY OF THE LENDERS, OR
THE ADMINISTRATIVE AGENT, OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS IS A
PARTY, AS TO ALL MATTERS AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT, ANY OF THE NOTES OR THE OTHER LOAN DOCUMENTS AND THE RELATIONS AMONG
THE PARTIES LISTED IN THIS SECTION 12.1.
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed and delivered under seal as of the date first appearing above.
BORROWER: TRIVERGENT COMMUNICATIONS, INC.
a South Carolina corporation
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
DOCUMENTATION AGENT: NEWCOURT COMMERCIAL FINANCE CORPORATION,
an affiliate of THE CIT GROUP, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
SYNDICATION AGENT: FIRST UNION NATIONAL BANK
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
CO-LEAD ARRANGERS: TD SECURITIES (USA), INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 84
CAPITAL SYNDICATION CORPORATION, an
affiliate of THE CIT GROUP, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
LENDERS: TORONTO DOMINION (TEXAS), INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
NEWCOURT COMMERCIAL FINANCE CORPORATION,
an affiliate of THE CIT GROUP, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
FIRST UNION NATIONAL BANK
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 85
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement is made and entered into as of
March 9, 2000, by and among Toronto Dominion (Texas), Inc., First Union National
Bank and Newcourt Commercial Finance Corporation, an affiliate of The CIT Group,
Inc. (each an "Assignor" and collectively, the "Assignors"), the parties listed
on the signature pages hereof as Assignees (each an "Assignee" and collectively,
the "Assignees"), TriVergent Communications, Inc., a South Carolina corporation
(the "Borrower"), Newcourt Commercial Finance Corporation, an affiliate of The
CIT Group, Inc., as documentation agent (the "Documentation Agent") and Toronto
Dominion (Texas), Inc., as administrative agent (the "Administrative Agent").
Recitals
--------
A. The Borrower, the Documentation Agent, the Administrative Agent and
the Assignors are parties to a certain Loan Agreement dated as of February 1,
2000 (as amended, restated, supplemented or otherwise modified from time to
time, the "Loan Agreement") among the Borrower, the financial institutions whose
names appear as Lenders on the signature pages thereof (the "Lenders"), TD
Securities (USA), Inc. and Capital Syndication Corporation, an affiliate of The
CIT Group, Inc., as co-lead arrangers and co-book runners, the Documentation
Agent, First Union National Bank, as syndication agent, and the Administrative
Agent. Pursuant to the Loan Agreement, the Lenders have agreed to extend credit
to the Borrower in an aggregate principal amount not to exceed at any time
outstanding the Commitments (as defined in the Loan Agreement)(the "Assignors'
Commitments"). No outstanding Loans have been made by the Assignors to the
Borrower. All capitalized terms not otherwise defined herein are used herein as
defined in the Loan Agreement.
B. Each Assignor wishes to sell and assign to the Assignees, and each
Assignee wishes to purchase and assume from the Assignors, as more particularly
set forth herein, a portion of such Assignors' Commitments (the "Assigned
Commitments").
C. After giving effect to this Agreement, the Lenders' portions of the
respective Commitments shall be deemed to be as set forth on Schedule 1 attached
hereto.
The parties agree as follows:
1. Assignment. Subject to the terms and conditions set forth herein,
each Assignor hereby sells and assigns to each Assignee, and the Assignee hereby
purchases and assumes from the Assignors, without recourse, on March 9, 2000
(the "Assignment Date") all obligations of such Assignor under the Loan
Agreement with respect to the Assigned Commitments. Each assignment hereunder
shall be made by each Assignor, on a pro rata basis, to each Assignee, based on
the ratio of the Assigned Commitments purchased by such Assignee to the total
amount of the Assigned Commitments of all Assignees. As full consideration for
the sale of the Assigned Commitments, each
-1-
<PAGE> 86
Assignee shall pay to the Assignor on the Assignment Date such amount as shall
have been agreed between such Assignee and such Assignor (the "Purchase Price").
2. Consent and Undertaking. The Administrative Agent, the Documentation
Agent, and the Borrower hereby consent to the assignment made herein, and the
Borrower undertakes within five (5) Business Days from the Assignment Date, upon
request, to provide new Notes to the Administrative Agent or its designee, for
the benefit of the Assignees and the Assignors, as appropriate, to reflect the
portion of the Revolving Loan Commitment and the Term Loan Commitment, as
applicable, held by each of the Assignees and the Assignors after giving effect
to the assignment contemplated by this Agreement. If applicable, each Assignor
agrees on the Business Day following receipt by the Administrative Agent of the
new Notes, to return its superseded Note to the Administrative Agent or its
designee, which shall thereupon transmit the new Notes to the Assignors and the
Assignees, as appropriate, and the superseded Notes to the Borrower for
cancellation.
3. Representations and Warranties. Each of the Assignors, severally but
not jointly, represents and warrants to each of the Assignees that (i) such
Assignor is the legal and beneficial owner of the interests being assigned
hereby and (ii) such interests are free and clear of any third party claims or
adverse Liens created by, through or under such Assignor. Each Assignor
represents and warrants to each Assignee and each Assignee represents and
warrants to each Assignor, severally and not jointly, and solely as to itself or
the rights and obligations affected hereunder that (a) it has full power and
legal right to execute and deliver this Agreement and to perform the provisions
of this Agreement; (b) the execution, delivery and performance of this Agreement
have been authorized by all necessary action, corporate or otherwise, on its
part and do not violate any provisions of its charter or by-laws or any
contractual obligations or requirement of law binding on it; and (c) this
Agreement constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject, as to enforcement of remedies,
to the following qualifications: (i) an order of specific performance and an
injunction are discretionary remedies and, in particular, may not be available
where damages are considered an adequate remedy at law, (ii) enforcement may be
limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction
and other similar laws affecting enforcement of creditors' rights generally
(insofar as any such law relates to the bankruptcy, insolvency or similar event
of such Assignor and such Assignee) and (iii) enforcement may be subject to
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law) and may be limited by public
policies which may affect the enforcement of certain rights or remedies provided
for in this Agreement.
4. Condition Precedent. The obligations of each Assignor and each
Assignee hereunder shall be subject to the fulfillment of the condition that
each Assignor shall have (i) received payment in full of the Purchase Price in
accordance with Section 7 hereof; (ii) complied with other applicable provisions
of Section 11.5(b) of the Loan Agreement; and (iii) paid all fees owing to the
Assignees.
-2-
<PAGE> 87
5. Notice of Assignment. Each Assignor hereby gives notice to the other
parties hereto of the assignment and assumption of the Assigned Commitments and
hereby instructs the Borrower to make payments with respect to the Assigned
Commitments directly to the Administrative Agent for the benefit of such
Assignee as provided in the Loan Agreement; provided, however, that the Borrower
and the Administrative Agent shall be entitled to continue to deal solely and
directly with the Assignor in connection with the interests so assigned until
(i) the Administrative Agent shall have received counterparts of this Agreement
duly executed by such Assignor, such Assignee and the Borrower, and (ii) each
Assignor shall have delivered to the Administrative Agent any Notes that shall
be subject to such assignment. From and after the date (the "Effective Date") on
which the Administrative Agent shall notify the Borrower, such Assignee and such
Assignor that (i) and (ii) shall have occurred and all consents, if any,
required shall have been given, such Assignee shall be deemed to be a party to
the Loan Agreement and, to the extent that rights and obligations thereunder
shall have been assigned to such Assignee as provided herein, shall have the
rights and obligations of a Lender under the Loan Agreement, and the Assignor
shall be released from the liabilities of a Lender under the Loan Agreement, to
the extent that the rights and obligations thereunder shall have been assigned
to such Assignee as provided herein, and the Administrative Agent shall make a
record thereof in the Register. After the Effective Date, and with respect to
all such amounts accrued from the Assignment Date, (a) all interest, principal,
fees, and other amounts that would otherwise be payable to such Assignor in
respect of the Assigned Commitments shall be paid to such Assignee, (b) if such
Assignor receives any payment on account of the Assigned Commitments, such
Assignor shall promptly deliver such payment to such Assignee, and (c) any
notices to such Assignee as a Lender under the Loan Agreement shall be sent to
it at the address shown in Schedule 2 hereto. Each Assignee agrees to deliver to
the Borrower and the Administrative Agent such Internal Revenue Service forms as
may be required to establish that such Assignee is entitled to receive payments
under the Loan Agreement without deduction or withholding of tax.
6. Independent Investigation. Each Assignee acknowledges that it is
purchasing the Assigned Commitments from the Assignors without recourse and,
except as expressly provided in Section 3 hereof, without representation or
warranty. Each Assignee further acknowledges that it has made its own
independent investigation and credit evaluation of the Borrower in connection
with its purchase of the Assigned Commitments, and has received copies of all
Loan Documents that it has requested. Except for the representations or
warranties expressly set forth in Section 3 hereof, each Assignee acknowledges
that it is not relying on any representation or warranty of such Assignor,
expressed or implied, including, without limitation, any representation or
warranty relating to the legality, validity, genuineness, enforceability,
collectibility, interest rate, repayment schedule or accrual status of the
Assigned Commitments, the legality, validity, genuineness, or enforceability of
the Loan Agreement or any other Loan Document (including those which purport to
provide Collateral for the Loans) referred to in or delivered pursuant to the
Loan Agreement, or the financial condition or creditworthiness of the Borrower.
None of the Assignors has acted and will be acting as
-3-
<PAGE> 88
either the representative, agent or trustee of the Assignee with respect to
matters arising out of or relating to the Loan Agreement or this Agreement. From
and after the Effective Date, none of the Assignors shall have rights or
obligations with respect to the Assigned Commitments.
7. Method of Payment. All payments to be made by either party hereunder
shall be in funds immediately available at the place of payment on the same day
and shall be made by wire transfer to the account designated by the party to
receive payment.
8. Integration. This Agreement shall supersede any prior agreement or
understanding between the parties (other than the Loan Agreement and the other
Loan Documents) as to the subject matter hereof.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and shall be
binding upon the parties, their successors and assigns. Delivery of a
counterpart by facsimile shall be deemed delivery of an original hereto.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed wholly within the State of New York.
[Remainder of Page Intentionally Left Blank]
-4-
<PAGE> 89
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
ASSIGNORS: TORONTO DOMINION (TEXAS), INC.
By: _____________________________
Name: ___________________________
Title: __________________________
FIRST UNION NATIONAL BANK
By: _____________________________
Name: ___________________________
Title: __________________________
NEWCOURT COMMERCIAL FINANCE
CORPORATION, AN AFFILIATE OF THE CIT
GROUP, INC.
By: _____________________________
Name: ___________________________
Title: __________________________
ASSIGNEES: CIBC INC.
By: _____________________________
Name: ___________________________
Title: __________________________
WACHOVIA BANK, N.A.
By: _____________________________
Name: ___________________________
Title: __________________________
<PAGE> 90
Agreed, Accepted and Consented to:
TRIVERGENT COMMUNICATIONS, INC.,
a South Carolina corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
TORONTO DOMINION (TEXAS), INC.,
as Administrative Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
NEWCOURT COMMERCIAL FINANCE
CORPORATION, an affiliate of The
CIT Group, Inc., as Documentation Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE> 91
SCHEDULE 1
to
ASSIGNMENT AND ASSUMPTION AGREEMENT
REVISED COMMITMENTS
AND REVISED COMMITMENT RATIO
<TABLE>
<CAPTION>
Revolving Loan Revolving Loan Term Loan Term Loan
Lenders Commitment Committed Amount Commitment Commitment Amount
<S> <C> <C> <C> <C>
First Union Bank 25.00000000% $10,000,000.00 25.00000000% $20,000,000.00
Newcourt Commercial Finance 25.00000000% $10,000,000.00 25.00000000% $20,000,000.00
Corporation, an affiliate of
The CIT Group, Inc.
Toronto Dominion (Texas), Inc. 25.00000000% $10,000,000.00 25.00000000% $20,000,000.00
CIBC Inc. 16.66666666% $6,666,666.66 16.66666666% $13,333,333.34
Wachovia Bank, N.A. 8.33333334% $3,333,333.34 8.33333333% $6,666,666.66
</TABLE>
<PAGE> 92
SCHEDULE 2
to
ASSIGNMENT AND ASSUMPTION AGREEMENT
LENDERS' ADDRESSES
- --------------------------------------------------------------------------------
LENDER LENDERS' ADDRESS
- --------------------------------------------------------------------------------
Toronto Dominion (Texas), Inc. 909 Fannin, Suite 1700
Houston, TX 77010
- --------------------------------------------------------------------------------
Newcourt Commercial Finance 2 Gatehall Drive
Corporation, an affiliate of Parsippany, New Jersey 07054
The CIT Group, Inc
Attn: VP Credit
- --------------------------------------------------------------------------------
First Union National Bank One First Union Center
Charlotte, NC 28288-0735
Attn: Mark Harden
- --------------------------------------------------------------------------------
CIBC Inc. 425 Lexington Avenue
New York, NY 10017
- --------------------------------------------------------------------------------
Wachovia Bank, N.A. 191 Peachtree Street, NE, 29th Floor
Atlanta, Georgia 30303
Attn: Communications Industry Group
- --------------------------------------------------------------------------------
<PAGE> 93
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement is made and entered into as of
March 30, 2000, by and among Toronto Dominion (Texas), Inc., First Union
National Bank and Newcourt Commercial Finance Corporation, an affiliate of The
CIT Group, Inc. (each an "Assignor" and collectively, the "Assignors"), RFC
Capital Corporation (the "Assignee"), TriVergent Communications, Inc., a South
Carolina corporation (the "Borrower"), Newcourt Commercial Finance Corporation,
an affiliate of The CIT Group, Inc., as documentation agent (the "Documentation
Agent") and Toronto Dominion (Texas), Inc., as administrative agent (the
"Administrative Agent").
Recitals
--------
A. The Borrower, the Documentation Agent, the Administrative Agent and
the Assignors are parties to a certain Loan Agreement dated as of February 1,
2000 (as amended, restated, supplemented or otherwise modified from time to
time, the "Loan Agreement") among the Borrower, the financial institutions whose
names appear as Lenders on the signature pages thereof (the "Lenders"), TD
Securities (USA), Inc. and Capital Syndication Corporation, an affiliate of The
CIT Group, Inc., as co-lead arrangers and co-book runners, the Documentation
Agent, First Union National Bank, as syndication agent, and the Administrative
Agent. Pursuant to the Loan Agreement, the Lenders have agreed to extend credit
to the Borrower in an aggregate principal amount not to exceed at any time
outstanding the Commitments (as defined in the Loan Agreement) (the "Assignors'
Commitments"). No outstanding Loans have been made by the Assignors to the
Borrower. All capitalized terms not otherwise defined herein are used herein as
defined in the Loan Agreement.
B. Each Assignor wishes to sell and assign to the Assignee, and the
Assignee wishes to purchase and assume from the Assignors, as more particularly
set forth herein, a portion of such Assignor's Commitments (the "Assigned
Commitments").
C. After giving effect to this Agreement, the Assignors' portions of
the respective Commitments shall be deemed to be as set forth on Schedule 1
attached hereto.
The parties agree as follows:
1. Assignment. Subject to the terms and conditions set forth herein,
each Assignor hereby sells and assigns to the Assignee, and the Assignee hereby
purchases
-1-
<PAGE> 94
and assumes from the Assignors, without recourse to the Assignors, on the date
set forth above (the "Assignment Date") all rights and obligations of such
Assignor under the Loan Agreement with respect to the Assigned Commitments. The
assignment hereunder shall be made by each Assignor, on a pro rata basis, to the
Assignee, based on the ratio of the Assigned Commitments purchased by the
Assignee to the total amount of the Assigned Commitments of all Assignees. As
full consideration for the sale of the Assigned Commitments, the Assignee shall
pay to the Assignor on the Assignment Date such amount as shall have been agreed
between the Assignee and such Assignor (the "Purchase Price").
2. Consent and Undertaking. The Administrative Agent, the Documentation
Agent, and the Borrower hereby consent to the assignment made herein, and the
Borrower undertakes within five (5) Business Days from the Assignment Date, if
requested to do so by the Assignors or Assignee, to provide new Notes to the
Administrative Agent or its designee, for the benefit of the Assignees and the
Assignors, as appropriate, to reflect the portion of the Revolving Loan
Commitment and the Term Loan Commitment, as applicable, held by each of the
Assignee and the Assignors after giving effect to the assignment contemplated by
this Agreement. If applicable, each Assignor agrees on the Business Day
following receipt by the Administrative Agent of the new Notes, to return its
superseded Note to the Administrative Agent or its designee, which shall
thereupon transmit the new Notes to the Assignors and the Assignee, as
appropriate, and the superseded Notes to the Borrower for cancellation.
3. Representations and Warranties. Each of the Assignors, severally but
not jointly, represents and warrants to the Assignee that (i) assuming the
continued truth and accuracy of the Borrower's representations and warranties
contained in the Loan Agreement, such Assignor owns the interests being assigned
hereby and (ii) such interests are free and clear of any Liens. Each Assignor
represents and warrants to the Assignee and the Assignee represents and warrants
to each Assignor that (a) it has full power and legal right to execute and
deliver this Agreement and to perform the provisions of this Agreement; (b) the
execution, delivery and performance of this Agreement have been authorized by
all necessary action, corporate or otherwise, on its part and do not violate any
provisions of its charter or by-laws or any contractual obligations or
requirement of law binding on it; and (c) this Agreement constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms, subject, as to enforcement of remedies, to the following qualifications:
(i) an order of specific performance and an injunction are discretionary
remedies and, in particular, may not be available where damages are considered
an adequate remedy at law, (ii) enforcement may be limited by bankruptcy,
insolvency, liquidation, reorganization, reconstruction and other similar laws
affecting enforcement of creditors' rights generally (insofar as any such law
relates to the bankruptcy, insolvency or similar event of such Assignor and the
Assignee) and (iii) enforcement may be subject to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law) and may be limited by public policies which may affect the
enforcement of certain rights or remedies provided for in this Agreement.
-2-
<PAGE> 95
4. Condition Precedent. The obligations of each Assignor and the
Assignee hereunder shall be subject to the fulfillment of the condition that
each Assignor shall have (i) received payment in full of the Purchase Price in
accordance with Section 7 hereof; and (ii) complied with other applicable
provisions of Section 11.5(b) of the Loan Agreement.
5. Notice of Assignment. Each Assignor hereby gives notice to the other
parties hereto of the assignment and assumption of the Assigned Commitments and
hereby instructs the Borrower to make payments with respect to the Assigned
Commitments directly to the Administrative Agent for the benefit of the Assignee
as provided in the Loan Agreement; provided, however, that the Borrower and the
Administrative Agent shall be entitled to continue to deal solely and directly
with the Assignor in connection with the interests so assigned until (i) the
Administrative Agent shall have received counterparts of this Agreement duly
executed by such Assignor, the Assignee and the Borrower, and (ii) each Assignor
shall have delivered to the Administrative Agent any Notes that shall be subject
to such assignment. From and after the date (the "Effective Date") on which the
Administrative Agent shall notify the Borrower, the Assignee and such Assignor
that (i) and (ii) shall have occurred and all consents, if any, required shall
have been given, the Assignee shall be deemed to be a party to the Loan
Agreement and, to the extent that rights and obligations thereunder shall have
been assigned to the Assignee as provided herein, shall have the rights and
obligations of a Lender under the Loan Agreement, and the Assignor shall be
released from the liabilities of a Lender under the Loan Agreement, to the
extent that the rights and obligations thereunder shall have been assigned to
the Assignee as provided herein, and the Administrative Agent shall make a
record thereof in the Register. After the Effective Date, and with respect to
all such amounts accrued from the Assignment Date, (a) all interest, principal,
fees, and other amounts that would otherwise be payable to such Assignor in
respect of the Assigned Commitments shall be paid to the Assignee, (b) if such
Assignor receives any payment on account of the Assigned Commitments, such
Assignor shall promptly deliver such payment to the Assignee, and (c) any
notices to the Assignee as a Lender under the Loan Agreement shall be sent to it
at the address shown in Schedule 2 hereto. The Assignee agrees to deliver to the
Borrower and the Administrative Agent such Internal Revenue Service forms as may
be required to establish that the Assignee is entitled to receive payments under
the Loan Agreement without deduction or withholding of tax.
6. Independent Investigation. The Assignee acknowledges that it is
purchasing the Assigned Commitments from the Assignors without recourse and,
except as expressly provided in Section 3 hereof, without representation or
warranty. The Assignee further acknowledges that it has made its own independent
investigation and credit evaluation of the Borrower in connection with its
purchase of the Assigned Commitments, and has received copies of all Loan
Documents. Except for the representations or warranties expressly set forth in
Section 3 hereof, the Assignee acknowledges that it is not relying on any
representation or warranty of such Assignor, expressed or implied, including,
without limitation, any representation or warranty relating to the legality,
validity, genuineness, enforceability, collectibility, interest rate, repayment
schedule or accrual
-3-
<PAGE> 96
status of the Assigned Commitments, the legality, validity, genuineness, or
enforceability of the Loan Agreement or any other Loan Document (including those
which purport to provide Collateral for the Loans) referred to in or delivered
pursuant to the Loan Agreement, or the financial condition or creditworthiness
of the Borrower. None of the Assignors has acted and will be acting as either
the representative, agent or trustee of the Assignee with respect to matters
arising out of or relating to the Loan Agreement or this Agreement. From and
after the Effective Date, none of the Assignors shall have rights or obligations
with respect to the Assigned Commitments.
7. Method of Payment. All payments to be made by either party hereunder
shall be in funds immediately available at the place of payment on the same day
and shall be made by wire transfer to the account designated by the party to
receive payment.
8. Integration. This Agreement shall supersede any prior agreement or
understanding between the parties (other than the Loan Agreement and the other
Loan Documents) as to the subject matter hereof.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and shall be
binding upon the parties, their successors and assigns. Delivery of a
counterpart by facsimile shall be deemed delivery of an original hereto.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed wholly within the State of New York.
[Remainder of Page Intentionally Left Blank]
-4-
<PAGE> 97
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
ASSIGNORS: TORONTO DOMINION (TEXAS), INC.
By: _____________________________
Name:____________________________
Title: __________________________
FIRST UNION NATIONAL BANK
By: _____________________________
Name:____________________________
Title: __________________________
NEWCOURT COMMERCIAL FINANCE
CORPORATION, AN AFFILIATE OF THE CIT
GROUP, INC.
By: _____________________________
Name:____________________________
Title: __________________________
ASSIGNEE: RFC CAPITAL CORPORATION
By: _____________________________
Name:____________________________
Title: __________________________
<PAGE> 98
Agreed, Accepted and Consented to:
TRIVERGENT COMMUNICATIONS, INC.,
a South Carolina corporation
By: ______________________________
Name:_____________________________
Title: ___________________________
TORONTO DOMINION (TEXAS), INC.,
as Administrative Agent
By: ______________________________
Name:_____________________________
Title: ___________________________
NEWCOURT COMMERCIAL FINANCE
CORPORATION, an affiliate of The
CIT Group, Inc., as Documentation Agent
By: ______________________________
Name:_____________________________
Title: ___________________________
<PAGE> 99
SCHEDULE 1
to
ASSIGNMENT AND ASSUMPTION AGREEMENT
REVISED COMMITMENTS
AND REVISED COMMITMENT RATIO
<TABLE>
<CAPTION>
Revolving Loan Revolving Loan Term Loan Term Loan
Lenders Commitment Committed Amount Commitment Commitment Amount
<S> <C> <C> <C> <C>
First Union Bank 20.83333333% $8,333,333.33 20.83333333% $16,666,666.67
Newcourt Commercial Finance 20.83333333% $8,333,333.33 20.83333333% $16,666,666.67
Corporation, an affiliate of
The CIT Group, Inc.
Toronto Dominion (Texas), Inc. 20.83333333% $8,333,333.34 20.83333333% $16,666,666.66
RFC Capital 12.50000000% $5,000,000.00 12.50000000% $10,000,000.00
CIBC Inc. 16.66666666% $6,666,666.66 16.66666666% $13,333,333.34
Wachovia Bank, N.A. 8.33333334% $3,333,333.34 8.33333333% $6,666,666.66
TOTAL 100% $40,000,000.00 100% $80,000,000.00
</TABLE>
<PAGE> 100
SCHEDULE 2
to
ASSIGNMENT AND ASSUMPTION AGREEMENT
LENDERS' ADDRESSES
- --------------------------------------------------------------------------------
LENDER LENDERS' ADDRESS
- --------------------------------------------------------------------------------
Toronto Dominion (Texas), Inc. 909 Fannin, Suite 1700
Houston, TX 77010
- --------------------------------------------------------------------------------
Newcourt Commercial Finance 2 Gatehall Drive
Corporation, an affiliate Parsippany, New Jersey 07054
of The CIT Group, Inc
Attn: VP Credit
- --------------------------------------------------------------------------------
First Union National Bank One First Union Center
Charlotte, NC 28288-0735
Attn: Mark Harden
- --------------------------------------------------------------------------------
RFC Capital 130 E. Chestnut Street
Columbus, Ohio 43215
Attn: Mark Quinlan
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.2.2
PARENT GUARANTY
STATE COMMUNICATIONS, INC.
As of February 1, 2000
WHEREAS, pursuant to a certain Loan Agreement of even date herewith (as
amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement") among TriVergent Communications, Inc., a South Carolina
corporation (the "Borrower"), the Lenders (as defined therein), TD Securities
(USA) Inc. and Capital Syndication Corporation, an affiliate of The CIT Group,
Inc., as Co-Lead Arrangers and Co-Book Runners, Newcourt Commercial Finance
Corporation, an affiliate of The CIT Group, Inc., as Documentation Agent, First
Union National Bank, as Syndication Agent and Toronto Dominion (Texas), Inc., as
Administrative Agent (the "Administrative Agent"), the Lenders have agreed to
make loans to Borrower in an aggregate committed principal amount of up to
$120,000,000 (the "Loans"); and
WHEREAS, the Borrower is a wholly-owned direct Subsidiary of State
Communications, Inc., a South Carolina corporation (the "Guarantor"); and
WHEREAS, the Guarantor has determined that its execution, delivery and
performance of this Guaranty directly and substantially benefit, and are within
the corporate purposes and in the best interests of, the Guarantor; and
WHEREAS, as a condition to the Lenders' making the Loans, the Guarantor
has agreed to execute this Guaranty (as amended, restated, supplemented or
otherwise modified from time to time, this "Guaranty") guaranteeing the payment
and performance by Borrower of all obligations under the Loan Agreement and the
other Loan Documents (the Loan Agreement and the other Loan Documents, as they
may be amended, restated, supplemented or otherwise modified from time to time
being hereinafter referred to as the "Guaranteed Agreements"), and to enter into
certain other covenants and agreements contained in this Guaranty; and
WHEREAS, the obligations of the Guarantor hereunder are secured by a
security interest granted to the Administrative Agent by the Guarantor pursuant
to that certain Parent Pledge Agreement of even date herewith (the "Parent
Pledge Agreement") between the Administrative Agent and the Guarantor, pursuant
to which, among other things, the Guarantor has pledged to the Administrative
Agent all of the capital stock owned by it in the Borrower;
<PAGE> 2
NOW, THEREFORE, in consideration of the above premises, Ten Dollars
($10.00) in hand paid and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Guarantor hereby irrevocably
and unconditionally guarantees to the Administrative Agent the full and prompt
payment, observance and performance of the Obligations pursuant to the
Guaranteed Agreements, including, without limitation, any principal, interest
thereon (including, without limitation, any interest in respect of the Loan
Agreement that would accrue but for the filing of a bankruptcy action with
respect to Borrower, whether or not such claim is allowed in such bankruptcy
action), fees, premiums or other sum, plus attorneys' fees and expenses if the
obligations represented by this Guaranty are collected by law, through an
attorney-at-law, or under advice therefrom, or in connection with any "workout"
or restructuring, or bankruptcy, insolvency or other similar proceeding (all of
the foregoing obligations being hereinafter, collectively, referred to as the
"Guaranteed Obligations"). Capitalized terms used herein and not otherwise
defined are used as defined in the Loan Agreement. In addition, the Co-Lead
Arrangers, Co-Book Runners, Documentation Agent, Syndication Agent and
Administrative Agent are hereinafter collectively referred to as the "Agents".
The Guarantor hereby further agrees that:
GUARANTY PROVISIONS
1. This Guaranty shall be an absolute, continuing and independent
guaranty and shall be operative and binding until the Guaranteed Obligations
shall have been indefeasibly paid (in cash), observed and performed in full and
the Lenders shall be under no further obligation to make any additional Loans
under the Loan Agreement. The Guarantor shall not have, and shall not exercise
or assert, any claims, rights or remedies against Borrower that arise or may
arise hereunder or from the performance by the Guarantor hereunder or both,
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification or participation in
any claim, right or remedy of the Guarantor against Borrower, until the
Guaranteed Obligations have been paid (in cash), observed and performed in full
and the Lenders shall have no further obligation to make any additional Loans
under the Loan Agreement. In the event that any of the Guaranteed Obligations
shall not be paid, observed or performed according to their respective terms,
Guarantor shall immediately pay, perform or observe the same, this Guaranty
being a guaranty of full payment, observance and performance and not of
collectibility and in no way conditional or contingent. This Guaranty is a
primary obligation of the Guarantor and not a contract of surety. Without
limiting the generality of the foregoing, this Guaranty is in no way conditioned
upon any requirement that the Administrative Agent or any of the Lenders first
attempt to obtain or collect payment, or seek observance or performance, of any
of the Guaranteed Obligations from the Borrower or any other Person or party, or
resort to any other collateral or security or other means of obtaining or
collecting payment or seeking observance or performance of any of the Guaranteed
Obligations, or upon any other
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contingency whatsoever. This Guaranty shall not in any manner be diminished,
impaired, limited, restricted, waived, released, discharged or otherwise
affected for any reason whatsoever. The Administrative Agent shall be at
liberty, without giving notice to, or obtaining the consent of, Guarantor and
without relieving Guarantor of any liability hereunder, to deal with the
Borrower or any other Person or entity in such manner, as such Administrative
Agent, in its sole and absolute discretion, deems fit and proper.
2. Upon the execution of this Guaranty and its delivery into the hands
of the Administrative Agent, this Guaranty shall be deemed to be finally
executed and delivered by the Guarantor and shall not be subject to or affected
by any promise or condition affecting or limiting the Guarantor's liability, and
no statement, representation, agreement or promise on the part of the
Administrative Agent, the Lenders and Borrower, or any of them, or any officer,
employee or agent thereof, unless contained herein forms any part of this
Guaranty or has induced the making hereof or shall be deemed in any way to
affect the Guarantor's liability hereunder. The Guarantor absolutely,
unconditionally and irrevocably waives any and all right to assert any defense,
set-off, counterclaim or cross-claim of any nature whatsoever with respect to
this Guaranty or the obligations of the Guarantor under this Guaranty or the
obligations of any other Person or party (including, without limitation,
Borrower) relating to this Guaranty or the obligations of any other guarantor
with respect to the Guaranteed Obligations in any action or proceeding brought
by the Administrative Agent to collect the Guaranteed Obligations or any portion
thereof, or to enforce the obligations of the Guarantor under this Guaranty.
3. The Administrative Agent may from time to time, without exonerating
or releasing the Guarantor in any way under this Guaranty, (a) release,
discharge, abandon or otherwise deal with or fail to deal with any guarantor or
surety of the Guaranteed Obligations or any security or securities therefor or
any part thereof now or hereafter held by the Administrative Agent, or (b)
amend, modify, extend, accelerate or waive in any manner any of the provisions,
terms, or conditions of the Guaranteed Agreements, all as it may consider
expedient or appropriate in its sole discretion, or (c) act or fail to act in
any manner referred to in this Guaranty without regard to whether such action or
inaction may deprive the Guarantor of any right, including, without limitation,
any right it may have to subrogation against Borrower for any payments made
pursuant to this Guaranty. Without limiting the generality of the foregoing, or
of Section 4 hereof, it is understood that the Administrative Agent may, without
exonerating or releasing the Guarantor, give up, or modify or abstain from
perfecting or taking advantage of any security for the Guaranteed Obligations
and accept or make any compositions or arrangements, and realize upon any
security for the Guaranteed Obligations when, and in such manner, as such Person
may deem expedient, all without notice to the Guarantor.
4. The Guarantor acknowledges and agrees that no change in the nature
or terms of the Guaranteed Obligations or any of the Guaranteed Agreements, or
other agreements, instruments or contracts evidencing, related to or attendant
with the
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Guaranteed Obligations (including any novation), shall discharge all or any part
of the liabilities and obligations of the Guarantor pursuant to this Guaranty;
it being the purpose and intent of the Guarantor and the Administrative Agent
that the covenants, agreements and all liabilities and obligations of the
Guarantor hereunder are absolute, unconditional and irrevocable under any and
all circumstances. Without limiting the generality of the foregoing, the
Guarantor agrees that until each and every one of the covenants and agreements
of this Guaranty is fully paid (in cash), observed and performed in full, the
Guarantor's undertakings hereunder shall not be released, in whole or in part,
by any action or thing which might, but for this paragraph of this Guaranty, be
deemed a legal or equitable discharge of a surety or guarantor, or by reason of
any waiver, omission of the Administrative Agent, or its failure to proceed
promptly or otherwise, or by reason of any action taken or omitted by the
Administrative Agent whether or not such action or failure to act varies or
increases the risk of, or affects the rights or remedies of, the Guarantor or by
reason of any further dealings between the Borrower and the Administrative
Agent, or any other guarantor or surety, and the Guarantor hereby expressly
waives and surrenders any defense to its liability hereunder, or any right of
counterclaim or offset of any nature or description which it may have or which
may exist based upon, and shall be deemed to have consented to, any of the
foregoing acts, omissions, things, agreements or waivers.
5. The Administrative Agent, any of the other Agents or any Lender may,
without demand or notice of any kind upon or to the Guarantor, at any time or
from time to time when any amount shall be due and payable hereunder by the
Guarantor, upon the occurrence of an Event of Default, set off and appropriate
any property, balances, credit accounts or moneys of the Guarantor in the
possession of such Person or Persons or under its or their control for any
purpose, which property, balances, credit accounts or moneys shall thereupon be
turned over and remitted to the Administrative Agent, to be held and applied to
the Guaranteed Obligations by the Administrative Agent.
6. The creation or existence from time to time of Guaranteed
Obligations in excess of the amount committed to or outstanding on the date of
this Guaranty, to the extent currently contemplated by the Loan Agreement and as
it may be amended from time to time, is hereby authorized, without notice to, or
consent or approval of, the Guarantor, and shall in no way impair or affect this
Guaranty or the rights of the Administrative Agent, the other Agents or the
Lenders herein.
7. Upon the bankruptcy or winding up or other distribution of assets of
the Borrower or any of its Subsidiaries or of any surety or guarantor for any of
the Guaranteed Obligations, the rights of the Administrative Agent against the
Guarantor shall not be affected or impaired by the omission of the
Administrative Agent or any Lender to prove its claim, or to prove its full
claim, and the Administrative Agent may prove such claims as it sees fit and may
refrain from proving any claim and in its discretion may value as it sees fit or
refrain from valuing any security held by it without
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in any way releasing, reducing or otherwise affecting the liability to the
Administrative Agent and the Lenders of the Guarantor.
8. Any amount received by the Administrative Agent from whatsoever
source and applied toward the payment of the Guaranteed Obligations shall be
applied in such order of application as is set forth in the Loan Agreement.
9. The Guarantor hereby absolutely, unconditionally and irrevocably
expressly waives, (i) notice of acceptance of this Guaranty, (ii) notice of the
existence or creation of all or any of the Guaranteed Obligations, (iii) notice
of any increase in the amount of the Guaranteed Obligations or any extension of
the repayment terms of the Guaranteed Obligations, (iv) presentment, demand,
notice of dishonor, protest and all other notices whatsoever, (v) all diligence
in collection or protection of or realization upon the Guaranteed Obligations or
any part thereof, any obligation hereunder, or any security for any of the
foregoing, (vi) all rights to enforce any remedy the Administrative Agent may
have against the Borrower, and (vii) any benefit of, or right to participate in,
any collateral or security now or hereinafter held by the Administrative Agent
in respect of the Guaranteed Obligations, prior to payment (in cash), observance
and performance in full of the Guaranteed Obligations, except to the extent such
waiver would be expressly prohibited by Applicable Law. In addition, Guarantor
hereby irrevocably waives, disclaims and relinquishes any and all obligations or
requirements whatsoever that the Administrative Agent, any of the other Agents
or any of the Lenders marshall any assets or properties in favor of Guarantor,
or against or in payment of any of the Guaranteed Obligations, and any and all
rights which Guarantor has or at any time hereafter can, shall or may have to
any such marshalling. If a claim is ever made upon the Administrative Agent, any
of the other Agents or any Lender for the repayment or recovery of any amounts
received by such Person in payment of any of the Guaranteed Obligations and such
Person repays all or part of such amount by reason of (a) any judgment, decree
or order of any court or administrative body having jurisdiction over such
Person or any of its property, or (b) any settlement or compromise of any such
claim effected by such Person with any such claimant, including the Borrower,
then in such event the Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon the Guarantor, notwithstanding
any revocation hereof or the cancellation of any promissory note or other
instrument evidencing any of the Guaranteed Obligations, and the Guarantor shall
be and remain obligated to such Person hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by such Person.
10. The Administrative Agent, the other Agents and the Lenders, or any
of them, may, to the extent permitted by the Loan Agreement, without notice of
any kind, sell, assign or transfer all or any of the Guaranteed Obligations, and
in such event each and every immediate and successive assignee, transferee, or
holder of all or any of the Guaranteed Obligations, shall have the right to
enforce this Guaranty, by suit or otherwise, for the benefit of such assignee,
transferee or holder as fully as if such
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assignee, transferee or holder were herein by name specifically given such
rights, powers and benefits.
11. This Guaranty is a continuing guaranty of the Guaranteed
Obligations and all liabilities to which this Guaranty applies or may apply
under the terms hereof and shall be conclusively presumed to have been created
in reliance hereon. No failure or delay by the Administrative Agent in the
exercise of any right, power, privilege or remedy shall operate as a waiver
thereof, and no single or partial exercise by the Administrative Agent, any of
the other Agents or any Lender of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy and no
course of dealing between the Guarantor, the Administrative Agent, any of the
other Agents or any Lender shall operate as a waiver thereof. No action by the
Administrative Agent permitted hereunder shall in any way impair or affect this
Guaranty. For the purpose of this Guaranty, the Guaranteed Obligations shall
include, without limitation, all Obligations of the Borrower to the
Administrative Agent, the other Agents and the Lenders, notwithstanding any
right or power of any third party, individually or in the name of the Borrower,
the Administrative Agent, the other Agents and the Lenders, or any of them, to
assert any claim or defense as to the invalidity or unenforceability of any such
Obligation, and no such claim or defense shall impair or affect the obligations
of the Guarantor hereunder.
12. This Guaranty shall be binding upon the Guarantor, its successors
and assigns and inure to the benefit of the successors and assigns of the
Administrative Agent, the other Agents and the Lenders. The Guarantor may not
assign its rights or obligations under this Guaranty.
13. In the event the Administrative Agent makes a demand upon the
Guarantor in accordance with the terms of this Guaranty, the Guarantor shall be
held and bound to the Administrative Agent directly as debtor in respect of the
payment of the amounts hereby guaranteed. All reasonable costs and expenses,
including attorneys' fees and expenses, incurred by the Administrative Agent in
obtaining performance of or collecting payments due under this Guaranty to the
extent permitted by the Loan Agreement, shall be deemed part of the Guaranteed
Obligations guaranteed hereby. Any notice or demand which the Administrative
Agent may wish to give shall be served upon the Guarantor in the fashion
prescribed for notices in Section 11.1 of the Loan Agreement at the address for
the Guarantor set forth below the Guarantor's signature and the notice so sent
shall be deemed to be served as set forth hereto in Section 11.1 of the Loan
Agreement.
14. The Guarantor expressly represents and acknowledges that any
financial accommodations by the Administrative Agent, any of the other Agents
and the Lenders to Borrower, including, without limitation, the extension of the
Loans, are and will be of direct interest, substantial benefit and advantage to
the Guarantor.
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REPRESENTATIONS AND WARRANTIES
15. The Guarantor hereby represents and warrants that:
(a) it and each of its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and each has the power and authority and the legal right to own,
lease and operate its property and to conduct the business in which it is
currently engaged;
(b) it and each of its Subsidiaries has the power and
authority and the legal right to execute and deliver, and to perform its
obligations under, this Guaranty and the other Loan Documents to which it is or
may be a party, and each has taken all necessary action to authorize the
execution, delivery and performance of this Guaranty and the other Loan
Documents to which it is a party;
(c) this Guaranty and each of the other Loan Documents to
which the Guarantor or any of its Subsidiaries is a party constitute the
Guarantor's or such Subsidiary's legal, valid and binding obligation,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally or by general principles of
equity (regardless of whether such enforceability is considered a proceeding in
equity or at law);
(d) the execution, delivery and performance of this Guaranty
and the other Loan Documents by the Guarantor or any of its Subsidiaries party
thereto will not violate any provision of any governmental requirement or
contractual obligation of the Guarantor or such Subsidiary and will not result
in or require the creation or imposition of any Lien on any of the properties or
revenues of the Guarantor or such Subsidiary pursuant to any governmental
requirement or contractual obligation of the Guarantor or such Subsidiary;
(e) no consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or governmental authority and no consent of
any other Person (including, without limitation, any partner, stockholder or
creditor of the Guarantor or any of its Subsidiaries) is required in connection
with the execution, delivery, performance, validity or enforceability of this
Guaranty or any other Loan Documents to which the Guarantor or any of its
Subsidiaries are a party; and
(f) there is no action, suit, proceeding or, to the best of
the Guarantor's knowledge, investigation pending against or threatened against
or in any other manner relating adversely to, the Guarantor or any of its
Subsidiaries or any of their respective properties, in any court or before any
arbitrator of any kind or before or by any governmental body which (i) calls
into question the validity of this Guaranty, the Loan Agreement or any other
Loan Document, (ii) challenges the continued possession and use of any License
by the Guarantor or any of its Subsidiaries, or (iii) could be expected to
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result in an adverse decision to the Guarantor or any of its Subsidiaries, which
adverse decision could be expected to have a Materially Adverse Effect.
COVENANTS
16. The Guarantor covenants and agrees that so long as the Commitments
are outstanding or any amount is owing, or any other obligation outstanding, on
account of the Guaranteed Obligations, the Guarantor:
(a) shall, and shall cause each of its Subsidiaries to,
preserve and maintain its existence, rights, franchises, licenses and privileges
in the states of its incorporation and in each other state in which it operates
a material part of its business, and shall qualify and remain qualified and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business makes such qualification or
authorization prudent;
(b) shall permit, and shall cause each of its Subsidiaries to
permit, as provided in the Loan Agreement with respect to Borrower,
representatives of the Administrative Agent and the Lenders to visit and inspect
the properties of the Guarantor and its Subsidiaries, to inspect and make
extracts from and copies of the books and records of the Guarantor and its
Subsidiaries, and to discuss with principal officers and auditors of the
Guarantor and each of its Subsidiaries its businesses, assets, liabilities,
financial positions, results of operations and business prospects;
(c) shall furnish or cause to be furnished to each Lender and
the Administrative Agent:
(i) notice specifying the nature and status of any of
the following events, promptly, but in any event not later than ten
(10) days after any officer of the Guarantor becomes aware of the
occurrence of any of the following events:
(A) the commencement of all material
proceedings and investigations by or before any
governmental body and all actions and proceedings in
any court or before any arbitrator against, or to the
extent known to the Guarantor, in any other way
relating adversely to, the Guarantor or any of its
Subsidiaries, or any of their respective properties,
assets or businesses or any License; and
(B) any material adverse change with respect
to the business, assets, liabilities, financial
position, results of operations or business prospects
of the Guarantor or any of its Subsidiaries; and
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(ii) from time to time and promptly upon each
request, such other financial statements and financial and other
information as the Administrative Agent or Documentation Agent may
request;
(d) shall not, and shall not permit any of its Subsidiaries
to, create, assume, incur or otherwise become or remain obligated in respect of,
or permit to be outstanding, any Indebtedness except to the extent expressly
permitted under the Loan Agreement and with respect to any of the Guarantor's
Unrestricted Subsidiaries only to the extent that:
(i) total aggregate Indebtedness for Money Borrowed
of the Unrestricted Subsidiaries does not exceed the lesser of (A)
$67,000,000 or (B) sixty-seven percent (67%) of the total aggregate
capitalization of the Unrestricted Subsidiaries;
(ii) such Indebtedness for Money Borrowed is purchase
money debt incurred for equipment purchases in favor of the vendors of
such equipment;
(iii) the Guarantor does not provide any Guaranty in
respect of such Indebtedness; and
(iv) the financing, lease or other credit or loan
documentation to which any Unrestricted Subsidiary may be a party
provides that
(A) copies be provided to the Lenders, no
less frequently than every three (3) months (or if
such reports, compliance information, officers'
certificates and notices are required to be delivered
to any Person more frequently, then at such intervals
provided for therein) of any reports, compliance
information, officers' certificates or notices
required to be delivered to any Person pursuant to
the terms thereof; and
(B) Lenders shall have the right to notice
of any default, and the opportunity to cure within 30
days, any default thereunder by any Unrestricted
Subsidiary party thereto.
(e) shall not permit any of its Unrestricted Subsidiaries to
create, assume, incur or permit to exist or to be created, assumed, incurred or
permitted to exist, directly or indirectly, any Lien on any of its properties or
assets, whether now owned or hereafter acquired, except for Permitted Liens;
(f) shall not, except in connection with a transaction
otherwise expressly permitted under the Loan Agreement, enter into any amendment
of, or agree to or accept or consent to any waiver of, any of the provisions of
its articles or certificate of incorporation;
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(g) shall not, except in connection with a transaction
otherwise expressly permitted under the Loan Agreement, at any time liquidate,
merge, or dissolve itself (or suffer any liquidation or dissolution) or
otherwise wind up;
(h) shall not, and shall not permit any of its Subsidiaries
to, make inter-company loans, Guaranties, transfer of assets, payments or other
transactions, other than any such transactions (i) not prohibited under the Loan
Agreement and the other Loan Documents between and among the Guarantor, the
Borrower and its Restricted Subsidiaries, or (ii) between and among the
Unrestricted Subsidiaries;
(i) shall not, and shall not permit any of its Subsidiaries
to, at any time guaranty, assume, be obligated with respect to, or permit to be
outstanding any Guaranty in respect of, any obligation of any other Person other
than (a) a guaranty by endorsement of negotiable instruments for collection in
the ordinary course of business, or (b) obligations under agreements of the
Borrower or (c) as may be contained in any Loan Document;
(j) shall not make any loan or advance, or make any Investment
or otherwise acquire for consideration evidences of Indebtedness, capital stock
or other securities of any Person except for (i) Investments in the Borrower and
its Subsidiaries and (ii) Investments in Unrestricted Subsidiaries in an amount
not to exceed $100,000,000, which sum shall be inclusive of the Indebtedness
permitted under Section 16(d)(i) hereof.
(k) shall not, and shall not permit any of its Subsidiaries
to, at any time engage in any material transaction with an Affiliate, or make an
assignment or other transfer of any of its properties or assets to any
Affiliate, unless such transaction (i) is expressly permitted under the Loan
Agreement or (ii) is determined by the board of directors of the Guarantor to be
in the best interests of the Guarantor and any affected Subsidiary, and such
transaction is on terms no less advantageous to the Guarantor or such Subsidiary
than would be the case if such transaction had been effected at arm's length
with a non-Affiliate;
(l) shall not, and shall not permit any Subsidiaries to, take
any other action that would result in a Default or an Event of Default under any
of the Financial Covenants contained in, or otherwise under, the Loan Agreement;
(m) shall cause the Unrestricted Subsidiaries to compensate
the Borrower, not less frequently than every three (3) months, in cash, for any
management services or out-of-pocket expenses incurred by the Borrower on behalf
of such Unrestricted Subsidiary;
(n) shall not permit proceeds of the Facilities to directly or
indirectly benefit the Unrestricted Subsidiary;
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(o) shall not permit any Unrestricted Subsidiary to engage in
any transaction or course of action with the Guarantor or any of its Restricted
Subsidiaries, except as may be expressly permitted in the Loan Agreement; and
(p) shall (i) not later than forty-five (45) days after the
last day of each quarter of each fiscal year, provide the balance sheet of the
Guarantor on a consolidated basis with its Subsidiaries as of the end of such
quarter and the related statement of operations and the related statement of
cash flows of the Guarantor on a consolidated basis with its Subsidiaries for
such quarter and for the elapsed portion of the year ended as of the last day of
such quarter, and (ii) not later than ninety (90) days after the end of each
fiscal year of the Guarantor, provide the audited consolidated balance sheet of
the Guarantor and its Subsidiaries as of the end of such fiscal year and the
related audited consolidated statements of operations for such fiscal year and
the related audited consolidated statements of changes in shareholders equity
for such fiscal year, and the related audited consolidated statements of cash
flows of such fiscal year, which shall be accompanied by an unqualified opinion
of independent certified public accountants of recognized national standing
acceptable to the Administrative Agent; and in each case, such financial
statements shall be certified by the chief financial officer of the Guarantor to
be, in his or her opinion, complete and correct in all material respects and to
present fairly, in accordance with GAAP, the financial position of the Guarantor
on a consolidated basis with its Subsidiaries as at the end of such periods and
the results of operations for such periods subject, in the case of quarterly
financial statements, to normal year-end adjustments and the absence of
footnotes.
INDEMNIFICATION
17. The Guarantor agrees to indemnify or hold harmless each of the
Agents and the Lenders, and their respective Affiliates, employees,
representatives, officers and directors (any of the foregoing shall be an
"Indemnitee") from and against any and all claims, liabilities, losses, damages,
actions, attorneys' fees and expenses (as such fees and expenses are incurred)
and demands by any party, including the costs of investigating and defending
such claims, whether or not the Guarantor is the prevailing party (a) resulting
from any breach or alleged breach by the Guarantor of any representation or
warranty made hereunder, or (b) arising out of any claims against such Person by
any shareholder or other investor in or lender to the Guarantor, by any brokers
or finders or investment advisors or investment bankers retained by the
Guarantor or by any other third party, and based on the existence of this
Guaranty, the Administrative Agent's acceptance or the enforcement of this
Guaranty or any other Loan Document, or (c) in connection with the execution,
delivery and performance of this Guaranty and the other Loan Documents to which
the Guarantor is a party, and any subsequent amendments thereto or waivers of
any of the provisions thereof; unless the Person seeking indemnification
hereunder is determined in such case to have acted or failed to act with gross
negligence or wilful misconduct by a non-appealable judicial order; provided,
however, that any such gross negligence or willful misconduct on the part of
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any Indemnitee shall not limit, restrict or otherwise affect the rights to
indemnification of any other Indemnitee.
SUBORDINATION
18. The Guarantor hereby subordinates each and all of its interests,
claims, rights and entitlements to payment of any sums now due or hereafter to
become due to Guarantor from the Borrower or any Restricted Subsidiary or any
guarantor or surety for the Guaranteed Obligations to the interests, claims,
rights and entitlements of the Administrative Agent, the other Agents and the
Lenders to payment of any sums now due or hereafter to become due to any of the
Administrative Agent, any of the other Agents or any of the Lenders from the
Borrower or any Restricted Subsidiary or any guarantor or surety for the
Guaranteed Obligations, to the extent of the Guaranteed Obligations. Guarantor
hereby further assigns to the Administrative Agent each and all of its
interests, claims, rights and entitlements to payment of any sums now due or
hereafter to become due to Guarantor from the Borrower or any Restricted
Subsidiary or any guarantor or surety for the Guaranteed Obligations, to the
extent of the Guaranteed Obligations and any other amounts due or to become due
under this Guaranty, and agrees, at its sole cost and expense, to execute and/or
deliver any other and further documents, instruments and agreements, as the
Administrative Agent or the Documentation Agent may deem necessary or
appropriate to evidence or perfect such assignment.
MISCELLANEOUS
19. No alteration or waiver of this Guaranty or of any of its terms,
provisions or conditions shall be binding upon the parties against whom
enforcement is sought unless made in writing and signed by such party.
20. This Guaranty shall be construed and interpreted in accordance with
the internal laws of the State of New York applicable to agreements made and to
be performed wholly within the State of New York. If any action or proceeding
shall be brought by the Administrative Agent or any Lender to enforce any right
or remedy under this Guaranty, the Guarantor hereby consents and will submit to
the jurisdiction of any state or federal court of competent jurisdiction sitting
within the area comprising the Southern District of New York on the date of this
Guaranty. The Guarantor hereby agrees that service of the summons and complaint
and all other process which may be served in any such suit, action or proceeding
may be effected by mailing by registered mail a copy of such process to the
address of the Guarantor set forth in Section 11.1 of the Loan Agreement and
that personal service of process shall not be required. Nothing herein shall be
construed to prohibit service of process by any other method permitted by law,
or the bringing of any suit, action or proceeding in any other jurisdiction. The
Guarantor agrees that final judgment in such suit, action or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the judgment
or in any other manner provided by law. THE GUARANTOR HEREBY WAIVES THE RIGHT TO
A TRIAL BY JURY IN ANY COURT AND IN ANY ACTION OR
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PROCEEDING OF ANY TYPE IN WHICH THE GUARANTOR IS A PARTY, AS TO ALL MATTERS AND
THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THE LOAN AGREEMENT, THIS GUARANTY
OR ANY OF THE OTHER LOAN DOCUMENTS.
21. If any paragraph or part thereof of this Guaranty shall for any
reason be held or adjudged to be invalid, illegal or unenforceable by any court
of competent jurisdiction, such paragraph or part thereof so adjudicated
invalid, illegal or unenforceable shall be deemed separate, distinct and
independent, and the remainder of this Guaranty shall remain in full force and
effect and shall not be affected by such holding or adjudication.
22. Each reference herein to any right granted to, benefit conferred
upon or power exercisable by the "Administrative Agent" shall be a reference to
the Administrative Agent for itself and for the ratable benefit of the other
Agents and the Lenders, and each action taken or right exercised hereunder shall
be deemed to have been so taken or exercised by the Administrative Agent for the
benefit of and on behalf of all the Agents and all the Lenders.
23. This Guaranty may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all such separate counterparts
shall together constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE> 14
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
GUARANTOR: STATE COMMUNICATIONS, INC. a South
Carolina corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address for Notices:
----------------------------------------
----------------------------------------
----------------------------------------
Attn:
-----------------------------------
Fax:
------------------------------------
<PAGE> 1
EXHIBIT 10.2.3
PARENT PLEDGE AGREEMENT
This PARENT PLEDGE AGREEMENT (this "Agreement"), entered into as of
this 1st day of February, 2000, by and between STATE COMMUNICATIONS, INC., a
South Carolina corporation (the "Pledgor"), and TORONTO DOMINION (TEXAS), INC.,
a Delaware corporation (the "Administrative Agent"), as administrative agent for
the Lenders (as defined below),
WITNESSETH:
WHEREAS, TRIVERGENT COMMUNICATIONS, INC., a South Carolina corporation
(the "Borrower"), the financial institutions whose names appear as Lenders on
the signature pages thereof (the "Lenders"), TD SECURITIES (USA), INC. and
CAPITAL SYNDICATION CORPORATION, an affiliate of The CIT Group, Inc., as co-lead
arrangers and co-book runners, NEWCOURT COMMERCIAL FINANCE CORPORATION, an
affiliate of The CIT Group, Inc., as documentation agent, FIRST UNION NATIONAL
BANK, as Syndication Agent, and the Administrative Agent, are parties to that
certain Loan Agreement dated as of February 1, 2000 (as amended, restated,
supplemented or otherwise modified from time to time, the "Loan Agreement")
pursuant to which the Lenders have agreed to make Loans to the Borrower in the
aggregate committed amount of $120,000,000; and
WHEREAS, the Administrative Agent has agreed to act as administrative
agent for itself and for the ratable benefit of the Lenders, in connection with
the transactions contemplated by the Loan Agreement; and
WHEREAS, the Pledgor is the owner of all of the issued and outstanding
capital stock of the Borrower and will realize substantial direct and indirect
benefits as a result of the extensions of credit to the Borrower pursuant to the
Loan Agreement; and
WHEREAS, to secure, as further described below, the payment and
performance of, among other things, (a) the obligations of the Pledgor arising
from this Agreement and that certain Parent Guaranty of even date herewith (the
"Parent Guaranty"), and (b) all obligations of the Borrower under the Loan
Agreement, the Pledgor and the Administrative Agent have agreed that all stock
in the Borrower and all options, warrants and other rights relating thereto and
all promissory notes evidencing loans made by the Pledgor to the Borrower or any
of its Subsidiaries (hereafter collectively referred to as "Pledged Interests")
shall be pledged by the Pledgor to the Administrative Agent to secure the
Obligations (as defined below);
NOW, THEREFORE, for and in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that capitalized terms used herein shall
have the meanings ascribed to them in the Loan Agreement to the extent not
otherwise defined or limited herein, and further agree as follows:
<PAGE> 2
1. Warranty. The Pledgor hereby represents and warrants to the
Administrative Agent that except for the security interest created hereby, the
Pledgor is the legal and beneficial owner of the Pledged Interests, which with
respect to equity constitute all of the issued and outstanding interests of the
Borrower free and clear of all Liens, that such Pledged Interests are duly
issued, fully paid and nonassessable, and that the Pledgor has the unencumbered
right to pledge such Pledged Interests.
2. Security Interest. The Pledgor hereby unconditionally grants and
assigns to the Administrative Agent a continuing security interest in and to the
Pledged Interests. The Pledgor has delivered to and deposited with the
Administrative Agent certificates or notes representing the Pledged Interests,
and undated powers endorsed in blank, or endorsements on the notes themselves,
as security for (i) the payment and performance of all Obligations of the
Borrower to the Administrative Agent and the Lenders under the Loan Agreement
and the other Loan Documents (and any interest, fees and other charges in
respect of the Loan Documents that would accrue but for the filing of a
bankruptcy action with respect to the Borrower, whether or not such claim is
allowed in such bankruptcy action), as the same may be amended from time to
time, or as a result of making the Loans, (ii) the payment of any and all
damages which the Administrative Agent and the Lenders, or any of them, may
suffer by reason of a breach of any obligation, covenant or undertaking with
respect to this Agreement, the Loan Agreement, or any other Loan Document by the
Borrower or any other obligor thereunder, and (iii) all of the obligations of
the Pledgor and any other obligor to the Administrative Agent and the Lenders,
or any of them, under this Agreement, the Loan Agreement, the Parent Guaranty or
any other Loan Document or as a result of making the Loans, and any extensions,
renewals or amendments of any of the foregoing, however created, acquired,
arising or evidenced, whether direct or indirect, absolute or contingent, now or
hereafter existing, or due or to become due, together with any other
`Obligations,' as defined in the Loan Agreement (all of the foregoing
obligations described in clauses (i), (ii), and (iii) being hereinafter
collectively referred to as the "Obligations").
3. Additional Pledged Interests. In the event that, during the term of
this Agreement, the Pledgor shall become entitled to receive or shall receive
any certificate or any other instrument evidencing any part of the Pledged
Interests (including, without limitation, any certificate or other instrument
representing a dividend or a distribution in connection with any
reclassification, increase or reduction of capital, or issued in connection with
any reorganization), or any options or rights, or any promissory notes or other
debt instruments, whether as an addition to, in substitution for, or in exchange
for any of the Pledged Interests, or otherwise, the Pledgor agrees to promptly
deliver such additional Pledged Interests to the Administrative Agent, together
with undated powers endorsed in blank by the Pledgor or endorsements on the
notes themselves, and shall thereupon constitute additional Pledged Interests to
be held by the Administrative Agent under the terms of this Agreement. In case
any distribution of any stock, general partner interests, limited partner
interests, limited liability company interests, member interests or other equity
interests of any Person, regardless of class or designation, or any warrants,
options, purchase rights, conversion or exchange rights, voting rights, calls or
claims of any character with respect to any of the foregoing, or any promissory
notes or other debt instruments, shall be made on or in respect of the Pledged
Interests or any property shall be distributed upon or with respect to the
Pledged Interests pursuant to the
2
<PAGE> 3
recapitalization or reclassification of the equity interests of the issuer
thereof or pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Administrative Agent to be held by it as additional
collateral security for the Obligations. All sums of money and property so paid
or distributed in respect of the Pledged Interests which are received by the
Pledgor shall, until paid or delivered to the Administrative Agent, be held by
the Pledgor in trust for the benefit of the Administrative Agent as additional
collateral security for the Obligations.
4. Default. Subject to Section 13 hereof, the Administrative Agent may
sell or otherwise dispose of the Pledged Interests at a public or private sale
or make other commercially reasonable disposition of the Pledged Interests or
any portion thereof after ten (10) calendar days' notice to the Pledgor, and the
Administrative Agent or any Lender may purchase the Pledged Interests or any
portion thereof at any public sale. The proceeds of the public or private sale
or other disposition first shall be applied to the costs of the Administrative
Agent incurred in connection with the sale, expressly including, without
limitation, any costs under Section 7 hereof, and then as provided in the Loan
Agreement. In the event the proceeds of the sale or other disposition of the
Pledged Interests are insufficient to satisfy the Obligations, the Pledgor shall
remain liable for any such deficiency.
5. Additional Rights of Secured Party. In addition to its rights and
privileges under this Agreement, the Administrative Agent shall have all the
rights, powers and privileges of a secured party under the Uniform Commercial
Code as in effect in any applicable jurisdiction.
6. Return of Pledged Interests. Upon payment in full of all principal
and interest of the Loans, full performance by the Borrower of all covenants,
undertakings and obligations under the Loan Agreement, and the other Loan
Documents, and satisfaction in full of any other Obligations, other than the
Obligations which survive the termination of the Loan Agreement as provided in
Section 11.16 of the Loan Agreement, and after such time as the Lenders shall
have no obligation to make any further Advances to the Borrower, the
Administrative Agent shall return the remaining Pledged Interests and all rights
received by the Administrative Agent as a result of its possessory interest in
the Pledged Interests to the Pledgor.
7. Disposition of Pledged Interests by Administrative Agent. None of
the Pledged Interests is registered or qualified under the various federal or
state securities laws of the United States and disposition thereof may be
restricted to one or more private (instead of public) sales in view of the lack
of such registration. The Pledgor understands that upon such disposition, the
Administrative Agent may approach only a restricted number of potential
purchasers and further understands that a sale under such circumstances may
yield a lower price for the Pledged Interests than if the Pledged Interests were
registered and qualified pursuant to federal and state securities laws and sold
on the open market. The Pledgor, therefore, agrees that:
(a) if the Administrative Agent shall, pursuant to the terms
of this Agreement, sell or cause the Pledged Interests or any portion
thereof to be sold at a private sale, the Administrative Agent shall
have the right to rely upon the advice and opinion of any national
brokerage or investment firm having recognized expertise and experience
in connection with shares of integrated communications providers and
other communications companies (but shall not be obligated to seek such
advice and the failure to do so
3
<PAGE> 4
shall not be considered in determining the commercial reasonableness of
such action) as to the best manner in which to offer the Pledged
Interests for sale and as to the best price reasonably obtainable at
the private sale thereof; and
(b) such reliance shall be conclusive evidence that the
Administrative Agent has handled such disposition in a commercially
reasonable manner.
8. Pledgor's Obligations Absolute. The obligations of the Pledgor under
this Agreement shall be direct and immediate and not conditional or contingent
upon the pursuit of any remedies against the Borrower or any other Person, nor
against other security or liens available to the Administrative Agent. The
Pledgor hereby waives any right to require that an action be brought against any
other Person or to require that resort be had to any security or to any balance
of any deposit account or credit on the books of the Administrative Agent or any
of the Lenders in favor of any other Person prior to the exercise of remedies
hereunder, or to require action hereunder prior to resort by the Administrative
Agent to any other security or collateral for the Obligations.
9. Voting Rights.
(a) Subject to the provisions of Section 13 hereof, (i) the
Administrative Agent may, upon ten (10) calendar days' prior notice to
the Pledgor of the Administrative Agent's intention to do so, exercise
any and all voting rights, and all other ownership or consensual rights
of the Pledged Interests owned by the Pledgor, but under no
circumstances is the Administrative Agent obligated by the terms of
this Agreement to exercise such rights, and (ii) the Pledgor hereby
appoints the Administrative Agent, which appointment shall be effective
on the 10th day following the giving of notice by the Administrative
Agent as provided in the foregoing clause (i), the Pledgor's true and
lawful attorney-in-fact and IRREVOCABLE PROXY to vote the Pledged
Interests in any manner the Administrative Agent deems advisable for or
against all matters submitted or which may be submitted to a vote of
shareholders, members or partners, as applicable. The power-of-attorney
granted hereby is coupled with an interest and shall be irrevocable.
(b) For so long as the Pledgor shall have the right to vote
the Pledged Interests owned by it, the Pledgor covenants and agrees
that it will not, without the prior written consent of the
Administrative Agent, vote or take any consensual action with respect
to such Pledged Interests which would constitute an Event of Default.
10. Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be given in the manner set forth in
Section 11.1 of the Loan Agreement, at the address for the Administrative Agent
set forth in such section, and for the Pledgor to it at the address set forth
for the Borrower in Section 11.1 of the Loan Agreement.
11. Binding Agreement. This Agreement shall be construed and
interpreted in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed wholly within the State of New
York. This Agreement, together with all
4
<PAGE> 5
documents referred to herein, constitutes the entire agreement between the
parties with respect to the matters addressed herein and may not be modified
except by a writing executed by the Administrative Agent and the Pledgor and
delivered by the Administrative Agent to the Pledgor.
12. Severability. If any paragraph or part thereof shall for any reason
be held or adjudged to be invalid, illegal or unenforceable by any court of
competent jurisdiction, such paragraph or part thereof so adjudicated invalid,
illegal or unenforceable shall be deemed separate, distinct and independent, and
the remainder of this Agreement shall remain in full force and effect and shall
not be affected by such holding or adjudication.
13. FCC Compliance. Notwithstanding anything herein which may be
construed to the contrary, no action shall be taken by the Administrative Agent
which may require the consent or approval of the FCC and the proxy granted in
Section 9(a) hereof shall not become effective unless and until all requirements
of the Communications Law, requiring the consent to or approval of such action
by the FCC, have been satisfied. The Pledgor covenants that, upon request of the
Administrative Agent, it will cooperate in causing to be filed such applications
and taking such other action as may be requested by the Administrative Agent to
obtain consent or approval of the FCC to any action contemplated by this
Agreement and to give effect to the security interest of the Administrative
Agent, including, without limitation, cooperating in the execution of an
application for consent by the FCC to an assignment or transfer involving a
change in ownership or control pursuant to the provisions of the Communications
Law.
14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Any signatures delivered by a party by facsimile transmission shall be deemed an
original signature hereto.
15. Administrative Agent. Each reference herein to any right granted
to, benefit conferred upon or power exercisable by the "Administrative Agent"
shall be a reference to the Administrative Agent for itself and for the ratable
benefit of the Lenders, and each action taken or right exercised hereunder shall
be deemed to have been so taken or exercised by the Administrative Agent for the
benefit of and on behalf of all the Lenders.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned parties hereto have executed this
Agreement by and through their duly authorized officers, as of the day and year
first above written.
PLEDGOR: STATE COMMUNICATIONS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Attest:
-----------------------------
Name:
-------------------------------
Title:
------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 10.3.1
================================================================================
CREDIT AGREEMENT
dated as of March 7, 2000
by and among
TRIVERGENT COMMUNICATIONS SOUTH, INC.
as Borrower
and
NORTEL NETWORKS INC.
as Administrative Agent
and
THE LENDERS NAMED HEREIN
$45,000,000 ADVANCING TERM LOAN FACILITY
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 Definitions.............................................................................................1
Section 1.1 Definitions, etc.......................................................................1
Section 1.2 Other Definitional Provisions.........................................................23
Section 1.3 Accounting Terms and Determinations...................................................23
Section 1.4 Financial Covenants and Reporting.....................................................24
ARTICLE 2 Loans..................................................................................................24
Section 2.1 Commitments...........................................................................24
Section 2.2 Notes.................................................................................24
Section 2.3 Repayment of Loans....................................................................25
Section 2.4 Interest..............................................................................26
Section 2.5 Borrowing Procedure...................................................................27
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans..........................27
Section 2.7 Mandatory Prepayments.................................................................28
Section 2.8 Minimum Amounts.......................................................................29
Section 2.9 Certain Notices.......................................................................29
Section 2.10 Use of Proceeds.......................................................................30
Section 2.11 Fees..................................................................................30
Section 2.12 Computations..........................................................................30
Section 2.13 Termination or Reduction of Commitments...............................................31
ARTICLE 3 Payments...............................................................................................31
Section 3.1 Method of Payment.....................................................................31
Section 3.2 Pro Rata Treatment....................................................................32
Section 3.3 Sharing of Payments, Etc..............................................................32
Section 3.4 Non-Receipt of Funds by the Administrative Agent......................................32
Section 3.5 Taxes.................................................................................33
Section 3.6 Withholding Tax Exemption.............................................................34
Section 3.7 Reinstatement of Obligations..........................................................34
Section 3.8 No Force Majeure, Disputes............................................................34
ARTICLE 4 Yield Protection and Illegality........................................................................35
Section 4.1 Additional Costs......................................................................35
Section 4.2 Limitation on Types of Loans..........................................................36
Section 4.3 Illegality............................................................................37
Section 4.4 Treatment of Affected Loans...........................................................37
Section 4.5 Compensation..........................................................................38
Section 4.6 Capital Adequacy......................................................................38
Section 4.7 Additional Interest on Eurodollar Loans...............................................39
Section 4.8 Replacement of Lenders................................................................39
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5 Security...............................................................................................40
Section 5.1 Collateral............................................................................40
Section 5.2 Guaranties............................................................................40
Section 5.3 New Subsidiaries; Additional Capital Stock............................................40
Section 5.4 New Mortgaged Properties; Landlord Waivers............................................41
Section 5.5 Management Services Agreement.........................................................42
Section 5.6 Further Assurances....................................................................42
Section 5.7 Setoff................................................................................42
ARTICLE 6 Conditions Precedent...................................................................................43
Section 6.1 Initial Extension of Credit...........................................................43
Section 6.2 All Extensions of Credit..............................................................47
Section 6.3 Closing Certificates..................................................................48
ARTICLE 7 Representations and Warranties.........................................................................48
Section 7.1 Existence.............................................................................48
Section 7.2 Financial Statements..................................................................48
Section 7.3 Corporate Action; No Breach...........................................................49
Section 7.4 Operation of Business; Licenses.......................................................49
Section 7.5 Intellectual Property.................................................................50
Section 7.6 Litigation and Judgments..............................................................50
Section 7.7 Rights in Properties; Liens...........................................................50
Section 7.8 Enforceability........................................................................51
Section 7.9 Approvals.............................................................................51
Section 7.10 Debt..................................................................................51
Section 7.11 Taxes.................................................................................51
Section 7.12 Margin Securities.....................................................................51
Section 7.13 ERISA.................................................................................52
Section 7.14 Disclosure............................................................................52
Section 7.15 [Reserved.]
Section 7.16 Compliance with Laws..................................................................52
Section 7.17 Investment Company Act................................................................53
Section 7.18 Public Utility Holding Company Act....................................................53
Section 7.19 Environmental Matters.................................................................53
Section 7.20 Year 2000 Compliance..................................................................54
Section 7.21 Labor Disputes and Acts of God........................................................54
Section 7.22 Material Contracts....................................................................54
Section 7.23 Bank Accounts.........................................................................55
Section 7.24 Outstanding Securities................................................................55
Section 7.25 Solvency..............................................................................55
Section 7.26 Employee Matters......................................................................55
Section 7.27 Insurance.............................................................................55
Section 7.28 Common Enterprise.....................................................................55
Section 7.30 Ownership of Customer Data, Billing Records, Etc......................................56
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 8 Affirmative Covenants..................................................................................56
Section 8.1 Reporting Requirements................................................................56
Section 8.2 Maintenance of Existence; Conduct of Business.........................................59
Section 8.3 Maintenance of Properties and Permits.................................................60
Section 8.4 Taxes and Claims......................................................................60
Section 8.5 Insurance.............................................................................60
Section 8.6 Inspection Rights.....................................................................61
Section 8.7 Keeping Books and Records.............................................................62
Section 8.8 Compliance with Laws..................................................................62
Section 8.9 Compliance with Agreements............................................................62
Section 8.10 Further Assurances....................................................................62
Section 8.11 ERISA.................................................................................63
Section 8.12 Non-Consolidation.....................................................................63
Section 8.13 Year 2000 Compliance..................................................................63
Section 8.14 Trade Accounts Payable................................................................63
Section 8.15 Delivery of Certain Amendments and Material Contracts.................................63
Section 8.16 Interest Rate Protection..............................................................63
Section 8.17 Ownership of Telecommunications Assets and Telecommunications Business................64
Section 8.18 Unified Cash Management System........................................................64
ARTICLE 9 Negative Covenants.....................................................................................64
Section 9.1 Debt. ...............................................................................64
Section 9.2 Limitation on Liens...................................................................65
Section 9.3 Mergers, Etc..........................................................................65
Section 9.4 Restricted Payments...................................................................65
Section 9.5 Investments...........................................................................66
Section 9.6 Limitation on Operating Leases of the Borrower........................................67
Section 9.7 Transactions with Affiliates..........................................................67
Section 9.8 Disposition of Property...............................................................67
Section 9.9 Sale and Leaseback....................................................................68
Section 9.10 Lines of Business.....................................................................68
Section 9.11 Environmental Protection..............................................................68
Section 9.12 Intercompany Transactions.............................................................68
Section 9.13 Management Fees.......................................................................69
Section 9.14 Master Purchase Agreement.............................................................69
Section 9.15 Modification of Certain Agreements....................................................69
Section 9.16 ERISA.................................................................................69
Section 9.17 No Prepayment of Debt, Etc............................................................70
ARTICLE 10 Financial Covenants...................................................................................70
Section 10.1 Total Debt to Total Capitalization....................................................70
Section 10.2 Total Debt to Annualized EBITDA.......................................................70
Section 10.3 Annualized EBITDA.....................................................................71
Section 10.4 Fixed Charge Coverage.................................................................71
Section 10.5 Interest Coverage.....................................................................71
Section 10.6 Capital Expenditures..................................................................71
Section 10.7 Quarterly Minimum Revenue Levels......................................................71
Section 10.8 Access Lines..........................................................................71
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 11 Default...............................................................................................71
Section 11.1 Events of Default.....................................................................71
Section 11.2 Remedies..............................................................................74
Section 11.3 Performance by the Administrative Agent, etc..........................................75
ARTICLE 12 The Administrative Agent..............................................................................75
Section 12.1 Appointment, Powers and Immunities....................................................75
Section 12.2 Rights of Administrative Agent as a Lender............................................76
Section 12.3 Defaults..............................................................................76
Section 12.4 INDEMNIFICATION.......................................................................76
Section 12.5 Independent Credit Decisions..........................................................77
Section 12.6 Several Commitments...................................................................78
Section 12.7 Successor Administrative Agent........................................................78
ARTICLE 13 Miscellaneous.........................................................................................79
Section 13.1 Expenses..............................................................................79
Section 13.2 INDEMNIFICATION.......................................................................79
Section 13.3 Limitation of Liability...............................................................80
Section 13.4 No Duty...............................................................................80
Section 13.5 No Fiduciary Relationship.............................................................81
Section 13.6 Equitable Relief......................................................................81
Section 13.7 No Waiver; Cumulative Remedies........................................................81
Section 13.8 Successors and Assigns................................................................81
Section 13.9 Survival..............................................................................85
Section 13.10 ENTIRE AGREEMENT......................................................................85
Section 13.11 Amendments............................................................................85
Section 13.12 Maximum Interest Rate.................................................................86
Section 13.13 Notices...............................................................................87
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS.........................87
Section 13.15 Counterparts..........................................................................88
Section 13.16 Severability..........................................................................88
Section 13.17 Headings..............................................................................88
Section 13.18 Construction..........................................................................88
Section 13.19 Independence of Covenants.............................................................88
Section 13.20 Confidentiality.......................................................................88
Section 13.21 WAIVER OF JURY TRIAL..................................................................88
Section 13.22 Approvals and Consent.................................................................89
Section 13.23 Service of Process....................................................................89
</TABLE>
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<PAGE> 6
INDEX TO EXHIBITS
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Note
Exhibit C - Form of Notice of Borrowings, Conversions, Continuations
and Prepayments
Exhibit D - Form of Compliance Certificate
INDEX TO SCHEDULES
Schedule 1.1(a) - Certain Permitted Holders
Schedule 1.1(b) - Certain Permitted Liens
Schedule 7.4 - Permits, Franchises and Authorizations required by
Governmental Requirements or issued by Governmental
Authorities
Schedule 7.5 - Intellectual Property
Schedule 7.6 - Litigation, Etc.
Schedule 7.7 - Real Property
Schedule 7.10 - Existing Debt
Schedule 7.13 - Plans
Schedule 7.22 - Material Contracts
Schedule 7.23 - Bank Accounts
Schedule 7.26 - Employee Matters
Schedule 7.27 - Insurance
Schedule 7.29 - Loan Parties; Capitalization
Schedule 8.13 - Year 2000 Compliance
Schedule 8.17 - Telecommunications Assets Used in the Telecommunications
Business of the Borrower Not Owned by the Borrower
Schedule 9.5 - Certain Investments
Schedule 10 - Financial Covenants
Page v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March 7, 2000, is by and among
TRIVERGENT COMMUNICATIONS SOUTH, INC. (the "Borrower"), a South Carolina
corporation, each of the lending entities which is a party hereto (as evidenced
by the signature pages of this Agreement) or which may from time to time become
a party hereto as a lender or any successor or assignee thereof (individually, a
"Lender" and, collectively, the "Lenders"), and NORTEL NETWORKS INC., a Delaware
corporation, as administrative agent for itself and the other Lenders (in such
capacity, together with its successors in such capacity, the "Administrative
Agent").
RECITALS:
A. The Borrower desires to obtain a $45,000,000 advancing term loan
facility to finance a portion of its costs to purchase Nortel Networks Goods and
Services (as defined herein).
B. The Lender(s) identified on the signature pages of this Agreement
desire to provide such credit facilities with the assistance of the
Administrative Agent upon and subject to the terms and provisions contained in
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions, etc. As used in this Agreement, the following
terms shall have the following meanings:
"Access Lines" means, at any time, the total number of telephone lines
of end-users connected to the Network and for which the Borrower and its
Subsidiaries are providing local access at such time.
"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of one percent) determined by the Administrative Agent to be
equal to (a) the Eurodollar Rate for such Eurodollar Loan for such Interest
Period divided by (b) one minus the Reserve Requirement for such Eurodollar Loan
for such Interest Period.
"Adjusted Net Income" means, as to the Borrower and its Consolidated
Subsidiaries and for any period, Consolidated Net Income less the following
(without duplication) to the extent that any of the following shall have been
included in Consolidated Net Income for such period: (a) any net gain or loss
arising from the sale of capital assets; (b) any net gain or loss arising from
any write-up or write-down of assets; (c) earnings or losses of any other
Person, substantially all of the assets of
Page 1
<PAGE> 8
which have been acquired by the Borrower or a Consolidated Subsidiary of the
Borrower in any manner, to the extent that such earnings or losses were realized
by such other Person prior to the date of such acquisition; (d) earnings or
losses of any Person (other than a Consolidated Subsidiary of the Borrower) in
which the Borrower or a Consolidated Subsidiary has an ownership interest,
unless such earnings have actually been received by such Person or such
Consolidated Subsidiary in the form of cash distributions; and (e) any net gain
or loss arising from the acquisition of any securities of the Borrower or a
Consolidated Subsidiary of the Borrower.
"Administrative Agent" means as specified in the introductory paragraph
of this Agreement.
"Administrative Agent's Letter" means the letter agreement dated as of
March 7, 2000 between the Administrative Agent and the Borrower.
"Advances" means the Loans made under this Agreement.
"Affiliate" means, as to any Person, any other Person (a) that directly
or indirectly through one or more intermediaries controls or is controlled by,
or is under direct or indirect common control with, such first Person, (b) that
directly or indirectly beneficially owns or holds ten percent or more of any
class of voting Capital Stock of such first Person, or (c) ten percent or more
of the voting Capital Stock of which is directly or indirectly beneficially
owned or held by such first Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the Loan Documents, neither the Administrative Agent nor any Lender
shall be deemed to be an Affiliate of the Borrower or any Loan Party.
"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions or restatements hereof.
"Amortization Commencement Date" means the last day of the calendar
quarter following the calendar quarter in which the Commitment Termination Date
occurs.
"Annualized EBITDA" means EBITDA for the two most recently completed
fiscal quarters multiplied by two.
"Applicable Lending Office" means for each Lender and each Type of
Loan, the lending office of such Lender (or an Affiliate of such Lender)
designated for such Type of Loan below its name on the signature pages hereof
(or, with respect to a Lender that becomes a party to this Agreement pursuant to
an assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the Borrower and
the Administrative Agent as the office by which its Loans of such Type are to be
made and maintained.
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"Applicable Margin" means the rate per annum equal to (a) with respect
to each Base Rate Loan, three and three-fourths of one percent (3.75%) and (b)
with respect to each Eurodollar Loan, four and three-fourths of one percent
(4.75%).
"Asset Disposition" means the disposition of any or all of the Property
of the Borrower or any of its Subsidiaries, whether by sale, lease, transfer,
assignment, condemnation or otherwise, but excluding (a) sales of inventory in
the ordinary course of business, (b) the grant of a Lien as security, (c) any
involuntary disposition resulting from casualty damage to Property, and (d)
dispositions of equipment if and to the extent that the equipment disposed of
is, concurrently therewith, exchanged or replaced by equipment of equal or
greater value.
"Assignee" means as specified in Section 13.8(b).
"Assigning Lender" means as specified in Section 13.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by the Administrative Agent
pursuant to Section 13.8(e), in substantially the form of Exhibit A hereto.
"Bankruptcy Code" means as specified in Section 11.1(e).
"Base Rate" means, at any time, the greater of (a) the rate of interest
per annum then most recently announced or established by the Reference Bank at
its principal office in New York City as its highest commercial prime or base
rate then in effect, or (b) the Federal Funds Rate then in effect plus one-half
of one percent (0.50%). The Base Rate may not necessarily be the lowest rate of
interest charged by the Reference Bank to its commercial borrowers. Each change
in any interest rate provided for herein based upon the prime or base rate or
the Federal Funds Rate resulting from a change in the prime or base rate or the
Federal Funds Rate, respectively, shall take effect without notice to the
Borrower at the time of such change in the prime or base rate or the Federal
Funds Rate, respectively.
"Base Rate Loans" means Loans that bear interest at rates based upon
the Base Rate.
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented and
otherwise modified and in effect from time to time, or any replacement thereof.
"Board of Directors" means the board of directors of the Borrower.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Borrower to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Borrower" means as specified in the initial paragraph of this
Agreement.
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"Business Day" means (a) any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required by law to close in New
York, New York or Dallas, Texas, and (b) with respect to all borrowings,
payments, Conversions, Continuations, Interest Periods and notices in connection
with Eurodollar Loans, any day which is a Business Day described in clause (a)
above and which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
"Business Plan" means the Borrower's marketing and build-out plans,
budget and schedule, including financial projections of Holdings, the Borrower
and the Consolidated Subsidiaries for the period beginning on the Closing Date
through the Maturity Date, certified by the Chief Financial Officer of the
Borrower as being prepared generally in accordance with GAAP (except for the
absence of footnotes), such projections giving effect to the Debt expected to be
incurred under this Agreement as well as the other Debt to be incurred by
Holdings, the Borrower and the Consolidated Subsidiaries during such period.
Unless any amendment or modification thereto or replacement thereof is
subsequently approved by the Administrative Agent in accordance with Section
9.15, the Business Plan narrative dated as of July 2, 1999, with updated
financial statements dated December 31, 1999, shall be the Business Plan for
purposes of this Agreement.
"Capital Expenditures" means, as to the Borrower and its Consolidated
Subsidiaries, amounts paid or Debt incurred by such Persons in connection with
the purchase or lease by such Persons of Property that would be required to be
capitalized and shown on the balance sheet of such Person or Persons in
accordance with GAAP.
"Capital Lease Obligations" means, as to the Borrower and its
Consolidated Subsidiaries, the obligations of such Persons to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) real
and/or personal Property, which obligations are classified as a capital lease on
a balance sheet of such Persons under GAAP. For purposes of this Agreement, the
amount of such Capital Lease Obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Capital Stock" means corporate stock and any and all securities,
shares, partnership interests, limited partnership interests, limited liability
company interests, membership interests, equity interests, participations,
rights or other equivalents (however designated) of corporate stock or any of
the foregoing issued by any entity (whether a corporation, a partnership, a
limited liability company or another entity) and includes, without limitation,
securities convertible into Capital Stock and rights or options to acquire
Capital Stock.
"Change in Control" means the existence or occurrence of any of the
following: (a) any of the Capital Stock of the Borrower is owned by any Person
other than Holdings; (b) any Capital Stock of any Subsidiary of the Borrower is
owned by any Person other than the Borrower or any Wholly-Owned Subsidiary of
the Borrower; (c) any Person or two or more Persons (other than the Permitted
Holders) acting as a group (as defined in Section 13d-3 of the Exchange Act)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Exchange Act) of 30% or more of
the outstanding shares of Voting Stock of Holdings; (d) individuals who, as of
the Closing Date, constitute the Board of Directors of Holdings (the "Holdings
Incumbent Board") cease for any reason to constitute at least a majority of the
Board of
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Directors of Holdings; provided, however, that any individual becoming a
director of Holdings subsequent to the Closing Date whose election, or
nomination for election by Holdings' shareholders was approved by a vote of at
least a majority of the directors then comprising the Holdings Incumbent Board
shall be considered as though such individual were a member of the Holdings
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or contest by or on behalf of a Person other than the
Board of Directors of Holdings; (e) the consummation of any transaction the
result of which is that any Person or group beneficially owns more of the Voting
Stock of Holdings than is beneficially owned, in the aggregate, by the Permitted
Holders; or (f) a "Change of Control" shall occur under the terms of the
Holdings Senior Credit Facility. For purposes of this definition, one or more
persons shall not be deemed to be acting as a group solely because such Persons
hold shares of one or more series of preferred stock of Holdings.
"Closing Date" means March 7, 2000, the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any Person of any nature whatsoever
upon which a Lien is created or purported to be created by any Loan Document as
security for the Obligations or any portion thereof.
"Commitment" means, as to any Lender, the obligation of such Lender to
make or continue Loans hereunder in an aggregate principal amount up to but not
exceeding the amount set forth opposite the name of such Lender on the signature
pages hereto under the heading "Commitment" or, if such Lender is a party to an
Assignment and Acceptance, the amount of the "Commitment" set forth in the most
recent Assignment and Acceptance of such Lender, as the same may be reduced or
terminated pursuant to Section 2.13 or 11.2, and "Commitments" means such
obligations of all Lenders. As of the Closing Date, the aggregate principal
amount of the Commitments is $45,000,000.
"Commitment Percentage" means, as to any Lender and its Commitment, the
percentage equivalent of a fraction, the numerator of which is the amount of the
outstanding Commitment of such Lender (or, if such Commitment has terminated or
expired, the outstanding principal amount of Loans of such Lender) and the
denominator of which is the aggregate amount of the outstanding Commitments of
all Lenders (or, if such commitments have terminated or expired, the aggregate
outstanding principal amount of Loans of all Lenders), as adjusted from time to
time in accordance with Section 13.8.
"Commitment Termination Date" means the earlier to occur of (a) March
31, 2001 or (b) the date which is six months after the Closing Date, if less
than $10,000,000 in aggregate principal amount of the Loans has been advanced as
of such date.
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"Communications Act" means the Communications Act of 1934, and any
similar or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"Consolidated Fixed Charges" means, as to the Borrower and its
Consolidated Subsidiaries and for any period, the sum of (without duplication)
(a) Consolidated Interest Expense of such Persons paid or payable in cash during
such period, plus (b) all scheduled payments (as such scheduled payments are
reduced by application of any prepayments) of principal with respect to the
Loans and other outstanding Debt during such period, plus (c) income taxes of
such Persons paid or payable in cash during such period, plus (d) the scheduled
amount paid or payable by such Persons in cash during such period on account of
Capital Expenditures.
"Consolidated Interest Expense" means, as to the Borrower and its
Consolidated Subsidiaries and for any period, all interest on Debt of such
Persons paid or payable in cash during such period, including the interest
portion of payments under Capital Lease Obligations.
"Consolidated Net Income" means, as to the Borrower and its
Consolidated Subsidiaries and for any period, the net income (or loss) of such
Persons for such period, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Subsidiary" means, with respect to any Person, any
Subsidiary the financial attributes of which are or would be consolidated with
those of such Person in the consolidated financial statements of such Person in
accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan
of the same Type from one Interest Period to the next Interest Period.
"Contract Rate" means as specified in Section 13.12(a).
"Contributed Capital" means as to the Borrower and its Consolidated
Subsidiaries and as of any date of determination, the sum of (without
duplication) (a) equity contributions made to such Persons as of such date
(including equity contributed on or before the Closing Date),minus (b) the
aggregate amount of any dividends or distributions paid or made by such Persons
as of such date.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
"Current Date" means (a) a date occurring no more than 30 days prior to
the Closing Date or other relevant date as may be specified herein (as
applicable) or (b) such earlier date which is acceptable to the Administrative
Agent.
"Debt" means as to any Person at any time (without duplication): (a)
all indebtedness, liabilities and obligations of such Person for borrowed money;
(b) all indebtedness, liabilities and obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments; (c) all indebtedness,
liabilities and obligations of such Person to pay the deferred purchase price of
Property
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or services, except trade accounts payable of such Person arising in the
ordinary course of business that are not past due by more than 90 days; (d) all
Capital Lease Obligations of such Person; (e) all Debt of others Guaranteed by
such Person; (f) all indebtedness, liabilities and obligations secured by a Lien
existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations secured thereby have been assumed by such Person or
are non-recourse to such Person; (g) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments; (h) all
indebtedness, liabilities and obligations of such Person to redeem or retire
shares of Capital Stock of such Person; (i) all indebtedness, liabilities and
obligations of such Person under Interest Rate Protection Agreements; and (j)
all indebtedness, liabilities and obligations of such Person in respect of
unfunded vested benefits under any pension plans.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan at all
times during which any Default has occurred and is continuing or in respect of
any other amount payable by the Borrower under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by acceleration
or otherwise), a rate per annum during the period of such Default or during the
period commencing on the due date of such other amount until such other amount
is paid in full equal to the lesser of (a) the sum of three percent (3.00%) plus
the Base Rate as in effect from time to time plus the Applicable Margin for Base
Rate Loans or (b) the Maximum Rate; provided, however, that if such amount in
default is principal of a Eurodollar Loan and the due date is a day other than
the last day of an Interest Period therefor, the "Default Rate" for such
principal shall be, for the period from and including the due date and to but
excluding the last day of the Interest Period therefor, the lesser of (A) the
rate per annum equal to the sum of three percent (3.00%) plus the interest rate
for such Eurodollar Loan for such Interest Period as provided in clause (ii) of
Section 2.4(a) hereof or (B) the Maximum Rate and, thereafter, the rate provided
for above in this definition.
"Dollars" and "$" mean lawful money of the U.S.
"DSL Lines" means, at any time, the total number of Access Lines
providing digital subscriber line services.
"EBITDA" means, as to the Borrower and its Consolidated Subsidiaries
and for any period, without duplication, the sum of the following for such
Persons for such period determined on a consolidated basis in accordance with
GAAP: (a) Adjusted Net Income, plus (b) Consolidated Interest Expense, plus (c)
income and franchise taxes to the extent deducted in determining Adjusted Net
Income, plus (d) depreciation and amortization expense and other non-cash,
non-tax items to the extent deducted in determining Adjusted Net Income, minus
(e) non-cash income (or losses) to the extent included in determining Adjusted
Net Income.
"Eligible Assignee" means (a) any Affiliate of a Lender, (b) any
commercial bank, savings and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other financial institution
(whether a corporation, partnership, limited liability company or other entity)
which has been approved by the Administrative Agent as a Lender under this
Agreement or
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(c) any other entity approved by the Administrative Agent which is (or which is
managed by a manager which manages funds which are) primarily engaged in making,
purchasing or otherwise investing in commercial loans or extending, or investing
in extensions of, credit for its own account in the ordinary course of its
business; provided, however, that (i) Eligible Assignee shall not include any
Affiliate of the Borrower and (ii) Eligible Assignee shall not include any
business competitor of the Borrower except after the acceleration of the
Obligations or if any Obligations remain unpaid after the Maturity Date.
"Environmental Law" means any federal, state, provincial, local or
foreign law, statute, code or ordinance, principle of common law, rule or
regulation, as well as any Permit, order, decree, judgment or injunction issued,
promulgated, approved or entered thereunder, relating to pollution or the
protection, cleanup or restoration of the environment or natural resources, or
to the public health or safety, or otherwise governing the generation, use,
handling, collection, treatment, storage, transportation, recovery, recycling,
discharge or disposal of Hazardous Materials, including, without limitation as
to U.S. laws, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., the Superfund Amendment and
Reauthorization Act of 1986, 99-499, 100 Stat. 1613, the Resource Conservation
and Recovery Act of 1976, 42 U. S. C. ss. 6901 et seq., the Occupational Safety
and Health Act, 29 U S.C. ss. 651 et seq., the Clean Air Act, 42 U.S.C. ss. 7401
et seq., the Clean Water Act, 33 U. S. C. ss. 1251 et seq., the Emergency
Planning and Community Right to Know Act, 42 U. S. C. ss. 11001 et seq., the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 136 et seq.,
and the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., and any state
or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of a group of entities, organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning of
Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans that bear interest at rates based upon
the Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars in the
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approximate amount of the proposed Eurodollar Loan at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period. If such rate ceases to be
available from Telerate News Service, the Eurodollar Rate shall be determined by
the Administrative Agent in good faith from another financial reporting service,
which service shall be reasonably acceptable to the Borrower.
"Event of Default" has the meaning specified in Section 11.1.
"Excess Cash Flow" means, as to the Borrower and its Consolidated
Subsidiaries and for any fiscal year, the remainder of (a) EBITDA for such
fiscal year minus (b) the sum of (i) taxes payable in cash for such fiscal year,
plus (ii) all principal and cash interest payments on Debt made during such
fiscal year, whether optional, mandatory or scheduled payments, plus (iii)
Capital Expenditures (but only to the extent paid in cash and not financed) made
during such fiscal year.
"Excess Proceeds Amount" means as specified in Section 2.7(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"FCC" means the Federal Communications Commission and any successor
agency.
"FCC Licenses" means all Licenses issued by the FCC.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of 1%))
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if such
rate is not so published on such next succeeding Business Day, the Federal Funds
Rate for any day shall be the average rate which would be charged to the
Reference Bank on such day on such transactions as determined by the
Administrative Agent.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
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"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, License, authorization or other directive or requirement of any
federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them.
"Gross Margin Percentage" means, as to the Borrower and its
Consolidated Subsidiaries and for any period, the quotient of (a) the remainder
of (i) Gross Revenue for such period minus (ii) Network Costs, divided by (b)
Gross Revenue for such period, expressed as a percentage.
"Gross Revenues" means, as to the Borrower and its Consolidated
Subsidiaries and for any period, gross revenues of such Persons determined on a
consolidated basis in accordance with GAAP.
"Gross Up Lender" means as specified in Section 4.8.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any indebtedness, liability or obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (b) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
indebtedness, liability or obligation as to the payment thereof or to protect
the obligee against loss in respect thereof (in whole or in part), provided that
the term Guarantee shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The amount of any Guarantee shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum anticipated liability in respect thereof (assuming such Person is
required to perform thereunder).
"Guarantors" means each Subsidiary of the Borrower at any time existing
and each other Person which has executed a Guaranty and "Guarantor" means any of
such Persons.
"Guaranty" means a guaranty agreement guaranteeing payment and
performance of the Obligations in form and substance satisfactory to the
Administrative Agent executed by a Guarantor in favor of the Administrative
Agent and the Lenders, and any and all amendments, modifications, supplements,
renewals, extensions or restatements thereof.
"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro-organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is, or
is deemed to be, alone or in any combination, hazardous, hazardous waste, toxic,
a pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, including,
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without limitation, asbestos, petroleum, underground storage tanks (whether
empty or containing any substance) and polychlorinated biphenyls.
"Holdings" means State Communications, Inc., a South Carolina
corporation.
"Holdings Senior Bank Facility" means the credit facility of Holdings
and TriVergent providing for aggregate borrowings up to $120,000,000 under that
certain Loan Agreement dated as of January 31, 2000, as amended, supplemented or
restated from time to time.
"Insurance Recovery" means, with respect to any Property of the
Borrower or any of its Subsidiaries and any single occurrence or related
occurrences with respect thereto, the receipt or constructive receipt by such
Loan Party, or the payment by an insurance company to the Administrative Agent,
of proceeds of any such Property or casualty insurance.
"Intellectual Property" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark and
service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
"Interest Period" means, with respect to any Eurodollar Loan, each
period commencing on the date such Loan is made or Converted from a Base Rate
Loan or (if Continued) the last day of the next preceding Interest Period with
respect to such Loan, and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as the Borrower may
select as provided in Section 2.9 hereof, except that each such Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate subsequent
calendar month. Notwithstanding the foregoing: (a) each Interest Period which
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Maturity Date shall end on the
Maturity Date; (c) no more than five Interest Periods for Eurodollar Loans shall
be in effect at the same time; (d) no Interest Period shall have a duration of
less than one month and, if the Interest Period for any Eurodollar Loans would
otherwise be a shorter period, such Loans shall not be available hereunder; and
(e) no Interest Period for a Loan may commence before, and end after, any
principal payment date unless, after giving effect thereto, the aggregate
principal amount of the Eurodollar Loans having Interest Periods that end after
such principal payment date shall be equal to or less than the amount of the
applicable Loans scheduled to be outstanding hereunder after such principal
payment date.
"Interest Rate Protection Agreements" means, with respect to the
Borrower, an interest rate swap, cap or collar agreement or similar arrangement
between the Borrower and one or more Lenders providing for the transfer or
mitigation of interest rate risks either generally or under specified
contingencies.
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"Investments" means as specified in Section 9.5.
"Invoice" means a statement delivered under the Master Purchase
Agreement setting forth a description of the Nortel Networks Equipment and/or
the Nortel Networks Goods and Services delivered to the Borrower and/or the
Leasing Subsidiary, unit pricing, if applicable, freight charges and the total
amount due, with all charges reasonably itemized, which statement has not been
disputed by the Borrower or the Leasing Subsidiary in good faith.
"Leasing Subsidiary" means TriVergent Leasing South, LLC, a Delaware
single member limited liability company.
"Lender" and "Lenders" means as specified in the initial paragraph of
this Agreement.
"License" means any permit, certificate, approval, order, license or
other authorization, including, without limitation, any FCC License.
"Lien" means, with respect to any Property, any mortgage or deed of
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, hypothecation or other
lien, charge, easement (other than any easement not materially impairing
usefulness), encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Administrative Agent's Letter and all other agreements,
documents, instruments and certificates now or hereafter executed and/or
delivered pursuant to or in connection with any of the foregoing, and any and
all amendments, modifications, supplements, renewals, extensions or restatements
thereof.
"Loan Party" means the Borrower, Holdings, any Guarantor or any Person
who grants a Lien on any Property to secure the payment or performance of the
Obligations or any portion thereof, and "Loan Parties" means all of such
Persons.
"Loans" means as specified in Section 2.1(a).
"Management Services Agreement" means that certain Management Services
Agreement dated as of March 7, 2000, by and between the Borrower and TriVergent,
as amended, supplemented or restated from time to time.
"Master Asset Lease Agreement" means that certain Master Asset Lease
Agreement by and between Borrower and the Leasing Subsidiary and delivered to
the Administrative Agent prior to the date of the initial loan hereunder.
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"Master Purchase Agreement" means the that certain Master Purchase
Agreement dated as of May 29, 1999, by and between the Borrower, the Leasing
Subsidiary, TriVergent, TriVergent Leasing, LLC and Nortel Networks, as amended,
supplemented or restated from time to time.
"Material Adverse Effect" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, financial condition, results of operations or
prospects of Holdings and its Subsidiaries taken as a whole, (b) the business,
assets, financial condition, results of operations or prospects of the Borrower
individually or of the Borrower and its Subsidiaries taken as a whole, (c) the
validity or enforceability of any of the Loan Documents or the rights and
remedies of the Administrative Agent and/or the Lenders thereunder, (d) the
ability of any Loan Party to pay and perform its indebtedness, liabilities
and/or obligations under any of the Loan Documents, or (e) the value of
Collateral available to the Administrative Agent and the Lenders after giving
effect to Liens in favor of other Persons.
"Material Contracts" means, as to any Loan Party, any supply, purchase,
service, employment, tax, indemnity, shareholder or other agreement or contract
for which the aggregate amount or value of services performed or to be performed
for or by, or funds or other Property transferred or to be transferred to or by,
any Loan Party to such agreement or contract, or by which any Loan Party or any
of its Properties is otherwise bound, during any fiscal year of the Borrower
exceeds $1,000,000 (or the equivalent amount in any currency) and any and all
amendments, modifications, supplements, renewals or restatements thereof.
"Maturity Date" means the earlier to occur of (a) the third anniversary
of the Amortization Commencement Date or (b) the termination or repayment in
full of the Holdings Senior Bank Facility.
"Maximum Rate" means, with respect to any Lender, the maximum
non-usurious interest rate or an amount computed in reference to such rate (as
applicable), if any, that any time or from time to time may be contracted for,
taken, reserved, charged or received with respect to the particular Obligations
as to which such rate is to be determined, payable to such Lender pursuant to
this Agreement or any other Loan Document, under laws applicable to such Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow. The Maximum
Rate shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Borrower at the time of such change in
the Maximum Rate.
"Monthly Date" means the last day of each month of each year the first
of which shall be March 31, 2000.
"Mortgage" means a mortgage, deed of trust or other appropriate
agreement, document or instrument evidencing or creating a Lien on real Property
(and any related personal Property) as security for the Obligations or any
portion thereof in form and substance satisfactory to the Administrative Agent
executed by any Loan Party in favor of the Administrative Agent for the
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benefit of the Administrative Agent and the Lenders, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Mortgaged Properties" means Properties in which a Lien has been
granted or purported to be granted pursuant to a Mortgage.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by or are required
from the Borrower or any ERISA Affiliate since 1974 and which is covered by
Title IV of ERISA.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the
gross amount of cash received by the Borrower or any of its Subsidiaries from
such Asset Disposition, minus (b) the amount, if any, of all taxes paid or
payable by the Borrower or any of its Subsidiaries directly resulting from such
Asset Disposition (including the amount, if any, estimated by the Borrower in
good faith at the time of such Asset Disposition for taxes payable by the
Borrower or any of its Subsidiaries on or measured by net income or gain
resulting from such Asset Disposition), minus (c) the reasonable out-of-pocket
costs and expenses incurred by the Borrower or such Subsidiary in connection
with such Asset Disposition (including reasonable brokerage fees paid to a
Person other than an Affiliate of the Borrower) excluding any fees or expenses
paid to an Affiliate of the Borrower, minus (d) amounts applied to the repayment
of indebtedness (other than the Obligations) secured by any Permitted Lien (if
any) on the Property subject to the Asset Disposition. "Net Proceeds" with
respect to any Asset Disposition shall also include proceeds (after deducting
any amounts specified in clauses (b), (c) and (d) of the preceding sentence) of
insurance with respect to any actual or constructive loss of Property, an agreed
or compromised loss of Property or the taking of any Property under the power of
eminent domain and condemnation awards and awards in lieu of condemnation for
the taking of Property under the power of eminent domain.
"Network" means the Borrower's network for providing high speed data
and voice services in the Southeastern United States as described in the
Business Plan.
"Network Costs" means, for any period, all direct costs, other than
depreciation and amortization, associated with the provision of
telecommunications services (including resold services, switching, transport,
peripheral equipment components and all facilities costs) to customers of the
Borrower and its Subsidiaries.
"Nortel Networks" means Nortel Networks Inc., a Delaware corporation.
"Nortel Networks Equipment" means all equipment sold to the Borrower
and/or the Leasing Subsidiary pursuant to the Master Purchase Agreement.
"Nortel Networks Goods and Services" means sales, installation and
commissioning of Nortel Networks Equipment and related software, and project
management, system design and services performed by Nortel Networks personnel.
"Nortel Networks Software" means any and all software sold or licensed
by Nortel Networks to the Borrower or any other Loan Party, including, without
limitation, all source code and object
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code and all manuals and other documentation relating thereto and each copy
thereof regardless of the media in which they are stored.
"Notes" means the Notes in the form of Exhibit B hereto made by the
Borrower evidencing the Loans and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof and all substitutions
therefor (including promissory notes issued by the Borrower pursuant to Section
13.8), and "Note" means any such promissory note.
"Notice of Borrowing" means as specified in Section 2.9.
"Obligations" means any and all (a) indebtedness, liabilities and
obligations of the Borrower or any other Loan Party to the Administrative Agent
and the Lenders, or any of them, evidenced by and/or arising pursuant to any of
the Loan Documents (including, without limitation, this Agreement and the
Notes), now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several, including, without limitation, (i) the obligations of the Borrower
or any other Loan Party to repay the Loans, to pay interest on the Loans
(including, without limitation, interest accruing after any, if any, bankruptcy,
insolvency, reorganization or other similar filing) and to pay all fees,
indemnities, costs and expenses (including attorneys' fees) provided for in the
Loan Documents and (ii) the indebtedness constituting the Loans and such
interest, fees, indemnities, costs and expenses, and (b) indebtedness,
liabilities and obligations of the Borrower or any other Loan Party under any
and all Interest Rate Protection Agreements that it may enter into with any
Lender with the prior written consent of the Administrative Agent and the
Required Lenders.
"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the case
of a Multiemployer Plan, at any time since September 2, 1974, by any Borrower or
any ERISA Affiliate for employees of any Borrower or any ERISA Affiliate.
"Permit" means any permit, certificate, approval, order, License,
right-of-way (whether an easement, contract or agreement in any form) or other
authorization.
"Permitted Holders" means (a) the Persons identified on Schedule 1.1(a)
hereto, (b) any spouse, parent, sibling, child or grandchild of any of the
aforesaid individuals (in each case, whether such relationship arises from
birth, adoption or through marriage) or any trust established for the benefit of
any such individuals or any spouse, parent, sibling, child or grandchild of any
such individuals (in each case whether such relationship arises from birth,
adoption or through marriage), and (c) any Person not less than 80% of the
voting Capital Stock of which is owned of record and beneficially by a Person
identified on Schedule 1.1(a) hereto.
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"Permitted Liens" mean:
(a) Liens disclosed on Schedule 1.1(b) hereto;
(b) Liens securing the Obligations in favor of the
Administrative Agent (for the benefit of the Administrative Agent and
the Lenders) pursuant to the Loan Documents;
(c) Encumbrances consisting of easements, rights-of-way,
zoning restrictions or other restrictions on the use of real Property
or imperfections to title that do not (individually or in the
aggregate) materially affect the value of the Property encumbered
thereby or materially impair the ability of the Borrower or any of its
Subsidiaries to use such Property in its businesses, and none of which
is violated in any material respect by existing or proposed structures
or land use;
(d) Liens for taxes, assessments or other governmental charges
that are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such
Liens, and for which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that
are not yet due and are incurred in the ordinary course of business or
which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale
of the Property subject to such Liens, and for which adequate reserves
have been established;
(f) Liens resulting from good faith deposits to secure payment
of worker's compensation or other social security programs or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, contracts (other than for payment of Debt) or leases, all
in the ordinary course of business;
(g) Purchase-money Liens on any Property hereafter acquired or
the assumption after the Closing Date of any Lien on Property existing
at the time of such acquisition (and not created in contemplation of
such acquisition), or a Lien incurred after the Closing Date in
connection with any conditional sale or other title retention agreement
or Capital Lease Obligation; provided that:
(i) any Property subject to the foregoing is acquired
by the Borrower or any of its Subsidiaries in the ordinary
course of its respective business and the Lien on the Property
attaches concurrently or within 90 days after the acquisition
thereof;
(ii) the Debt secured by any Lien so created, assumed
or existing shall not exceed the lesser of the cost or fair
market value at the time of acquisition of the Property
covered thereby (inclusive of the cost of engineering,
furnishing and installation services directly relating to such
Property) and shall not be less than 75% of the amortized
value of the Property acquired with the proceeds of such Debt;
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(iii) each such Lien shall attach only to the
Property so acquired and the proceeds thereof; and
(iv) the Debt secured by all such Liens, when
aggregated with the Debt secured by all purchase-money Liens
and all Liens in connection with any conditional sale or other
title retention agreement or Capital Lease Obligation existing
as of the Closing Date or at any other time, shall not exceed
$5,000,000 at any time outstanding in the aggregate; or
(h) Any extension, renewal or replacement of any of the
foregoing, provided that Liens permitted hereunder shall not be
extended or spread to cover any additional indebtedness or Property;
provided, however, that (A) none of the Permitted Liens (except those in favor
of the Administrative Agent) may attach or relate to the Capital Stock of or any
other ownership interest in the Borrower or any of its Subsidiaries and (B)
except as expressly set forth on Schedule 1.1(b), none of the Permitted Liens
referred to in clause (a) preceding may have a priority equal or prior to the
Liens in favor of the Administrative Agent as security for the Obligations.
"Person" means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Loan Party or any ERISA
Affiliate, including any Pension Plan.
"Principal Office" means the principal office of the Administrative
Agent in Richardson, Texas, presently located at 2221 Lakeside Blvd.,
Richardson, Texas 75082.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Property" means property and assets of all kinds, whether real,
personal or mixed, tangible or intangible (including, without limitation, all
rights relating thereto), whether owned or acquired on or after the Closing
Date.
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be March 31, 2000.
"Receivables" means, as at any date of determination thereof, each and
every "account" as such term is defined in the UCC and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of the
Borrower or any of its Subsidiaries in respect of services rendered by the
Borrower or any of its Subsidiaries.
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"Reference Bank" means Citibank, N.A.
"Register" means as specified in Section 13.8(d).
"Registered Note" means as specified in Section 2.2(b).
"Registered Note Register" means as specified in Section 13.8(h).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Lender, any change after
the Closing Date in any U.S. federal or state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders including
such Lender of or under any U.S. federal or state or foreign laws or regulations
(whether or not having the force of law) by any Governmental Authority charged
with the interpretation or administration thereof.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, discharge, disposal, dispersement,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment or into or out of Property owned by such Person, including, without
limitation, the movement of Hazardous Materials through or in the air, soil,
surface water or ground water.
"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section 4043(b)
of ERISA other than any such event for which the 30-day notice requirement has
been waived in regulations issued by the PBGC.
"Required Lenders" means, at any date of determination, Lenders holding
at least two-thirds (in Dollar amount) of the sum of (a) the aggregate
outstanding principal amount of the Loans, plus (b) the aggregate amount of the
outstanding Commitments.
"Required Payment" means as specified in Section 3.4.
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for
any Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation
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D. Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such Lenders by reason
of any Regulatory Change against (a) any category of liabilities which includes
deposits by reference to which the Eurodollar Rate or the Adjusted Eurodollar
Rate is to be determined or (b) any category of extensions of credit or other
assets which include Eurodollar Loans.
"Responsible Officer" means, as to any Loan Party, the chief executive
officer, the president, any vice president, the chief financial officer, the
chief operating officer or the treasurer of such Person.
"Restricted Payment" means (a) any dividend or other distribution
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of the Borrower or any of its Subsidiaries
now or hereafter outstanding, except a dividend payable solely in shares of that
class of stock to the holders of that class; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of Capital
Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding;
(c) any payment or prepayment of principal of, premium, if any, or interest on,
or any redemption, conversion, exchange, purchase, retirement or defeasance of,
or payment with respect to, any subordinated debt; (d) any loan, advance or
payment to any officer, director or shareholder of the Borrower or any of its
Subsidiaries (other than a shareholder consisting of the Borrower or a
Wholly-Owned Subsidiary of the Borrower), exclusive of reasonable compensation
paid to officers or directors paid in the ordinary course of business; and (e)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Capital
Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding.
"Security Agreements" means security agreements, pledge agreements,
securities pledge agreements and other agreements, documents or instruments
evidencing or creating a Lien as security for the Obligations or any portion
thereof in form and substance satisfactory to the Administrative Agent executed
by any Loan Party, in favor of the Administrative Agent for the benefit of the
Administrative Agent and the Lenders, and any such agreement, document or
instrument subsequently executed in accordance or connection with this Agreement
or any other Loan Document, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Security Documents" means the Security Agreements and the Mortgages,
as they may be amended, modified, supplemented, renewed, extended or restated
from time to time, and any and all other agreements, deeds of trust, mortgages,
chattel mortgages, security agreements, pledges, guaranties, assignments of
proceeds, assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance or other collateral assignments, subordination agreements,
undertakings and other agreements, documents, instruments and financing
statements now or hereafter executed and/or delivered by any Person in
connection with or as security or assurance for the payment or performance of
the Obligations or any part thereof.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair
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saleable value) is greater than the total liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair
saleable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (c) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
Property would constitute unreasonably small capital after giving due
consideration to current and anticipated future capital requirements and current
and anticipated future business conduct and the prevailing practice in the
industry in which such Person is engaged. In computing the amount of contingent
liabilities at any time, such liabilities shall be computed at the amount which,
in light of the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding shares of stock or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation or entity (irrespective of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more of its Subsidiaries or by such Person and one or more
of its Subsidiaries.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (a) transmitting,
or providing services relating to the transmission of, voice, data or video
through owned or leased transmission facilities, (b) constructing, creating,
developing or marketing communications related network equipment, software and
other devices for use in a telecommunications business or (c) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in clause (a) or (b) above, provided that the
determination of what constitutes a Telecommunications Business shall be made in
good faith by the Board of Directors.
"Total Capitalization" means, as to the Borrower and its Consolidated
Subsidiaries and as of any date, the sum of (a) Total Debt of such Persons as of
such date plus (b) Contributed Capital of such Persons as of such date.
"Total Debt" means, as to the Borrower and its Consolidated
Subsidiaries and as of any date, the aggregate principal amount of all Debt of
such Persons outstanding, determined on a consolidated basis in accordance with
GAAP.
"TriVergent" means TriVergent Communications, Inc., a South Carolina
corporation.
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"Type" means any type of Loan (i.e., a Base Rate Loan or Eurodollar
Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of
New York and/or any other jurisdiction, the laws of which may be applicable to
or in connection with the creation, perfection or priority of any Lien on any
Property created pursuant to any Security Document.
"U.S." means the United States of America.
"U.S. Person" means a citizen or resident of the U.S., a corporation,
partnership, limited liability company or other entity created or organized in
or under any laws of the U.S. or any estate or trust that is subject to U.S.
Federal income taxation regardless of the source of its income.
"U.S. Taxes" means any present or future tax, assessment or other
charge or levy imposed by or on behalf of the U.S. or any taxing authority
thereof.
"Vendor" means Nortel Networks in its capacity as vendor under the
Master Purchase Agreement.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors, managers or general
partners (or persons performing similar functions) of such Person, whether at
all times or only for so long as no senior class of securities has such voting
power by reason of any contingency.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of such Person all of whose outstanding Capital Stock (other than
directors' qualifying shares, if any) shall at the time be owned by such Person
and/or one or more of its Wholly-Owned Subsidiaries.
"Year 2000 Compliant" means that (a) the services, products or other
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (b) neither the performance nor the functionality nor the
business' provision of the services, products and other item(s) at issue will be
affected by any dates/times prior to, on, after or spanning January 1, 2000. The
design of the services, products and other item(s) at issue to ensure compliance
with the "year 2000" representations and warranties and covenants contained in
this Agreement includes proper date/time data century recognition and
recognition of 1999 and 2000, calculations that accommodate single century and
multi-century formulae and date/time values before, on, after and spanning
January 1, 2000, and date/time data interface values that reflect the century,
1999 and 2000. In particular, but without limitation, such design means that (i)
no value for current date/time will cause any error, interruption or decreased
performance in or for such services, products and other item(s), (ii) all
manipulations of date and time related data (including calculating, comparing,
sequencing processing and outputting) will produce correct results for all valid
dates and times when used independently or in combination with other services,
products and/or items, (iii) date/time elements in interfaces and data storage
will specify the century to eliminate date ambiguity without human intervention,
including leap year calculations, (iv) where any date/time element is
represented without a century, the correct century will be unambiguous for all
manipulations involving that
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element, (v) authorization codes, passwords and zaps (purge functions) will
function normally and in the same manner during, prior to, on and after January
1, 2000, including the manner in which they function with respect to expiration
dates and CPU serial numbers, and (vi) the business' supply of the services,
products and other item(s) will not be interrupted, delayed, decreased or
otherwise affected by the advent of the year 2000.
Section 1.2 Other Definitional Provisions. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. The term "continuing",
"continuation" or "continuance" means, in reference to any Default or Event of
Default that has occurred, that such Default or Event of Default has not been
either cured to the reasonable satisfaction of the Administrative Agent within
the applicable grace period (if any) specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite Lenders in
accordance with Section 13.11. Unless otherwise specified, all Article and
Section references pertain to this Agreement. Terms used herein that are defined
in the UCC, unless otherwise defined herein, shall have the meanings specified
in the UCC. All references in this Agreement to any agreement shall be deemed to
mean and refer to such agreement as it may be amended, modified or supplemented
from time to time if (but only if) such amendment, modification or supplement
has been approved by the Administrative Agent and the Required Lenders, is
expressly referred to in such reference or is otherwise expressly permitted by
the terms of this Agreement.
Section 1.3 Accounting Terms and Determinations.
(a) All accounting terms not specifically defined herein shall be
construed in accordance with GAAP (subject to year end adjustments, if
applicable) consistent with such accounting principles applied in the
preparation of the audited financial statements referred to in Section 7.2(a).
All financial information delivered to the Administrative Agent pursuant to
Section 8.1 shall be prepared in accordance with GAAP (subject to year end
adjustments, if applicable) applied on a basis consistent with such accounting
principles applied in the preparation of the audited financial statements of
such Person referred to in Section 7.2 or in accordance with Section 8.7.
(b) The Borrower shall deliver to the Administrative Agent and the
Lenders, at the same time as the delivery of any annual or quarterly financial
statement under Section 8.1, (i) a description, in reasonable detail, of any
material variation between the application of GAAP employed in the preparation
of the next preceding annual or quarterly financial statements in accordance
with the last sentence of subsection (a) preceding and (ii) reasonable estimates
of the difference between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance with
the covenants set forth in this Agreement, the Borrower will not change the last
day of its fiscal year from December 31 or the last days of the first three
fiscal quarters of the Borrower in each of its fiscal years from March 31, June
30 and September 30, respectively.
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<PAGE> 29
(d) Unless otherwise expressly provided herein to the contrary, all
references herein to the Closing Date shall be deemed to mean and refer to the
Closing Date after giving effect to all transactions which occur on or before
such date.
Section 1.4 Financial Covenants and Reporting. All financial statements
and reports required to be delivered pursuant to this Agreement and the other
Loan Documents, and all financial covenants (if any) contained in this
Agreement, shall be prepared or determined (as applicable) in accordance with
GAAP (except as the absence of footnotes in unaudited financial statements and
except as may be expressly provided to the contrary herein). If and to the
extent that such financial statements, reports or covenants are to be prepared
or determined on a consolidated basis, they shall be prepared or determined on a
consolidated basis for Holdings and its Subsidiaries and the Borrower and its
Subsidiaries, as the case may be.
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Loans. Subject to the terms and conditions of this Agreement
(including, without limitation, Section 2.13(a)), each Lender severally agrees
to make one or more loans to the Borrower from time to time from and including
the Closing Date to but excluding the Commitment Termination Date up to but not
exceeding the amount of such Lender's Commitment as then in effect. (Such loans
referred to in this Section 2.1(a) now or hereafter made by the Lenders to the
Borrower, including, without limitation, such loans which remain outstanding
after the Commitment Termination Date, are hereinafter collectively called the
"Loans".) The Borrower may not reborrow the Loans which have been repaid.
(b) Continuation and Conversion of Loans. Subject to the terms and
conditions of this Agreement, the Borrower may borrow the Loans as Base Rate
Loans or Eurodollar Loans and, until the Maturity Date, the Borrower may
Continue Eurodollar Loans or Convert Loans of one Type into Loans of the other
Type.
(c) Lending Offices. Loans of each Type made by each Lender shall be
made and maintained at such Lender's Applicable Lending Office for Loans of such
Type.
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Section 2.2 Notes.
(a) Notes. The Loans made by each Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit B hereto
dated the Closing Date (or such later date on which such Lender becomes a party
to this Agreement), payable to the order of such Lender in a principal amount
equal to the sum of (i) the aggregate principal amount of Loans of such Lender
plus (ii) the aggregate principal amount of the unfunded Commitment of such
Lender relating to Loans as originally in effect. Each Lender is hereby
authorized by the Borrower to endorse on the schedule (or a continuation
thereof) attached to the Note of such Lender, to the extent applicable, the
date, amount and Type of and the Interest Period for each applicable Loan made
by such Lender to the Borrower and the amount of each payment or prepayment of
principal of such Loan received by such Lender, provided that any failure by
such Lender to make any such endorsement shall not affect the obligations of the
Borrower under any such Note or this Agreement in respect of any such Loan.
(b) Registered Notes. Any Lender that is not a U.S. Person and that
could become completely exempt from withholding of U.S. Taxes in respect of
payment of any Obligations due to such Lender hereunder relating to any of its
Loans if such Loans were in registered form for U.S. Federal income tax purposes
may request the Borrower (through the Administrative Agent), and the Borrower
agrees thereupon, to exchange such Lender's Note evidencing its Loans for a
promissory note registered as provided in Section 13.8(h) hereof (a "Registered
Note"). Registered Notes may not be exchanged for Notes that are not in
registered form.
Section 2.3 Repayment of Loans. The Borrower shall pay to the
Administrative Agent for the account of each Lender the principal of the Loans
outstanding as of the Commitment Termination Date (and the principal of such
Loans outstanding as of such date shall be due and payable) in 12 quarterly
installments, commencing on the Amortization Commencement Date, and continuing
on each Quarterly Date thereafter through and including the Maturity Date, each
of which installments shall be in an amount equal to the percentage of the
aggregate principal amount of such Loans outstanding as of the Amortization
Commencement Date specified in the following table:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Percentage of the Aggregate Principal Amount of
Principal Installment each of the Loans Due and Payable
-------------------------------------------------------------------------------
<S> <C>
1 8.33%
-------------------------------------------------------------------------------
2 8.33%
-------------------------------------------------------------------------------
3 8.34%
-------------------------------------------------------------------------------
4 8.33%
-------------------------------------------------------------------------------
5 8.33%
-------------------------------------------------------------------------------
6 8.34%
-------------------------------------------------------------------------------
7 8.33%
-------------------------------------------------------------------------------
8 8.33%
-------------------------------------------------------------------------------
9 8.34%
-------------------------------------------------------------------------------
10 8.33%
-------------------------------------------------------------------------------
11 8.33%
-------------------------------------------------------------------------------
12 8.34%
-------------------------------------------------------------------------------
</TABLE>
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In addition, the Borrower shall pay to the Administrative Agent for the account
of each Lender all outstanding principal of the Loans (and all outstanding
principal of the Loans shall be due and payable) on the Maturity Date.
Section 2.4 Interest.
(a) Interest Rate. The Borrower shall pay to the Administrative Agent
for the account of each Lender interest on the unpaid principal amount of each
Loan made by such Lender (or deemed made by such Lender with respect to a Loan
assigned to such Lender after the making of such Loan) to the Borrower for the
period commencing on the date of such Loan to, but excluding, the date such Loan
shall be paid in full, at the following rates per annum:
(i) during the periods such Loan is a Base Rate Loan, the
lesser of (A) the Base Rate plus the Applicable Margin or (B) the
Maximum Rate; and
(ii) during the periods such Loan is a Eurodollar Loan, the
lesser of (A) the Adjusted Eurodollar Rate plus the Applicable Margin
or (B) the Maximum Rate.
(b) Payment Dates. Accrued interest on Loans shall be due and payable
as follows:
(i) in the case of Base Rate Loans, on each Monthly Date;
(ii) in the case of each Eurodollar Loan, on the last day of
the Interest Period with respect thereto and, in the case of an
Interest Period greater than three months, at three-month intervals
after the first day of such Interest Period;
(iii) upon the payment or prepayment (whether mandatory or
optional) of any such Loan or the Conversion of any such Loan to a Loan
of the other Type (but only on the principal amount so paid, prepaid or
Converted); and
(iv) with respect to all such Loans, on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, the Borrower shall
pay to the Administrative Agent for the account of each Lender interest at the
applicable Default Rate (i) at all times during which any Default has occurred
and is continuing, on any principal of any Loan outstanding, and (ii) to the
fullest extent permitted by law, any other amount payable by the Borrower under
this Agreement or any other Loan Document to or for the account of such Lender
which is not paid in full when due (whether at stated maturity, by acceleration
or otherwise) for the period from and including the due date thereof to but
excluding the date the same is paid in full. Interest payable at the Default
Rate shall be payable from time to time on demand by the Administrative Agent.
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Section 2.5 Borrowing Procedure.
(a) Standard Procedure. The Borrower shall give the Administrative
Agent notice of each borrowing hereunder in accordance with Section 2.9. Not
later than 1:00 p.m. (New York, New York time) on the date specified for each
borrowing hereunder, each Lender will make available the amount of the Loan to
be made by it on such date to the Administrative Agent, at the Principal Office,
in immediately available funds, for the account of the Borrower. The amount of
each borrowing hereunder so received by the Administrative Agent shall, subject
to the terms and conditions of this Agreement, be made available, for and on
behalf of the Borrower, in immediately available funds by no later than 1:00
p.m. (New York, New York time); provided, however, that the Administrative Agent
may, in its discretion, cause such amount to be made available directly to or
for the benefit of the Person who is to receive the proceeds of such Loan in
accordance with Section 2.10. Notwithstanding anything to the contrary contained
in this Agreement, if and to the extent that Nortel Networks is a Lender under
this Agreement, the Borrower further hereby irrevocably agrees that each Loan to
be advanced by Nortel Networks to the Borrower in accordance with this Agreement
(and only in accordance with this Agreement and after the Administrative Agent's
receipt of a Notice of Borrowing executed by the Borrower) may (in the
discretion of Nortel Networks and if and to the extent that the proceeds of such
Loan are to be paid to Nortel Networks) be effectively disbursed on the date set
forth in the Notice of Borrowing for such disbursement to the Borrower by virtue
of a credit in the amount of such Loan given to the Borrower and/or the Leasing
Subsidiary under the Master Purchase Agreement.
(b) Automatic Advancement of Loans. Notwithstanding anything to the
contrary contained in this Agreement, the Administrative Agent shall, at the
request of Nortel Networks so long as it is the sole Lender hereunder, cause
Loans to be advanced by the Lender for and on behalf of the Borrower whether or
not (i) any Notice of Borrowing is given in accordance with Section 2.9, (ii)
any of the conditions precedent set forth in Article 6 hereof are satisfied,
(iii) any Default exists, or (iv) any other fact or circumstance exists, if
Nortel Networks shall have given five Business Day's prior written notice to the
Administrative Agent and the Borrower of Nortel Networks' desire to cause the
Lender to make such Loans and all proceeds of such Loans are used to pay the
purchase price for Nortel Networks Goods and Services which has not been paid
within 45 days after the date of delivery to the Borrower and/or the Leasing
Subsidiary of an Invoice therefor and/or to pay accrued late charges relating to
such purchase price in accordance with the Master Purchase Agreement. All Loans
advanced pursuant to this Section 2.5(b) shall be initially advanced as
Eurodollar Loans with a one month Interest Period or, if the maximum number of
Interest Periods for Eurodollar Loans is already then in effect, as Base Rate
Loans (but after such advancement, may be Converted or Continued in accordance
with this Agreement).
Section 2.6 Optional Prepayments, Conversions and Continuations of
Loans. Subject to Section 2.7, the Borrower shall have the right from time to
time to prepay the Loans in whole or in part, to Convert all or part of a Loan
of one Type into a Loan of another Type or to Continue Eurodollar Loans;
provided that: (a) the Borrower shall give the Administrative Agent notice of
each such prepayment, Conversion or Continuation as provided in Section 2.9, (b)
Eurodollar Loans may only be Converted on the last day of the Interest Period
and any prepayment of Eurodollar Loans on any day other than the last day of the
Interest Period shall be subject to payment of the additional
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compensation specified in Section 4.5, (c) except for Conversions of Eurodollar
Loans into Base Rate Loans, no Conversions or Continuations shall be made while
a Default has occurred and is continuing, and (d) optional prepayments of the
Loans shall be applied pro rata to the principal of the Loans in the inverse
order of the maturities of the then remaining installments of such Loans. No
amounts prepaid pursuant to this Section 2.6 may be reborrowed.
Section 2.7 Mandatory Prepayments.
(a) Asset Dispositions, etc. The Borrower shall, within two Business
Days after it receives in excess of $100,000 during any period of 12 consecutive
months or less from any combination of Net Proceeds of any Asset Disposition,
proceeds of any Insurance Recovery or proceeds of condemnation awards (the
amount of such proceeds exceeding $100,000 received during any such period are
herein called the "Excess Proceeds Amount"), pay to the Administrative Agent, as
a prepayment of the Loans, an aggregate amount equal to the Excess Proceeds
Amount; provided, that no such prepayment will be required if and to the extent
that the Excess Proceeds Amount is fully re-invested in productive assets used
in the ordinary course of Borrower's or its Subsidiary's (as applicable)
business within 60 days of the receipt of such Excess Proceeds Amount; provided,
further, however, that the Excess Proceeds Amount shall be deposited into a cash
collateral account held by the Administrative Agent pursuant to an agreement in
form and substance satisfactory to the Administrative Agent until such time as
such amount is either re-invested within 60 days of the receipt thereof or
applied to the Loans or other Obligations as provided in this Section 2.7.
(b) Excess Cash Flow. The Borrower shall, commencing on the first March
31 following the Commitment Termination Date, and on each anniversary
thereafter, pay (or cause to be paid) to the Administrative Agent, as a
prepayment of the Loans and other Obligations then outstanding, an aggregate
amount equal to seventy-five percent (75%) of Excess Cash Flow for the fiscal
year then most recently ended.
(c) Proceeds of Sale or Placement of Debt or Capital Stock. The
Borrower shall, within five Business Days after Borrower receives proceeds after
the date hereof from sales or placements of Debt or Capital Stock, prepay the
outstanding Loans in the full amount of net proceeds (i.e. gross proceeds less
reasonable out-of-pocket transactions costs) received.
(d) Application of Mandatory Prepayments. All prepayments pursuant to
Section 2.7(a), Section 2.7(b), and Section 2.7(c) shall be applied pro rata to
the principal of the Loans in the inverse order of the maturities of the then
remaining installments of the Loans and then to the remaining outstanding
Obligations in such order as the Administrative Agent may determine. No
prepayment shall be required to be made by the Borrower pursuant to Section 2.7
until such date as the Borrower may make such prepayment without incurring an
additional cost or expense under Section 4.5(a) as a result of such prepayment.
(e) No Reborrowing. No amounts of the Loans prepaid pursuant to this
Section 2.7 may be reborrowed.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
pursuant to Section 2.7 and Article 4, each borrowing, Conversion and each
optional prepayment of principal
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of the Loans shall be in an amount at least equal to $1,000,000 or an integral
multiple of $100,000 in excess thereof (borrowings, prepayments or Conversions
of or into Loans of different Types or, in the case of Eurodollar Loans, having
different Interest Periods at the same time hereunder shall be deemed separate
borrowings, prepayments and Conversions for purposes of the foregoing, one for
each Type or Interest Period).
Section 2.9 Certain Notices. Notices by the Borrower to the
Administrative Agent of terminations or reductions of Commitments, of
borrowings, Conversions, Continuations and prepayments of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the Administrative Agent not later than 11:00 a.m. (New York, New
York, time) on the Business Day prior to the date of the relevant termination,
reduction, borrowing, Conversion, Continuation or prepayment or the first day of
such Interest Period specified below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Number of
Notice Business Days Prior
- -----------------------------------------------------------------------------------
<S> <C>
Terminations or Reductions of Commitments 1
- -----------------------------------------------------------------------------------
Borrowings of Loans which are Base Rate Loans 2
- -----------------------------------------------------------------------------------
Borrowings of Loans which are Eurodollar Loans 3
- -----------------------------------------------------------------------------------
Prepayments of Loans 3
- -----------------------------------------------------------------------------------
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Each such notice of termination, reduction, borrowing,
Conversion, Continuation or prepayment shall be in the form of Exhibit C hereto,
appropriately completed as applicable. Each notice of borrowing (a "Notice of
Borrowing") (a) shall certify that all proceeds of the requested Loans are,
concurrently with the making of such Loans, being used by the Borrower for the
purpose specified in Section 2.10 and (b) shall be accompanied by such other
evidence as to use of the proceeds of such borrowing, as the Administrative
Agent may reasonably request from time to time. Each notice which includes
reference to the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. The Administrative Agent shall promptly
notify the Lenders of the contents of each such notice. In the event the
Borrower fails to select the Type of Loan, or the duration of any Interest
Period for any Eurodollar Loan, within the time period and otherwise as provided
in this Section 2.9, such Loan (if outstanding as Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last day of preceding
Interest Period for such Loan or (if outstanding as a Base Rate Loan) will
remain as, or (if not then outstanding) will be made as, a Base Rate Loan. The
Borrower may not borrow any Eurodollar Loans, Convert any Loans into Eurodollar
Loans or Continue any Loans as Eurodollar Loans if the interest rate for such
Eurodollar Loans would exceed the Maximum Rate.
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Section 2.10 Use of Proceeds.
(a) Loans. The Borrower agrees that all proceeds of the Loans shall be
used by the Borrower to (i) finance the Borrower's purchase of Nortel Networks
Goods and Services under the Master Purchase Agreement, excluding sales and use
taxes and freight charges and/or (ii) make advances to the Leasing Subsidiary to
finance the Leasing Subsidiary's purchase of Nortel Networks Goods and Services
under the Master Purchase Agreement, excluding sales and use taxes and freight
charges.
(b) Margin Stock. None of the proceeds of any Loan have been or will be
used to acquire any security in any transaction that is subject to Section 13 or
14 of the Exchange Act or to purchase or carry any margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System).
Section 2.11 Fees.
(a) Subject to Section 13.12, the Borrower shall pay to the
Administrative Agent for the account of each applicable Lender, a commitment fee
on the daily average unused or unfunded amount of each of such Lender's
Commitments (as the same may be reduced or terminated pursuant to Section 2.13)
for the period from and including the Closing Date through the Commitment
Termination Date, at the rate of one percent (1.00%) per annum based on a 360
day year and the actual number of days elapsed, which accrued commitment fees
shall be payable in arrears on each Quarterly Date and on the Commitment
Termination Date.
(b) Subject to Section 13.12, the Borrower agrees to pay to the
Administrative Agent and Nortel Networks such additional fees as are specified
in the Administrative Agent's Letter, which fees shall be payable in such
amounts and on such dates as are specified therein.
Section 2.12 Computations. Interest and fees payable by the Borrower
hereunder and under the other Loan Documents on all Loans shall be computed on
the basis of a year of 360 days and the actual number of days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable unless, in the case of interest, such calculation would result in a
usurious rate, in which case interest shall be calculated on the basis of a year
of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments.
(a) Notwithstanding anything to the contrary contained in this
Agreement, each of the Commitments shall automatically terminate upon the
occurrence of any Change in Control.
(b) The Borrower shall have the right to terminate or reduce in part
the unused portion of the Commitments at any time and from time to time prior to
the Commitment Termination Date; provided, however, that no such termination or
reduction shall be effective unless the Borrower shall have given notice of each
such termination or reduction as provided in Section 2.9 and each partial
reduction of the Commitments shall be in an aggregate amount at least equal to
$1,000,000 or an integral multiple of $100,000 in excess thereof.
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(c) The Commitments may not be reinstated after they have been
terminated or increased after they have been reduced.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal, interest,
fees and other amounts to be made by the Borrower under this Agreement and the
other Loan Documents shall be made to the Administrative Agent at the Principal
Office for the account of each Lender's Applicable Lending Office in Dollars and
in immediately available funds, without setoff, deduction or counterclaim, not
later than 1:00 p.m. (New York, New York time) on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). The Borrower
shall, at the time of making each such payment, specify to the Administrative
Agent the sums payable by the Borrower under this Agreement and the other Loan
Documents to which such payment is to be applied (and in the event that the
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Administrative Agent may apply such payment to the Obligations
in such order and manner as the Administrative Agent may elect, subject to
Section 3.2). Upon the occurrence and during the continuation of an Event of
Default, all proceeds of any Collateral and all other funds of the Borrower in
the possession of the Administrative Agent or any Lender, may be applied by the
Administrative Agent to the Obligations in such order and manner as the
Administrative Agent may elect, subject to Section 3.2. Each payment received by
the Administrative Agent under this Agreement or any other Loan Document for the
account of a Lender shall be paid promptly to such Lender, in immediately
available funds, for the account of such Lender's Applicable Lending Office.
Whenever any payment under this Agreement or any other Loan Document shall be
stated to be due on a day that is not a Business Day, such payment may be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of the payment of interest and commitment
fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise provided
in this Agreement: (a) each Loan shall be made by the Lenders under Section 2.1,
each payment of commitment fees under Section 2.11(a) shall be made for the
account of the Lenders, and each termination or reduction of the Commitments
under Section 2.13 shall be applied to the Commitments of the Lenders, pro rata
according to the respective unused Commitments; (b) the making, Conversion and
Continuation of Loans of a particular Type (other than Conversions provided for
by Section 4.4) shall be made pro rata among the Lenders holding Loans of such
Type according to the amounts of their respective Commitments; (c) each payment
and prepayment by the Borrower of principal of or interest on Loans of a
particular Type shall be made to the Administrative Agent for the account of the
Lenders holding Loans of such Type pro rata in accordance with the respective
unpaid principal amounts of such Loans held by such Lenders; and (d) Interest
Periods for Loans of a particular Type shall be allocated among the Lenders
holding Loans of such Type pro rata according to the respective principal
amounts held by such Lenders.
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Section 3.3 Sharing of Payments, Etc. If a Lender shall obtain payment
of any principal of or interest on any of the Obligations due to such Lender
hereunder through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from the
other Lenders participations in the Obligations held by the other Lenders in
such amounts, and make such adjustments from time to time, as shall be equitable
to the end that all the Lenders shall share pro rata in accordance with the
unpaid principal and interest on the Obligations then due to each of them. To
such end, all of the Lenders shall make appropriate adjustments among themselves
(by the resale of participations sold or otherwise) if all or any portion of
such excess payment is thereafter rescinded or must otherwise be restored. The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any Lender so purchasing a participation in the Obligations by the
other Lenders may exercise all rights of setoff, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Obligations in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any such right or shall
affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness, liability or
obligation of the Borrower.
Section 3.4 Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Lender or the Borrower
(the "Payor") prior to the date on which such Lender is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent for the account of one
or more of the Lenders, as the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Administrative Agent,
the Administrative Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient on such date and, if the
Payor has not in fact made the Required Payment to the Administrative Agent, the
recipient of such payment shall, on demand, pay to the Administrative Agent the
amount made available to it together with interest thereon in respect of the
period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such period.
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Section 3.5 Taxes.
(a) All payments by the Borrower of principal of and interest on the
Loans and of all fees and other amounts payable under the Loan Documents shall
be made free and clear of, and without withholding or deduction by reason of,
any present or future taxes, levies, duties, imposts, assessments or other
charges levied or imposed by any Governmental Authority (other than franchise
taxes and taxes on the overall net income of any Lender). If any such taxes,
levies, duties, imposts, assessments or other charges are so levied or imposed,
the Borrower will (i) make additional payments in such amounts so that every net
payment of principal of and interest on the Loans and of all other amounts
payable by it under the Loan Documents, after withholding or deduction for or on
account of any such present or future taxes, levies, duties, imposts,
assessments or other charges (including any tax imposed on or measured by net
income of a Lender attributable to payments made to or on behalf of a Lender
pursuant to this Section 3.5 and any penalties or interest attributable to such
payments), will not be less than the amount provided for herein or therein
absent such withholding or deduction (provided that the Borrower shall not have
any obligation to pay such additional amounts to any Lender to the extent that
such taxes, levies, duties, imposts, assessments or other charges are levied or
imposed by reason of the failure of such Lender to comply with the provisions of
Section 3.6), (ii) make such withholding or deduction and (iii) remit the full
amount deducted or withheld to the relevant Governmental Authority in accordance
with applicable law. Without limiting the generality of the foregoing, the
Borrower will, upon written request of any Lender, reimburse each such Lender
for the amount of (A) such taxes, levies, duties, imports, assessments or other
charges so levied or imposed by any Governmental Authority and paid by such
Lender as a result of payments made by the Borrower under or with respect to the
Loans other than such taxes, levies, duties, imports, assessments and other
charges previously withheld or deducted by the Borrower which have previously
resulted in the payment of the required additional amount to such Lender, and
(B) such taxes, levies, duties, assessments and other charges so levied or
imposed with respect to any Lender reimbursement under the foregoing clause (A),
so that the net amount received by such Lender (net of payments made under or
with respect to the Loans) after such reimbursement will not be less than the
net amount such Lender would have received if such taxes, levies, duties,
assessments and other charges on such reimbursement had not been levied or
imposed. The Borrower shall furnish promptly to the Administrative Agent for
distribution to each affected Lender, as the case may be, upon request of such
Lender, official receipts evidencing any such payment, withholding or reduction.
(b) The Borrower will indemnify the Administrative Agent and each
Lender (without duplication) against, and reimburse the Administrative Agent and
each Lender for, all present and future taxes, levies, duties, imposts,
assessments or other charges (including interest and penalties) levied or
collected (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on the overall net income of
the Administrative Agent or such Lender or any lending office of the
Administrative Agent or such Lender by any jurisdiction in which the
Administrative Agent or such Lender or any such lending office is located, on or
in respect of this Agreement, any of the Loan Documents or the Obligations or
any portion thereof (the "reimbursable taxes"). Any such indemnification shall
be on an after-tax basis, taking into account any such reimbursable taxes
imposed on the amounts paid as indemnity.
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(c) Without prejudice to the survival of any other term or provision of
this Agreement, the obligations of the Borrower under this Section 3.5 shall
survive the payment of the Loans and the other Obligations and termination of
the Commitments.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Closing Date or the date upon
which it initially becomes a party to this Agreement and if it is legally able
to do so, deliver to the Borrower and the Administrative Agent, two duly
completed copies of U.S. Internal Revenue Service Form 1001, 4224 or W-8, as
appropriate, certifying in any case that such Lender is entitled to receive
payments from the Borrower under any Loan Document without deduction or
withholding of any U.S. federal income taxes. Each Lender which so delivers a
Form 1001, 4224 or W-8 further undertakes to deliver to the Borrower and the
Administrative Agent, two additional copies of such form (or a successor form)
on or before the date such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form so delivered
by it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrower or the Administrative Agent, in each case
certifying that such Lender is entitled to receive payments from the Borrower
under any Loan Document without deduction or withholding of any U.S. federal
income taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the
Administrative Agent that it is not capable of receiving such payments without
any deduction or withholding of U.S. federal income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding anything to
the contrary contained in this Agreement or any other Loan Document, if the
payment of any amount of principal of or interest with respect to the Loans or
any other amount of the Obligations, or any portion thereof, is rescinded,
voided or must otherwise be refunded by the Administrative Agent or any Lender
upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise
for any reason whatsoever, then each of (a) the Obligations, (b) the Loan
Documents (including, without limitation, this Agreement, the Notes and the
Security Documents), (c) the indebtedness, liabilities and obligations of the
Borrower and any other Loan Parties and (d) all Liens for the benefit of the
Administrative Agent and the Lenders created under or evidenced by the Loan
Documents, will be automatically reinstated and become automatically effective
and in full force and effect, all to the extent that and as though such payment
so rescinded, voided or otherwise refunded had never been made.
Section 3.8 No Force Majeure, Disputes. The Borrower's obligation to
pay all amounts due under the Loans and the other Obligations shall not be
affected by (a) any set-off, counterclaim, recoupment, deduction, abatement,
suspension, diminution, reduction, defense or other right which the Borrower,
the Leasing Subsidiary, TriVergent or TriVergent Leasing, LLC may have against
the Vendor for any reason whatsoever arising under or pursuant to the Master
Purchase Agreement or otherwise relating to the purchase of goods or services
from the Vendor, (b) any defect in the condition, design, operation or fitness
for use of, or any damage to or loss or destruction of, any equipment or
material or service provided by the Vendor, (c) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Borrower or affecting
any of its Properties,
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(d) any action of any Governmental Authority or any damage to or destruction of
or any taking of the Borrower's Property or any part thereof, (e) any change,
waiver, extension, indulgence or failure to perform or comply with, or other
action or omission herein or in the other Loan Documents (except for express
written modifications to this Agreement or other Loan Documents as and in the
manner permitted under this Agreement or the other Loan Documents), (f) any
dissolution of the Borrower, (g) any inability or illegality with respect to the
use or ownership of the Borrower's Property, (h) any failure to obtain, or
expiration, suspension or other termination of, or interruption to, any required
licenses, permits, consents, authorizations, approvals or other legal
requirements, (i) the invalidity or unenforceability of any of the Loan
Documents or any other infirmity therein or any lack of power or authority of
the Administrative Agent or any Lender or the Borrower, or (j) any other event
or circumstance whatsoever, whether or not similar to any of the foregoing and
whether or not the Borrower shall have notice or knowledge of any of the
foregoing, it being the intention of the Administrative Agent and the Lenders
and the Borrower that the Obligations of the Borrower shall be absolute and
unconditional and shall be separate and independent covenants and agreements and
shall continue unaffected unless the requirements to pay or perform the same
shall have been terminated pursuant to an express provision thereof or of any of
the other Loan Documents.
ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) The Borrower shall pay directly to each Lender from time to time,
promptly upon the request of such Lender, the costs incurred by such Lender
which such Lender determines are attributable to its making or maintaining of
any Eurodollar Loans or its obligation to make any of such Loans, or any
reduction in any amount receivable by such Lender hereunder in respect of any
such Loans or obligations (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Lender under this Agreement or its Notes in respect of any of such
Loans (other than taxes imposed on the overall net income of such
Lender or its Applicable Lending Office for any of such Loans by the
jurisdiction in which such Lender has its principal office or such
Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirement relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities or commitments of, such Lender (including any of such Loans
or any deposits referred to in the definition of "Eurodollar Rate" in
Section 1.1 hereof, but excluding the Reserve Requirement to the extent
it is included in the calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this Agreement or
the Notes or any extensions of credit or liabilities or commitments
contemplated hereunder or thereunder.
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Each Lender will notify the Borrower (with a copy to the Administrative Agent)
of any event occurring after the Closing Date which will entitle such Lender to
compensation pursuant to this Section 4.1(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation, and (if
so requested by the Borrower) will designate a different Applicable Lending
Office for the Eurodollar Loans of such Lender if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
sole opinion of such Lender, violate any law, rule or regulation or be in any
way disadvantageous to such Lender, provided that such Lender shall have no
obligation to so designate an Applicable Lending Office located in the U.S. Each
Lender will furnish the Borrower with a certificate setting forth the basis and
the amount of each request of such Lender for compensation under this Section
4.1(a). If any Lender requests compensation from the Borrower under this Section
4.1(a), the Borrower may, by notice to such Lender (with a copy to the
Administrative Agent), suspend the obligation of such Lender to make or Continue
making, or Convert Base Rate Loans into, Eurodollar Loans until the Regulatory
Change giving rise to such request ceases to be in effect (in which case the
provisions of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of this
Section 4.1, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Administrative Agent), the obligation
of such Lender to make or Continue making, or Convert Base Rate Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory Change
ceases to be in effect (in which case the provisions of Section 4.4 hereof shall
be applicable).
(c) Determinations and allocations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of maintaining
its obligation to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans and of the additional amounts required to
compensate such Lender in respect of any Additional Costs, shall be conclusive
in the absence of manifest error, provided that such determinations and
allocations are made on a reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof are not being provided in the relative amounts or for the relative
maturities for purposes of determining the rate of interest for such Loans as
provided in this Agreement; or
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(b) the Required Lenders determine (which determination shall be
conclusive absent manifest error) and notify the Administrative Agent that the
relevant rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which the rate
of interest for such Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Lenders of making or maintaining such Loans
for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make Eurodollar Loans or to Convert Base Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms of
this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
Borrower (with a copy to the Administrative Agent) thereof and such Lender's
obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case the
provisions of Section 4.4 hereof shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any
Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans
is suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's Eurodollar
Loans shall be automatically Converted into Base Rate Loans on the last day(s)
of the then current Interest Period(s) for the Eurodollar Loans (or, in the case
of a Conversion required by Section 4.1(b) or 4.3 hereof, on such earlier date
as such Lender may specify to the Borrower with a copy to the Administrative
Agent) and, unless and until such Lender gives notice as provided below that the
circumstances specified in Section 4.1 or 4.3 hereof which gave rise to such
Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Base
Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such Lender
as Eurodollar Loans shall be made as or Converted into Base Rate Loans and all
Loans of such Lender which would otherwise be Converted into Eurodollar Loans
shall be Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower that the circumstances specified in
Section 4.1 or 4.3 hereof which gave rise to the Conversion of such Lender's
Eurodollar Loans pursuant to this Section 4.4 no longer exist (which such Lender
agrees to do promptly upon such circumstances ceasing to exist) at a time when
Eurodollar Loans are outstanding, such Lender's Base Rate Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent necessary so
that, after giving effect thereto, all
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Loans held by the Lenders holding Eurodollar Loans and by such Lender are held
pro rata (as to principal amounts, Types and Interest Periods) in accordance
with their respective Commitments.
Section 4.5 Compensation. The Borrower shall pay to the Administrative
Agent for the account of each Lender, promptly upon the request of such Lender
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Lender) to compensate it for any loss, cost
or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding Loans
pursuant to Section 11.2) on a date other than the last day of an Interest
Period for such Loan; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article 6 to be
satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for such
borrowing, Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender
shall have determined that the adoption or implementation of any applicable law,
rule or regulation regarding capital adequacy (including, without limitation,
any law, rule or regulation implementing the Basle Accord), or any change
therein, or any change in the interpretation or administration thereof by any
central bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender (or its parent) with any
guideline, request or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other requirement implementing
the Basle Accord), has or would have the effect of reducing the rate of return
on such Lender's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Lender (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount reasonably deemed by
such Lender to be material, then from time to time, within ten Business Days
after demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender (or its parent) for such reduction. A certificate of such
Lender claiming compensation under this Section 4.6 and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive
absent manifest error, provided that the determination thereof is made on a
reasonable basis. In determining such amount or amounts, such Lender may use any
reasonable averaging and attribution methods.
Section 4.7 Additional Interest on Eurodollar Loans. Without
duplication of Section 2.4 or amounts directly included in the definition of the
term "Adjusted Eurodollar Rate", the Borrower shall pay, directly to each Lender
from time to time, additional interest on the unpaid principal amount of each
Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest rate
per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan. Each payment of additional interest pursuant to this Section 4.7 shall be
payable by the
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Borrower on each date upon which interest is payable on such Eurodollar Loan
pursuant to Section 2.4(b); provided, however, that the Borrower shall not be
obligated to make any such payment of additional interest until the first
Business Day after the date when the Borrower has been informed (i) that such
Lender is subject to a Reserve Requirement and (ii) of the amount of such
Reserve Requirement (after which time the Borrower shall be obligated to make
all such payments of additional interest, including, without limitation, such
payment of additional interest that otherwise would have been payable by the
Borrower on or prior to such time had the Borrower been earlier informed).
Section 4.8 Replacement of Lenders. If at any time a Lender, other than
Nortel Networks, becomes a Gross Up Lender (as defined in this Section 4.8), the
Borrower shall have the right to replace such Lender with another Person;
provided that (a) such other Person shall be an Eligible Assignee and such other
Person shall execute an Assignment and Acceptance, (b) neither the Agent nor any
Lender shall have any obligation to the Borrower to find such other Person, (c)
in the event of a replacement of a Gross Up Lender, in order for the Borrower to
be entitled to replace such Lender, such replacement must take place no later
than 90 days after the date the Gross Up Lender shall notify the Borrower and
the Agent of its desire to be paid any amounts pursuant to Section 3.5, 4.1 or
4.6, and (d) if the Borrower replaces one Gross Up Lender, it must replace all
Gross Up Lenders or replace all Gross Up Lenders on a pro rata basis. Each
Lender, other than Nortel Networks, agrees to its replacement at the option of
the Borrower pursuant to this Section 4.8 and in accordance with Section 12.8;
provided that the successor Lender shall purchase without recourse such Lender's
interest in the Obligations of the Borrower to such Lender for cash in an
aggregate amount equal to the aggregate unpaid principal thereof, all unpaid
interest accrued thereon, all unpaid commitment fees accrued for the account of
such Lender, any breakage costs incurred by the selling Lender because of the
prepayment of any Eurodollar Loans, all other fees (if any) applicable thereto
and all other amounts (including any amounts under this Article 4) then owing to
such Lender hereunder or under any other Loan Document and the Loan Parties
shall execute a release addressed to such Lender releasing such Lender from all
claims arising in connection with the Loan Documents. Any Lender who requests a
payment pursuant to Section 3.5, 4.1 or 4.6 shall be deemed a "Gross Up Lender".
ARTICLE 5
Security
Section 5.1 Collateral. To secure the full and complete payment and
performance of the Obligations, the Borrower will, and will cause Holdings and
each of the Subsidiaries of the Borrower to, grant to the Administrative Agent
for the benefit of the Administrative Agent and the Lenders a perfected, first
priority Lien (except as expressly set forth on Schedule 1.1(b)) on all of its
right, title and interest in and to the Collateral, whether now owned or
hereafter acquired, pursuant to the Security Documents, including, without
limitation, the following:
(a) all Capital Stock of the Borrower and its Subsidiaries;
(b) all of the Property (as such Property is more specifically
described in the Security Documents) of the Borrower and each of the
Subsidiaries of the Borrower, including, without
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limitation, the following: Investments (including certificates of deposit);
accounts; inventory (including, without limitation, work in process); equipment;
deposit accounts (including cash collateral accounts), contract rights
(including, without limitation, all contracts relating to the construction or
operation of the Network, including rights of way, easements, leases and all
related contracts); customer deposits in connection with purchase orders;
general intangibles; Mortgaged Properties; instruments; chattel paper; Permits;
Intellectual Property; and intercompany Debt; and
(c) all cash and non-cash proceeds and products of any of the
foregoing.
Section 5.2 Guaranties. The Borrower will cause each of the
Subsidiaries of the Borrower (whether owned as of the Closing Date or thereafter
organized or created) to Guarantee the payment and performance of the
Obligations pursuant to the Guaranties.
Section 5.3 New Subsidiaries; Additional Capital Stock.
Contemporaneously with the creation or acquisition of any Subsidiary of the
Borrower after the Closing Date, the Borrower shall:
(a) grant or cause to be granted to the Administrative Agent, for the
benefit of itself and the Lenders, a perfected, first priority security interest
in all Capital Stock of such Subsidiary owned by the Borrower or any Subsidiary
of the Borrower (to the extent such Capital Stock was not previously pledged to
the Administrative Agent);
(b) cause each such Subsidiary to Guarantee the payment and performance
of the Obligations by executing and delivering to the Administrative Agent a
Guaranty or a joinder therein acceptable to the Administrative Agent; and
(c) cause each such Subsidiary to execute and deliver to the
Administrative Agent a Security Agreement and such other Security Documents, in
form and substance acceptable to the Administrative Agent, as the Administrative
Agent may request to grant the Administrative Agent, for the benefit of itself
and the Lenders, a perfected, first priority Lien on all Property of such
Subsidiary.
Contemporaneously with the issuance of any additional Capital Stock of the
Borrower or any of the Subsidiaries of the Borrower after the Closing Date, the
Borrower shall, and shall cause Holdings and each of the Subsidiaries of the
Borrower to, grant or cause to be granted to the Administrative Agent, for the
benefit of the Administrative Agent and the Lenders, a perfected, first priority
security interest in all Capital Stock or other ownership interests in the
Borrower or such Subsidiary owned by Holdings, the Borrower or any Subsidiary of
the Borrower (to the extent such Capital Stock or other ownership interests are
already not so pledged to the Administrative Agent). The Borrower covenants that
none of the Capital Stock to be pledged in accordance with this Section 5.3
shall be subject to any transfer restriction, shareholders' agreement or other
restriction except for such restrictions as have been waived, restrictions under
applicable securities laws, such restrictions existing as of the Closing Date
which have been disclosed to the Administrative Agent in the Security Documents
and such restrictions, if any, as may be reasonably acceptable to the
Administrative Agent. In connection with and in addition to the foregoing, the
Borrower shall, and shall cause Holdings and each of the Subsidiaries of the
Borrower and other appropriate Persons (as applicable) to, execute and/or
deliver such further agreements, documents and instruments
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(including, without limitation, stock certificates, stock powers and financing
statements) as the Administrative Agent may reasonably request in order for it
to obtain and maintain the perfected, first priority Liens (except as expressly
set forth on Schedule 1.1(b)) to be granted in accordance with this Section 5.3.
Section 5.4 New Mortgaged Properties; Landlord Waivers. The Borrower
shall, and shall cause each of the other Loan Parties to, contemporaneously with
the acquisition of any fee real Property, execute, acknowledge and deliver to
the Administrative Agent a Mortgage or an amendment or modification to an
existing Mortgage covering all fee real Property acquired by any such Loan Party
subsequent to the Closing Date, together with evidence satisfactory to the
Administrative Agent and its counsel that the Mortgage creates a valid, first
priority Lien on the fee estate, in favor of the Administrative Agent for the
benefit of the Administrative Agent and the Lenders; provided, that the Borrower
shall not be required to execute a Mortgage or Mortgages in favor of the
Administrative Agent unless and until the Borrower owns an aggregate of $250,000
of real Property (at which time all real Property owned by the Borrower shall be
mortgaged in favor of the Administrative Agent). Following the date of each such
acquisition of Property, if reasonably requested by the Administrative Agent,
the Borrower shall, and shall cause each of such Loan Parties with an interest
in such Property to, provide the Administrative Agent with a current
environmental assessment of such Property in form and substance reasonably
satisfactory to the Administrative Agent. In addition, with respect to each
lease of real Property executed by any Loan Party the Borrower will, and will
cause each Loan Party to, obtain waivers of landlord's Liens from each lessor
and other agreements from such lessor and its lenders necessary or appropriate
to ensure Administrative Agent's perfected, first priority Lien (except as
expressly set forth on Schedule 1.1(b)) on the Collateral or Property affected
thereby, the Administrative Agent's access to such Collateral or Property and
the right of the Administrative Agent, the Lenders or their designee to succeed
to the rights of the Loan Party that is the lessee under the lease, in each case
in form and substance reasonably satisfactory to the Administrative Agent;
provided, that such waivers need not be obtained for individual leases where
inventory or equipment of a Loan Party having a fair market value of less than
$50,000 is located (but not more than $250,000 of inventory or equipment in the
aggregate shall be located on leaseholds for which waivers have not been
obtained).
Section 5.5 Management Services Agreement. The Borrower will, and will
cause each Loan Party to, obtain agreements from Holdings and TriVergent and any
lender to Holdings or TriVergent necessary or appropriate to ensure
Administrative Agent's perfected, first priority Lien (except as expressly set
forth on Schedule 1.1(b)) in the Management Services Agreement and the
Collateral or Property affected thereby (including, without limitation,
Borrower's customer lists, billing records and other customer data), the
Administrative Agent's access to such Collateral or Property (including, without
limitation, Borrower's customer lists, billing records and other customer data)
and the right of the Administrative Agent, the Lenders or their designee to
succeed to the rights of the Borrower and any Loan Party in the Management
Services Agreement, in each case in form and substance reasonably satisfactory
to the Administrative Agent.
Section 5.6 Further Assurances. In addition to the foregoing, the
Borrower shall, and shall cause each of the other Loan Parties and other
appropriate Persons (as applicable) to, execute and/or deliver such further
agreements, documents and instruments (including, without limitation, financing
statements) as the Administrative Agent may reasonably request in order for it
to obtain
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and maintain the perfected, first priority Liens (except as expressly set forth
on Schedule 1.1(b)) to be granted in accordance with this Article 5.
Section 5.7 Setoff. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to the Borrower (any such notice being hereby expressly waived by
the Borrower), to set off and apply any and all deposits (general or special,
time or demand, provisional or final excluding any trust accounts) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement, such Lender's Note
or any other Loan Document, irrespective of whether or not the Administrative
Agent or such Lender shall have made any demand under this Agreement, such
Lender's Note or any such other Loan Document and although such Obligations may
be unmatured. Each Lender agrees promptly to notify the Borrower (with a copy to
the Administrative Agent) after any such setoff and application, provided that
the failure to give such notice shall not affect the validity of such setoff and
application. The rights and remedies of each Lender hereunder are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which such Lender may have.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The obligation of each Lender
to make its initial Loan under this Agreement is subject to the receipt by the
Administrative Agent of all of the following in form and substance satisfactory
to the Administrative Agent and, in the case of actions to be taken, the taking
of the following required actions and evidence that such actions have been taken
to the satisfaction of the Administrative Agent:
(a) Resolutions. Resolutions of the board of directors or equivalent
governing body (as applicable) certified by the Secretary or an Assistant
Secretary or equivalent officer or representative of each Loan Party which
authorize the execution, delivery and performance by such Loan Party of the Loan
Documents to which it is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by
the Secretary or an Assistant Secretary (or other analogous officer) of each
Loan Party certifying as to the name of each officer or other representative of
such Loan Party (i) who is authorized to sign the Loan Documents to which it is
or is to be a party (including any certificates contemplated therein), together
with specimen signatures of each such officer or other representative, and (ii)
who will, until replaced by other officers or representatives duly authorized
for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection with the
Loan Documents and the transactions contemplated thereby;
(c) Articles of Incorporation. The articles of incorporation of each
Loan Party certified by the Secretary of State or other applicable Governmental
Authority of the state of incorporation of such corporation and dated as of a
Current Date;
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(d) Bylaws. The bylaws of each Loan Party certified by its Secretary or
an Assistant Secretary (or other analogous officer or representative);
(e) Governmental Certificates. Certificates of appropriate officials as
to the existence and good standing of each of the Loan Parties in its
jurisdiction of incorporation and in all jurisdictions in which such Loan Party
is qualified or is required to qualify to do business as a foreign entity, each
such certificate to be dated as of a Current Date;
(f) Notes. The Notes duly completed and executed by the Borrower (one
payable to the order of each Lender with respect to its Commitment);
(g) Security Agreements and Other Security Documents. Security
Agreements and other Security Documents executed by each of the Loan Parties
pertaining to the Collateral owned by such Loan Party or in which such Loan
Party has rights sufficient to create a Lien (one such Security Agreement
executed by each such Loan Party) together with all related financing statements
and other filings, consents to collateral assignments from all parties to all
Material Contracts included as part of the Collateral in form and substance
acceptable to the Administrative Agent, delivery of all pledged Capital Stock
and instruments together with appropriate stock powers and endorsements and,
with respect to each existing lease of real Property where Collateral is
located, waivers of landlord's Liens from each lessor and other agreements from
such lessor and its lenders necessary or appropriate to ensure Administrative
Agent's perfected, first priority Lien (except as expressly set forth on
Schedule 1.1(b)) on the Collateral or Property affected thereby, the
Administrative Agent's access to such Collateral or Property and the right of
the Administrative Agent, the Lenders or their designee to succeed to the rights
of the Loan Party that is the lessee under the lease, in form and substance
reasonably satisfactory to the Administrative Agent;
(h) Mortgages. Subject to the provisions of Section 5.4, the Borrower
and its Subsidiaries shall execute Mortgages in favor of the Administrative
Agent for the benefit of the Lenders covering all real property owned by the
Borrower and its Subsidiaries, and with respect to each tract of real property
owned by the Borrower and its Subsidiaries shall provide to the Administrative
Agent a mortgagee policy of title insurance insuring the first Lien status of
each such Mortgage, a current survey certified to the Administrative Agent and
the Lenders, an appraisal complying with all applicable regulatory requirements,
and an environmental survey acceptable to the Administrative Agent.
(i) Insurance Certificates and Policies. Certificates evidencing all
insurance policies required by this Agreement and the other Loan Documents and,
if requested by the Administrative Agent, copies of all such insurance policies;
(j) Lien Searches. Lien searches in the name of each of the Loan
Parties (and in all names under which any of them has done business within the
last five years) in each jurisdiction where such Loan Party maintains an office
or has Property, showing no financing statements or other Lien instruments of
record affecting the Collateral except for Permitted Liens and Liens being
released prior to or concurrently with the making of the initial Loan;
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(k) Master Purchase Agreement. The Master Purchase Agreement shall have
been executed and delivered by all parties thereto, and the Administrative Agent
shall have received a photocopy of the Master Purchase Agreement as so executed
and delivered, certified by a Responsible Officer of the Borrower as being a
true and correct copy of such document as of the Closing Date;
(l) Capital Contribution. The Administrative Agent shall have received
evidence satisfactory to Administrative Agent of the contribution of at least
$22,500,000 in cash to the equity capital of the Borrower;
(m) Payment of Fees and Expenses. The Borrower shall have paid all fees
due on or before the Closing Date as specified in this Agreement or in the
Administrative Agent's Letter;
(n) Compliance with Laws. As of the Closing Date, the Borrower and the
other Loan Parties shall have complied in all material respects with all
Governmental Requirements necessary to consummate the transactions contemplated
by this Agreement and the other Loan Documents;
(o) No Prohibitions. No Governmental Requirement shall prohibit the
consummation of the transactions contemplated by this Agreement or any other
Loan Document, and no order, judgment or decree of any Governmental Authority or
arbitrator shall, and no litigation or other proceeding shall be pending or to
the Borrower's knowledge, threatened which would, enjoin, prohibit, restrain or
otherwise adversely affect in any material manner the consummation of the
transactions contemplated by this Agreement and the other Loan Documents or
otherwise have a Material Adverse Effect;
(p) Financial Statements. Copies of each of the financial statements
referred to in Section 7.2;
(q) Opinions of Counsel. Favorable legal opinions of counsel for the
Loan Parties, in form and substance and issued by law firms satisfactory to the
Administrative Agent, with respect to the Loan Parties and with respect to the
Loan Documents and a favorable legal opinion of regulatory counsel to the
Borrower and its Subsidiaries in form and substance satisfactory to the
Administrative Agent;
(r) Legal Matters and Loan Documents. All matters of a legal nature
relating to the Borrower and the Loan Documents shall be reasonably satisfactory
to the Administrative Agent and its counsel, and the Administrative Agent shall
have received all such other agreements, documents and instruments, each in form
and substance and executed and delivered by all parties, as the Administrative
Agent may have reasonably requested to receive;
(s) Business Plan. A copy of the Business Plan in form and substance
satisfactory to the Administrative Agent;
(t) Material Contracts. A true and correct and fully executed copy of
each of the Material Contracts in existence as of the Closing Date, in form and
substance satisfactory to the Administrative Agent;
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(u) Permits. Copies of all licenses and all other material Permits
affecting each Loan Party or any Subsidiary of such Loan Party in connection
with its businesses or any of the Properties owned or leased by it and in
connection with its businesses to be conducted and Properties to be owned or
leased as contemplated by the Business Plan, and evidence satisfactory to the
Administrative Agent that the Borrower and each Loan Party is able to conduct
its businesses as currently conducted and as to be conducted as contemplated by
the Business Plan with the use of such licenses and Permits in full force and
effect; and the Administrative Agent shall be satisfied that (i) the Borrower
and each Loan Party has the exclusive, unrestricted right to use each of such
licenses and Permits pursuant to license agreements or other agreements,
documents or instruments in form and substance reasonably satisfactory to the
Administrative Agent and (ii) the Borrower and each Loan Party has complied with
all initial and on-going conditions of the issuance and use of all such licenses
and Permits and all other terms and provisions thereof;
(v) Waivers and Consents. To the extent not referred to in clause (g)
preceding, copies of all material waivers and consents necessary for the
execution, delivery and performance by the Loan Parties of the Loan Documents to
which it is a party, including, without limitation, waivers or consents in
connection with the Master Purchase Agreement as the Administrative Agent may
require, which waivers and consents shall be certified by a Responsible Officer
of the Borrower as true and correct copies of such consents as of the Closing
Date;
(w) Regulatory Approvals. Evidence satisfactory to the Administrative
Agent that all filings, consents or approvals with or of Governmental
Authorities necessary to consummate the transactions contemplated by the Loan
Documents have been made and obtained, as applicable;
(x) No Material Adverse Change. As of the Closing Date, (i) no material
adverse change shall have occurred with respect to the financial condition,
results of operations, businesses, operations, capitalization, indebtedness,
liabilities, obligations, profitability or prospects or Properties or of the
general affairs or management of Holdings and its Subsidiaries, taken as a
whole, or of the Borrower, in each case since December 31, 1998 and (ii) the
Administrative Agent shall be satisfied that the financial performance of
Holdings and its Subsidiaries and of the Borrower to the Closing Date is not
materially different from the financial projections for such Person(s) through
the Closing Date that were previously submitted to the Administrative Agent;
(y) Accountant's Letter. A letter from Holdings authorizing the
independent public accountants of Holdings and its Subsidiaries to communicate
with the Administrative Agent and the Lenders and acknowledging reliance with
the Administrative Agent and the Lenders on past, present and future financial
statements;
(z) Solvency. A certificate from Holdings and the Borrower certifying
that each of Holdings and the Borrower is Solvent, together with contribution
agreements between and among Holdings and the Borrower;
(aa) Management Services Agreement. The Management Services Agreement
shall have been executed and delivered by all parties thereto, and the
Administrative Agent shall have received a photocopy of the Management Services
Agreement as so executed and delivered, certified by a Responsible Officer of
the Borrower as being a true and correct copy of such document as of the
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Closing Date and such document shall be in form and substance acceptable to the
Administrative Agent and the Lenders; and
(bb) Customer Data, Billing Records, Etc. Evidence satisfactory to the
Administrative Agent that the Borrower owns the customer data, customer lists,
billing records and other information related to the customers served by the
Network.
(cc) Post-Closing Letter Agreement. The Borrower shall have delivered
to the Administrative Agent, within 30 days after the Closing Date, the items
required by the letter agreement relating to post-closing requirements dated as
of the Closing Date by and between the Administrative Agent and the Borrower,
all in form and substance satisfactory to the Administrative Agent.
The Borrower shall deliver, or cause to be delivered, to the Administrative
Agent sufficient counterparts of each agreement, document or instrument to be
received by the Administrative Agent under this Section 6. 1 to permit the
Administrative Agent to distribute a copy of the same to each of the Lenders.
After the request of the Borrower, the Administrative Agent shall inform the
Borrower in writing as to the status of satisfaction of the conditions precedent
set forth in this Section 6.1.
Section 6.2 All Extensions of Credit. The obligation of each Lender to
make any Loan (including the initial Loan) under this Agreement is subject to
the continued satisfaction of each of the conditions precedent set forth in
Sections 6.1 and each of the following additional conditions precedent:
(a) No Default or Material Adverse Effect. No Default or Material
Adverse Effect shall have occurred and be continuing, or would result from such
Loan;
(b) Representations and Warranties. All of the representations and
warranties of the Borrower contained in this Agreement and in the other Loan
Documents shall be true and correct on and as of the date of such Loan with the
same force and effect as if such representations and warranties had been made on
and as of such date unless they relate solely to an earlier date;
(c) Use of Proceeds. The Borrower shall have certified to the
Administrative Agent that all proceeds of the Loans then being made by the
Lenders are, concurrently with the making of such Loans, being used by the
Borrower and the Leasing Subsidiary for the purposes specified in Section 2.10,
and the Borrower and the Leasing Subsidiary shall have delivered to the
Administrative Agent such further evidence thereof (if any) as the
Administrative Agent may reasonably request;
(d) Master Purchase Agreement. The Master Purchase Agreement shall not
have been terminated by the Borrower, the Leasing Subsidiary, TriVergent or
TriVergent Leasing, LLC;
(e) Full Disclosure. Neither the Borrower nor any other Loan Party has,
to the knowledge of the Borrower after due inquiry, failed to disclose to the
Administrative Agent or any Lender any material fact with respect to their
business or their respective financial conditions (including any contingent
liabilities), or has failed to disclose any information the absence of which
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makes any information previously disclosed to the Administrative Agent or any
Lender materially misleading;
(f) Ratio of Debt to Contributed Capital. After giving effect to the
requested Advance, the ratio of Total Debt to Contributed Capital of the
Borrower and its Consolidated Subsidiaries shall not exceed 2.0 to 1.0; and
(g) Additional Documentation. The Administrative Agent shall have
received such additional approvals, agreements, documents and instruments as the
Administrative Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in this Section 6.2 have been satisfied (both as of the date of such
notice and, unless the Borrower otherwise notifies the Administrative Agent
prior to the date of such borrowing, as of the date of such borrowing).
Section 6.3 Closing Certificates. The Borrower shall, concurrently with
the Closing Date (with respect to the conditions precedent set forth in Sections
6.1) and concurrently with the date of the making of each other Loan, execute
and deliver to the Administrative Agent a certificate in form and substance
satisfactory to the Administrative Agent certifying as to the satisfaction of
each of the conditions precedent set forth in this Article 6 which are required
to be satisfied on or before such date (without regard to whether such matters
are, in fact, satisfactory to the Administrative Agent to the extent that such
satisfaction is required hereunder).
ARTICLE 7
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent and
the Lenders that the following statements are and, after giving effect to the
funding of the initial Loans, will be true, correct and complete:
Section 7.1 Existence. Each Loan Party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has all requisite power and authority to
own its Properties and carry on its business as now conducted, and (c) is
qualified to do business in all jurisdictions in which the nature of its
business makes such qualification necessary and where failure to so qualify
would have a Material Adverse Effect. Each of the Loan Parties has the power and
authority and legal right to execute, deliver and perform its obligations under
the Loan Documents to which it is or may become a party.
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Section 7.2 Financial Statements.
(a) The Borrower has delivered to the Administrative Agent and the
Lenders (i) the audited consolidated and consolidating financial statements
(including balance sheet and statements of income or operations, shareholders'
equity and cash flows) of Holdings and its Subsidiaries as of and for the fiscal
year ended December 31, 1999, and (ii) an unaudited pro forma balance sheet of
Holdings and its Subsidiaries dated as of the Closing Date which gives effect to
the initial Loans made on the Closing Date and the other transactions to occur
on such date. All financial statements required to be delivered to the
Administrative Agent in accordance with this Agreement (including, without
limitation, those referred to in the immediately preceding sentence) are or will
be when delivered (as applicable) true and correct, have been or will be (as
applicable) prepared in accordance with GAAP and fairly and accurately present
or will fairly and accurately present (as applicable), on a consolidated and
consolidating (where applicable) basis, the financial condition of Holdings, the
Borrower and their respective Consolidated Subsidiaries as of such dates and the
results of operations for the respective periods indicated therein. There has
not been, as of the Closing Date, any material adverse change in the financial
condition, results of operations, businesses, operations, Properties,
capitalization, assets, liabilities or prospects of Holdings and its
Subsidiaries, taken as a whole, or of the Borrower on an individual basis, or of
the Borrower and its Subsidiaries, taken as a whole, since December 31, 1999.
(b) The Business Plan (including, without limitation, the financial
projections contained therein) represents, as of the Closing Date, the good
faith, reasonable estimate of the Borrower and its senior management concerning
the financial condition and performance of the Borrower and its Subsidiaries for
the time period covered thereunder based upon the assumptions believed to be
reasonable at the time made.
Section 7.3 Corporate Action; No Breach. The execution, delivery and
performance by each of the Loan Parties of the Loan Documents to which it is or
may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all requisite entity action and do not and
will not (a) violate or conflict with, or result in a breach of, or require any
consent (except such consents as have been obtained) under (i) the articles of
incorporation, articles of organization, bylaws, regulations or other
constitutional documents of such Loan Party, (ii) any Governmental Requirement
(including, without limitation, the Communications Act, any rule or regulation
of the FCC or any rule or regulation of any federal or state public utility
commission or other Governmental Authority) or any order, writ, injunction or
decree of any Governmental Authority or arbitrator, or (iii) any material
agreement, document or instrument to which any Loan Party is a party or by which
any Loan Party or any of its Property is bound or subject, or (b) constitute a
default under any such material agreement, document or instrument, or result in
the creation or imposition of any Lien (except a Lien in favor of the
Administrative Agent for and on behalf of the Lenders under the Security
Documents as provided in Article 5) upon any of the revenues or Property of any
Loan Party.
Section 7.4 Operation of Business; Licenses. Each Loan Party and its
Subsidiaries (a) possesses or will timely possess all material Permits,
franchises, licenses and authorizations necessary or appropriate to conduct its
businesses substantially as now conducted and as to be conducted as contemplated
by the Business Plan, and (b) has complied with all initial and on-going
conditions to the issuance and use of all such Permits, franchises, licenses and
authorizations, except where failure to comply could not reasonably be expected
to have a Material Adverse Effect. None
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of such Persons is in violation of any such material Permits, franchises,
licenses or authorizations which could be expected to result in any termination
or cessation thereof. All of such material Permits, franchises, licenses and
authorizations required by any Governmental Requirement (including, without
limitation, the Communications Act, any rule or regulation of the FCC or any
state public utility commission) or issued by any Governmental Authority as of
the Closing Date are summarized by category or type, as relevant to the
operation of each Loan Party and its Subsidiaries, on Schedule 7.4. Such
licenses and Permits set forth on Schedule 7.4 have been duly issued by the
appropriate Governmental Authority (as applicable) and are in full force and
effect, and all provisions of such licenses and Permits have been complied with
in all material respects. As of the Closing Date, no such license or Permit is
subject to any pending or, to the knowledge of the Borrower, threatened
revocation or termination proceeding or action.
Section 7.5 Intellectual Property. The Intellectual Property owned or
used by each Loan Party in the operation of its business is set forth on
Schedule 7.5. Except as disclosed on Schedule 7.5, each Loan Party owns or
possesses (or will be licensed or have the full right to use) all Intellectual
Property which is necessary or appropriate for the operation of its businesses
as presently conducted and as proposed to be conducted, without any known
conflict with the rights of others. The consummation of the transactions
contemplated by this Agreement and the other Loan Documents will not materially
alter or impair, individually or in the aggregate, any of such rights of such
Persons. No product or service of any Loan Party infringes upon any Intellectual
Property of any other Person, and no claim or litigation is pending or, to the
knowledge of the Borrower, threatened against any such Person contesting its
right to sell or otherwise use any product or material or service which could
reasonably be expected to have a Material Adverse Effect. There is no violation
by any Loan Party of any right of such Person with respect to any material
Intellectual Property owned or used by such Person.
Section 7.6 Litigation and Judgments. Each material action, suit,
investigation or proceeding before or by any Governmental Authority or
arbitrator pending or, to the knowledge of the Borrower, threatened against or
affecting any Loan Party, or that relates to any of the Loan Documents as of the
Closing Date, is disclosed on Schedule 7.6. None of such actions, suits,
investigations or proceedings could, if adversely determined, reasonably be
expected to have a Material Adverse Effect. Except as may be disclosed on
Schedule 7.6, as of the Closing Date, there are no outstanding judgments against
any Loan Party. No Loan Party has received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed to any liability or
disadvantage that could reasonably be expected to have a Material Adverse
Effect.
Section 7.7 Rights in Properties; Liens. Except as disclosed on
Schedule 7.7, none of the Loan Parties owns any right, title or interest in any
real Property. Each Loan Party has good and marketable title to or, with respect
to leasehold interests, valid leasehold interests in all of its material
Properties and assets, real and personal, including the material Properties,
assets and leasehold interests reflected in the financial statements described
in Section 7.2(a), except where failure to have good and marketable title or
valid leasehold interests could not reasonably be expected to have a Material
Adverse Effect, and none of the Properties or leasehold interests of any of the
Loan Parties is subject to any Lien, except Permitted Liens. Other than with
respect to Permitted Liens, no Loan Party has granted or voluntarily allowed or
permitted to exist any Lien to or in favor of any Person (other than the
Administrative Agent for and on behalf of the Lenders as security for the
Obligations)
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which attaches or relates to any of the Collateral. Other than with respect to
Permitted Liens expressly permitted hereunder to have a priority equal to or
prior to the Liens in favor of the Administrative Agent, the Liens on the
Collateral in favor of the Administrative Agent are perfected, first priority
Liens.
Section 7.8 Enforceability. The Loan Documents have been duly and
validly executed and delivered by each of the Loan Parties that is a party
thereto, and such Loan Documents constitute the legal, valid and binding
obligations of such Persons, enforceable against each such Person in accordance
with their respective terms, except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and no
filing or registration with or notice to, any Governmental Authority (including
the FCC) or third party is or will be necessary for the execution, delivery or
performance by any Loan Party of any of the Loan Documents or any of the
Material Contracts to which it is or will be a party or for the validity or
enforceability thereof, except for such consents, approvals and filings as have
been validly obtained or made and are in full force and effect. The consummation
of the transactions contemplated by the Loan Documents and the Material
Contracts does not require the consent or approval of any other Person, except
such consents and approvals (a) as have been validly obtained and are in full
force and effect or (b) as to which the failure to obtain is not, individually
or in the aggregate, material. No Loan Party has failed to obtain any material
consent, approval, Permit, franchise, license or other authorization of any
Governmental Authority (including the FCC) necessary for the ownership or use of
any of its Properties, conduct of its business and performance of the Business
Plan.
Section 7.10 Debt. As of the Closing Date, the Borrower does not have
any Debt other than (a) the Obligations and (b) the Debt disclosed on Schedule
7.10 hereto.
Section 7.11 Taxes. Each of the Loan Parties has filed (a) all tax
returns (federal, state and local) and reports required to be filed including
all income, franchise, employment, Property and sales tax returns, and (b) all
other material tax returns and reports required to be filed except where failure
to file could not reasonably be expected to have a Material Adverse Effect, and
has paid all federal and other material taxes (shown on such returns or reports
to be due and payable), assessments, fees and other governmental charges levied
or imposed upon it or its Properties, income or assets otherwise due and payable
before they become delinquent, except those which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP and no notice of Lien has been filed or
recorded or, as to such Loan Parties only, except where failure to pay could not
reasonably be expected to have a Material Adverse Effect. There is no proposed
tax assessment against any Loan Party which could, if the assessment were made,
reasonably be expected to have a Material Adverse Effect.
Section 7.12 Margin Securities. None of the Loan Parties is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
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Section 7.13 ERISA. None of the Loan Parties or any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Pension Plan other
than the Pension Plans identified on Schedule 7.13. Each Plan of the Loan
Parties is in compliance in all material respects with all applicable provisions
of ERISA and the Code. Neither a Reportable Event nor a Prohibited Transaction
has occurred within the last 60 months with respect to any Plan that could
reasonably be expected have a Material Adverse Effect. No notice of intent to
terminate a Pension Plan has been filed, nor has any Pension Plan been
terminated. No circumstances exist which constitute grounds entitling the PBGC
to institute proceedings to terminate, or appoint a trustee to administer, a
Pension Plan, nor has the PBGC instituted any such proceedings. None of the Loan
Parties, any Subsidiary of any Loan Party or any ERISA Affiliate has completely
or partially withdrawn from a Multiemployer Plan. Each Loan Party and its
Subsidiaries and each ERISA Affiliate have met their minimum funding
requirements under ERISA and the Code or with respect to all of their Pension
Plans subject to such requirements, and, as of the Closing Date except as
specified on Schedule 7.13, the present value of all vested benefits under each
funded Plan (exclusive of any Multiemployer Plan) does not and will not exceed
the fair market value of all such Plan assets allocable to such benefits, as
determined on the most recent valuation date of such Plan and in accordance with
ERISA. None of the Loan Parties, any Subsidiary of any Loan Party or any ERISA
Affiliate has incurred any liability to the PBGC under ERISA. No litigation is
pending or, to the Borrower's knowledge, threatened concerning or involving any
Plan that could reasonably be expected to have a Material Adverse Effect. There
are no unfunded or unreserved liabilities (on either a going-concern basis or a
wind-up basis) relating to any Plan that could, individually or in the
aggregate, have a Material Adverse Effect if the Borrower were required to fund
or reserve such liability in full. As of the Closing Date, no funding waivers
have been or will have been requested or granted under Section 412 of the Code
with respect to any Plan. No unfunded or unreserved liability for benefits under
any Plan or Plans (exclusive of any Multiemployer Plans) exceeds $100,000, with
respect to any such Plan, or $200,000 with respect to all such Plans, in the
aggregate as of the Closing Date, on either a going-concern basis or a wind-up
basis.
Section 7.14 Disclosure. To the knowledge of the Borrower after due
inquiry, no written statement, information, report, representation or warranty
made by any Loan Party in any Loan Document or furnished to the Administrative
Agent or any Lender by or on behalf of any Loan Party in connection with the
Loan Documents or any transaction contemplated hereby or thereby contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances in which made, not misleading. There is no fact known to the
Borrower which has had a Material Adverse Effect, and there is no fact known to
the Borrower which could reasonably be expected in the future to have a Material
Adverse Effect except as may have been disclosed in writing to the
Administrative Agent.
Section 7.15 [Reserved.]
Section 7.16 Compliance with Laws. None of the Loan Parties or any
Subsidiary of any Loan Party is in violation of any Governmental Requirement
(including, without limitation, the Communications Act, any rule or regulation
of the FCC or any rule or regulation of any federal or state public utility
commission or other Governmental Authority), except for instances of
non-
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compliance that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 7.17 Investment Company Act. No Loan Party is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. No Loan Party is a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or a "public utility" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions to any of
the following representations and warranties that could not have, individually
or in the aggregate, a Material Adverse Effect:
(i) Each Loan Party and its Subsidiaries and all of their
respective Properties and operations are in full compliance with all
Environmental Laws. The Borrower is not aware of, and no Loan Party or
any Subsidiary of a Loan Party has received written notice of, any
past, present or future conditions, events, activities, practices or
incidents which may interfere with or prevent the compliance or
continued compliance by the Loan Party and its Subsidiaries with all
Environmental Laws;
(ii) Each Loan Party and its Subsidiaries have obtained all
Permits that are required under applicable Environmental Laws, and all
such Permits are in good standing and all such Persons are in
compliance with all of the terms and conditions thereof;
(iii) No Hazardous Materials exist on, about or within or have
been (to the knowledge of the Borrower) or are being used, generated,
stored, transported, disposed of on or Released from any of the
Properties of each Loan Party and its Subsidiaries except in compliance
with applicable Environmental Laws. The use which each Loan Party and
its Subsidiaries make and intend to make of their respective Properties
will not result in the use, generation, storage, transportation,
accumulation, disposal or Release of any Hazardous Material on, in or
from any of their currently owned Properties except in compliance with
applicable Environmental Laws;
(iv) There are no conditions or circumstances associated with
the currently owned or leased Properties or operations of each Loan
Party and its Subsidiaries that could reasonably be expected to give
rise to any Environmental Liabilities or claims resulting in any
Environmental Liabilities;
(v) None of the Loan Parties and none of their respective
currently or previously owned or leased Properties or operations are
subject to any outstanding or, to the knowledge of the Borrower,
threatened order from or agreement with any Governmental Authority or
other Person or subject to any judicial or administrative proceeding
with respect to (A) any
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failure to comply with Environmental Laws, (B) any Remedial Action, or
(C) any Environmental Liabilities;
(vi) None of the Loan Parties is subject to, or has received
written notice of any claim from any Person alleging that it is or will
be subject to, any Environmental Liabilities;
(vii) None of the Properties of any of the Loan Parties is a
treatment facility (except for the recycling of Hazardous Materials
generated on-site and the treatment of liquid wastes subject to the
Clean Water Act or other applicable Environmental Law for temporary
storage of Hazardous Materials generated on-site prior to their
disposal off-site) or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
regulations thereunder or any comparable provision of state law. The
Loan Parties are in compliance with all applicable financial
responsibility requirements of all Environmental Laws; and
(viii) None of the Loan Parties has failed to file any notice
required under applicable Environmental Law reporting a Release.
(b) No Lien arising under any Environmental Law that could have,
individually or in the aggregate, a Material Adverse Effect has attached to any
Property or revenues of any of the Loan Parties.
Section 7.20 Year 2000 Compliance. Each Loan Party has (a) initiated a
review and assessment of all areas within its and each of its Subsidiaries'
business and operations (including those affected by suppliers and vendors) that
could reasonably be expected to be relevant to whether the Loan Party and its
Subsidiaries are Year 2000 Compliant, (b) developed a plan and timeline for
ensuring that the Loan Party and its Subsidiaries are Year 2000 Compliant
(except for such instances as individually or in the aggregate would not have a
Material Adverse Effect) on a timely basis, and (c) to date, implemented that
plan in accordance with that timetable. Based upon the foregoing, each Loan
Party believes that it and its Subsidiaries are Year 2000 Compliant as of the
Closing Date except to the extent described in Schedule 8.13 and except for such
instances as individually or in the aggregate would not have a Material Adverse
Effect.
Section 7.21 Labor Disputes and Acts of God. Neither the business nor
the Properties of any of the Loan Parties are presently affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is having or could reasonably be
expected to have a Material Adverse Effect.
Section 7.22 Material Contracts. Attached hereto as Schedule 7.22 is a
complete list, as of the Closing Date, of all Material Contracts of each Loan
Party, other than the Loan Documents. All of the Material Contracts are in full
force and effect and no Loan Party is in default under any Material Contract. To
the knowledge of the Borrower after due inquiry, no other Person that is a party
to a Material Contract is in default thereunder such that the default could
materially adversely affect any Loan Party's rights and benefits under such
Material Contract. None of the Material Contracts prohibits the transactions
contemplated under the Loan Documents. Except as may be provided on Schedule
7.22, each of the Material Contracts is currently in the name of a Loan Party.
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The Borrower has delivered to the Administrative Agent a complete and current
copy of each Material Contract (other than purchase orders entered into in the
ordinary course of business) existing on the Closing Date and, with respect to
each Material Contract (other than purchase orders entered into in the ordinary
course of business) entered into after the Closing Date, will deliver to the
Administrative Agent a complete and current copy of such Material Contract in a
reasonably prompt fashion after the creation thereof.
Section 7.23 Bank Accounts. As of the Closing Date, Schedule 7.23 sets
forth the account numbers and location of all bank accounts (including lock box
and special deposit accounts) of the Loan Parties.
Section 7.24 Outstanding Securities. All outstanding securities (as
defined in the Securities Act of 1933, as amended, or any successor thereto, and
the rules and regulations of the Securities and Exchange Commission thereunder)
of the Loan Parties have been offered, issued, sold and delivered in compliance
with all applicable Governmental Requirements.
Section 7.25 Solvency. Each of the Loan Parties, as a separate entity,
is Solvent, both before and after giving effect to the Loans.
Section 7.26 Employee Matters. Except as set forth on Schedule 7.26, as
of the Closing Date (a) no Loan Party nor any of their employees is subject to
any collective bargaining agreement, and (b) no petition for certification or
union election is pending with respect to the employees of any Loan Party, and
no union or collective bargaining unit has sought such certification or
recognition with respect to the employees of any such Person. There are no
strikes, slowdowns, work stoppages or controversies pending or, to the best
knowledge of the Borrower after due inquiry, threatened against, any Loan Party
or its respective employees which could have, either individually or in the
aggregate, a Material Adverse Effect. Except as set forth on Schedule 7.26, as
of the Closing Date, none of the Loan Parties is subject to an employment
contract.
Section 7.27 Insurance. Schedule 7.27 sets forth a complete and
accurate description of all policies of insurance that relate to the Collateral.
To the extent such policies have not been replaced, no notice of cancellation
has been received for such policies and the Borrower and the owner and holder of
each such policy are in compliance with all of the terms and conditions of such
policies.
Section 7.28 Common Enterprise. The Borrower and each Loan Party are
members of an affiliated group with each other such Person and are collectively
engaged in a common enterprise with one another. Each of the Loan Parties
expects to derive substantial benefit (and may reasonably be expected to derive
substantial benefit), directly and indirectly, from the Loans contemplated by
this Agreement, both in its separate capacity and as a member of an affiliated
and integrated group.
Section 7.29 Loan Parties; Capitalization. Schedule 7.29 attached
hereto contains, as of the Closing Date, complete and accurate information
regarding (a) the identities of each direct and indirect Subsidiary of the
Borrower, (b) the number of issued and outstanding shares (or other units) of
each class of Capital Stock issued by the Borrower and each of its direct and
indirect Subsidiaries and the identities of, and number and percentage of each
of such shares (or other units) held by, the
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owner(s) (both of record and beneficially) of such Capital Stock, and (c) the
jurisdiction of incorporation or other organization of each of the Loan Parties.
Section 7.30 Ownership of Customer Data, Billing Records, Etc. The
Borrower owns the customer data, customer lists, billing records and other
information related to the customers served by the Network.
ARTICLE 8
Affirmative Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Lender has any Commitment hereunder, it
will perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. The Borrower will furnish (or will
cause to be furnished) to the Administrative Agent and each Lender:
(a) Annual Financial Statements. As soon as available, and in any event
within 120 days after the end of each fiscal year of the Borrower (90 days if
Holdings is a reporting company under the Securities Exchange Act of 1934),
beginning with the fiscal year ending December 31, 1999, either (i) a copy of
the Form 10-K (including all financial statements contained therein) filed by
Holdings as of the end of and for such fiscal year then ended, together with
consolidating schedules for each of Holdings and its Subsidiaries (including,
without limitation, the Borrower) with respect to the financial statements
contained therein, or (ii) a copy of the annual audit report of Holdings and its
Subsidiaries as at the end of such year and the related consolidated statements
of income or operations, shareholders' equity and cash flows for such fiscal
year, together with consolidating schedules for Holdings and its Subsidiaries
(including, without limitation, the Borrower) with respect to each of such
financial statements, in each case (other than with respect to the consolidating
schedules) setting forth in comparative form the figures for the previous fiscal
year, and accompanied by the opinion of independent certified public accountants
of recognized standing reasonably acceptable to the Administrative Agent, which
opinion shall state that such consolidated financial statements present fairly
the financial position and results of operations for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years and which
opinion shall not be qualified or limited because of a restricted or limited
examination by such accountant of any material portion of such Person's records;
(b) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after the end of each of the quarters of each fiscal year
of the Borrower, beginning with the fiscal quarter ending March 31, 2000, either
(i) a copy of the Form 10-Q (including all financial statements contained
therein) filed by Holdings as of the end of and for such fiscal quarter then
ended, together with consolidating schedules for each of Holdings and its
Subsidiaries (including, without limitation, the Borrower) with respect to each
of the financial statements contained therein, or (ii) a copy of the unaudited
consolidated balance sheet of Holdings and its Subsidiaries as at the end of
such quarter and the related consolidated statements of income or operations,
shareholders'
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equity and cash flows for the period commencing on the first day and ending on
the last day of such quarter, together with unaudited consolidating schedules
for Holdings and its Subsidiaries (including, without limitation, the Borrower)
with respect to each of such financial statements, in each case (other than with
respect to the consolidating schedules) setting forth in comparative form the
quarterly operating budgets figures for the corresponding period of the
preceding fiscal year, and certified by an appropriate Responsible Officer of
the Borrower as fairly presenting, in accordance with GAAP, the financial
position and the results of operations of the Borrower and its Subsidiaries
(except for year-end adjustments and financial statement footnotes required by
GAAP);
(c) Compliance Certificate. Concurrently with the delivery of each of
the financial statements referred to in Sections 8.1(a) and 8.1(b), a Compliance
Certificate of a Responsible Officer of the Borrower substantially in the form
of Exhibit D hereto, appropriately completed, stating that, to the best of such
officer's knowledge, no Default has occurred and is continuing or, if a Default
has occurred and is continuing, stating the nature thereof and the action that
has been taken and is proposed to be taken with respect thereto;
(d) Notice of Actions, Suits or Proceedings. Promptly after the
commencement thereof, notice of all actions, suits and proceedings before any
Governmental Authority (including the FCC) or arbitrator affecting any Loan
Party or any license or Permit, which, if determined adversely to the Borrower
or any Subsidiary of the Borrower, could reasonably be expected to have a
Material Adverse Effect;
(e) Notice of Default, etc.. As soon as possible and in any event
immediately upon the Borrower's knowledge of the occurrence of any Default, a
written notice setting forth the details of such Default and the action that the
Borrower has taken and, if and to the extent known, proposes to take with
respect thereto;
(f) ERISA Plan Reports. Promptly after the filing or receipt thereof,
copies of all reports, including annual reports, and notices which the Borrower
or any of its ERISA Affiliates files with or receives from the PBGC or the U.S.
Department of Labor under ERISA with respect to a Pension Plan or for which the
Borrower has any potential liability; and as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any Pension
Plan is insolvent, or that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or Multiemployer Plan, or that the PBGC, or
the Borrower or any ERISA Affiliate has instituted or will institute proceedings
under ERISA to terminate or withdraw from or reorganize any Pension Plan, a
certificate of a Responsible Officer of the Borrower setting forth the details
as to such insolvency, withdrawal, Reportable Event, Prohibited Transaction or
termination and the action that the Borrower has taken and proposes to take with
respect thereto;
(g) Proxy Statements, Etc. As soon as available, one copy of each (if
any) financial statement, report, notice or proxy statement sent by Holdings to
its stockholders or other security holders generally and one copy of each (if
any) regular, periodic or special report (including, without limitation, reports
on Forms 10-K, 10-Q and 8-K), registration statement or prospectus filed by
Holdings with any securities exchange or the Securities and Exchange Commission
or any successor agency;
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(h) Insurance. Within 60 days prior to the end of each fiscal year of
the Borrower, a report in form and substance reasonably satisfactory to the
Administrative Agent summarizing all material insurance coverage maintained by
the Loan Parties as of the date of such report and all material insurance
coverage planned to be maintained by such Persons in the subsequent fiscal year;
(i) Plan Information. From time to time, as reasonably requested by the
Administrative Agent or any Lender, such books, records and other documents
relating to any Pension Plan as the Administrative Agent or any Lender shall
specify; prior to any termination, partial termination or merger of a Pension
Plan covering employees of the Borrower or any ERISA Affiliate, or a transfer of
assets of a Pension Plan covering employees of the Borrower or any ERISA
Affiliate, written notification thereof; promptly upon the Borrower's receipt
thereof, a copy of any determination letter or advisory opinion regarding any
Pension Plan received from any Governmental Authority and any amendment or
modification thereto as may be necessary as a condition to obtaining a favorable
determination letter or advisory opinion; and promptly upon the occurrence
thereof, written notification of any action requested by any Governmental
Authority to be taken as a condition to any such determination letter or
advisory opinion;
(j) Business Plan, etc. Not later than 15 days prior to the end of each
year, an update of the Business Plan in reasonable detail generally consistent
with the form and substance of the Business Plan provided to the Administrative
Agent on or before the Closing Date, which update shall reflect the
corresponding information for the prior year;
(k) Management Letters. Promptly upon each receipt thereof by any Loan
Party, a copy of any management letter or other written report submitted to such
Loan Party by independent certified public accountants with respect to the
business, condition (financial or otherwise), operations, prospects or
Properties of any Loan Party;
(l) Reports to Other Creditors. Promptly after the furnishing thereof,
a copy of any financial or other material statement or report furnished by the
Borrower or any Loan Party to any other party pursuant to the terms of any
indenture, loan, stock purchase or credit or similar agreement and not otherwise
required to be furnished to the Administrative Agent and the Lenders pursuant to
any other subsection of this Section 8.1;
(m) Notice of Material Adverse Effect. Within three Business Days after
the Borrower becomes aware thereof, written notice of any matter that could
reasonably be expected to have a Material Adverse Effect;
(n) Environmental Assessments and Notices. Promptly after the receipt
thereof, a copy of each environmental assessment (including any analysis
relating thereto) prepared with respect to any Property of the Borrower or any
Loan Party and each notice sent by any Governmental Authority relating to any
failure or alleged failure to comply with any Environmental Law or any liability
with respect thereto;
(o) Notices Under Material Contracts. Promptly after the receipt by the
Borrower or any Loan Party and promptly after the delivery by the Borrower or
any Loan Party, a copy of each written notice delivered under any Material
Contract which notice (i) relates to any alleged default
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under or noncompliance with or proposed termination of such Material Contract or
(ii) otherwise relates to any matter under any Material Contract which could
give rise to Material Adverse Effect;
(p) Accounts Receivable and Payable. As soon as available and in any
event within 45 days after the end of each fiscal quarter, an aged trial balance
of all then-existing Receivables and all then existing accounts payable of the
Borrower and its Subsidiaries;
(q) Accountant's Letter. A letter from Holdings authorizing the
independent public accountants of Holdings and its Subsidiaries to communicate
with the Administrative Agent and the Lenders and acknowledging reliance with
the Administrative Agent and the Lenders on past, present and future financial
statements;
(r) Quarterly Report as to Key Business Statistics. As soon as
available and in any event within 45 days after the end of each fiscal quarter,
reports as to key business and operational statistics of the Borrower,
including, the number of potential Access Lines, number of Access Lines, number
of DSL Lines, number of on-Network Access Lines and number of off-Network Access
Lines, and such related information as the Administrative Agent may reasonably
request from time to time; and
(s) General Information. Promptly, such other business, financial,
corporate affairs and other similar information concerning the Loan Parties
and/or the Collateral as the Administrative Agent or any Lender may from time to
time reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. The Borrower
will, and will cause each Loan Party to, preserve and maintain its existence and
all of its leases, privileges, licenses, Permits, franchises, qualifications,
Intellectual Property, intangible Property and contract and other rights that
are necessary in the ordinary conduct of its business except to the extent that
failure to so preserve and maintain such could not reasonably be expected to
have a Material Adverse Effect. The Borrower will, and will cause each Loan
Party to, conduct its business in an orderly and efficient manner in accordance
with good business practices and the Business Plan.
Section 8.3 Maintenance of Properties and Permits. The Borrower will,
and will cause each Loan Party to, maintain, keep and preserve all of its
Properties and Permits necessary in the proper conduct of its businesses in good
repair, working order and condition (ordinary wear and tear excepted) and make
all necessary repairs, renewals and replacements and improvements thereof.
Section 8.4 Taxes and Claims. The Borrower will, and will cause each
Loan Party to, pay or discharge before becoming delinquent (a) all taxes,
levies, assessments and governmental charges imposed on it or its income or
profits or any of its Property and (b) all lawful claims for labor, material and
supplies, which, if unpaid, might become a Lien upon any of its Property;
provided, however, that neither the Borrower nor any Loan Party shall be
required to pay or discharge any tax, levy, assessment or governmental charge,
or claim for labor, material or supplies, whose amount, applicability or
validity is being contested in good faith by appropriate proceedings being
diligently pursued and for which adequate reserves have been established under
GAAP.
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Section 8.5 Insurance.
(a) The Borrower will, and will cause each Loan Party to, keep insured
by financially sound and reputable insurers all Property of a character usually
insured by responsible corporations engaged in the same or a similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations or entities and carry such
other insurance as is usually carried by such corporations or entities, provided
that in any event the Borrower and the other Loan Parties will maintain:
(i) Property Insurance. Insurance against loss or damage
covering substantially all of the tangible real and personal Property
(including, without limitation, the Nortel Networks Equipment and
related equipment) and improvements of such Person by reason of any
Peril (as defined below) in such amounts (subject to any deductibles as
shall be satisfactory to the Administrative Agent) as shall be
reasonable and customary and sufficient to avoid the insured named
therein from becoming a co-insurer of any loss under such policy, but
in any event in such amounts as are reasonably available as determined
by the Borrower's independent insurance broker reasonably acceptable to
the Administrative Agent.
(ii) Automobile Liability Insurance for Bodily Injury and
Property Damage. Insurance in respect of all vehicles (whether owned,
hired or rented by such Person) at any time located at, or used in
connection with, its Properties or operations against liabilities for
bodily injury and Property damage in such amounts as are then customary
for vehicles used in connection with similar Properties and businesses,
but in any event to the extent required by applicable law.
(iii) Comprehensive General Liability Insurance. Insurance
against claims for bodily injury, death or Property damage occurring
on, in or about the Property (and adjoining streets, sidewalks and
waterways) of such Person, in such amounts as are then customary for
Property similar in use in the jurisdictions where such Properties are
located.
(iv) Worker's Compensation Insurance. Worker's compensation
insurance (including employers' liability insurance) to the extent
required by applicable law, which may be self-insurance to the extent
permitted by applicable law.
Without limiting the generality of the foregoing, the Borrower shall purchase
and maintain in effect all-risk, property and casualty insurance (including
casualty insurance covering earthquake and flood damage) reasonably acceptable
and in amounts reasonably acceptable to the Administrative Agent covering all
equipment purchased by the Borrower or any of its Subsidiaries from Nortel
Networks and liability insurance covering the operations of the Borrower and its
Subsidiaries. Such insurance shall be written by financially responsible
companies selected by the Borrower and having an A.M. Best Rating of "A-" or
better and being in a financial size category of "VI" or larger, or by other
companies reasonably acceptable to the Administrative Agent. Each policy
referred to in this Section 8.5 shall name the Administrative Agent (for the
benefit of itself and the other Lenders) as loss payee (with respect to casualty
insurance policies) and additional insured (with respect to liability insurance
policies) and shall provide that it will not be canceled, amended or reduced
except after not less than 30 days' prior written notice to the Administrative
Agent and shall also provide that the interests of the Administrative Agent and
the Lenders shall not be invalidated by any act or negligence of any Loan Party.
The Borrower will advise the Administrative Agent promptly of any
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policy cancellation, reduction or amendment. For purposes hereof, the term
"Peril" shall mean, collectively, fire, lightning, flood, windstorm, hail,
explosion, riot and civil commotion, vandalism and malicious mischief, damage
from aircraft, vehicles and smoke and other perils covered by the "all-risk"
endorsement then in use in the jurisdictions where the Properties of the Loan
Parties are located.
(b) The Borrower will cause each Insurance Recovery (other than any
portion of an Insurance Recovery payable to a landlord to repair or replace
Property leased by the Borrower or any of its Subsidiaries) payable by any
insurance company to be deposited promptly with the Administrative Agent as
security for the Obligations if a Default has then occurred and is continuing,
and will pay all Insurance Recoveries to the Administrative Agent for
application against the Obligations if and to the extent required in accordance
with Section 2.7(a).
(c) If a Default shall have occurred and be continuing, the Borrower
will cause all proceeds of insurance paid on account of the loss of or damage to
any Property of the Borrower or any Loan Party and all awards of compensation
for any Property of the Borrower or any Loan Party taken by condemnation or
eminent domain to be paid directly to the Administrative Agent to be applied
against or held as security for the Obligations, at the election of the
Administrative Agent and the Required Lenders.
Section 8.6 Inspection Rights. The Borrower will, and will cause each
of the Loan Parties to, permit representatives and agents of the Administrative
Agent and the Lenders, during normal business hours and upon reasonable notice
to the Borrower, to examine, copy and make extracts from its books and records,
to visit and inspect its Properties and to discuss its business, operations and
financial condition with its officers and independent certified public
accountants. The Borrower will authorize, and will cause each of the Loan
Parties to authorize, its accountants in writing (with a copy to the
Administrative Agent) to comply with this Section 8.6. The Administrative Agent
or its representatives may, at any time and from time to time at the Borrower's
expense, conduct field exams for such purposes as the Administrative Agent may
reasonably request.
Section 8.7 Keeping Books and Records. The Borrower will, and will
cause each of the Loan Parties to, maintain appropriate books of record and
account in accordance with GAAP consistently applied in which true, full and
correct entries will be made of all their respective dealings and business
affairs. If any changes in accounting principles from those used in the
preparation of the financial statements referenced in Section 8.1 are hereafter
required or permitted by GAAP and are adopted by the Borrower with the
concurrence of its independent certified public accountants and such changes in
GAAP result in a change in the method of calculation or the interpretation of
any of the covenants, standards or terms contained in this Agreement, the
Borrower and the Required Lenders agree to amend any such affected terms and
provisions so as to reflect such changes in GAAP with the result that the
criteria for evaluating the financial condition or performance of the Loan
Parties shall be the same after such changes in GAAP as if such changes in GAAP
had not been made.
Section 8.8 Compliance with Laws. The Borrower will, and will cause
each of the Loan Parties to, comply with all Governmental Requirements
applicable to the operation of its business (including, without limitation, the
Communications Act, any rule or regulation of the FCC or any
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rule or regulation of any federal or state public utility commission or other
Governmental Authority), except for instances of noncompliance that could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
Section 8.9 Compliance with Agreements. The Borrower will, and will
cause each of the Loan Parties to, comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, including,
without limitation, all Material Contracts, except for instances of
noncompliance that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
Section 8.10 Further Assurances. The Borrower will execute and deliver
and will cause each of the Loan Parties to execute and deliver such further
agreements, documents and instruments (including, without limitation, financing
statements and amendments to financing statements specifying each item of the
Collateral and the serial number therefor) and take such further action as may
be reasonably requested by the Administrative Agent to carry out the provisions
and purposes of this Agreement and the other Loan Documents, to evidence the
Obligations and to create, preserve, maintain and perfect the Liens of the
Administrative Agent for the benefit of itself and the Lenders in and to the
Collateral and the required priority of such Liens.
Section 8.11 ERISA. The Borrower will, and will cause each of its ERISA
Affiliates to, comply with all minimum funding requirements and all other
material requirements of ERISA so as not to give rise to any material liability
thereunder.
Section 8.12 Non-Consolidation. The Borrower will, and will cause each
other Loan Party to: (a) maintain entity records and books of account separate
from those of any other entity which is an Affiliate of such Loan Party; (b) not
commingle its funds or assets with those of any other entity which is an
Affiliate of such Loan Party; and (c) provide that its board of directors or
other analogous governing body will hold all appropriate meetings to authorize
and approve such Person's entity actions, which meetings will be separate from
those of other Loan Parties.
Section 8.13 Year 2000 Compliance. Except as set forth in Schedule 8.13
and except for such instances as individually or in the aggregate would not have
a Material Adverse Effect, all of the material computer software, computer
hardware (whether general or special purpose), and other similar or related
items of automated, computerized or software systems that are used or relied
upon by the Borrower or any Loan Party in the conduct of its business are and
will continue to be Year 2000 Compliant and, without limiting the generality of
the foregoing, will not malfunction, will not cease to function, will not
generate incorrect data and will not produce incorrect results when processing,
providing or receiving (a) date-related data into and between the twentieth and
twenty-first centuries and (b) date-related data in connection with any valid
date in the twentieth and twenty-first centuries. The Borrower will promptly
notify the Administrative Agent in the event the Borrower discovers or
determines that any computer application (including those of its suppliers and
vendors) that is material to its or any Loan Party's business and operations
will not be Year 2000 Compliant on a timely basis.
Section 8.14 Trade Accounts Payable. The Borrower will, and will cause
the other Loan Parties to, pay all trade accounts payable before the same become
more than 90 days past due, except
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(a) trade accounts payable contested in good faith or (b) trade accounts payable
in an aggregate amount not to exceed $100,000 at any time outstanding and with
respect to which no proceeding to enforce collection has been commenced or, to
the knowledge of the Borrower, threatened.
Section 8.15 Delivery of Certain Amendments and Material Contracts. The
Borrower will, and will cause the other Loan Parties to, promptly deliver to the
Administrative Agent any amendment, modification or supplement to (a) the
articles of incorporation, articles of organization, bylaws, regulations or
other constitutional documents of the Borrower or any other Loan Party, (b) any
Material Contract to which it is a party or any license or Permit which it
possesses; provided, however, that any such amendment, modification, or
supplement to be subject to the provisions of Section 9.15 hereof. The Borrower
will, and will cause each of its Subsidiaries to, deliver to the Administrative
Agent, promptly after such Material Contract comes into existence, a true and
correct copy of each Material Contract in existence which is not identified on
Schedule 7.22.
Section 8.16 Interest Rate Protection. The Borrower shall, commencing
on or before the thirtieth (30th) day after the Closing Date, maintain in full
force and effect through the Maturity Date one or more Interest Rate Protection
Agreements reasonably satisfactory to the Administrative Agent with one or more
counterparties rated in one of the three of the highest rating categories of
Standard & Poors Corporation or Moody's Investors Services, Inc. and otherwise
reasonably acceptable to the Administrative Agent, that enable the Borrower to
fix or place a limit upon a rate of interest with respect to not less than an
aggregate notional amount (not less than zero) equal to fifty percent (50%) of
Total Debt minus the amount of such Total Debt with a fixed interest rate. The
maximum amount for which interest may be fixed or limited under all such
Interest Rate Protection Agreements shall not exceed one hundred percent (100%)
of the Total Debt of the Borrower and its Subsidiaries bearing interest at a
variable rate.
Section 8.17 Ownership of Telecommunications Assets and
Telecommunications Business. The Borrower and/or its Subsidiaries shall, on or
prior to the Closing Date and at all times thereafter during the term of the
Loans, and except as set forth on Schedule 8.17 or as may be provided to the
Borrower by TriVergent pursuant to the Management Services Agreement, own all
Telecommunication Assets used or useful in the operation of the
Telecommunications Business of the Borrower and its Subsidiaries.
Section 8.18 Unified Cash Management System. The Borrower will, and
will cause each of its Subsidiaries to, on and after the Closing Date, maintain
a unified cash management system and the Borrower will ensure, and will cause
each of its Subsidiaries to ensure, that all cash proceeds (including, without
limitation, proceeds of all Collateral) are (a) deposited directly, as received,
into a lockbox or collection account of the Borrower or such Subsidiary (as
applicable) and (b) on a daily basis after such deposit, transferred into a
lockbox or concentration account of the Borrower or such Subsidiary (as
applicable). The Borrower will, and will cause each of its Subsidiaries to,
maintain in effect an agreement governing each of its lockbox accounts,
collection accounts and/or concentration accounts and pledging such accounts to
the Administrative Agent, in a form approved by the Administrative Agent with a
depository bank satisfactory to the Administrative Agent.
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ARTICLE 9
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Lender has any Commitment hereunder, it
will perform and observe, or cause to be performed and observed, the following
covenants:
Section 9.1 Debt. The Borrower will not, and will not permit any
Subsidiary of the Borrower to, incur, create, assume or permit to exist any
Debt, except:
(a) Debt to the Lenders pursuant to the Loan Documents;
(b) unsecured Debt under Interest Rate Protection Agreements entered
into in compliance with Section 8.16; provided, however, that Debt thereunder
may be secured if such Debt constitutes a part of the Obligations;
(c) (i) existing Debt in the principal amounts and as otherwise
described on Schedule 7.10 hereto and renewals, extensions or refinancings of
such Debt which do not increase the outstanding principal amount of such Debt,
which do not shorten the maturity of any principal of such Debt and the terms
and provisions of which are not materially more onerous than the terms and
conditions of such Debt on the Closing Date, (ii) purchase money Debt (including
Capital Lease Obligations) secured by purchase money Liens, which Debt and Liens
are permitted under and meet all of the requirements of clause (g) of the
definition of Permitted Liens contained in Section 1.1, and (iii) Debt owed to
the Borrower by the Leasing Subsidiary, which Debt has been incurred to finance
the Leasing Subsidiary's purchase Nortel Networks Goods and Services under the
Master Purchase Agreement; and
(d) liabilities of the Borrower in respect of unfunded vested benefits
under any Plan if and to the extent that the existence of such liabilities will
not constitute, cause or result in a Default.
Section 9.2 Limitation on Liens. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, incur, create, assume or permit to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, except Permitted Liens and will not enter into any negative
pledge or similar arrangement in favor of other creditors (other than such
negative pledge or similar arrangement under purchase money Debts and Capital
Lease Obligations with respect to the assets financed or secured thereby).
Section 9.3 Mergers, Etc. The Borrower will not, and will not permit
its Subsidiaries to, (a) become a party to a merger or consolidation, (b)
wind-up, dissolve or liquidate itself, or (c) purchase or acquire all or a
material or substantial part of the business or Properties of any Person;
provided, however, that any Subsidiary of the Borrower may merge with and into
the Borrower or a Subsidiary of the Borrower if the Borrower or a Subsidiary of
the Borrower is the surviving entity, provided that no consideration is given by
the surviving entity in such merger other than the issuance of any Capital Stock
of the surviving entity. The surviving entity in any such merger shall
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ratify the Security Documents and other obligations of the non-surviving entity
under the Loan Documents.
Section 9.4 Restricted Payments. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, make any Restricted Payments, except:
(a) Subsidiaries of the Borrower may make Restricted Payments to the
Borrower;
(b) the Borrower and its Subsidiaries may make temporary loans or
advances to employees, officers and directors of the Loan Parties in the
ordinary course of business that do not exceed $250,000 in aggregate amount at
any time outstanding; or
(c) Salaries and advances paid in the ordinary course of business;
provided, however, that no Restricted Payments may be made pursuant to the
preceding clause (a) if a Default exists at the time of such Restricted Payment
or would result therefrom.
Section 9.5 Investments. The Borrower will not, and will not permit any
Subsidiary of the Borrower to, make or permit to remain outstanding any advance,
loan, extension of credit or capital contribution to or investment in any
Person, or purchase or own any stock, bonds, notes, debentures or other
securities of any Person, or be or become a joint venturer with or partner of
any Person (all such transactions being herein called "Investments"), except:
(a) Investments in obligations or securities received in settlement of
debts (created in the ordinary course of business) owing to the Borrower or
another Loan Party;
(b) existing Investments identified on Schedule 9.5 hereto;
(c) Investments in securities issued or guaranteed by the U.S. or any
agency thereof with maturities of one year or less from the date of acquisition;
(d) Investments in certificates of deposit and Eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000;
(e) Investments in repurchase obligations with a term of not more than
seven days for securities of the types described in clause (c) preceding with
any Lender or with any domestic commercial bank having capital and surplus in
excess of $500,000,000;
(f) Investments in commercial paper of a domestic issuer rated A-1 or
better or P-1 or better by Standard & Poor's Corporation or Moody's Investors
Services, Inc., respectively, maturing not more than 270 days from the date of
acquisition;
(g) (i) Investments (other than intercompany Debt referred to in clause
(h) below) by the Borrower in its Subsidiaries existing on the Closing Date or
required to occur in accordance with this
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Agreement, and (ii) additional Investments by the Borrower in its Subsidiaries
made after the Closing Date which, together with intercompany Debt referred to
in clause (h) below, does not in the aggregate exceed $250,000;
(h) intercompany Debt (in addition to the obligations of the Borrower
under the Master Asset Lease Agreement) which, together with Investments
referred to in clause (g)(ii) above, does not in the aggregate exceed $250,000
provided that payment of such Debt shall be fully subordinated to the
Obligations;
(i) Interest Rate Protection Agreements entered into in compliance with
Section 8.16; or
(j) temporary loans or advances to employees, officers and directors of
the Loan Parties in the ordinary course of business that do not exceed $250,000
at any time outstanding in aggregate amount;
provided, however, that no Investments may be made by the Borrower pursuant to
clauses (g), (h) or (k) preceding if a Default exists at the time of such
Investment or would result therefrom.
Section 9.6 Limitation on Operating Leases of the Borrower. The
Borrower will not, and will not permit any Subsidiary of the Borrower to, at any
time enter into or be a party to operating leases that in the aggregate obligate
the Borrower and/or its Subsidiaries to make annual payments in excess of
$500,000; provided, however, that Borrower may enter into and perform the Master
Asset Lease Agreement.
Section 9.7 Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary of the Borrower to, enter into any transaction,
including, without limitation, the purchase, sale or exchange of Property or the
rendering of any service, with any Affiliate of the Borrower except in the
ordinary course of and pursuant to the reasonable requirements of the Borrower's
business and upon fair and reasonable terms no less favorable to the Borrower
than would be obtained in a comparable arms-length transaction with a Person not
an Affiliate of the Borrower; provided, however, that transactions between or
among the Borrower and its Affiliates may be on terms more favorable to the
Borrower than would be obtained in a comparable arms-length transaction with a
Person not an Affiliate of the Borrower and provided, further, that the Borrower
and the Leasing Subsidiary may enter into and perform the Master Asset Lease
Agreement. In addition to the foregoing, no transactions between or among (a)
Affiliates of the Borrower and (b) the Borrower and its Subsidiaries relating to
the purchases of equipment from any such Affiliate or the provision of services
by any such Affiliate shall be permitted unless the same are purchased or
provided at the cost to such Affiliate.
Section 9.8 Disposition of Property. The Borrower will not, and will
not permit any Subsidiary of the Borrower to, sell, lease, assign, transfer or
otherwise dispose of any of its Property (including, without limitation, the
Nortel Networks Goods and Services), except (subject to the succeeding proviso):
(a) dispositions of Inventory (other than equipment) in the ordinary
course of business;
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(b) Asset Dispositions of Property, other than accounts and
Receivables, by the Borrower made in the ordinary course of business if each of
the following conditions have been satisfied: (i)(A) the Net Proceeds from any
single Asset Disposition or series of related Asset Dispositions in any fiscal
year of the Borrower do not exceed $250,000 and (B) the Borrower receives fair
consideration for such assets and (ii) no Default exists at the time of or will
result from such Asset Disposition;
(c) Asset Dispositions of Property, other than equipment, accounts and
Receivables, by the Borrower to any Wholly-Owned Subsidiary of the Borrower if
each of the following conditions have been satisfied: (i) the assets sold,
disposed of or otherwise transferred to a Wholly-Owned Subsidiary of the
Borrower shall continue to be subject to a perfected, first priority Lien
(except for Permitted Liens, if any, which are expressly permitted by the Loan
Documents to have priority over the Liens in favor of the Administrative Agent)
in favor of the Administrative Agent and the Lenders, and (ii) no Default exists
at the time of or will result from such Asset Disposition; and
(d) dispositions of Property no longer used or useful in the ordinary
course of business, including, without limitation, dispositions of equipment
being exchanged or replaced with comparable or better equipment;
provided, however, that the Borrower will not, and will not permit the Leasing
Subsidiary or any other Subsidiary of the Borrower to, sell, lease, assign,
transfer or otherwise dispose of any of the equipment that constitutes Nortel
Networks Goods and Services without the prior written consent of the Required
Lenders.
Section 9.9 Sale and Leaseback. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, enter into any arrangement with any
Person pursuant to which it leases from such Person real or personal Property
that has been or is to be sold or transferred, directly or indirectly, by it to
such Person.
Section 9.10 Lines of Business. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, engage in any line or lines of
business activity other than the businesses described in and contemplated by the
Business Plan and the conduct of related Telecommunications Businesses.
Section 9.11 Environmental Protection. The Borrower will not, and will
not permit any Loan Party to, (a) use (or permit any tenant to use) any of its
Properties for the handling, processing, storage, transportation or disposal of
any Hazardous Material except in compliance with applicable Environmental Laws,
(b) generate any Hazardous Material except in compliance with applicable
Environmental Laws, (c) conduct any activity that is likely to cause a Release
or threatened Release of any Hazardous Material in violation of any
Environmental Law, or (d) otherwise conduct any activity or use any of its
Properties in any manner, that violates or is likely to violate any
Environmental Law or create any Environmental Liabilities for which the Borrower
or any Loan Party would be responsible, except for circumstances or events
described in clauses (a) through (d) preceding that could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
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Section 9.12 Intercompany Transactions. Except as may be expressly
permitted or required by the Loan Documents, the Borrower will not, and will not
permit any Loan Party to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Loan Party to (a) pay dividends or make any other distribution to the
Borrower or any of its Subsidiaries in respect of such Subsidiary's Capital
Stock or with respect to any other interest or participation in, or measured by,
its profits, (b) pay any indebtedness owed to the Borrower or any of its
Subsidiaries, (c) make any loan or advance or capital contribution to the
Borrower or any of its Subsidiaries, or (d) sell, lease or transfer any of its
Property to the Borrower or any of its Subsidiaries.
Section 9.13 Management Fees. The Borrower and its Subsidiaries shall
not pay any management fees; provided, however, that so long as no Default has
occurred and is continuing, the Borrower may pay management fees to Holdings or
a subsidiary of Holdings in an aggregate amount per fiscal quarter not to exceed
the amount set forth in the Management Agreement as in effect on the date of
this Agreement and may reimburse reasonable out-of-pocket expenses advanced by
Holdings or a subsidiary of Holdings to Borrower.
Section 9.14 Master Purchase Agreement. None of the Borrower, the
Leasing Subsidiary, TriVergent or TriVergent Leasing, LLC will terminate the
Master Purchase Agreement prior to the later to occur of the Amortization
Commencement Date or the satisfaction in full of the purchase commitments under
the Master Purchase Agreement.
Section 9.15 Modification of Certain Agreements. The Borrower will not,
and will not permit any Loan Party to, consent to or implement any termination,
amendment, modification, supplement or waiver of (a) the articles of
incorporation, articles of organization, bylaws, regulations or other
constitutional documents of the Borrower or any other Loan Party, (b) the
Business Plan or (c) any Material Contract to which it is a party, or any Permit
which it possesses; provided, however, that the Loan Parties may amend or modify
(i) the documents referred to in clause (a) preceding if and to the extent that
such amendment or modification is not substantive or material and could not be
adverse to any Loan Party, the Administrative Agent or any Lender, provided,
however, that none of such documents referred to in clause (a) preceding may be
amended or modified as they relate to, in any way, any capital contribution to
the Borrower or any obligation or agreement relating thereto, (ii) the Business
Plan with the prior written consent of the Administrative Agent and the Required
Lenders, which consent shall not be unreasonably withheld if such amendment or
modification could not be adverse to any Loan Party, the Administrative Agent or
any Lender, and (iii) the Material Contracts referred to in clause (c) preceding
if and to the extent that such amendment or modification could not reasonably be
expected to be materially adverse to any Loan Party, the Administrative Agent or
any Lender.
Section 9.16 ERISA. The Borrower will not, and will not permit any Loan
Party to:
(a) allow, or take (or permit any ERISA Affiliate to take) any action
which would cause, any unfunded or unreserved liability for benefits under any
Plan (exclusive of any Multiemployer Plan) to exist or to be created that
exceeds $100,000 with respect to any such Plan or $200,000 with respect to all
such Plans in the aggregate on either a going concern or a wind-up basis; or
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(b) with respect to any Multiemployer Plan, allow, or take (or permit
any ERISA Affiliate to take) any action which would cause, any unfunded or
unreserved liability for benefits under any Multiemployer Plan to exist or to be
created, either individually as to any such Plan or in the aggregate as to all
such Plans, that could, upon any partial or complete withdrawal from or
termination of any such Multiemployer Plan or Plans, have a Material Adverse
Effect.
Section 9.17 No Prepayment of Debt, Etc. The Borrower will not, and
will not permit any Subsidiary of the Borrower to, directly or indirectly, make
any optional prepayment or distribution on account of, or voluntarily purchase,
acquire, redeem or retire, any Debt, prior to 30 days before its originally
stated maturity (or its stated maturity as of the Closing Date in the case of
Debt outstanding on the Closing Date), or in the case of interest, its stated
due date, or directly or indirectly become obligated to do any of the foregoing
by amending the terms thereof or otherwise, except for:
(a) prepayments of the Loans or other Obligations pursuant to or as
permitted by the Loan Documents;
(b) prepayments made with the proceeds of new Debt incurred for the
purpose of refinancing the Debt being prepaid, provided that (i) no portion of
such new Debt matures or is required to be prepaid, purchased or otherwise
retired earlier than the corresponding portion of the Debt being prepaid
(including as a result of any prepayment or redemption upon the occurrence of a
condition), (ii) such new Debt (A) is subordinated to the Obligations to at
least the same extent as the Debt being refinanced if such Debt is subordinated
debt or (B) is permitted in accordance with this Agreement, and (iii) no Default
or Event of Default then exists or would result from such prepayment or
refinancing; and
(c) prepayments of trade payables incurred in the ordinary course of
the Borrower's or any Subsidiary's business and not overdue by more than 120
days.
In addition, the Borrower will not, and will not permit any Subsidiary of the
Borrower to, prepay any rent or other obligations under any operating lease or
any other Material Contract prior to 90 days before the originally stated due
date therefor (or the due date therefor as of the Closing Date in the case of
operating leases or Material Contracts in existence on the Closing Date).
ARTICLE 10
Financial Covenants
Section 10.1 Total Debt to Total Capitalization. The Borrower will not
permit its ratio of (a) Total Debt outstanding at the end of any of the calendar
quarters set forth on on Column 1 of Schedule 10 to (b) Total Capitalization on
such date, to exceed the ratio set forth opposite such date on such Schedule.
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Section 10.2 Total Debt to Annualized EBITDA. The Borrower will not
permit its ratio of (a) Total Debt outstanding at the end of any of the calendar
quarters set forth on Column 2 of Schedule 10 to (b) Annualized EBITDA for the
calendar quarter ending on such date, to exceed the ratio set forth opposite
such date on such Schedule.
Section 10.3 Annualized EBITDA. The Borrower will not permit Annualized
EBITDA at the end of any of the calendar quarters set forth on Column 3 of
Schedule 10 to be less than the amount set forth opposite such date on such
Schedule.
Section 10.4 Fixed Charge Coverage. The Borrower will not permit its
ratio of (a) Annualized EBITDA during any of the calendar quarters ending on any
of the dates set forth on Column 4 of Schedule 10 plus cash balances on such
date to (b) Consolidated Fixed Charges for the immediately succeeding four
calendar quarters, to be less than the ratio set forth opposite such date on
such Schedule.
Section 10.5 Interest Coverage. The Borrower will not permit its ratio
of (a) Annualized EBITDA during any of the calendar quarters ending on any of
the dates set forth on Column 5 of Schedule 10 plus cash balances on such date
to (b) Consolidated Interest Expense for the immediately succeeding four
calendar quarters, to be less than the ratio set forth opposite such date on
such Schedule.
Section 10.6 Capital Expenditures. The Borrower will not permit
cumulative Capital Expenditures for the period beginning on the Closing Date and
ending on any of the dates set forth on Column 6 of Schedule 10 to exceed the
amount set forth opposite such date on such Schedule.
Section 10.7 Quarterly Minimum Revenue Levels. The Borrower will not
permit its Gross Revenues for any of the calendar quarters ending on any of the
dates set forth on Column 7 of Schedule 10 to be less than the amount set forth
opposite such date on such Schedule.
Section 10.8 Access Lines. The Borrower will not permit the number of
the total Access Lines in service at the end of any of the calendar quarters
ending on any of the dates set forth on Column 8 of Schedule 10 to be less than
the amount set forth opposite such date on such Schedule.
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) (i) The Borrower shall fail to pay, repay or prepay when due, any
amount of principal or interest owing to the Administrative Agent or any Lender
pursuant to this Agreement or any other Loan Document, or (ii) the Borrower
shall fail to pay, within two Business Days after the due date thereof, any fee,
expense or other amount or other Obligation owing to the Administrative Agent or
any Lender pursuant to this Agreement or any other Loan Document.
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(b) Any representation or warranty made or deemed made by or on behalf
of any Loan Party in any Loan Document or in any certificate, report, notice or
financial statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(c) Any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Section 5.1, 8.1(e), 8.2, Article 9 or
Article 10; any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Article 5 or Section 8.1, 8.3, 8.5,
8.6, 8.7, 8.8, 8.9, 8.10, 8.13 and 8.15, and such failure is not remedied or
waived within ten days after such failure commenced; or any Loan Party shall
fail to perform, observe or comply with any other covenant, agreement or term
contained in this Agreement or any other Loan Document (other than covenants to
pay the Obligations) and such failure is not remedied or waived within the
earlier to occur of 30 days after such failure commenced or, if a different
grace period is expressly made applicable in such other Loan Documents, such
applicable grace period.
(d) Any Loan Party, Holdings or TriVergent ceases to be Solvent or
shall admit in writing its inability to, or be generally unable to, pay its
debts as such debts become due.
(e) Any Loan Party, Holdings or TriVergent shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or administrator of itself or of all or a
substantial part of its Property, (ii) admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due, subject to any
applicable grace periods, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the United States Bankruptcy
Code (as now or hereafter in effect, the "Bankruptcy Code"), (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors
or relating to bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or winding up, or composition or readjustment of debts, (vi) fail to
controvert in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code or
other applicable Governmental Requirement, (vii) dissolve, or (viii) take any
entity action for the purpose of effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the application or
consent of any Loan Party, Holdings or TriVergent in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution,
arrangement, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, examiner, liquidator,
administrator or the like of it or of all or any substantial part of its
Property, or (iii) similar relief in respect of it, under any law providing for
the relief of debtors or relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding up, or composition or
readjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60 or more days;
or an order for relief shall be entered in an involuntary case under the
Bankruptcy Code against any Loan Party, Holdings or TriVergent and shall
continue unstayed and in effect for any period of 60 consecutive days.
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(g) Any Loan Party, Holdings or TriVergent shall fail to discharge
within a period of 30 days after the commencement thereof any attachment,
sequestration, forfeiture or similar proceeding or proceedings involving an
aggregate amount in excess of $250,000 against any of its Properties.
(h) A final judgment or judgments for the payment of money in excess of
$250,000 in the aggregate shall be rendered by a court or courts against any
Loan Party, Holdings or TriVergent on claims not covered by insurance and the
same shall not be discharged, bonded or a stay of execution thereof shall not be
procured, within 30 days from the date of entry thereof and any Loan Party,
Holdings or TriVergent shall not, within said period of 30 days, or such longer
period during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal.
(i) Any Loan Party, Holdings or TriVergent shall fail to pay when due
any principal of or interest on any Debt of such Person (other than the
Obligations) having (either individually or in the aggregate) a principal amount
of at least $1,000,000 or the maturity of any such Debt shall have been
accelerated, or any such Debt shall have been required to be prepaid prior to
the stated maturity thereof, or any event shall have occurred (and shall not
have been waived or otherwise cured) that permits (or, with the giving of notice
or lapse of time or both, would permit) any holder or holders of such Debt or
any Person acting on behalf of such holder or holders to accelerate the maturity
thereof or require any such prepayment.
(j) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by any Loan Party or any
Loan Party shall deny that it has further liability or obligation under any of
the Loan Documents; or any Lien created or purported to be created by the Loan
Documents shall for any reason cease to be or fail to be a valid, first priority
perfected Lien upon any of the Collateral purported to be covered thereby (other
than in the case of a Permitted Lien expressly permitted hereunder to have a
priority equal to or prior to the Liens in favor of the Administrative Agent).
(k) Any of the following events shall occur or exist with respect to
any Loan Party or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable Event with respect to any Pension Plan; (iii) the
filing under Section 4041 of ERISA of a notice of intent to terminate any
Pension Plan or the termination of any Pension Plan; (iv) any event or
circumstance that could reasonably be expected to constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any Pension
Plan, or the institution by the PBGC of any such proceedings; (v) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, shall exist with respect to any Pension
Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency or termination of
any Pension Plan; and in each case above, such event or condition, together with
all other events or conditions, if any, have subjected or could in the
reasonable opinion of Required Lenders subject any Loan Party or any ERISA
Affiliate to any tax, penalty or other liability to a Plan, a Multiemployer
Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate
exceed or could reasonably be expected to exceed $250,000.
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(l) The occurrence of any breach or default by the Borrower, the
Leasing Subsidiary, TriVergent or TriVergent Leasing, LLC under the Master
Purchase Agreement (after giving effect to any grace or cure period specified
therein) which breach or default entitles Nortel Networks to exercise a right or
remedy under or in connection with the Master Purchase Agreement.
(m) Any termination, revocation or non-renewal by the FCC or any
federal or state public utility commission or other Governmental Authority of
any material license or Permit of the Borrower or any of its Subsidiaries.
(n) The occurrence of any Material Adverse Effect.
(o) The occurrence of any Change in Control.
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent may and, if directed by the Required
Lenders, the Administrative Agent shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued and
unpaid interest on the Loans and all other amounts payable by the Borrower under
the Loan Documents immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower;
(b) Termination of Commitments. Terminate each of the Commitments
without notice to the Borrower;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
to secure payment and performance of the Obligations in accordance with the
terms of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies afforded by the
laws of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity or otherwise;
provided, however, that upon the occurrence of an Event of Default under Section
11.1(e) or Section 11.1(f), the Commitments of all of the Lenders shall
immediately and automatically terminate, and the outstanding principal of and
accrued and unpaid interest on the Loans and all other amounts payable by the
Borrower under the Loan Documents shall thereupon become immediately and
automatically due and payable, without notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.
Section 11.3 Performance by the Administrative Agent, etc. If the
Borrower shall fail to perform any covenant or agreement in accordance with the
terms of the Loan Documents, the Administrative Agent may perform or attempt to
perform, or may cause any Lender (with the consent of such Lender) to perform or
attempt to perform, such covenant or agreement on behalf of
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the Borrower. In such event, the Borrower shall, at the request of the
Administrative Agent, promptly pay any amount expended by the Administrative
Agent or the Lenders in connection with such performance or attempted
performance to the Administrative Agent at its Principal Office, together with
interest thereon at the applicable Default Rate from and including the date of
such expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the
Administrative Agent nor any Lender shall have any liability or responsibility
for the performance of any obligation of the Borrower or any other Person under
this Agreement or any of the other Loan Documents.
ARTICLE 12
The Administrative Agent
Section 12.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Neither the Administrative Agent nor any of its
Affiliates, officers, directors, employees, attorneys or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Administrative Agent (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Loan Documents, and shall not by reason of this Agreement or any
other Loan Document be a trustee or fiduciary for any Lender, (c) shall not be
required to initiate any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required Lenders,
(d) shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document, or any certificate or other document referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document, or
for the value, validity, effectiveness, enforceability or sufficiency of this
Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or for any failure by any Person to perform any
of its obligations hereunder or thereunder, (e) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, and (f) shall incur no liability under or in respect of
any Loan Document by acting upon any notice, consent, certificate or other
instrument or writing reasonably believed by it to be genuine and signed or sent
by the proper party or parties. As to any matters not expressly provided for by
this Agreement, the Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Lenders, and such instructions of the
Required Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders; provided, however, that the Administrative
Agent shall not be required to take any action which exposes the Administrative
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Agent to liability or which is contrary to this Agreement or any other Loan
Document or applicable law. The Administrative Agent shall not be deemed to have
any fiduciary relationship with any Lender or any Loan Party, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
Without limiting the generality of the foregoing, the use of the term "agent" in
this Agreement with respect to the Administrative Agent is not intended to
connote any fiduciary or other express or implied obligation arising under
agency doctrine of any applicable law; instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship among independent contracting parties.
Section 12.2 Rights of Administrative Agent as a Lender. With respect
to its Commitments, the Loans made by it and the Note(s) issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to, own
securities of, and generally engage in any kind of banking, trust or other
business with, the Borrower or any of its Affiliates and any other Person who
may do business with or own securities of the Borrower or any of its Affiliates,
all as if it were not acting as the Administrative Agent and without any duty to
account therefor to the Lenders.
Section 12.3 Defaults. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans or of commitment fees)
unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice of
the occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender prompt notice of each such
non-payment). The Administrative Agent shall (subject to Section 12.1) take such
action with respect to such Default as shall be directed by the Required
Lenders, provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall seem advisable and in the best interest of the
Lenders.
SECTION 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY
THE ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS AGAINST
(TO THE EXTENT NOT REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING
THE OBLIGATIONS OF THE BORROWER UNDER SECTIONS 13.1 AND 13.2), RATABLY IN
ACCORDANCE WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS COMMITMENT
PERCENTAGE OF THE COMMITMENTS), ANY AND ALL LIABILITIES (INCLUDING, WITHOUT
LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS'
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FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY RELATING
TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO
BE TAKEN BY THE ADMINISTRATIVE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF
THE FOREGOING TO THE EXTENT CAUSED BY THE ADMINISTRATIVE AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE
EXPRESS INTENTION OF THE LENDERS THAT THE ADMINISTRATIVE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE
OF THE ADMINISTRATIVE AGENT (EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE
ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING
ANY OTHER PROVISION OF THIS SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE
ADMINISTRATIVE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON
THE BASIS OF ITS COMMITMENT PERCENTAGE OF THE COMMITMENTS) OF ANY AND ALL
OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE
ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE
ADMINISTRATIVE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY THE
BORROWER.
Section 12.5 Independent Credit Decisions. Each Lender agrees that it
has independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Holdings, the Borrower and the
Subsidiaries of the Borrower and its own decision to enter into this Agreement
and that it will, independently and without reliance upon the Administrative
Agent or any other Lender, and based upon such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Loan Documents. The Administrative Agent shall not be required to keep
itself informed as to the performance or observance by any Loan Party of this
Agreement or any other Loan Document or to inspect the Properties or books of
the Borrower (or any other Person). Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder or under the other Loan Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other financial information concerning the affairs,
financial condition or business of any Loan Party which may come into the
possession of the Administrative Agent or any of its Affiliates.
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Section 12.6 Several Commitments. The Commitments and other obligations
of the Lenders under this Agreement are several. The default by any Lender in
making a Loan in accordance with any of its Commitments shall not relieve the
other Lenders of their obligations under this Agreement. In the event of any
default by any Lender in making any Loan, each nondefaulting Lender shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Lender was required to advance hereunder. In no event shall
any Lender be required to advance an amount or amounts with respect to any of
the Loans which would in the aggregate exceed such Lender's Commitment with
respect to such Loans. No Lender shall be responsible for any act or omission of
any other Lender.
Section 12.7 Successor Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any time by giving notice thereof to the
Lenders and the Borrower. Upon any such resignation, the Required Lenders will
have the right to appoint another Lender as a successor Administrative Agent. If
no successor Administrative Agent shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the U.S. or any state thereof or of a foreign country if acting through its
U.S. branch and having combined capital and surplus of at least $100,000,000.
Upon the acceptance of its appointment as successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all rights, powers, privileges, immunities and duties of the resigning
Administrative Agent, and the resigning Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents. After any Administrative Agent's resignation as Administrative Agent,
the provisions of this Article 12 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Administrative Agent. Each Administrative Agent (including each successor
Administrative Agent) agrees that, so long as it is acting as Administrative
Agent under this Agreement, it shall be a Lender under this Agreement.
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ARTICLE 13
Miscellaneous
Section 13.1 Expenses. The Borrower hereby agrees, on demand, to pay or
reimburse the Administrative Agent and each of the Lenders for paying: (a) all
reasonable out-of-pocket costs and expenses of the Administrative Agent accrued
in connection with the preparation, negotiation, execution and delivery of the
Loan Documents and in connection with any and all waivers, amendments,
modifications, renewals, extensions and supplements of or to the Loan Documents,
including, without limitation, the reasonable fees and expenses of legal counsel
(including all local counsel) for the Administrative Agent, (b) all
out-of-pocket costs and expenses of the Administrative Agent and the Lenders in
connection with any Default, the exercise of any right or remedy and the
enforcement of this Agreement or any other Loan Document or any term or
provision hereof or thereof, including, without limitation, the fees and
expenses of all legal counsel for the Administrative Agent and/or any Lender,
(c) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any Governmental Authority in respect of this Agreement or any
of the other Loan Documents, (d) all costs, expenses, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any Lien contemplated by this Agreement or any other Loan
Document, and (e) all reasonable out-of-pocket costs and expenses incurred by
the Administrative Agent in connection with due diligence, computer services,
copying, appraisals, environmental audits, collateral audits, field exams,
insurance, consultants and search reports.
SECTION 13.2 INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY
THE ADMINISTRATIVE AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND HOLD
EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY,
PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY FORECLOSURE RIGHT OR OTHER
RIGHT OR REMEDY WHETHER OR NOT SUCH EXERCISE IS IN COMPLIANCE WITH LAWS
AFFECTING OTHER PERSONS OR RESULTS IN DAMAGES PAYABLE TO OTHER PERSONS, (B) ANY
OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE
BORROWER OF ANY MATERIAL REPRESENTATION, WARRANTY, COVENANT OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE OR PROPOSED USE OF ANY LOAN,
(E) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF
ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY OF THE
PROPERTIES OF THE BORROWER OR ANY OF ITS AFFILIATES, EXCEPT TO THE EXTENT THAT
THE LOSS, DAMAGE OR CLAIM IS THE RESULT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE PERSON TO BE INDEMNIFIED, OR (F) ANY INVESTIGATION, LITIGATION
OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING;
BUT EXCLUDING
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ANY OF THE FOREGOING TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF
THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2 SHALL
BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON. WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER TERM
OR PROVISION OF THIS AGREEMENT, THE OBLIGATIONS OF THE BORROWER UNDER THIS
SECTION 13.2 SHALL SURVIVE THE REPAYMENT OF THE LOANS AND OTHER OBLIGATIONS AND
TERMINATION OF THE COMMITMENTS.
Section 13.3 Limitation of Liability. None of the Administrative Agent,
any Lender or any Affiliate, officer, director, employee, attorney or agent
thereof shall be liable for any error of judgment or act done in good faith, or
be otherwise liable or responsible under any circumstances whatsoever (including
such Person's negligence), except for such Person's gross negligence or willful
misconduct. None of the Administrative Agent, any Lender or any Affiliate,
officer, director, employee, attorney or agent thereof shall have any liability
with respect to, and the Borrower hereby waives, releases and agrees not to sue
any of them upon, any claim for any special, indirect, incidental or
consequential damages suffered or incurred by the Borrower or any Affiliate of
the Borrower in connection with, arising out of or in any way related to this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents. The Borrower
hereby waives, releases and agrees not to sue the Administrative Agent or any
Lender or any of their respective Affiliates, officers, directors, employees,
attorneys or agents for exemplary or punitive damages in respect of any claim in
connection with, arising out of or in any way related to this Agreement or any
of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Administrative Agent and
the Lenders shall have the right to act exclusively in the interest of the
Administrative Agent and the Lenders and shall have no duty of disclosure, duty
of loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to the Borrower or any of its Affiliates or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between the
Borrower and each Lender is solely that of debtor and creditor, and neither the
Administrative Agent nor any Lender has any fiduciary or other special
relationship with the Borrower or any of its Affiliates, and no term or
condition of any of the Loan Documents shall be construed so as to deem the
relationship between the Borrower and any Lender, or such Affiliate and any
Lender, to be other than that of debtor and creditor. No joint venture or
partnership is created by this Agreement among the Lenders or among the Borrower
or any of its Affiliates and the Lenders.
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Section 13.6 Equitable Relief. The Borrower recognizes that, in the
event it fails to pay, perform, observe or discharge any or all of the
Obligations, any remedy at law may prove to be inadequate relief to the
Administrative Agent and the Lenders. The Borrower therefore agrees that the
Administrative Agent and the Lenders, if the Administrative Agent or the Lenders
so request, shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of
the Administrative Agent or any Lender to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
this Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement or any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided for in this Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Borrower may
not assign or transfer any of its rights or obligations under this Agreement or
any other Loan Document without the prior written consent of the Administrative
Agent and the Lenders. Any Lender may sell participations in all or a portion of
its rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitments and the
Loans owing to it); provided, however, that (i) such Lender's obligations under
this Agreement and the other Loan Documents (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the Borrower for the performance of such obligations, (iii) such
Lender shall remain the holder of its Notes for all purposes of this Agreement,
(iv) the Borrower shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents, (v) the Lenders shall not grant any participation to a
business competitor of the Borrower except after the acceleration of the
Obligations or if any Obligations remain unpaid after the Maturity Date, and
(vi) the Lenders shall not grant any participation under which the participant
shall have the right to approve (or under which the consent of the participant
must be obtained prior to the Lenders' being able to approve) any amendment or
waiver of this Agreement or the other Loan Documents, except to the extent that
such amendment or waiver (A) increases any Commitment, (B) reduces the interest
rate or the amount of principal or fees applicable to the Loans or Commitments
in which such participant is participating, (C) extends any Maturity Date, (D)
releases any of the Collateral (except as provided for herein or in any other
Loan Document) or any guaranty of the Obligations, or (E) releases any Loan
Party from its monetary Obligations under any of the Loan Documents.
(b) The Borrower and each of the Lenders agree that any Lender (the
"Assigning Lender") may at any time assign to one or more Eligible Assignees all
or any part of its rights and/or obligations under this Agreement and the other
Loan Documents (including, without limitation, its Commitments and/or Loans)
(each an "Assignee"); provided, however, that (i) each such assignment may be of
a varying percentage of the Assigning Lender's rights and/or obligations under
this
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Agreement and the other Loan Documents and may relate to some but not all of
such rights and/or obligations, (ii) except in the case of an assignment of all
of a Lender's rights and obligations under this Agreement and the other Loan
Documents, the amount of the Commitment(s) and/or Loans of the Assigning Lender
being assigned pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $5,000,000 calculated based upon the aggregate amount of the
Commitment(s) and/or Loans assigned and (iii) the parties to each such
assignment shall execute and deliver to the Administrative Agent for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance, together with the Note subject to such assignment, and a processing
and recordation fee of $3,500. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof or such other date as may be approved by the Administrative
Agent, (1) the Assignee thereunder shall be a party hereto as a "Lender" and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations of a
Lender hereunder and under the Loan Documents, and (2) the Assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement and the other Loan
Documents (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of a Lender's rights and obligations under the Loan Documents,
such Lender shall cease to be a party thereto, provided that such Lender's
rights under Article 4, Section 13.1 and Section 13.2 accrued through the date
of assignment shall continue). The Borrower will provide full and prompt
assistance to each Lender as it may reasonably request from time to time in
connection with such Lender's efforts to assign its Commitments and/or Loans or
sell any participation interest therein. Such assistance shall include, without
limitation, making senior officers of the Borrower available for meetings with
prospective Lenders and participants and providing (in a timely manner) such
assistance as may be reasonably requested by such Lender and/or its advisors,
including, without limitation, providing information to and responding to
inquiries from such prospective Lenders and participants with respect to the
businesses, operations, business plan, financial condition and results of
operations of the Borrower and its Subsidiaries. Nortel Networks shall reimburse
the Borrower for its out-of-pocket expenses incurred in connection with such
assistance so long as Nortel Networks holds at least $20,000,000 in principal
amount of Loans and Commitments.
(c) By executing and delivering an Assignment and Acceptance, the
Assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any other instrument or document
furnished pursuant thereto; (ii) such Assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition or results of operations of the Borrower or any of its Affiliates or
the performance or observance by the Borrower or any of its Affiliates of its
obligations under the Loan Documents; (iii) such Assignee confirms that it has
received a copy of the Loan Documents, together with copies of the financial
statements referred to in Section 7.2 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and
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Acceptance; (iv) such Assignee will, independently and without reliance upon the
Administrative Agent or such Assigning Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Documents; (v) such Assignee confirms that it is an Eligible
Assignee; (vi) such Assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and exercise such powers under the Loan
Documents as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; and (vii) such
Assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Lender.
(d) The Administrative Agent shall maintain at its Principal Office a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under the Loan
Documents. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible Assignee,
together with the Note(s) subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register, and
(iii) give prompt written notice thereof to the Borrower. Within five Business
Days after its receipt of such notice, the Borrower, at its expense, shall
execute and deliver to the Administrative Agent in exchange for each surrendered
Note evidencing the Loans assigned, a new Note evidencing such Loans payable to
the order of such Eligible Assignee in an amount equal to such Loans assigned to
it and, if the Assigning Lender has retained any Loans, a new Note evidencing
each such Loans payable to the order of the Assigning Lender in the amount of
such Loans retained by it (each such promissory note shall constitute a "Note"
for purposes of the Loan Documents). Such new Notes shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of Exhibit B hereto.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 13.8, disclose
to the Assignee or participant or proposed Assignee or participant any
information relating to the Borrower or any of its Affiliates furnished to such
Lender by or on behalf of the Borrower or any of its Affiliates; provided that
each such actual or proposed Assignee or participant shall agree to be bound by
the provisions of Section 13.20.
(g) Any Lender may assign and pledge any Note held by it to any Federal
Reserve Bank or the U.S. Treasury as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any operating
circular issued by such Federal Reserve System
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and/or Federal Reserve Bank; provided, however, that any payment made by the
Borrower for the benefit of such assigning and/or pledging Lender in accordance
with the terms of the Loan Documents shall satisfy the Borrower's obligations
under the Loan Documents in respect thereof to the extent of such payment. No
such assignment and/or pledge shall release the assigning and/or pledging Lender
from its obligations hereunder.
(h) The Borrower shall maintain, or cause to be maintained, a register
(the "Registered Note Register") (which, at the request of the Borrower (which
request the Borrower makes by the execution of this Agreement) shall be kept by
the Administrative Agent on behalf of the Borrower at no extra charge to the
Borrower at the address to which notices to the Administrative Agent are to be
sent hereunder) on which it shall enter the name of the registered owner of each
of the Loans which is evidenced by a Registered Note. Notwithstanding anything
to the contrary contained in this Section 13.8, a Registered Note and the Loans
evidenced thereby may be assigned or otherwise transferred in whole or in part
only by registration of such assignment or transfer of such Registered Note and
the Loans evidenced thereby on the Registered Note Register (and each Registered
Note shall expressly so provide). Any assignment or transfer of all or part of
such Loans and the Registered Note evidencing the same shall be registered on
the Registered Note Register only upon surrender for registration of assignment
or transfer of the Registered Note evidencing such Loans, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed by)
the registered noteholder thereof, and thereupon one or more new Registered
Notes in the same aggregate principal amount shall be issued to the designated
assignee(s) or transferee(s). Prior to the due presentment for registration of
transfer of any Registered Note, the Borrower and the Administrative Agent shall
treat the Person in whose name such Loans and the Registered Note(s) evidencing
the same are registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding any notice to the
contrary. The Registered Note Register shall be available for inspection by the
Borrower and any Lender at any reasonable time upon reasonable prior notice.
(i) The Borrower will not become a party to any loan agreement, credit
agreement or similar agreement which restricts or prohibits the right or ability
of any lender which is a party thereto to become a Lender under this Agreement.
(j) The Borrower shall provide prompt assistance to the Administrative
Agent and the Lenders in connection with their efforts in syndicating the Loans
and Commitments. Such assistance shall include making senior officers and other
representatives of the Borrower and its Affiliates available for meetings with
prospective Lenders and providing, in a timely manner, such assistance as may be
reasonably requested by the Administrative Agent or its advisors, including,
without limitation, providing information to and responding to inquiries from
prospective Lenders with respect to the business, operations, Business Plan,
results and other matters relating to the business of the Borrower and the other
Loan Parties.
Section 13.9 Survival. All representations and warranties made or
deemed made in this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans, and no investigation by the
Administrative Agent or any Lender or any closing shall affect the
representations and warranties or the right of the
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Administrative Agent or any Lender to rely upon them. Without prejudice to the
survival of any other obligation of the Borrower hereunder, the obligations of
the Borrower under Article 4 and Sections 13.1 and 13.2 shall survive repayment
of the Loans and the Reimbursement Obligations and the other Obligations.
SECTION 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, TERM SHEETS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
HERETO.
Section 13.11 Amendments. No amendment or waiver of any provision of
this Agreement, the Notes or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Required Lenders and the Borrower in writing, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders and the Borrower, do any of
the following: (a) increase the Commitments of the Lenders (or any Lender) or
subject the Lenders to any additional obligations; (b) reduce the principal of,
or interest on, the Loans or any fees or other amounts payable hereunder; (c)
postpone any date fixed for any payment (including, without limitation, any
mandatory prepayment) of principal of, or interest on, the Loans or any fees or
other amounts payable hereunder; (d) change the Commitment Percentages or the
aggregate unpaid principal amount of the Loans or the number or interests of the
Lenders which shall be required for the Lenders or any of them to take any
action under this Agreement; (e) change any provision contained in Section 3.2,
3.3 or 5.1 or this Section 13.11 or modify the definition of "Required Lenders"
contained in Section 1.1; or (f) except as expressly authorized by this
Agreement, release any Collateral from any of the Liens created by the Security
Documents; and provided further, however, that no amendment, waiver or consent
relating to Sections 12.1, 12.2, 12.3, 12.4 or 12.5 shall require the agreement
of the Borrower. Notwithstanding anything to the contrary contained in this
Section 13.11, no amendment, waiver or consent shall be made with respect to (i)
Article 12 hereof without the prior written consent of the Administrative Agent,
(ii) the definition of "Nortel Networks Goods and Services" or "Master Purchase
Agreement" or Section 2.5, 2.9 or 2.10 hereof without the prior written consent
of Nortel Networks (whether or not Nortel Networks is then a Lender hereunder),
or (iii) any condition precedent set forth in Article 6 with respect to the
making of any Loans without the prior written consent of the Lenders that hold,
at the time of such amendment, waiver or consent, at least a majority (in Dollar
amount) of the Commitments.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any
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Obligation shall exceed the Maximum Rate, thereby causing the interest accruing
on such Obligation to be limited to the Maximum Rate, then any subsequent
reduction in the Contract Rate for such Obligation shall not reduce the rate of
interest on such Obligation below the Maximum Rate until the aggregate amount of
interest accrued on such Obligation equals the aggregate amount of interest
which would have accrued on such Obligation if the Contract Rate for such
Obligation had at all times been in effect.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, none of the terms and provisions of this
Agreement or the other Loan Documents shall ever be construed to create a
contract or obligation to pay interest at a rate in excess of the Maximum Rate;
and neither the Administrative Agent nor any Lender shall ever charge, receive,
take, collect, reserve or apply, as interest on the Obligations, any amount in
excess of the Maximum Rate. The parties hereto agree that any interest, charge,
fee, expense or other obligation provided for in this Agreement or in the other
Loan Documents which constitutes interest under applicable law shall be, ipso
facto and under any and all circumstances, limited or reduced to an amount equal
to the lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section 13.12(b) or (ii)
an amount, which when added to all other interest payable under this Agreement
and the other Loan Documents, equals the Maximum Rate. If, notwithstanding the
foregoing, the Administrative Agent or any Lender ever contracts for, charges,
receives, takes, collects, reserves or applies as interest any amount in excess
of the Maximum Rate, such amount which would be deemed excessive interest shall
be deemed a partial payment or prepayment of principal of the Obligations and
treated hereunder as such; and if the Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to the
Borrower. In determining whether the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, the Borrower, the Administrative
Agent and the Lenders shall, to the maximum extent permitted by applicable law,
(i) characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate does not
exceed the Maximum Rate at any time during the term of the Obligations; provided
that, if the unpaid principal balance is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Rate, the Administrative
Agent and/or the Lenders, as appropriate, shall refund to the Borrower the
amount of such excess and, in such event, the Administrative Agent and the
Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging, receiving, taking, collecting, reserving or applying
interest in excess of the Maximum Rate.
(c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised
Civil Statutes of Texas 1925, as amended, the Borrower agrees that such Chapter
15 (which regulates certain revolving credit loan accounts and revolving
tri-party accounts) shall not govern or in any manner apply to the Obligations.
Section 13.13 Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents to which the Borrower is a
party shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested or
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delivered to the intended recipient at the "Address for Notices" specified below
its name on the signature pages hereof (or, with respect to a Lender that
becomes a party to this Agreement pursuant to an assignment made in accordance
with Section 13.8, in the Assignment and Acceptance executed by it); or, as to
any party, at such other address as shall be designated by such party in a
notice to each other party given in accordance with this Section 13.13. Except
as otherwise provided in this Agreement, all such communications shall be deemed
to have been duly given when transmitted by telecopy or personally delivered or,
in the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid; provided, however, that notices to the Administrative Agent shall be
deemed given when received by the Administrative Agent.
SECTION 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND EACH OF THE PARTIES HERETO
CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN THIS AGREEMENT PURSUANT TO
N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND APPLICABLE LAWS OF THE
U.S. THE BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF
(1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, (2) ANY NEW
YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE U.S. DISTRICT COURT FOR
THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE COURT SITTING IN DALLAS
COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SET FORTH UNDERNEATH ITS
SIGNATURE HERETO. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORM.
Section 13.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
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Section 13.18 Construction. The Borrower, the Administrative Agent and
each Lender acknowledges that it has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality. Each Lender agrees to exercise its best
efforts to keep any information delivered or made available by the Borrower to
it which is clearly indicated to be confidential information, confidential from
anyone other than Persons employed or retained by such Lender who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided that nothing herein shall prevent any Lender
from disclosing such information (a) to any other Lender, (b) to any Person if
reasonably incidental to the administration of the Loans, (c) upon the order of
any court or administrative agency, (d) upon the request or demand of any
regulatory agency or authority having jurisdiction over such Lender, (e) which
has been publicly disclosed, (f) in connection with any litigation to which the
Administrative Agent, any Lender or their respective Affiliates may be a party,
(g) to the extent reasonably required in connection with the exercise of any
right or remedy under the Loan Documents, (h) to such Lender's legal counsel,
independent auditors and affiliates, and (i) to any actual or proposed
participant or Assignee of all or part of its rights hereunder, so long as such
actual or proposed participant or Assignee agrees to be bound by the provisions
of this Section 13.20.
SECTION 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE BORROWER, THE ADMINISTRATIVE AGENT OR ANY LENDER IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly
provided to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of the Administrative Agent
or any Lender is requested or required, (a) the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of the Administrative Agent or such Lender, respectively, and the
Administrative Agent and such Lender shall not, for any reason or to any extent,
be required to grant such approval or consent or to exercise such judgment in
any particular manner, regardless of the reasonableness of the request or the
action or judgment of the Administrative Agent or such Lender, and (b) no
approval or consent of the
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Administrative Agent or any Lender shall in any event be effective unless the
same shall be in writing and the same shall be effective only in the specific
instance and for the specific purpose for which given.
Section 13.23 Service of Process. The Borrower irrevocably consents to
the service of process by the mailing thereof by the Administrative Agent or the
Required Lenders by registered or certified mail, postage prepaid, to the
Borrower at its address listed on the signature pages hereof. Nothing in this
Section 13.23 shall affect the right of the Administrative Agent or the Lenders
to serve legal process in any other manner permitted by law or affect the right
of the Administrative Agent or any Lender to bring any action or proceeding
against the Borrower or its Property in the court of any jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
TRIVERGENT COMMUNICATIONS SOUTH, INC.
By:
----------------------------------------
Name: Clark H. Mizell
Title: Senior Vice President and Chief
Financial Officer
Address for Notices:
TriVergent Communications South, Inc.
200 N. Main Street, Suite 303
Greenville, South Carolina 29601
Attention: Hamilton E. Russell III
Telecopy No.: (864) 271-7810
Telephone No.: (864) 271-6335
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ADMINISTRATIVE AGENT:
NORTEL NETWORKS INC.,
as Administrative Agent
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address for Notices:
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Paul D. Day
Vice President,
Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No.:(972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 468/05/B40
Attention: Kimberly Poe, Loan Administration
Telecopy No.: (972) 685-3613
Telephone No.:(972) 684-7687
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LENDERS:
Commitment: $45,000,000 NORTEL NETWORKS INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address for Notices:
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Paul D. Day
Vice President,
Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 468/05/B40
Attention: Kimberly Poe, Loan Administration
Telecopy No.: (972) 685-3613
Telephone No.: (972) 684-7687
Lending Office for Base Rate Loans:
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
Lending Office for Eurodollar Loans:
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
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<PAGE> 1
EXHIBIT 10.3.2
PLEDGE AGREEMENT
(State Communications, Inc.)
THIS PLEDGE AGREEMENT ("Agreement") dated as of March 7, 2000, is by
and between STATE COMMUNICATIONS, INC., a South Carolina corporation ("Debtor"),
whose address is 200 N. Main Street, Suite 303, Greenville, South Carolina 29601
and whose Tax I.D. No. is 58-235-4282, and NORTEL NETWORKS INC., a Delaware
corporation ("Secured Party"), as Administrative Agent for the "Lenders", as
that term is defined below, whose address is 2221 Lakeside Blvd., Richardson,
Texas 75082.
R E C I T A L S:
A. TriVergent Communications South, Inc. ("Borrower") is, concurrently
herewith, entering into that certain Credit Agreement dated as of March 7, 2000,
with the lenders party thereto (each individually a "Lender" and collectively,
the "Lenders") and Secured Party (such agreement, as it may be amended, renewed,
extended, restated, replaced, substituted, supplemented or otherwise modified
from time to time, is referred to herein as the "Credit Agreement").
B. Debtor has directly and indirectly benefitted and will directly and
indirectly benefit from the Loans evidenced and governed by the Credit Agreement
and the other transactions evidenced by and contemplated in the Loan Documents
(as defined in the Credit Agreement), and execution and delivery of this
Agreement is necessary and convenient to the conduct, promotion and attainment
of the business of Debtor.
C. The execution and delivery of this Agreement is required by the
terms of the Credit Agreement and is a condition to the availability of the
Loans to Borrower pursuant to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following terms
have the following meanings:
"Borrower" means TriVergent Communications South, Inc., a
South Carolina corporation, with its chief executive office located at
[200 N. MAIN STREET, SUITE 303, GREENVILLE, SOUTH CAROLINA 29601].
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"Broker" means any "broker," as such term is defined in
Article or Chapter 8 of the UCC, and in any event shall include, but
not be limited to, any Person defined as a broker or dealer under the
federal securities laws, but without excluding a bank acting in that
capacity.
"Capital Stock" means corporate stock and any and all
securities, shares, partnership interests, limited partnership
interests, limited liability company interests, membership interests,
equity interests, participations, rights or other equivalents (however
designated) of corporate stock or any of the foregoing issued by any
entity (whether a corporation, a partnership, a limited liability
company or another entity) and includes, without limitation, securities
convertible into Capital Stock and rights or options to acquire Capital
Stock.
"Clearing Corporation" means any "clearing corporation," as
such term is defined in Article or Chapter 8 of the UCC, and in any
event shall include, but not be limited to, any (a) Person that is
registered as a "clearing agency" under the federal securities laws,
(b) federal reserve bank, or (c) other Person that provides clearance
or settlement services with respect to Financial Assets that would
require it to register as a clearing agency under the federal
securities laws but for an exclusion or exemption from the registration
requirement, if its activities as a clearing corporation, including,
without limitation, promulgation of rules, are subject to regulation by
a federal or state governmental authority.
"Collateral" means as specified in Section 2.1.
"FCC" means the Federal Communications Commission and any
successor agency.
"Financial Asset" means any "financial asset," as such term is
defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any (a) Security, (b) obligation of a
Person or a share, participation or other interest in a Person or in
property or an enterprise of a Person, which is, or is of a type, dealt
in or traded on financial markets, or which is recognized in any area
in which it is issued or dealt in as a medium for investment, and (c)
any property that is held by a Securities Intermediary for another
Person in a Securities Account if the Securities Intermediary has
expressly agreed with the other Person that the property is to be
treated as a Financial Asset under Article or Chapter 8 of the UCC.
"Governmental Authority" means any nation or government, any
state, provincial or political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Issuer" means any "issuer," as such term is defined in
Article or Chapter 8 of the UCC, and in any event shall include, but
not be limited to, any Person that, with respect to an obligation on or
a defense to a Security, (a) places or authorizes the placing of its
name on a Security Certificate, other than as authenticating trustee,
registrar, transfer agent or the like, to evidence a share,
participation or other interest in its property or in an enterprise, or
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<PAGE> 3
to evidence its duty to perform an obligation represented by the
certificate; (b) creates a share, participation or other interest in
its property or in an enterprise, or undertakes an obligation, that is
an Uncertificated Security; (c) directly or indirectly creates a
fractional interest in its rights or property, if the fractional
interest is represented by a Security Certificate; or (d) becomes
responsible for, or in the place of, another Issuer.
"Obligations" means the "Obligations," as such term is defined
in the Credit Agreement, and the obligations, indebtedness and
liabilities of Debtor under this Agreement and any other Loan Document
to which Debtor may be a party.
"Person" means any individual, corporation, trust,
association, company, partnership, joint venture, limited liability
company, joint stock company, Governmental Authority or other entity.
"Pledged Collateral" has the meaning specified in Section
4.7(b)(i).
"Pledged Shares" means all Capital Stock consisting of
membership interests or other equity interests in, of or issued by
Borrower now or hereafter owned by Debtor, including, without
limitation, the shares of Capital Stock in, of or issued by Borrower
described on Schedule 1.
"Proceeds" means any "proceeds," as such term is defined in
Article or Chapter 9 of the UCC and, in any event, shall include, but
not be limited to, (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time to time
with respect to any of the Collateral, (b) any and all payments (in any
form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental
Authority (or any Person acting, or purporting to act, for or on behalf
of any Governmental Authority), and (c) any and all other amounts from
time to time paid or payable under or in connection with any of the
Collateral.
"Securities Account" means any "securities account," as such
term is defined in Article or Chapter 8 of the UCC, and in any event
shall include, but not be limited to, any account to which a Financial
Asset is or may be credited in accordance with an agreement under which
the Person maintaining the account undertakes to treat the Person for
whom the account is maintained as entitled to exercise the rights that
comprise the Financial Asset.
"Securities Intermediary" means any "securities intermediary,"
as such term is defined in Article or Chapter 8 of the UCC, and in any
event shall include, but not be limited to, any (a) Clearing
Corporation, or (b) Person, including a bank or Broker, that in the
ordinary course of its business maintains Securities Accounts for
others and is acting in that capacity.
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<PAGE> 4
"Security" means any "security," as such term is defined in
Article or Chapter 8 of the UCC and, in any event, shall include, but
not be limited to, any obligation of an Issuer or a share,
participation or other interest in an Issuer or in property or an
enterprise of an Issuer (a) which is represented by a Security
Certificate in bearer or registered form, or the transfer of which may
be registered upon books maintained for that purpose by or on behalf of
the Issuer, (b) which is one of a class or series or by its terms is
divisible into a class or series of shares, participations, interests
or obligations, and (c) which (i) is, or is of a type, dealt in or
traded on securities exchanges or securities markets, or (ii) is a
medium for investment and by its terms expressly provides that it is a
security governed by Article or Chapter 8 of the UCC.
"Security Certificate" means any "security certificate," as
such term is defined in Article or Chapter 8 of the UCC, and in any
event shall include, but not be limited to, any certificate
representing a Security.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York; provided, that if, by applicable law, the perfection
or effect of perfection or non-perfection of the security interest
created hereunder in any Collateral is governed by the Uniform
Commercial Code as in effect on or after the date hereof in any other
jurisdiction, "UCC" means the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating
to such perfection or the effect of perfection or non-perfection.
"Uncertificated Security" means any "uncertificated security,"
as such term is defined in Article or Chapter 8 of the UCC, and in any
event shall include, but not be limited to, any Security that is not
represented by a certificate.
Section 1.2 Other Definitional Provisions. Terms used herein that are
defined in the Credit Agreement and are not otherwise defined herein shall have
the meanings therefor specified in the Credit Agreement. References to
"Sections," "Subsections," "Exhibits" and "Schedules" shall be to Sections,
Subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. All definitions contained in this Agreement are
equally applicable to the singular and plural forms of the terms defined. All
references to statutes and regulations shall include any amendments of the same
and any successor statutes and regulations. References to particular sections of
the UCC should be read to refer also to parallel sections of the Uniform
Commercial Code as enacted in each state or other jurisdiction where any portion
of the Collateral is or may be located.
4
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ARTICLE 2
SECURITY INTEREST
Section 2.1 Security Interest. As collateral security for the prompt
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as
collateral) to Secured Party, and grants to Secured Party a continuing Lien on
and security interest in, all of Debtor's right, title and interest in and to
the following, whether now owned or hereafter arising or acquired and wherever
located (collectively, the "Collateral"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed or distributable in respect
of or in exchange for any or all of the Pledged Shares;
(b) all proceeds, in cash or otherwise, of any of the property
described in the foregoing clause (a) and all liens, security, rights, remedies
and claims of Debtor with respect thereto; and
(c) all Proceeds and products of any or all of the foregoing.
Section 2.2 Delivery of Collateral. All certificates or instruments
representing, evidencing or constituting the Pledged Shares or any other
Collateral (now owned or hereafter acquired), promptly upon Debtor gaining any
rights therein, shall be delivered to and held by or on behalf of Agent pursuant
hereto in suitable form for transfer by delivery, or accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to Secured Party. After the occurrence and
during the continuation of a Default or an Event of Default, Secured Party shall
have the right at any time to exchange certificates or instruments representing
or evidencing any Pledged Collateral in its possession for certificates or
instruments of smaller or larger denominations.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce Secured Party to enter into this Agreement, Debtor represents
and warrants to Secured Party that:
Section 3.1 Title. Debtor is, and with respect to Collateral acquired
after the date hereof Debtor will be, the legal and beneficial owner of the
Collateral free and clear of any Lien or other encumbrance, except for Permitted
Liens and Liens in favor of Secured Party.
Section 3.2 Financing Statements. No financing statement, security
agreement or other Lien instrument covering all or any part of the Collateral is
on file in any public office, except as may have been filed in favor of Secured
Party pursuant to this Agreement and except for financing
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statements evidencing Permitted Liens in favor of Secured Party. Except as may
be disclosed on Schedule 2 hereto, Debtor does not do business and has not done
business within the past five (5) years under a trade name or any name other
than its legal name set forth at the beginning of this Agreement.
Section 3.3 Principal Place of Business. The principal place of
business and chief executive office of Debtor, and the office where Debtor keeps
its books and records, is located at the address of Debtor shown at the
beginning of this Agreement.
Section 3.4 Perfection. Upon the filing of Uniform Commercial Code
financing statements in the jurisdictions listed on Schedule 3 hereto and
Secured Party's obtaining possession of the Pledged Shares and Security
Certificates of Debtor, the security interest in favor of Secured Party created
herein will constitute a valid and perfected Lien upon and security interest in
the Collateral, subject to no equal or prior Liens.
Section 3.5 Pledged Shares.
(a) The Pledged Shares have been duly authorized and validly issued
and, as required by the articles of organization, operating agreement,
regulations and other constitutional documents of Borrower, are fully paid and
nonassessable under the laws of the jurisdiction of incorporation or
organization of the issuers thereof.
(b) Debtor is the legal and beneficial owner of the Pledged Shares,
free and clear of any Lien (other than the Lien created by this Agreement), and
Debtor has not sold, granted any option with respect to, assigned, transferred
or otherwise disposed of any of its rights or interest in or to the Pledged
Shares.
(c) On the date hereof, the Pledged Shares constitute the percentage of
the issued and outstanding shares of Capital Stock of the issuers thereof
indicated on Schedule 1, as such Schedule 1 may from time to time be
supplemented, amended or modified.
Section 3.6 Consideration. Debtor expects to derive substantial benefit
(and Debtor may reasonably be expected to derive substantial benefit), directly
and indirectly, from the Loans and the other transactions contemplated by the
Credit Agreement. Debtor will receive reasonably equivalent value in exchange
for the Collateral being provided by it pursuant to the Loan Documents to which
it is a party as security for the payment and performance of the Obligations.
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ARTICLE 4
COVENANTS
Debtor covenants and agrees with Secured Party that until the
Obligations are paid and performed in full and all Commitments under the Credit
Agreement have expired or have been terminated:
Section 4.1 Encumbrances. Debtor shall not create, permit or suffer to
exist, and shall defend the Collateral against, any Lien or other encumbrance on
the Collateral, and shall defend Debtor's rights in the Collateral and Secured
Party's pledge and collateral assignment of and security interest in the
Collateral against the claims and demands of all Persons. Debtor shall do
nothing to impair the rights of Secured Party in the Collateral.
Section 4.2 Disposition of Collateral. Except as expressly permitted by
the terms of the Credit Agreement, Debtor shall not sell, lease, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, the Collateral or any part thereof without the prior written consent
of Secured Party.
Section 4.3 Further Assurances. At any time and from time to time, upon
the request of Secured Party, and at the sole expense of Debtor, Debtor shall
promptly execute and deliver all such further agreements, documents and
instruments and take such further action as Secured Party may reasonably deem
necessary or appropriate to preserve and perfect its security interest in and
pledge and collateral assignment of the Collateral and carry out the provisions
and purposes of this Agreement or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any of the Collateral,
and, to the extent any of the Collateral at any time constitutes Investment
Property (as defined in the UCC), then Debtor shall cause Secured Party to
obtain "control," as defined in Article or Chapter 8 of the UCC, of such
Collateral in one (or more, if Secured Party reasonably so requests) of the
manners prescribed in Section 8-106 of the UCC. Debtor and Secured Party agree
that the grant of the security interest in the Investment Property pursuant to
this Agreement shall have the effect of a delivery of such securities to Secured
Party pursuant to Section 8-301 of the UCC, and the effect of a taking of
delivery by Secured Party of such Collateral in accordance with Section 8-302 of
the UCC. Except as otherwise expressly permitted by the terms of the Credit
Agreement relating to disposition of assets and except for Permitted Liens,
Debtor agrees to defend the title to the Collateral and the Lien thereon of
Secured Party against the claim of any other Person and to maintain and preserve
such Lien. Without limiting the generality of the foregoing, Debtor shall (a)
execute and deliver to Secured Party such financing statements as Secured Party
may from time to time require; and (b) execute and deliver to Secured Party such
other agreements, documents and instruments as Secured Party may require to
perfect and maintain the validity, effectiveness and priority of the Liens
intended to be created by the Loan Documents. Debtor authorizes Secured Party to
file one or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral without the signature of Debtor
where permitted by law. A carbon, photographic or other reproduction of this
Agreement or of any
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financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement and may be filed as a financing statement.
Section 4.4 Entity Changes. Debtor shall not change its name, identity
or corporate structure in any manner that might make any financing statement
filed in connection with this Agreement seriously misleading unless Debtor shall
have given Secured Party thirty (30) days prior written notice thereof and shall
have taken all action deemed necessary or appropriate by Secured Party to
protect its Liens and the perfection and priority thereof. Debtor shall not
change its principal place of business, chief executive office or the place
where it keeps its books and records unless it shall have given Secured Party
thirty (30) days prior written notice thereof and shall have taken all action
deemed necessary or appropriate by Secured Party to cause its security interest
in the Collateral to be perfected with the priority required by this Agreement.
Section 4.5 Books and Records; Information. Debtor shall keep accurate
and complete books and records of the Collateral and Debtor's business and
financial condition in accordance with GAAP. Debtor shall from time to time at
the request of Secured Party deliver to Secured Party such information regarding
the Collateral and Debtor as Secured Party may reasonably request, including,
without limitation, lists and descriptions of the Collateral and evidence of the
identity and existence of the Collateral. To the extent required by Section 4.4
of this Agreement, Debtor shall mark its books and records to reflect the
security interest of Secured Party under this Agreement.
Section 4.6 Notification. Debtor shall promptly notify Secured Party of
(a) any Lien, encumbrance or claim (other than Permitted Liens) that has
attached to or been made or asserted against any of the Collateral, (b) any
material change in any of the Collateral, including, without limitation, any
material damage to or loss of Collateral and (c) the occurrence of any other
event or condition (including, without limitation, matters as to Lien priority)
that could have a material adverse effect on the Collateral or the security
interest created hereunder.
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Section 4.7 Voting Rights; Distributions, Etc.
(a) So long as no Default or Event of Default shall have occurred and
be continuing:
(i) Debtor shall be entitled to exercise any and all voting
and other consensual rights (including, without limitation, the right
to give consents, waivers and notifications in respect of any of the
Pledged Collateral) pertaining to any of the Pledged Collateral or any
part thereof; provided, however, that without the prior written consent
of Secured Party, no vote shall be cast or consent, waiver or
ratification given or action taken which would (A) be inconsistent with
or violate any provision of this Agreement or any other Loan Document
or (B) amend, modify or waive any term, provision or condition of the
partnership agreement, certificate of incorporation, by-laws,
certificate of formation, operating agreement or other charter document
or other agreement relating to, evidencing, providing for the issuance
of or securing any Collateral; and provided further that Debtor shall
give Secured Party at least five (5) Business Days' prior written
notice in the form of an officer's certificate of the manner in which
it intends to exercise, or the reasons for refraining from exercising,
any voting or other consensual rights pertaining to the Collateral or
any part thereof which might have a material adverse effect on the
value of the Collateral or any part thereof; and
(ii) Unless a Default or an Event of Default shall have
occurred and be continuing, Debtor shall be entitled to receive and
retain any and all dividends and interest paid in respect of any of the
Collateral to the extent permitted by the Credit Agreement; provided,
however, that any and all
(A) Restricted Payments paid or payable in violation
of Section 9.4 of the Credit Agreement,
(B) Restricted Payments paid or payable other than in
cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of,
or in exchange for, any Collateral,
(C) Restricted Payments hereafter paid or payable in
cash in respect of any Collateral in connection with a partial
or total liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in-surplus, and
(D) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to Secured Party to hold as,
Collateral and shall, if received by Debtor, be received in trust for
the benefit of Secured Party, be segregated from the other property or
funds of Debtor and be forthwith delivered to Secured Party as
Collateral in the same form as so received (with any necessary
endorsement). All amounts (other than amounts described in clauses (ii)
(A)-(D) above which shall not be released to
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Debtor) received by Secured Party in respect of any Pledged Collateral
shall be either (1) promptly released to Debtor, so long as no Default
or Event of Default shall have occurred and be continuing or (2) if any
Default or Event of Default shall have occurred and be continuing, held
by Secured Party and (if an Event of Default shall have occurred and be
continuing) applied as provided by the Credit Agreement. During the
continuance of any Default, any dividends, interest or other
distributions (whether in cash, securities, property or otherwise)
received by Debtor with respect to any Pledged Collateral shall be held
by Debtor in trust for the benefit of Secured Party and, upon the
request of Secured Party, shall be delivered promptly to Secured Party
to hold as Collateral or shall be applied by Secured Party toward
payment of the Obligations, as Secured Party may in its discretion
determine. If such Default is waived or cured to the satisfaction of
Secured Party, any such distributions (except those of the types
described in clauses (ii)(A-D) above) shall be returned promptly to
Debtor (provided that no other Default or Event of Default exists). If
such Default remains uncured and becomes an Event of Default, any such
distributions will be applied by Secured Party as provided in the
Credit Agreement.
(b) Upon the occurrence and during the continuance of a Default or an
Event of Default:
(i) Secured Party may, without notice to Debtor, transfer or
register in the name of Secured Party or any of its nominees any or all
of the Collateral described in Section 2.1(a) or Section 2.1(b), the
proceeds thereof (in cash or otherwise) and all liens, security,
rights, remedies and claims of Debtor with respect thereto
(collectively, the "Pledged Collateral") held by Secured Party
hereunder, and Secured Party or its nominee may thereafter, after
delivery of notice to Debtor, exercise all voting and corporate rights
at any meeting of any corporation, partnership or other business entity
issuing any of the Pledged Collateral and any and all rights of
conversion, exchange, subscription or any other rights, privileges or
options pertaining to any of the Pledged Collateral as if it were the
absolute owner thereof, including, without limitation, the right to
exchange at its discretion any and all of the Pledged Collateral upon
the merger, consolidation, reorganization, recapitalization or other
readjustment of any corporation, partnership or other business entity
issuing any of such Pledged Collateral or upon the exercise by any such
issuer or Secured Party of any right, privilege or option pertaining to
any of the Pledged Collateral, and in connection therewith, to deposit
and deliver any and all of the Pledged Collateral with any committee,
depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as it may determine, all without liability
except to account for property actually received by it but Secured
Party shall have no duty to exercise any of the aforesaid rights,
privileges or options, and Secured Party shall not be responsible for
any failure to do so or delay in so doing.
(ii) All rights of Debtor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 4.7(a)(i) and to receive the dividends, interest
and other distributions which it would otherwise be authorized to
receive and retain pursuant to Section 4.7(a)(ii) shall be suspended
until such Default or Event of Default
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shall no longer exist, and all such rights shall, until such Default or
Event of Default shall no longer exist, thereupon become vested in
Secured Party which shall thereupon have the sole right to exercise
such voting and other consensual rights and to receive and hold as
Collateral such dividends, interest and other distributions.
(iii) All dividends, interest and other distributions which
are received by Debtor contrary to the provisions of this Section
4.7(b) shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Debtor, and shall be forthwith
paid over to Secured Party as Collateral in the same form as so
received (with any necessary endorsement).
(iv) Debtor shall execute and deliver (or cause to be executed
and delivered) to Secured Party all such proxies and other instruments
as Secured Party may reasonably request for the purpose of enabling
Secured Party to exercise the voting and other rights which it is
entitled to exercise pursuant to this Section 4.7(b) and to receive the
dividends, interest and other distributions which it is entitled to
receive and retain pursuant to this Section 4.7(b). The foregoing shall
not in any way limit Secured Party's power and authority granted
pursuant to Section 5.1.
4.8 Transfers and Other Liens; Additional Investments.
(a) Except as may be expressly permitted by the terms of the Credit
Agreement, Debtor shall not grant any option with respect to, exchange, sell or
otherwise dispose of any of the Collateral or create or permit to exist any Lien
upon or with respect to any of the Collateral except for the Liens created
hereby.
(b) Debtor agrees that it will (i) cause each issuer of any of the
Pledged Collateral not to issue any Capital Stock, notes or other securities or
instruments in addition to or in substitution for any of the Pledged Collateral,
except, with the written consent of Secured Party, to Debtor, (ii) pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all such Capital Stock, notes or other securities or instruments, and
(iii) promptly (and in any event within three Business Days) deliver to Secured
Party an Amendment, duly executed by Debtor, in substantially the form of
Exhibit A (an "Amendment"), in respect of such Capital Stock, notes or other
securities or instruments, together with all certificates, notes or other
securities or instruments representing or evidencing the same. Debtor hereby (A)
authorizes Secured Party to attach each Amendment to this Agreement, (B) agrees
that all such Capital Stock, notes or other securities or instruments listed on
any Amendment delivered to Secured Party shall for all purposes hereunder
constitute Pledged Collateral, and (iii) is deemed to have made, upon such
delivery, the representations and warranties contained in Article III with
respect to such Pledged Collateral.
Section 4.9 Possession; Reasonable Care. Regardless of whether a
Default or an Event of Default has occurred or is continuing, Secured Party
shall have the right to hold in its possession all Pledged Collateral pledged,
assigned or transferred hereunder and from time to time constituting a portion
of the Collateral. Secured Party may, from time to time, in its sole discretion,
appoint one or more agents (which in no case shall be Debtor or an Affiliate of
Debtor) to hold physical custody,
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for the account of Secured Party, of any or all of the Collateral. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property, it being understood that Secured Party shall not have any
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not Secured Party has or is deemed to have knowledge of
such matters, or (b) taking any necessary steps to preserve rights against any
parties with respect to any Collateral. Following the occurrence and during the
continuance of an Event of Default, Secured Party shall be entitled to take
possession of the Collateral.
ARTICLE 5
Rights of Secured Party
Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes
and appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of Debtor or in its own name, to take after the
occurrence and during the continuance of an Event of Default and from time to
time thereafter, any and all action and to execute any and all documents and
instruments which Secured Party at any time and from time to time deems
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, Debtor hereby gives Secured Party the
power and right on behalf of Debtor and in its own name to do any of the
following after the occurrence and during the continuance of an Event of Default
and from time to time thereafter, without notice to or the consent of Debtor:
(a) to demand, sue for, collect or receive, in the name of Debtor or in
its own name, any money or property at any time payable or receivable on account
of or in exchange for any of the Collateral and, in connection therewith,
endorse checks, notes, drafts, acceptances, money orders, documents of title or
any other instruments for the payment of money under the Collateral or any
policy of insurance;
(b) to pay or discharge taxes, Liens or other encumbrances levied or
placed on or threatened against the Collateral;
(c) (i) to direct account debtors and any other parties liable for any
payment under any of the Collateral to make payment of any and all monies due
and to become due thereunder directly to Secured Party or as Secured Party shall
direct; (ii) to receive payment of and receipt for any and all monies, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral; (iii) to sign and endorse any drafts against debtors,
assignments, proxies, stock powers, verifications and notices in connection with
accounts and other documents relating to the Collateral; (iv) to commence and
prosecute any suit, action or proceeding at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (v) to defend any suit,
action or proceeding brought against Debtor with respect to any Collateral; (vi)
to settle, compromise or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as Secured
Party
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may deem appropriate; (vii) to exchange any of the Collateral for other property
upon any merger, consolidation, reorganization, recapitalization or other
readjustment of the issuer thereof and, in connection therewith, deposit any of
the Collateral with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms as Secured Party may determine; (viii)
to add or release any guarantor, indorser, surety or other party to any of the
Collateral; (ix) to renew, extend or otherwise change the terms and conditions
of any of the Collateral; (x) to make, settle, compromise or adjust any claims
under or pertaining to any of the Collateral (including claims under any policy
of insurance); and (xi) to sell, transfer, pledge, convey, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Secured Party were the absolute owner thereof for all
purposes, and to do, at Secured Party's option and Debtor's expense, at any
time, or from time to time, all acts and things which Secured Party reasonably
deems necessary to protect, preserve, maintain, or realize upon the Collateral
and Secured Party's security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable until this Agreement is terminated in accordance with its terms.
Secured Party shall be under no duty to exercise or withhold the exercise of any
of the rights, powers, privileges and options expressly or implicitly granted to
Secured Party in this Agreement, and shall not be liable for any failure to do
so or any delay in doing so. Neither Secured Party nor any Person designated by
Secured Party shall be liable for any act or omission or for any error of
judgment or any mistake of fact or law. This power of attorney is conferred on
Secured Party solely to protect, preserve, maintain and realize upon its
security interest in the Collateral. Secured Party shall not be responsible for
any decline in the value of the Collateral and shall not be required to take any
steps to preserve rights against prior parties or to protect, preserve or
maintain any Lien given to secure the Collateral.
Section 5.2 Set-off. If an Event of Default shall have occurred and be
continuing, each of Secured Party and the Lenders shall have the right to
set-off and apply against the Obligations, at any time and without notice to
Debtor, any and all deposits (general or special, time or demand, provisional or
final) or other sums at any time credited by or owing from any of Secured Party
or the Lenders to Debtor and although such Obligations may be unmatured. The
rights and remedies of Secured Party and the Lenders hereunder are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that Secured Party and the Lenders may have.
Section 5.3 Assignment by Secured Party. In accordance with the
provisions of the Credit Agreement, any of Secured Party and the Lenders may at
any time assign or otherwise transfer all or any portion of its rights and
obligations under this Agreement and the other Loan Documents (including,
without limitation, the Obligations), in connection with an assignment of the
Obligations, to any other Person, and such other Person shall thereupon become
vested with all the benefits thereof granted to Secured Party and the Lenders,
respectively, herein or otherwise.
Section 5.4 Performance by Secured Party. If Debtor shall fail to
perform any covenant or agreement contained in this Agreement, Secured Party may
perform or attempt to perform such covenant or agreement on behalf of Debtor. In
such event, Debtor shall, at the request of Secured Party, promptly pay any
amount expended by Secured Party in connection with such performance
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or attempted performance to Secured Party, together with interest thereon at the
Default Rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that Secured Party shall not have any liability or
responsibility for the performance of any indebtedness, liability or obligation
of Debtor under this Agreement.
ARTICLE 6
Default
Section 6.1 Rights and Remedies. If an Event of Default shall have
occurred and be continuing, Secured Party shall have the following rights and
remedies (subject to Section 6.3):
(a) In addition to all other rights and remedies granted to Secured
Party in this Agreement or in any other Loan Document or by applicable law,
Secured Party shall have all of the rights and remedies of a secured party under
the UCC (whether or not the UCC applies to the affected Collateral) and Secured
Party may also, without notice except as specified below, sell the Collateral or
any part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of Secured Party's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as Secured
Party may deem commercially reasonable or otherwise as may be permitted by law.
Without limiting the generality of the foregoing, Secured Party may (i) without
demand or notice to Debtor, collect, receive or take possession of the
Collateral or any part thereof and for that purpose Secured Party may enter upon
any premises on which the Collateral is located and remove the Collateral
therefrom or render it inoperable, and/or (ii) sell, lease or otherwise dispose
of the Collateral, or any part thereof, in one or more parcels at public or
private sale or sales, at Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as Secured Party may
deem commercially reasonable or otherwise as may be permitted by law. Secured
Party shall have the right at any public sale or sales, and, to the extent
permitted by applicable law, at any private sale or sales, to bid (which bid may
be, in whole or in part, in the form of cancellation of indebtedness) and become
a purchaser of the Collateral or any part thereof free of any right or equity of
redemption on the part of Debtor, which right or equity of redemption is hereby
expressly waived and released by Debtor. Upon the request of Secured Party,
Debtor shall assemble the Collateral and make it available to Secured Party at
any place designated by Secured Party that is reasonably convenient to Debtor
and Secured Party. Debtor agrees that Secured Party shall not be obligated to
give more than five (5) days prior written notice of the time and place of any
public sale or of the time after which any private sale may take place and that
such notice shall constitute reasonable notice of such matters. Secured Party
shall not be obligated to make any sale of Collateral if it shall determine not
to do so, regardless of the fact that notice of sale of Collateral may have been
given. Secured Party may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned. Debtor shall
be liable for all expenses of retaking, holding, preparing for sale or the like,
and all attorneys' fees, legal expenses and other costs and expenses incurred by
Secured Party in connection with the collection of the
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Obligations and the enforcement of Secured Party's rights under this Agreement.
Debtor shall remain liable for any deficiency if the Proceeds of any sale or
other disposition of the Collateral applied to the Obligations are insufficient
to pay the Obligations in full. Secured Party may apply the Collateral against
the Obligations in such order and manner as Secured Party may elect in its sole
discretion. Debtor waives all rights of marshaling, valuation and appraisal in
respect of the Collateral. Any cash held by Secured Party as Collateral and all
cash proceeds received by Secured Party in respect of any sale of, collection
from or other realization upon all or any part of the Collateral may, in the
discretion of Secured Party, be held by Secured Party as collateral for, and
then or at any time thereafter applied in whole or in part by Secured Party
against, the Obligations in such order as Secured Party shall select. Any
surplus of such cash or cash proceeds and interest accrued thereon, if any, held
by Secured Party and remaining after payment in full of all the Obligations
shall be paid over to Debtor or to whomsoever may be lawfully entitled to
receive such surplus; provided that Secured Party shall have no obligation to
invest or otherwise pay interest on any amounts held by it in connection with or
pursuant to this Agreement.
(b) Secured Party may cause any or all of the Collateral held by it to
be transferred into the name of Secured Party or the name or names of Secured
Party's nominee or nominees.
(c) Secured Party may exercise any and all rights and remedies of
Debtor under or in respect of the Collateral, including, without limitation, any
and all rights of Debtor to demand or otherwise require payment of any amount
under, or performance of any provision of, any of the Collateral and any and all
voting rights and corporate powers in respect of the Collateral.
(d) Secured Party may collect or receive all money or property at any
time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so.
(e) On any sale of the Collateral, Secured Party is hereby authorized
to comply with any limitation or restriction with which compliance is necessary,
in the view of Secured Party's counsel, in order to avoid any violation of
applicable law or in order to obtain any required approval of the purchaser or
purchasers by any applicable Governmental Authority.
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Section 6.2 Private Sales, Etc.
(a) Debtor recognizes that Secured Party may be unable to effect a
public sale of any or all of the Collateral by reason of certain prohibitions
contained in the Securities Act of 1933, as amended from time to time (the
"Securities Act") and applicable state securities laws but may be compelled to
resort to one or more private sales thereof to a restricted group of purchasers
who will be obliged to agree, among other things, to acquire such Collateral for
their own account for investment and not with a view to the distribution or
resale thereof. Debtor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable to the seller than if such sale
were a public sale and, notwithstanding such circumstances, agrees that any such
private sale shall, to the extent permitted by law, be deemed to have been made
in a commercially reasonable manner. Neither Secured Party nor the Lenders shall
be under any obligation to delay a sale of any of the Collateral for the period
of time necessary to permit the issuer of such securities to register such
securities under the Securities Act or under any applicable state securities
laws, even if such issuer would agree to do so.
(b) Debtor further agrees to do or cause to be done, to the extent that
Debtor may do so under applicable law, all such other acts and things as may be
necessary to make such sales or resales of any portion or all of the Collateral
valid and binding and in compliance with any and all applicable laws,
regulations, orders, writs, injunctions, decrees or awards of any and all
courts, arbitrators or governmental instrumentalities, domestic or foreign,
having jurisdiction over any such sale or sales, all at Debtor's expense. Debtor
further agrees that a breach of any of the covenants contained in this Section
6.2 will cause irreparable injury to Secured Party and the Lenders and that
Secured Party and the Lenders have no adequate remedy at law in respect of such
breach and, as a consequence, agrees that each and every covenant contained in
this Section 6.2 shall be specifically enforceable against Debtor, and Debtor
hereby waives and agrees, to the fullest extent permitted by law, not to assert
as a defense against an action for specific performance of such covenants that
(i) Debtor's failure to perform such covenants will not cause irreparable injury
to Secured Party and the Lenders or (ii) Secured Party and the Lenders have an
adequate remedy at law in respect of such breach. Debtor further acknowledges
the impossibility of ascertaining the amount of damages which would be suffered
by Secured Party and the Lenders by reason of a breach of any of the covenants
contained in this Section 6.2 and, consequently, agrees that, if Debtor shall
breach any of such covenants and Secured Party or any Lender shall sue for
damages for such breach, Debtor shall pay to Secured Party or such Lender, as
liquidated damages and not as a penalty, an aggregate amount equal to the value
of the Collateral on the date Secured Party or such Lender shall demand
compliance with this Section 6.2.
(c) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS
SECURED PARTY AND THE LENDERS AND ANY CONTROLLING PERSONS THEREOF WITHIN THE
MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS,
CLAIMS, COSTS AND EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING
UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED,
ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR
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<PAGE> 17
PURSUANT TO ANY OTHER APPLICABLE LAW IN CONNECTION WITH THE SALE OF ANY
SECURITIES OR THE EXERCISE OF ANY OTHER RIGHT OR REMEDY OF SECURED PARTY,
INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR
ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL
FACT MADE BY DEBTOR IN CONNECTION WITH THE SALE OR PROPOSED SALE OF ANY PART OF
THE COLLATERAL, OR ARISES OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED
OMISSION BY DEBTOR TO STATE A MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION
THEREWITH OR NECESSARY TO MAKE THE STATEMENTS MADE NOT MISLEADING; PROVIDED,
HOWEVER, THAT DEBTOR SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY
SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED
UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED
OMISSION MADE IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION
FURNISHED TO DEBTOR BY SECURED PARTY OR SUCH LENDER SPECIFICALLY FOR INCLUSION
IN CONNECTION THEREWITH. THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY
INDEBTEDNESS, LIABILITY OR OBLIGATION THAT DEBTOR MAY OTHERWISE HAVE TO SECURED
PARTY OR ANY SUCH LENDER OR ANY SUCH CONTROLLING PERSON.
Section 6.3 Compliance with Laws. Notwithstanding anything to the
contrary contained in any Loan Document or in any other agreement, instrument or
document executed by Debtor and delivered to Secured Party, Secured Party will
not take any action pursuant to this Agreement any document referred to herein
which would constitute or result in any assignment of any FCC license or any
change of control (whether de jure or de facto) of Debtor if such assignment of
any FCC license or change of control would require, under then existing law, the
prior approval of the FCC or any other Governmental Authority without first
obtaining such prior approval of the FCC or other Governmental Authority. Upon
the occurrence of an Event of Default or at any time thereafter during the
continuance thereof, subject to the terms and conditions of this Agreement,
Debtor agrees to take any action which Secured Party may reasonably request in
order to obtain from the FCC or such other Governmental Authority such approval
as may be necessary to enable Secured Party to exercise and enjoy the full
rights and benefits granted to Secured Party by this Agreement and the other
documents referred to above, including specifically, at the cost and expense of
Debtor, the use of reasonable efforts to assist in obtaining approval of the FCC
or such other Governmental Authority for any action or transaction contemplated
by this Agreement for which such approval is or shall be required by law, and
specifically, without limitation, upon request, to prepare, sign and file with
the FCC or such other Governmental Authority the assignor's or transferor's
portion of any application or applications for consent to the assignment of
license or transfer of control necessary or appropriate under the FCC's or such
other Governmental Authority's rules and regulations for approval of (a) any
sale or other disposition of the Collateral by or on behalf of Secured Party, or
(b) any assumption by Secured Party of voting rights in the Collateral effected
in accordance with the terms of this Agreement.
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<PAGE> 18
ARTICLE 7
Miscellaneous
Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 7.2 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of Debtor and Secured Party and their respective
heirs, successors and permitted assigns, except that Debtor may not assign any
of its rights, indebtedness, liabilities or obligations under this Agreement
without the prior written consent of Secured Party.
Section 7.3 Entire Agreement; Amendment . THIS AGREEMENT EMBODIES THE
FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto.
Section 7.4 Notices. All notices and other communications provided for
in this Agreement shall be given or made by telecopy or in writing and
telecopied, mailed by certified mail return receipt requested or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof; or, as to any party at such other address as shall
be designated by such party in a notice to the other party given in accordance
with this Section 7.4. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopy or when personally delivered or, in the case of a mailed notice, three
(3) Business Days after deposit in the mails, in each case given or addressed as
aforesaid; provided, however, that notices to Secured Party shall be deemed
given when received by Secured Party.
Section 7.5 Governing Law; Submission to Jurisdiction; Service of
Process. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN THE CREDIT
AGREEMENT, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES) AND EACH OF THE PARTIES HERETO CHOOSE THE LAWS OF THE STATE OF NEW
YORK TO GOVERN THIS AGREEMENT PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401
(CONSOL.
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<PAGE> 19
1995) AND APPLICABLE LAWS OF THE U.S. DEBTOR HEREBY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK, (2) ANY NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE
U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE
COURT SITTING IN DALLAS, COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. DEBTOR IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES OF SUCH PROCESS TO DEBTOR AT ITS ADDRESS FOR NOTICES
SET FORTH UNDERNEATH ITS SIGNATURE HERETO. DEBTOR HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
Section 7.6 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 7.7 Survival of Representations and Warranties. All
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by Secured Party shall affect the
representations and warranties or the right of Secured Party to rely upon them.
Section 7.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.9 Waiver of Bond. In the event Secured Party seeks to take
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.
Section 7.10 Severability. Any provision of this Agreement which is
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 7.11 Construction. Debtor and Secured Party acknowledge that
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this
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Agreement with its legal counsel and that this Agreement shall be construed as
if jointly drafted by Debtor and Secured Party.
Section 7.12 Termination. If all of the Obligations shall have been
paid and performed in full and all Commitments of the Lenders shall have expired
or terminated, Secured Party shall, upon the written request of Debtor, execute
and deliver to Debtor a proper instrument or instruments acknowledging the
release and termination of the security interests created by this Agreement, and
shall duly assign and deliver to Debtor (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of Secured Party and has not previously been sold or otherwise applied pursuant
to this Agreement.
Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED
PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
[Remainder of page intentionally left blank.]
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTOR:
STATE COMMUNICATIONS, INC.
By: ______________________________________
Name: Clark H. Mizell
Title: Senior Vice President and CFO
Address for Notices:
200 N. Main Street
Suite 303
Greenville, South Carolina 29601
Fax No.: (864) 271-7810
Telephone No.: (864) 370-4500
Attention: Hamilton E. Russell, III
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<PAGE> 22
SECURED PARTY:
NORTEL NETWORKS INC.
as Administrative Agent
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
Address for Notices:
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, Texas 75082-4399
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
Attention: Paul D. Day, Vice President
Customer Finance North America
and
Nortel Networks Inc.
P.O. Box 833858
Richardson, Texas 75083-3858
Mail Stop 468/05/B40
Telecopy No.: (972) 685-3613
Telephone No.: (972) 684-7687
Attention: Kimberly Poe,
Loan Administration
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<PAGE> 23
EXHIBIT A
FORM OF AMENDMENT
This Amendment, dated ____________________, ____, is delivered pursuant
to Section 4.8(b) of the Pledge Agreement (as herein defined) referred to below.
The undersigned hereby agrees that this Amendment may be attached to the Pledge
Agreement dated as of March 7, 2000, between the undersigned and Nortel Networks
Inc., as Secured Party (the "Pledge Agreement") and that the Capital Stock or
other instruments listed on Schedule 1 annexed hereto shall be and become part
of the Collateral referred to in the Pledge Agreement and shall secure payment
and performance of all Obligations as provided in the Pledge Agreement.
Capitalized terms used herein but not defined herein shall have the
meanings therefor provided in the Pledge Agreement.
DEBTOR:
STATE COMMUNICATIONS, INC.
By: _____________________________________
Name: Clark H. Mizell
Title: Senior Vice President and CFO
Address for Notices:
200 N. Main Street
Suite 303
Greenville, South Carolina 29601
Fax No.: (864) 370-4500
Telephone No.: (864) 271-7810
Attention: Hamilton E. Russell, III
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<PAGE> 24
SECURED PARTY:
NORTEL NETWORKS INC.
as Administrative Agent
By: __________________________________
Name: __________________________________
Title: __________________________________
Address for Notices:
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, Texas 75082-4399
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
Attention: Vice President
Customer Finance North America
and
Nortel Networks Inc.
P.O. Box 833858
Richardson, Texas 75083-3858
Mail Stop 468/05/B40
Telecopy No.: (972) 684-3613
Telephone No.: (972) 684-7687
Attention: Kimberly Poe,
Loan Administration
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<PAGE> 25
Schedule 1
to
Form of Amendment
<TABLE>
<CAPTION>
Number of Percentage of
Certificate Shares or Outstanding
Issuer Class of Interests No(s). Interests Shares or Interests
------ ------------------ ----------- ---------- -------------------
<S> <C> <C> <C> <C>
</TABLE>
28
<PAGE> 1
EXHIBIT 10.4.2
MASTER ASSET LEASE AGREEMENT
Master Asset Lease Agreement entered into this 7th day of March, 2000
(the "Master Lease") between TRIVERGENT LEASING SOUTH, LLC, a Delaware limited
liability company, having its chief executive offices at 200 North Main Street,
Suite 303, Greenville, South Carolina 29601 ("Lessor") and, TRIVERGENT
COMMUNICATIONS SOUTH, INC., a Delaware corporation having its chief executive
offices at 200 North Main Street, Suite 303, Greenville, South Carolina 29601
("Lessee").
1. LEASE: ORDERING OF EQUIPMENT.
(a) Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor, subject to the terms and conditions of this Master Lease, the items of
equipment and other personal property (together with all attachments,
replacements, parts, additions, substitutions, capitalized repairs, accessions
and accessories incorporated therein or affixed thereto (the "Equipment")
described in the lease schedules executed or to be executed hereunder (each a
"Schedule"). Each Schedule shall constitute a separate and independent lease and
contractual obligation of Lessee and shall incorporate the terms and conditions
of this Master Lease and any additional provisions contained in such Schedule.
In the event of a conflict between the terms and conditions of this Master Lease
and any additional provisions of such Schedule, the additional provisions of
such Schedule shall prevail with respect to such Schedule only.
(b) Lessee acknowledges that the Equipment leased to Lessee
hereunder is being purchased by Lessor at Lessee's request from a seller
selected by Lessee and on the basis of specifications and requirements selected
and furnished by Lessee, and that Lessor has not held itself out as having
knowledge or skill particular to the Equipment. In furtherance of this Section
1(b), but subject to Lessor's ultimate approval, Lessee shall have the authority
to negotiate terms for the purchase of the Equipment with third party vendors,
and shall have the authority to deliver to such vendors all appropriate sales
tax resale certificates and other documents deemed appropriate by Lessee in
order to facilitate the purchase of the equipment by Lessor.
(c) The parties acknowledge and agree that this Master Lease and
each Schedule are intended to qualify as "operating leases" under Generally
Accepted Accounting Principles.
2. TERM.
(a) The term of this Master Lease shall commence on March 7th, 2000
and shall continue in effect thereafter so long as any Schedule entered into
pursuant hereto remains in effect or, if no such Schedule is in effect, until
either Lessor or Lessee gives the other party hereto written notice of
cancellation.
(b) The term of each Schedule shall commence on the date stated
therein and shall continue for the period specified in the Schedule as the Lease
Term. The Lease Term may not be terminated by Lessee unless otherwise expressly
provided in the Schedule.
3. RENT AND PAYMENT OBLIGATION. Lessee shall owe rent ("Rent") to
Lessor for the Equipment subject to each Schedule, in the amounts and on the
payment dates set forth in such Schedule. Lessor shall bill to Lessee, on a
monthly basis, Rent and any other amounts payable by Lessee hereunder. Lessor
and Lessee will settle, on a monthly basis and in accordance with policies
adopted by Lessor, all accrued and unpaid Rent and other payment obligations
owed by Lessee; provided, however, that if such settlement does not occur within
sixty (60) days of the monthly date called for under this
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<PAGE> 2
Section 3, the amount of accrued and unpaid Rent and other outstanding payment
obligations owed by Lessee shall bear interest at the rate of one percent (1%)
per quarter from the sixty-first day after the monthly settlement date and until
such settlement occurs.
4. NET LEASE. EACH SCHEDULE SHALL BE A NET LEASE, AND LESSEE'S
OBLIGATION TO PAY ALL RENT AND OTHER SUMS WHEN DUE AND TO OTHERWISE PERFORM AS
REQUIRED UNDER EACH SCHEDULE SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT
BE SUBJECT TO ANY ABATEMENT, REDUCTION, SET-OFF, DEFENSE, COUNTERCLAIM,
INTERRUPTION, DEFERMENT OR RECOUPMENT, FOR ANY REASON WHATSOEVER. If any
Equipment is unsatisfactory for any reason, Lessee shall make any claims solely
against the manufacturer or supplier of the Equipment and shall, nevertheless,
pay Lessor or its successors or Assignees (as defined in Section 15), all
amounts due and payable under the applicable Schedule.
5. INSTALLATION, USE AND LOCATION. Lessee shall pay all installation
charges for the Equipment. The Equipment shall be used and operated by Lessee
only in the ordinary conduct of its business by qualified employees, agents, or
contractors of Lessee and in accordance with all applicable operating
instructions, and applicable governmental laws, rules and regulations. Upon
reasonable prior notice, Lessee shall make the Equipment and all related records
available to Lessor or its agents for inspection during normal business hours at
the location of such Equipment.
6. MAINTENANCE.
(a) Subject to Section 6(b) below, Lessee shall, at its expense,
keep the Equipment in good condition and working order, ordinary wear and tear
from proper use excepted and shall make all necessary adjustments, repairs and
replacements. Further, Lessee shall take all actions and incur all expenses as
may be necessary to ensure that the Equipment, at all times, complies with all
applicable laws, rules, regulations and requirements. Lessee shall not make any
alterations, additions or improvements to the Equipment except as may be
required pursuant to the two proceeding sentences without Lessor's prior written
consent unless such alterations, additions or improvements do not impair the
commercial value or the originally intended function or use of the Equipment and
are readily removable without causing material damage to such Equipment so as to
return the Equipment to its original state, less ordinary wear and tear. Any
alteration, addition or improvement not removed prior to the return of the
Equipment shall without further action become the property of Lessor, provided,
however, that any alterations, additions and improvements which would reduce the
value of the Equipment must be removed prior to the return of such Equipment.
(b) Notwithstanding anything herein to the contrary, Lessor shall
pay the cost of all repairs to the Equipment made by Lessee that are capitalized
under Generally accepted Accounting Principles; provided, however, that all such
capitalized repairs shall be mutually agreed upon by the parties, and provided
further that upon Lessor's incurring a cost for the capitalized repair with
respect to an item of Equipment, Lessor and Lessee shall agree upon an
appropriate adjustment to the Rent payable for such item of Equipment for the
balance of its applicable Lease Term.
7. RETURN.
(a) Unless Lessee exercises any purchase or renewal option provided
in the Schedule, or unless the Lease Term automatically extends for an
additional term(s) under the Schedule, upon the expiration or earlier
termination of the Lease Term with respect to the Equipment (including a
termination occurring upon the exercise by either Lessor or Lessee of a
cancellation right provided in the Schedule), or upon demand by lessor pursuant
to Section 17 hereof, Lessee shall, at its expense, return the
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<PAGE> 3
Equipment in the same condition as when delivered to Lessee, ordinary wear and
tear excepted, to Lessor at a location in the continental United States
specified by Lessor. Lessee shall pay all costs and expenses incurred by Lessor
to place the Equipment in such condition.
(b) Subject to Lessor's ultimate approval, and subject to the terms
of the Schedule governing Lessee's cancellation option, Lessee shall have the
authority to negotiate terms for the sale, trade or other disposition of the
Equipment to third parties, and Lessee shall have the authority to deliver to
such third parties all documents deemed appropriate by Lessee in order to
facilitate the disposition of the Equipment.
8. OWNERSHIP, LIENS. The Equipment is and shall at all times be the
property of Lessor. Lessee shall have no right, title or interest therein except
as set forth in the Schedule. Each Schedule shall constitute a lease of personal
property, and Lessee agrees to take all action necessary or reasonably requested
by Lessor to ensure that the Equipment shall be and remain personal property.
Nothing in any Schedule shall be construed as conveying to Lessee any interest
in the Equipment other than its interest as a lessee. Lessee shall, at its
expense, keep the Equipment and its interest as lessee hereunder free and clear
of all liens, charges, claims and other encumbrances.
9. DISCLAIMER OF WARRANTIES. Lessor warrants that, so long as no Event
of Default (as defined in Section 16) has occurred and is continuing, neither
Lessor nor its successors or Assignees or anyone acting or claming through
Lessor will interfere with Lessee's quiet enjoyment and use of the Equipment.
NOTWITHSTANDING, LESSOR LEASES THE EQUIPMENT IN "AS IS" CONDITION AND, EXCEPT
FOR LESSOR'S WARRANTY OF QUIET ENJOYMENT, LESSOR MAKES NO WARRANTIES, EXPRESS OR
IMPLIED, CONCERNING THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY
OF FITNESS FOR A PARTICULAR PURPOSE OR OF MERCHANTABILITY. LESSEE HEREBY WAIVES
ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT) IT
MIGHT HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR
CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT. LESSEE ACKNOWLEDGES
THAT LESSOR DID NOT SELECT, MANUFACTURE OR SUPPLY THE EQUIPMENT AND THAT LESSEE
HAS MADE THE SELECTION OF THE EQUIPMENT BASED ON ITS OWN JUDGMENT AND EXPRESSLY
DISCLAIMS ANY RELIANCE ON STATEMENTS MADE BY LESSOR OR ITS AGENTS. Provided no
Event of Default has occurred, Lessor hereby assigns to Lessee and Lessee shall
have the benefit of, any and all manufacturer's warranties, service agreements
and patent indemnities, if any, with respect to the Equipment; provided,
however, that Lessee's sole remedy for the breach of any such warranty,
indemnification or service agreement shall be against the manufacturer of such
Equipment and not against Lessor, nor shall any such breach have any effect
whatsoever on the rights and obligations of Lessor or Lessee hereunder.
10. RISK OF LOSS. Upon delivery of the Equipment to Lessee, Lessee
shall bear the entire risk of loss, damage, theft, or destruction of the
Equipment or any part thereof, from any and every cause whatsoever, which shall
occur prior to the return of the Equipment in accordance with Section 7, and no
such loss, damage, theft of destruction shall relieve Lessee of its obligation
to pay Rent or to comply with any other provisions of the Schedule. In the event
of damage to any part of the Equipment, Lessee shall immediately repair such
Equipment at Lessee's expense, and return such Equipment to its previous
condition, unless irreparably damaged. If the Equipment is lost, stolen,
destroyed or irreparably damaged from any cause whatsoever, (each an "Event of
Loss"), Lessee shall promptly notify Lessor of the occurrence of such Event of
Loss, and shall, at Lessee's option, (i) replace the Equipment with like
equipment in good condition and working order acceptable to Lessor, and Lessee
shall transfer title to the replacement equipment to Lessor, free and clear of
all liens, claims and encumbrances, which equipment shall thereupon become
subject to the Schedule; or (ii) pay Lessor, on the Rent payment date next
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<PAGE> 4
following such Event of Loss, an amount equal to the Stipulated Loss Value of
such Equipment, as determined by Lessor and Lessee in accordance with the
Schedule, and upon Lessor's receipt of such payment in full, together with any
Rent and other amounts due under the Schedule, the Schedule shall automatically
terminate as to such Equipment, and Lessor's right, title and interest in the
Equipment shall immediately without further action pass to Lessee, on an as-is
where-is basis, without recourse or warranty.
11. INSURANCE. At all times prior to the return of the Equipment to
Lessor in accordance with Section 7, Lessee shall carry and maintain, at its
expense, all insurance as may be mutually agreed upon by Lessor and Lessee.
12. TAXES AND FEES. Lessee shall pay when due (or reimburse to Lessor),
and on a net after-tax basis shall indemnify and defend Lessor against, all
fees, taxes and governmental charges (including without limitation interest and
penalties) of any nature which may now or hereafter be imposed or levied by any
federal, state or local authority upon Lessor, Lessee, the Equipment (including,
without limitation, the purchase, ownership, transportation, delivery,
installation, leasing, possession, use, operation, storage, and return of such
Equipment), or any Schedule, excluding, however, all taxes on or measured by
Lessor's net income. All required personal property tax returns with respect to
the Equipment shall be filed by Lessor. The provisions of this Section 12 shall
survive the expiration or termination of the Master Lease or Schedule
thereunder.
13. INDEMNIFICATION. Lessee shall indemnify and defend and hold Lessor,
its successors and Assignees harmless from and against, any and all liabilities,
obligations, losses, damages, claims and all costs and expenses thereof
(including legal fees and expenses) in any way relating to or arising out of any
Schedule or the Equipment, including, without limitation, the purchase,
ownership, transportation, delivery, installation, leasing, possession, use,
operation, maintenance, storage and return of such Equipment, howsoever arising,
in connection with any event occurring prior to return of such Equipment in
accordance with Section 7, excepting, however, any liabilities, obligations,
losses, damages and claims resulting solely from the gross negligence and
willful misconduct of Lessor. Lessee shall give Lessor, its successor or
Assignees prompt notice of any occurrence, event or condition in connection with
which Lessor, its successors or Assignees may be entitled to indemnification
hereunder. The provisions of this Section 13 shall survive the expiration or
termination of the Master Lease or any Schedule thereunder.
14. NO LESSEE SUBLEASE; ASSIGNMENT; MERGER. LESSEE SHALL NOT ASSIGN OR
IN ANY WAY DISPOSE OR OTHERWISE RELINQUISH POSSESSION OR CONTROL OF ALL OR ANY
PART OF ITS RIGHTS OR OBLIGATIONS UNDER ANY SCHEDULE OR ENTER INTO ANY SUBLEASE
OF ALL OR ANY PART OF THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR.
15. EVENTS OF DEFAULT. Each of the following shall constitute an "Event
of Default" hereunder:
(a) Lessee fails to perform or observe any term, convenant or
condition of any Schedule or any document, agreement or instrument executed
pursuant hereto or in connection herewith and such failure shall continue
uncured for a period of thirty (30) days after written notice from Lessor;
(b) Any representation or warranty made by Lessee herein or in any
Schedule or related document provided or executed by Lessee shall be false or
misleading in any material respect when made; or
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<PAGE> 5
(c) Lessee defaults in the performance of its obligations under any
other agreement or Schedule now existing or hereafter made with Lessor.
Lessee shall promptly notify Lessor of the occurrence of any Event
of Default.
17. REMEDIES. Upon the occurrence of any Event of Default, Lessor may,
with or without notice to Lessee, exercise any one or more of the following
remedies, as Lessor in its sole discretion shall elect and such remedies shall
be cumulative:
(a) Require Lessee, at Lessee's expense, to return any and or all
of the Equipment in accordance with Section 7, or Lessor, at its option, may
enter upon the premises where the Equipment is located and repossess and remove
the Equipment.
(b) Declare immediately due and payable all Rents and other amounts
due and to become due under the Schedule for the then-remaining Lease Term.
(c) Upon notice of Lessee, terminate this Master Lease and any or
all Schedules, sue to enforce Lessee's performance thereof, and/or exercise any
other right or remedy then available to Lessor at law or in equity.
The exercise of any of the foregoing remedies by Lessor shall not
constitute a termination of the Master Lease or any Schedule thereunder unless
Lessor so notifies Lessee in writing. No failure or delay on the part of Lessor
to exercise any right or remedy hereunder shall operate as a waiver thereof. No
express or implied waiver by Lessor of any default shall constitute a waiver of
any other default by Lessee or a waiver of any of Lessor's rights. No remedy
referred to in this Section 17 is intended to be exclusive, but each shall be
cumulative and concurrent to the extent permitted by law, and shall be in
addition to any other remedy referred to above or otherwise available to Lessor
at law or in equity.
In addition to the above, in all cases, Lessee shall be liable for all
costs, expenses and damages incurred by Lessor by reason of the occurrence of
any Event of Default or the exercise of Lessor's remedies with respect thereto,
including, but not limited to, all attorney's fees and costs whether or not
court proceedings are brought, costs related to the repossession, storage,
repair and disposition of the Equipment, and all incidental and consequential
damages.
18. LESSEE'S FAILURE TO PAY, LESSOR'S PAYMENT. If Lessee fails to pay
or otherwise perform any of its obligations under any Schedule, Lessor may, but
shall not be obligated to, pay such amounts or perform such obligations for the
account of Lessee without thereby waiving Lessor's right to declare an Event of
Default. In any such event, Lessee shall immediately upon demand reimburse
Lessor for any such costs and expenses incurred by Lessor.
19. FINANCIAL INFORMATION. During the term of this Master Lease, Lessee
will furnish to Lessor such financial information concerning Lessee, as Lessor
may reasonably request.
20. LESSEE REPRESENTATIONS. Lessee represents and warrants to Lessor
that (i) Lessee is a corporation duly organized, validly existing and in good
standing under Delaware law; (ii) when fully signed and delivered, the Master
Lease and each Schedule will be a legal valid and binding agreement of Lessee,
enforceable against Lessee in accordance with its terms, subject to applicable
bankruptcy and other similar laws, and will not violate or create a default
under any law, rule, regulation, judgment, order, instrument, agreement or
charter document binding on Lessee or its property; (iii) no consent or approval
of, notice to, or filing with any governmental authority is required for Lessee
to sign, deliver or perform the Master Lease and each Schedule; (iv) there are
no pending or threatened actions or
5
<PAGE> 6
proceedings before any court or administrative agency that could have a material
adverse effect on Lessee, nor is Lessee in default under any material loan,
lease or purchase obligation; and (v) the financial statements and other
information furnished and to be furnished to Lessor are and will be true and
correct in all material respects.
21. FURTHER ASSURANCES. Lessee shall, at its expense, promptly execute
and deliver such further documents and take any and all other action reasonably
requested by Lessor from time to time, for the purpose of fully effectuating the
intent and purposes of this Master Lease and each Schedule, and to protect the
interests of Lessor, it successors and Assignees. Lessee, at the request of
Lessor and at Lessee's expense, agrees to execute and deliver to Lessor any
financing statements, fixture filings or other instruments necessary for
perfecting the interests and title of Lessor in any Schedule and the Equipment,
and Lessee agrees that Lessor may file a copy of this Master Lease and any
Schedule in lieu of a financing statement.
22. WAIVER AND SURVIVAL OF RIGHTS. To the extent permitted by
applicable law, Lessee hereby waives its rights under any provision of law now
or hereafter in effect which might limit or modify or otherwise render
unenforceable in any respect any remedy or other provision of the Master Lease
or any Schedule. No delay by Lessor in exercising any right, power or remedy
under the Master Lease or any Schedule shall constitute a waiver, and any waiver
by Lessor on any one occasion or for any one purpose shall not be construed as a
waiver on any future occasion or for any other purpose. All of the covenants and
agreements of Lessee contained in the Master Lease and in each Schedule shall
survive the expiration or earlier termination of such Schedule and the Lease
Term with respect to the Equipment leased thereunder until all obligations,
under the Schedule(s) and the Master Lease have been performed in full. Subject
to all of the terms and provisions of each Schedule, all of the covenants,
conditions and obligations contained in such Schedule shall be binding upon and
inure to the benefit of the respective successors and permitted assigns of
Lessor and Lessee.
23. MISCELLANEOUS.
(a) This Master Lease and each Schedule shall be governed in all
respects by, and construed in accordance with, the laws of the State of South
Carolina.
(b) All notices, consents, instructions or requests desired or
required to be given under the Master Lease or any Schedule shall be in writing
and shall become effective when delivered, or if mailed, when deposited in the
United States mail with proper postage prepaid for registered or certified mail,
return receipt requested, addressed to such other party at the address set forth
above or at such other address as such party shall from time to time designate
by proper notice.
(c) Any action by Lessee against Lessor for any default by Lessor
under any Schedule shall be commenced within one (1) year after any such cause
of action occurs.
(d) This Master Lease and each Schedule and all documentation
executed in connection therewith shall constitute the complete and exclusive
statement of the terms of the agreement of Lessor and Lessee with respect to the
Equipment leased thereby, and shall automatically cancel and supersede any and
all prior oral or written understanding with respect thereto.
(e) If any of the provisions of this Master Lease or any Schedule
are declared to be invalid in any jurisdiction, such provisions shall be severed
from this Master Lease or the Schedule and the remaining provisions thereof
shall remain in full force and effect.
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<PAGE> 7
(f) No term or provision of this Master Lease or any Schedule may
be amended, altered, waived, discharged or terminated except by a written
instrument signed by the parties hereto.
(g) This Master Lease and each Schedule may be executed in any
number of counterparts, each of which, when so executed and delivered, shall be
deemed an original, but all such counterparts taken together shall constitute
one and the same instrument. If this Master Lease or any Schedule constitutes
chattel paper, no security interest therein may be created except through the
transfer or possession of the original counterpart marked "Original No. 1".
(h) The headings of this Master Lease and each Schedule shall be
for convenience of reference only and shall form no part of this Master Lease or
such Schedule.
SIGNATURES ON FOLLOWING PAGE
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Master
Asset Lease Agreement to be duly executed by their authorized representatives as
of the date first above written.
TRIVERGENT LEASING SOUTH, LLC
LESSOR
By: TRIVERGENT COMMUNICATIONS SOUTH, INC.
MANAGER
Attest: By:
--------------------------- --------------------------------
Hamilton E. Russell, III Clark H. Mizell, Vice President
Secretary
TRIVERGENT COMMUNICATIONS SOUTH, INC.
LESSEE:
Attest: By:
--------------------------- --------------------------------
Hamilton E. Russell, III Clark H. Mizell, Vice President
Secretary
8
<PAGE> 1
EXHIBIT 10.5.1
STATE COMMUNICATIONS, INC.
=========================================
PREFERRED STOCK PURCHASE AGREEMENT
4,166,668 SHARES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
=========================================
Dated: October 28, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I -- SUBSCRIPTION FOR THE PREFERRED SHARES............................1
1.1 Purchase and Sale...............................................1
1.2 Closing.........................................................2
1.3 Separate Agreements.............................................2
1.4 Use of Proceeds.................................................3
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................3
2.1 Organization and Standing.......................................3
2.2 Corporate Power.................................................3
2.3 Validity; Binding Obligation....................................3
2.4 Financial Statements............................................4
2.5 Consents........................................................4
2.6 Capitalization..................................................5
2.7 Validity and Rights of Preferred Shares.........................5
2.8 Registration Rights.............................................6
2.9 Securities Laws.................................................6
2.10 Absence of Undisclosed Liabilities.............................6
2.11 Subsidiaries...................................................6
2.12 Litigation and Claims..........................................6
2.13 Title to Properties............................................6
2.14 Intellectual Property Rights...................................7
2.15 Compliance with Other Instruments..............................7
2.16 Compliance with Law............................................8
2.17 Employees......................................................8
2.18 Employee Benefit Plans.........................................8
2.19 Compliance with Environmental Laws.............................8
2.20 Insurance......................................................9
2.21 Material Contracts and Agreements..............................9
2.22 Taxes..........................................................11
2.23 Investment Company.............................................11
2.24 Labor Relations................................................11
2.25 No Conflict of Interest........................................12
2.26 Small Business Matters.........................................12
2.27 Full Disclosure................................................12
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...............13
3.1 Organization....................................................13
3.2 Power...........................................................13
3.3 Binding Obligation..............................................13
3.4 Consents........................................................13
3.5 Investment Purposes.............................................13
3.6 Accredited Investor.............................................14
3.7 Legend on Certificates..........................................14
ARTICLE IV -- CONDITIONS TO THE PURCHASERS' OBLIGATIONS.......................14
4.1 Delivery of Certificates........................................14
4.2 Representations and Warranties, Performance of Obligations......14
<PAGE> 3
4.3 No Material Effect..............................................15
4.4 Litigation......................................................15
4.5 Applicable Law..................................................15
4.6 Articles of Amendment...........................................15
4.7 Stockholders' Agreement; Registration Rights Agreement..........15
4.8 Consents........................................................15
4.9 Certification of Satisfaction of Conditions.....................15
4.10 Opinion of Counsel.............................................15
4.11 Performance of Obligations.....................................15
4.12 Taxes..........................................................15
4.13 Fees and Disbursements of Purchasers' Counsel..................16
4.14 Board of Directors.............................................16
4.15 Good Standing Certificates.....................................16
4.16 No Liens.......................................................16
4.17 Key Person Life Insurance......................................16
4.18 Non-Competition Agreement......................................16
4.19 SBA Documents and Information..................................16
ARTICLE V -- CONDITIONS TO THE COMPANY'S OBLIGATION...........................16
5.1 Tender by Purchasers............................................16
5.2 Representations and Warranties; Performance of Covenants........16
5.3 Stockholders' Agreement; Registration Rights Agreement.........17
5.4 Applicable Law..................................................17
5.5 Consents........................................................17
5.6 Performance of Obligations......................................17
5.7 Articles of Amendment...........................................17
ARTICLE VI -- ADDITIONAL COVENANTS OF THE COMPANY.............................17
6.1 Securities Law Filings..........................................17
6.2 Transactions with Substantial Holders...........................17
6.3 Business and Financial Covenants................................18
6.4 Corporate Existence, Business, Maintenance, Insurance...........20
6.5 Payment of Taxes; ERISA.........................................20
6.6 Books and Records, Compliance...................................21
6.7 Directors' and Officers' Liability Insurance....................21
6.8 Repurchase of Preferred Shares..................................21
6.9 Compensation....................................................21
6.10 Key Person Life Insurance......................................21
6.11 SBA Requirements...............................................21
ARTICLE VII -- INFORMATION....................................................22
7.1 Audited Annual Financial Statements.............................22
7.2 Quarterly Unaudited Financial Statements........................22
7.3 Monthly Unaudited Financial Statements..........................22
7.4 Management's Analysis...........................................23
7.5 Budgets.........................................................23
7.6 Inspection......................................................23
7.7 Other Information...............................................23
ARTICLE VIII -- EXPENSES......................................................24
8.1 Expenses of Directors...........................................24
8.2 Legal Fees and Other Expenses...................................25
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<PAGE> 4
8.3 Finder's Fee....................................................25
8.4 Other Expenses..................................................25
ARTICLE IX -- MISCELLANEOUS...................................................25
9.1 Survival........................................................25
9.2 Indemnification.................................................25
9.3 Transfer and Termination of Rights..............................26
9.4 Binding Effect..................................................26
9.5 Amendment.......................................................26
9.6 Governing Law...................................................26
9.7 Notices.........................................................26
9.8 Headings........................................................27
9.9 Regulatory Requirements.........................................27
9.10 Counterparts...................................................27
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<PAGE> 5
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A Articles of Amendment
EXHIBIT B Stockholders' Agreement
EXHIBIT C Registration Rights Agreement
EXHIBIT D Non-Disclosure and Non-Competition Agreement
SCHEDULE I List of Purchasers
SCHEDULE 2.1(b) Jurisdictions Where Company is Qualified
SCHEDULE 2.4(a) Financial Statements
SCHEDULE 2.4(b) Changes Since Last Financial Statements
SCHEDULE 2.6(b) Stock Ledger
SCHEDULE 2.10 Liabilities
SCHEDULE 2.13 Title to Properties
SCHEDULE 2.14 Intellectual Property
SCHEDULE 2.18 Employee Benefit Plans
SCHEDULE 2.20 Insurance
SCHEDULE 2.21 Material Contracts and Agreements
SCHEDULE 2.24 Labor Relations
SCHEDULE 2.25 No Conflict of Interest
<PAGE> 6
PREFERRED STOCK PURCHASE AGREEMENT
4,166,668 SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK OF
STATE COMMUNICATIONS, INC.
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into on this 28th day of October, 1998 by and among STATE
COMMUNICATIONS, INC., a South Carolina corporation (the "Company"), and each of
the purchasers named in Schedule I attached hereto (collectively, the
"Purchasers" and each, individually, a "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchasers desire to purchase from the Company, and the
Company desires to issue and sell to the Purchasers, 4,166,668 shares of Series
A Convertible Preferred Stock of the Company (the "Preferred Shares") on the
terms and conditions hereinafter set forth for a purchase price of $2.40 per
share, constituting an aggregate purchase price of $10,000,003.20.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties agree as follows:
ARTICLE I
SUBSCRIPTION FOR THE PREFERRED SHARES
1.1 Purchase and Sale. (a) Subject to the terms and conditions set
forth herein, each Purchaser hereby subscribes for and agrees to purchase from
the Company, and the Company hereby agrees to issue and sell to each Purchaser,
on the Closing Date (as hereinafter defined), the number of Preferred Shares set
forth opposite such Purchaser's name on Schedule I, for a purchase price of
$2.40 per share to be paid $6,000,003.20 in cash at Closing (as hereinafter
defined) with the balance of $4,000,000 (the "Subscription Proceeds") to be paid
as set forth below.
(b) After the Closing the Company, through its Chairman and
CEO, acting in unison, will determine the timing and amount of Subscription
Proceeds to be called by the Company. All Subscription Proceeds committed by the
Purchasers may be called by the Company at any time the Preferred Shares remain
outstanding. Subscription Proceeds shall be subject to call by the Company upon
fifteen (15) days written notice to the Purchasers, on a pro rata basis up to
the full amount of each Purchaser's commitment set forth on Schedule I hereto.
Notice shall be deemed delivered in accordance with Section 9.7 hereof. Such
notice shall state the aggregate Subscription Proceeds to be delivered by the
Purchasers and the pro rata amount to be delivered by each Purchaser. In
addition, at any time Preferred Shares remain outstanding each Purchaser, by
providing written notice to the Company, may put to the Company (in one or more
installments) any Subscription Proceeds payable by such Purchaser and not
previously funded. The Subscription Proceeds shall be deemed received by
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<PAGE> 7
the Company upon physical delivery by wire transfer, certified or cashier's
check or other method mutually acceptable to the Company and such Purchaser.
Upon request by either Purchaser, the Company shall provide written confirmation
to such Purchaser of its receipt of any of the Subscription Proceeds.
(c) Purchasers are permitted, but not required, to cover the
pro rata call of any other Purchaser. In addition, should any Purchaser fail to
timely provide the Subscription Proceeds properly called by the Company or
should the remaining Purchaser(s) fail to cover the call of any other
Purchaser(s) on or before the 15th day following proper notice of a capital
call, the remaining Purchasers may (by written notice delivered on or before the
end of such 15th day) notify the Company of their intent to fund such call
through proceeds obtained from a new investor(s), acceptable to the Company (as
reasonably determined by the Chairman and CEO, collectively). In such event, the
Purchasers and the new investor(s) will be provided an additional forty-five
(45) day cure period to obtain the funds necessary to meet the capital call. The
new investor(s) shall be subject to all of the terms and conditions of the
Purchasers as set forth in this Agreement and shall be required to execute a
Stockholders' Agreement in the form executed by the Purchasers in connection
with this transaction and become as signatory to this Agreement. Shares
previously issued or certificated to an original Purchaser which have not been
duly funded as a result of a failure to meet the capital call or calls as set
forth herein shall be automatically cancelled and all other shares of Preferred
Stock previously issued and certificated shall remain outstanding. New
certificates shall be issued to the new investor(s) or to the remaining
Purchaser(s) that cover the call of any defaulting Purchaser. If more than one
remaining Purchaser desires to cover the call of the defaulting Purchaser, such
Purchasers shall be entitled to acquire such shares of Preferred Stock in
proportion to their pro rata ownership of the Preferred Stock issued to the
participating Purchasers.
(d) Should the Purchasers (or any Purchaser) fail to fund the
call or calls in the manner provided for herein, the Company shall maintain the
right to sue such defaulting Purchaser (or Purchasers) for breach of their
payment obligation(s) (and to collect reasonable costs and expenses of legal
counsel) under this Section 1.1.
1.2 Closing. The closing of the purchase and sale of the Preferred
Shares (the "Closing") shall be held on October 28, 1998 or such other date as
the parties shall mutually agree upon (the "Closing Date"), at the offices of
Alston & Bird LLP, 1201 West Peachtree Street, Atlanta, Georgia, or at such
other mutually acceptable place. On the Closing Date, the Company shall deliver
to each Purchaser duly issued stock certificates representing the number of
Preferred Shares to be purchased by such Purchaser. The Purchasers shall pay the
cash purchase price for the Preferred Shares by wire transfer of immediately
available funds to an account designated by the Company.
1.3 Separate Agreements. The purchases by the Purchasers hereunder
shall be separate and several transactions. The obligations of each Purchaser
hereunder shall be several and not joint, and this Agreement shall for all
purposes be construed and deemed to be a separate agreement between the Company
and each Purchaser, acting severally and not jointly, with the same effect as
though a separate agreement with each Purchaser to the effect herein provided
were hereby entered into between the Company and each Purchaser.
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<PAGE> 8
1.4 Use of Proceeds. The proceeds of the sale of the Preferred Shares
will be used by the Company for general corporate purposes as determined
appropriate by the Board of Directors of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows:
2.1 Organization and Standing.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of South Carolina.
(b) The Company is currently engaged in the business of
providing local exchange and long distance telecommunication services to
residential customers and the small business market (the "Business"). The
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of the Company to conduct the Business or which
would impair the Company's ability to perform its obligations in any material
respect under the Documents, as such term is defined in Section 2.2 hereof (a
"Material Adverse Effect"). Schedule 2.1(b) identifies each jurisdiction in
which the Company is currently qualified to do business as a foreign
corporation.
(c) The Company has delivered to Purchasers' counsel true and
complete copies of the Articles of Incorporation and Bylaws of the Company,
including all amendments thereto, as presently in effect. On the Closing Date,
but prior to the Closing, the Company shall cause to be filed with the Secretary
of State of South Carolina its Articles of Amendment in substantially the form
annexed hereto as Exhibit A (the " Articles of Amendment"). Except for the
Articles of Amendment and except for the amendment of the Bylaws to reflect the
terms of the Documents, the Articles of Incorporation and Bylaws of the Company
will not be amended prior to the Closing Date.
(d) The Company has all corporate power and all governmental
licenses, authorizations, consents and approvals required to carry on the
Business as now being conducted and necessary to own, operate and lease its
properties and assets.
2.2 Corporate Power. The Company has the requisite corporate power to
execute and deliver this Agreement, the Stockholders' Agreement, in
substantially the form attached hereto as Exhibit B (the "Stockholders'
Agreement"), the Registration Rights Agreement in substantially the form
attached hereto as Exhibit C (the "Registration Rights Agreement") (this
Agreement, the Stockholders' Agreement and the Registration Rights Agreement
shall be collectively referred to herein as the "Documents") and to perform its
obligations hereunder and thereunder.
2.3 Validity; Binding Obligation. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable
-3-
<PAGE> 9
against it in accordance with its terms. The other Documents have each been duly
authorized by the Company and, when executed and delivered by the Company and
the other parties named therein, will constitute valid and binding agreements of
the Company, enforceable against the Company in accordance with their respective
terms. The issuance, sale and delivery of the Preferred Shares have been, or
prior to the Closing Date will be, duly authorized by all necessary corporate
action by the Company.
2.4 Financial Statements. (a) Schedule 2.4(a) contains a true and
complete copy of:
(i) the unaudited balance sheet of the Company for
the year ended December 31, 1997 and the related unaudited
statements of operations, stockholders' equity and cash flows
of the Company for the year ended December 31, 1997; and
(ii) the unaudited balance sheet of the Company for
the eight-month period ended August 31, 1998 and the related
unaudited statements of operations, stockholders' equity and
cash flows of the Company for such period (the financial
statements referred to in clauses (i) and (ii) of this Section
2.4(a) being collectively referred to as the "Financial
Statements").
(b) The Financial Statements have been prepared in accordance
with generally accepted accounting principles (except that such unaudited
financial statements do not contain all of the required footnotes or normal
recurring year-end adjustments) applied on a consistent basis during the
respective periods covered thereby. The Financial Statements are correct and
complete and present fairly the financial position of the Company at the date of
the balance sheets included therein and the results of operations and cash flows
of the Company for the respective periods covered by the statements of
operations and cash flows included therein. Except as set forth on Schedule 2.4
(b), since the date of the Financial Statements (i) there has been no change in
the assets, liabilities or financial condition of the Company from that
reflected in the Financial Statements, other than changes in the ordinary course
of business which in the aggregate have not been materially adverse, and (ii)
none of the business, prospects, financial condition, operations, property or
affairs of the Company has been materially and adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
covered by insurance.
2.5 Consents. No consent, approval or authorization of, or
qualification, designation, declaration or filing with, or notice to any
governmental authority on the part of the Company is required in connection with
(i) the valid execution and delivery of the Documents, and (ii) the offer, sale
or issuance of the Preferred Shares (and the Common Stock issuable upon
conversion of the Preferred Shares), except (A) the filing of the Articles of
Amendment in the Office of the Secretary of State of South Carolina, which
filing will be accomplished on or prior to the Closing Date, (B) the filing of a
Form D with the Securities and Exchange Commission, (C) the qualification (or
taking such action as may be necessary to secure an exemption from
qualification, if available) of the offer and sale of the Preferred Shares (and
the Common Stock issuable upon conversion of the Preferred Shares) under any
applicable state securities laws, which qualification, if required, will be
accomplished in a
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<PAGE> 10
timely manner prior to or promptly upon completion of the Closing, as required
by such laws and (D) such consents, approvals and authorizations as have been
obtained by the Company prior to Closing.
2.6 Capitalization. (a) The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $.001 par value (the "Common
Stock"), and 10,000,000 shares of Preferred Stock, $.01 par value (the
"Preferred Stock"), 4,166,668 of which have been designated as Series A
Convertible Preferred Stock. Immediately after the Closing, (i) 10,324,462
shares of Common Stock will be issued and outstanding, (ii) 4,166,668 shares of
Preferred Stock will be issued and outstanding, (iii) 3,155,860 options,
warrants or other rights to purchase or otherwise acquire shares of Common Stock
will be outstanding, and (v) such number of shares of Common Stock as shall be
necessary to effect the conversion of the Preferred Stock will be reserved for
future issuance upon conversion of Preferred Stock. Immediately after the
Closing upon receipt of the Purchase Price, all such issued and outstanding
shares of capital stock of the Company will be duly authorized and validly
issued and outstanding, fully paid and nonassessable.
(b) Schedule 2.6(b) contains a true and correct copy of the
Company's current stock transfer ledger reflecting the record holders of the
Company's equity securities and the number of shares held of each. Each of
Shaler P. Houser and Charles L. Houser (individually, a "Founder" and
collectively, the "Founders") is the lawful owner, of record and beneficially,
of the number of shares of Common Stock set forth opposite the name of each
Founder on Schedule 2.6(b). Each Founder has good and marketable title to, and
all other incidents of record and beneficial ownership of, such shares, free and
clear of any liens, claims and encumbrances, other than the restrictions set
forth in the Stockholders' Agreement or the Liquidation Proceeds Agreements
attached to Schedule 2.6(b) (the "Liquidation Agreements").
(c) Except as set forth in paragraph (a) above or as disclosed
on Schedule 2.6(b), immediately after the Closing, there will be no outstanding
(i) securities convertible into or exchangeable for shares of capital stock of
the Company, (ii) options, warrants or other rights to purchase or otherwise
acquire from the Company shares of such capital stock, or securities convertible
into or exchangeable for shares of such capital stock, or (iii) contracts,
agreements or commitments relating to the issuance by the Company of any shares
of such capital stock, any such convertible or exchangeable securities, or any
such options, warrants or other rights. Except for the Stockholders' Agreement
or the Liquidation Agreements there are no voting trusts, voting agreements,
proxies or other agreements, instruments or understandings with respect to the
voting of the capital stock of the Company to which the Company or, to the
Company's knowledge, any of its stockholders is a party.
(d) The Company has reserved, and at all times from and after
the date hereof will keep reserved, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, sufficient shares of Common
Stock to provide for the conversion of all Preferred Shares.
2.7 Validity and Rights of Preferred Shares. The Preferred Shares, when
issued to the Purchasers pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and will have the designations, preferences,
limitations, and relative rights set forth in the Articles of
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<PAGE> 11
Amendment. Any and all shares of Common Stock issued upon conversion of the
Preferred Shares (the "Conversion Shares"), when issued, will be validly issued,
fully paid and nonassessable.
2.8 Registration Rights. Except for the rights granted under the
Registration Rights Agreement and except as set forth in that certain
Registration Rights Agreement dated between the Company and Seruus Telecom Fund,
L.P., no person or entity has any right to cause the Company to effect the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of any shares of its capital stock.
2.9 Securities Laws. Subject to the accuracy of the representations and
warranties of the Purchasers contained in Article III hereof, the offering, sale
and purchase of the Preferred Shares contemplated hereby are exempt from
registration under the Securities Act. The issuance of all other shares of
capital stock of the Company on or before the date hereof is being or has been
made in compliance with the Securities Act and all applicable state securities
or blue sky laws. All offering documents used and oral disclosure made in
connection with the offer or sale of any of the Company's securities prior to
the date hereof have been correct in all material respects and have not
contained any untrue statements of a material fact or omitted to state a
material fact necessary in order to make the statements contained therein not
misleading.
2.10 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.10, as of the date hereof, the Company has no material liability or
obligation of any nature (whether accrued, contingent, absolute or otherwise) or
any material loss contingency (as such term is used in the Statement of
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975), which was not adequately disclosed or provided for in the Financial
Statements.
2.11 Subsidiaries. The Company has no Subsidiaries (as hereinafter
defined). The Company does not own, or have the right to acquire, any securities
or other equity or ownership interest in any corporation, partnership, limited
liability company, association or other entity. "Subsidiary" means a
corporation, partnership, limited liability company or any other form of legal
entity of which the Company, at the time in respect of which such term is used,
owns directly, or controls with power to vote, directly or indirectly through
one or more Subsidiaries, more than fifty percent (50%) of the voting
securities.
2.12 Litigation and Claims. There are no actions at law, suits in
equity or other proceedings or investigations in any court, tribunal or by or
before any other governmental or public authority or agency or any arbitrator or
arbitration panel or any governmental or private third-party insurance agency,
pending or, to the knowledge of the Company, threatened against or affecting the
Company or that would question the validity or enforceability of this Agreement,
the Documents, or any of the transactions contemplated hereby and thereby. The
Company is not in default with respect to any order, writ, injunction, judgment
or decree of any court or other governmental or public authority or agency or
arbitrator or arbitration panel.
2.13 Title to Properties. The Company has good and marketable title to
its properties and assets and has good title to all its respective leasehold
interests, in each case subject to no mortgage,
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pledge, lien, encumbrance or charge, other than as set forth on Schedule 2.13
hereto. Schedule 2.13 accurately lists with respect to the personal property
owned (or purported to be owned) by the Company (i) each financing statement,
deed, agreement or other instrument which has been filed, recorded or registered
pursuant to any United States federal, state or local law or regulation that
names the Company as debtor or lessee or as the grantor or the transferor of the
interest created thereby, and (ii) as to each such financing statement, deed,
agreement or other instrument, the names of the debtor, lessee, grantor or
transferor and the secured party, lessor, grantee or transferee and the name of
the jurisdiction in which such financing statement, deed, agreement or other
instrument has been filed, recorded or registered. Except as set forth on
Schedule 2.13, the Company has not signed any agreement or instrument
authorizing any secured party thereunder to file any such financing statement,
deed, agreement or other instrument.
2.14 Intellectual Property Rights. The Company owns or possesses the
rights to use, free from any restrictions or conflicts with the rights of others
claiming through the Company, all copyrights, trademarks, service marks, trade
names, patents and intellectual property licenses, and all rights with respect
to the foregoing, necessary for the conduct of the Business as now conducted and
as proposed to be conducted, and is in compliance in all material respects with
the terms and conditions, if any, of all such copyrights, trademarks, service
marks, trade names, patents and intellectual property licenses and the terms and
conditions of any agreements relating thereto. Except as set forth on Schedule
2.14, there are no outstanding options, licenses, or material agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that it has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. To the Company's knowledge,
none of its employees are obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of their best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. It is not currently and will not in the future be necessary for the
Company to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
2.15 Compliance with Other Instruments. The Company is not in violation
of or in default under any term of its organizational documents, any term or
provision of any mortgage, indenture, contract, agreement, instrument, judgment
or decree, and is not in violation of any applicable order, statute, rule or
regulation except for such violations or defaults as are not expected to have a
Material Adverse Effect, and to the Company's knowledge there is no state of
facts which, with the passage of time or giving of notice or both, would
constitute any such violation or default that would in the aggregate have a
Material Adverse Effect. The execution, delivery and performance of and
compliance with the Documents, the issuance of the Preferred Shares (and the
Conversion Shares) and the
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consummation of any other transaction contemplated by the Documents have not
resulted and will not result in any such violation, or be in conflict with, or
constitute a default under any of the foregoing, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company.
2.16 Compliance with Law. The Company is in compliance with all
statutes, laws and ordinances and all governmental rules and regulations to
which it is subject, the violation of which, either individually or in the
aggregate, would have a Material Adverse Effect. Neither the execution, delivery
or performance of this Agreement or the other Documents nor the consummation of
the transactions contemplated by the Documents will cause the Company to be in
violation of any law or ordinance, or any order, rule or regulation, of any
federal, state, municipal or other governmental or public authority or agency.
2.17 Employees. To the knowledge of the Company, no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
intellectual property of the Company or the relationship of any such employee
with such entity or any other party.
2.18 Employee Benefit Plans. (a) The Company has not since inception,
nor does it currently sponsor, maintain, contribute to or participate in a
Multiemployer Plan or a "defined benefit plan" within the meaning of Section
3(35) of ERISA covering employees of the Company; (b) except as set forth on
Schedule 2.18, none of the Employee Benefit Plans is an "employee pension
benefit plan", or an "employee welfare benefit plan", within the meaning of
Section 3(3) of ERISA; (c) there are no pending or, to the best of the Company's
knowledge, threatened claims, lawsuits, or arbitrations against any Employee
Benefit Plan or any fiduciary thereof; (d) each Employee Benefit Plan is, and
has been, operated in compliance in all material respects with the applicable
provisions of federal and state law; (e) the Company has, or prior to the
Closing Date will have, paid in full all insurance premiums or otherwise met all
other funding obligations with regard to all Employee Benefit Plans for policy
years or other applicable policy funding periods ending on or before the Closing
Date; and (f) upon termination of employment of any employee, neither the
Company nor any employee will incur any liability for any severance or
termination pay, pension, profit-sharing or other post-retirement benefit,
including but not limited to life, health and welfare benefits, or other similar
payment, except as set forth on Schedule 2.18. For purposes of this
representation, "Employee Benefit Plans" shall mean bonus, pension, benefit,
welfare, profit-sharing, retirement, disability, insurance, incentive, deferred
compensation and other similar fringe or employee benefit plans, funds, programs
or arrangements, and any employment contracts or executive compensation
agreements, written or oral, in each of the foregoing cases, which cover or
covered, are or were maintained for the benefit of, or relate or related to, any
or all current or former employees of the Company.
2.19 Compliance with Environmental Laws. (a) The Company is, and will
continue to be, in compliance with all applicable federal, state and local
environmental laws, regulations and ordinances governing the Business with
respect to all discharges into the ground and surface water, emissions into the
ambient air and generation, accumulation, storage, treatment, recycling,
transportation, labeling or disposal of waste materials or process by-products
except for noncompliance as is not expected to have a Material Adverse Effect.
The Company is not liable for any penalties, fines or forfeitures for failure
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<PAGE> 14
to comply with any of the foregoing. All material licenses, permits or
registrations required for the Business as presently conducted and proposed to
be conducted, under any federal, state, or local environmental laws, regulations
or ordinances have been or will, in a timely manner, be obtained or made.
(b) No release, emission or discharge into the environment of
hazardous substances, as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, or hazardous waste, as defined
under the Resource Conservation and Recovery Act, or air pollutants as defined
under the Clean Air Act, or pollutants, as defined under the Clean Water Act, by
the Company has occurred or is presently occurring on or from any property owned
or leased by the Company in excess of federal, state or local permitted releases
or reportable quantities, or other concentrations, standards or limitations
under the foregoing laws or any state or local law governing the protection of
health and the environment or under any other federal, state or local laws or
regulations (then or now applicable, as the case may be).
(c) The Company has never (1) owned, operated or, to its
knowledge, occupied a site or structure on or in which any hazardous substance
was or is stored, transported or disposed of in violation of any federal, state
or local environmental laws, regulations or ordinances at such time as such site
or structure was owned, occupied or operated by the Company or at any other
time, or (2) transported or arranged for the transportation of any hazardous
substance other than in full compliance with all applicable federal, state and
local environmental laws, regulations and ordinances governing the Business or
the storage, transportation or disposal of hazardous substances. The Company has
never caused or been held legally responsible for any release or threatened
release of any hazardous substance, or received notification from any federal,
state or other governmental authority of any such release or threatened release,
or that the Company may be required to pay any costs or expenses incurred or to
be incurred in connection with any efforts to mitigate the environmental impact
of any release or threatened release, of any hazardous substance from any site
or structure owned, occupied or operated by the Company.
2.20 Insurance. The Business has fire, casualty, liability, and
business interruption insurance policies with recognized insurers, in such
amounts and with such coverage as set forth on Schedule 2.20.
2.21 Material Contracts and Agreements. (a) Schedule 2.21 sets forth
all written and oral agreements or understandings of the Company, either
existing or pending, which:
(i) provide for the future purchase by the Company of
products or services in excess of $100,000;
(ii) involve the Company and any director, officer,
or employee of the Company;
(iii) provide for the borrowing of money or a line of
credit by the Company or a leasing transaction of a type
required to be capitalized by the Company in accordance with
generally accepted accounting principles;
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<PAGE> 15
(iv) provide for the sale, assignment, or other
disposition of any asset with a value in excess of $100,000 or
any material right of the Company or any Subsidiary;
(v) provide for the licensing or distribution of the
Company's products and services by, or establish an agency
relationship with, any other party;
(vi) provide for the lease by the Company of any real
or personal property involving lease payments in excess of
$100,000 per year;
(vii) restrict the Company from engaging in any
business activity, restrict either Founder in the performance
of his obligations and responsibilities to the Company, or
create any other obligation or liability of either Founder
arising from any prior employment;
(viii) to the knowledge of the Company, restrict any
other officer or key employee of the Company from engaging in
any business activity, restrict any such officer or key
employee in the performance of his or her obligations and
responsibilities to the Company, or create any other
obligation or liability of any such officer or key employee
arising from his employment with the Company or any prior
employment;
(ix) provide for a guaranty, surety, indemnity, or
other financial support by the Company to any person or
entity;
(x) grant to any person or entity a right to acquire
the assets, business or operations of the Company or grant a
security interest in or lien on any asset or right of the
Company; or
(xi) are otherwise material to the Company or its
business or assets.
(b) Each agreement or understanding set forth on Schedule 2.21
is in full force and effect and constitutes a valid and binding obligation of
the Company (except as enforceability may be affected by bankruptcy or other
similar laws relating to or affecting the rights of creditors generally) and, to
the knowledge of the Company, all other parties thereto. Each of the Company
and, where applicable, each Founder has in all respects performed the
obligations required to be performed by it or him and is not in default or
alleged to be in default in any material respect under any such agreement or
understanding. There exists no event or condition which, after notice or lapse
of time, or both, would constitute such a default. To the knowledge of the
Company, there are no material defaults by any other party to any such agreement
or understanding. The Company has delivered to the Purchasers correct and
complete copies of all documents set forth on Schedule 2.21.
(c) No agreement or understanding to which the Company is a
party (i) restricts the Company from engaging in the Company's business as now
being conducted and as proposed to be
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<PAGE> 16
conducted, or (ii) grants to any person or entity, other than the Company, any
right, title, or interest in any invention or know-how conceived by the
employees of the Company and related to the business of the Company.
2.22 Taxes. All federal, state and other tax returns of the Company
required by law to be filed have been duly filed and all federal, state and
other taxes, assessments, fees and other federal governmental charges upon the
Company or any of the properties, incomes or assets of the Company that are due
and payable have been paid. No extensions of the time for the assessment of
deficiencies have been granted to the Company in connection with any federal
tax, assessment, fee or other federal governmental charge. There are no liens,
claims or encumbrances on any properties or assets of the Business imposed or
arising as a result of the delinquent payment or the non-payment of any tax,
assessment, fee or other governmental charge. The Company:
(i) has not assumed and is not liable for any
federal, state or other income tax liability of any other
person, including any predecessor corporation, as a result of
any purchase of assets or other business acquisition
transaction; and
(ii) has not indemnified any other person or
otherwise agreed to pay on behalf of any other person tax
liability growing out of or which may be asserted on the basis
of any tax treatment adopted with respect to all or any aspect
of such a business acquisition transaction.
The charges, accruals and reserves, if any, on the books of the Company in
respect of federal, state and local corporate franchise and income taxes for all
fiscal periods to date are adequate in accordance with generally accepted
accounting principles, and the Company knows of no additional unpaid assessments
for such periods or other governmental charges payable by the Company in
connection with the execution and delivery of this Agreement, the Documents or
the offer, issuance, sale or delivery of the Preferred Shares by the Company,
other than stock transfer taxes, recording fees and filing fees in connection
with state securities or "blue sky" filings.
2.23 Investment Company. The Company is not an "investment company", or
an "affiliated person" of an "investment company", or a company "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended, and the Company is not an "investment adviser" or an
"affiliated person" of an "investment adviser" as such terms are defined in the
Investment Advisers Act of 1940, as amended.
2.24 Labor Relations. The Company is not engaged in any unfair labor
practices. Except as set forth on Schedule 2.24, there is:
(i) no unfair labor practice complaint pending or, to
the best of the Company's knowledge, threatened against the
Company before the National Labor Relations Board or any court
or labor board, and no grievance or arbitration proceedings
arising out of or under collective bargaining agreements is so
pending or, to the best of the Company's knowledge,
threatened,
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<PAGE> 17
(ii) no strike, lock-out, labor dispute, slowdown or
work stoppage pending or, to the best of the Company's
knowledge, threatened against the Company, and
(iii) no union representation or certification
question existing or pending with respect to the employees of
the Company, and, to the best knowledge of the Company, no
union organization activity taking place.
2.25 No Conflict of Interest. Except as set forth in Schedule 2.25, the
Company is not indebted, directly or indirectly, to any of its officers or
employees who is the beneficial owner of one percent or more of the outstanding
voting power or the outstanding common equity (on a fully diluted basis) of the
Company (a "Substantial Holder"), or to any affiliate of a Substantial Holder,
in any amount whatsoever. To the best knowledge of the Company, no Substantial
Holders or any of their affiliates are indebted to any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company. Except
as contemplated by the Documents, no Substantial Holder, or, to the best of the
Company's knowledge, any affiliate of a Substantial Holder, has a direct or
indirect interest in any contract with the Company or any of the Subsidiaries.
2.26 Small Business Matters. The Company, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
ss. 121.101), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, ss. 121.201. The information regarding the
Company and its affiliates set forth in SBA Form 480, Form 652 and Part A of
Form 1031 delivered at the Closing is accurate and complete. Copies of such
forms shall have been completed and executed by the Company and delivered to
those Purchasers that so request at the Closing. The Company does not engage in
any activities for which a "small business investment company" is prohibited
from providing funds by the Small Business Investment Act of 1958 and the
regulations thereunder (including Title 13, Code of Federal Regulations,
ss. 107.720).
2.27 Full Disclosure. This Agreement, the other Documents, and any
report, statement or other writing furnished to the Purchasers by or on behalf
of the Company in connection with the negotiation of this Agreement and the
other Documents and the sale of the Preferred Shares, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
which is necessary to make the statements contained herein or therein not
misleading.
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<PAGE> 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company, each with respect to itself only, as follows:
3.1 Organization. Purchaser is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Such Purchaser was not organized for the specific purpose of
acquiring the Preferred Shares.
3.2 Power. Purchaser has the requisite corporate, partnership or other
power to execute and deliver the Documents and to perform its obligations
thereunder, and the execution and delivery by such Purchaser of the Documents,
the performance by such Purchaser of the transactions contemplated thereby and
the purchase of and payment for the Preferred Shares by such Purchaser, have
been duly authorized by all necessary corporate, partnership or other action on
the part of such Purchaser.
3.3 Binding Obligation. This Agreement has been duly executed and
delivered by such Purchaser, and constitutes a valid and binding agreement of
such Purchaser, enforceable against such Purchaser in accordance with its terms.
The other Documents, when executed and delivered by such Purchaser and the other
parties listed therein, will constitute valid and binding agreements of such
Purchaser enforceable against such Purchaser in accordance with their terms.
3.4 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of such
Purchaser is required in connection with the valid execution and delivery of the
Documents or the purchase of and payment for the Preferred Shares, or the
consummation of any other transaction contemplated by the Documents.
3.5 Investment Purposes. (a) Such Purchaser is acquiring the securities
solely for such Purchaser's account for investment and not with a view to, or
for resale in connection with, the distribution thereof, except for any
distribution thereof effected in compliance with the Securities Act.
(b) Such Purchaser understands that: (i) the purchase of the
Preferred Shares is a speculative investment which involves a high degree of
risk of loss of such holder's investment therein; (ii) there are substantial
restrictions on the transferability of Preferred Shares and the Conversion
Shares under the terms of the Stockholders' Agreement and the applicable
provisions of the Securities Act and the rules and regulations of the Securities
and Exchange Commission (the "SEC") promulgated thereunder and under applicable
state securities or "blue sky" laws; and (iii) at the Closing, and for an
indeterminate period following the Closing, there will be no public market for
the Preferred Shares or the Conversion Shares and, accordingly, that it may not
be possible to readily liquidate an investment in the Company, if at all.
(c) Such Purchaser has been advised and understands that: (i)
the offer and sale of the Preferred Shares and the Conversion Shares have not
been registered under the Securities Act; (ii) the Preferred Shares and the
Conversion Shares must be held indefinitely and such Purchaser must continue to
bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares
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<PAGE> 19
unless the offer or sale of the Preferred Shares or the Conversion Shares is
subsequently registered under the Securities Act or an exemption from such
registration is available; (iii) there is not currently any public market for
the Preferred Shares or the Conversion Shares; (iv) Rule 144 promulgated under
the Securities Act is not presently available with respect to the sale of any
securities of the Company, including the Preferred Shares or the Conversion
Shares, and when and if the Preferred Shares or the Conversion Shares may be
disposed of without registration in reliance on Rule 144, such disposition can
be made only in accordance with the terms and conditions of such Rule; (v)
restrictive legends described in Section 3.7 shall be placed on the certificates
representing the Preferred Shares or the Conversion Shares; and (vi) a notation
shall be made in the appropriate records of the Company indicating that the
Preferred Shares or the Conversion Shares are subject to restrictions on
transfer and, if the Company should at some time in the future engage the
services of a securities transfer agent, appropriate stop-transfer instructions
will be issued to such transfer agent with respect to the Preferred Shares or
the Conversion Shares.
(d) Such Purchaser is aware that, except as expressly provided
in the Registration Rights Agreement, there exists no right to require
registration of the Preferred Shares or the Conversion Shares and such Purchaser
must bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares.
3.6 Accredited Investor. Each Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933, as amended.
3.7 Legend on Certificates. Each Purchaser has been advised by the
Company that the certificates representing the Preferred Shares (and Conversion
Shares) will bear an appropriate legend to the effect that the shares
represented by such Certificates have not been registered under the Securities
Act, and may not be transferred in the absence of an effective registration
statement under the Securities Act or an exemption from such registration under
said Act, and such additional legends as may be called for by the Stockholders'
Agreement.
ARTICLE IV
CONDITIONS TO THE PURCHASERS' OBLIGATIONS
The obligation of each of the Purchasers to purchase the Preferred
Shares hereunder shall be subject to the satisfaction, prior to or concurrently
with such purchase, of the following conditions:
4.1 Delivery of Certificates. Such Purchaser shall have received duly
executed stock certificates representing the Preferred Shares being purchased by
such Purchaser.
4.2 Representations and Warranties; Covenants. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date as if made on and as of
such date. The Company shall have performed and complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
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<PAGE> 20
4.3 No Material Adverse Effect. No event or events shall have occurred
and no condition or conditions shall exist, which individually or in the
aggregate would have a Material Adverse Effect, including without limitation,
any such events or conditions which occurred prior to, or existed on the date of
this Agreement, but were not explicitly disclosed herein or in a Schedule
hereto.
4.4 Litigation. There shall not be any litigation, investigation, claim
or proceeding of or before any court, arbitrator or governmental authority
pending or threatened with respect to any of the Documents or the transactions
contemplated thereby.
4.5 Applicable Law. Such Purchaser's purchase of and payment for the
Preferred Shares shall not be prohibited by any applicable law, court order or
governmental regulation and shall not subject such Purchaser to any tax,
penalty, liability or other condition under or pursuant to any applicable law,
court order or governmental regulation.
4.6 Articles of Amendment. The Articles of Amendment shall have been
filed in the Office of the Secretary of State of South Carolina and shall be in
full force and effect on the Closing Date.
4.7 Stockholders' Agreement; Registration Rights Agreement. Prior to or
at the Closing, the Stockholders' Agreement and the Registration Rights
Agreement shall have been executed and delivered by each of the parties thereto.
4.8 Consents. All governmental authorizations, consents, approvals or
exemptions required to issue the Preferred Shares pursuant to this Agreement
shall have been obtained, and all necessary governmental filings shall have been
made.
4.9 Certification of Satisfaction of Conditions. The Company shall have
delivered to the Purchasers a certificate, dated the Closing Date, and signed by
the President of the Company, certifying to the satisfaction of the conditions
set forth in Sections 4.2, 4.3 and 4.4.
4.10 Opinion of Counsel. The Purchasers shall have received the opinion
of Wyche, Burgess, Freeman & Parham, P.A., counsel for the Company, dated the
Closing Date, in form and substance satisfactory to the Purchasers and the
Purchasers' counsel covering such matters as the Purchasers and their counsel
may reasonably request.
4.11 Performance of Obligations. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incident thereto shall be satisfactory in form and substance to
Purchasers, and the Purchasers or their counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request, which shall include, without limitation, a copy of
each of the Documents, duly executed by each party thereto, and a copy of the
Articles of Amendment certified to be a true and complete copy thereof by the
Secretary of State of the State of South Carolina.
4.12 Taxes. Any taxes, fees and other charges due and payable in
connection with the issuance and sale of the Preferred Shares shall have been
paid in full by the Company.
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4.13 Fees and Disbursements of Purchasers' Counsel. Purchasers' counsel
shall have received payment from the Company of its fees and disbursements in
connection with the consummation of the transactions contemplated herein.
4.14 Board of Directors. The Articles of Amendment and Bylaws of the
Company shall provide that the Board of Directors shall be set at seven and the
nominees of the Purchasers shall have been duly elected to the Company's Board
of Directors in accordance with the terms of the Stockholders' Agreement.
4.15 Good Standing Certificates. The Company shall deliver a good
standing certificate dated within 10 days of the Closing Date for each
jurisdiction in which they are organized or qualified to do business.
4.16 No Liens. The Company shall have delivered evidence, satisfactory
to the Purchasers and Purchasers' counsel, that there are no liens, other than
those set forth on Schedule 2.13 hereto, on the assets or properties of the
Company.
4.17 Key Person Life Insurance. The Company shall have obtained key
person life insurance on the life of Shaler P. Houser in an aggregate amount of
not less than $5,000,000 with the proceeds thereof payable to the Purchasers.
4.18 Non-Competition Agreement. The Company and each of the individuals
that are party to the Stockholders' Agreement shall have entered into a
Non-Disclosure and Non-Competition Agreement in substantially the form of
Exhibit D attached hereto.
4.19 SBA Documents and Information. The Company shall have executed and
delivered to each Purchaser that so requests forms and information required by
the rules and regulations of the United States Small Business Administration,
including without limitation, a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652 and information necessary for the
preparation of a Portfolio Financing Report on SBA Form 1031.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the Preferred Shares
shall be subject to the satisfaction, prior to or concurrently with such
issuance and sale, of the following conditions:
5.1 Tender by Purchasers. At the Closing, each of the Purchasers shall
have tendered the cash consideration set forth on Schedule I attached hereto.
5.2 Representations and Warranties; Performance of Covenants. The
representations and warranties of each Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as if made on and as of such date, and each Purchaser shall have
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<PAGE> 22
performed and complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
5.3 Stockholders' Agreement; Registration Rights Agreement. Prior to or
at the Closing, the Stockholders' Agreement and the Registration Rights
Agreement shall have been executed and delivered by each of the parties thereto.
5.4 Applicable Law. The Purchasers' purchase of the Preferred Shares
shall not be prohibited by any applicable law, court order or governmental
regulation and there shall not be any litigation, investigation or proceeding of
or before any court, arbitrator or governmental authority pending or threatened
with respect to any of the Documents or the transactions contemplated thereby.
5.5 Consents. All governmental authorizations, consents, approvals or
exemptions required by the Company to issue and sell the Preferred Shares
pursuant to this Agreement shall have been obtained, and all necessary
governmental filings shall have been made.
5.6 Performance of Obligations. All proceedings taken or to be taken in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Company and the
Company and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request, which
shall include, without limitation, a copy of each of the Documents, duly
executed by each party thereto.
5.7 Articles of Amendment. The Articles of Amendment shall have been
filed in the Office of the Secretary of State of South Carolina and shall be in
full force and effect on the Closing Date.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees that, except as provided in Section
6.1 below, until such time as the Company has consummated a Public Offering (as
such term is defined in the Stockholders' Agreement):
6.1 Securities Law Filings. Upon consummation of a Public Offering (as
such term is defined in the Stockholders' Agreement), and for so long as the
Purchasers hold Conversion Shares, the Company will timely file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder, to the extent required from
time to time to enable the Purchasers to sell Conversion Shares without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Purchaser, the Company will deliver a written
statement as to whether it has complied with such requirements.
6.2 Transactions with Substantial Holders. The Company shall not,
directly or indirectly, enter into any material transaction or agreement with
any stockholder owning or having a right to acquire 5% or more of the capital
stock of the Company (a "Substantial Holder") or any affiliate or
-17-
<PAGE> 23
officer of the Company or a Substantial Holder, or a material transaction or
agreement in which a Substantial Holder or affiliate or officer of the Company
or a Substantial Holder has a direct or indirect interest, unless such
transaction or agreement is on terms and conditions no less favorable to the
Company or any Subsidiary than could be obtained at the time in an arm's length
transaction with a third person that is not such a Substantial Holder or
affiliate or officer of the Company or a Substantial Holder, and such
transaction or agreement has been reviewed and approved by (i) a majority of
those members of the Company's Board of Directors who have no such interest in
the transaction, and (ii) not less than 60% of the outstanding Preferred Shares
voting separately as a class. Except as provided in Section 9.3, this Section
6.2 shall not be enforceable against the Company by any person or entity not a
party to this Agreement.
6.3 Business and Financial Covenants. The Company covenants that:
(a) Without the prior written consent of the holders of not
less than 60% of the outstanding Preferred Shares voting separately as a class:
(1) Merger, Consolidation, Acquisitions, Sale of
Assets.
(i) The Company shall not merge, effect a liquidation
or statutory share exchange, consolidate with, or otherwise
engage in any transaction or series of related transactions
which results in a change of control or permit any Subsidiary
to merge, effect a liquidation or statutory share exchange, or
consolidate with, any entity or otherwise effect a change of
control.
(ii) The Company shall not sell, assign, lease or
otherwise dispose of, or permit any Subsidiary to sell,
assign, lease or otherwise dispose of, all or substantially
all of its assets (whether now owned or hereafter acquired).
(iii) Except for up to 4,000,000 shares of Common
Stock of the Company which may be issued upon the exercise of
options granted under the Company's Employee Incentive Plan
pursuant to option grants having a per share exercise price of
not less than fair market value on the date of grant as
determined by the Board of Directors, the Company will not,
and will not permit any Subsidiary to, hereafter issue or sell
any shares of capital stock or any securities convertible
into, or any warrants, rights, or options to purchase shares
of, the capital stock of the Company or such Subsidiary to any
person or entity other than the Company, and the Company will
not pledge any of the capital stock of any Subsidiary to any
person or entity.
(2) Loans to and Investments in Others. The Company
shall not (except for the advancement of money for expenses in
the ordinary course of business) make, or permit any
Subsidiary to make, any loans or advances to any person or
entity or have outstanding any investment in any entity,
whether by way of loan or advance to, or by the acquisition of
the capital stock, assets or obligations of or any interest
in, any person or entity.
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<PAGE> 24
(3) Restricted Payments; Repurchase of Common Stock.
Except as permitted by Section 6.9 hereof, neither the Company
nor a Subsidiary shall declare or make any Restricted Payment.
"Restricted Payment" means (i) any payment or the incurrence
of any liability to make any payment in cash, property or
other assets as a dividend or other distribution in respect of
any shares of capital stock of the Company or any Subsidiary,
excluding, however, any dividends payable to the Company by a
Subsidiary, and (ii) except as otherwise permitted by the
Documents, any payment or the incurrence of any liability to
make any payment in cash, property or other assets for the
purposes of purchasing, retiring or redeeming any shares of
any class of capital stock of the Company or any Subsidiary or
any warrants, options or other rights to purchase any such
shares, other than employee stock repurchases approved by the
Board of Directors of the Company upon termination of such
employee's employment.
(4) Articles of Incorporation. The Company shall not
amend or repeal its articles of incorporation or bylaws, or
violate or breach any of the provisions thereof.
(5) Debt. The Company shall not create, incur or
suffer to exist, or permit any Subsidiary to create, incur or
suffer to exist, any debt other than:
(i) debt existing on the date hereof and included in
the Financial Statements or incurred in the ordinary course of
business between the date of the Financial Statements and the
date hereof, and any renewals or replacements of such debt not
exceeding the principal amount of the debt being replaced or
renewed; and
(ii) debt not in excess of $1,000,000 in the
aggregate in any one calendar year.
(6) Lease Obligations. The Company shall not create
or suffer to exist, or permit any Subsidiary to create or
suffer to exist, any obligations for the payment of rent for
any property, real or personal, under leases or agreements to
lease, other than obligations for (i) the payment of rent
which, in the aggregate, do not exceed $1,000,000 annually,
and (ii) payments under leases set forth on Schedule 2.21.
(7) Other Actions. The Company shall not take any
other action that could reasonably be expected to have a
Material Adverse Effect on the holders of the Preferred
Shares.
(b) Without the consent of (i) a majority of the Board of
Directors, and (ii) the directors nominated by each of Richland Ventures II,
L.P. and First Union Capital Partners, Inc. and elected in accordance with the
terms of the Stockholders' Agreement:
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<PAGE> 25
(1) Acquisitions. The Company shall not acquire, or
permit any Subsidiary to acquire, directly or indirectly, the
assets of or equity interests in any other business or entity,
whether by purchase, merger, consolidation or otherwise.
(2) Public Offering. The Company shall not effect
an initial public offering of any equity securities, other
than a public offering in which the Company would receive net
offering proceeds of not less than $20,000,000 and the common
equivalent price per share to the public is not less than
$7.20, subject to equitable adjustment for any subdivision,
stock split, combination or other similar corporate
transaction affecting the capital stock of the Company.
6.4 Corporate Existence, Business, Maintenance, Insurance.
(a) The Company will at all times preserve and keep in full
force and effect its corporate existence and rights and franchises deemed
material to its business and those of its Subsidiaries, except any Subsidiary of
the Company may be merged into the Company or another Subsidiary.
(b) The Company shall engage solely in the business of
providing local exchange and long distance telecommunication services to
residential customers and small and medium size businesses and such other
related business activities approved by the Board. The Company (and any
Subsidiary) will not purchase or acquire any property other than property useful
in and related to such business.
(c) The Company will maintain or cause to be maintained in
good repair, working order and condition all properties used or useful in the
business of the Company and any Subsidiary and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof. The
Company and any Subsidiary will at all times comply in all material respects
with the provisions of all material leases to which it is a party or under which
it occupies property so as to prevent any loss or forfeiture thereof or
thereunder.
(d) The Company will maintain or cause to be maintained, with
financially sound and reputable insurers, appropriate insurance with respect to
its properties and business and the properties and business of any Subsidiary
against loss or damage.
6.5 Payment of Taxes; ERISA.
(a) The Company will pay, and will cause any Subsidiary to
pay, all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or profits before any penalty or interest accrues thereon, and
all claims (including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by law have
or might become a lien or charge upon any of its properties or assets, provided
that no such charge or claim need be paid if being contested in good faith by
appropriate proceedings and if such reserve or other appropriate provisions, if
any, as shall be required by generally accepted accounting principles shall have
been made therefor.
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<PAGE> 26
(b) The Company and any Subsidiary will comply in all material
respects with the Employee Retirement Income Security Act of 1974, as amended
from time to time.
6.6 Books and Records, Compliance.
(a) The Company and any Subsidiary will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(b) The Company and any Subsidiary shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its property or
assets.
6.7 Directors' and Officers' Liability Insurance. The Company shall use
its best efforts to obtain directors' and officers' liability insurance, if such
insurance is available at a cost which the Company's Board of Directors deems to
be reasonably satisfactory.
6.8 Repurchase of Preferred Shares. Except as provided in the Company's
Articles of Amendment, the Company shall not, and shall not permit any
Subsidiary or any affiliate of the Company to, directly or indirectly, redeem or
repurchase or make any offer to redeem or repurchase any Preferred Shares (or
Conversion Shares), unless the Company, such Subsidiary or such affiliate has
offered to repurchase Preferred Shares (or Conversion Shares) pro rata, from all
holders of outstanding Preferred Shares (or Conversion Shares) upon the same
terms and such repurchase has been approved by not less than 60% of the
outstanding Preferred Shares.
6.9 Compensation. All awards of compensation, including, but not
limited to, salary, bonus and awards of stock options made to executive
officers, key managers and/or directors of the Company shall be determined by
the Company's Board of Directors in accordance with the terms of the
Stockholders' Agreement.
6.10 Key Person Life Insurance. The Company shall maintain and keep in
full force and effect key person life insurance on the life of Shaler P. Houser
in an aggregate amount of not less than $5,000,000 with the proceeds thereof
payable to the Company.
6.11 SBA Requirements. The Company will at all times after the Closing
Date comply with the nondiscrimination requirements of 13 C.F.R. Sections 112
and 113.
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<PAGE> 27
ARTICLE VII
INFORMATION
The Company covenants and agrees that it shall deliver the following
information and provide the following rights to each Purchaser (including
permitted transferees in accordance with Section 9.3, except as set forth in
Section 7.7), for so long as such Purchaser (or such transferees) shall hold at
least 5% of the aggregate outstanding Preferred Shares and Conversion Shares
(considered as a single class), or until such time as the Company shall have
consummated a Qualified Public Offering (as defined in the Articles of
Amendment):
7.1 Audited Annual Financial Statements. As soon as practicable and, in
any case, within one hundred and twenty (120) days after the end of each fiscal
year, financial statements of the Company, consisting of the balance sheet of
the Company as of the end of such fiscal year and the statements of operations,
statements of shareholders' equity and statements of cash flows of the Company
for such fiscal year, setting forth in each case, in comparative form, the
figures for the preceding fiscal year, all in reasonable detail and fairly
presented in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods reflected therein, and accompanied by
an opinion thereon of KPMG Peat Marwick LLP, or other independent certified
public accountants selected by the Company of good and recognized national
standing in the United States.
7.2 Quarterly Unaudited Financial Statements. As soon as practicable
and, in any case, within forty-five (45) days after the end of each of the first
three fiscal quarters in each fiscal year, unaudited financial statements of the
Company setting forth the balance sheet of the Company at the end of each such
fiscal quarter and the statements of operations and statements of cash flows of
the Company for each such fiscal quarter and for the year to date, and setting
forth in comparative form figures as of the corresponding date and for the
corresponding periods of the preceding fiscal year (provided that quarterly
statements of cash flows shall not be required for periods ended prior to the
Closing Date), all in reasonable detail and certified by an accounting officer
of the Company as complete and correct, as having been prepared in accordance
with generally accepted accounting principles consistently applied and as
presenting fairly, in all material respects, the financial position of the
Company and any Subsidiary and results of operations and cash flows thereof
subject, in each case, to customary exceptions for interim unaudited financial
statements.
7.3 Monthly Unaudited Financial Statements. As soon as available, but
in any event within thirty (30) days after the end of each calendar month,
copies of the unaudited balance sheet of the Company as at the end of such
calendar month and the related unaudited statements of operations and cash flows
for such calendar month and the portion of the calendar year through such
calendar year, in each case setting forth in comparative form the figures for
the corresponding periods of (a) the previous calendar year (provided that
monthly financial information shall not be required for periods ended prior to
the Closing Date) and (b) commencing on October 31, 1998, the budget for the
current year, prepared in reasonable detail and in accordance with generally
accepted accounting principles applied consistently throughout the periods
reflected therein and certified by the chief financial officer of the Company as
presenting fairly the financial condition and results of operations of the
Company and any Subsidiary (subject to customary exceptions for interim
unaudited financial statements).
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<PAGE> 28
7.4 Management's Analysis. All the financial statements delivered
pursuant to Sections 7.1 and 7.2 shall be accompanied by an informal narrative
description of material business and financial trends and developments and
significant transactions that have occurred in the appropriate period or periods
covered thereby.
7.5 Budgets. As soon as practicable, but in any event within ninety
(90) days prior to the commencement of a fiscal year, an annual operating budget
for such fiscal year, approved by the Board of Directors, including monthly
income and cash flow projections and projected balance sheets as of the end of
each quarter within such fiscal year.
7.6 Inspection. (a) The Company shall, and shall cause any Subsidiary
to, permit any such Purchaser, by its representatives, agents or attorneys:
(i) to examine all books of account, records, reports
and other papers of the Company or such Subsidiary except to
the extent that such action would, in the reasonable opinion
of counsel, constitute a waiver of the attorney/client
privilege;
(ii) to make copies and take extracts from any
thereof, except for information which is confidential or
proprietary;
(iii) to discuss the affairs, finances and accounts
of the Company or such Subsidiary with the Company's or such
Subsidiary's officers and independent certified public
accountants (and by this provision the Company hereby
authorizes said accountants to discuss with any such Purchaser
and its representatives, agents or attorneys the finances and
accounts of the Company or such Subsidiary); and
(iv) to visit and inspect, at reasonable times and on
reasonable notice during normal business hours, the properties
of the Company and such Subsidiary.
(b) Notwithstanding any provision herein to the contrary, the
provisions of this Section 7.6 are in addition to any rights of the Purchasers
under the South Carolina Business Corporation Act of 1988, as amended and shall
in no way limit such rights.
(c) The expenses of any Purchaser in connection with any such
inspection shall be for the account of such Purchaser. Notwithstanding the
foregoing sentence, it is understood and agreed by the Company that all
reasonable expenses incurred by the Company or such Subsidiary, any officers,
employees or agents thereof or the independent certified public accountants
therefor, shall be expenses payable by the Company and shall not be expenses of
the Purchaser making the inspection.
7.7 Other Information. The Company shall deliver the following to each
such Purchaser, provided that in the reasonable opinion of counsel to the
Company such disclosure will not constitute a waiver of the attorney/client
privilege:
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<PAGE> 29
(a) promptly after the submission thereof to the
Company, copies of any detailed reports (including the
auditors' comment letter to management, if any such letter is
prepared) submitted to the Company by its independent auditors
in connection with each annual or interim audit of the
accounts of the Company made by such accountants;
(b) promptly, and in any event within ten (10) days
after obtaining knowledge thereof, notice of the institution
of any suit, action or proceeding (other than a proceeding of
general application which is not directly against the Company
or one or more Subsidiary), the happening of any event or, to
the best knowledge of the Company, the assertion or threat of
any claim against the Company or any Subsidiary;
(c) promptly upon, and in any event within thirty
(30) days after obtaining knowledge thereof, notice of any
breach of, default under or failure to comply with any term
under this Agreement or any of the Documents or any material
adverse change in the Company's relationship with its major
customers, suppliers, employees or other entity with which the
Company has a business relationship;
(d) with reasonable promptness, a notice of any
default by the Company or any Subsidiary under any material
agreement to which it is a party;
(e) with reasonable promptness, copies of all written
materials furnished to directors;
(f) promptly (but in any event within ten days) after
the filing of any document or material with the SEC, a copy of
such document or material;
(g) promptly after the record date set by the Board
of Directors to determine the stockholders entitled to vote at
the Company's annual meeting of stockholders (but in any event
ten days prior to such meeting), a list of all stockholders of
the Company and their respective holdings; and
(h) promptly upon request therefor, such other data,
filings and information as any Purchaser may from time to time
reasonably request.
ARTICLE VIII
EXPENSES
8.1 Expenses of Directors. The Company shall reimburse each Purchaser's
Board representative elected pursuant to the Stockholders' Agreement, his
reasonable, out-of-pocket expenses incurred in connection with attending
meetings of the Board of Directors of the Company or conducting such other
activities as may be requested by the Company.
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<PAGE> 30
8.2 Legal Fees and Other Expenses. The Company shall pay or reimburse
the Purchasers for all fees and charges incurred by them, including all
reasonable legal, consulting and accounting fees, in connection with the
preparation, execution, and delivery of the Documents and the consummation of
the transactions contemplated thereby whether or not the transactions
contemplated by this Agreement are consummated.
8.3 Finder's Fee. Each party represents and warrants to each other
party that it has employed no broker or finder.
8.4 Other Expenses. The Company shall pay, and shall save each
Purchaser harmless against liability for, reasonable costs and expenses relating
to any modification, amendment or alteration of this Agreement and the other
Documents (including, without limitation, reasonable legal fees and
disbursements and any applicable taxes thereon). The obligations of the Company
under this Section 8.4 shall survive the termination of this Agreement and the
other Documents.
ARTICLE IX
MISCELLANEOUS
9.1 Survival. Except for the covenants and agreements contained in
Articles VI, VII, and VIII hereof which shall survive termination of this
Agreement in accordance with their respective terms, all agreements and
covenants made by the Company and the Founders herein or by the Company or
Founders in any certificate or other instrument delivered under or in connection
with this Agreement shall be considered to have been relied upon by the
Purchasers and shall survive the delivery to the Purchasers of the Preferred
Shares regardless of any investigation made by the Purchasers or on their
behalf.
9.2 Indemnification. (a) Indemnification by the Company. The Company
shall, to the fullest extent permitted by law, indemnify, defend and hold each
Purchaser harmless from and against any liability, loss or damage, together with
all reasonable costs and expenses related thereto (including reasonable legal
fees and expenses), arising out of or related to the untruth, inaccuracy or
breach of any of the representations, warranties or agreements of the Company
contained in this Agreement or any other document or instrument executed or
entered into by the Company in connection with the consummation of the
transactions contemplated herein.
(b) Indemnification by the Purchasers. Each Purchaser shall,
severally and not jointly, to the fullest extent permitted by law, indemnify,
defend and hold the Company harmless from and against any liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal fees and expenses), arising out of or related to the
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of such Purchaser contained in this Agreement or any other document
or instrument executed or entered into by such Purchaser in connection with the
consummation of the transactions contemplated herein.
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<PAGE> 31
(c) Survival of Representations and Warranties; Duration of
Rights of Indemnification. The representations and warranties contained in this
Agreement and the right of each party to be indemnified hereunder shall survive
for a period of two years following the Closing Date; provided, however, the
right of each party to seek indemnification shall continue after such two year
period with respect to:
(i) any claim for indemnification properly noticed
within such two year period;
(ii) any claim for indemnification arising out of or
related to a breach of the representations and warranties
contained at Sections 2.6, 2.7, 2.8 or 2.22 of this Agreement,
which right of indemnification shall extend until the
expiration of all applicable statutes of limitation.
9.3 Transfer and Termination of Rights. No rights under this Agreement
may be transferred, except that:
(i) the rights of a Purchaser under this Agreement
may be transferred after the Closing in connection with a
transfer of Preferred Shares made in accordance with the
provisions of the Stockholders' Agreement (other than a
transfer pursuant to a registration statement under the
Securities Act or a transfer pursuant to Rule 144 thereunder);
and
(ii) all the rights of a Purchaser may be transferred
to an affiliate of such Purchaser;
provided, that any such transferee shall execute and deliver to the Company an
instrument satisfactory to it agreeing to be bound by the provisions hereof and
of the Stockholders' Agreement and the Registration Rights Agreement.
9.4 Binding Effect. Subject to the limitations on transfer set forth in
Section 9.3, this Agreement and all the provisions hereof shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
9.5 Amendment. This Agreement may be amended or supplemented, and the
observance of any term hereof or thereof may be waived, with the written consent
of the Company and (i) on or prior to the Closing Date, each Purchaser, and (ii)
after the Closing Date, the holders of a majority of the Preferred Shares and
any Conversion Shares voting as a single class.
9.6 Governing Law. The interpretation, validity and performance of the
terms of this Agreement shall be governed by the laws of the State of South
Carolina, regardless of the law that might be applied under principles of
conflicts of law.
9.7 Notices. (a) All communications under this Agreement shall be in
writing and (i) sent by facsimile transmission and by certified or registered
mail, return receipt requested, courier or overnight
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<PAGE> 32
mail, or (ii) sent by certified or registered mail, return receipt requested,
courier or overnight mail (A) if to a Purchaser, to such Purchaser's facsimile
number and address set forth in Schedule I, or at such other address as such
Purchaser may have furnished to the Company in writing, (B) if to any transferee
of a Purchaser, to it at its facsimile number and address listed in the stock
ledger books of the Company, or at such other address as such Purchaser or
transferee shall have furnished to the Company in writing, and (C) if to the
Company, to 200 North Main Street, Suite 303, Greenville, South Carolina 29601,
Attention: Hamilton Russell II, Esq. or at such other address or facsimile
number as it shall have furnished in writing to all Purchasers.
(b) Any written communication so addressed, sent by facsimile
transmission or certified or registered mail, return receipt requested, courier
or overnight mail, shall be deemed to have been given when sent via facsimile or
mailed or deposited with a courier. All other written communications shall be
deemed to have been given upon receipt thereof.
9.8 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.9 Regulatory Requirements. In the event of any reasonable
determination by any Purchaser that, by reason of any future federal or state
rule, regulation, guideline, order, request or directive (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) (collectively, a "Regulatory Requirement"), it is effectively
restricted or prohibited from holding any of the shares of capital stock of the
Company (including any shares of capital stock or other securities distributable
to such Purchaser in any merger, reorganization, readjustment or other
reclassification of such shares), the Company shall take such action, at the
Company's expense, as may be deemed reasonably necessary by such Purchaser to
permit such Purchaser to comply with such Regulatory Requirement. Such action to
be taken may include, without limitation, the Company's authorization of one or
more new classes of capital stock and the modification of amendment of the
articles of incorporation or any other documents or instruments executed in
connection with the shares held by such Purchaser. Such Purchaser shall give
written notice to the Company of any such determination and the action or
actions necessary to comply with such Regulatory Requirement, and the Company
shall take all steps necessary to comply with such determination as
expeditiously as possible. This Section 9.9 shall not be deemed to limit in any
respect the representations of the Purchasers in Sections 3.2 and 3.4 hereof
9.10 Counterparts. This Agreement may be executed and delivered in two
or more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same agreement.
[Signatures on Next Page]
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<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
STATE COMMUNICATIONS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By:
---------------------------------------------
Title:
------------------------------------------
FIRST UNION CAPITAL PARTNERS, INC.
By:
---------------------------------------------
Title:
------------------------------------------
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<PAGE> 34
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
Purchasers Total Cash to be
---------- No. of Shares Purchase Price Paid at Closing Subscription Receivable
------------- -------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Richland Ventures II, L.P. 2,083,334 $5,000,001.60 $3,000,000 $2,000,001.60
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
First Union Capital Partners, Inc. 2,083,334 $5,000,001.60 $3,000,000 $2,000,001.60
One First Union Center
301 South College Street
Floor 5
Charlotte, NC 28288-0732
(704) 374-4948
Fax: (704) 374-6711
</TABLE>
-1-
<PAGE> 1
EXHIBIT 10.5.2
STATE COMMUNICATIONS, INC.
============================================
PREFERRED STOCK PURCHASE AGREEMENT
13,186,665 SHARES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
============================================
DATED: JULY 29, 1999
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I -- SUBSCRIPTION FOR THE PREFERRED SHARES...........................1
1.1 Purchase and Sale..............................................1
1.2 Closing........................................................2
1.3 Separate Agreements............................................2
1.4 Use of Proceeds................................................2
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................2
2.1 Organization and Standing......................................2
2.2 Corporate Power................................................3
2.3 Validity; Binding Obligation...................................3
2.4 Financial Statements...........................................3
2.5 Consents.......................................................4
2.6 Capitalization.................................................4
2.7 Validity and Rights of Preferred Shares........................5
2.8 Registration Rights............................................5
2.9 Securities Laws................................................5
2.10 Absence of Undisclosed Liabilities............................5
2.11 Subsidiaries..................................................6
2.12 Litigation and Claims.........................................6
2.13 Title to Properties...........................................6
2.14 Intellectual Property Rights..................................6
2.15 Compliance with Other Instruments.............................7
2.16 Compliance with Law...........................................7
2.17 Employees.....................................................7
2.18 Employee Benefit Plans........................................8
2.19 Compliance with Environmental Laws............................8
2.20 Insurance.....................................................9
2.21 Material Contracts and Agreements.............................9
2.22 Taxes.........................................................10
2.23 Investment Company............................................11
2.24 Labor Relations...............................................11
2.25 No Conflict of Interest.......................................12
2.26 Small Business Matters........................................12
2.27 Year 2000 Compliance..........................................12
2.28 Full Disclosure...............................................12
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..............13
3.1 Organization...................................................13
3.2 Power..........................................................13
3.3 Binding Obligation.............................................13
3.4 Consents.......................................................13
3.5 Investment Purposes............................................13
3.6 Accredited Investor............................................14
3.7 Legend on Certificates.........................................14
ARTICLE IV -- CONDITIONS TO THE PURCHASERS' OBLIGATIONS......................14
4.1 Delivery of Certificates.......................................14
<PAGE> 3
4.2 Representations and Warranties, Performance of Obligations.....14
4.3 No Material Effect.............................................15
4.4 Litigation.....................................................15
4.5 Applicable Law.................................................15
4.6 Articles of Amendment..........................................15
4.7 Stockholders' Agreement; Registration Rights Agreement.........15
4.8 Consents.......................................................15
4.9 Certification of Satisfaction of Conditions....................15
4.10 Opinion of Counsel............................................15
4.11 Performance of Obligations....................................15
4.12 Taxes.........................................................15
4.13 Fees and Disbursements of Purchasers' Counsel.................16
4.14 Board of Directors............................................16
4.15 Good Standing Certificates....................................16
4.16 No Liens......................................................16
4.17 Key Person Life Insurance.....................................16
4.18 Non-Competition Agreement.....................................16
4.19 SBA Documents and Information.................................16
4.20 Amendment to Series A Preferred Stock Designations............16
4.21 Evidence of Cancellation of Indebtedness......................16
ARTICLE V -- CONDITIONS TO THE COMPANY'S OBLIGATION..........................17
5.1 Tender by Purchasers...........................................17
5.2 Representations and Warranties; Performance of Covenants.......17
5.3 Stockholders' Agreement; Registration Rights Agreement........17
5.4 Applicable Law.................................................17
5.5 Consents.......................................................17
5.6 Performance of Obligations.....................................17
5.7 Articles of Amendment..........................................17
5.8 Evidence of Cancellation of Indebtedness.......................17
ARTICLE VI -- ADDITIONAL COVENANTS OF THE COMPANY............................18
6.1 Securities Law Filings.........................................18
6.2 Transactions with Substantial Holders..........................18
6.3 Business and Financial Covenants...............................18
6.4 Corporate Existence, Business, Maintenance, Insurance..........20
6.5 Payment of Taxes; ERISA........................................21
6.6 Books and Records, Compliance..................................21
6.7 Directors' and Officers' Liability Insurance...................21
6.8 Repurchase of Preferred Shares.................................21
6.9 Compensation...................................................22
6.10 Key Person Life Insurance.....................................22
6.11 SBA Requirements..............................................22
ARTICLE VII -- INFORMATION...................................................22
7.1 Audited Annual Financial Statements............................22
7.2 Quarterly Unaudited Financial Statements.......................22
7.3 Monthly Unaudited Financial Statements.........................23
7.4 Management's Analysis..........................................23
7.5 Budgets........................................................23
7.6 Inspection.....................................................23
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7.7 Other Information..............................................24
ARTICLE VIII -- EXPENSES.....................................................25
8.1 Expenses of Directors..........................................25
8.2 Legal Fees and Other Expenses..................................25
8.3 Finder's Fee...................................................25
8.4 Other Expenses.................................................25
ARTICLE IX -- MISCELLANEOUS..................................................25
9.1 Survival.......................................................25
9.2 Indemnification................................................25
9.3 Transfer and Termination of Rights.............................26
9.4 Binding Effect.................................................26
9.5 Amendment......................................................27
9.6 Governing Law..................................................27
9.7 Notices........................................................27
9.8 Headings.......................................................27
9.9 Regulatory Requirements........................................27
9.10 Counterparts..................................................28
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<PAGE> 5
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A Articles of Amendment
EXHIBIT B Amended and Restated Stockholders' Agreement
EXHIBIT C Amended and Restated Registration Rights Agreement
EXHIBIT D Non-Disclosure and Non-Competition Agreement
EXHIBIT E Amendment to the Series A Preferred Stock Designations
EXHIBIT F Joinder Agreement
SCHEDULE I List of Purchasers
SCHEDULE 2.1(b) Jurisdictions Where Company is Qualified
SCHEDULE 2.4(a) Financial Statements
SCHEDULE 2.4(b) Changes Since Last Financial Statements
SCHEDULE 2.6(b) Stock Ledger
SCHEDULE 2.10 Liabilities
SCHEDULE 2.13 Title to Properties
SCHEDULE 2.14 Intellectual Property
SCHEDULE 2.18 Employee Benefit Plans
SCHEDULE 2.20 Insurance
SCHEDULE 2.21 Material Contracts and Agreements
SCHEDULE 2.24 Labor Relations
SCHEDULE 2.25 No Conflict of Interest
<PAGE> 6
PREFERRED STOCK PURCHASE AGREEMENT
13,186,665 SHARES OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
STATE COMMUNICATIONS, INC.
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into on this 29th day of July, 1999 by and among STATE COMMUNICATIONS,
INC., a South Carolina corporation (the "Company"), and each of the purchasers
named in Schedule I attached hereto (collectively, the "Purchasers" and each,
individually, a "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchasers desire to purchase from the Company, and the
Company desires to issue and sell to the Purchasers, 13,186,665 shares of Series
B Convertible Preferred Stock of the Company (the "Preferred Shares") on the
terms and conditions hereinafter set forth for a purchase price of $3.75 per
share, constituting an aggregate purchase price of $49,449,993.75.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties agree as follows:
ARTICLE I
SUBSCRIPTION FOR THE PREFERRED SHARES
1.1 Purchase and Sale. Subject to the terms and conditions set forth
herein, each Purchaser hereby subscribes for and agrees to purchase from the
Company, and the Company hereby agrees to issue and sell to each Purchaser, on
the Closing Date (as hereinafter defined), the number of Preferred Shares set
forth opposite such Purchaser's name in column A of Schedule I, for a purchase
price of $3.75 per share to be paid as follows:
(i) On the Closing Date, each Purchaser shall deliver to the
Company by wire transfer of immediately available funds the amount set
forth opposite such Purchaser's name in column C of Schedule I; and
(ii) deliver to the Company evidence of the cancellation or
satisfaction of the principal amount of the debt owed to such Purchaser
by the Company in the amount set forth opposite such Purchaser's name
in column D of Schedule I; and
(iii) with respect to Boston Millennia Partners and Boston
Millennia Associates I, within seven (7) days of the Closing Date such
Purchaser shall deliver to the Company in the aggregate $7,000,001.25
by wire transfer of immediately available funds as payment in full for
the subscription receivable set forth opposite their names in column E
of Schedule I.
<PAGE> 7
1.2 Closing. The closing of the purchase and sale of the Preferred
Shares (the "Closing") shall be held on July 29, 1999 or such other date as the
parties shall mutually agree upon (the "Closing Date"), at the offices of Alston
& Bird LLP, 1201 West Peachtree Street, Atlanta, Georgia, or at such other
mutually acceptable place. On the Closing Date, the Company shall deliver to
each Purchaser duly issued stock certificates representing the number of
Preferred Shares to be purchased by such Purchaser. The Purchasers shall pay the
cash purchase price for the Preferred Shares by wire transfer of immediately
available funds to an account designated by the Company.
1.3 Separate Agreements. The purchases by the Purchasers hereunder
shall be separate and several transactions. The obligations of each Purchaser
hereunder shall be several and not joint, and this Agreement shall for all
purposes be construed and deemed to be a separate agreement between the Company
and each Purchaser, acting severally and not jointly, with the same effect as
though a separate agreement with each Purchaser to the effect herein provided
were hereby entered into between the Company and each Purchaser.
1.4 Use of Proceeds. The proceeds of the sale of the Preferred Shares
will be used by the Company for general corporate purposes as determined
appropriate by the Board of Directors of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows:
2.1 Organization and Standing.
(a) Each of the Company and the Subsidiaries (as defined in
Section 2.11) is a corporation duly organized, validly existing and in good
standing under the laws of the State of South Carolina.
(b) The Company and the Subsidiaries are currently engaged in
the business of providing local exchange and long distance telecommunication
services to residential customers and the small business market (the
"Business"). Each of the Company and the Subsidiaries is qualified to do
business as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the ability of the
Company or any Subsidiary to conduct the Business or which would impair the
Company's ability to perform its obligations in any material respect under the
Documents, as such term is defined in Section 2.2 hereof (a "Material Adverse
Effect"). Schedule 2.1(b) identifies each jurisdiction in which the Company and
each Subsidiary is currently qualified to do business as a foreign corporation.
(c) The Company has delivered to Purchasers' counsel true and
complete copies of the Articles of Incorporation and Bylaws of the Company,
including all amendments thereto, as
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<PAGE> 8
presently in effect. On the Closing Date, but prior to the Closing, the Company
shall cause to be filed with the Secretary of State of South Carolina its
Articles of Amendment in substantially the form annexed hereto as Exhibit A
containing the Designations, Rights and Preferences of the Preferred Shares (the
"Articles of Amendment"). Except for (i) the Articles of Amendment; (ii)
Articles of Amendment regarding the Designations, Rights and Preferences of the
Series A Convertible Preferred Stock; and (iii) the amendment of the Bylaws to
reflect the terms of the Documents, the Articles of Incorporation and Bylaws of
the Company will not be amended prior to the Closing Date.
(d) The Company and the Subsidiaries have all corporate power
and all governmental licenses, authorizations, consents and approvals required
to carry on the Business as now being conducted and necessary to own, operate
and lease their properties and assets.
2.2 Corporate Power. The Company has the requisite corporate power to
execute and deliver this Agreement, the Amended and Restated Stockholders'
Agreement, in substantially the form attached hereto as Exhibit B (the
"Stockholders' Agreement"), the Registration Rights Agreement in substantially
the form attached hereto as Exhibit C (the "Registration Rights Agreement")
(this Agreement, the Stockholders' Agreement and the Registration Rights
Agreement shall be collectively referred to herein as the "Documents") and to
perform its obligations hereunder and thereunder.
2.3 Validity; Binding Obligation. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against it in accordance with its
terms. The other Documents have each been duly authorized by the Company and,
when executed and delivered by the Company and the other parties named therein,
will constitute valid and binding agreements of the Company, enforceable against
the Company in accordance with their respective terms. The issuance, sale and
delivery of the Preferred Shares have been, or prior to the Closing Date will
be, duly authorized by all necessary corporate action by the Company.
2.4 Financial Statements. (a) Schedule 2.4(a) contains a true and
complete copy of:
(i) the audited balance sheet of the Company for the
year ended December 31, 1998 and the related unaudited
statements of operations, stockholders' equity and cash flows
of the Company for the year ended December 31, 1998; and
(ii) the unaudited consolidated balance sheet of the
Company for the five-month period ended May 31, 1999 and the
related unaudited consolidated statements of operations,
stockholders' equity and cash flows of the Company for such
period (the financial statements referred to in clauses (i)
and (ii) of this Section 2.4(a) being collectively referred to
as the "Financial Statements").
(b) The Financial Statements have been prepared in accordance
with generally accepted accounting principles (except that such unaudited
financial statements do not contain all of
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<PAGE> 9
the required footnotes or normal recurring year-end adjustments) applied on a
consistent basis during the respective periods covered thereby. The Financial
Statements are correct and complete and present fairly the financial position of
the Company at the date of the balance sheets included therein and the results
of operations and cash flows of the Company for the respective periods covered
by the statements of operations and cash flows included therein. Except as set
forth on Schedule 2.4 (b), since the date of the Financial Statements (i) there
has been no change in the assets, liabilities or financial condition of the
Company from that reflected in the Financial Statements, other than changes in
the ordinary course of business which in the aggregate have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of the Company has been materially and adversely
affected by any occurrence or development, individually or in the aggregate,
whether or not covered by insurance.
2.5 Consents. No consent, approval or authorization of, or
qualification, designation, declaration or filing with, or notice to any
governmental authority on the part of the Company is required in connection with
(i) the valid execution and delivery of the Documents, and (ii) the offer, sale
or issuance of the Preferred Shares (and the Common Stock issuable upon
conversion of the Preferred Shares), except (A) the filing of the Articles of
Amendment in the Office of the Secretary of State of South Carolina, which
filing will be accomplished on or prior to the Closing Date, (B) the filing of a
Form D with the Securities and Exchange Commission, (C) the qualification (or
taking such action as may be necessary to secure an exemption from
qualification, if available) of the offer and sale of the Preferred Shares (and
the Common Stock issuable upon conversion of the Preferred Shares) under any
applicable state securities laws, which qualification, if required, will be
accomplished in a timely manner prior to or promptly upon completion of the
Closing, as required by such laws and (D) such consents, approvals and
authorizations as have been obtained by the Company prior to Closing.
2.6 Capitalization. (a) The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $.001 par value (the "Common
Stock"), and 20,000,000 shares of Preferred Stock, $.01 par value (the
"Preferred Stock"), 4,791,668 of which have been designated as Series A
Convertible Preferred Stock (the "Series A Preferred Stock") and 14,133,329 of
which have been designated as Series B Convertible Preferred Stock. Immediately
after the Closing, (i) 11,133,253 shares of Common Stock will be issued and
outstanding, (ii) 4,711,672 shares of Series A Preferred Stock will be issued
and outstanding, (iii) 13,186,665 shares of Series B Preferred Stock will be
issued and outstanding, (iv) 4,951,747 options, warrants or other rights to
purchase or otherwise acquire shares of Common Stock will be outstanding, and
(v) such number of shares of Common Stock as shall be necessary to effect the
conversion of the Preferred Stock will be reserved for future issuance upon
conversion of Preferred Stock. Immediately after the Closing upon receipt of the
Purchase Price, all such issued and outstanding shares of capital stock of the
Company will be duly authorized and validly issued and outstanding, fully paid
and nonassessable.
(b) Schedule 2.6(b) contains a true and correct copy of the
Company's current stock transfer ledger reflecting the record holders of the
Company's equity securities and the number of shares held of each. Each of
Shaler P. Houser and Charles L. Houser (individually, a "Founder" and
collectively, the "Founders") is the lawful owner, of record and beneficially,
of the number of shares of Common Stock set forth opposite the name of each
Founder on Schedule 2.6(b). Each Founder has
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<PAGE> 10
good and marketable title to, and all other incidents of record and beneficial
ownership of, such shares, free and clear of any liens, claims and encumbrances,
other than the restrictions set forth in the Stockholders' Agreement or the
Liquidation Proceeds Agreements attached to Schedule 2.6(b) (the "Liquidation
Agreements").
(c) Except as set forth in paragraph (a) above or as disclosed
on Schedule 2.6(b), immediately after the Closing, there will be no outstanding
(i) securities convertible into or exchangeable for shares of capital stock of
the Company, (ii) options, warrants or other rights to purchase or otherwise
acquire from the Company shares of such capital stock, or securities convertible
into or exchangeable for shares of such capital stock, or (iii) contracts,
agreements or commitments relating to the issuance by the Company of any shares
of such capital stock, any such convertible or exchangeable securities, or any
such options, warrants or other rights. Except for the Stockholders' Agreement,
the Liquidation Agreements or the Investment Agreement by and among Seruus
Telecom Fund, L.P., the Company and certain individuals named therein, dated
February 19, 1998, there are no voting trusts, voting agreements, proxies or
other agreements, instruments or understandings with respect to the voting of
the capital stock of the Company to which the Company or, to the Company's
knowledge, any of its stockholders is a party.
(d) The Company has reserved, and at all times from and after
the date hereof will keep reserved, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, sufficient shares of Common
Stock to provide for the conversion of all Preferred Shares.
2.7 Validity and Rights of Preferred Shares. The Preferred Shares, when
issued to the Purchasers pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and will have the designations, preferences,
limitations, and relative rights set forth in the Articles of Amendment. Any and
all shares of Common Stock issued upon conversion of the Preferred Shares (the
"Conversion Shares"), when issued, will be validly issued, fully paid and
nonassessable.
2.8 Registration Rights. Except for the rights granted under the
Registration Rights Agreement and except as set forth in the Amended and
Restated Registration Rights Agreement dated February 19, 1998 between the
Company and Seruus Telecom Fund, L.P. and the Registration Rights Agreement
dated May 27, 1999 between the Company and Nortel Networks Inc., no person or
entity has any right to cause the Company to effect the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of any shares of its
capital stock.
2.9 Securities Laws. Subject to the accuracy of the representations and
warranties of the Purchasers contained in Article III hereof, the offering, sale
and purchase of the Preferred Shares contemplated hereby are exempt from
registration under the Securities Act. The issuance of all other shares of
capital stock of the Company on or before the date hereof is being or has been
made in compliance with the Securities Act and all applicable state securities
or blue sky laws. All offering documents used and oral disclosure made in
connection with the offer or sale of any of the Company's securities prior to
the date hereof have been correct in all material respects and have not
contained any untrue statements of a material fact or omitted to state a
material fact necessary in order to make the
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<PAGE> 11
statements contained therein not misleading.
2.10 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.10, as of the date hereof, neither the Company nor any Subsidiary has
a material liability or obligation of any nature (whether accrued, contingent,
absolute or otherwise) or any material loss contingency (as such term is used in
the Statement of Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975), which was not adequately disclosed or provided
for in the Financial Statements.
2.11 Subsidiaries. Except as set forth in Schedule 2.11, the Company
has no Subsidiaries (as hereinafter defined). The Company does not own, or have
the right to acquire, any securities or other equity or ownership interest in
any corporation, partnership, limited liability company, association or other
entity. "Subsidiary" means a corporation, partnership, limited liability company
or any other form of legal entity of which the Company, at the time in respect
of which such term is used, owns directly, or controls with power to vote,
directly or indirectly through one or more Subsidiaries, more than fifty percent
(50%) of the voting securities.
2.12 Litigation and Claims. There are no actions at law, suits in
equity or other proceedings or investigations in any court, tribunal or by or
before any other governmental or public authority or agency or any arbitrator or
arbitration panel or any governmental or private third-party insurance agency,
pending or, to the knowledge of the Company, threatened against or affecting the
Company or that would question the validity or enforceability of this Agreement,
the Documents, or any of the transactions contemplated hereby and thereby. The
Company is not in default with respect to any order, writ, injunction, judgment
or decree of any court or other governmental or public authority or agency or
arbitrator or arbitration panel.
2.13 Title to Properties. Each of the Company and the Subsidiaries has
good and marketable title to its properties and assets and has good title to all
its respective leasehold interests, in each case subject to no mortgage, pledge,
lien, encumbrance or charge, other than as set forth on Schedule 2.13 hereto.
Schedule 2.13 accurately lists with respect to the personal property owned (or
purported to be owned) by the Company or the Subsidiaries (i) each financing
statement, deed, agreement or other instrument which has been filed, recorded or
registered pursuant to any United States federal, state or local law or
regulation that names the Company or a Subsidiary as debtor or lessee or as the
grantor or the transferor of the interest created thereby, and (ii) as to each
such financing statement, deed, agreement or other instrument, the names of the
debtor, lessee, grantor or transferor and the secured party, lessor, grantee or
transferee and the name of the jurisdiction in which such financing statement,
deed, agreement or other instrument has been filed, recorded or registered.
Except as set forth on Schedule 2.13, neither the Company nor any Subsidiary has
signed any agreement or instrument authorizing any secured party thereunder to
file any such financing statement, deed, agreement or other instrument.
2.14 Intellectual Property Rights. Each of the Company and the
Subsidiaries owns or possesses the rights to use, free from any restrictions or
conflicts with the rights of others claiming through the Company or Subsidiary,
all copyrights, trademarks, service marks, trade names, patents and intellectual
property licenses, and all rights with respect to the foregoing, necessary for
the conduct
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<PAGE> 12
of the Business as now conducted and as proposed to be conducted, and is in
compliance in all material respects with the terms and conditions, if any, of
all such copyrights, trademarks, service marks, trade names, patents and
intellectual property licenses and the terms and conditions of any agreements
relating thereto. Except as set forth on Schedule 2.14, there are no outstanding
options, licenses, or material agreements of any kind relating to the foregoing,
nor is the Company or any Subsidiary bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. Neither the
Company nor any Subsidiary has received any communications alleging that it has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. To the Company's
knowledge, none of its employees are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of their best efforts to promote the interests of
the Company or any Subsidiary or that would conflict with the Company's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's or any Subsidiary's business by
the employees of the Company, nor the conduct of the Company's or any
Subsidiary's business as proposed, will conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. It is not currently and will not in the future be necessary for the
Company to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
2.15 Compliance with Other Instruments. Neither the Company nor any
Subsidiary is in violation of or in default under any term of its organizational
documents, any term or provision of any mortgage, indenture, contract,
agreement, instrument, judgment or decree, nor is in violation of any applicable
order, statute, rule or regulation except for such violations or defaults as are
not expected to have a Material Adverse Effect, and to the Company's knowledge
there is no state of facts which, with the passage of time or giving of notice
or both, would constitute any such violation or default that would in the
aggregate have a Material Adverse Effect. The execution, delivery and
performance of and compliance with the Documents, the issuance of the Preferred
Shares (and the Conversion Shares) and the consummation of any other transaction
contemplated by the Documents have not resulted and will not result in any such
violation, or be in conflict with, or constitute a default under any of the
foregoing, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or any Subsidiary.
2.16 Compliance with Law. Each of the Company and the Subsidiaries is
in compliance with all statutes, laws and ordinances and all governmental rules
and regulations to which it is subject, the violation of which, either
individually or in the aggregate, would have a Material Adverse Effect. Neither
the execution, delivery or performance of this Agreement or the other Documents
nor the consummation of the transactions contemplated by the Documents will
cause the Company or any Subsidiary to be in violation of any law or ordinance,
or any order, rule or regulation, of any federal, state, municipal or other
governmental or public authority or agency.
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<PAGE> 13
2.17 Employees. To the knowledge of the Company, (i) no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
intellectual property of the Company or the relationship of any such employee
with such entity or any other party and (ii) no key employee has or intends to
terminate his or her employment relationship with the Company. The Company
believes that its relationship with its employees are good and the relationship
among its employees is good.
2.18 Employee Benefit Plans. (a) The Company has not since inception,
nor does it currently sponsor, maintain, contribute to or participate in a
Multiemployer Plan or a "defined benefit plan" within the meaning of Section
3(35) of ERISA covering employees of the Company; (b) except as set forth on
Schedule 2.18, none of the Employee Benefit Plans is an "employee pension
benefit plan", or an "employee welfare benefit plan", within the meaning of
Section 3(3) of ERISA; (c) there are no pending or, to the best of the Company's
knowledge, threatened claims, lawsuits, or arbitrations against any Employee
Benefit Plan or any fiduciary thereof; (d) each Employee Benefit Plan is, and
has been, operated in compliance in all material respects with the applicable
provisions of federal and state law; (e) the Company has, or prior to the
Closing Date will have, paid in full all insurance premiums or otherwise met all
other funding obligations with regard to all Employee Benefit Plans for policy
years or other applicable policy funding periods ending on or before the Closing
Date; and (f) upon termination of employment of any employee, neither the
Company nor any employee will incur any liability for any severance or
termination pay, pension, profit-sharing or other post-retirement benefit,
including but not limited to life, health and welfare benefits, or other similar
payment, except as set forth on Schedule 2.18. For purposes of this
representation, "Employee Benefit Plans" shall mean bonus, pension, benefit,
welfare, profit-sharing, retirement, disability, insurance, incentive, deferred
compensation and other similar fringe or employee benefit plans, funds, programs
or arrangements, and any employment contracts or executive compensation
agreements, written or oral, in each of the foregoing cases, which cover or
covered, are or were maintained for the benefit of, or relate or related to, any
or all current or former employees of the Company.
2.19 Compliance with Environmental Laws. (a) Each of the Company and
the Subsidiaries is, and will continue to be, in compliance with all applicable
federal, state and local environmental laws, regulations and ordinances
governing the Business with respect to all discharges into the ground and
surface water, emissions into the ambient air and generation, accumulation,
storage, treatment, recycling, transportation, labeling or disposal of waste
materials or process by-products except for noncompliance as is not expected to
have a Material Adverse Effect. Neither the Company nor the Subsidiary is liable
for any penalties, fines or forfeitures for failure to comply with any of the
foregoing. All material licenses, permits or registrations required for the
Business as presently conducted and proposed to be conducted, under any federal,
state, or local environmental laws, regulations or ordinances have been or will,
in a timely manner, be obtained or made.
(b) No release, emission or discharge into the environment of
hazardous substances, as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, or hazardous waste, as defined
under the Resource Conservation and Recovery Act, or air pollutants as defined
under the Clean Air Act, or pollutants, as defined under the Clean Water Act, by
the Company or any Subsidiary has occurred or is presently occurring on or from
any property owned
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<PAGE> 14
or leased by the Company or any Subsidiary in excess of federal, state or local
permitted releases or reportable quantities, or other concentrations, standards
or limitations under the foregoing laws or any state or local law governing the
protection of health and the environment or under any other federal, state or
local laws or regulations (then or now applicable, as the case may be).
(c) Neither the Company nor the Subsidiary has (1) owned,
operated or, to its knowledge, occupied a site or structure on or in which any
hazardous substance was or is stored, transported or disposed of in violation of
any federal, state or local environmental laws, regulations or ordinances at
such time as such site or structure was owned, occupied or operated by the
Company or any Subsidiary or at any other time, or (2) transported or arranged
for the transportation of any hazardous substance other than in full compliance
with all applicable federal, state and local environmental laws, regulations and
ordinances governing the Business or the storage, transportation or disposal of
hazardous substances. Neither the Company nor any Subsidiary has caused or been
held legally responsible for any release or threatened release of any hazardous
substance, or received notification from any federal, state or other
governmental authority of any such release or threatened release, or that the
Company or any Subsidiary may be required to pay any costs or expenses incurred
or to be incurred in connection with any efforts to mitigate the environmental
impact of any release or threatened release, of any hazardous substance from any
site or structure owned, occupied or operated by the Company or any Subsidiary.
2.20 Insurance. The Business has fire, casualty, liability, and
business interruption insurance policies with recognized insurers, in such
amounts and with such coverage as set forth on Schedule 2.20.
2.21 Material Contracts and Agreements. (a) Schedule 2.21 sets forth
all written and oral agreements or understandings of the Company or any
Subsidiary, either existing or pending, which:
(i) provide for the future purchase by the Company or
any Subsidiary of products or services in excess of $100,000;
(ii) involve the Company or any Subsidiary and any
director, officer, or employee of the Company or any
Subsidiary;
(iii) provide for the borrowing of money or a line of
credit by the Company or any Subsidiary or a leasing
transaction of a type required to be capitalized by the
Company or any Subsidiary in accordance with generally
accepted accounting principles;
(iv) provide for the sale, assignment, or other
disposition of any asset with a value in excess of $100,000 or
any material right of the Company or any Subsidiary;
(v) provide for the licensing or distribution of the
Company's or any Subsidiary's products and services by, or
establish an agency
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<PAGE> 15
relationship with, any other party;
(vi) provide for the lease by the Company or any
Subsidiary of any real or personal property involving lease
payments in excess of $100,000 per year;
(vii) restrict the Company or any Subsidiary from
engaging in any business activity, restrict either Founder in
the performance of his obligations and responsibilities to the
Company or any Subsidiary, or create any other obligation or
liability of either Founder arising from any prior employment;
(viii) to the knowledge of the Company, restrict any
other officer or key employee of the Company from engaging in
any business activity, restrict any such officer or key
employee in the performance of his or her obligations and
responsibilities to the Company, or create any other
obligation or liability of any such officer or key employee
arising from his employment with the Company or any prior
employment;
(ix) provide for a guaranty, surety, indemnity, or
other financial support by the Company or any Subsidiary to
any person or entity;
(x) grant to any person or entity a right to acquire
the assets, business or operations of the Company or any
Subsidiary or grant a security interest in or lien on any
asset or right of the Company or any Subsidiary; or
(xi) are otherwise material to the Company or any
Subsidiary or its business or assets.
(b) Each agreement or understanding set forth on Schedule 2.21
is in full force and effect and constitutes a valid and binding obligation of
the Company or Subsidiary (except as enforceability may be affected by
bankruptcy or other similar laws relating to or affecting the rights of
creditors generally) and, to the knowledge of the Company, all other parties
thereto. Each of the Company and, where applicable, each Subsidiary and Founder
has in all respects performed the obligations required to be performed by it or
him and is not in default or alleged to be in default in any material respect
under any such agreement or understanding. There exists no event or condition
which, after notice or lapse of time, or both, would constitute such a default.
To the knowledge of the Company, there are no material defaults by any other
party to any such agreement or understanding. The Company has delivered to the
Purchasers correct and complete copies of all documents set forth on Schedule
2.21.
(c) No agreement or understanding to which the Company or
Subsidiary is a party (i) restricts the Company or Subsidiary from engaging in
the Company's business as now being
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<PAGE> 16
conducted and as proposed to be conducted, or (ii) grants to
any person or entity, other than the Company, any right,
title, or interest in any invention or know-how conceived by
the employees of the Company and related to the business of
the Company or any Subsidiary.
2.22 Taxes. All federal, state and other tax returns of the Company and
each Subsidiary required by law to be filed have been duly filed and all
federal, state and other taxes, assessments, fees and other federal governmental
charges upon the Company, the Subsidiaries or any of their respective
properties, incomes or assets that are due and payable have been paid. No
extensions of the time for the assessment of deficiencies have been granted to
the Company or any Subsidiary in connection with any federal tax, assessment,
fee or other federal governmental charge. There are no liens, claims or
encumbrances on any properties or assets of the Business imposed or arising as a
result of the delinquent payment or the non-payment of any tax, assessment, fee
or other governmental charge. Neither the Company nor any Subsidiary:
(i) has assumed and is liable for any federal, state
or other income tax liability of any other person, including
any predecessor corporation, as a result of any purchase of
assets or other business acquisition transaction; and
(ii) has indemnified any other person or otherwise
agreed to pay on behalf of any other person tax liability
growing out of or which may be asserted on the basis of any
tax treatment adopted with respect to all or any aspect of
such a business acquisition transaction.
The charges, accruals and reserves, if any, on the books of the Company in
respect of federal, state and local corporate franchise and income taxes for all
fiscal periods to date are adequate in accordance with generally accepted
accounting principles, and the Company knows of no additional unpaid assessments
for such periods or other governmental charges payable by the Company in
connection with the execution and delivery of this Agreement, the Documents or
the offer, issuance, sale or delivery of the Preferred Shares by the Company,
other than stock transfer taxes, recording fees and filing fees in connection
with state securities or "blue sky" filings. The Company is not a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended.
2.23 Investment Company. The Company is not an "investment company", or
an "affiliated person" of an "investment company", or a company "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended, and the Company is not an "investment adviser" or an
"affiliated person" of an "investment adviser" as such terms are defined in the
Investment Advisers Act of 1940, as amended.
2.24 Labor Relations. The Company is not engaged in any unfair labor
practices. Except as set forth on Schedule 2.24, there is:
(i) no unfair labor practice complaint pending or, to
the best of the
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<PAGE> 17
Company's knowledge, threatened against the Company before the
National Labor Relations Board or any court or labor board,
and no grievance or arbitration proceedings arising out of or
under collective bargaining agreements is so pending or, to
the best of the Company's knowledge, threatened,
(ii) no strike, lock-out, labor dispute, slowdown or
work stoppage pending or, to the best of the Company's
knowledge, threatened against the Company, and
(iii) no union representation or certification
question existing or pending with respect to the employees of
the Company, and, to the best knowledge of the Company, no
union organization activity taking place.
2.25 No Conflict of Interest. Except as set forth in Schedule 2.25, the
Company is not indebted, directly or indirectly, to any of its officers or
employees who is the beneficial owner of one percent or more of the outstanding
voting power or the outstanding common equity (on a fully diluted basis) of the
Company (a "Substantial Holder"), or to any affiliate of a Substantial Holder,
in any amount whatsoever. To the best knowledge of the Company, no Substantial
Holders or any of their affiliates are indebted to any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company. Except
as contemplated by the Documents, no Substantial Holder, or, to the best of the
Company's knowledge, any affiliate of a Substantial Holder, has a direct or
indirect interest in any contract with the Company or any of the Subsidiaries.
2.26 Small Business Matters. The Company, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
ss. 121.101), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, ss. 121.201. The information regarding the
Company and its affiliates set forth in SBA Form 480, Form 652 and Part A of
Form 1031 delivered at the Closing is accurate and complete. Copies of such
forms shall have been completed and executed by the Company and delivered to
those Purchasers that so request at the Closing. The Company does not engage in
any activities for which a "small business investment company" is prohibited
from providing funds by the Small Business Investment Act of 1958 and the
regulations thereunder (including Title 13, Code of Federal Regulations,
ss. 107.720).
2.27 Year 2000 Compliance. The Company has (a) initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers and vendors) that could reasonably be expected to be
relevant to whether it is Year 2000 Complaint, (b) developed a plan and timeline
for ensuring that it is Year 2000 Compliant on a timely basis, and (c) to date,
implemented that plan in accordance with that timetable. Based upon the
foregoing, the Company reasonably believes that it is Year 2000 Compliant as of
the Closing Date.
2.28 Full Disclosure. This Agreement, the other Documents, and any
report, statement or
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<PAGE> 18
other writing furnished to the Purchasers by or on behalf of the Company in
connection with the negotiation of this Agreement and the other Documents and
the sale of the Preferred Shares, taken as a whole, do not contain any untrue
statement of a material fact or omit to state a material fact which is necessary
to make the statements contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company, each with respect to itself only, as follows:
3.1 Organization. Purchaser is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Such Purchaser was not organized for the specific purpose of
acquiring the Preferred Shares.
3.2 Power. Purchaser has the requisite corporate, partnership or other
power to execute and deliver the Documents and to perform its obligations
thereunder, and the execution and delivery by such Purchaser of the Documents,
the performance by such Purchaser of the transactions contemplated thereby and
the purchase of and payment for the Preferred Shares by such Purchaser, have
been duly authorized by all necessary corporate, partnership or other action on
the part of such Purchaser.
3.3 Binding Obligation. This Agreement has been duly executed and
delivered by such Purchaser, and constitutes a valid and binding agreement of
such Purchaser, enforceable against such Purchaser in accordance with its terms.
The other Documents, when executed and delivered by such Purchaser and the other
parties listed therein, will constitute valid and binding agreements of such
Purchaser enforceable against such Purchaser in accordance with their terms.
3.4 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of such
Purchaser is required in connection with the valid execution and delivery of the
Documents or the purchase of and payment for the Preferred Shares, or the
consummation of any other transaction contemplated by the Documents.
3.5 Investment Purposes. (a) Such Purchaser is acquiring the securities
solely for such Purchaser's account for investment and not with a view to, or
for resale in connection with, the distribution thereof, except for any
distribution thereof effected in compliance with the Securities Act.
(b) Such Purchaser understands that: (i) the purchase of the
Preferred Shares is a speculative investment which involves a high degree of
risk of loss of such holder's investment therein; (ii) there are substantial
restrictions on the transferability of Preferred Shares and the Conversion
Shares under the terms of the Stockholders' Agreement and the applicable
provisions of the Securities Act and the rules and regulations of the Securities
and Exchange Commission (the "SEC") promulgated thereunder and under applicable
state securities or "blue sky" laws; and (iii) at the Closing, and for an
indeterminate period following the Closing, there will be no public market for
the
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<PAGE> 19
Preferred Shares or the Conversion Shares and, accordingly, that it may not be
possible to readily liquidate an investment in the Company, if at all.
(c) Such Purchaser has been advised and understands that: (i)
the offer and sale of the Preferred Shares and the Conversion Shares have not
been registered under the Securities Act; (ii) the Preferred Shares and the
Conversion Shares must be held indefinitely and such Purchaser must continue to
bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares unless the offer or sale of the Preferred Shares or the
Conversion Shares is subsequently registered under the Securities Act or an
exemption from such registration is available; (iii) there is not currently any
public market for the Preferred Shares or the Conversion Shares; (iv) Rule 144
promulgated under the Securities Act is not presently available with respect to
the sale of any securities of the Company, including the Preferred Shares or the
Conversion Shares, and when and if the Preferred Shares or the Conversion Shares
may be disposed of without registration in reliance on Rule 144, such
disposition can be made only in accordance with the terms and conditions of such
Rule; (v) restrictive legends described in Section 3.7 shall be placed on the
certificates representing the Preferred Shares or the Conversion Shares; and
(vi) a notation shall be made in the appropriate records of the Company
indicating that the Preferred Shares or the Conversion Shares are subject to
restrictions on transfer and, if the Company should at some time in the future
engage the services of a securities transfer agent, appropriate stop-transfer
instructions will be issued to such transfer agent with respect to the Preferred
Shares or the Conversion Shares.
(d) Such Purchaser is aware that, except as expressly provided
in the Registration Rights Agreement, there exists no right to require
registration of the Preferred Shares or the Conversion Shares and such Purchaser
must bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares.
3.6 Accredited Investor. Each Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933, as amended.
3.7 Legend on Certificates. Each Purchaser has been advised by the
Company that the certificates representing the Preferred Shares (and Conversion
Shares) will bear an appropriate legend to the effect that the shares
represented by such Certificates have not been registered under the Securities
Act, and may not be transferred in the absence of an effective registration
statement under the Securities Act or an exemption from such registration under
said Act, and such additional legends as may be called for by the Stockholders'
Agreement.
ARTICLE IV
CONDITIONS TO THE PURCHASERS' OBLIGATIONS
The obligation of each of the Purchasers to purchase the Preferred
Shares hereunder shall be subject to the satisfaction, prior to or concurrently
with such purchase, of the following conditions:
4.1 Delivery of Certificates. Such Purchaser shall have received duly
executed stock
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<PAGE> 20
certificates representing the Preferred Shares being purchased by such
Purchaser.
4.2 Representations and Warranties; Covenants. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date as if made on and as of
such date. The Company shall have performed and complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
4.3 No Material Adverse Effect. No event or events shall have occurred
and no condition or conditions shall exist, which individually or in the
aggregate would have a Material Adverse Effect, including without limitation,
any such events or conditions which occurred prior to, or existed on the date of
this Agreement, but were not explicitly disclosed herein or in a Schedule
hereto.
4.4 Litigation. There shall not be any litigation, investigation, claim
or proceeding of or before any court, arbitrator or governmental authority
pending or threatened with respect to any of the Documents or the transactions
contemplated thereby.
4.5 Applicable Law. Such Purchaser's purchase of and payment for the
Preferred Shares shall not be prohibited by any applicable law, court order or
governmental regulation and shall not subject such Purchaser to any tax,
penalty, liability or other condition under or pursuant to any applicable law,
court order or governmental regulation.
4.6 Articles of Amendment. The Articles of Amendment shall have been
filed in the Office of the Secretary of State of South Carolina and shall be in
full force and effect on the Closing Date.
4.7 Stockholders' Agreement; Registration Rights Agreement. Prior to or
at the Closing, the Stockholders' Agreement and the Registration Rights
Agreement shall have been executed and delivered by each of the parties thereto.
4.8 Consents. All governmental authorizations, consents, approvals or
exemptions required to issue the Preferred Shares pursuant to this Agreement
shall have been obtained, and all necessary governmental filings shall have been
made.
4.9 Certification of Satisfaction of Conditions. The Company shall have
delivered to the Purchasers a certificate, dated the Closing Date, and signed by
the President of the Company, certifying to the satisfaction of the conditions
set forth in Sections 4.2, 4.3 and 4.4.
4.10 Opinion of Counsel. The Purchasers shall have received the opinion
of Wyche, Burgess, Freeman & Parham, P.A., counsel for the Company, dated the
Closing Date, in form and substance satisfactory to the Purchasers and the
Purchasers' counsel covering such matters as the Purchasers and their counsel
may reasonably request.
4.11 Performance of Obligations. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incident thereto shall be
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<PAGE> 21
satisfactory in form and substance to Purchasers, and the Purchasers or their
counsel shall have received all such counterpart originals or certified or other
copies of such documents as it or they may reasonably request, which shall
include, without limitation, a copy of each of the Documents, duly executed by
each party thereto, and a copy of the Articles of Amendment certified to be a
true and complete copy thereof by the Secretary of State of the State of South
Carolina.
4.12 Taxes. Any taxes, fees and other charges due and payable in
connection with the issuance and sale of the Preferred Shares shall have been
paid in full by the Company.
4.13 Fees and Disbursements of Purchasers' Counsel. Purchasers' counsel
shall have received payment from the Company of its fees and disbursements in
connection with the consummation of the transactions contemplated herein.
4.14 Board of Directors. The Articles of Amendment and Bylaws of the
Company shall provide that the Board of Directors shall be set at nine and the
nominees of the Purchasers shall have been duly elected to the Company's Board
of Directors in accordance with the terms of the Stockholders' Agreement.
4.15 Good Standing Certificates. The Company shall deliver a good
standing certificate dated within 10 days of the Closing Date for each
jurisdiction in which they are organized or qualified to do business.
4.16 No Liens. The Company shall have delivered evidence, satisfactory
to the Purchasers and Purchasers' counsel, that there are no liens, other than
those set forth on Schedule 2.13 hereto, on the assets or properties of the
Company.
4.17 Key Person Life Insurance. The Company shall have obtained key
person life insurance on the life of Shaler P. Houser in an aggregate amount of
not less than $5,000,000 with the proceeds thereof payable to the Purchasers.
4.18 Non-Competition Agreement. The Company and each of the individuals
that are party to the Stockholders' Agreement shall have entered into a
Non-Disclosure and Non-Competition Agreement in substantially the form of
Exhibit D attached hereto.
4.19 SBA Documents and Information. The Company shall have executed and
delivered to each Purchaser that so requests forms and information required by
the rules and regulations of the United States Small Business Administration,
including without limitation, a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652 and information necessary for the
preparation of a Portfolio Financing Report on SBA Form 1031.
4.20 Amendment to Series A Preferred Stock Designations. The
Certificate of Designations for the Series A Preferred Stock (the "Series A
Designations") shall have been amended in a manner that is in substantially the
form of Exhibit E attached hereto.
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<PAGE> 22
4.21 Evidence of Cancellation of Indebtedness. Each Purchaser paying a
portion of its subscription proceeds through the cancellation of debt owed to
such Purchaser by the Company shall have delivered evidence of the cancellation
of satisfaction of such debt in form mutually acceptable to the parties.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the Preferred Shares
shall be subject to the satisfaction, prior to or concurrently with such
issuance and sale, of the following conditions:
5.1 Tender by Purchasers. At the Closing, each of the Purchasers shall
have tendered the cash consideration set forth on Schedule I attached hereto.
5.2 Representations and Warranties; Performance of Covenants. The
representations and warranties of each Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as if made on and as of such date, and each Purchaser shall have performed and
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it prior to or on the Closing
Date.
5.3 Stockholders' Agreement; Registration Rights Agreement. Prior to or
at the Closing, the Stockholders' Agreement and the Registration Rights
Agreement shall have been executed and delivered by each of the parties thereto.
5.4 Applicable Law. The Purchasers' purchase of the Preferred Shares
shall not be prohibited by any applicable law, court order or governmental
regulation and there shall not be any litigation, investigation or proceeding of
or before any court, arbitrator or governmental authority pending or threatened
with respect to any of the Documents or the transactions contemplated thereby.
5.5 Consents. All governmental authorizations, consents, approvals or
exemptions required by the Company to issue and sell the Preferred Shares
pursuant to this Agreement shall have been obtained, and all necessary
governmental filings shall have been made.
5.6 Performance of Obligations. All proceedings taken or to be taken in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Company and the
Company and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request, which
shall include, without limitation, a copy of each of the Documents, duly
executed by each party thereto.
5.7 Articles of Amendment. The Articles of Amendment shall have been
filed in the Office of the Secretary of State of South Carolina and shall be in
full force and effect on the Closing Date.
5.8 Evidence of Cancellation of Indebtedness. Each Purchaser paying a
portion of its
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subscription proceeds through the cancellation of debt owed to such Purchaser by
the Company shall have delivered evidence of the cancellation of satisfaction of
such debt in form mutually acceptable to the parties.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees that, except as provided in Section
6.1 below, until such time as the Company has consummated a Public Offering (as
such term is defined in the Stockholders' Agreement):
6.1 Securities Law Filings. Upon consummation of a Public Offering (as
such term is defined in the Stockholders' Agreement), and for so long as the
Purchasers hold Conversion Shares, the Company will timely file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder, to the extent required from
time to time to enable the Purchasers to sell Conversion Shares without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Purchaser, the Company will deliver a written
statement as to whether it has complied with such requirements.
6.2 Transactions with Substantial Holders. The Company shall not,
directly or indirectly, enter into any material transaction or agreement with
any stockholder owning or having a right to acquire 5% or more of the capital
stock of the Company (a "Substantial Holder") or any affiliate or officer of the
Company or a Substantial Holder, or a material transaction or agreement in which
a Substantial Holder or affiliate or officer of the Company or a Substantial
Holder has a direct or indirect interest, unless such transaction or agreement
is on terms and conditions no less favorable to the Company or any Subsidiary
than could be obtained at the time in an arm's length transaction with a third
person that is not such a Substantial Holder or affiliate or officer of the
Company or a Substantial Holder, and such transaction or agreement has been
reviewed and approved by (i) a majority of those members of the Company's Board
of Directors who have no such interest in the transaction, and (ii) not less
than a majority of the outstanding Preferred Shares voting separately as a
class. Except as provided in Section 9.3, this Section 6.2 shall not be
enforceable against the Company by any person or entity not a party to this
Agreement.
6.3 Business and Financial Covenants. The Company covenants that:
(a) Without the prior written consent of the holders of not
less than a majority of the outstanding Preferred Shares voting separately as a
class:
(1) Merger, Consolidation, Acquisitions, Sale of
Assets.
(i) The Company shall not merge, effect a liquidation
or statutory
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<PAGE> 24
share exchange, consolidate with, or otherwise engage in any
transaction or series of related transactions which results in
a change of control or permit any Subsidiary to merge, effect
a liquidation or statutory share exchange, or consolidate
with, any entity or otherwise effect a change of control.
(ii) The Company shall not sell, assign, lease or
otherwise dispose of, or permit any Subsidiary to sell,
assign, lease or otherwise dispose of, all or substantially
all of its assets (whether now owned or hereafter acquired).
(iii) Except for up to 4,000,000 shares of Common
Stock of the Company which may be issued upon the exercise of
options granted under the Company's Employee Incentive Plan
pursuant to option grants having a per share exercise price of
not less than fair market value on the date of grant as
determined by the Board of Directors, the Company will not,
and will not permit any Subsidiary to, hereafter issue or sell
any shares of capital stock or any securities convertible
into, or any warrants, rights, or options to purchase shares
of, the capital stock of the Company or such Subsidiary to any
person or entity other than the Company, and the Company will
not pledge any of the capital stock of any Subsidiary to any
person or entity. Notwithstanding the foregoing, the Company
may issue 679,998 shares of Series B Preferred Stock, in the
aggregate, to Joseph Lawrence, William Oberlin, David C.
Poole, Terry E. Richardson and Capital Insights Growth
Investors, L.P. on the same terms and conditions as contained
in this Agreement including, without limitation, the
conditions that such individuals become parties to this
Agreement, the Stockholders' Agreement and Registration Rights
Agreement and that the Purchasers receive the opinion of
Wyche, Burgess, Freeman & Parham, P.A., counsel for the
Company, dated concurrently with and relating to such
issuance, in the form and substance satisfactory to the
purchasers and the Purchasers' counsel covering such matters
as the Purchasers and their counsel may reasonably request,
provided however; that such issuance must close no later than
August 4, 1999.
(2) Loans to and Investments in Others. The Company
shall not (except for the advancement of money for expenses in
the ordinary course of business) make, or permit any
Subsidiary to make, any loans or advances to any person or
entity or have outstanding any investment in any entity,
whether by way of loan or advance to, or by the acquisition of
the capital stock, assets or obligations of or any interest
in, any person or entity.
(3) Restricted Payments; Repurchase of Common Stock.
Except as permitted by Section 6.9 hereof, neither the Company
nor a Subsidiary shall declare or make any
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<PAGE> 25
Restricted Payment. "Restricted Payment" means (i) any payment
or the incurrence of any liability to make any payment in
cash, property or other assets as a dividend or other
distribution in respect of any shares of capital stock of the
Company or any Subsidiary, excluding, however, any dividends
payable to the Company by a Subsidiary, and (ii) except as
otherwise permitted by the Documents or as required by the
Company's Articles of Incorporation, any payment or the
incurrence of any liability to make any payment in cash,
property or other assets for the purposes of purchasing,
retiring or redeeming any shares of any class of capital stock
of the Company or any Subsidiary or any warrants, options or
other rights to purchase any such shares, other than employee
stock repurchases approved by the Board of Directors of the
Company upon termination of such employee's employment.
(4) Articles of Incorporation. The Company shall not
amend or repeal its articles of incorporation or bylaws, or
violate or breach any of the provisions thereof.
(5) Debt/Lease Obligations. The Company shall not (i)
create, incur or suffer to exist or permit any Subsidiary to
create, incur or suffer to exist, any debt or any obligations
for the payment of rent for any property real or personal
under leases or agreements to lease ("Lease Obligations")
other than debt or Lease Obligations which in the aggregate do
not exceed $10,000,000 in any one calendar year, and (ii)
materially amend, modify, extend or refinance or permit any
Subsidiary to materially amend, modify, extend or refinance
any existing debt or Lease Obligation.
(6) Other Actions. The Company shall not take any
other action that could reasonably be expected to have a
Material Adverse Effect on the holders of the Preferred
Shares.
(b) Without the consent of (i) a majority of the Board of
Directors, and (ii) the directors nominated by the holders of the Preferred
Stock and elected in accordance with the terms of the Stockholders' Agreement:
(1) Acquisitions. The Company shall not acquire, or
permit any Subsidiary to acquire, directly or indirectly, the
assets of or equity interests in any other business or entity,
whether by purchase, merger, consolidation or otherwise.
(2) Public Offering. The Company shall not effect
an initial public offering of any equity securities, other
than a public offering in which the Company would receive net
offering proceeds of not less than $20,000,000 and the common
equivalent price per share to the public is not less than
$9.38, subject to equitable adjustment for any subdivision,
stock split, combination or other similar corporate
transaction affecting the capital stock of the Company.
6.4 Corporate Existence, Business, Maintenance, Insurance.
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<PAGE> 26
(a) The Company will at all times preserve and keep in full
force and effect its corporate existence and rights and franchises deemed
material to its business and those of its Subsidiaries, except any Subsidiary of
the Company may be merged into the Company or another Subsidiary.
(b) The Company shall engage solely in the business of
providing local exchange and long distance telecommunication services to
residential customers and small and medium size businesses and such other
related business activities approved by the Board. The Company (and any
Subsidiary) will not purchase or acquire any property other than property useful
in and related to such business.
(c) The Company will maintain or cause to be maintained in
good repair, working order and condition all properties used or useful in the
business of the Company and any Subsidiary and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof. The
Company and any Subsidiary will at all times comply in all material respects
with the provisions of all material leases to which it is a party or under which
it occupies property so as to prevent any loss or forfeiture thereof or
thereunder.
(d) The Company will maintain or cause to be maintained, with
financially sound and reputable insurers, appropriate insurance with respect to
its properties and business and the properties and business of any Subsidiary
against loss or damage.
6.5 Payment of Taxes; ERISA.
(a) The Company will pay, and will cause any Subsidiary to
pay, all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or profits before any penalty or interest accrues thereon, and
all claims (including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by law have
or might become a lien or charge upon any of its properties or assets, provided
that no such charge or claim need be paid if being contested in good faith by
appropriate proceedings and if such reserve or other appropriate provisions, if
any, as shall be required by generally accepted accounting principles shall have
been made therefor.
(b) The Company and any Subsidiary will comply in all material
respects with the Employee Retirement Income Security Act of 1974, as amended
from time to time.
6.6 Books and Records, Compliance.
(a) The Company and any Subsidiary will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(b) The Company and any Subsidiary shall duly observe and
conform in all material
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<PAGE> 27
respects to all valid requirements of governmental authorities relating to the
conduct of its business or to its property or assets.
6.7 Directors' and Officers' Liability Insurance. The Company shall use
its best efforts to obtain directors' and officers' liability insurance, if such
insurance is available at a cost which the Company's Board of Directors deems to
be reasonably satisfactory.
6.8 Repurchase of Preferred Shares. Except as provided in the Company's
Articles of Amendment, the Company shall not, and shall not permit any
Subsidiary or any affiliate of the Company to, directly or indirectly, redeem or
repurchase or make any offer to redeem or repurchase any Preferred Shares (or
Conversion Shares), unless the Company, such Subsidiary or such affiliate has
offered to repurchase Preferred Shares (or Conversion Shares) pro rata, from all
holders of outstanding Preferred Shares (or Conversion Shares) upon the same
terms and such repurchase has been approved by not less than a majority of the
outstanding Preferred Shares (voting as a single class).
6.9 Compensation. All awards of compensation, including, but not
limited to, salary, bonus and awards of stock options made to executive
officers, key managers and/or directors of the Company shall be determined by
the Company's Board of Directors in accordance with the terms of the
Stockholders' Agreement.
6.10 Key Person Life Insurance. The Company shall maintain and keep in
full force and effect key person life insurance on the life of Shaler P. Houser
in an aggregate amount of not less than $5,000,000 with the proceeds thereof
payable to the Company.
6.11 SBA Requirements. The Company will at all times after the Closing
Date comply with the nondiscrimination requirements of 13 C.F.R. Sections 112
and 113.
ARTICLE VII
INFORMATION
The Company covenants and agrees that it shall deliver the following
information and provide the following rights to each Purchaser (including
permitted transferees in accordance with Section 9.3, except as set forth in
Section 7.7), for so long as such Purchaser together with its affiliates (or
such transferees) shall hold at least 5% of the aggregate outstanding Preferred
Shares or Conversion Shares (considered as a single class), or until such time
as the Company shall have consummated a Qualified Public Offering (as defined in
the Articles of Amendment):
7.1 Audited Annual Financial Statements. As soon as practicable and, in
any case, within one hundred and twenty (120) days after the end of each fiscal
year, financial statements of the Company, consisting of the balance sheet of
the Company as of the end of such fiscal year and the statements of operations,
statements of shareholders' equity and statements of cash flows of the Company
for such fiscal year, setting forth in each case, in comparative form, the
figures for the preceding fiscal year, all in reasonable detail and fairly
presented in accordance with generally accepted accounting principles
-23-
<PAGE> 28
applied on a consistent basis throughout the periods reflected therein, and
accompanied by an opinion thereon of KPMG Peat Marwick LLP, or other independent
certified public accountants selected by the Company of good and recognized
national standing in the United States.
7.2 Quarterly Unaudited Financial Statements. As soon as practicable
and, in any case, within forty-five (45) days after the end of each of the first
three fiscal quarters in each fiscal year, unaudited financial statements of the
Company setting forth the balance sheet of the Company at the end of each such
fiscal quarter and the statements of operations and statements of cash flows of
the Company for each such fiscal quarter and for the year to date, and setting
forth in comparative form figures as of the corresponding date and for the
corresponding periods of the preceding fiscal year (provided that quarterly
statements of cash flows shall not be required for periods ended prior to the
Closing Date), all in reasonable detail and certified by an accounting officer
of the Company as complete and correct, as having been prepared in accordance
with generally accepted accounting principles consistently applied and as
presenting fairly, in all material respects, the financial position of the
Company and any Subsidiary and results of operations and cash flows thereof
subject, in each case, to customary exceptions for interim unaudited financial
statements.
7.3 Monthly Unaudited Financial Statements. As soon as available, but
in any event within thirty (30) days after the end of each calendar month,
copies of the unaudited balance sheet of the Company as at the end of such
calendar month and the related unaudited statements of operations and cash flows
for such calendar month and the portion of the calendar year through such
calendar year, in each case setting forth in comparative form the figures for
the corresponding periods of (a) the previous calendar year (provided that
monthly financial information shall not be required for periods ended prior to
the Closing Date) and (b) commencing on August 1, 1999, the budget for the
current year, prepared in reasonable detail and in accordance with generally
accepted accounting principles applied consistently throughout the periods
reflected therein and certified by the chief financial officer of the Company as
presenting fairly the financial condition and results of operations of the
Company and any Subsidiary (subject to customary exceptions for interim
unaudited financial statements).
7.4 Management's Analysis. All the financial statements delivered
pursuant to Sections 7.1 and 7.2 shall be accompanied by an informal narrative
description of material business and financial trends and developments and
significant transactions that have occurred in the appropriate period or periods
covered thereby.
7.5 Budgets. As soon as practicable, but in any event within ninety
(90) days prior to the commencement of a fiscal year, an annual operating budget
for such fiscal year, approved by the Board of Directors, including monthly
income and cash flow projections and projected balance sheets as of the end of
each quarter within such fiscal year.
7.6 Inspection. (a) The Company shall, and shall cause any Subsidiary
to, permit any such Purchaser, by its representatives, agents or attorneys:
(i) to examine all books of account, records, reports
and other papers of the Company or such Subsidiary except to
the extent that such
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<PAGE> 29
action would, in the reasonable opinion of counsel, constitute
a waiver of the attorney/client privilege;
(ii) to make copies and take extracts from any
thereof, except for information which is confidential or
proprietary;
(iii) to discuss the affairs, finances and accounts
of the Company or such Subsidiary with the Company's or such
Subsidiary's officers and independent certified public
accountants (and by this provision the Company hereby
authorizes said accountants to discuss with any such Purchaser
and its representatives, agents or attorneys the finances and
accounts of the Company or such Subsidiary); and
(iv) to visit and inspect, at reasonable times and on
reasonable notice during normal business hours, the properties
of the Company and such Subsidiary.
(b) Notwithstanding any provision herein to the contrary, the
provisions of this Section 7.6 are in addition to any rights of the Purchasers
under the South Carolina Business Corporation Act of 1988, as amended and shall
in no way limit such rights.
(c) The expenses of any Purchaser in connection with any such
inspection shall be for the account of such Purchaser. Notwithstanding the
foregoing sentence, it is understood and agreed by the Company that all
reasonable expenses incurred by the Company or such Subsidiary, any officers,
employees or agents thereof or the independent certified public accountants
therefor, shall be expenses payable by the Company and shall not be expenses of
the Purchaser making the inspection.
7.7 Other Information. The Company shall deliver the following to each
such Purchaser, provided that in the reasonable opinion of counsel to the
Company such disclosure will not constitute a waiver of the attorney/client
privilege:
(a) promptly after the submission thereof to the
Company, copies of any detailed reports (including the
auditors' comment letter to management, if any such letter is
prepared) submitted to the Company by its independent auditors
in connection with each annual or interim audit of the
accounts of the Company made by such accountants;
(b) promptly, and in any event within ten (10) days
after obtaining knowledge thereof, notice of the institution
of any suit, action or proceeding (other than a proceeding of
general application which is not directly against the Company
or one or more Subsidiary), the happening of any event or, to
the best knowledge of the Company, the assertion or threat of
any claim against the Company or any Subsidiary;
(c) promptly upon, and in any event within thirty
(30) days after obtaining
-25-
<PAGE> 30
knowledge thereof, notice of any breach of, default under or
failure to comply with any term under this Agreement or any of
the Documents or any material adverse change in the Company's
relationship with its major customers, suppliers, employees or
other entity with which the Company has a business
relationship;
(d) with reasonable promptness, a notice of any
default by the Company or any Subsidiary under any material
agreement to which it is a party;
(e) with reasonable promptness, copies of all written
materials furnished to directors;
(f) promptly (but in any event within ten days) after
the filing of any document or material with the SEC, a copy of
such document or material;
(g) promptly after the record date set by the Board
of Directors to determine the stockholders entitled to vote at
the Company's annual meeting of stockholders (but in any event
ten days prior to such meeting), a list of all stockholders of
the Company and their respective holdings; and
(h) promptly upon request therefor, such other data,
filings and information as any Purchaser may from time to time
reasonably request.
ARTICLE VIII
EXPENSES
8.1 Expenses of Directors. The Company shall reimburse each Purchaser's
Board representative elected pursuant to the Stockholders' Agreement, his
reasonable, out-of-pocket expenses incurred in connection with attending
meetings of the Board of Directors of the Company or conducting such other
activities as may be requested by the Company.
8.2 Legal Fees and Other Expenses. The Company shall pay or reimburse
the Purchasers for all fees and charges incurred by them, including all
reasonable legal, consulting and accounting fees, in connection with the
preparation, execution, and delivery of the Documents and the consummation of
the transactions contemplated thereby whether or not the transactions
contemplated by this Agreement are consummated.
8.3 Finder's Fee. Each party represents and warrants to each other
party that it has employed no broker or finder.
8.4 Other Expenses. The Company shall pay, and shall save each
Purchaser harmless against liability for, reasonable costs and expenses relating
to any modification, amendment or alteration of this Agreement and the other
Documents (including, without limitation, reasonable legal fees and
disbursements and any applicable taxes thereon). The obligations of the Company
under this Section
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<PAGE> 31
8.4 shall survive the termination of this Agreement and the other Documents.
ARTICLE IX
MISCELLANEOUS
9.1 Survival. Except for the covenants and agreements contained in
Articles VI, VII, and VIII hereof which shall survive termination of this
Agreement in accordance with their respective terms, all agreements and
covenants made by the Company and the Founders herein or by the Company or
Founders in any certificate or other instrument delivered under or in connection
with this Agreement shall be considered to have been relied upon by the
Purchasers and shall survive the delivery to the Purchasers of the Preferred
Shares regardless of any investigation made by the Purchasers or on their
behalf.
9.2 Indemnification. (a) Indemnification by the Company. The Company
shall, to the fullest extent permitted by law, indemnify, defend and hold each
Purchaser harmless from and against any liability, loss or damage, together with
all reasonable costs and expenses related thereto (including reasonable legal
fees and expenses), arising out of or related to the untruth, inaccuracy or
breach of any of the representations, warranties or agreements of the Company
contained in this Agreement or any other document or instrument executed or
entered into by the Company in connection with the consummation of the
transactions contemplated herein.
(b) Indemnification by the Purchasers. Each Purchaser shall,
severally and not jointly, to the fullest extent permitted by law, indemnify,
defend and hold the Company harmless from and against any liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal fees and expenses), arising out of or related to the
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of such Purchaser contained in this Agreement or any other document
or instrument executed or entered into by such Purchaser in connection with the
consummation of the transactions contemplated herein.
(c) Survival of Representations and Warranties; Duration of
Rights of Indemnification. The representations and warranties contained in this
Agreement and the right of each party to be indemnified hereunder shall survive
for a period of two years following the Closing Date; provided, however, the
right of each party to seek indemnification shall continue after such two year
period with respect to:
(i) any claim for indemnification properly noticed
within such two year period;
(ii) any claim for indemnification arising out of or
related to a breach of the representations and warranties
contained at Sections 2.6, 2.7, 2.8 or 2.22 of this Agreement,
which right of indemnification shall extend until the
expiration of all applicable statutes of limitation.
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<PAGE> 32
9.3 Transfer and Termination of Rights. No rights under this Agreement
may be transferred, except that:
(i) the rights of a Purchaser under this Agreement
may be transferred after the Closing in connection with a
transfer of Preferred Shares made in accordance with the
provisions of the Stockholders' Agreement (other than a
transfer pursuant to a registration statement under the
Securities Act or a transfer pursuant to Rule 144 thereunder);
and
(ii) all the rights of a Purchaser may be transferred
to an affiliate of such Purchaser;
provided, that any such transferee shall execute and deliver to the Company an
instrument satisfactory to it agreeing to be bound by the provisions hereof and
of the Stockholders' Agreement and the Registration Rights Agreement.
9.4 Binding Effect. Subject to the limitations on transfer set forth in
Section 9.3, this Agreement and all the provisions hereof shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
9.5 Amendment. This Agreement may be amended or supplemented, and the
observance of any term hereof or thereof may be waived, with the written consent
of the Company and (i) on or prior to the Closing Date, each Purchaser, and (ii)
after the Closing Date, the holders of a majority of the Preferred Shares and
any Conversion Shares voting as a single class. Notwithstanding the foregoing,
as contemplated by Section 6.3(a) (iii) hereof, William Oberlin, Joseph
Lawrence, David C. Poole, Terry E. Richardson and Capital Growth Investors, L.P.
may become parties to this Agreement by entering into a Joinder Agreement in
substantially the same form as Exhibit F hereto. Upon the execution of the
Joinder Agreement and the issuance of shares to such parties, Schedule I hereto
shall be updated to reflect such issuance.
9.6 Governing Law. The interpretation, validity and performance of the
terms of this Agreement shall be governed by the laws of the State of South
Carolina, regardless of the law that might be applied under principles of
conflicts of law.
9.7 Notices. (a) All communications under this Agreement shall be in
writing and (i) sent by facsimile transmission and by certified or registered
mail, return receipt requested, courier or overnight mail, or (ii) sent by
certified or registered mail, return receipt requested, courier or overnight
mail (A) if to a Purchaser, to such Purchaser's facsimile number and address set
forth in Schedule I, or at such other address as such Purchaser may have
furnished to the Company in writing, (B) if to any transferee of a Purchaser, to
it at its facsimile number and address listed in the stock ledger books of the
Company, or at such other address as such Purchaser or transferee shall have
furnished to the Company in writing, and (C) if to the Company, to 200 North
Main Street, Suite 303, Greenville, South Carolina 29601, Attention: Hamilton E.
Russell III, Esq. or at such other address or facsimile number as it shall have
furnished in writing to all Purchasers.
-28-
<PAGE> 33
(b) Any written communication so addressed, sent by facsimile
transmission or certified or registered mail, return receipt requested, courier
or overnight mail, shall be deemed to have been given when sent via facsimile or
mailed or deposited with a courier. All other written communications shall be
deemed to have been given upon receipt thereof.
9.8 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.9 Regulatory Requirements. In the event of any reasonable
determination by any Purchaser that, by reason of any future federal or state
rule, regulation, guideline, order, request or directive (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) (collectively, a "Regulatory Requirement"), it is effectively
restricted or prohibited from holding any of the shares of capital stock of the
Company (including any shares of capital stock or other securities distributable
to such Purchaser in any merger, reorganization, readjustment or other
reclassification of such shares), the Company shall take such action, at the
Company's expense, as may be deemed reasonably necessary by such Purchaser to
permit such Purchaser to comply with such Regulatory Requirement. Such action to
be taken may include, without limitation, the Company's authorization of one or
more new classes of capital stock and the modification of amendment of the
articles of incorporation or any other documents or instruments executed in
connection with the shares held by such Purchaser. Such Purchaser shall give
written notice to the Company of any such determination and the action or
actions necessary to comply with such Regulatory Requirement, and the Company
shall take all steps necessary to comply with such determination as
expeditiously as possible. This Section 9.9 shall not be deemed to limit in any
respect the representations of the Purchasers in Sections 3.2 and 3.4 hereof
9.10 Counterparts. This Agreement may be executed and delivered in two
or more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
STATE COMMUNICATIONS, INC.
By:
------------------------------------------------
Title:
---------------------------------------------
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General Partner
By:
------------------------------------------------
Title:
---------------------------------------------
RICHLAND VENTURES III, L.P.
By: Richland Partners III, Inc., General Partner
By:
------------------------------------------------
Title:
---------------------------------------------
FIRST UNION CAPITAL PARTNERS, INC.
By:
------------------------------------------------
Title:
---------------------------------------------
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc., Trading Advisor
By:
------------------------------------------------
Title:
---------------------------------------------
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C., General Partner
By:
------------------------------------------------
Title:
---------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
BOSTON MILLENNIA PARTNERS LIMITED PARTNERSHIP
By: Glen Partners Limited Partnership,
General Partner
By:
------------------------------------------------
Title:
---------------------------------------------
BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP
By:
------------------------------------------------
Title:
---------------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-31-
<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
SOUTHEASTERN TECHNOLOGY FUND
By:
------------------------------------------------
Title:
---------------------------------------------
---------------------------------------------------
JOHN R. TERRELL
WYCHE BURGESS PROFIT SHARING PLAN FUND II
By:
------------------------------------------------
By:
------------------------------------------------
Title:
---------------------------------------------
---------------------------------------------------
CHARLES S. HOUSER
HOUSER CHARITABLE REMAINDER UNITRUST
By:
------------------------------------------------
Title:
---------------------------------------------
---------------------------------------------------
JOHN T. MILLS, SR.
WILLOU & CO.
By:
------------------------------------------------
Title:
---------------------------------------------
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<PAGE> 37
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
(D)
Principal Amount
(C) of Debt (E)
(A) (B) Cash to be Converted at Subscription
Purchasers No. of Shares Total Purchase Price Paid at Closing Closing Receivable
---------- ------------- -------------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Richland Ventures II, L.P. 666,666 $2,499,997.50 $1,999,998.75 $499,998.75 0
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
Richland Ventures III, L.P. 2,666,667 $10,000,001.25 $10,000,001.25 0 0
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
First Union Capital Partners, Inc. 1,466,667 $5,500,001.25 $5,000,002.50 $499,998.75 0
One First Union Center
301 South College Street
Floor 5
Charlotte, NC 28288-0732
(704) 374-4948
Fax: (704) 374-6711
</TABLE>
<PAGE> 38
SCHEDULE I
PURCHASERS
<TABLE>
<S> <C> <C> <C> <C> <C>
Moore Global Investments, Ltd. 2,666,667 $10,000,001.25 $10,000,001.25 0 0
c/o Citco Fund Services (Bahamas),
Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
(212) 782-7033
Fax: (212) 575-6832
Remington Investment Strategies, L.P. 2,666,667 $10,000,001.25 $10,000,001.25 ________ ________
1251 Avenue of the Americas
New York, NY 10023
(212) 782-7143
Fax: (212) 382-9843
Southeastern Technology Fund 533,333 $1,999,998.75 $1,000,001.25 $999,997.50 0
7910 South Memorial Parkway
Suite F
Huntsville, AL 35802
(256) 883-8711
Fax: (256) 883-8558
Boston Millennia Partners 1,844,257 $6,915,963.75 0 0 $6,915,963.75
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
</TABLE>
-2-
<PAGE> 39
SCHEDULE I
PURCHASERS
<TABLE>
<S> <C> <C> <C> <C> <C>
Boston Millennia Associates I 22,410 $84,037.50 0 0 $84,037.50
Partnership
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
John R. Terrell 20,000 $75,000.00 $75,000.00 0 0
c/o Richland Ventures
200 31st Avenue North, Suite 200
Nashville, TN 37205
(615) 383-8030
Fax: 615-269-0463
Wyche Burgess Profit Sharing Plan 33,333 $124,998.75 $124,998.75
Fund II
c/o Cary Hall
PO Box 728
Greenville, SC 29602
Charles Houser 166,666 $624,997.50 $375,000 $249,997.50 0
101 River Route
11866 Magnolia Street
Magnolia Springs, AL 36555
Houser Charitable Trust 66,666 $249,997.50 0 $249,997.50 0
c/o Cornerstone Management
ATTN: Bryan Taylor
7076 Peachtree Industrial Blvd.
Suite 100
Norcross, GA 30071
</TABLE>
-3-
<PAGE> 40
SCHEDULE I
PURCHASERS
<TABLE>
<S> <C> <C> <C> <C> <C>
John T. Mills, Sr. 100,000 $375,000.00 0 $375,000.00 0
504 Hidden Hills Drive
Greenville, SC 29602
Willou & Co. 266,666 $999,997.50 0 $999,997.50 0
c/o Frank Maybank
PO Box 10856 FS
Greenville, SC 29603
TOTAL 13,186,665 $49,449,993.75 $38,450.006.25 $3,999,986.25 $7,000,001.25
</TABLE>
-4-
<PAGE> 41
FORM OF JOINDER AGREEMENT
Set forth below is the form of joinder agreement entered into by and
between TriVergent (f/k/a State Communications, Inc.) and each of Joseph A.
Lawrence, William H. Oberlin, David C. Poole, Terry E. Richardson and Capital
Insights Growth Investors, L.P. on August 2, August 3, August 3, July 28 and
July 28, 1999, respectively, making these persons parties to the Preferred Stock
Purchase Agreement for 13,186,665 Shares of Series B Convertible Preferred Stock
and related agreements.
JOINDER AGREEMENT
The undersigned hereby agrees to become a party to the Stock Purchase
Agreement, dated July 28, 1999, among State Communications, Inc., a South
Carolina corporation (the "Company") and the other purchasers listed on the
signature pages thereto or any purchasers added thereto in the future by way of
joinder, the Amended and Related Stockholders' Agreement, dated July 28, 1999,
among the Company and the other stockholders listed on the signature pages
thereto or any stockholders added thereto by way of joinder and the Registration
Rights Agreement, dated July 28, 1999, among the Company and the other
stockholders listed on the signature pages thereto or any stockholders added
thereto by way of joinder (collectively, the "Agreements"). Furthermore, the
undersigned acknowledges that he has carefully reviewed the Agreements, copies
of which are attached hereto, and agrees to be bound by all of their terms and
conditions. The parties hereto agree that this Joinder Agreement is hereby
incorporated by reference into the Agreements, and further direct that this
Joinder Agreement be placed with the Agreements and kept with the records of the
Company.
This _____ day of ____________, 1999.
__________________________________
By:_______________________________
Name:_____________________________
Title:____________________________
ACCEPTED:
STATE COMMUNICATIONS, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
<PAGE> 1
EXHIBIT 10.5.3
STATE COMMUNICATIONS, INC.
----------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
11,561,768 SHARES
OF
SERIES C CONVERTIBLE PREFERRED STOCK
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DATED: FEBRUARY 1, 2000
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TABLE OF CONTENTS
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PAGE
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ARTICLE I -- SUBSCRIPTION FOR THE PREFERRED SHARES...................................................1
1.1 Purchase and Sale......................................................................1
1.2 Closing................................................................................1
1.3 Separate Agreements....................................................................1
1.4 Use of Proceeds........................................................................2
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................2
2.1 Organization and Standing..............................................................2
2.2 Corporate Power........................................................................2
2.3 Validity; Binding Obligation...........................................................3
2.4 Financial Statements...................................................................3
2.5 Consents...............................................................................3
2.6 Capitalization.........................................................................4
2.7 Validity and Rights of Preferred Shares................................................5
2.8 Registration Rights....................................................................5
2.9 Securities Laws........................................................................5
2.10 Absence of Undisclosed Liabilities....................................................5
2.11 Subsidiaries..........................................................................5
2.12 Litigation and Claims.................................................................5
2.13 Title to Properties...................................................................6
2.14 Intellectual Property Rights..........................................................6
2.15 Compliance with Other Instruments.....................................................7
2.16 Compliance with Law...................................................................7
2.17 Employees.............................................................................7
2.18 Employee Benefit Plans................................................................7
2.19 Compliance with Environmental Laws....................................................8
2.20 Insurance.............................................................................8
2.21 Material Contracts and Agreements.....................................................9
2.22 Taxes.................................................................................10
2.23 Investment Company....................................................................11
2.24 Labor Relations.......................................................................11
2.25 No Conflict of Interest...............................................................11
2.26 Small Business Matters................................................................11
2.27 Year 2000 Compliance..................................................................12
2.28 Full Disclosure.......................................................................12
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................................12
3.1 Organization...........................................................................12
3.2 Power..................................................................................12
3.3 Binding Obligation.....................................................................12
3.4 Consents...............................................................................13
3.5 Investment Purposes....................................................................13
3.6 Accredited Investor....................................................................14
3.7 Legend on Certificates.................................................................14
ARTICLE IV -- CONDITIONS TO THE PURCHASERS' OBLIGATIONS..............................................14
4.1 Delivery of Certificates...............................................................14
4.2 Representations and Warranties, Performance of Obligations.............................14
4.3 No Material Effect.....................................................................14
4.4 Litigation.............................................................................14
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4.5 Applicable Law.........................................................................14
4.6 Articles of Amendment..................................................................14
4.7 Stockholders' Agreement; Registration Rights Agreement.................................15
4.8 Consents...............................................................................15
4.9 Certification of Satisfaction of Conditions............................................15
4.10 Opinion of Counsel....................................................................15
4.11 Performance of Obligations............................................................15
4.12 Taxes.................................................................................15
4.13 Fees and Disbursements of Purchasers' Counsel.........................................15
4.14 Good Standing Certificates............................................................15
4.15 No Liens..............................................................................15
4.16 SBA Documents and Information.........................................................15
ARTICLE V -- CONDITIONS TO THE COMPANY'S OBLIGATION..................................................16
5.1 Tender by Purchasers...................................................................16
5.2 Representations and Warranties; Performance of Covenants...............................16
5.3 Stockholders' Agreement; Registration Rights Agreement.................................16
5.4 Applicable Law.........................................................................16
5.5 Consents...............................................................................16
5.6 Performance of Obligations.............................................................17
5.7 Articles of Amendment..................................................................17
ARTICLE VI -- ADDITIONAL COVENANTS OF THE COMPANY....................................................17
6.1 Securities Law Filings.................................................................17
6.2 Transactions with Substantial Holders..................................................17
6.3 Business and Financial Covenants.......................................................17
6.8 Repurchase of Preferred Shares.........................................................20
6.4 Corporate Existence, Business, Maintenance, Insurance..................................20
6.5 Payment of Taxes; ERISA................................................................20
6.6 Books and Records, Compliance..........................................................21
6.7 Directors' and Officers' Liability Insurance...........................................21
6.9 Compensation...........................................................................21
6.10 Key Person Life Insurance.............................................................21
6.11 SBA Requirements......................................................................21
ARTICLE VII -- INFORMATION...........................................................................21
7.1 Audited Annual Financial Statements....................................................22
7.2 Quarterly Unaudited Financial Statements...............................................22
7.3 Monthly Unaudited Financial Statements.................................................22
7.4 Management's Analysis..................................................................22
7.5 Budgets................................................................................22
7.6 Inspection.............................................................................23
7.7 Other Information......................................................................23
ARTICLE VIII -- EXPENSES.............................................................................24
8.2 Legal Fees and Other Expenses..........................................................24
8.3 Finder's Fee...........................................................................24
8.4 Other Expenses.........................................................................24
ARTICLE IX -- MISCELLANEOUS..........................................................................25
9.1 Survival...............................................................................25
9.2 Indemnification........................................................................25
9.3 Transfer and Termination of Rights.....................................................25
9.4 Binding Effect.........................................................................26
9.5 Amendment..............................................................................26
9.6 Governing Law..........................................................................26
9.7 Notices................................................................................26
9.8 Headings...............................................................................26
9.9 Regulatory Requirements................................................................27
9.10 Counterparts..........................................................................27
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LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A Articles of Amendment
EXHIBIT B Second Amended and Restated Stockholders' Agreement
EXHIBIT C Registration Rights Agreement
SCHEDULE I List of Purchasers
SCHEDULE 2.1(b) Jurisdictions Where Company is Qualified
SCHEDULE 2.4(a) Financial Statements
SCHEDULE 2.4(b) Changes Since Last Financial Statements
SCHEDULE 2.6(b) Stock Ledger
SCHEDULE 2.10 Liabilities
SCHEDULE 2.13 Title to Properties
SCHEDULE 2.14 Intellectual Property
SCHEDULE 2.18 Employee Benefit Plans
SCHEDULE 2.20 Insurance
SCHEDULE 2.21 Material Contracts and Agreements
SCHEDULE 2.24 Labor Relations
SCHEDULE 2.25 No Conflict of Interest
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PREFERRED STOCK PURCHASE AGREEMENT
11,561,768 SHARES OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
STATE COMMUNICATIONS, INC.
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into on this 1st day of February, 2000 by and among STATE
COMMUNICATIONS, INC., a South Carolina corporation (the "Company"), and each of
the purchasers named in Schedule I attached hereto (collectively, the
"Purchasers" and each, individually, a "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchasers desire to purchase from the Company, and the
Company desires to issue and sell to the Purchasers, 11,561,768 shares of Series
C Convertible Preferred Stock of the Company (the "Preferred Shares") on the
terms and conditions hereinafter set forth for a purchase price of $4.25 per
share, constituting an aggregate purchase price of $49,137,514.00.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties agree as follows:
ARTICLE I
SUBSCRIPTION FOR THE PREFERRED SHARES
1.1 Purchase and Sale. Subject to the terms and conditions set forth
herein, each Purchaser hereby subscribes for and agrees to purchase from the
Company, and the Company hereby agrees to issue and sell to each Purchaser, on
the Closing Date (as hereinafter defined), the number of Preferred Shares set
forth opposite such Purchaser's name in column A of Schedule I, for a purchase
price of $4.25.
1.2 Closing. The closing of the purchase and sale of the Preferred
Shares (the "Closing") shall be held not later than five business days following
the satisfaction or waiver of the conditions set forth in Articles IV and V or
such other date as the parties shall mutually agree upon (the "Closing Date"),
at the offices of Alston & Bird LLP, 1201 West Peachtree Street, Atlanta,
Georgia, or at such other mutually acceptable place. On the Closing Date, the
Company shall deliver to each Purchaser duly issued stock certificates
representing the number of Preferred Shares to be purchased by such Purchaser.
Each Purchaser shall pay the cash purchase price set forth opposite such
Purchaser's name in Column B of Schedule I for the Preferred Shares by wire
transfer of immediately available funds to an account designated by the Company.
1.3 Separate Agreements. The purchases by the Purchasers hereunder
shall be separate and several transactions. The obligations of each Purchaser
hereunder shall be several and not joint, and this Agreement shall for all
purposes be construed and deemed to be a separate agreement between the Company
and each Purchaser, acting severally and not jointly, with the same effect as
though a
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separate agreement with each Purchaser to the effect herein provided were hereby
entered into between the Company and each Purchaser.
1.4 Use of Proceeds. The proceeds of the sale of the Preferred Shares
will be used by the Company for general corporate purposes as determined
appropriate by the Board of Directors of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows:
2.1 Organization and Standing.
(a) Each of the Company and the Subsidiaries (as defined in
Section 2.11) is a corporation duly organized, validly existing and in good
standing under the laws of the State of South Carolina.
(b) The Company and the Subsidiaries are currently engaged in
the business of providing local exchange and long distance telecommunication
services to residential customers and the small business market (the
"Business"). Each of the Company and the Subsidiaries is qualified to do
business as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the ability of the
Company or any Subsidiary to conduct the Business or which would impair the
Company's ability to perform its obligations in any material respect under the
Documents, as such term is defined in Section 2.2 hereof (a "Material Adverse
Effect"). Schedule 2.1(b) identifies each jurisdiction in which the Company and
each Subsidiary is currently qualified to do business as a foreign corporation.
(c) The Company has delivered to Purchasers' counsel true and
complete copies of the Articles of Incorporation and Bylaws of the Company,
including all amendments thereto, certified by the Secretary as true and in full
force and effect on the Closing Date. On the Closing Date, but prior to the
Closing, the Company shall cause to be filed with the Secretary of State of
South Carolina its Articles of Amendment in substantially the form annexed
hereto as Exhibit A containing the Designations, Rights and Preferences of the
Preferred Shares (the "Articles of Amendment"). Except for the Articles of
Amendment, the Articles of Incorporation and Bylaws of the Company will not be
amended prior to the Closing Date.
(d) The Company and the Subsidiaries have all corporate power
and all governmental licenses, authorizations, consents and approvals required
to carry on the Business as now being conducted and necessary to own, operate
and lease their properties and assets.
2.2 Corporate Power. The Company has the requisite corporate power to
execute and deliver this Agreement, the Second Amended and Restated
Stockholders' Agreement, in substantially the form attached hereto as Exhibit B
(the "Stockholders' Agreement"), the Registration Rights Agreement in
substantially the form attached hereto as Exhibit C (the "Registration Rights
Agreement") (this
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Agreement, the Stockholders' Agreement and the Registration Rights Agreement
shall be collectively referred to herein as the "Documents") and to perform its
obligations hereunder and thereunder.
2.3 Validity; Binding Obligation. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against it in accordance with its
terms. The other Documents have each been duly authorized by the Company and,
when executed and delivered by the Company and the other parties named therein,
will constitute valid and binding agreements of the Company, enforceable against
the Company in accordance with their respective terms. The issuance, sale and
delivery of the Preferred Shares have been, or prior to the Closing Date will
be, duly authorized by all necessary corporate action by the Company.
2.4 Financial Statements. (a) Schedule 2.4(a) contains a true and
complete copy of:
(i) the audited balance sheet of the Company for the
year ended December 31, 1998 and the related audited
statements of operations, stockholders' equity and cash flows
of the Company for the year ended December 31, 1998; and
(ii) the unaudited consolidated balance sheet of the
Company for the ten-month period ended October 31, 1999 and
the related unaudited consolidated statements of operations,
stockholders' equity and cash flows of the Company for such
period (the financial statements referred to in clauses (i)
and (ii) of this Section 2.4(a) being collectively referred to
as the "Financial Statements").
(b) The Financial Statements have been prepared in accordance
with generally accepted accounting principles (except that such unaudited
financial statements do not contain all of the required footnotes or normal
recurring year-end adjustments) applied on a consistent basis during the
respective periods covered thereby. The Financial Statements are correct and
complete and present fairly the financial position of the Company at the date of
the balance sheets included therein and the results of operations and cash flows
of the Company for the respective periods covered by the statements of
operations and cash flows included therein. Except as set forth on Schedule 2.4
(b), since the date of the Financial Statements (i) there has been no change in
the assets, liabilities or financial condition of the Company from that
reflected in the Financial Statements, other than changes in the ordinary course
of business which in the aggregate have not been materially adverse, and (ii)
none of the business, prospects, financial condition, operations, property or
affairs of the Company has been materially and adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
covered by insurance.
2.5 Consents. No consent, approval or authorization of, or
qualification, designation, declaration or filing with, or notice to any
governmental authority on the part of the Company is required in connection with
(i) the valid execution and delivery of the Documents, and (ii) the offer, sale
or issuance of the Preferred Shares (and the Common Stock issuable upon
conversion of the Preferred Shares), except (A) the filing of the Articles of
Amendment in the Office of the Secretary of State of South Carolina, which
filing will be accomplished on or prior to the Closing Date, (B) the
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filing of a Form D with the Securities and Exchange Commission, (C) the
qualification (or taking such action as may be necessary to secure an exemption
from qualification, if available) of the offer and sale of the Preferred Shares
(and the Common Stock issuable upon conversion of the Preferred Shares) under
any applicable state securities laws, which qualification, if required, will be
accomplished in a timely manner prior to or promptly upon completion of the
Closing, as required by such laws and (D) such consents, approvals and
authorizations as have been obtained by the Company prior to Closing.
2.6 Capitalization. (a) The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, $.001 par value (the "Common
Stock"), and 50,000,000 shares of Preferred Stock, $.0l par value (the
"Preferred Stock"), 4,791,668 of which have been designated as Series A
Convertible Preferred Stock (the "Series A Preferred Stock"), 14,133,329 of
which have been designated as Series B Convertible Preferred Stock (the "Series
B Preferred Stock") and 15,776,471 of which have been designated Series C
Convertible Preferred Stock (the "Series C Preferred Stock"). Immediately after
the Closing, (i) 11,078,380 shares of Common Stock will be issued and
outstanding, (ii) 4,711,672 shares of Series A Preferred Stock will be issued
and outstanding, (iii) 13,866,663 shares of Series B Preferred Stock will be
issued and outstanding, (iv) 11,561,768 shares of Series C Preferred Stock will
be issued and outstanding, (v) 6,237,921 options, warrants or other rights to
purchase or otherwise acquire shares of Common Stock will be outstanding, and
(vi) such number of shares of Common Stock as shall be necessary to effect the
conversion of the Preferred Stock will be reserved for future issuance upon
conversion of Preferred Stock. Immediately after the Closing upon receipt of the
Purchase Price, all such issued and outstanding shares of capital stock of the
Company will be duly authorized and validly issued and outstanding, fully paid
and nonassessable.
(b) Schedule 2.6(b) contains a true and correct copy of the
Company's current stock transfer ledger reflecting the record holders of the
Company's equity securities and the number of shares held by each. Each of
Shaler P. Houser and Charles L. Houser (individually, a "Founder" and
collectively, the "Founders") is the lawful owner, of record and beneficially,
of the number of shares of Common Stock set forth opposite the name of each
Founder on Schedule 2.6(b). Each Founder has good and marketable title to, and
all other incidents of record and beneficial ownership of, such shares, free and
clear of any liens, claims and encumbrances, other than the restrictions set
forth in the Stockholders' Agreement or the Liquidation Proceeds Agreements
attached to Schedule 2.6(b) (the "Liquidation Agreements").
(c) Except as set forth in paragraph (a) above or as disclosed
on Schedule 2.6(b), immediately after the Closing, there will be no outstanding
(i) securities or securities convertible into or exchangeable for shares of
capital stock of the Company, (ii) options, warrants or other rights to purchase
or otherwise acquire from the Company shares of such capital stock, or
securities convertible into or exchangeable for shares of such capital stock, or
(iii) contracts, agreements or commitments relating to the issuance by the
Company of any shares of such capital stock, any such convertible or
exchangeable securities, or any such options, warrants or other rights. Except
for the Stockholders' Agreement, the Liquidation Agreements or the Investment
Agreement by and among Seruus Telecom Fund, L.P., the Company and certain
individuals named therein, dated February 19, 1998, there are no voting trusts,
voting agreements, proxies or other agreements, instruments or understandings
with respect to the voting of the capital stock of the Company to which the
Company or, to the Company's knowledge, any of its stockholders is a party.
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(d) The Company has reserved, and at all times from and after
the date hereof will keep reserved, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, sufficient shares of Common
Stock to provide for the conversion of all Preferred Shares.
2.7 Validity and Rights of Preferred Shares. The Preferred Shares, when
issued to the Purchasers pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and will have the designations, preferences,
limitations, and relative rights set forth in the Articles of Amendment. Any and
all shares of Common Stock issued upon conversion of the Preferred Shares (the
"Conversion Shares"), when issued, will be validly issued, fully paid and
nonassessable.
2.8 Registration Rights. Except for the rights granted under the
Registration Rights Agreement and except as set forth in the (i) the
Registration Rights Agreement dated July 29, 1999 between the Company and
certain stockholders, (ii) the Registration Rights Agreement dated October 28,
1998 between the Company and certain stockholders, (iii) Amended and Restated
Registration Rights Agreement dated February 19, 1998 between the Company and
Seruus Telecom Fund, L.P. and (iv) the Registration Rights Agreement dated May
27, 1999 between the Company and Nortel Networks Inc., no person or entity has
any right to cause the Company to effect the registration under the Securities
Act of 1933, as amended (the "Securities Act"), of any shares of its capital
stock.
2.9 Securities Laws. Subject to the accuracy of the representations and
warranties of the Purchasers contained in Article III hereof, the offering, sale
and purchase of the Preferred Shares contemplated hereby are exempt from
registration under the Securities Act. The issuance of all other shares of
capital stock of the Company on or before the date hereof is being or has been
made in compliance with the Securities Act and all applicable state securities
or blue sky laws. All offering documents used and oral disclosure made in
connection with the offer or sale of any of the Company's securities prior to
the date hereof have been correct in all material respects and have not
contained any untrue statements of a material fact or omitted to state a
material fact necessary in order to make the statements contained therein not
misleading.
2.10 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.10, as of the date hereof, neither the Company nor any Subsidiary has
a material liability or obligation of any nature (whether accrued, contingent,
absolute or otherwise) or any material loss contingency (as such term is used in
the Statement of Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975), which was not adequately disclosed or provided
for in the Financial Statements.
2.11 Subsidiaries. Except as set forth in Schedule 2.11, the Company
has no Subsidiaries (as hereinafter defined). The Company does not own, or have
the right to acquire, any securities or other equity or ownership interest in
any corporation, partnership, limited liability company, association or other
entity. "Subsidiary" means a corporation, partnership, limited liability company
or any other form of legal entity of which the Company, at the time in respect
of which such term is used, owns directly, or controls with power to vote,
directly or indirectly through one or more Subsidiaries, more than fifty percent
(50%) of the voting securities.
2.12 Litigation and Claims. There are no actions at law, suits in
equity or other proceedings or investigations in any court, tribunal or by or
before any other governmental or public authority or
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agency or any arbitrator or arbitration panel or any governmental or private
third-party insurance agency, pending or, to the knowledge of the Company,
threatened against or affecting the Company or that would question the validity
or enforceability of this Agreement, the Documents, or any of the transactions
contemplated hereby and thereby. The Company is not in default with respect to
any order, writ, injunction, judgment or decree of any court or other
governmental or public authority or agency or arbitrator or arbitration panel.
2.13 Title to Properties. Each of the Company and the Subsidiaries has
good and marketable title to its properties and assets and has good title to all
its respective leasehold interests, in each case subject to no mortgage, pledge,
lien, encumbrance or charge, other than as set forth on Schedule 2.13 hereto.
Schedule 2.13 accurately lists with respect to the personal property owned (or
purported to be owned) by the Company or the Subsidiaries (i) each financing
statement, deed, agreement or other instrument which has been filed, recorded or
registered pursuant to any United States federal, state or local law or
regulation that names the Company or a Subsidiary as debtor or lessee or as the
grantor or the transferor of the interest created thereby, and (ii) as to each
such financing statement, deed, agreement or other instrument, the names of the
debtor, lessee, grantor or transferor and the secured party, lessor, grantee or
transferee and the name of the jurisdiction in which such financing statement,
deed, agreement or other instrument has been filed, recorded or registered.
Except as set forth on Schedule 2.13, neither the Company nor any Subsidiary has
signed any agreement or instrument authorizing any secured party thereunder to
file any such financing statement, deed, agreement or other instrument.
2.14 Intellectual Property Rights. Each of the Company and the
Subsidiaries owns or possesses the rights to use, free from any restrictions or
conflicts with the rights of others claiming through the Company or Subsidiary,
all copyrights, trademarks, service marks, trade names, patents and intellectual
property licenses, and all rights with respect to the foregoing, necessary for
the conduct of the Business as now conducted and as proposed to be conducted,
and is in compliance in all material respects with the terms and conditions, if
any, of all such copyrights, trademarks, service marks, trade names, patents and
intellectual property licenses and the terms and conditions of any agreements
relating thereto. Except as set forth on Schedule 2.14, there are no outstanding
options, licenses, or material agreements of any kind relating to the foregoing,
nor is the Company or any Subsidiary bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. Neither the
Company nor any Subsidiary has received any communications alleging that it has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. To the Company's
knowledge, none of its employees are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of their best efforts to promote the interests of
the Company or any Subsidiary or that would conflict with the Company's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's or any Subsidiary's business by
the employees of the Company, nor the conduct of the Company's or any
Subsidiary's business as proposed, will conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. It is not currently and will not in the future be necessary for the
Company to utilize
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any inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company.
2.15 Compliance with Other Instruments. Neither the Company nor any
Subsidiary is in violation of or in default under any term of its organizational
documents, any term or provision of any mortgage, indenture, contract,
agreement, instrument, judgment or decree, nor is in violation of any applicable
order, statute, rule or regulation except for such violations or defaults as are
not expected to have a Material Adverse Effect, and to the Company's knowledge
there is no state of facts which, with the passage of time or giving of notice
or both, would constitute any such violation or default that would in the
aggregate have a Material Adverse Effect. The execution, delivery and
performance of and compliance with the Documents, the issuance of the Preferred
Shares (and the Conversion Shares) and the consummation of any other transaction
contemplated by the Documents have not resulted and will not result in any such
violation, or be in conflict with, or constitute a default under any of the
foregoing, or result in a violation or breach of any provision of the Company's
Articles of Incorporation or Bylaws, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company or any Subsidiary.
2.16 Compliance with Law. Each of the Company and the Subsidiaries is
in compliance with all statutes, laws and ordinances and all governmental rules
and regulations to which it is subject, the violation of which, either
individually or in the aggregate, would have a Material Adverse Effect. Neither
the execution, delivery or performance of this Agreement or the other Documents
nor the consummation of the transactions contemplated by the Documents will
cause the Company or any Subsidiary to be in violation of any law or ordinance,
or any order, rule or regulation, of any federal, state, municipal or other
governmental or public authority or agency.
2.17 Employees. To the knowledge of the Company, (i) no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
intellectual property of the Company or the relationship of any such employee
with such entity or any other party and (ii) no key employee has or intends to
terminate his or her employment relationship with the Company. The Company
believes that its relationship with its employees is good and the relationship
among its employees is good.
2.18 Employee Benefit Plans. (a) The Company has not since inception,
nor does it currently sponsor, maintain, contribute to or participate in a
Multiemployer Plan or a "defined benefit plan" within the meaning of Section
3(35) of ERISA covering employees of the Company; (b) except as set forth on
Schedule 2.18, none of the Employee Benefit Plans is an "employee pension
benefit plan", or an "employee welfare benefit plan", within the meaning of
Section 3(3) of ERISA; (c) there are no pending or, to the best of the Company's
knowledge, threatened claims, lawsuits, or arbitrations against any Employee
Benefit Plan or any fiduciary thereof; (d) each Employee Benefit Plan is, and
has been, operated in compliance in all material respects with the applicable
provisions of federal and state law; (e) the Company has, or prior to the
Closing Date will have, paid in full all insurance premiums or otherwise met all
other funding obligations with regard to all Employee Benefit Plans for policy
years or other applicable policy funding periods ending on or before the Closing
Date; and (f) upon termination of employment of any employee, neither the
Company nor any employee will incur any liability for any severance or
termination pay, pension, profit-sharing or other post-retirement benefit,
including but not limited to life, health and welfare benefits, or other similar
payment, except as set
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forth on Schedule 2.18. For purposes of this representation, "Employee Benefit
Plans" shall mean bonus, pension, benefit, welfare, profit-sharing, retirement,
disability, insurance, incentive, deferred compensation and other similar fringe
or employee benefit plans, funds, programs or arrangements, and any employment
contracts or executive compensation agreements, written or oral, in each of the
foregoing cases, which cover or covered, are or were maintained for the benefit
of, or relate or related to, any or all current or former employees of the
Company.
2.19 Compliance with Environmental Laws. (a) Each of the Company and
the Subsidiaries is, and will continue to be, in compliance with all applicable
federal, state and local environmental laws, regulations and ordinances
governing the Business with respect to all discharges into the ground and
surface water, emissions into the ambient air and generation, accumulation,
storage, treatment, recycling, transportation, labeling or disposal of waste
materials or process by-products except for noncompliance as is not expected to
have a Material Adverse Effect. Neither the Company nor the Subsidiary is liable
for any penalties, fines or forfeitures for failure to comply with any of the
foregoing. All material licenses, permits or registrations required for the
Business as presently conducted and proposed to be conducted, under any federal,
state, or local environmental laws, regulations or ordinances have been or will,
in a timely manner, be obtained or made.
(b) No release, emission or discharge into the environment of
hazardous substances, as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, or hazardous waste, as defined
under the Resource Conservation and Recovery Act, or air pollutants as defined
under the Clean Air Act, or pollutants, as defined under the Clean Water Act, by
the Company or any Subsidiary has occurred or is presently occurring on or from
any property owned or leased by the Company or any Subsidiary in excess of
federal, state or local permitted releases or reportable quantities, or other
concentrations, standards or limitations under the foregoing laws or any state
or local law governing the protection of health and the environment or under any
other federal, state or local laws or regulations (then or now applicable, as
the case may be).
(c) Neither the Company nor the Subsidiary has (1) owned,
operated or, to its knowledge, occupied a site or structure on or in which any
hazardous substance was or is stored, transported or disposed of in violation of
any federal, state or local environmental laws, regulations or ordinances at
such time as such site or structure was owned, occupied or operated by the
Company or any Subsidiary or at any other time, or (2) transported or arranged
for the transportation of any hazardous substance other than in full compliance
with all applicable federal, state and local environmental laws, regulations and
ordinances governing the Business or the storage, transportation or disposal of
hazardous substances. Neither the Company nor any Subsidiary has caused or been
held legally responsible for any release or threatened release of any hazardous
substance, or received notification from any federal, state or other
governmental authority of any such release or threatened release, or that the
Company or any Subsidiary may be required to pay any costs or expenses incurred
or to be incurred in connection with any efforts to mitigate the environmental
impact of any release or threatened release, of any hazardous substance from any
site or structure owned, occupied or operated by the Company or any Subsidiary.
2.20 Insurance. The Business has fire, casualty, liability, and
business interruption insurance policies with recognized insurers, in such
amounts and with such coverage as set forth on Schedule 2.20.
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2.21 Material Contracts and Agreements. (a) Schedule 2.21 sets forth
all written and oral agreements or understandings of the Company or any
Subsidiary, either existing or pending, which:
(i) provide for the future purchase by the Company or
any Subsidiary of products or services in excess of $100,000;
(ii) involve the Company or any Subsidiary and any
director, officer, or employee of the Company or any
Subsidiary;
(iii) provide for the borrowing of money or a line of
credit by the Company or any Subsidiary or a leasing
transaction of a type required to be capitalized by the
Company or any Subsidiary in accordance with generally
accepted accounting principles;
(iv) provide for the sale, assignment, or other
disposition of any asset with a value in excess of $100,000 or
any material right of the Company or any Subsidiary;
(v) provide for the licensing or distribution of the
Company's or any Subsidiary's products and services by, or
establish an agency relationship with, any other party;
(vi) provide for the lease by the Company or any
Subsidiary of any real or personal property involving lease
payments in excess of $100,000 per year;
(vii) restrict the Company or any Subsidiary from
engaging in any business activity, restrict either Founder in
the performance of his obligations and responsibilities to the
Company or any Subsidiary, or create any other obligation or
liability of either Founder arising from any prior employment;
(viii) to the knowledge of the Company, restrict any
other officer or key employee of the Company from engaging in
any business activity, restrict any such officer or key
employee in the performance of his or her obligations and
responsibilities to the Company, or create any other
obligation or liability of any such officer or key employee
arising from his employment with the Company or any prior
employment;
(ix) provide for a guaranty, surety, indemnity, or
other financial support by the Company or any Subsidiary to
any person or entity;
(x) grant to any person or entity a right to acquire
the assets, business or operations of the Company or any
Subsidiary or grant a
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security interest in or lien on any asset or right of the
Company or any Subsidiary; or
(xi) are otherwise material to the Company or any
Subsidiary or its business or assets.
(b) Each agreement or understanding set forth on Schedule 2.21
is in full force and effect and constitutes a valid and binding obligation of
the Company or Subsidiary (except as enforceability may be affected by
bankruptcy or other similar laws relating to or affecting the rights of
creditors generally) and, to the knowledge of the Company, all other parties
thereto. Each of the Company and, where applicable, each Subsidiary and Founder
has in all respects performed the obligations required to be performed by it or
him and is not in default or alleged to be in default in any material respect
under any such agreement or understanding. There exists no event or condition
which, after notice or lapse of time, or both, would constitute such a default.
To the knowledge of the Company, there are no material defaults by any other
party to any such agreement or understanding. The Company has delivered to the
Purchasers correct and complete copies of all documents set forth on Schedule
2.21.
(c) No agreement or understanding to which the Company or
Subsidiary is a party (i) restricts the Company or Subsidiary from engaging in
the Company's business as now being conducted and as proposed to be conducted,
or (ii) grants to any person or entity, other than the Company, any right,
title, or interest in any invention or know-how conceived by the employees of
the Company and related to the business of the Company or any Subsidiary.
2.22 Taxes. All federal, state and other tax returns of the Company and
each Subsidiary required by law to be filed have been duly filed and all
federal, state and other taxes, assessments, fees and other federal governmental
charges upon the Company, the Subsidiaries or any of their respective
properties, incomes or assets that are due and payable have been paid. No
extensions of the time for the assessment of deficiencies have been granted to
the Company or any Subsidiary in connection with any federal tax, assessment,
fee or other federal governmental charge. There are no liens, claims or
encumbrances on any properties or assets of the Business imposed or arising as a
result of the delinquent payment or the non-payment of any tax, assessment, fee
or other governmental charge. Neither the Company nor any Subsidiary:
(i) has assumed and is liable for any federal, state
or other income tax liability of any other person, including
any predecessor corporation, as a result of any purchase of
assets or other business acquisition transaction; and
(ii) has indemnified any other person or otherwise
agreed to pay on behalf of any other person tax liability
growing out of or which may be asserted on the basis of any
tax treatment adopted with respect to all or any aspect of
such a business acquisition transaction.
The charges, accruals and reserves, if any, on the books of the Company in
respect of federal, state and local corporate franchise and income taxes for all
fiscal periods to date are adequate in accordance with
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generally accepted accounting principles, and the Company knows of no additional
unpaid assessments for such periods or other governmental charges payable by the
Company in connection with the execution and delivery of this Agreement, the
Documents or the offer, issuance, sale or delivery of the Preferred Shares by
the Company, other than stock transfer taxes, recording fees and filing fees in
connection with state securities or "blue sky" filings. The Company is not a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Internal Revenue Code of 1986, as amended.
2.23 Investment Company. The Company is not an "investment company", or
an "affiliated person" of an "investment company", or a company "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended, and the Company is not an "investment adviser" or an
"affiliated person" of an "investment adviser" as such terms are defined in the
Investment Advisers Act of 1940, as amended.
2.24 Labor Relations. The Company is not engaged in any unfair labor
practices. Except as set forth on Schedule 2.24, there is:
(i) no unfair labor practice complaint pending or, to
the best of the Company's knowledge, threatened against the
Company before the National Labor Relations Board or any court
or labor board, and no grievance or arbitration proceedings
arising out of or under collective bargaining agreements is so
pending or, to the best of the Company's knowledge,
threatened,
(ii) no strike, lock-out, labor dispute, slowdown or
work stoppage pending or, to the best of the Company's
knowledge, threatened against the Company, and
(iii) no union representation or certification
question existing or pending with respect to the employees of
the Company, and, to the best knowledge of the Company, no
union organization activity taking place.
2.25 No Conflict of Interest. Except as set forth in Schedule 2.25, the
Company is not indebted, directly or indirectly, to any of its officers or
employees who is the beneficial owner of one percent or more of the outstanding
voting power or the outstanding common equity (on a fully diluted basis) of the
Company (a "Substantial Holder"), or to any affiliate of a Substantial Holder,
in any amount whatsoever. To the best knowledge of the Company, no Substantial
Holders or any of their affiliates are indebted to any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company. Except
as contemplated by the Documents, no Substantial Holder, or, to the best of the
Company's knowledge, any affiliate of a Substantial Holder, has a direct or
indirect interest in any contract with the Company or any of the Subsidiaries.
2.26 Small Business Matters. The Company, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
ss.121.101), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
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<PAGE> 16
13, Code of Federal Regulations, ss.121.201. The information regarding the
Company and its affiliates set forth in SBA Form 480, Form 652 and Part A of
Form 1031 delivered at the Closing is accurate and complete. Copies of such
forms shall have been completed and executed by the Company and delivered to
those Purchasers that so request at the Closing. The Company does not engage in
any activities for which a "small business investment company" is prohibited
from providing funds by the Small Business Investment Act of 1958 and the
regulations thereunder (including Title 13, Code of Federal Regulations,
ss.107.720).
2.27 Year 2000 Compliance. The Company has (a) initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers and vendors) that could reasonably be expected to be
relevant to whether it is Year 2000 Complaint, (b) developed a plan and timeline
for ensuring that it is Year 2000 Compliant on a timely basis, and (c) to date,
implemented that plan in accordance with that timetable. Based upon the
foregoing, the Company reasonably believes that it is Year 2000 Compliant as of
the Closing Date.
2.28 Full Disclosure. This Agreement, the other Documents, and any
report, statement or other writing furnished to the Purchasers by or on behalf
of the Company in connection with the negotiation of this Agreement and the
other Documents and the sale of the Preferred Shares, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
which is necessary to make the statements contained herein or therein not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company, each with respect to itself only, as follows:
3.1 Organization. Purchaser is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Such Purchaser was not organized for the specific purpose of
acquiring the Preferred Shares.
3.2 Power. Purchaser has the requisite corporate, partnership or other
power to execute and deliver the Documents and to perform its obligations
thereunder, and the execution and delivery by such Purchaser of the Documents,
the performance by such Purchaser of the transactions contemplated thereby and
the purchase of and payment for the Preferred Shares by such Purchaser, have
been duly authorized by all necessary corporate, partnership or other action on
the part of such Purchaser.
3.3 Binding Obligation. This Agreement has been duly executed and
delivered by such Purchaser, and constitutes a valid and binding agreement of
such Purchaser, enforceable against such Purchaser in accordance with its terms,
except to the extent that the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors rights generally and general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity). The other Documents, when executed and delivered by such Purchaser and
the other parties listed therein, will constitute valid and binding agreements
of such Purchaser enforceable against such Purchaser in accordance with their
terms,
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<PAGE> 17
except to the extent that the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors rights generally and general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
3.4 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of such
Purchaser is required in connection with the valid execution and delivery of the
Documents or the purchase of and payment for the Preferred Shares, or the
consummation of any other transaction contemplated by the Documents.
3.5 Investment Purposes. (a) Such Purchaser is acquiring the securities
solely for such Purchaser's account for investment and not with a present view
to, or for resale in connection with, the distribution thereof, except for any
distribution thereof effected in compliance with the Securities Act.
(b) Such Purchaser understands that: (i) the purchase of the
Preferred Shares is a speculative investment which involves a high degree of
risk of loss of such holder's investment therein; (ii) there are substantial
restrictions on the transferability of Preferred Shares and the Conversion
Shares under the terms of the Stockholders' Agreement and the applicable
provisions of the Securities Act and the rules and regulations of the Securities
and Exchange Commission (the "SEC") promulgated thereunder and under applicable
state securities or "blue sky" laws; and (iii) at the Closing, and for an
indeterminate period following the Closing, there will be no public market for
the Preferred Shares or the Conversion Shares and, accordingly, that it may not
be possible to readily liquidate an investment in the Company, if at all.
(c) Such Purchaser has been advised and understands that: (i)
the offer and sale of the Preferred Shares and the Conversion Shares have not
been registered under the Securities Act; (ii) the Preferred Shares and the
Conversion Shares must be held indefinitely and such Purchaser must continue to
bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares unless the offer or sale of the Preferred Shares or the
Conversion Shares is subsequently registered under the Securities Act or an
exemption from such registration is available; (iii) there is not currently any
public market for the Preferred Shares or the Conversion Shares; (iv) Rule 144
promulgated under the Securities Act is not presently available with respect to
the sale of any securities of the Company, including the Preferred Shares or the
Conversion Shares, and when and if the Preferred Shares or the Conversion Shares
may be disposed of without registration in reliance on Rule 144, such
disposition can be made only in accordance with the terms and conditions of such
Rule; (v) restrictive legends described in Section 3.7 shall be placed on the
certificates representing the Preferred Shares or the Conversion Shares; and
(vi) a notation shall be made in the appropriate records of the Company
indicating that the Preferred Shares or the Conversion Shares are subject to
restrictions on transfer and, if the Company should at some time in the future
engage the services of a securities transfer agent, appropriate stop-transfer
instructions will be issued to such transfer agent with respect to the Preferred
Shares or the Conversion Shares.
(d) Such Purchaser is aware that, except as expressly provided
in the Registration Rights Agreement, there exists no right to require
registration of the Preferred Shares or the Conversion Shares and such Purchaser
must bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares.
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3.6 Accredited Investor. Each Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933, as amended.
3.7 Legend on Certificates. Each Purchaser has been advised by the
Company that the certificates representing the Preferred Shares (and Conversion
Shares) will bear an appropriate legend to the effect that the shares
represented by such Certificates have not been registered under the Securities
Act, and may not be transferred in the absence of an effective registration
statement under the Securities Act or an exemption from such registration under
said Act, and such additional legends as may be called for by the Stockholders'
Agreement.
ARTICLE IV
CONDITIONS TO THE PURCHASERS' OBLIGATIONS
The obligation of each of the Purchasers to purchase the Preferred
Shares hereunder shall be subject to the satisfaction, prior to or concurrently
with such purchase, of the following conditions:
4.1 Delivery of Certificates. Such Purchaser shall have received duly
executed stock certificates representing the Preferred Shares being purchased by
such Purchaser.
4.2 Representations and Warranties; Covenants. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date as if made on and as of
such date. The Company shall have performed and complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
4.3 No Material Adverse Effect. No event or events shall have occurred
and no condition or conditions shall exist, which individually or in the
aggregate would have a Material Adverse Effect, including without limitation,
any such events or conditions which occurred prior to, or existed on the date of
this Agreement, but were not explicitly disclosed herein or in a Schedule
hereto.
4.4 Litigation. There shall not be any litigation, investigation, claim
or proceeding of or before any court, arbitrator or governmental authority
pending or threatened with respect to any of the Documents or the transactions
contemplated thereby.
4.5 Applicable Law. Such Purchaser's purchase of and payment for the
Preferred Shares shall not be prohibited by any applicable law, court order or
governmental regulation and shall not subject such Purchaser to any tax,
penalty, liability or other condition under or pursuant to any applicable law,
court order or governmental regulation.
4.6 Articles of Amendment. The Articles of Amendment shall have been
duly filed in the Office of the Secretary of State of South Carolina and shall
be in full force and effect on the Closing Date.
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4.7 Stockholders' Agreement; Registration Rights Agreement. Prior to or
at the Closing, the Stockholders' Agreement and the Registration Rights
Agreement shall have been executed and delivered by each of the parties thereto.
4.8 Consents. All governmental authorizations, consents, approvals or
exemptions required to issue the Preferred Shares pursuant to this Agreement
shall have been obtained, and all necessary governmental filings shall have been
made.
4.9 Certification of Satisfaction of Conditions. The Company shall have
delivered to the Purchasers a certificate, dated the Closing Date, and signed by
the President of the Company, certifying to the satisfaction of the conditions
set forth in Sections 4.2, 4.3, 4.4, 4.5 and 4.8.
4.10 Opinion of Counsel. The Purchasers shall have received the opinion
of Wyche, Burgess, Freeman & Parham, P.A., counsel for the Company, dated the
Closing Date, in form and substance satisfactory to the Purchasers and the
Purchasers' counsel covering such matters as the Purchasers and their counsel
may reasonably request.
4.11 Performance of Obligations. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incident thereto shall be satisfactory in form and substance to
Purchasers, and the Purchasers or their counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request, which shall include, without limitation, a copy of
each of the Documents, duly executed by each party thereto, and a copy of the
Articles of Amendment certified to be a true and complete copy thereof by the
Secretary of State of the State of South Carolina.
4.12 Taxes. Any taxes, fees and other charges due and payable in
connection with the issuance and sale of the Preferred Shares shall have been
paid in full by the Company.
4.13 Fees and Disbursements of Purchasers' Counsel. Counsel for each
Purchaser shall have received payment from the Company of its fees and
disbursements in connection with the consummation of the transactions
contemplated herein.
4.14 Good Standing Certificates. The Company shall deliver a good
standing certificate dated within 10 days of the Closing Date for each
jurisdiction in which they are organized or qualified to do business.
4.15 No Liens. The Company shall have delivered to Purchasers evidence,
satisfactory to the Purchasers and Purchasers' counsel, that there are no liens,
other than those set forth on Schedule 2.13 hereto, on the assets or properties
of the Company.
4.16 SBA Documents and Information. The Company shall have executed and
delivered to each Purchaser that so requests forms and information required by
the rules and regulations of the United States Small Business Administration,
including without limitation, a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652 and information necessary for the
preparation of a Portfolio Financing Report on SBA Form 1031.
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4.17 Bank Financing. The Company, Toronto Dominion (Texas), Inc.,
Newcourt Commercial Finance Corporation and certain other lenders shall have
entered into a senior secured credit facility of at least 120,000,000 (the
"Senior Credit Facility Agreements") on terms and conditions substantially
similar to those contained in the Commitment Letter between the Company and
Toronto Dominion (Texas), Inc., Newcourt Commercial Finance Corporation, an
affiliate of The CIT Group, Inc., TD Securities (USA) Inc., and Capital
Syndication Corporation, an affiliate of The CIT Group, Inc. dated _____________
and with such other terms and conditions reasonably satisfactory to the
Purchasers. The Company shall have delivered to the Purchasers a certificate,
dated the Closing Date, and signed by the President of the Company, certifying
that (i) the Company has the requisite corporate power to execute and deliver
the Senior Credit Facility Agreements and to perform its obligations thereunder,
(ii) the Senior Credit Facility Agreements have been duly authorized, executed
and delivered by the Company and they constitute a valid and binding agreement
of the Company, enforceable against it in accordance with their terms and (iii)
the Company shall have satisfied all the conditions precedent to the initial
drawdown.
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the Preferred Shares
shall be subject to the satisfaction, prior to or concurrently with such
issuance and sale, of the following conditions:
5.1 Tender by Purchasers. At the Closing, each of the Purchasers shall
have tendered the cash consideration set forth on Schedule I attached hereto.
5.2 Representations and Warranties; Performance of Covenants. The
representations and warranties of each Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as if made on and as of such date, and each Purchaser shall have performed and
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it prior to or on the Closing
Date.
5.3 Stockholders' Agreement; Registration Rights Agreement. Prior to or
at the Closing, the Stockholders' Agreement and the Registration Rights
Agreement shall have been executed and delivered by each of the parties thereto.
5.4 Applicable Law. The Purchasers' purchase of the Preferred Shares
shall not be prohibited by any applicable law, court order or governmental
regulation and there shall not be any litigation, investigation or proceeding of
or before any court, arbitrator or governmental authority pending or threatened
with respect to any of the Documents or the transactions contemplated thereby.
5.5 Consents. All governmental authorizations, consents, approvals or
exemptions required by the Company to issue and sell the Preferred Shares
pursuant to this Agreement shall have been obtained, and all necessary
governmental filings shall have been made.
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<PAGE> 21
5.6 Performance of Obligations. All proceedings taken or to be taken in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Company and the
Company and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request, which
shall include, without limitation, a copy of each of the Documents, duly
executed by each party thereto.
5.7 Articles of Amendment. The Articles of Amendment shall have been
filed in the Office of the Secretary of State of South Carolina and shall be in
full force and effect on the Closing Date.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees that, except as provided in Section
6.1 below, until such time as the Company has consummated a Public Offering (as
such term is defined in the Stockholders' Agreement):
6.1 Securities Law Filings. Upon consummation of a Public Offering (as
such term is defined in the Stockholders' Agreement), and for so long as the
Purchasers hold Conversion Shares, the Company will timely file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder, to the extent required from
time to time to enable the Purchasers to sell Conversion Shares without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Purchaser, the Company will deliver a written
statement as to whether it has complied with such requirements.
6.2 Transactions with Substantial Holders. The Company shall not,
directly or indirectly, enter into any material transaction or agreement with
any stockholder owning or having a right to acquire 5% or more of the capital
stock of the Company (a "Substantial Holder") or any affiliate, director or
officer of the Company or a Substantial Holder, or a material transaction or
agreement in which a Substantial Holder or affiliate, director or officer of the
Company or a Substantial Holder has a direct or indirect interest, unless such
transaction or agreement is on terms and conditions no less favorable to the
Company or any Subsidiary than could be obtained at the time in an arm's length
transaction with a third person that is not such a Substantial Holder or
affiliate or officer of the Company or a Substantial Holder, and such
transaction or agreement has been reviewed and approved by (i) a majority of
those members of the Company's Board of Directors who have no such interest in
the transaction, and (ii) not less than a majority of the outstanding Preferred
Shares voting separately as a class. Except as provided in Section 9.3, this
Section 6.2 shall not be enforceable against the Company by any person or entity
not a party to this Agreement.
6.3 Business and Financial Covenants. The Company covenants that:
(a) At any time prior to the Closing or on and after the
Closing without the prior written consent of the holders of not less than a
majority of the outstanding Preferred Shares voting separately as a class:
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(1) Merger, Consolidation, Acquisitions, Sale of
Assets.
(i) The Company shall not merge, effect a liquidation
or statutory share exchange, consolidate with, or otherwise
engage in any transaction or series of related transactions
which results in a change of control or permit any Subsidiary
to merge, effect a liquidation or statutory share exchange, or
consolidate with, any entity or otherwise effect a change of
control other than as provided in Section 6.3(b)(1).
(ii) The Company shall not sell, assign, lease or
otherwise dispose of, or permit any Subsidiary to sell,
assign, lease or otherwise dispose of, all or substantially
all of its assets (whether now owned or hereafter acquired)
other than as provided in Section 6.3(b)(2).
(iii) Except for up to 10,000,000 shares of Common
Stock of the Company which may be issued upon the exercise of
options granted under the Company's Employee Incentive Plan
pursuant to option grants having a per share exercise price of
not less than fair market value on the date of grant as
determined by the Board of Directors, the Company will not,
and will not permit any Subsidiary to, hereafter issue or sell
any shares of capital stock or any securities convertible
into, or any warrants, rights, or options to purchase shares
of, the capital stock of the Company or such Subsidiary to any
person or entity other than the Company, and the Company will
not pledge any of the capital stock of any Subsidiary to any
person or entity.
(2) Loans to and Investments in Others. The Company
shall not (except for the advancement of money for expenses in
the ordinary course of business) make, or permit any
Subsidiary to make, any loans or advances to any person or
entity or have outstanding any investment in any entity,
whether by way of loan or advance to, or by the acquisition of
the capital stock, assets or obligations of or any interest
in, any person or entity.
(3) Articles of Incorporation. The Company shall not
amend or repeal its articles of incorporation or bylaws, or
violate or breach any of the provisions thereof, provided,
however, the prior written consent of the holders of
two-thirds (2/3) of the outstanding Preferred Shares voting
separately as a class shall be required to amend or repeal the
Company's articles of incorporation or bylaws in a manner
which would adversely affect in a disparate manner the rights
of the holders of the Preferred Shares as compared to the
Series A Preferred Stock and Series B Preferred Stock.
(4) Debt/Lease Obligations. The Company shall not (i)
create, incur or suffer to exist or permit any Subsidiary to
create, incur or suffer to exist, any debt or any obligations
for the payment of rent for any property real or personal
under leases or agreements to lease ("Lease Obligations")
other than debt or Lease Obligations which
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in the aggregate do not exceed $10,000,000 in any one calendar
year, and (ii) materially amend, modify, extend or refinance
or permit any Subsidiary to materially amend, modify, extend
or refinance any existing debt or Lease Obligation.
(5) Acquisitions. The Company shall not acquire, or
permit any Subsidiary to acquire, directly or indirectly, the
assets of or equity interests in any other business or entity,
whether by purchase, merger, consolidation or otherwise.
(6) Public Offering. The Company shall not effect an
initial public offering of any equity securities, other than a
public offering in which the Company would receive gross
offering proceeds of not less than $35,000,000 and the common
equivalent price per share to the public is not less than
$9.38, subject to equitable adjustment for any subdivision,
stock split, combination or other similar corporate
transaction affecting the capital stock of the Company.
(7) Other Actions. The Company shall not take any
other action that could reasonably be expected to have a
Material Adverse Effect on the holders of the Preferred
Shares.
(b) At any time prior to the Closing or on and after the
Closing without the prior written consent of the holders of two-thirds (2/3) of
the outstanding of the Preferred Shares voting separately as a class:
(1) The Company shall not merge, effect a liquidation
or statutory share exchange, consolidate with, or otherwise
engage in any transaction or series of related transactions
which results in a change of control or permit any Subsidiary
to merge, effect a liquidation or statutory share exchange, or
consolidate with, any entity or otherwise effect a change of
control; if the consideration to be received by the holders of
the Preferred Shares is or is valued at less than or equal to
$7.00 per share of Preferred Stock.
(2) The Company shall not sell, assign, lease or
otherwise dispose of, or permit any Subsidiary to sell,
assign, lease or otherwise dispose of, all or substantially
all of its assets (whether now owned or hereafter acquired) if
the consideration to be received by the Corporation, as
calculated on a per share basis and after giving affect to all
liquidation preferences, would be less than or equal to $7.00
per share of Preferred Stock.
(3) Restricted Payments; Repurchase of Common Stock.
Except as permitted by Section 6.3(b)(2) hereof, neither the
Company nor a Subsidiary shall declare or make any Restricted
Payment. "Restricted Payment" means (i) any payment or the
incurrence of any liability to make any payment in cash,
property or other assets as a dividend or other distribution
in respect of any shares of capital stock of the Company or
any Subsidiary, excluding, however, any dividends payable to
the Company by a
-19-
<PAGE> 24
Subsidiary, and (ii) except as otherwise permitted by the
Documents or as required by the Company's Articles of
Incorporation, any payment or the incurrence of any liability
to make any payment in cash, property or other assets for the
purposes of purchasing, retiring or redeeming any shares of
any class of capital stock of the Company or any Subsidiary or
any warrants, options or other rights to purchase any such
shares, other than employee stock repurchases approved by the
Board of Directors of the Company upon termination of such
employee's employment.
(4) Repurchase of Preferred Shares. Except as
provided in the Company's Articles of Amendment, the Company
shall not, and shall not permit any Subsidiary or any
affiliate of the Company to, directly or indirectly, redeem or
repurchase or make any offer to redeem or repurchase any
Preferred Shares (or Conversion Shares), unless the Company,
such Subsidiary or such affiliate has offered to repurchase
Preferred Shares (or Conversion Shares) pro rata, from all
holders of outstanding Preferred Shares (or Conversion Shares)
upon the same terms.
6.4 Corporate Existence, Business, Maintenance, Insurance.
(a) The Company will at all times preserve and keep in full
force and effect its corporate existence and rights and franchises deemed
material to its business and those of its Subsidiaries, except any Subsidiary of
the Company may be merged into the Company or another Subsidiary.
(b) The Company shall engage solely in the business of
providing local exchange and long distance telecommunication services to
residential customers and small and medium size businesses and such other
related business activities approved by the Board. The Company (and any
Subsidiary) will not purchase or acquire any property other than property useful
in and related to such business.
(c) The Company will maintain or cause to be maintained in
good repair, working order and condition all properties used or useful in the
business of the Company and any Subsidiary and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof. The
Company and any Subsidiary will at all times comply in all material respects
with the provisions of all material leases to which it is a party or under which
it occupies property so as to prevent any loss or forfeiture thereof or
thereunder.
(d) The Company will maintain or cause to be maintained, with
financially sound and reputable insurers, appropriate insurance with respect to
its properties and business and the properties and business of any Subsidiary
against loss or damage.
6.5 Payment of Taxes; ERISA.
(a) The Company will pay, and will cause any Subsidiary to
pay, all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or profits before any penalty or interest accrues
-20-
<PAGE> 25
thereon, and all claims (including, without limitation, claims for labor,
services, materials and supplies) for sums which have become due and payable and
which by law have or might become a lien or charge upon any of its properties or
assets, provided that no such charge or claim need be paid if being diligently
contested in good faith by appropriate proceedings and if such reserve or other
appropriate provisions, if any, as shall be required by generally accepted
accounting principles shall have been made therefor.
(b) The Company and any Subsidiary will comply in all material
respects with the Employee Retirement Income Security Act of 1974, as amended
from time to time.
6.6 Books and Records, Compliance.
(a) The Company and any Subsidiary will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(b) The Company and any Subsidiary shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its property or
assets.
6.7 Directors' and Officers' Liability Insurance. The Company shall use
its best efforts to obtain directors' and officers' liability insurance, if such
insurance is available at a cost which the Company's Board of Directors deems to
be reasonably satisfactory.
6.8 Compensation. All awards of compensation, including, but not
limited to, salary, bonus and awards of stock options made to executive
officers, key managers and/or directors of the Company shall be determined by
the Company's Board of Directors in accordance with the terms of the
Stockholders' Agreement.
6.9 Key Person Life Insurance. The Company shall maintain and keep in
full force and effect key person life insurance on the life of Shaler P. Houser
in an aggregate amount of not less than $5,000,000 with the proceeds thereof
payable to the Company.
6.10 SBA Requirements. The Company will at all times after the Closing
Date comply with the nondiscrimination requirements of 13 C.F.R. Sections 112
and 113.
ARTICLE VII
INFORMATION
The Company covenants and agrees that it shall deliver the following
information and provide the following rights to each Purchaser (including
permitted transferees in accordance with Section 9.3, except as set forth in
Section 7.7), for so long as such Purchaser together with its affiliates (or
such transferees) shall hold at least 5% of the aggregate outstanding Preferred
Shares or Conversion Shares (considered as a single class), or until such time
as the Company shall have consummated a Qualified Public Offering (as defined in
the Articles of Amendment):
-21-
<PAGE> 26
7.1 Audited Annual Financial Statements. As soon as practicable and, in
any case, within one hundred and twenty (120) days after the end of each fiscal
year, financial statements of the Company, consisting of the balance sheet of
the Company as of the end of such fiscal year and the statements of operations,
statements of shareholders' equity and statements of cash flows of the Company
for such fiscal year, setting forth in each case, in comparative form, the
figures for the preceding fiscal year, all in reasonable detail and fairly
presented in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods reflected therein, and accompanied by
an opinion thereon of KPMG Peat Marwick LLP, or other independent certified
public accountants selected by the Company of good and recognized national
standing in the United States.
7.2 Quarterly Unaudited Financial Statements. As soon as practicable
and, in any case, within forty-five (45) days after the end of each of the first
three fiscal quarters in each fiscal year, unaudited financial statements of the
Company setting forth the balance sheet of the Company at the end of each such
fiscal quarter and the statements of operations and statements of cash flows of
the Company for each such fiscal quarter and for the year to date, and setting
forth in comparative form figures as of the corresponding date and for the
corresponding periods of the preceding fiscal year (provided that quarterly
statements of cash flows shall not be required for periods ended prior to the
Closing Date), all in reasonable detail and certified by the chief financial
officer of the Company as complete and correct, as having been prepared in
accordance with generally accepted accounting principles consistently applied
and as presenting fairly, in all material respects, the financial position of
the Company and any Subsidiary and results of operations and cash flows thereof
subject, in each case, to customary exceptions for interim unaudited financial
statements.
7.3 Monthly Unaudited Financial Statements. As soon as available, but
in any event within thirty (30) days after the end of each calendar month,
copies of the unaudited balance sheet of the Company as at the end of such
calendar month and the related unaudited statements of operations and cash flows
for such calendar month and the portion of the calendar year through such
calendar year, in each case setting forth in comparative form the figures for
the corresponding periods of (a) the previous calendar year (provided that
monthly financial information shall not be required for periods ended prior to
the Closing Date) and (b) the budget for the current year, prepared in
reasonable detail and in accordance with generally accepted accounting
principles applied consistently throughout the periods reflected therein and
certified by the chief financial officer of the Company as presenting fairly the
financial condition and results of operations of the Company and any Subsidiary
(subject to customary exceptions for interim unaudited financial statements).
7.4 Management's Analysis. All the financial statements delivered
pursuant to Sections 7.1 and 7.2 shall be accompanied by an informal narrative
description of material business and financial trends and developments and
significant transactions that have occurred in the appropriate period or periods
covered thereby.
7.5 Budgets. As soon as practicable, but in any event within ninety
(90) days prior to the commencement of a fiscal year, an annual operating budget
for such fiscal year, approved by the Board of Directors, including monthly
income and cash flow projections and projected balance sheets as of the end of
each quarter within such fiscal year.
-22-
<PAGE> 27
7.6 Inspection. (a) The Company shall, and shall cause any Subsidiary
to, permit any such Purchaser, by its representatives, agents or attorneys:
(i) to examine all books of account, records, reports
and other papers of the Company or such Subsidiary except to
the extent that such action would, in the reasonable opinion
of counsel, constitute a waiver of the attorney/client
privilege;
(ii) to make copies and take extracts from any
thereof, except for information which is confidential or
proprietary;
(iii) to discuss the affairs, finances and accounts
of the Company or such Subsidiary with the Company's or such
Subsidiary's officers and independent certified public
accountants (and by this provision the Company hereby
authorizes said accountants to discuss with any such Purchaser
and its representatives, agents or attorneys the finances and
accounts of the Company or such Subsidiary); and
(iv) to visit and inspect, at reasonable times and on
reasonable notice during normal business hours, the properties
of the Company and such Subsidiary.
(b) Notwithstanding any provision herein to the contrary, the
provisions of this Section 7.6 are in addition to any rights of the Purchasers
under the South Carolina Business Corporation Act of 1988, as amended and shall
in no way limit such rights.
(c) The expenses of any Purchaser in connection with any such
inspection shall be for the account of such Purchaser. Notwithstanding the
foregoing sentence, it is understood and agreed by the Company that all
reasonable expenses incurred by the Company or such Subsidiary, any officers,
employees or agents thereof or the independent certified public accountants
therefor, shall be expenses payable by the Company and shall not be expenses of
the Purchaser making the inspection.
7.7 Other Information. The Company shall deliver the following to each
such Purchaser, provided that in the reasonable opinion of counsel to the
Company such disclosure will not constitute a waiver of the attorney/client
privilege:
(a) promptly after the submission thereof to the
Company, copies of any detailed reports (including the
auditors' comment letter to management, if any such letter is
prepared) submitted to the Company by its independent auditors
in connection with each annual or interim audit of the
accounts of the Company made by such accountants;
(b) promptly, and in any event within ten (10) days
after obtaining knowledge thereof, notice of the institution
of any suit, action or proceeding (other than a proceeding of
general application which is not directly against the Company
or one or
-23-
<PAGE> 28
more Subsidiary), the happening of any event or, to the best
knowledge of the Company, the assertion or threat of any claim
against the Company or any Subsidiary;
(c) promptly upon, and in any event within thirty
(30) days after obtaining knowledge thereof, notice of any
breach of, default under or failure to comply with any term
under this Agreement or any of the Documents or any material
adverse change in the Company's relationship with its major
customers, suppliers, employees or other entity with which the
Company has a business relationship;
(d) with reasonable promptness, a notice of any
default by the Company or any Subsidiary under any material
agreement to which it is a party;
(e) with reasonable promptness, copies of all written
materials furnished to directors;
(f) promptly (but in any event within ten days) after
the filing of any document or material with the SEC, a copy of
such document or material;
(g) promptly after the record date set by the Board
of Directors to determine the stockholders entitled to vote at
the Company's annual meeting of stockholders (but in any event
ten days prior to such meeting), a list of all stockholders of
the Company and their respective holdings; and
(h) promptly upon request therefor, such other data,
filings and information as any Purchaser may from time to time
reasonably request.
ARTICLE VIII
EXPENSES
8.1 Legal Fees and Other Expenses. The Company shall pay or reimburse
the Purchasers for all fees and charges incurred by them, including all
reasonable legal, consulting and accounting fees, in connection with the
preparation, execution, and delivery of the Documents and the consummation of
the transactions contemplated thereby whether or not the transactions
contemplated by this Agreement are consummated.
8.2 Finder's Fee. Each party represents and warrants to each other
party that it has employed no broker or finder.
8.3 Other Expenses. The Company shall pay, and shall save each
Purchaser harmless against liability for, reasonable costs and expenses relating
to any modification, amendment, alteration or enforcement of this Agreement and
the other Documents (including, without limitation, reasonable legal fees and
disbursements and any applicable taxes thereon). The obligations of the Company
under this Section 8.4 shall survive the termination of this Agreement and the
other Documents.
-24-
<PAGE> 29
ARTICLE IX
MISCELLANEOUS
9.1 Survival. Except for the covenants and agreements contained in
Articles VI, VII, and VIII hereof which shall survive termination of this
Agreement in accordance with their respective terms, all agreements and
covenants made by the Company and the Founders herein or by the Company or
Founders in any certificate or other instrument delivered under or in connection
with this Agreement shall be considered to have been relied upon by the
Purchasers and shall survive the delivery to the Purchasers of the Preferred
Shares regardless of any investigation made by the Purchasers or on their
behalf.
9.2 Indemnification. (a) Indemnification by the Company. The Company
shall, to the fullest extent permitted by law, indemnify, defend and hold each
Purchaser and its affiliates and their respective directors, officers, employees
and agents harmless from and against any liability, loss or damage, together
with all reasonable costs and expenses related thereto (including reasonable
legal fees and expenses), arising out of or related to the untruth, inaccuracy
or breach of any of the representations, warranties or agreements of the Company
contained in this Agreement or any other document or instrument executed or
entered into by the Company in connection with the consummation of the
transactions contemplated herein.
(b) Indemnification by the Purchasers. Each Purchaser shall,
severally and not jointly, to the fullest extent permitted by law, indemnify,
defend and hold the Company harmless from and against any liability, loss or
damage, together with all reasonable costs and expenses related thereto
(including reasonable legal fees and expenses), arising out of or related to the
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of such Purchaser contained in this Agreement or any other document
or instrument executed or entered into by such Purchaser in connection with the
consummation of the transactions contemplated herein.
(c) Survival of Representations and Warranties; Duration of
Rights of Indemnification. The representations and warranties contained in this
Agreement and the right of each party to be indemnified hereunder shall survive
for a period of two years following the Closing Date; provided, however, the
right of each party to seek indemnification shall continue after such two year
period with respect to:
(i) any claim for indemnification properly noticed
within such two year period;
(ii) any claim for indemnification arising out of or
related to a breach of the representations and warranties
contained at Sections 2.6, 2.7, 2.8 or 2.22 of this Agreement,
which right of indemnification shall extend until the
expiration of all applicable statutes of limitation.
9.3 Transfer and Termination of Rights. No rights under this Agreement
may be transferred, except that:
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<PAGE> 30
(i) the rights of a Purchaser under this Agreement
may be transferred after the Closing in connection with a
transfer of Preferred Shares made in accordance with the
provisions of the Stockholders' Agreement (other than a
transfer pursuant to a registration statement under the
Securities Act or a transfer pursuant to Rule 144 thereunder);
and
(ii) all the rights of a Purchaser may be transferred
to an affiliate of such Purchaser;
provided, that any such transferee shall execute and deliver to the Company an
instrument satisfactory to it agreeing to be bound by the provisions hereof and
of the Stockholders' Agreement and the Registration Rights Agreement.
9.4 Binding Effect. Subject to the limitations on transfer set forth in
Section 9.3, this Agreement and all the provisions hereof shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
9.5 Amendment. This Agreement may be amended or supplemented, and the
observance of any term hereof or thereof may be waived, with the written consent
of the Company and (i) on or prior to the Closing Date, each Purchaser, and (ii)
after the Closing Date, the holders of a two-thirds (2/3) of the Preferred
Shares and any Conversion Shares voting as a single class.
9.6 Governing Law. The interpretation, validity and performance of the
terms of this Agreement shall be governed by the laws of the State of South
Carolina, regardless of the law that might be applied under principles of
conflicts of law that require or permit application of the laws of any other
state or jurisdiction.
9.7 Notices. (a) All communications under this Agreement shall be in
writing and (i) sent by facsimile transmission and by certified or registered
mail, return receipt requested, courier or overnight mail, or (ii) sent by
certified or registered mail, return receipt requested, courier or overnight
mail (A) if to a Purchaser, to such Purchaser's facsimile number and address set
forth in Schedule I, or at such other address as such Purchaser may have
furnished to the Company in writing, (B) if to any transferee of a Purchaser, to
it at its facsimile number and address listed in the stock ledger books of the
Company, or at such other address as such Purchaser or transferee shall have
furnished to the Company in writing, and (C) if to the Company, to 200 North
Main Street, Suite 303, Greenville, South Carolina 29601, Attention: Hamilton E.
Russell III, Esq. or at such other address or facsimile number as it shall have
furnished in writing to all Purchasers.
(b) Any written communication so addressed, sent by facsimile
transmission or certified or registered mail, return receipt requested, courier
or overnight mail, shall be deemed to have been given when sent via facsimile or
mailed or deposited with a courier. All other written communications shall be
deemed to have been given upon receipt thereof.
9.8 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
-26-
<PAGE> 31
9.9 Regulatory Requirements. In the event of any reasonable
determination by any Purchaser that, by reason of any future federal or state
rule, regulation, guideline, order, request or directive (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) (collectively, a "Regulatory Requirement"), it is effectively
restricted or prohibited from holding any of the shares of capital stock of the
Company (including any shares of capital stock or other securities distributable
to such Purchaser in any merger, reorganization, readjustment or other
reclassification of such shares), the Company shall take such action, at the
Company's expense, as may be deemed reasonably necessary by such Purchaser to
permit such Purchaser to comply with such Regulatory Requirement. Such action to
be taken may include, without limitation, the Company's authorization of one or
more new classes of capital stock and the modification of amendment of the
articles of incorporation or any other documents or instruments executed in
connection with the shares held by such Purchaser. Such Purchaser shall give
written notice to the Company of any such determination and the action or
actions necessary to comply with such Regulatory Requirement, and the Company
shall take all steps necessary to comply with such determination as
expeditiously as possible. This Section 9.9 shall not be deemed to limit in any
respect the representations of the Purchasers in Sections 3.2 and 3.4 hereof.
9.10 Counterparts. This Agreement may be executed and delivered in two
or more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
STATE COMMUNICATIONS, INC.
By:
----------------------------------------
Title:
-------------------------------------
RICHLAND VENTURES II, L.P.
By: Richland Partners II, Inc., General
Partner
By:
----------------------------------------
Title:
-------------------------------------
RICHLAND VENTURES III, L.P.
By: Richland Partners III, Inc., General
Partner
By:
----------------------------------------
Title:
-------------------------------------
FIRST UNION CAPITAL PARTNERS, INC.
By:
----------------------------------------
Title:
-------------------------------------
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc.,
Trading Advisor
By:
----------------------------------------
Title:
-------------------------------------
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C., General
Partner
By:
----------------------------------------
Title:
-------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
BOSTON MILLENNIA PARTNERS LIMITED
PARTNERSHIP
By: Glen Partners Limited Partnership,
General Partner
By:
----------------------------------------
Title:
-------------------------------------
BOSTON MILLENNIA ASSOCIATES I PARTNERSHIP
By:
----------------------------------------
Title:
-------------------------------------
CITIZENS CAPITAL, INC.
By:
----------------------------------------
Title:
-------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
SOUTHEASTERN TECHNOLOGY FUND
By:
----------------------------------------
Title:
-------------------------------------
(SEAL)
--------------------------------------
Shaler P. Houser
(SEAL)
--------------------------------------
Charles L. Houser
(SEAL)
--------------------------------------
Charles S. Houser
(SEAL)
--------------------------------------
Russell W. Powell
(SEAL)
--------------------------------------
Daniel H. Sterling
(SEAL)
--------------------------------------
Judith C. Slaughter
(SEAL)
--------------------------------------
Thomas Houlihan
(SEAL)
--------------------------------------
Clark Mizell
SERUUS TELECOM FUND, L.P.
By: , its General Partner
--------------------
By:
----------------------------------------
Title:
-------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
SERUUS VENTURES, LLC.
By:
----------------------------------------
Title:
-------------------------------------
(SEAL)
--------------------------------------
Hamilton E. Russell III
(SEAL)
--------------------------------------
John R. Tyrrell
--------------------------------------------
John T. Mills, Sr.
WYCHE BURGESS PROFIT SHARING PLAN FUND II
By:
-----------------------------------------
By:
----------------------------------------
Title:
-------------------------------------
WILLOU & CO.
By:
----------------------------------------
Title:
-------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
HOUSER CHARITABLE REMAINDER UNITRUST
By:
----------------------------------------
Title:
-------------------------------------
VFO PARTNERS, LTD.
By:
----------------------------------------
By:
----------------------------------------
Title:
-------------------------------------
TORONTO DOMINION CAPITAL (U.S.A.), INC.
By:
----------------------------------------
Title:
-------------------------------------
NEWCOURT COMMERCIAL FINANCE
CORPORATION, an affiliate of The
CIT Group, Inc.
By:
----------------------------------------
Title:
-------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
BANCAMERICA CAPITAL INVESTORS SBIC I, L.P.
By: BancAmerica Capital Management
SBIC I, LLC,
Its general partner
By: BancAmerica Capital Management I, L.P.,
Its sole member
By: BACM I GP, LLC,
Its general partner
By:
----------------------------------------
Name: Robert H. Sheridan, III
Title: Member
CAPITAL INSIGHTS GROWTH INVESTORS, L.P.
By:
----------------------------------------
Title:
-------------------------------------
------------------------------------------
Terry E. Richardson, Jr.
------------------------------------------
David C. Poole
------------------------------------------
William Oberlin
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
------------------------------------------
Joseph A. Lawrence
[SIGNATURES CONTINUED ON NEXT PAGE]
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<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
------------------------------------------
Larry Bouman
-35-
<PAGE> 40
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
Purchasers
----------
(B)
(A) Total Purchase Price
No. of Shares to be Paid at Closing
------------- ---------------------
<S> <C> <C>
Richland Ventures II, L.P. 588,235 $ 2,499,998.75
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
Richland Ventures III, L.P. 1,035,295 $ 4,400,003.75
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
(615) 383-8030
Fax: (615) 269-0463
First Union Capital Partners, Inc. 1,176,471 $ 5,000,001.75
One First Union Center
301 South College Street
Floor 5
Charlotte, NC 28288-0732
(704) 374-4948
Fax: (704) 374-6711
</TABLE>
-1-
<PAGE> 41
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
Purchasers
----------
(B)
(A) Total Purchase Price
No. of Shares to be Paid at Closing
------------- ---------------------
<S> <C> <C>
Moore Global Investments, Ltd. 1,035,295 $ 4,400,003.75
c/o Citco Fund Services (Bahamas),
Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
(212) 782-7033
Fax: (212) 575-6832
Remington Investment Strategies, L.P. 1,035,295 $ 4,400,003.75
1251 Avenue of the Americas
New York, NY 10023
(212) 782-7143
Fax: (212) 382-9843
Southeastern Technology Fund 117,647 $ 499,999.75
7910 South Memorial Parkway
Suite F
Huntsville, AL 35802
(256) 883-8711
Fax: (256) 883-8558
Boston Millennia Partners 1,279,080 $ 5,436,090
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
</TABLE>
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<PAGE> 42
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
Purchasers
----------
(B)
(A) Total Purchase Price
No. of Shares to be Paid at Closing
------------- ---------------------
<S> <C> <C>
Boston Millennia Associates I 15,038 $ 63,911.50
Partnership
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
Citizens Capital, Inc. 352,941 $ 1,499,999.25
30 Rowes Wharf, Suite 330
Boston, MA 02110
(617) 428-5150
Fax: (617) 428-5160
Toronto Dominion Capital (U.S.A.), 2,352,941 $ 9,999,999.25
Inc.
Newcourt Commercial Finance 1,176,471 $ 5,000,001.75
Corporation
BancAmerica Capital Investors SBIC I, 1,176,471 5,000,001.75
L.P.
William Oberlin 70,588 $ 299,999.00
Larry Bouman 100,000 $ 425,000.00
Joe Lawrence 50,000 $ 212,500.00
TOTAL 11,561,768 $49,137,514.00
</TABLE>
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<PAGE> 1
EXHIBIT 10.5.4
STATE COMMUNICATIONS, INC.
----------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
4,214,703 SHARES
OF
SERIES C CONVERTIBLE PREFERRED STOCK
(ROUND 2)
----------------------------------
DATED: MARCH 20, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I -- SUBSCRIPTION FOR THE PREFERRED SHARES...................................................2
1.1 Purchase and Sale......................................................................2
1.2 Closing................................................................................2
1.3 Separate Agreements....................................................................2
1.4 Use of Proceeds........................................................................3
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................3
2.1 Organization and Standing..............................................................3
2.2 Corporate Power........................................................................3
2.3 Validity; Binding Obligation...........................................................4
2.4 Financial Statements...................................................................4
2.5 Consents...............................................................................4
2.6 Capitalization.........................................................................5
2.7 Validity and Rights of Preferred Shares................................................6
2.8 Registration Rights....................................................................6
2.9 Securities Laws........................................................................6
2.10 Absence of Undisclosed Liabilities....................................................6
2.11 Subsidiaries..........................................................................6
2.12 Litigation and Claims.................................................................6
2.13 Title to Properties...................................................................7
2.14 Intellectual Property Rights..........................................................7
2.15 Compliance with Other Instruments.....................................................8
2.16 Compliance with Law...................................................................8
2.17 Employees.............................................................................8
2.18 Employee Benefit Plans................................................................8
2.19 Compliance with Environmental Laws....................................................9
2.20 Insurance.............................................................................9
2.21 Material Contracts and Agreements.....................................................9
2.22 Taxes.................................................................................11
2.23 Investment Company....................................................................12
2.24 Labor Relations.......................................................................12
2.25 No Conflict of Interest...............................................................12
2.26 Small Business Matters................................................................12
2.27 Year 2000 Compliance..................................................................13
2.28 Full Disclosure.......................................................................13
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................................13
3.1 Organization...........................................................................13
3.2 Power..................................................................................13
3.3 Binding Obligation.....................................................................13
3.4 Consents...............................................................................14
3.5 Investment Purposes....................................................................14
3.6 Accredited Investor....................................................................15
3.7 Legend on Certificates.................................................................15
ARTICLE IV -- CONDITIONS TO THE PURCHASERS' OBLIGATIONS..............................................15
4.1 Delivery of Certificates...............................................................15
4.2 Representations and Warranties, Performance of Obligations.............................15
4.3 No Material Effect.....................................................................15
4.4 Litigation.............................................................................15
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
4.5 Applicable Law.........................................................................15
4.6 Articles of Amendment..................................................................15
4.8 Consents...............................................................................15
4.9 Certification of Satisfaction of Conditions............................................16
4.10 Opinion of Counsel....................................................................16
4.11 Performance of Obligations............................................................16
4.12 Taxes.................................................................................16
4.13 Fees and Disbursements of Purchasers' Counsel.........................................16
4.14 Good Standing Certificates............................................................16
4.15 No Liens..............................................................................16
4.16 SBA Documents and Information.........................................................16
ARTICLE V -- CONDITIONS TO THE COMPANY'S OBLIGATION..................................................17
5.1 Tender by Purchasers...................................................................17
5.2 Representations and Warranties; Performance of Covenants...............................17
5.3 Stockholders' Agreement; Registration Rights Agreement.................................17
5.4 Applicable Law.........................................................................17
5.5 Consents...............................................................................17
5.6 Performance of Obligations.............................................................17
ARTICLE VI -- ADDITIONAL COVENANTS OF THE COMPANY....................................................17
6.1 Securities Law Filings.................................................................17
6.2 Transactions with Substantial Holders..................................................18
6.3 Business and Financial Covenants.......................................................18
6.8 Repurchase of Preferred Shares.........................................................20
6.4 Corporate Existence, Business, Maintenance, Insurance..................................20
6.5 Payment of Taxes; ERISA................................................................21
6.6 Books and Records, Compliance..........................................................21
6.7 Directors' and Officers' Liability Insurance...........................................21
6.9 Compensation...........................................................................22
6.10 Key Person Life Insurance.............................................................22
6.11 SBA Requirements......................................................................22
ARTICLE VII -- INFORMATION...........................................................................22
7.1 Audited Annual Financial Statements....................................................22
7.2 Quarterly Unaudited Financial Statements...............................................22
7.3 Monthly Unaudited Financial Statements.................................................23
7.4 Management's Analysis..................................................................23
7.5 Budgets................................................................................23
7.6 Inspection.............................................................................23
7.7 Other Information......................................................................24
ARTICLE VIII -- EXPENSES.............................................................................25
8.2 Legal Fees and Other Expenses..........................................................25
8.3 Finder's Fee...........................................................................25
8.4 Other Expenses.........................................................................25
ARTICLE IX -- MISCELLANEOUS..........................................................................25
9.1 Survival...............................................................................25
9.2 Indemnification........................................................................25
9.3 Transfer and Termination of Rights.....................................................26
9.4 Binding Effect.........................................................................26
9.5 Amendment..............................................................................26
9.6 Governing Law..........................................................................27
9.7 Notices................................................................................27
9.8 Headings...............................................................................27
9.9 Regulatory Requirements................................................................27
9.10 Counterparts..........................................................................27
</TABLE>
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<PAGE> 4
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A Master Amendment Agreement
SCHEDULE I List of Purchasers
SCHEDULE 2.1(b) Jurisdictions Where Company is Qualified
SCHEDULE 2.4(a) Financial Statements
SCHEDULE 2.4(b) Changes Since Last Financial Statements
SCHEDULE 2.6(b) Stock Ledger
SCHEDULE 2.10 Liabilities
SCHEDULE 2.13 Title to Properties
SCHEDULE 2.14 Intellectual Property
SCHEDULE 2.18 Employee Benefit Plans
SCHEDULE 2.20 Insurance
SCHEDULE 2.21 Material Contracts and Agreements
SCHEDULE 2.24 Labor Relations
SCHEDULE 2.25 No Conflict of Interest
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<PAGE> 5
PREFERRED STOCK PURCHASE AGREEMENT
4,214,703 SHARES OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
STATE COMMUNICATIONS, INC.
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into on this 20th day of March, 2000 by and among STATE COMMUNICATIONS,
INC., a South Carolina corporation (the "Company"), and each of the purchasers
named in Schedule I attached hereto (collectively, the "Purchasers" and each,
individually, a "Purchaser").
W I T N E S S E T H:
WHEREAS, the Purchasers desire to purchase from the Company, and the
Company desires to issue and sell to the Purchasers, 4,214,703 shares of Series
C Convertible Preferred Stock of the Company (the "Preferred Shares") on the
terms and conditions hereinafter set forth for a purchase price of $4.25 per
share, constituting an aggregate purchase price of $17,912,487.75.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties agree as follows:
ARTICLE I
SUBSCRIPTION FOR THE PREFERRED SHARES
1.1 Purchase and Sale. Subject to the terms and conditions set forth
herein, each Purchaser hereby subscribes for and agrees to purchase from the
Company, and the Company hereby agrees to issue and sell to each Purchaser, on
the Closing Date (as hereinafter defined), the number of Preferred Shares set
forth opposite such Purchaser's name in column A of Schedule I, for a purchase
price of $4.25.
1.2 Closing. The closing of the purchase and sale of the Preferred
Shares (the "Closing") shall be held not later than five business days following
the satisfaction or waiver of the conditions set forth in Articles IV and V or
such other date as the parties shall mutually agree upon (the "Closing Date"),
at the offices of Alston & Bird LLP, 1201 West Peachtree Street, Atlanta,
Georgia, or at such other mutually acceptable place. On the Closing Date, the
Company shall deliver to each Purchaser duly issued stock certificates
representing the number of Preferred Shares to be purchased by such Purchaser.
Each Purchaser shall pay the cash purchase price set forth opposite such
Purchaser's name in Column B of Schedule I for the Preferred Shares by wire
transfer of immediately available funds to an account designated by the Company.
1.3 Separate Agreements. The purchases by the Purchasers hereunder
shall be separate and several transactions. The obligations of each Purchaser
hereunder shall be several and not joint, and this Agreement shall for all
purposes be construed and deemed to be a separate agreement between the Company
and each Purchaser, acting severally and not jointly, with the same effect as
though a
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<PAGE> 6
separate agreement with each Purchaser to the effect herein provided were hereby
entered into between the Company and each Purchaser.
1.4 Use of Proceeds. The proceeds of the sale of the Preferred Shares
will be used by the Company for general corporate purposes as determined
appropriate by the Board of Directors of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows:
2.1 Organization and Standing.
(a) Each of the Company and the Subsidiaries (as defined in
Section 2.11) is a corporation duly organized, validly existing and in good
standing under the laws of the State of South Carolina.
(b) The Company and the Subsidiaries are currently engaged in
the business of providing local exchange and long distance telecommunication
services to residential customers and the small business market (the
"Business"). Each of the Company and the Subsidiaries is qualified to do
business as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the ability of the
Company or any Subsidiary to conduct the Business or which would impair the
Company's ability to perform its obligations in any material respect under the
Documents, as such term is defined in Section 2.2 hereof (a "Material Adverse
Effect"). Schedule 2.1(b) identifies each jurisdiction in which the Company and
each Subsidiary is currently qualified to do business as a foreign corporation.
(c) The Company has delivered to Purchasers' counsel true and
complete copies of the Articles of Incorporation and Bylaws of the Company,
including all amendments thereto, certified by the Secretary as true and in full
force and effect on the Closing Date. The Articles of Incorporation and Bylaws
of the Company will not be amended prior to the Closing Date.
(d) The Company and the Subsidiaries have all corporate power
and all governmental licenses, authorizations, consents and approvals required
to carry on the Business as now being conducted and necessary to own, operate
and lease their properties and assets.
2.2 Corporate Power. The Company has the requisite corporate power to
execute and deliver this Agreement, and the Master Amendment Agreement (relating
to the Registration Rights Agreement, dated February 1, 2000, and the Second
Amended and Restated Stockholders' Agreement, dated February 1, 2000) in
substantially the form attached hereto as Exhibit A (the "Master Amendment
Agreement") (this Agreement and the Master Amendment shall be collectively
referred to herein as the "Documents") and to perform its obligations hereunder
and thereunder.
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<PAGE> 7
2.3 Validity; Binding Obligation. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
binding agreement of the Company, enforceable against it in accordance with its
terms. The other Documents have each been duly authorized by the Company and,
when executed and delivered by the Company and the other parties named therein,
will constitute valid and binding agreements of the Company, enforceable against
the Company in accordance with their respective terms. The issuance, sale and
delivery of the Preferred Shares have been, or prior to the Closing Date will
be, duly authorized by all necessary corporate action by the Company.
2.4 Financial Statements. (a) Schedule 2.4(a) contains a true and
complete copy of:
(i) the audited balance sheet of the Company for the
year ended December 31, 1998 and the related audited
statements of operations, stockholders' equity and cash flows
of the Company for the year ended December 31, 1998; and
(ii) the unaudited consolidated balance sheet of the
Company for the ten-month period ended October 31, 1999 and
the related unaudited consolidated statements of operations,
stockholders' equity and cash flows of the Company for such
period (the financial statements referred to in clauses (i)
and (ii) of this Section 2.4(a) being collectively referred to
as the "Financial Statements").
(b) The Financial Statements have been prepared in accordance
with generally accepted accounting principles (except that such unaudited
financial statements do not contain all of the required footnotes or normal
recurring year-end adjustments) applied on a consistent basis during the
respective periods covered thereby. The Financial Statements are correct and
complete and present fairly the financial position of the Company at the date of
the balance sheets included therein and the results of operations and cash flows
of the Company for the respective periods covered by the statements of
operations and cash flows included therein. Except as set forth on Schedule 2.4
(b), since the date of the Financial Statements (i) there has been no change in
the assets, liabilities or financial condition of the Company from that
reflected in the Financial Statements, other than changes in the ordinary course
of business which in the aggregate have not been materially adverse, and (ii)
none of the business, prospects, financial condition, operations, property or
affairs of the Company has been materially and adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
covered by insurance.
2.5 Consents. No consent, approval or authorization of, or
qualification, designation, declaration or filing with, or notice to any
governmental authority on the part of the Company is required in connection with
(i) the valid execution and delivery of the Documents, and (ii) the offer, sale
or issuance of the Preferred Shares (and the Common Stock issuable upon
conversion of the Preferred Shares), except (A) the filing of a Form D with the
Securities and Exchange Commission, (B) the qualification (or taking such action
as may be necessary to secure an exemption from qualification, if available) of
the offer and sale of the Preferred Shares (and the Common Stock issuable upon
conversion of the Preferred Shares) under any applicable state securities laws,
which qualification, if required, will be accomplished in a timely manner prior
to or promptly upon
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<PAGE> 8
completion of the Closing, as required by such laws and (C) such consents,
approvals and authorizations as have been obtained by the Company prior to
Closing.
2.6 Capitalization. (a) The authorized capital stock of the Company
consists of 100,000,000 shares of Common Stock, $.001 par value (the "Common
Stock"), and 50,000,000 shares of Preferred Stock, $.0l par value (the
"Preferred Stock"), 4,791,668 of which have been designated as Series A
Convertible Preferred Stock (the "Series A Preferred Stock"), 14,133,329 of
which have been designated as Series B Convertible Preferred Stock (the "Series
B Preferred Stock") and 15,776,471 of which have been designated Series C
Convertible Preferred Stock (the "Series C Preferred Stock"). Immediately after
the Closing, (i) 11,783,782 shares of Common Stock will be issued and
outstanding, (ii) 4,711,672 shares of Series A Preferred Stock will be issued
and outstanding, (iii) 13,866,663 shares of Series B Preferred Stock will be
issued and outstanding, (iv) 15,776,471 shares of Series C Preferred Stock will
be issued and outstanding, (v) 7,864,850 options, warrants or other rights to
purchase or otherwise acquire shares of Common Stock will be outstanding, and
(vi) such number of shares of Common Stock as shall be necessary to effect the
conversion of the Preferred Stock will be reserved for future issuance upon
conversion of Preferred Stock. Immediately after the Closing upon receipt of the
Purchase Price, all such issued and outstanding shares of capital stock of the
Company will be duly authorized and validly issued and outstanding, fully paid
and nonassessable.
(b) Schedule 2.6(b) contains a true and correct copy of the
Company's current stock transfer ledger reflecting the record holders of the
Company's equity securities and the number of shares held by each. Each of
Shaler P. Houser and Charles L. Houser (individually, a "Founder" and
collectively, the "Founders") is the lawful owner, of record and beneficially,
of the number of shares of Common Stock set forth opposite the name of each
Founder on Schedule 2.6(b). Each Founder has good and marketable title to, and
all other incidents of record and beneficial ownership of, such shares, free and
clear of any liens, claims and encumbrances, other than the restrictions set
forth in the Stockholders' Agreement or the Liquidation Proceeds Agreements
attached to Schedule 2.6(b) (the "Liquidation Agreements").
(c) Except as set forth in paragraph (a) above or as disclosed
on Schedule 2.6(b), immediately after the Closing, there will be no outstanding
(i) securities or securities convertible into or exchangeable for shares of
capital stock of the Company, (ii) options, warrants or other rights to purchase
or otherwise acquire from the Company shares of such capital stock, or
securities convertible into or exchangeable for shares of such capital stock, or
(iii) contracts, agreements or commitments relating to the issuance by the
Company of any shares of such capital stock, any such convertible or
exchangeable securities, or any such options, warrants or other rights. Except
for the Stockholders' Agreement, the Liquidation Agreements or the Investment
Agreement by and among Seruus Telecom Fund, L.P., the Company and certain
individuals named therein, dated February 19, 1998, there are no voting trusts,
voting agreements, proxies or other agreements, instruments or understandings
with respect to the voting of the capital stock of the Company to which the
Company or, to the Company's knowledge, any of its stockholders is a party.
(d) The Company has reserved, and at all times from and after
the date hereof will keep reserved, free from preemptive rights, out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, sufficient shares of Common
Stock to provide for the conversion of all Preferred Shares.
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<PAGE> 9
2.7 Validity and Rights of Preferred Shares. The Preferred Shares, when
issued to the Purchasers pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and will have the designations, preferences,
limitations, and relative rights set forth in the Articles of Incorporation. Any
and all shares of Common Stock issued upon conversion of the Preferred Shares
(the "Conversion Shares"), when issued, will be validly issued, fully paid and
nonassessable.
2.8 Registration Rights. Except for the rights granted under (i) the
Registration Rights Agreement, dated February 1, 2000, between the Company and
certain stockholders (ii) the Registration Rights Agreement dated July 29, 1999
between the Company and certain stockholders, (iii) the Registration Rights
Agreement dated October 28, 1998 between the Company and certain stockholders,
(iv) Amended and Restated Registration Rights Agreement dated February 19, 1998
between the Company and Seruus Telecom Fund, L.P., as amended on February 1,
1999, and (v) the Registration Rights Agreement dated May 27, 1999 between the
Company and Nortel Networks Inc., no person or entity has any right to cause the
Company to effect the registration under the Securities Act of 1933, as amended
(the "Securities Act"), of any shares of its capital stock.
2.9 Securities Laws. Subject to the accuracy of the representations and
warranties of the Purchasers contained in Article III hereof, the offering, sale
and purchase of the Preferred Shares contemplated hereby are exempt from
registration under the Securities Act. The issuance of all other shares of
capital stock of the Company on or before the date hereof is being or has been
made in compliance with the Securities Act and all applicable state securities
or blue sky laws. All offering documents used and oral disclosure made in
connection with the offer or sale of any of the Company's securities prior to
the date hereof have been correct in all material respects and have not
contained any untrue statements of a material fact or omitted to state a
material fact necessary in order to make the statements contained therein not
misleading.
2.10 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.10, as of the date hereof, neither the Company nor any Subsidiary has
a material liability or obligation of any nature (whether accrued, contingent,
absolute or otherwise) or any material loss contingency (as such term is used in
the Statement of Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975), which was not adequately disclosed or provided
for in the Financial Statements.
2.11 Subsidiaries. Except as set forth in Schedule 2.11, the Company
has no Subsidiaries (as hereinafter defined). The Company does not own, or have
the right to acquire, any securities or other equity or ownership interest in
any corporation, partnership, limited liability company, association or other
entity. "Subsidiary" means a corporation, partnership, limited liability company
or any other form of legal entity of which the Company, at the time in respect
of which such term is used, owns directly, or controls with power to vote,
directly or indirectly through one or more Subsidiaries, more than fifty percent
(50%) of the voting securities.
2.12 Litigation and Claims. Except as set forth in Schedule 2.12, there
are no actions at law, suits in equity or other proceedings or investigations in
any court, tribunal or by or before any other governmental or public authority
or agency or any arbitrator or arbitration panel or any governmental or private
third-party insurance agency, pending or, to the knowledge of the Company,
threatened against or affecting the Company or that would question the validity
or enforceability of this
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<PAGE> 10
Agreement, the Documents, or any of the transactions contemplated hereby and
thereby. The Company is not in default with respect to any order, writ,
injunction, judgment or decree of any court or other governmental or public
authority or agency or arbitrator or arbitration panel.
2.13 Title to Properties. Each of the Company and the Subsidiaries has
good and marketable title to its properties and assets and has good title to all
its respective leasehold interests, in each case subject to no mortgage, pledge,
lien, encumbrance or charge, other than as set forth on Schedule 2.13 hereto.
Schedule 2.13 accurately lists with respect to the personal property owned (or
purported to be owned) by the Company or the Subsidiaries (i) each financing
statement, deed, agreement or other instrument which has been filed, recorded or
registered pursuant to any United States federal, state or local law or
regulation that names the Company or a Subsidiary as debtor or lessee or as the
grantor or the transferor of the interest created thereby, and (ii) as to each
such financing statement, deed, agreement or other instrument, the names of the
debtor, lessee, grantor or transferor and the secured party, lessor, grantee or
transferee and the name of the jurisdiction in which such financing statement,
deed, agreement or other instrument has been filed, recorded or registered.
Except as set forth on Schedule 2.13, neither the Company nor any Subsidiary has
signed any agreement or instrument authorizing any secured party thereunder to
file any such financing statement, deed, agreement or other instrument.
2.14 Intellectual Property Rights. Each of the Company and the
Subsidiaries owns or possesses the rights to use, free from any restrictions or
conflicts with the rights of others claiming through the Company or Subsidiary,
all copyrights, trademarks, service marks, trade names, patents and intellectual
property licenses, and all rights with respect to the foregoing, necessary for
the conduct of the Business as now conducted and as proposed to be conducted,
and is in compliance in all material respects with the terms and conditions, if
any, of all such copyrights, trademarks, service marks, trade names, patents and
intellectual property licenses and the terms and conditions of any agreements
relating thereto. Except as set forth on Schedule 2.14, there are no outstanding
options, licenses, or material agreements of any kind relating to the foregoing,
nor is the Company or any Subsidiary bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. Neither the
Company nor any Subsidiary has received any communications alleging that it has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. To the Company's
knowledge, none of its employees are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of their best efforts to promote the interests of
the Company or any Subsidiary or that would conflict with the Company's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's or any Subsidiary's business by
the employees of the Company, nor the conduct of the Company's or any
Subsidiary's business as proposed, will conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. It is not currently and will not in the future be necessary for the
Company to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
-6-
<PAGE> 11
2.15 Compliance with Other Instruments. Neither the Company nor any
Subsidiary is in violation of or in default under any term of its organizational
documents, any term or provision of any mortgage, indenture, contract,
agreement, instrument, judgment or decree, nor is in violation of any applicable
order, statute, rule or regulation except for such violations or defaults as are
not expected to have a Material Adverse Effect, and to the Company's knowledge
there is no state of facts which, with the passage of time or giving of notice
or both, would constitute any such violation or default that would in the
aggregate have a Material Adverse Effect. The execution, delivery and
performance of and compliance with the Documents, the issuance of the Preferred
Shares (and the Conversion Shares) and the consummation of any other transaction
contemplated by the Documents have not resulted and will not result in any such
violation, or be in conflict with, or constitute a default under any of the
foregoing, or result in a violation or breach of any provision of the Company's
Articles of Incorporation or Bylaws, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company or any Subsidiary.
2.16 Compliance with Law. Each of the Company and the Subsidiaries is
in compliance with all statutes, laws and ordinances and all governmental rules
and regulations to which it is subject, the violation of which, either
individually or in the aggregate, would have a Material Adverse Effect. Neither
the execution, delivery or performance of this Agreement or the other Documents
nor the consummation of the transactions contemplated by the Documents will
cause the Company or any Subsidiary to be in violation of any law or ordinance,
or any order, rule or regulation, of any federal, state, municipal or other
governmental or public authority or agency.
2.17 Employees. To the knowledge of the Company, (i) no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
intellectual property of the Company or the relationship of any such employee
with such entity or any other party and (ii) no key employee has or intends to
terminate his or her employment relationship with the Company. The Company
believes that its relationship with its employees is good and the relationship
among its employees is good.
2.18 Employee Benefit Plans. (a) The Company has not since inception,
nor does it currently sponsor, maintain, contribute to or participate in a
Multiemployer Plan or a "defined benefit plan" within the meaning of Section
3(35) of ERISA covering employees of the Company; (b) except as set forth on
Schedule 2.18, none of the Employee Benefit Plans is an "employee pension
benefit plan", or an "employee welfare benefit plan", within the meaning of
Section 3(3) of ERISA; (c) there are no pending or, to the best of the Company's
knowledge, threatened claims, lawsuits, or arbitrations against any Employee
Benefit Plan or any fiduciary thereof; (d) each Employee Benefit Plan is, and
has been, operated in compliance in all material respects with the applicable
provisions of federal and state law; (e) the Company has, or prior to the
Closing Date will have, paid in full all insurance premiums or otherwise met all
other funding obligations with regard to all Employee Benefit Plans for policy
years or other applicable policy funding periods ending on or before the Closing
Date; and (f) upon termination of employment of any employee, neither the
Company nor any employee will incur any liability for any severance or
termination pay, pension, profit-sharing or other post-retirement benefit,
including but not limited to life, health and welfare benefits, or other similar
payment, except as set forth on Schedule 2.18. For purposes of this
representation, "Employee Benefit Plans" shall mean bonus, pension, benefit,
welfare, profit-sharing, retirement, disability, insurance, incentive, deferred
compensation and other similar fringe or employee benefit plans, funds, programs
or arrangements,
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<PAGE> 12
and any employment contracts or executive compensation agreements, written or
oral, in each of the foregoing cases, which cover or covered, are or were
maintained for the benefit of, or relate or related to, any or all current or
former employees of the Company.
2.19 Compliance with Environmental Laws. (a) Each of the Company and
the Subsidiaries is, and will continue to be, in compliance with all applicable
federal, state and local environmental laws, regulations and ordinances
governing the Business with respect to all discharges into the ground and
surface water, emissions into the ambient air and generation, accumulation,
storage, treatment, recycling, transportation, labeling or disposal of waste
materials or process by-products except for noncompliance as is not expected to
have a Material Adverse Effect. Neither the Company nor the Subsidiary is liable
for any penalties, fines or forfeitures for failure to comply with any of the
foregoing. All material licenses, permits or registrations required for the
Business as presently conducted and proposed to be conducted, under any federal,
state, or local environmental laws, regulations or ordinances have been or will,
in a timely manner, be obtained or made.
(b) No release, emission or discharge into the environment of
hazardous substances, as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, or hazardous waste, as defined
under the Resource Conservation and Recovery Act, or air pollutants as defined
under the Clean Air Act, or pollutants, as defined under the Clean Water Act, by
the Company or any Subsidiary has occurred or is presently occurring on or from
any property owned or leased by the Company or any Subsidiary in excess of
federal, state or local permitted releases or reportable quantities, or other
concentrations, standards or limitations under the foregoing laws or any state
or local law governing the protection of health and the environment or under any
other federal, state or local laws or regulations (then or now applicable, as
the case may be).
(c) Neither the Company nor the Subsidiary has (1) owned,
operated or, to its knowledge, occupied a site or structure on or in which any
hazardous substance was or is stored, transported or disposed of in violation of
any federal, state or local environmental laws, regulations or ordinances at
such time as such site or structure was owned, occupied or operated by the
Company or any Subsidiary or at any other time, or (2) transported or arranged
for the transportation of any hazardous substance other than in full compliance
with all applicable federal, state and local environmental laws, regulations and
ordinances governing the Business or the storage, transportation or disposal of
hazardous substances. Neither the Company nor any Subsidiary has caused or been
held legally responsible for any release or threatened release of any hazardous
substance, or received notification from any federal, state or other
governmental authority of any such release or threatened release, or that the
Company or any Subsidiary may be required to pay any costs or expenses incurred
or to be incurred in connection with any efforts to mitigate the environmental
impact of any release or threatened release, of any hazardous substance from any
site or structure owned, occupied or operated by the Company or any Subsidiary.
2.20 Insurance. The Business has fire, casualty, liability, and
business interruption insurance policies with recognized insurers, in such
amounts and with such coverage as set forth on Schedule 2.20.
2.21 Material Contracts and Agreements. (a) Schedule 2.21 sets forth
all written and oral agreements or understandings of the Company or any
Subsidiary, either existing or pending, which:
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(i) provide for the future purchase by the Company or
any Subsidiary of products or services in excess of $100,000;
(ii) involve the Company or any Subsidiary and any
director, officer, or employee of the Company or any
Subsidiary;
(iii) provide for the borrowing of money or a line of
credit by the Company or any Subsidiary or a leasing
transaction of a type required to be capitalized by the
Company or any Subsidiary in accordance with generally
accepted accounting principles;
(iv) provide for the sale, assignment, or other
disposition of any asset with a value in excess of $100,000 or
any material right of the Company or any Subsidiary;
(v) provide for the licensing or distribution of the
Company's or any Subsidiary's products and services by, or
establish an agency relationship with, any other party;
(vi) provide for the lease by the Company or any
Subsidiary of any real or personal property involving lease
payments in excess of $100,000 per year;
(vii) restrict the Company or any Subsidiary from
engaging in any business activity, restrict either Founder in
the performance of his obligations and responsibilities to the
Company or any Subsidiary, or create any other obligation or
liability of either Founder arising from any prior employment;
(viii) to the knowledge of the Company, restrict any
other officer or key employee of the Company from engaging in
any business activity, restrict any such officer or key
employee in the performance of his or her obligations and
responsibilities to the Company, or create any other
obligation or liability of any such officer or key employee
arising from his employment with the Company or any prior
employment;
(ix) provide for a guaranty, surety, indemnity, or
other financial support by the Company or any Subsidiary to
any person or entity;
(x) grant to any person or entity a right to acquire
the assets, business or operations of the Company or any
Subsidiary or grant a security interest in or lien on any
asset or right of the Company or any Subsidiary; or
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(xi) are otherwise material to the Company or any
Subsidiary or its business or assets.
(b) Each agreement or understanding set forth on Schedule 2.21
is in full force and effect and constitutes a valid and binding obligation of
the Company or Subsidiary (except as enforceability may be affected by
bankruptcy or other similar laws relating to or affecting the rights of
creditors generally) and, to the knowledge of the Company, all other parties
thereto. Each of the Company and, where applicable, each Subsidiary and Founder
has in all respects performed the obligations required to be performed by it or
him and is not in default or alleged to be in default in any material respect
under any such agreement or understanding. There exists no event or condition
which, after notice or lapse of time, or both, would constitute such a default.
To the knowledge of the Company, there are no material defaults by any other
party to any such agreement or understanding. The Company has delivered to the
Purchasers correct and complete copies of all documents set forth on Schedule
2.21.
(c) No agreement or understanding to which the Company or
Subsidiary is a party (i) restricts the Company or Subsidiary from engaging in
the Company's business as now being conducted and as proposed to be conducted,
or (ii) grants to any person or entity, other than the Company, any right,
title, or interest in any invention or know-how conceived by the employees of
the Company and related to the business of the Company or any Subsidiary.
2.22 Taxes. All federal, state and other tax returns of the Company and
each Subsidiary required by law to be filed have been duly filed and all
federal, state and other taxes, assessments, fees and other federal governmental
charges upon the Company, the Subsidiaries or any of their respective
properties, incomes or assets that are due and payable have been paid. No
extensions of the time for the assessment of deficiencies have been granted to
the Company or any Subsidiary in connection with any federal tax, assessment,
fee or other federal governmental charge. There are no liens, claims or
encumbrances on any properties or assets of the Business imposed or arising as a
result of the delinquent payment or the non-payment of any tax, assessment, fee
or other governmental charge. Neither the Company nor any Subsidiary:
(i) has assumed and is liable for any federal, state
or other income tax liability of any other person, including
any predecessor corporation, as a result of any purchase of
assets or other business acquisition transaction; and
(ii) has indemnified any other person or otherwise
agreed to pay on behalf of any other person tax liability
growing out of or which may be asserted on the basis of any
tax treatment adopted with respect to all or any aspect of
such a business acquisition transaction.
The charges, accruals and reserves, if any, on the books of the Company in
respect of federal, state and local corporate franchise and income taxes for all
fiscal periods to date are adequate in accordance with generally accepted
accounting principles, and the Company knows of no additional unpaid assessments
for such periods or other governmental charges payable by the Company in
connection with the execution and delivery of this Agreement, the Documents or
the offer, issuance, sale or delivery of the
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Preferred Shares by the Company, other than stock transfer taxes, recording fees
and filing fees in connection with state securities or "blue sky" filings. The
Company is not a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Internal Revenue Code of 1986, as amended.
2.23 Investment Company. The Company is not an "investment company", or
an "affiliated person" of an "investment company", or a company "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended, and the Company is not an "investment adviser" or an
"affiliated person" of an "investment adviser" as such terms are defined in the
Investment Advisers Act of 1940, as amended.
2.24 Labor Relations. The Company is not engaged in any unfair labor
practices. Except as set forth on Schedule 2.24, there is:
(i) no unfair labor practice complaint pending or, to
the best of the Company's knowledge, threatened against the
Company before the National Labor Relations Board or any court
or labor board, and no grievance or arbitration proceedings
arising out of or under collective bargaining agreements is so
pending or, to the best of the Company's knowledge,
threatened,
(ii) no strike, lock-out, labor dispute, slowdown or
work stoppage pending or, to the best of the Company's
knowledge, threatened against the Company, and
(iii) no union representation or certification
question existing or pending with respect to the employees of
the Company, and, to the best knowledge of the Company, no
union organization activity taking place.
2.25 No Conflict of Interest. Except as set forth in Schedule 2.25, the
Company is not indebted, directly or indirectly, to any of its officers or
employees who is the beneficial owner of one percent or more of the outstanding
voting power or the outstanding common equity (on a fully diluted basis) of the
Company (a "Substantial Holder"), or to any affiliate of a Substantial Holder,
in any amount whatsoever. To the best knowledge of the Company, no Substantial
Holders or any of their affiliates are indebted to any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company. Except
as contemplated by the Documents, no Substantial Holder, or, to the best of the
Company's knowledge, any affiliate of a Substantial Holder, has a direct or
indirect interest in any contract with the Company or any of the Subsidiaries.
2.26 Small Business Matters. The Company, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
ss.121.101), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, ss.121.201. The information regarding the
Company and its affiliates set forth in SBA Form 480, Form 652 and Part A of
Form 1031 delivered at the Closing is accurate and complete. Copies of such
forms shall have been completed and executed by the Company and
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delivered to those Purchasers that so request at the Closing. The Company does
not engage in any activities for which a "small business investment company" is
prohibited from providing funds by the Small Business Investment Act of 1958 and
the regulations thereunder (including Title 13, Code of Federal Regulations,
ss.107.720).
2.27 Year 2000 Compliance. The Company has (a) initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers and vendors) that could reasonably be expected to be
relevant to whether it is Year 2000 Complaint, (b) developed a plan and timeline
for ensuring that it is Year 2000 Compliant on a timely basis, and (c) to date,
implemented that plan in accordance with that timetable. Based upon the
foregoing, the Company reasonably believes that it is Year 2000 Compliant as of
the Closing Date.
2.28 Full Disclosure. This Agreement, the other Documents, and any
report, statement or other writing furnished to the Purchasers by or on behalf
of the Company in connection with the negotiation of this Agreement and the
other Documents and the sale of the Preferred Shares, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material fact
which is necessary to make the statements contained herein or therein not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
warrants to the Company, each with respect to itself only, as follows:
3.1 Organization. Purchaser is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Such Purchaser was not organized for the specific purpose of
acquiring the Preferred Shares.
3.2 Power. Purchaser has the requisite corporate, partnership or other
power to execute and deliver the Documents and to perform its obligations
thereunder, and the execution and delivery by such Purchaser of the Documents,
the performance by such Purchaser of the transactions contemplated thereby and
the purchase of and payment for the Preferred Shares by such Purchaser, have
been duly authorized by all necessary corporate, partnership or other action on
the part of such Purchaser.
3.3 Binding Obligation. This Agreement has been duly executed and
delivered by such Purchaser, and constitutes a valid and binding agreement of
such Purchaser, enforceable against such Purchaser in accordance with its terms,
except to the extent that the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors rights generally and general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity). The other Documents, when executed and delivered by such Purchaser and
the other parties listed therein, will constitute valid and binding agreements
of such Purchaser enforceable against such Purchaser in accordance with their
terms, except to the extent that the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors rights
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generally and general principles of equity (regardless of whether enforceability
is considered in a proceeding at law or in equity).
3.4 Consents. No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority on the part of such
Purchaser is required in connection with the valid execution and delivery of the
Documents or the purchase of and payment for the Preferred Shares, or the
consummation of any other transaction contemplated by the Documents.
3.5 Investment Purposes. (a) Such Purchaser is acquiring the securities
solely for such Purchaser's account for investment and not with a present view
to, or for resale in connection with, the distribution thereof, except for any
distribution thereof effected in compliance with the Securities Act.
(b) Such Purchaser understands that: (i) the purchase of the
Preferred Shares is a speculative investment which involves a high degree of
risk of loss of such holder's investment therein; (ii) there are substantial
restrictions on the transferability of Preferred Shares and the Conversion
Shares under the terms of the Stockholders' Agreement and the applicable
provisions of the Securities Act and the rules and regulations of the Securities
and Exchange Commission (the "SEC") promulgated thereunder and under applicable
state securities or "blue sky" laws; and (iii) at the Closing, and for an
indeterminate period following the Closing, there will be no public market for
the Preferred Shares or the Conversion Shares and, accordingly, that it may not
be possible to readily liquidate an investment in the Company, if at all.
(c) Such Purchaser has been advised and understands that: (i)
the offer and sale of the Preferred Shares and the Conversion Shares have not
been registered under the Securities Act; (ii) the Preferred Shares and the
Conversion Shares must be held indefinitely and such Purchaser must continue to
bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares unless the offer or sale of the Preferred Shares or the
Conversion Shares is subsequently registered under the Securities Act or an
exemption from such registration is available; (iii) there is not currently any
public market for the Preferred Shares or the Conversion Shares; (iv) Rule 144
promulgated under the Securities Act is not presently available with respect to
the sale of any securities of the Company, including the Preferred Shares or the
Conversion Shares, and when and if the Preferred Shares or the Conversion Shares
may be disposed of without registration in reliance on Rule 144, such
disposition can be made only in accordance with the terms and conditions of such
Rule; (v) restrictive legends described in Section 3.7 shall be placed on the
certificates representing the Preferred Shares or the Conversion Shares; and
(vi) a notation shall be made in the appropriate records of the Company
indicating that the Preferred Shares or the Conversion Shares are subject to
restrictions on transfer and, if the Company should at some time in the future
engage the services of a securities transfer agent, appropriate stop-transfer
instructions will be issued to such transfer agent with respect to the Preferred
Shares or the Conversion Shares.
(d) Such Purchaser is aware that, except as expressly provided
in the Registration Rights Agreement, there exists no right to require
registration of the Preferred Shares or the Conversion Shares and such Purchaser
must bear the economic risk of the investment in the Preferred Shares and the
Conversion Shares.
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<PAGE> 18
3.6 Accredited Investor. Each Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933, as amended.
3.7 Legend on Certificates. Each Purchaser has been advised by the
Company that the certificates representing the Preferred Shares (and Conversion
Shares) will bear an appropriate legend to the effect that the shares
represented by such Certificates have not been registered under the Securities
Act, and may not be transferred in the absence of an effective registration
statement under the Securities Act or an exemption from such registration under
said Act, and such additional legends as may be called for by the Stockholders'
Agreement.
ARTICLE IV
CONDITIONS TO THE PURCHASERS' OBLIGATIONS
The obligation of each of the Purchasers to purchase the Preferred
Shares hereunder shall be subject to the satisfaction, prior to or concurrently
with such purchase, of the following conditions:
4.1 Delivery of Certificates. Such Purchaser shall have received duly
executed stock certificates representing the Preferred Shares being purchased by
such Purchaser.
4.2 Representations and Warranties; Covenants. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date as if made on and as of
such date. The Company shall have performed and complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
4.3 No Material Adverse Effect. No event or events shall have occurred
and no condition or conditions shall exist, which individually or in the
aggregate would have a Material Adverse Effect, including without limitation,
any such events or conditions which occurred prior to, or existed on the date of
this Agreement, but were not explicitly disclosed herein or in a Schedule
hereto.
4.4 Litigation. There shall not be any litigation, investigation, claim
or proceeding of or before any court, arbitrator or governmental authority
pending or threatened with respect to any of the Documents or the transactions
contemplated thereby.
4.5 Applicable Law. Such Purchaser's purchase of and payment for the
Preferred Shares shall not be prohibited by any applicable law, court order or
governmental regulation and shall not subject such Purchaser to any tax,
penalty, liability or other condition under or pursuant to any applicable law,
court order or governmental regulation.
4.6 Master Amendment Agreement. Prior to or at the Closing, the Master
Amendment Agreement shall have been executed and delivered by each of the
parties thereto.
4.7 Consents. All governmental authorizations, consents, approvals or
exemptions required to issue the Preferred Shares pursuant to this Agreement
shall have been obtained, and all necessary governmental filings shall have been
made.
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<PAGE> 19
4.8 Certification of Satisfaction of Conditions. The Company shall have
delivered to the Purchasers a certificate, dated the Closing Date, and signed by
the President of the Company, certifying to the satisfaction of the conditions
set forth in Sections 4.2, 4.3, 4.4, 4.5 and 4.7.
4.9 Opinion of Counsel. The Purchasers shall have received the opinion
of Wyche, Burgess, Freeman & Parham, P.A., counsel for the Company, dated the
Closing Date, in form and substance satisfactory to the Purchasers and the
Purchasers' counsel covering such matters as the Purchasers and their counsel
may reasonably request.
4.10 Performance of Obligations. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incident thereto shall be satisfactory in form and substance to
Purchasers, and the Purchasers or their counsel shall have received all such
counterpart originals or certified or other copies of such documents as it or
they may reasonably request, which shall include, without limitation, a copy of
each of the Documents, duly executed by each party thereto.
4.11 Taxes. Any taxes, fees and other charges due and payable in
connection with the issuance and sale of the Preferred Shares shall have been
paid in full by the Company.
4.12 Fees and Disbursements of Purchasers' Counsel. Counsel for each
Purchaser shall have received payment from the Company of its fees and
disbursements in connection with the consummation of the transactions
contemplated herein.
4.13 Good Standing Certificates. The Company shall deliver a good
standing certificate dated within 10 days of the Closing Date for each
jurisdiction in which they are organized or qualified to do business.
4.14 No Liens. The Company shall have delivered to Purchasers evidence,
satisfactory to the Purchasers and Purchasers' counsel, that there are no liens,
other than those set forth on Schedule 2.13 hereto, on the assets or properties
of the Company.
4.15 SBA Documents and Information. The Company shall have executed and
delivered to each Purchaser that so requests forms and information required by
the rules and regulations of the United States Small Business Administration,
including without limitation, a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652 and information necessary for the
preparation of a Portfolio Financing Report on SBA Form 1031.
4.16 Bank Financing. The Company shall have delivered to the Purchasers
a certificate, dated the Closing Date, and signed by the President of the
Company, certifying that (i) the senior credit facility between the Company,
Toronto Dominion (Texas), Inc., Newcourt Commercial Finance Corporation, dated
February 1, 2000 (the "Senior Credit Facility Agreements") remains in full force
and effect and (ii) the Company has satisfied all the conditions precedent to
the initial drawdown.
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<PAGE> 20
ARTICLE V
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the Preferred Shares
shall be subject to the satisfaction, prior to or concurrently with such
issuance and sale, of the following conditions:
5.1 Tender by Purchasers. At the Closing, each of the Purchasers shall
have tendered the cash consideration set forth on Schedule I attached hereto.
5.2 Representations and Warranties; Performance of Covenants. The
representations and warranties of each Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
as if made on and as of such date, and each Purchaser shall have performed and
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it prior to or on the Closing
Date.
5.3 Master Amendment Agreement. Prior to or at the Closing, the Master
Amendment Agreement shall have been executed and delivered by each of the
parties thereto.
5.4 Applicable Law. The Purchasers' purchase of the Preferred Shares
shall not be prohibited by any applicable law, court order or governmental
regulation and there shall not be any litigation, investigation or proceeding of
or before any court, arbitrator or governmental authority pending or threatened
with respect to any of the Documents or the transactions contemplated thereby.
5.5 Consents. All governmental authorizations, consents, approvals or
exemptions required by the Company to issue and sell the Preferred Shares
pursuant to this Agreement shall have been obtained, and all necessary
governmental filings shall have been made.
5.6 Performance of Obligations. All proceedings taken or to be taken in
connection with the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Company and the
Company and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request, which
shall include, without limitation, a copy of each of the Documents, duly
executed by each party thereto.
ARTICLE VI
ADDITIONAL COVENANTS OF THE COMPANY
The Company covenants and agrees that, except as provided in Section
6.1 below, until such time as the Company has consummated a Public Offering (as
such term is defined in the Stockholders' Agreement):
6.1 Securities Law Filings. Upon consummation of a Public Offering (as
such term is defined in the Stockholders' Agreement), and for so long as the
Purchasers hold Conversion Shares, the Company will timely file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder, to the extent required from
time to time to enable the Purchasers to sell Conversion Shares without
registration under the
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Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such rule may be amended from time to time, or (ii)
any similar rule or regulation hereafter adopted by the SEC. Upon the request of
any Purchaser, the Company will deliver a written statement as to whether it has
complied with such requirements.
6.2 Transactions with Substantial Holders. The Company shall not,
directly or indirectly, enter into any material transaction or agreement with
any stockholder owning or having a right to acquire 5% or more of the capital
stock of the Company (a "Substantial Holder") or any affiliate, director or
officer of the Company or a Substantial Holder, or a material transaction or
agreement in which a Substantial Holder or affiliate, director or officer of the
Company or a Substantial Holder has a direct or indirect interest, unless such
transaction or agreement is on terms and conditions no less favorable to the
Company or any Subsidiary than could be obtained at the time in an arm's length
transaction with a third person that is not such a Substantial Holder or
affiliate or officer of the Company or a Substantial Holder, and such
transaction or agreement has been reviewed and approved by (i) a majority of
those members of the Company's Board of Directors who have no such interest in
the transaction, and (ii) not less than a majority of the outstanding Preferred
Shares voting separately as a class. Except as provided in Section 9.3, this
Section 6.2 shall not be enforceable against the Company by any person or entity
not a party to this Agreement.
6.3 Business and Financial Covenants. The Company covenants that:
(a) At any time prior to the Closing or on and after the
Closing without the prior written consent of the holders of not less than a
majority of the outstanding Preferred Shares voting separately as a class:
(1) Merger, Consolidation, Acquisitions, Sale of
Assets.
(i) The Company shall not merge, effect a liquidation
or statutory share exchange, consolidate with, or otherwise
engage in any transaction or series of related transactions
which results in a change of control or permit any Subsidiary
to merge, effect a liquidation or statutory share exchange, or
consolidate with, any entity or otherwise effect a change of
control other than as provided in Section 6.3(b)(1).
(ii) The Company shall not sell, assign, lease or
otherwise dispose of, or permit any Subsidiary to sell,
assign, lease or otherwise dispose of, all or substantially
all of its assets (whether now owned or hereafter acquired)
other than as provided in Section 6.3(b)(2).
(iii) Except for up to 10,000,000 shares of Common
Stock of the Company which may be issued upon the exercise of
options granted under the Company's Employee Incentive Plan
pursuant to option grants having a per share exercise price of
not less than fair market value on the date of grant as
determined by the Board of Directors, the Company will not,
and will not permit any Subsidiary to, hereafter issue or sell
any shares of capital stock or any securities convertible
into, or any warrants, rights, or
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options to purchase shares of, the capital stock of the
Company or such Subsidiary to any person or entity other than
the Company, and the Company will not pledge any of the
capital stock of any Subsidiary to any person or entity.
(2) Loans to and Investments in Others. The Company
shall not (except for the advancement of money for expenses in
the ordinary course of business) make, or permit any
Subsidiary to make, any loans or advances to any person or
entity or have outstanding any investment in any entity,
whether by way of loan or advance to, or by the acquisition of
the capital stock, assets or obligations of or any interest
in, any person or entity.
(3) Articles of Incorporation. The Company shall not
amend or repeal its articles of incorporation or bylaws, or
violate or breach any of the provisions thereof, provided,
however, the prior written consent of the holders of
two-thirds (2/3) of the outstanding Preferred Shares voting
separately as a class shall be required to amend or repeal the
Company's articles of incorporation or bylaws in a manner
which would adversely affect in a disparate manner the rights
of the holders of the Preferred Shares as compared to the
Series A Preferred Stock and Series B Preferred Stock.
(4) Debt/Lease Obligations. The Company shall not (i)
create, incur or suffer to exist or permit any Subsidiary to
create, incur or suffer to exist, any debt or any obligations
for the payment of rent for any property real or personal
under leases or agreements to lease ("Lease Obligations")
other than debt or Lease Obligations which in the aggregate do
not exceed $10,000,000 in any one calendar year, and (ii)
materially amend, modify, extend or refinance or permit any
Subsidiary to materially amend, modify, extend or refinance
any existing debt or Lease Obligation.
(5) Acquisitions. The Company shall not acquire, or
permit any Subsidiary to acquire, directly or indirectly, the
assets of or equity interests in any other business or entity,
whether by purchase, merger, consolidation or otherwise.
(6) Public Offering. The Company shall not effect an
initial public offering of any equity securities, other than a
public offering in which the Company would receive gross
offering proceeds of not less than $35,000,000 and the common
equivalent price per share to the public is not less than
$9.38, subject to equitable adjustment for any subdivision,
stock split, combination or other similar corporate
transaction affecting the capital stock of the Company.
(7) Other Actions. The Company shall not take any
other action that could reasonably be expected to have a
Material Adverse Effect on the holders of the Preferred
Shares.
(b) At any time prior to the Closing or on and after the
Closing without the prior written consent of the holders of two-thirds (2/3) of
the outstanding of the Preferred Shares voting separately as a class:
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<PAGE> 23
(1) The Company shall not merge, effect a liquidation
or statutory share exchange, consolidate with, or otherwise
engage in any transaction or series of related transactions
which results in a change of control or permit any Subsidiary
to merge, effect a liquidation or statutory share exchange, or
consolidate with, any entity or otherwise effect a change of
control; if the consideration to be received by the holders of
the Preferred Shares is or is valued at less than or equal to
$7.00 per share of Preferred Stock.
(2) The Company shall not sell, assign, lease or
otherwise dispose of, or permit any Subsidiary to sell,
assign, lease or otherwise dispose of, all or substantially
all of its assets (whether now owned or hereafter acquired) if
the consideration to be received by the Corporation, as
calculated on a per share basis and after giving affect to all
liquidation preferences, would be less than or equal to $7.00
per share of Preferred Stock.
(3) Restricted Payments; Repurchase of Common Stock.
Except as permitted by Section 6.3(b)(2) hereof, neither the
Company nor a Subsidiary shall declare or make any Restricted
Payment. "Restricted Payment" means (i) any payment or the
incurrence of any liability to make any payment in cash,
property or other assets as a dividend or other distribution
in respect of any shares of capital stock of the Company or
any Subsidiary, excluding, however, any dividends payable to
the Company by a Subsidiary, and (ii) except as otherwise
permitted by the Documents or as required by the Company's
Articles of Incorporation, any payment or the incurrence of
any liability to make any payment in cash, property or other
assets for the purposes of purchasing, retiring or redeeming
any shares of any class of capital stock of the Company or any
Subsidiary or any warrants, options or other rights to
purchase any such shares, other than employee stock
repurchases approved by the Board of Directors of the Company
upon termination of such employee's employment.
(4) Repurchase of Preferred Shares. Except as
provided in the Company's Articles of Incorporation, the
Company shall not, and shall not permit any Subsidiary or any
affiliate of the Company to, directly or indirectly, redeem or
repurchase or make any offer to redeem or repurchase any
Preferred Shares (or Conversion Shares), unless the Company,
such Subsidiary or such affiliate has offered to repurchase
Preferred Shares (or Conversion Shares) pro rata, from all
holders of outstanding Preferred Shares (or Conversion Shares)
upon the same terms.
6.4 Corporate Existence, Business, Maintenance, Insurance.
(a) The Company will at all times preserve and keep in full
force and effect its corporate existence and rights and franchises deemed
material to its business and those of its Subsidiaries, except any Subsidiary of
the Company may be merged into the Company or another Subsidiary.
-19-
<PAGE> 24
(b) The Company shall engage solely in the business of
providing local exchange and long distance telecommunication services to
residential customers and small and medium size businesses and such other
related business activities approved by the Board. The Company (and any
Subsidiary) will not purchase or acquire any property other than property useful
in and related to such business.
(c) The Company will maintain or cause to be maintained in
good repair, working order and condition all properties used or useful in the
business of the Company and any Subsidiary and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof. The
Company and any Subsidiary will at all times comply in all material respects
with the provisions of all material leases to which it is a party or under which
it occupies property so as to prevent any loss or forfeiture thereof or
thereunder.
(d) The Company will maintain or cause to be maintained, with
financially sound and reputable insurers, appropriate insurance with respect to
its properties and business and the properties and business of any Subsidiary
against loss or damage.
6.5 Payment of Taxes; ERISA.
(a) The Company will pay, and will cause any Subsidiary to
pay, all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its franchises,
business, income or profits before any penalty or interest accrues thereon, and
all claims (including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by law have
or might become a lien or charge upon any of its properties or assets, provided
that no such charge or claim need be paid if being diligently contested in good
faith by appropriate proceedings and if such reserve or other appropriate
provisions, if any, as shall be required by generally accepted accounting
principles shall have been made therefor.
(b) The Company and any Subsidiary will comply in all material
respects with the Employee Retirement Income Security Act of 1974, as amended
from time to time.
6.6 Books and Records, Compliance.
(a) The Company and any Subsidiary will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
(b) The Company and any Subsidiary shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its property or
assets.
6.7 Directors' and Officers' Liability Insurance. The Company shall use
its best efforts to obtain directors' and officers' liability insurance, if such
insurance is available at a cost which the Company's Board of Directors deems to
be reasonably satisfactory.
-20-
<PAGE> 25
6.8 Compensation. All awards of compensation, including, but not
limited to, salary, bonus and awards of stock options made to executive
officers, key managers and/or directors of the Company shall be determined by
the Company's Board of Directors in accordance with the terms of the
Stockholders' Agreement.
6.9 Key Person Life Insurance. The Company shall maintain and keep in
full force and effect key person life insurance on the life of Shaler P. Houser
in an aggregate amount of not less than $5,000,000 with the proceeds thereof
payable to the Company.
6.10 SBA Requirements. The Company will at all times after the Closing
Date comply with the nondiscrimination requirements of 13 C.F.R. Sections 112
and 113.
ARTICLE VII
INFORMATION
The Company covenants and agrees that it shall deliver the following
information and provide the following rights to each Purchaser (including
permitted transferees in accordance with Section 9.3, except as set forth in
Section 7.7), for so long as such Purchaser together with its affiliates (or
such transferees) shall hold at least 2.5% of the aggregate outstanding
Preferred Shares or Conversion Shares (considered as a single class), or until
such time as the Company shall have consummated a Qualified Public Offering (as
defined in the Articles of Incorporation):
7.1 Audited Annual Financial Statements. As soon as practicable and, in
any case, within one hundred and twenty (120) days after the end of each fiscal
year, financial statements of the Company, consisting of the balance sheet of
the Company as of the end of such fiscal year and the statements of operations,
statements of shareholders' equity and statements of cash flows of the Company
for such fiscal year, setting forth in each case, in comparative form, the
figures for the preceding fiscal year, all in reasonable detail and fairly
presented in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods reflected therein, and accompanied by
an opinion thereon of KPMG Peat Marwick LLP, or other independent certified
public accountants selected by the Company of good and recognized national
standing in the United States.
7.2 Quarterly Unaudited Financial Statements. As soon as practicable
and, in any case, within forty-five (45) days after the end of each of the first
three fiscal quarters in each fiscal year, unaudited financial statements of the
Company setting forth the balance sheet of the Company at the end of each such
fiscal quarter and the statements of operations and statements of cash flows of
the Company for each such fiscal quarter and for the year to date, and setting
forth in comparative form figures as of the corresponding date and for the
corresponding periods of the preceding fiscal year (provided that quarterly
statements of cash flows shall not be required for periods ended prior to the
Closing Date), all in reasonable detail and certified by the chief financial
officer of the Company as complete and correct, as having been prepared in
accordance with generally accepted accounting principles consistently applied
and as presenting fairly, in all material respects, the financial position of
the Company and any Subsidiary and results of operations and cash flows thereof
subject, in each case, to customary exceptions for interim unaudited financial
statements.
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<PAGE> 26
7.3 Monthly Unaudited Financial Statements. As soon as available, but
in any event within thirty (30) days after the end of each calendar month,
copies of the unaudited balance sheet of the Company as at the end of such
calendar month and the related unaudited statements of operations and cash flows
for such calendar month and the portion of the calendar year through such
calendar year, in each case setting forth in comparative form the figures for
the corresponding periods of (a) the previous calendar year (provided that
monthly financial information shall not be required for periods ended prior to
the Closing Date) and (b) the budget for the current year, prepared in
reasonable detail and in accordance with generally accepted accounting
principles applied consistently throughout the periods reflected therein and
certified by the chief financial officer of the Company as presenting fairly the
financial condition and results of operations of the Company and any Subsidiary
(subject to customary exceptions for interim unaudited financial statements).
7.4 Management's Analysis. All the financial statements delivered
pursuant to Sections 7.1 and 7.2 shall be accompanied by an informal narrative
description of material business and financial trends and developments and
significant transactions that have occurred in the appropriate period or periods
covered thereby.
7.5 Budgets. As soon as practicable, but in any event within ninety
(90) days prior to the commencement of a fiscal year, an annual operating budget
for such fiscal year, approved by the Board of Directors, including monthly
income and cash flow projections and projected balance sheets as of the end of
each quarter within such fiscal year.
7.6 Inspection. (a) The Company shall, and shall cause any Subsidiary
to, permit any such Purchaser, by its representatives, agents or attorneys:
(i) to examine all books of account, records, reports
and other papers of the Company or such Subsidiary except to
the extent that such action would, in the reasonable opinion
of counsel, constitute a waiver of the attorney/client
privilege;
(ii) to make copies and take extracts from any
thereof, except for information which is confidential or
proprietary;
(iii) to discuss the affairs, finances and accounts
of the Company or such Subsidiary with the Company's or such
Subsidiary's officers and independent certified public
accountants (and by this provision the Company hereby
authorizes said accountants to discuss with any such Purchaser
and its representatives, agents or attorneys the finances and
accounts of the Company or such Subsidiary); and
(iv) to visit and inspect, at reasonable times and on
reasonable notice during normal business hours, the properties
of the Company and such Subsidiary.
-22-
<PAGE> 27
(b) Notwithstanding any provision herein to the contrary, the
provisions of this Section 7.6 are in addition to any rights of the Purchasers
under the South Carolina Business Corporation Act of 1988, as amended and shall
in no way limit such rights.
(c) The expenses of any Purchaser in connection with any such
inspection shall be for the account of such Purchaser. Notwithstanding the
foregoing sentence, it is understood and agreed by the Company that all
reasonable expenses incurred by the Company or such Subsidiary, any officers,
employees or agents thereof or the independent certified public accountants
therefor, shall be expenses payable by the Company and shall not be expenses of
the Purchaser making the inspection.
7.7 Other Information. The Company shall deliver the following to each
such Purchaser, provided that in the reasonable opinion of counsel to the
Company such disclosure will not constitute a waiver of the attorney/client
privilege:
(a) promptly after the submission thereof to the
Company, copies of any detailed reports (including the
auditors' comment letter to management, if any such letter is
prepared) submitted to the Company by its independent auditors
in connection with each annual or interim audit of the
accounts of the Company made by such accountants;
(b) promptly, and in any event within ten (10) days
after obtaining knowledge thereof, notice of the institution
of any suit, action or proceeding (other than a proceeding of
general application which is not directly against the Company
or one or more Subsidiary), the happening of any event or, to
the best knowledge of the Company, the assertion or threat of
any claim against the Company or any Subsidiary;
(c) promptly upon, and in any event within thirty
(30) days after obtaining knowledge thereof, notice of any
breach of, default under or failure to comply with any term
under this Agreement or any of the Documents or any material
adverse change in the Company's relationship with its major
customers, suppliers, employees or other entity with which the
Company has a business relationship;
(d) with reasonable promptness, a notice of any
default by the Company or any Subsidiary under any material
agreement to which it is a party;
(e) with reasonable promptness, copies of all written
materials furnished to directors;
(f) promptly (but in any event within ten days) after
the filing of any document or material with the SEC, a copy of
such document or material;
(g) promptly after the record date set by the Board
of Directors to determine the stockholders entitled to vote at
the Company's annual meeting of stockholders (but in any event
ten days prior to such meeting), a list of all stockholders of
the Company and their respective holdings; and
-23-
<PAGE> 28
(h) promptly upon request therefor, such other data,
filings and information as any Purchaser may from time to time
reasonably request.
ARTICLE VIII
EXPENSES
8.1 Legal Fees and Other Expenses. The Company shall pay or reimburse
the Purchasers for all fees and charges incurred by them, including all
reasonable legal, consulting and accounting fees, in connection with the
preparation, execution, and delivery of the Documents and the consummation of
the transactions contemplated thereby whether or not the transactions
contemplated by this Agreement are consummated.
8.2 Finder's Fee. Each party represents and warrants to each other
party that it has employed no broker or finder.
8.3 Other Expenses. The Company shall pay, and shall save each
Purchaser harmless against liability for, reasonable costs and expenses relating
to any modification, amendment, alteration or enforcement of this Agreement and
the other Documents (including, without limitation, reasonable legal fees and
disbursements and any applicable taxes thereon). The obligations of the Company
under this Section 8.4 shall survive the termination of this Agreement and the
other Documents.
ARTICLE IX
MISCELLANEOUS
9.1 Survival. Except for the covenants and agreements contained in
Articles VI, VII, and VIII hereof which shall survive termination of this
Agreement in accordance with their respective terms, all agreements and
covenants made by the Company and the Founders herein or by the Company or
Founders in any certificate or other instrument delivered under or in connection
with this Agreement shall be considered to have been relied upon by the
Purchasers and shall survive the delivery to the Purchasers of the Preferred
Shares regardless of any investigation made by the Purchasers or on their
behalf.
9.2 Indemnification. (a) Indemnification by the Company. The Company
shall, to the fullest extent permitted by law, indemnify, defend and hold each
Purchaser and its affiliates and their respective directors, officers, employees
and agents harmless from and against any liability, loss or damage, together
with all reasonable costs and expenses related thereto (including reasonable
legal fees and expenses), arising out of or related to the untruth, inaccuracy
or breach of any of the representations, warranties or agreements of the Company
contained in this Agreement or any other document or instrument executed or
entered into by the Company in connection with the consummation of the
transactions contemplated herein.
(b) Indemnification by the Purchasers. Each Purchaser shall,
severally and not jointly, to the fullest extent permitted by law, indemnify,
defend and hold the Company harmless
-24-
<PAGE> 29
from and against any liability, loss or damage, together with all reasonable
costs and expenses related thereto (including reasonable legal fees and
expenses), arising out of or related to the untruth, inaccuracy or breach of any
of the representations, warranties or agreements of such Purchaser contained in
this Agreement or any other document or instrument executed or entered into by
such Purchaser in connection with the consummation of the transactions
contemplated herein.
(c) Survival of Representations and Warranties; Duration of
Rights of Indemnification. The representations and warranties contained in this
Agreement and the right of each party to be indemnified hereunder shall survive
for a period of two years following the Closing Date; provided, however, the
right of each party to seek indemnification shall continue after such two year
period with respect to:
(i) any claim for indemnification properly noticed
within such two year period;
(ii) any claim for indemnification arising out of or
related to a breach of the representations and warranties
contained at Sections 2.6, 2.7, 2.8 or 2.22 of this Agreement,
which right of indemnification shall extend until the
expiration of all applicable statutes of limitation.
9.3 Transfer and Termination of Rights. No rights under this Agreement
may be transferred, except that:
(i) the rights of a Purchaser under this Agreement
may be transferred after the Closing in connection with a
transfer of Preferred Shares made in accordance with the
provisions of the Stockholders' Agreement (other than a
transfer pursuant to a registration statement under the
Securities Act or a transfer pursuant to Rule 144 thereunder);
and
(ii) all the rights of a Purchaser may be transferred
to an affiliate of such Purchaser;
provided, that any such transferee shall execute and deliver to the Company an
instrument satisfactory to it agreeing to be bound by the provisions hereof and
of the Stockholders' Agreement and the Registration Rights Agreement.
9.4 Binding Effect. Subject to the limitations on transfer set forth in
Section 9.3, this Agreement and all the provisions hereof shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
9.5 Amendment. This Agreement may be amended or supplemented, and the
observance of any term hereof or thereof may be waived, with the written consent
of the Company and (i) on or prior to the Closing Date, each Purchaser, and (ii)
after the Closing Date, the holders of a two-thirds (2/3) of the Preferred
Shares and any Conversion Shares voting as a single class.
-25-
<PAGE> 30
9.6 Governing Law. The interpretation, validity and performance of the
terms of this Agreement shall be governed by the laws of the State of South
Carolina, regardless of the law that might be applied under principles of
conflicts of law that require or permit application of the laws of any other
state or jurisdiction.
9.7 Notices. (a) All communications under this Agreement shall be in
writing and (i) sent by facsimile transmission and by certified or registered
mail, return receipt requested, courier or overnight mail, or (ii) sent by
certified or registered mail, return receipt requested, courier or overnight
mail (A) if to a Purchaser, to such Purchaser's facsimile number and address set
forth in Schedule I, or at such other address as such Purchaser may have
furnished to the Company in writing, (B) if to any transferee of a Purchaser, to
it at its facsimile number and address listed in the stock ledger books of the
Company, or at such other address as such Purchaser or transferee shall have
furnished to the Company in writing, and (C) if to the Company, to 200 North
Main Street, Suite 303, Greenville, South Carolina 29601, Attention: Hamilton E.
Russell III, Esq. or at such other address or facsimile number as it shall have
furnished in writing to all Purchasers.
(b) Any written communication so addressed, sent by facsimile
transmission or certified or registered mail, return receipt requested, courier
or overnight mail, shall be deemed to have been given when sent via facsimile or
mailed or deposited with a courier. All other written communications shall be
deemed to have been given upon receipt thereof.
9.8 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
9.9 Regulatory Requirements. In the event of any reasonable
determination by any Purchaser that, by reason of any future federal or state
rule, regulation, guideline, order, request or directive (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) (collectively, a "Regulatory Requirement"), it is effectively
restricted or prohibited from holding any of the shares of capital stock of the
Company (including any shares of capital stock or other securities distributable
to such Purchaser in any merger, reorganization, readjustment or other
reclassification of such shares), the Company shall take such action, at the
Company's expense, as may be deemed reasonably necessary by such Purchaser to
permit such Purchaser to comply with such Regulatory Requirement. Such action to
be taken may include, without limitation, the Company's authorization of one or
more new classes of capital stock and the modification of amendment of the
articles of incorporation or any other documents or instruments executed in
connection with the shares held by such Purchaser. Such Purchaser shall give
written notice to the Company of any such determination and the action or
actions necessary to comply with such Regulatory Requirement, and the Company
shall take all steps necessary to comply with such determination as
expeditiously as possible. This Section 9.9 shall not be deemed to limit in any
respect the representations of the Purchasers in Sections 3.2 and 3.4 hereof
9.10 Counterparts. This Agreement may be executed and delivered in two
or more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
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<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
STATE COMMUNICATIONS, INC.
By:
----------------------------------------
Title:
-------------------------------------
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc.,
Trading Advisor
By:
----------------------------------------
Title:
-------------------------------------
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C., General
Partner
By:
----------------------------------------
Title:
-------------------------------------
CIBC WMC INC.
By:
----------------------------------------
Title:
-------------------------------------
NORTEL NETWORKS INC.
By:
----------------------------------------
Title:
-------------------------------------
WACHOVIA CAPITAL INVESTMENTS, INC.
By:
----------------------------------------
Title:
-------------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-27-
<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
- ----------------------------------- -------------------------------------
Portia B. Ortale John Ryan Tyrrell
- ----------------------------------- -------------------------------------
Patrick S. Hale Mark Eric Isaacs
- ----------------------------------- -------------------------------------
Linda F. Swafford Beverly Ann Schrichte
- ----------------------------------- -------------------------------------
Laura Farish Chadwick Management Trust The Chadwick 1998 Children's Trust
By: By:
------------------------------- ----------------------------------
Name: Name:
----------------------------- -------------------------------
Title: Title:
---------------------------- -------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-28-
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
------------------------------------------
Randy McDougald
------------------------------------------
Vincent Oddo
------------------------------------------
William Adams
------------------------------------------
Ronald Kirby
------------------------------------------
Hamilton E. Russell, III
[SIGNATURES CONTINUED ON NEXT PAGE]
-29-
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
------------------------------------------
James Dunn
------------------------------------------
John C. West Trustee for Ernest F. Hollings
------------------------------------------
Riley Murphy
------------------------------------------
JoAnn Langston
------------------------------------------
G. Michael Cassity
CLARK H. MIZELL SSB IRA ROLLOVER
By:
----------------------------------------
Title:
-------------------------------------
-30-
<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Purchase Agreement as of the date first above written.
MOORE TECHNOLOGY VENTURE FUND II, L.P.
By:
----------------------------------------
By:
----------------------------------------
Title:
-------------------------------------
-31-
<PAGE> 36
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
(B)
(A) Total Purchase Price to be
Purchasers No. of Shares Paid at Closing
---------- ------------- ---------------
<S> <C> <C>
John Ryan Tyrrell 51,765 $ 220,001.25
Portia B. Ortale 28,236 $ 120,003.00
Laura Farish Chadwick Management Trust 11,765 $ 50,001.25
The Chadwick 1998 Children's Trust 11,765 $ 50,001.225
Patrick S. Hale 5,882 $ 24,998.50
Mark Eric Isaacs 5,882 $ 24,998.50
Linda F. Swafford 1,176 $ 4,998.00
Beverly Ann Schrichte 1,176 $ 4,998.00
Moore Technology Venture Fund II L.P. 282,352 $ 1,199,996.00
1251 Avenue of the Americas
New York, NY 10020
Attn: Savvas Savvinidis
(212) 782-7017
Fax: (212) 382-9813
CIBC WMC Inc. 1,764,706 $ 7,500,000.50
c/o CIBC Capital Partners
425 Lexington Avenue
New York, NY 10017
Attn: Richard White
Nortel Networks Inc. 1,176,471 $ 5,000,001.75
GMS 991 15 A40
2221 Lakeside Blvd
Richardson, Texas 75082-4399
Attn: Mitchell L. Stone
Director, Customer Finance North America
(972) 684-0395
Fax: (972) 684-3679
Wachovia Capital Investments, Inc. 470,588 $ 1,999,999.00
191 Peachtree Street, NE
GA 423, 26th Floor
Atlanta, Georgia 30303
Attention: Andrew Rose
(404) 332-1176
Fax: (404) 332-1392
Randy McDougald 23,529 $ 99,998.25
</TABLE>
-1-
<PAGE> 37
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
(B)
(A) Total Purchase Price to be
Purchasers No. of Shares Paid at Closing
---------- ------------- ---------------
<S> <C> <C>
Vincent Oddo 10,000 $ 42,500.00
William Adams 20,000 $ 85,000.00
Ronald Kirby 52,941 $ 224,999.25
Hamilton E. Russell III 5,000 $ 21,250.00
James Dunn 23,529 $ 99,998.25
John C. West Trustee for Ernest F. Hollings 5,000 $ 21,250.00
Riley Murphy 35,000 $ 148,750.00
9008 Potomac Forest Drive
Great Falls, VA 2206?
Fax: (703) 757-9476
JoAnn Langston 5,000 $ 21,250.00
G. Michael Cassity 212,940 $ 904,995.00
Clark H. Mizell SSB IRA Rollover 10,000 $ 42,500.00
Total 4,214,703 $17,912,487.75
</TABLE>
-2-
<PAGE> 1
EXHIBIT 10.9.1
FORM OF EMPLOYMENT AGREEMENT
Set forth below is the form of employment agreement entered into by and
between TriVergent (f/k/a State Communications, Inc.) and each of Charles S.
Houser, Shaler P. Houser, Russell W. Powell, Clark H. Mizell and Daniel E.H.
Sterling. The terms of employment set forth in the employment agreements have
not changed except that the titles of Shaler P. Houser and Russell W. Powell
have changed as indicated below and salaries have been increased. The table
immediately below sets forth the material provisions of each such person's
employment agreement not contained in the form of employment agreement.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
STARTING DATE OF
NAME INITIAL POSITION CURRENT POSITION SALARY AGREEMENT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles S. Houser Chief Executive Officer Chief Executive Officer $200,000 9/21/99
- -------------------------------------------------------------------------------------------------------
Shaler P. Houser Chief Executive Officer Senior Vice President of $150,000 9/20/99
Corporate Development
- -------------------------------------------------------------------------------------------------------
Russell W. Powell President Senior Vice President of $147,000 9/20/99
Sales
- -------------------------------------------------------------------------------------------------------
Clark H. Mizell Senior Vice President & Senior Vice President & $142,000 9/17/99
Chief Financial Officer Chief Financial Officer
- -------------------------------------------------------------------------------------------------------
Daniel E.H. Sterling Senior Vice President of Senior Vice President of $102,000 9/09/99
Dealer Sales Dealer Sales
- -------------------------------------------------------------------------------------------------------
</TABLE>
THIS CONTRACT IS SUBJECT TO ARBITRATION PURSUANT TO S.C. CODE SEC. 15-48-10*
STATE OF SOUTH CAROLINA )
) EMPLOYMENT AGREEMENT
COUNTY OF GREENVILLE )
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
effective as of the 28th day of October, 1998 (the "Effective Date") by and
between _____________________, an individual (the "Employee"), and State
Communications, Inc., a South Carolina corporation headquartered in Greenville,
South Carolina (the "Company"). As used herein, the term "Company" shall include
the Company and any and all of its subsidiaries where the context so applies.
W I T N E S S E T H
WHEREAS, the Company desires to enter into an employment relationship
with Employee on certain terms and conditions as set forth herein; and
- ---------------------------
* UNLESS THE UNITED STATES ARBITRATION ACT APPLIES.
<PAGE> 2
WHEREAS, Employee has agreed to accept such employment upon the terms
and conditions as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Position. Subject to the terms and conditions of this Agreement, the Company
hereby employs the Employee and Employee hereby accepts such employment as
_______________________ of the Company.
2. Definitions. For purposes of this Agreement, the following terms shall have
the meanings specified below.
"Change in Control" shall mean:
(i) the acquisition, directly or indirectly, by any Person
(other than (A) any employee plan established by the Company, (B) the
Company or any of its affiliates (as defined in Rule 12b-2 promulgated
under the Exchange Act), (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) a
corporation owned, directly or indirectly, by stockholders of the
Company in substantially the same proportions as their ownership of the
Company), directly or indirectly, of securities of the Company (not
including the securities beneficially owned by such Person any
securities acquired directly from the Company) representing an
aggregate of 20% or more of the combined voting power of the Company's
then outstanding voting securities;
(ii) during any period of up to two consecutive years
individuals who, at the beginning of such period, constitute the Board
cease for any reason to constitute at least a majority thereof,
provided that any person who becomes a director subsequent to the
beginning of such period and whose nomination for election is approved
by at least two-thirds of the directors then still in office who either
were directors at the beginning of such period or whose election or
nomination for election was previously so approved (other than a
director (A) whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election of
the directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act, or (B) who was designated by a
Person who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii) or (iv) hereof) shall be
deemed a director as of the beginning of such period;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than (A)
a merger or consolidation that would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of any Company, at
least 51% of the combined voting power of the voting securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (B) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
beneficial owner (as defined in clause (i) above), directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company) representing 25% or more of the combined
voting power of the Company's then outstanding voting securities; or
(C) a plan of complete liquidation of the Company; or
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(iv) the occurrence of any other event or circumstance which
is not covered by (i) through (iii) above which the Board determines
affects control of the Company and, in order to implement the purposes
of this Agreement as set forth above, adopts a resolution that such
event or circumstance constitutes a Change in Control for the purposes
of this Agreement.
"Cause" shall mean:
(i) in the absence of a Change in Control: (a) fraud; or (b)
embezzlement; or (c) conviction of the Employee of any felony; or (d) a
material breach of, or the willful failure or refusal by the Employee
to perform and discharge the Employee's duties, responsibilities and
obligations under, this Agreement, as determined by the Board in its
reasonable judgment, or the repeated failure of the Employee to follow
reasonable directives and performance standards established by the
Board; or (e) any act of moral turpitude or willful misconduct by the
Employee which is intended to result in personal enrichment of the
Employee at the expense of the Company, or any of its affiliates, or
which has a material adverse impact on the business or reputation of
the Company or any of its affiliates (such determination to be made by
the Board in its reasonable judgment); or (f) intentional material
damage to the property or business of the Company; or (g) gross
negligence; or (h) the ineligibility of the Employee to perform his
duties because of a ruling, directive or other action by any agency of
the United States or any state of the United States having regulatory
authority over the Company.
(ii) after a Change in Control: (a) the willful and continued
failure of the Employee substantially to perform his duties with the
Company (other than any failure due to physical or mental incapacity)
or (b) willful misconduct materially and demonstrably injurious to the
Company, in each case, as determined in the reasonable discretion of
the Board, but only if (1) the Employee has been provided with written
notice of any assertion that there is a basis for termination for cause
which notice shall specify in reasonable detail specific facts
regarding any such assertion, (2) such written notice is provided to
the Employee a reasonable time before the Board meets to consider any
possible termination for cause, (3) at or prior to the meeting of the
Board to consider the matters described in the written notice, an
opportunity is provided to the Employee and his counsel to be heard
before the Board with respect to the matters described in the written
notice, (4) any resolution or other Board action held with respect to
any deliberation regarding or decision to terminate the Employee for
cause is duly adopted by a vote of a majority of the entire Board of
the Company at a meeting of the Board called and held and (5) the
Employee is promptly provided with a copy of the resolution or other
corporate action taken with respect to such termination. No act or
failure to act by the Employee shall be considered willful unless done
or omitted to be done by him not in good faith and without reasonable
belief that his action or omission was in the best interests of the
Company. The unwillingness of the Employee to accept any or all of a
change in the nature or scope of his position, authorities or duties, a
reduction in his total compensation or benefits, a relocation that he
deems unreasonable in light of his personal circumstances, or other
action by or request of the Company in respect of his position,
authority, or responsibility that he reasonably deems to be contrary to
this Agreement, may not be considered by the Board to be a failure to
perform or misconduct by the Employee.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute, rule or regulation of similar effect.
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"Disability" or "Disabled" shall mean the Employee's inability as a
result of physical or mental incapacity to substantially perform his
duties for the Company on a full-time basis for a period of six (6)
months.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Involuntary Termination" shall mean the termination of Employee's
employment by the Employee following a Change in Control which, in the
sole judgment of the Employee, is due to (i) a change of the Employee's
responsibilities, position (including status as Vice President of Sales
of the Company, its successor or ultimate parent entity, office, title,
reporting relationships or working conditions) authority or duties
(including changes resulting from the assignment to the Employee of any
duties inconsistent with his positions, duties or responsibilities as
in effect immediately prior to the Change in Control); or (ii) a change
in the terms or status (including the rolling one year termination
date) of this Agreement; or (iii) a reduction in the Employee's
compensation or benefits; or (iv) a forced relocation of the Employee
outside the Greenville metropolitan area; or (v) a significant increase
in the Employee's travel requirements.
"Person" shall mean any individual, corporation, bank, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or other entity.
3. Duties. During the term hereof, the Employee shall have such duties and
authority as are typical of someone in his position with a company such as the
Company, including, without limitation, those specified in the Company's bylaws
or those reasonably set forth by the Board. Employee agrees that during the Term
hereof, he will devote his full time, attention and energies to the diligent
performance of his duties. Employee shall not, without the prior written consent
of the Company, at any time during the Term hereof (i) accept employment with,
or render services of a business, professional or commercial nature to, any
Person other than the Company, (ii) engage in any venture or activity which the
Company may in good faith consider to be competitive with or adverse to the
business of the Company or of any affiliate of the Company, whether alone, as a
partner, or as an officer, director, employee or shareholder or otherwise,
except that the ownership of not more than 5% of the stock or other equity
interest of any publicly traded corporation or other entity shall not be deemed
a violation of this Section, or (iii) engage in any venture or activity which
the Board may in good faith consider to interfere with Employee's performance of
his duties hereunder.
4. Term. Unless earlier terminated as provided herein, the Employee's employment
hereunder shall be for a rolling term of two years (the "Term") commencing on
the Effective Date hereof. This Agreement shall be deemed to extend each day for
an additional day automatically and without any action on behalf of either party
hereto.
4.1 Upon Employee's death or Disability, the Company shall have the
right to terminate this Agreement immediately. Upon such termination, the
Employee (or his estate) shall be entitled to receive from the Company as
severance upon such termination, the compensation and benefits, as provided in
Section 5, remaining in the Term.
4.2 At any time, the Company shall have the right to terminate
Employee's employment immediately for Cause, after which the Company's
obligation hereunder shall cease as of the date of the termination.
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4.3 At any time, for any or no reason, the Company, by written notice
to Employee, may cause this Agreement to cease to extend automatically and, upon
such notice, the Term of this Agreement shall be the one year following the date
of such notice, and this Agreement shall terminate automatically upon the
expiration of such Term, after which the Company's obligation hereunder shall
cease.
4.3.1 If the Company terminates the Agreement prior to a
Change in Control for any reason other than for Cause after it fixes the Term
pursuant to this section 4.3, the Employee shall be entitled to receive as
severance upon such termination, the compensation and benefits, as provided in
Section 5, remaining in the Term.
4.3.2 If the Company fixes the Term pursuant to this section
4.3 after a Change in Control, such action shall constitute an Involuntary
Termination, and the Employee shall be entitled to receive as severance upon
such termination, twenty-four (24) months of his annual compensation and
benefits being paid at the time of termination, as provided in Section 5.
4.4 Employee shall have the right to terminate his employment hereunder
if (i) the Company materially breaches this Agreement and such breach is not
cured within 30 days after written notice of such breach is given by Employee to
the Company; (ii) or there is an Involuntary Termination.
4.4.1 If Employee terminates his employment other than
pursuant to clauses (i) or (ii) of this Section 4.4, the Company's obligations
under this Agreement shall cease as of the date of such termination.
4.4.2 If Employee terminates his employment hereunder pursuant
to either clause (i) or clause (ii) of this Section 4.4, Employee shall be
entitled to receive twelve (12) months of his annual compensation and benefits
being paid at the time of termination, as provided in Section 5.
4.5 In the event of termination pursuant to Sections 4.3.1 or 4.3.2 or
Section 4.4.2:
4.5.1 all rights of Employee pursuant to awards of share
grants or options granted by the Company shall be deemed to have vested and
shall be released from all conditions, except for restrictions on transfer
pursuant to the Securities Act of 1933, as amended and such options may be
exercised for up to a maximum of ten years from the date of grant. To the extent
that any term or terms of any option or share grant and this Agreement differ,
the terms of this Agreement govern unless the grant (whether now existing or
entered into after the effective date hereof) expressly states that the
Agreement does not supersede the terms of the grant.
4.5.2 the Employee shall be deemed to be credited with service
with the Company for such remaining Term for the purposes of the Company's
benefit plans; and
4.5.3 the Employee shall be deemed to have retired from the
Company and shall be entitled as of the termination date, or at such later time
as he may elect to commence receiving the total combined qualified and
non-qualified retirement benefit to which he is entitled hereunder, or his total
non-qualified retirement benefit hereunder if under the terms of the Company's
qualified retirement plan for salaried employees, he is not entitled to a
qualified benefit.
If any provision of this Section 4.5 cannot, in whole or in part, be
implemented and carried out under the terms of the applicable compensation,
benefit, or other plan or arrangement of the Company because the Employee has
ceased to be an actual employee of the Company, because the Employee has
insufficient or reduced credited service based upon his actual employment by the
Company, because the plan or arrangement has been terminated or amended after
the effective date of this Agreement, or because of any other reason, the
Company itself shall pay or otherwise provide the equivalent of such rights,
benefits and credits for such benefits to Employee, his dependents,
beneficiaries and estate.
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4.6 Following a Change in Control, in addition to any other termination
payment contained in this Section 4 (the "Termination Payments"), the Employee
shall also be entitled to receive an additional payment in an amount equal to
all taxes (including any interest or penalties imposed with respect to such
taxes) owed by the Employee on these payments, including, without limitation,
any income taxes or excise taxes (including, without limitation, any tax imposed
by Section 4999 of the Code) and any interest and penalties imposed with respect
thereto.
4.7 At the sole discretion of the Company, any Termination Payment may
be made immediately in a lump sum payment or through the regular payroll
schedule during the time in which Employee is to receive Termination Payments
("Termination Payment Period"). The Company's obligation to make Termination
Payments shall be offset by the amount of compensation that Employee receives
from any employment, consulting agreement, independent contractor or other
arrangement pursuant to which he is to receive remuneration ("Other Employment")
during the Termination Payment Period. Employee agrees to promptly notify
Company of his acceptance of any such Other Employment during the Termination
Payment Period and to promptly return to Employer any Termination Payment
attributable to any time period after Employee accepted such Other Employment.
5. Compensation And Benefits. In consideration of Employee's services and
covenants hereunder, Company shall pay to Employee the compensation and benefits
described below (which compensation shall be paid in accordance with the normal
compensation practices of the Company and shall be subject to such deductions
and withholdings as are required by law or policies of the Company in effect
from time to time):
5.1 Annual Salary. During the Term hereof, the Company shall pay to
Employee an initial base salary of $____________. Employee's salary will be
reviewed by the Board at the beginning of each of its fiscal years and, in the
sole discretion of the Board, may be increased for such year.
5.2 Bonus. In addition to the above salary, the Company may pay to
Employee a bonus in an amount and at times to be determined in the sole
discretion of the Board.
5.3 Benefits. Employee shall be entitled to share in any employee
benefits generally provided by the Company to its most highly ranking Employees
and officers for so long as the Company provides such benefits and to any other
benefits given to Employee in the sole discretion of the Board.
6. Gross-Up of Payments. It is the intention of the parties that:
(i) the net amount of all Termination Payments retained by the
Employee after deduction for and payment of all applicable federal, state and
local taxes (the "Withholding Taxes") payable by or on behalf of the Employee
shall be equal to the gross amount of the Termination Payments without regard to
any such deductions or payments (the "Net Termination Payments") and
(ii) the net amount of all other payments or benefits received or to be
received by the Employee from the Company or one of its benefit plans as a
direct or indirect result of or in connection with a Change in Control or in
connection with Termination within one year of a Change in Control, from
whatever source other than a Termination Payment (the "Other Payments"), that
are or become subject to the tax (the "Excise Tax") imposed by Section 4999 of
the Code, shall be equal to the gross amount of the Other Payments without
regard to deduction or payment or any such Excise Tax.
Accordingly, the Termination Payments otherwise payable hereunder shall
be increased by an amount of cash (the "Withholding Gross-Up Payment") equal to
all Withholding Taxes payable by or on behalf of the Employee in respect of the
Termination Payments, including any Withholding Taxes as may be due in respect
of such additional amounts to be paid pursuant to this sentence as will result
in the
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Employee actually retaining an amount equal to the Net Termination Payments. In
addition, if the sum of the Termination Payments, the Withholding Gross-Up
Payment and the Other Payments (the "Total Payments") are or become subject to
the Excise Tax, the Company shall pay the Employee within 30 days of the
termination date an additional cash amount (the "Excise Gross-Up Payment") such
that the net amount actually retained by the Employee, after deduction for or
payment of any Excise Tax on the Total Payments and the sum of any Withholding
Taxes upon the payment provided by this sentence shall be equal to the Total
Payments (the "Net Total Payments"). For the purposes of determining whether any
of the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, the following shall apply:
6.1 all excess parachute payments within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, in
the opinion of tax counsel selected by the Company's independent auditors and
acceptable to the Employee, such other payments or benefits (in whole or in
part) described in clause (a) above do not constitute parachute payments or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280(G)(b)(4) of the Code;
6.2 the amount of the Termination Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of:
(i) the total amount of the Termination Payments; and
(ii) the amount of excess parachute payments within the
meaning of Sections 280G(b)(1) and (4) (after applying Sections 6.1 and
6.2 above).
6.3 the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code; and
6.4 the Employee shall be deemed to pay federal income taxes, and state
and local income taxes in the state and locality of the Employee's residence on
the date of Termination, at the highest marginal rate of income taxation in
effect in the calendar year in which the Gross-Up Payment is to be made, net of
the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local income taxes.
Provided, that in the event the Excise Tax or Withholding Taxes are
subsequently determined to be less than the amounts taken into account hereunder
at the time of the payment of the Withholding Gross-Up Payments or the Excise
Tax Gross-Up Payment, the Employee shall repay the Company the portion of such
payments attributable to such reduction, or in the event that the Excise Tax or
the Withholding Taxes are subsequently determined to exceed the amount taken
into account hereunder at the time of the payment of the Withholding Gross-Up
Payment or the Excise Tax Gross-Up Payment (including by reason of any payment
the existence or amount of which cannot be determined at the time of such
payments), the Company shall make an additional gross-up payment in respect of
such excess, in each case, payment to be made within 30 days after the final
determination of the amount of the reduction or excess, as the case may be,
together with interest thereon at the rate provided in Section 1274(b)(2)(B) of
the Code.
7. Confidentiality. Employee shall hold in a fiduciary capacity for the benefit
of the Company all confidential information and trade secrets (as defined by the
South Carolina Trade Secrets Act) relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
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obtained by the Employee during the Employee's employment by the Company or any
of its affiliated companies. After termination of Employee's employment with the
Company, the Employee shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. Upon the termination or expiration of his employment
hereunder, Employee agrees to deliver promptly to the Company all Company files,
customer lists, management reports, memoranda, research, Company forms,
financial data and reports and other documents supplied to or created by him in
connection with his employment hereunder (including all copies of the foregoing)
in his possession or control and all of the Company's equipment and other
materials in his possession or control.
8. Assignment. The parties acknowledge that this Agreement has been entered into
due to, among other things, the special skills of Employee, and agree that
Employee may not assign any of his rights or delegate any of his duties or
obligations under this Agreement. The rights and obligations of Company under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company.
9. Notices. All notices, requests, demands, and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered or seven days after mailing if mailed, first class, certified
or registered mail, postage prepaid:
To the Company: TriVergent Communications, Inc.
200 N. Main Street
Suite 303
Greenville, SC 29601
To Employee: _____________________________
_____________________________
_____________________________
Any party may change the address to which notices, requests,
demands, and other communications shall be delivered or mailed
by giving notice thereof to the other party in the same manner
provided herein.
10. Provisions Severable. If any provision or covenant, or any part thereof, of
this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
11. Dispute Resolution.
11.1 Mediation. If a dispute arises out of or in any way relates to
this Agreement or Employee's employment, and if the dispute cannot be settled
through negotiation, the parties agree first to try in good faith to settle the
dispute by mediation before resorting to arbitration, litigation, or some other
formal dispute resolution procedure. Any such dispute shall be submitted to a
mediator selected by mutual agreement of the parties. Unless the parties agree
to an alternative arrangement, the mediator's fee and expenses shall be equally
divided between the parties.
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11.2 Arbitration. Should any dispute arising out of or in any way
relating to this Agreement or Employee's employment or the termination of
Employee's employment not be resolved by negotiation or mediation, the parties
agree to waive their right to a jury trial and agree to submit the dispute to
arbitration. Unless otherwise provided herein, the arbitration shall be
conducted by a single arbitrator in accordance with the National Rules for the
Resolution of Employment Disputes published by the American Arbitration
Association. The arbitration shall be conducted in Greenville County, South
Carolina. The arbitrator shall be selected by mutual agreement of the parties.
If the parties cannot agree on an arbitrator within thirty (30) days after
written request for arbitration is made by one party to the controversy, a
neutral arbitrator shall be appointed according to the procedures set forth in
the American Arbitration Association National Rules for the Resolution of
Employment Disputes. In rendering the award, the arbitrator shall have the
authority to resolve only the legal dispute between the parties, shall not have
the authority to abridge or enlarge substantive rights or remedies available
under existing law, and shall determine the rights and obligations of the
parties according to the substantive and procedural laws of South Carolina. In
addition, the arbitrator's decision and award shall be in writing and signed by
the arbitrator, and accompanied by a written concise explanation of the basis of
the award. The award rendered by the arbitrator shall be final and binding, and
judgment on the award may be entered in any court having jurisdiction thereof.
The arbitrator is authorized to award any party a sum deemed proper for the
time, expense, and trouble of arbitration, including arbitration fees and
attorneys' fees.
11.3 Types of Claims. All legal claims brought by Employee against
Company related to this Agreement, the employment relationship, terms and
conditions of employment, and/or termination from employment are subject to this
dispute resolution procedure. These include, by way of example and without
limitation, any legal claims based on alleged discrimination or retaliation on
the basis of race, sex, religion, national origin, age or disability, whether
based on state or federal law; workers' compensation retaliation; defamation;
invasion of privacy; infliction of emotional distress and/or breach of an
express or implied contract. The above terms notwithstanding, any legal claim
brought by Employee or Company for or relating to workers' compensation,
unemployment compensation benefits, breach, violation or misappropriation of
Company's trade secrets, provisions of any confidentiality agreements or
noncompete agreements, and claims alleging status or membership with regard to
any employment benefit plan are not subject to this dispute resolution
procedure.
12. Waiver. Failure of either party to insist, in one or more instances, on
performance by the other in strict accordance with the terms and conditions of
this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or of the future performance of any such term or
condition. No waiver shall be valid unless in writing signed by the party sought
to be bound.
13. Representations. Employee represents and warrants to Company that he is
subject to no agreement or obligation (including, without limitation, any
non-competition or confidentiality agreement) or bound by any contract with any
Person, corporation, or other entity that would prohibit him from taking the
position described herein or in any way interfere with the performance of his
duties and obligations to Company under this Agreement. Employee agrees to hold
Company and its officers, directors, employees, managers, members, shareholders
and agents harmless from any claim (and the expenses associated therewith) by a
third party under a non-competition, confidentiality or similar agreement.
14. Amendments and Modifications. This Agreement may be amended or modified only
by a writing signed by other parties hereto. The parties hereby agree that this
Agreement contains the entire agreement and
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understanding by and between the parties with respect to Employee's employment,
and no representations, promises, agreements, or understandings, written or
oral, relating to the employment of the Employee by the Company not contained
herein shall be of any force or effect.
15. Assignment of Intellectual Property. Employee agrees to promptly disclose to
Company, in writing, all inventions, discoveries and improvements devised by
Employee as part of his employment duties with Company, and hereby transfers and
assigns to Company all rights, title and interest, domestic and foreign, to such
inventions, etc. At the request of Company, Employee will execute, either during
or after his employment with Company, any documents, including applications for
patents and assignments, necessary or desired by Company. Employee will
cooperate with the filing and prosecution of any such patent applications
whenever Company so requests without further compensation. Employee attaches
hereto a complete list of all inventions that Employee made or conceived prior
to his employment by Company, if any exist, and Company agrees that these
inventions shall be excluded from this Agreement.
16. Governing Law. The validity and effect of this agreement shall be governed
by and construed and enforced in accordance with the laws of the State of South
Carolina, without giving effect to South Carolina's rules of conflicts law, and
regardless of the place or places of its physical execution or performance.
17. Captions. The captions contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
18. Counterparts. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one instrument.
SIGNATURES ON FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Witness Employee
- ------------------------------- ----------------------------------------
Daniel Sterling
TRIVERGENT COMMUNICATIONS, INC.
- ------------------------------- By:
-------------------------------------
Its:
------------------------------------
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EXHIBIT 10.9.2
THIS CONTRACT IS SUBJECT TO ARBITRATION PURSUANT TO S.C. CODE SS. 15-48-10(1)
STATE OF SOUTH CAROLINA )
) EMPLOYMENT AGREEMENT
COUNTY OF GREENVILLE )
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
effective as of the 10th day of March, 2000 (the "Effective Date") by and
between George Michael Cassity, an individual ("Employee"), and State
Communications, Inc., a South Carolina corporation headquartered in Greenville,
South Carolina (the "Company").
W I T N E S S E T H
WHEREAS, the Company desires to enter into an employment relationship
with Employee on certain terms and conditions as set forth herein; and
WHEREAS, Employee has agreed to accept such employment upon the terms
and conditions as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. POSITION. Subject to the terms and conditions of this Agreement, the
Company hereby employs the Employee and Employee hereby accepts such employment
as President and Chief Operating Officer of the Company.
2. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings specified below.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean:
(i) the acquisition, directly or indirectly in one transaction or a
series of related transactions, by any Person (other than (A) any employee plan
established by the Company, (B) the Company, (C) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (D) a
corporation owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company), of
securities of the Company or Trivergent, representing an aggregate of 50% or
more of the combined voting power of the Company's or Trivergent's then
outstanding voting securities;
(ii) during any period of up to twenty-four consecutive months
individuals who, at the beginning of such period, constitute the Board cease for
any reason to constitute at least a majority thereof, provided that any person
who becomes a director subsequent to the beginning of such period and
- --------------------
(1) UNLESS THE UNITED STATES ARBITRATION ACT APPLIES.
<PAGE> 2
whose nomination for election is approved by at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved (other than a director (A) whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A under the Exchange Act, or (B) who was designated by a Person
who has entered into an agreement with the Company to effect a transaction
described in clause (i), (iii) or (iv) hereof) shall be deemed a director as of
the beginning of such period;
(iii) the stockholders of the Company or Trivergent in one transaction
or in a series of related transactions approve a sale of substantially all of
the assets of the Company or Trivergent, or merger or consolidation of the
Company or Trivergent with any other entity other than (A) a merger or
consolidation that would result in the voting securities of the Company or
Trivergent, as the case may be, outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in combination with
the ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of any Company, at least 51% of the combined voting power
of the voting securities of the Company or Trivergent, as the case may be, or
such surviving entity or any parent thereof outstanding immediately after such
merger or consolidation, or (B) a merger or consolidation effected to implement
a recapitalization of the Company or Trivergent (or similar transaction) in
which no Person is or becomes the beneficial owner, directly or indirectly, of
securities of the Company or Trivergent, as the case may be, representing 25% or
more of the combined voting power of the Company's or Trivergent's, as the case
may be, then outstanding voting securities; or (C) the complete liquidation of
the Company or Trivergent for the purposes of discontinuance of the Company's or
Trivergent's business; or
(iv) the occurrence of any other event or circumstance which is not
covered by (i) through (iii) above which the Board determines in good faith
affects control of the Company or Trivergent and, in order to implement the
purposes of this Agreement as set forth above, adopts a resolution that such
event or circumstance constitutes a Change in Control for the purposes of this
Agreement.
"Cause" shall mean: (a) conduct by the Employee in the performance of
the Employee's duties hereunder that amounts to fraud; or (b) conduct by the
Employee in the performance of the Employee's duties hereunder that amounts to
embezzlement; or (c) conviction of the Employee of any felony; or (d) a breach
by the Employee of any material provision of, or the willful failure or refusal
by the Employee to perform and discharge the Employee's material duties,
responsibilities and obligations under, this Agreement, as determined by the
Board in its reasonable judgment, which breach or willful failure or refusal has
a material adverse impact on the business or reputation of the Company or any of
its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act)
(such determination to be made by the Board in its reasonable judgment) or (e)
any act of moral turpitude or willful misconduct by the Employee which is
intended to result in personal enrichment of the Employee at the material
expense of the Company, or any of its affiliates, or which has a material
adverse impact on the business or reputation of the Company or any of its
affiliates (such determination to be made by the Board in its reasonable
judgment); or (f) conduct by the Employee in the performance of the Employee's
duties hereunder that amounts to intentional material damage to the property or
business of the Company; or (g) conduct by the Employee in the performance of
the Employee's duties hereunder that amounts to gross negligence; or (h) the
ineligibility of the Employee to perform his material duties hereunder because
of a ruling, directive or other action by any agency of the United States or any
state of the United States having regulatory authority over the Company.
Notwithstanding the foregoing, occurrence of any of the events described in
items (d), (g) or (h) above shall not constitute Cause (A) unless the Employee
receives from the Company notice of such event, which notice shall specify in
reasonable detail the nature of such event, the action to cure same, and the
Company's desire to exercise the Company's rights under Section 4.1(c) hereof,
no later than sixty (60) days after the earlier of the day on which the Company
actually became aware of or reasonably should have actually become aware of the
occurrence of such event, and (B) unless and until
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the Employee fails to cure same within thirty (30) days after the Employee's
receipt from the Company of the aforesaid notice of such event, provided,
however, if the nature of such event is such that it cannot be cured within such
thirty (30) day period, the Employee shall have such additional time as may be
reasonably necessary to cure such event so long as the Employee commences to
cure such event promptly after the Employee's receipt from the Company of the
aforesaid notice of such event and diligently pursues the cure of such event
through completion, provided further, in no event shall such additional time to
cure such event exceed ninety (90) days after the Employee's receipt from the
Company of the aforesaid notice of such event. Further, notwithstanding the
foregoing, the Company shall not be obligated to give the Employee, and the
Employee shall not have, the opportunity to cure any event which has been the
subject matter of a prior notice under Section 4.1(c) hereof two (2) times
during any period of three hundred sixty-five (365) consecutive days.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute, rule or regulation of similar effect.
"Common Stock" shall mean, the Company's common stock, $0.001 par value
per share, or any other security of the Company or any other entity which the
aforesaid common stock is converted into or exchanged for.
"Disability" or "Disabled" shall mean the Employee shall be unable, by
reason of any illness or physical or mental incapacity or disability (from any
cause or causes whatsoever), to perform the Employee's essential job functions
required by this Agreement, whether with or without reasonable accommodation by
the Company, in substantially the manner and to the extent required by this
Agreement immediately prior thereto, for a period of one hundred eighty (180)
consecutive days, and such Disability shall be deemed to have occurred on the
first day immediately after such period. In the event of any disagreement
between the Employee and the Company about whether the Employee has a
Disability, the question of such Disability shall be submitted to an impartial
and reputable physician selected by mutual agreement of the Employee and the
Company or, failing such agreement, selected by two physicians (one of which
shall be selected by the Company and the other by the Employee). The
determination of the question of such Disability by such determining physician
shall be final and binding on the Employee and the Company for purposes of this
Agreement. Each of the Company and the Employee shall pay one-half of the fees
and expenses of such determining physician.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Good Reason" shall mean: (a) any change in (i) the position or title
of the Employee from that of President and Chief Operating Officer of the
Company or its successor or (ii) the reporting relationships of the Employee to
the Board or the CEO (includes any change to whom the Employee is required to
report from that of the Board or the CEO but does not include any change in who
reports to the Employee); (b) any significant reduction in the Employee's
authority or services, duties or responsibilities, as described in this
Agreement and as in effect immediately prior to such reduction; (c) any
reduction in, or any failure of the Company to pay when due, the compensation
and all other monetary amounts payable to or for the benefit of the Employee
pursuant to Section 5.1, 5.2, 5.3, or 5.9 hereof, and then in effect; (d) the
taking of any action by the Company or any of its affiliates which materially
and adversely affects the Employee's participation in any of the benefits to be
provided to or for the benefit of the Employee pursuant to this Agreement,
including, without limitation, Sections 5.4, 5.8 and 5.10 hereof, and then in
effect, unless such action generally applies to all employees or members of
management, as the case may be, as a whole; or (e) any failure of the Company to
comply with any material obligation of the Company under this Agreement (other
than those described in items (a), (b), (c) or (d) above). Notwithstanding the
foregoing, occurrence of any of the events described in items (b) or (e) above
shall not constitute Good Reason (A) unless the Company receives from the
Employee notice of such event, which notice shall specify in reasonable detail
the nature of such event, the action to cure
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<PAGE> 4
same, and the Employee's desire to exercise the Employee's rights under Section
4.1(d) hereof, no later than sixty (60) days after the earlier of the day on
which the Employee actually became aware of or reasonably should have actually
become aware of the occurrence of such event, and (B) unless and until the
Company fails to cure same within thirty (30) days after the Company's receipt
from the Employee of the aforesaid notice of such event, provided, however, if
the nature of such event is such that it cannot be cured within such thirty (30)
day period, the Company shall have such additional time as may be reasonably
necessary to cure such event so long as the Company commences to cure such event
promptly after the Company's receipt from the Employee of the aforesaid notice
of such event and diligently pursues the cure of such event through completion,
provided further, in no event shall such additional time to cure such event
exceed ninety (90) days after the Company's receipt from the Employee of the
aforesaid notice of such event. Further, notwithstanding the foregoing, the
Employee shall not be obligated to give the Company, and the Company shall not
have, the opportunity to cure any event which has been the subject matter of a
prior notice under Section 4.1(d) hereof two (2) times during any period of
three hundred sixty-five (365) consecutive days.
"IPO" shall mean one or more underwritten public offerings of the
Common Stock, or any other stock or other securities of the Company or
Trivergent, or any parent entity of the Company or Trivergent registered under
the Securities Act with an aggregate price to the public of at least
$40,000,000.00. An IPO shall be deemed to occur upon the effectiveness of the
aforesaid public offering which causes the aforesaid aggregate price threshold
to be satisfied.
"Person" shall mean any individual, corporation, bank, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or other entity.
"Pre-IPO Value" shall mean the aggregate value of all equity securities
of the Company, Trivergent, or any parent entity of the Company or Trivergent
immediately prior to the IPO, as determined in good faith by the lead
underwriters in connection with the IPO, or if none, the Company's financial
advisors, prior to an IPO and used to determine the offering price of Common
Stock or any other stock or other securities of the Company or Trivergent, or
any parent entity of the Company or Trivergent, in the IPO. If the IPO includes
more than one underwritten public offering, Pre-IPO Value shall be such value
determined in connection with the first public offering.
"Sale of the Company" means a merger or consolidation involving the
Company or Trivergent in which the Company or Trivergent, as the case may be, is
not the surviving entity or in which the Company or Trivergent, as the case may
be, survives as a subsidiary of another entity (excluding any merger or
consolidation of the Company or Trivergent, as the case may be, with any other
entity 50% or more of the equity of which is owned by the Company or Trivergent,
as the case may be, prior to such merger or consolidation), a sale of all or
substantially all of the Company's or Trivergent's assets, or a sale of a
majority of the Company's or Trivergent's outstanding voting securities,
provided that any of the foregoing transactions involves the Company or
Trivergent, as the case may be, and (i) any entity whose equity or voting
interests are listed on a national securities exchange or the NASDAQ National
Market System or actively traded in the over-the-counter market, or (ii) any
other entity as long as at least forty percent (40%) of the purchase
consideration is payable in the form of cash, wire transfer or other readily
available funds or in notes or other installment obligations, or any combination
of the foregoing.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series C Preferred Stock" shall mean the Company's Series C Preferred
Stock, or any other security of the Company or any other entity which the
aforesaid Series C Preferred Stock is converted into or exchanged for.
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"Trivergent" shall mean Trivergent Communications, Inc., a South
Carolina corporation, and any successor thereto.
3. DUTIES. During the Term (as hereinafter defined), the Employee shall
have such duties and authority as may be assigned to the Employee from time to
time by the Board, provided that all such duties and authority shall be (a)
typical of someone in his position with a company such as the Company, (b)
executive in nature, and (c) reasonable in view of, and consistent with, the
Employee's education, training and previous business experience. Employee shall
report to the Board and to the Chief Executive Officer of the Company (the
"CEO"). Employee agrees that during the Term, he will devote his full business
time, attention and energies to the diligent performance of his duties
hereunder, except for minimal time spent during non-working hours on the
Employee's management of his passive investments and except for time spent
during non-working hours with respect to Cassitys', Inc. or any successor
thereto ("Cassitys'"). Except with respect to the aforesaid activities of the
Employee with respect to Cassitys' and the Employee's ownership interest in
Cassitys', Employee shall not, without the prior written consent of the Company,
at any time during the Term (i) accept employment with, or render services of a
business, professional or commercial nature to, any Person other than the
Company, (ii) engage in any venture which the Company may in good faith consider
to be competitive with or adverse to the business of the Company or any
subsidiary of the Company, whether alone, as a partner, or as an officer,
director, employee or shareholder or otherwise, except that the ownership of not
more than 5% of the stock or other equity interest of any publicly traded
corporation or other entity shall not be deemed a violation of this Section, or
(iii) engage in any venture which the Board may in good faith consider to
interfere materially with Employee's performance of his material duties
hereunder. Notwithstanding the foregoing, the Company acknowledges and agrees
that the Employee currently holds ownership interests and options in BellSouth
Corporation. The Company acknowledges and agrees that the Employee's current or
future ownership interests in BellSouth Corporation or any successor entity,
which may otherwise be prohibited by this Section 3, shall be deemed not to
constitute a breach of this Section 3 by the Employee.
4. TERM.
4.1 Term and Methods of Termination. The Employee's employment
with the Company pursuant to this Agreement (the "Term") shall commence as of
the Effective Date and shall continue thereafter until such employment hereunder
is terminated upon the first to occur of the following:
(a) the death of the Employee (the "Employee's
Death"). Termination pursuant to this Section 4.1(a) shall be effective as of
the end of the day on the date on which the Employee's Death occurs;
(b) the Disability of the Employee. Termination
pursuant to this Section 4.1(b) shall be effective as of the end of the day on
the date on which the Employee's Disability occurs;
(c) the Company giving notice to the Employee of such
termination for Cause. Termination pursuant to this Section 4.1(c) shall be
effective, in the case of any event described in items (d), (g) or (h) of the
definition of Cause above, as of the end of the day on the date on which the
Employee receives the second aforesaid notice from the Company with respect
thereto, or in the case of any event described in items (a), (b), (c), (e) or
(f) of the definition of Cause above, as of the end of the day on the date on
which the Employee receives the first aforesaid notice from the Company with
respect thereto;
(d) the Employee giving notice to the Company of such
termination for Good Reason. Termination pursuant to this Section 4.1(d) shall
be effective, in the case of any event described
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in items (b) or (e) of the definition of Good Reason above, as of the end of the
day on the date on which the Company receives the second aforesaid notice from
the Employee with respect thereto, or in the case of any event described in
items (a), (c) or (d) of the definition of Good Reason above, as of the end of
the day on the date on which the Company receives the first aforesaid notice
from the Employee with respect thereto;
(e) during the period commencing one hundred eighty
(180) days and ending ninety (90) days immediately prior to the third
anniversary of the Effective Date, and each subsequent anniversary of the
Effective Date, the Company giving notice to the Employee of such termination
for any reason, or for no reason whatsoever (not to include termination for
Disability pursuant to Section 4.1(b) hereof or termination for Cause pursuant
to Section 4.1(c) hereof). Termination pursuant to this Section 4.1(e) shall be
effective as of the end of the day on the third anniversary of the Effective
Date or such subsequent anniversary of the Effective Date, as the case may be,
and until the effective date of such termination, the Employee shall be
obligated to continue to perform his duties and obligations hereunder at all
times in the manner and to the extent required under this Agreement; provided,
however, the Company reserves the right, exercisable by giving notice to the
Employee (within the Company's notice of termination or otherwise), to have the
Employee discontinue performance of his duties and obligations hereunder prior
to the effective date of such termination without acceleration of the effective
date of such termination;
(f) during the period commencing one hundred eighty
(180) days and ending ninety (90) days immediately prior to the third
anniversary of the Effective Date, and each subsequent anniversary of the
Effective Date, the Employee giving notice to the Company of such termination
for any reason, or for no reason whatsoever (not to include termination for
Disability pursuant to Section 4.1(b) hereof or termination for Good Reason
pursuant to Section 4.1(d) hereof). Termination pursuant to this Section 4.1(f)
shall be effective as of the end of the day on the third anniversary of the
Effective Date or such subsequent anniversary of the Effective Date, as the case
may be, and until the effective date of such termination, the Employee shall be
obligated to continue to perform his duties and obligations hereunder at all
times in the manner and to the extent required under this Agreement; provided,
however, the Company reserves the right, exercisable by giving notice to the
Employee, to have the Employee discontinue performance of his duties and
obligations hereunder prior to the effective date of such termination without
acceleration of the effective date of such termination;
Notwithstanding expiration of the Term or any provision of Section 4.3 hereof to
the contrary, the Company shall continue to have all rights available to the
Company under this Agreement, and the provisions of this Agreement shall survive
the termination of the Employee's employment under this Agreement to the extent
required to give full effect to the covenants and agreements contained herein.
4.2 Controlling Termination Event. Notwithstanding any
provision of this Section 4 to the contrary and subject to the remainder of this
Section, the first to occur of any event specified in Sections 4.1(a) through
(f) hereof shall control the character of the termination of the Employee's
employment hereunder and the Employee's rights, if any, to compensation therefor
and thereafter, and the occurrence of any subsequent event specified in Sections
4.1(a) through (f) hereof which could have resulted in the termination of the
Employee's employment hereunder shall not govern or in any way affect the
termination of the Employee's employment hereunder, other than in the case of
any event described in item (a), (b), (c), (e) or (f) of the definition of the
Cause above or in item (a), (c) or (d) of the definition of Good Reason above.
Any termination of the employment of the Employee by the Company pursuant to
Section 4.1(c) hereof which would constitute Good Reason (after expiration of
applicable notice and cure rights, if any) shall not be effective unless and
until the Employee fails to terminate the employment of the Employee within the
sixty (60) day period described in the definition of Good Reason.
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4.3 Effect of Termination of Employment.
(a) Compensation and Benefits. From and after the
effective date of the termination of the Employee's employment hereunder, the
Company shall have the following obligations under this Agreement with respect
to the Employee and the Employee's employment hereunder:
(i) in the event of any termination of the
Employee's employment hereunder, the Company's obligation to pay to, or provide
to, as the case may be, the Employee all earned and accrued but unpaid
compensation and all other monetary amounts payable to or for the benefit of the
Employee pursuant to this Agreement, including, without limitation, Sections
5.1, 5.2, 5.3, 5.5, 5.6, 5.7 and 5.9 hereof, if any, and the benefits to be
provided to or for the benefit of the Employee pursuant to this Agreement,
including, without limitation, Sections 5.4, 5.8 and 5.10 hereof, in each case,
through the effective date of termination of the Employee's employment
hereunder, as established pursuant to Section 4.1 hereof;
(ii) in the event of termination of the
Employee's employment pursuant to Section 4.1(a) or (b) hereof, the Company's
obligation (A) to pay to the Employee the compensation and other monetary
amounts payable to or for the benefit of the Employee pursuant to Sections 5.2
and 5.3 hereof that the Employee would have otherwise earned or been paid if the
Employee's employment had continued during and through the period (the
"Death/Disability Severance Period") beginning on the effective date of
termination of the Employee's employment hereunder, as established pursuant to
Section 4.1(a) or (b) hereof, and ending on the first anniversary of such
termination, and (B) to use reasonable, good faith efforts to continue to
provide the Employee (on a cost responsibility basis substantially comparable to
that which was in effect immediately prior to such termination of the Employee's
employment hereunder), or if unable to do so, to pay to the Employee the cost to
the Company (on a cost responsibility basis substantially comparable to that
which was in effect immediately prior to such termination of the Employee's
employment hereunder) of, all medical, dental and other health insurance
benefits to be provided to or for the benefit of the Employee pursuant to
Section 5.4 hereof that would have otherwise been provided to the Employee if
the Employee's employment had continued during and through the Death/Disability
Severance Period, provided that the Company's obligation to continue to provide
the Employee with such medical, dental and other health insurance benefits shall
be conditioned upon the Employee continuing to pay to the Company that portion
of premiums associated with such insurance benefits which was the Employee's
responsibility immediately prior to such termination of the Employee's
employment hereunder;
(iii) in the event of termination of the
Employee's employment pursuant to Section 4.1(d) hereof prior to a Change in
Control, the Company's obligation (A) to pay to the Employee the compensation
and other monetary amounts payable to or for the benefit of the Employee
pursuant to Sections 5.2 and 5.3 hereof that the Employee would have otherwise
earned or been paid if the Employee's employment had continued during and
through the period (the "Good Reason Before Change in Control Severance Period")
beginning on the effective date of termination of the Employee's employment
hereunder, as established pursuant to Section 4.1(d) hereof, and ending on the
last to occur of the first anniversary of such termination and the second
anniversary of the Effective Date, and (B) to use reasonable, good faith efforts
to continue to provide the Employee (on a cost responsibility basis
substantially comparable to that which was in effect immediately prior to such
termination of the Employee's employment hereunder), or if unable to do so, to
pay to the Employee the cost to the Company (on a cost responsibility basis
substantially comparable to that which was in effect immediately prior to such
termination of the Employee's employment hereunder) of, all medical, dental and
other health insurance benefits to be provided to or for the benefit of the
Employee pursuant to Section 5.4 hereof that would have otherwise been provided
to the Employee if the Employee's employment had continued during and through
the Good Reason Before Change in Control Severance Period, provided that the
Company's obligation to continue to provide the Employee with such medical,
dental and other
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health insurance benefits shall be conditioned upon the Employee continuing to
pay to the Company that portion of premiums associated with such insurance
benefits which was the Employee's responsibility immediately prior to such
termination of the Employee's employment hereunder;
(iv) in the event of termination of the
Employee's employment pursuant to Section 4.1(d) hereof after a Change in
Control, the Company's obligation (A) to pay to the Employee the compensation
and other monetary amounts payable to or for the benefit of the Employee
pursuant to Sections 5.2, 5.3, 5.5 and 5.9 hereof that the Employee would have
otherwise earned or been paid if the Employee's employment had continued during
and through the period (the "Good Reason After Change in Control Severance
Period") beginning on the effective date of termination of the Employee's
employment hereunder, as established pursuant to Section 4.1(d) hereof, and
ending on the last to occur of the first anniversary of such termination and the
third anniversary of the Effective Date, and (B) to use reasonable, good faith
efforts to continue to provide the Employee (on a cost responsibility basis
substantially comparable to that which was in effect immediately prior to such
termination of the Employee's employment hereunder), or if unable to do so, to
pay to the Employee the cost to the Company (on a cost responsibility basis
substantially comparable to that which was in effect immediately prior to such
termination of the Employee's employment hereunder) of, all medical, dental and
other health insurance benefits to be provided to or for the benefit of the
Employee pursuant to Section 5.4 hereof that would have otherwise been provided
to the Employee if the Employee's employment had continued during and through
the Good Reason After Change in Control Severance Period, provided that the
Company's obligation to continue to provide the Employee with such medical,
dental and other health insurance benefits shall be conditioned upon the
Employee continuing to pay to the Company that portion of premiums associated
with such insurance benefits which was the Employee's responsibility immediately
prior to such termination of the Employee's employment hereunder;
All of the monetary amounts, if any, payable by the Company to the Employee
pursuant to this Section 4.3(a) shall be (i) payable based upon the level of
compensation and other monetary amounts in effect immediately prior to the
termination of the Employee's employment hereunder, (ii) payable in accordance
with the applicable terms and conditions of this Agreement as if the Employee
were still employed by the Company (or in a lump sum amount if the Board in its
discretion so chooses at any time), and (iii) subject to any deductions or
offsets described in this Agreement. For purposes of the foregoing, the level of
bonus described in Section 5.3 hereof in effect immediately prior to such
termination of the Employee's employment hereunder shall (A) if such bonus was
based upon a formula which can still be consistently applied during and through
the Death/Disability Severance Period, Good Reason Before Change in Control
Severance Period or Good Reason After Change in Control Severance Period, as the
case may be, the amount determined based upon such formula, or (B) if such bonus
is not based upon a formula which can still be consistently applied during and
through the Death/Disability Severance Period, Good Reason Before Change in
Control Severance Period or Good Reason After Change in Control Severance
Period, as the case may be, the amount of bonus payable to the Employee for the
previous fiscal year of the Company. All of the medical, dental and other health
insurance benefits to be provided by the Company to the Employee pursuant to
this Section 4.3(a) shall be (i) provided based upon the Employee's position,
and such insurance benefits provided to the Employee, immediately prior to the
termination of the Employee's employment hereunder, and (ii) provided in
accordance with the applicable terms and conditions of this Agreement.
Notwithstanding the foregoing, in the event of the termination of the Employee's
employment pursuant to Section 4.1(a) hereof, the Company shall pay or provide,
as the case may be, the compensation and benefits described in Section 4.3(a)
hereof to the Employee's estate and the Employee's dependents, as the case may
be, and in the event of the Employee's subsequent death after any termination of
the Employee's employment hereunder pursuant to Section 4.1(b), (c), (d), (e) or
(f) hereof, the Company shall pay or provide, as the case may be, the
compensation and benefits described in Sections 4.3(a) hereof to the Employee's
estate and the Employee's dependents, as the case may be.
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(b) Mitigation. The Employee shall not be required to
mitigate the amount of any payment or benefit provided for in this Section 4.3
by seeking other employment or otherwise. Notwithstanding the foregoing, the
amount of any payment or benefit provided for in Section 4.3(a)(ii), (iii) or
(iv) hereof shall be reduced by any compensation earned by or benefit provided
to the Employee as the result of employment by another employer during the
Death/Disability Severance Period, Good Reason Before Change in Control
Severance Period, or Good Reason After Change in Control Severance Period, as
the case may be, provided that with respect to insurance benefits such benefits
must be comparable in scope of coverage and cost responsibility basis for the
Employee in order to qualify for offset. The Employee shall promptly notify the
Company of any such subsequent employment and provide the Company with
information reasonably required to make any such offset. Notwithstanding any
provision of this Agreement to the contrary, any breach or alleged breach by the
Employee of the Employee's obligations under Section 6 hereof after the
termination of the Employee's employment hereunder shall not expressly or
implicitly provide or bestow any right to or on the Company to discontinue or
delay in any way the payment or benefit obligations to the Employee pursuant to
this Agreement, and in any such situation or circumstance, the Company shall
rely exclusively upon the Company's rights to seek legal and equitable remedies
in a court of competent jurisdiction to restrain the Employee's failure or
refusal to perform or comply with the Employee's obligations under Section 6
hereof after the termination of the Employee's employment hereunder.
4.4 In addition to the foregoing, in the event of termination
of Employee's employment pursuant to Section 4.1(d) hereof:
4.4.1 all rights of Employee pursuant to awards of
options granted by the Company shall be deemed to have fully vested and be fully
exercisable and all rights of Employee pursuant to share grants and option
awards shall be released from all conditions and restrictions imposed upon such
grants and awards, which conditions and restrictions were initially imposed by
the Company, provided that the foregoing shall in no way affect or extinguish
the Note or the Pledge and the Employee's obligations thereunder.
4.4.2 the Employee shall be deemed to be credited
with service with the Company for the Good Reason Before Change in Control
Severance Period or Good Reason After Change in Control Severance Period, as the
case may be, for the purposes of the Company's benefit plans; and
4.4.3 the Employee shall be deemed to have retired
from the Company and shall be entitled as of the termination date, or at such
later time as he may elect, to commence receiving the total combined qualified
and non-qualified retirement benefit to which he is entitled hereunder, or his
total non-qualified retirement benefit hereunder if under the terms of the
Company's qualified retirement plan for salaried employees, he is not entitled
to a qualified benefit.
4.4.4 If any provision of this Section 4.4 cannot, in
whole or in part, be implemented and carried out under the terms of the
applicable compensation, benefit, or other plan or arrangement of the Company
because the Employee has ceased to be an actual employee of the Company, because
the Employee has insufficient or reduced credited service based upon his actual
employment by the Company, because the plan or arrangement has been terminated
or amended after the effective date of this Agreement, or because of any other
reason, the Company itself shall pay or otherwise provide the equivalent of such
rights, benefits and credits for such benefits to Employee, his dependents,
beneficiaries and estate.
5. COMPENSATION AND BENEFITS. In consideration of Employee's services
and covenants hereunder, Company shall pay to Employee the compensation and
benefits described below (which compensation shall be paid in accordance with
the normal compensation practices of the Company and
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shall be subject to such deductions and withholdings as are required by law or
reasonable policies of the Company in effect from time to time, except as
otherwise provided in this Section 5):
5.1 Signing Bonus. The Company shall pay Employee a cash
signing bonus of $1,000,000 on the Effective Date of this Agreement.
5.2 Annual Salary. During the Term, the Company shall pay to
Employee a base salary at the initial rate of $240,000 per year in accordance
with the Company's regular payroll policy, or according to such other schedule
as Employee and the Company may agree to. The Board shall be entitled to review
Employee's base salary at any time and from time to time (but not less
frequently than on each anniversary of the Effective Date) and may increase the
rate thereof at any time and from time to time in the Board's sole discretion.
The Board shall not decrease, at any time, the rate of the Employee's base
salary then in effect.
5.3 Bonus. During the Term, in addition to the above salary,
the Company shall pay to Employee a cash bonus at the initial rate of
$100,000.00 per fiscal year subject to the performance standards with respect to
the Company included in APPENDIX A attached hereto; provided, however, that
Employee is hereby guaranteed to receive a minimum $100,000 bonus for the
Company's 2000 fiscal year. The Board shall be entitled to review the Employee's
cash bonus at any time and from time to time (but not less frequently than on
each anniversary of the Effective Date) and may increase or decrease (but not
for the Company's 2000 fiscal year) the rate thereof at any time and from time
to time in the Board's sole discretion.
5.4 Benefits. During the Term, Employee shall be entitled to
share in any employee benefits generally provided by the Company to its most
highly ranking employees and officers for so long as the Company provides such
benefits and to any other benefits given to Employee in the sole discretion of
the Board.
5.5 Discretionary Funds. During the Term, at the Employee's
discretion, the Company shall spend up to $50,000.00 per fiscal year for
purposes of the Employee's choosing; provided, however, that the CEO must give
his prior approval in writing for any such expenditure made to the Employee
himself, any family member of Employee (whether by blood, marriage or adoption
and not more remote than first cousin), or any entity 5% or more of the equity
securities of which are beneficially owned by the Employee and/or any family
member of the Employee, which approval may be withheld at the sole discretion of
the CEO.
5.6 Relocation Expenses. The Company shall pay directly to
third parties or reimburse Employee in accordance with the Company's then
current accounts payable process for all reasonable expenses incurred by
Employee in moving to or within thirty (30) miles of Greenville County, South
Carolina in connection with his employment with the Company, provided that
Employee provides the Company with written documentation as required under the
Company's policies and procedures to support payment or reimbursement. Such
expenses shall include travel costs for Employee and his immediate family to
Greenville County, the cost of shipping Employee's personal property to
Greenville County, the cost of storing such property for up to six months from
the Effective Date until Employee has purchased a residence in or near
Greenville County, real estate agent commissions and fees, mortgage application
fees, closing points and fees, loan origination fees and loan discount fees,
real estate closing, brokers' and attorneys' fees and costs (includes, without
limitation, title insurance, appraisal, recording fees/stamps, survey, radon
test, termite bond/inspection, other inspection) incurred in selling Employee's
current residence and purchasing a residence in or near Greenville County and
temporary living expenses for Employee and his immediate family for up to six
months from the Effective Date.
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5.7 Business Expenses. As a condition of employment, Employee
is required to incur reasonable and necessary expenses for the promotion of the
business of the Company, including without limitation, expenses of
entertainment, travel, telephone costs and similar expenses. Provided that
Employee provides the Company with reasonable written documentation as required
under the Company's policies and procedures to support reimbursement, the
Company shall reimburse Employee for all such expenses reasonably incurred by
Employee in the performance of his duties under this Agreement in accordance
with the Company's then current expense reimbursement process.
5.8 Stock Options. On the Effective Date, Employee shall be
granted by the Company, pursuant to the Company's Employee Incentive Plan (a
copy of which has been furnished to the Employee), an option to purchase 750,000
shares of the Common Stock at an exercise price of $3.00 per share, which option
shall vest with respect to 20% of such shares on each of the first five
anniversaries of the Effective Date so long as Employee continues to be employed
by the Company (except as otherwise provided in Section 4.4.1 hereof). Such
option shall be granted pursuant to a grant letter with terms and conditions
typical of those contained in grant letters from the Company to its employees
under the Company's Employee Incentive Plan. The options granted pursuant to
this Section 5.8 shall be options intended to qualify as Incentive Stock Options
under Section 422 of the Code or any successor provision, provided that to the
extent such options do not meet such qualifications, such options shall be
non-qualified stock options.
5.9 Liquidity Bonus. If an IPO or a Sale of the Company occurs
while the Employee is still employed by the Company pursuant to the terms of
this Agreement (except as otherwise provided in Section 4(a)(iv)), Employee
shall be entitled to receive, and the Company shall pay to the Employee, a
"Liquidity Bonus" of cash in the amount of (a) $500,000 in the event that either
the Pre-IPO Value of the Company or the value of the Company based upon the
consideration payable in connection with such Sale of the Company, as the case
may be, is at least equal to $500,000,000 but less than $750,000,000, or (b)
$750,000 in the event that either the Pre-IPO Value of the Company or the value
of the Company based upon the consideration payable in connection with such Sale
of the Company, as the case may be, is at least equal to $750,000,000.
Notwithstanding the foregoing, if the Employee receives the Liquidity Bonus as
the result of an IPO, the Employee may elect to receive all or any portion of
the Liquidity Bonus in Common Stock in lieu of cash, in which case, the number
of shares of Common Stock he receives shall equal the dollar value of such
portion of the Liquidity Bonus divided by the average offering price of Common
Stock sold in the IPO. Any Common Stock acquired by Employee as part of the
Liquidity Bonus shall be restricted stock as defined in Rule 144 promulgated
under the Securities Act and the certificates representing such stock shall bear
legends substantially of the form of legend in Section 5.10.4 of this Agreement.
The Company shall pay or otherwise deliver the Liquidity Bonus to the Employee
no later than sixty (60) days after the occurrence of the event giving rise to
the Company's obligation to pay the Liquidity Bonus.
5.10 Stock Purchase. On the Effective Date, Employee shall
purchase 81,178 shares of the Common Stock for $4.25 per share and 212,940
shares of the Series C Preferred Stock for $4.25 per share (for a total of
$1,250,001.50) pursuant to the terms of this Subsection 5.10.
5.10.1 On the Effective Date, the Company shall issue
in Employee's name a certificate representing 176,470 shares of the Series C
Preferred Stock (the "Credit Shares"), and the Employee shall deliver to the
Company a promissory note in the form of EXHIBIT A attached hereto in an
aggregate principal amount of $749,997.50 (the "Note"). Employee's obligations
under the Note shall be secured by a pledge to the Company of the Credit Shares
as provided in a pledge agreement in the form of EXHIBIT B attached hereto (the
"Pledge").
5.10.2 Pursuant to the requirements of South Carolina
law, the Credit Shares shall be held in escrow by the Company. Any cash
distributions in respect of the Credit Shares shall be
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applied against the principal amount of the Note (and any interest thereon). Any
non-cash distributions or other property received as an addition to, in
substitution of, or in exchange for any of the Credit Shares (whether as a
distribution in connection with any recapitalization, reorganization or
reclassification, a stock dividend or otherwise), shall be escrowed with the
Credit Shares. The Credit Shares and any escrowed non-cash distribution proceeds
or other property shall remain in escrow until the Note is paid in full, except
as otherwise provided in the Pledge.
5.10.3 On the Effective Date, the Company shall issue
to Employee a certificate representing 81,178 shares of the Common Stock and a
certificate representing 36,470 shares of the Series C Preferred Stock
(collectively the "Cash Shares"), and the Employee shall pay to the Company
$4.25 per share in cash (for a total of $500,004.00) in consideration for the
Cash Shares.
5.10.4 Each certificate evidencing the Common Stock
and the Series C Preferred Stock purchased by Employee pursuant to the terms of
this Subsection 5.10 shall bear a legend in substantially the following form:
The securities represented by this certificate were issued to an
affiliate, as defined in Rule 144 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), of the issuer without
registration under the Securities Act or the securities laws of any
state in a transaction believed to be exempt from such registration.
The securities represented by this certificate may not be resold unless
such resale is registered under the Securities Act and applicable state
securities laws or is exempt from such registration.
5.11 Representations and Warranties of Employee. In connection
with the acquisition of Common Stock as contemplated in this Agreement, Employee
hereby makes the representations and warranties to the Company contained in
EXHIBIT C attached hereto.
6. CONFIDENTIALITY; NON-COMPETITION.
6.1 Covenant Term. Employee covenants and agrees that for so
long as he is employed by the Company hereunder and a period of two (2) years
thereafter (provided that if the Employee is eligible to receive compensation
and benefits from the Company upon termination of the Employee's employment
pursuant to Section 4.1(d) hereof, such post-employment period shall be the
shorter in duration of (i) two (2) years after such termination of employment,
and (ii) the Good Reason Before Change in Control Severance Period or Good
Reason After Change in Control Severance Period, as the case may be) (the
"Covenant Term"), he will not, directly or indirectly, engage in any activity
prohibited pursuant to the terms of this Section 6.
6.2 Non-Competition. Employee agrees that for the Covenant
Term, he will not, without the prior written consent of the Company, directly or
indirectly, (i) own, manage, operate, control or participate in, or be
associated with as a director, officer, shareholder, partner, joint venturer,
employee, consultant or otherwise, any business providing telecommunications
services including, but not limited to, local exchange or long distance
telecommunications services which competes, directly or indirectly, with the
Company within any metropolitan statistical service area in which the Company
provides such services on the date of termination of Employee's employment (the
"Prohibited Business"); (ii) own any equity security in any person or entity
engaged in any such Prohibited Business, other than as a passive investor
owning, directly or indirectly, not more than 5% of the equity securities of a
public corporation; (iii) solicit or attempt to solicit any employee of the
Company either to work for the Employee personally or on behalf of any other
person or entity whether or not engaged in a Prohibited Business; or (iv)
solicit or attempt to solicit, for the purpose of providing the services
identified in subpart (i) above, any customer of the Company with which the
Employee had material contact during the twelve-month period immediately prior
to the Employee's departure from the Company. Notwithstanding
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the foregoing, the Company acknowledges and agrees that the Employee currently
holds ownership interests and options in BellSouth Corporation. The Company
acknowledges and agrees that the Employee's current or future ownership
interests in BellSouth Corporation or any successor entity which may otherwise
be prohibited by this Section 6.2, shall be deemed not to constitute a breach of
this Section 6.2 by the Employee.
6.3 Non-Disclosure of Confidential Information. As used in
this Agreement, the term "Confidential Information" shall mean any information
which (i) is not generally available to the public or within the Company's field
of industry; and (ii) pertains to or relates in any way to the Company or its
businesses, proprietary techniques, know-how, independent interpretations of
market information, strategic plans and organizational approaches, activities,
products or services including, without limitation, financial information,
analyses, intellectual property rights, employee compensation information,
reports, pricing methods or other trade secrets. Employee acknowledges that he
may come into possession of certain Confidential Information of the Company or
its affiliates, and agrees that all such Confidential Information is the sole
and exclusive property of the Company. Other than in connection with Employee's
employment with the Company, during the Covenant Term, Employee shall not
disclose any such Confidential Information, directly or indirectly, nor use it
in any way, either during the Covenant Term or at any time thereafter, except as
required by law or by any court or governmental agency or body. All files,
records, documents, pricing and other information, data and similar items in any
medium whatsoever relating to the business, assets or prospects of the Company
or its affiliates, whether prepared by Employee or otherwise coming into his
possession, shall remain the exclusive property of the Company and, other than
in connection with Employee's employment with the Company, shall not be copied
or removed from the premises of the Company without the Company's prior written
consent. The terms of this Section 6.3 are not intended to limit any
definitions, protections or remedies available to the Company under any local,
state or federal law applicable to trade secrets or confidential information.
6.4 Remedies. Employee acknowledges that any violation of this
Section 6 will cause irreparable harm to the Company and that damages are not an
adequate remedy. Employee therefore agrees that the Company shall be entitled to
injunctive relief enjoining, prohibiting and restraining Employee from the
continuance of any such violation, in addition to any monetary damages which
might occur by reason of a violation of this Section 6 or any other remedies at
law or in equity, including, without limitation, specific performance.
6.5 Independent Covenants. The covenants set forth in this
Section 6 are and shall be deemed and construed as separate and independent
covenants. Should any part or provision of such covenants be held invalid, void
or unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall not render invalid, void or unenforceable any other part
or provision thereof. Specifically, and without limiting the generality of the
foregoing, if any portion of this Section 6 is found to be invalid by a court of
competent jurisdiction because its duration, the territory and/or the restricted
activities are invalid or unreasonable in scope, such duration, territory and/or
restricted activity, as the case may be, shall be redefined by consideration of
the reasonable concerns and needs of the Company such that the intent of the
Company, in consummating the transactions contemplated by the Agreement will not
be impaired and shall be enforceable to the fullest extent permissible under
applicable laws.
6.6 Developments.
6.6.1 If at any time or times during the Employee's
employment hereunder, he shall (either alone or with others) make, conceive,
create, discover or reduce to practice any invention, modification, discovery,
design, development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright, trademark or
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similar statutes or subject to analogous protection) (the "Developments") that
(i) relates to the business of the Company or any customer of or supplier to the
Company or any of the products or services being developed or sold by the
Company or which may be used in relation therewith, (ii) results from
responsibilities undertaken by the Employee on behalf of the Company, or (iii)
results from the use of premises or personal property (whether tangible or
intangible) owned, leased or contracted for by the Company, such Developments
and the benefits thereof are and shall immediately become the sole and absolute
property of the Company and its assigns, and the Employee shall promptly
disclose to the Company (or any persons designated by it) each such Development
and, as may be necessary to ensure the Company's ownership of such Developments,
Employee hereby assigns any rights (including, but not limited to, any
copyrights and trademarks) he may have or acquire in the Developments and
benefits and/or rights resulting therefrom to the Company and its assigns
without further compensation and shall communicate, without cost or delay, and
without disclosing to others the same, all available information relating
thereto (with all necessary plans and models) to the Company.
6.6.2 Upon disclosure of each Development to the
Company, the Employee agrees to, during his employment hereunder and at any time
thereafter, at the request and cost of the Company, sign, execute, make and do
all such deeds, documents, acts and things as the Company and its duly
authorized agents may reasonably require:
(i) to apply for, obtain, register and vest in the name of the
Company alone (unless the Company otherwise directs) letters patent,
copyrights, trademarks or other analogous protection in any country
throughout the world and when so obtained or vested to renew and
restore the same; and
(ii) to defend any opposition or other administrative
proceedings in respect of such applications and any opposition
proceedings or petitions or applications for cancellation or revocation
of such letters patent, copyright or other analogous protection.
6.6.3 In the event the Company is unable, after
reasonable and good faith efforts, to secure Employee's signature on any letters
patent, copyright or trademark registration applications or other documents
regarding any legal protection relating to a Development, whether because of
Employee's physical or mental incapacity or for any other reason whatsoever,
Employee hereby irrevocably designates and appoints the Company and its duly
authorized officers and agents as his agent and attorney-in-fact, to act for and
in his behalf and stead to execute and file any such application or applications
or other documents and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent, copyright or trademark registrations
or other legal protection thereof with the same legal force and effect as if
executed by the Employee.
7. ASSIGNMENT. The parties acknowledge that this Agreement has been
entered into due to, among other things, the special skills of Employee, and
agree that Employee may not assign any of his rights or delegate any of his
duties or obligations under this Agreement. The rights of Employee shall inure
to the benefit of his heirs and beneficiaries. The rights and obligations of
Company under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company, provided that the Company may
not assign (by operations of law, change in control, or otherwise) any of its
rights or obligations hereunder without the prior written consent of the
Employee, except in connection with any merger or transfer of the Company or of
all or any substantial part of the business of the Company.
8. NOTICES. All notices, requests, demands, and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or seven days after mailing if mailed,
first class, certified or registered mail, postage prepaid:
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To the Company: Chief Executive Officer
Trivergent Communications, Inc.
200 N. Main Street
Suite 303
Greenville, SC 29601
With a copy to: Hamilton E. Russell, III, Esq.
at the same address as above
To Employee: George Michael Cassity
-----------------------------
-----------------------------
-----------------------------
With a copy to: C. David Lumsden, Esq.
Chorey, Taylor & Feil, P.C.
The Lenox Building, Suite 1700
3399 Peachtree Road, N.E.
Atlanta, GA 30326-1148
Any party may change the address to which notices, requests, demands, and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
9. PROVISIONS SEVERABLE. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
10. DISPUTE RESOLUTION.
10.1 In the event of any dispute, claim, question or
disagreement arising from or relating to this Agreement, the Note or the Pledge
or the breach of any of the foregoing, the Company and the Employee shall use
their best efforts to settle such dispute, claim, question or disagreement. To
this effect, the Company and the Employee shall consult and negotiate with each
other in good faith and attempt to reach a just and equitable solution
satisfactory to both the Company and the Employee. If the Company and the
Employee do not reach such solution within a period of 15 days after initiation
of such consultation and negotiation, such dispute, claim, question or
disagreement shall be submitted to non-binding mediation administered by the
American Arbitration Association under its Employment Mediation Rules before
resorting to arbitration, litigation or some other dispute resolution process.
Such non-binding mediation shall be conducted in Greenville County, South
Carolina. Each of the Company and the Employee shall bear its own costs and
expenses (including attorneys fees) and an equal share of the mediators' and
administrative fees of mediation. If such dispute, claim, question or
disagreement is not resolved within 45 days after initiation of mediation, then,
upon notice by either the Company or the Employee to the other, such dispute,
claim, question or disagreement shall be finally settled by binding arbitration
administered by the American Arbitration Association in accordance with its
National Rules for the Resolution of Employment Disputes, and judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Such arbitration shall be conducted in Greenville County, South
Carolina. The arbitration shall be conducted by a single arbitrator selected in
accordance with applicable rules of the American Arbitration Association. The
parties agree that the arbitrator shall have no power or authority to make
awards or issue orders of any kind except as expressly permitted by this
Agreement, the Note or the Pledge, as the case may be, and in no event shall the
arbitrator have the
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authority to make any award that provides for punitive or exemplary damages or
consequential damages. The arbitrator shall award to the prevailing party, if
any, as determined by the arbitrator, all of its costs and fees. "Costs and
fees" means all reasonable pre-award expenses of the arbitration, including the
arbitrator's fees, administrative fees, travel expenses, out-of-pocket expenses
such as copying and telephone, court costs, witness fees and attorneys' fees.
The award of the arbitrator shall be in writing, signed by the arbitrator and
accompanied by a reasoned opinion which includes a breakdown as to specific
claims. During the period of the aforesaid negotiation, non-binding mediation
and arbitration, the Company and the Employee shall continue to comply fully
with their respective obligations under this Agreement (for example, the
Employee will continue to perform the Employee's duties and responsibilities to
the Company and the Company will continue to pay to the Employee his salary and
to provide to the Employee his benefits described in this Agreement), the Note
and the Pledge, as the case may be.
Company's initials:___________ Employee's initials: ___________
10.2 Types of Claims. All legal claims brought by any party
against the other party related to this Agreement, the employment relationship,
terms and conditions of employment, and/or termination from employment, the
Note, and/or the Pledge, are subject to this dispute resolution procedure. These
include, by way of example and without limitation, any legal claims based on
alleged discrimination or retaliation on the basis of race, sex, religion,
national origin, age or disability, whether based on state or federal law;
workers' compensation retaliation; defamation; invasion of privacy; infliction
of emotional distress and/or breach of an express or implied contract. The above
terms notwithstanding, any legal claim brought by Employee or Company for or
relating to workers' compensation, unemployment compensation benefits,
misappropriation of Company's trade secrets, breach or violation of provisions
of any confidentiality agreements or non-compete agreements, and claims alleging
status or membership with regard to any employment benefit plan are not subject
to this dispute resolution procedure.
11. WAIVER. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition. No waiver shall be valid unless in writing signed by the
party sought to be bound. Time is of the essence with respect to performance
under this Agreement.
12. REPRESENTATIONS. Employee agrees that this Agreement constitutes
the legal, valid and binding obligation of Employee, enforceable in accordance
with its terms. Employee further represents and warrants to Company that he is
subject to no agreement or obligation (including, without limitation, any
non-competition or confidentiality agreement) or bound by any contract with any
Person, corporation, or other entity that would prohibit him from entering into
or delivering this Agreement or taking the position described herein or in any
way interfere with the performance of his duties and obligations to Company
under this Agreement. Employee agrees to indemnify and hold harmless the Company
and its officers, directors, employees, managers, members, shareholders and
agents from and against any (1) claim (and the expenses associated therewith,
including without limitation reasonable attorney's fees) by a third party under
a non-competition, confidentiality or similar agreement or (2) any loss arising
as a result of Employee's breach of any of Employee's representations or
warranties contained in this Agreement, including the exhibits and other
attachments hereto.
13. AMENDMENTS AND MODIFICATIONS. This Agreement may be amended or
modified only by a writing signed by all parties hereto. The parties hereby
agree that this Agreement contains the entire agreement and understanding by and
between the parties with respect to the subject matter hereof, and no
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representations, promises, agreements, or understandings, written or oral,
relating thereto not contained herein shall be of any force or effect.
14. GOVERNING LAW. The validity and effect of this agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of South Carolina, without giving effect to South Carolina's rules of conflicts
law, and regardless of the place or places of its physical execution or
performance.
15. CAPTIONS. The captions contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
17. NO CONSTRUCTION AGAINST EITHER PARTY. In the event that there is
any dispute regarding the interpretation or construction of the provisions of
this Agreement, there shall be no presumption that any provision of this
Agreement is to be construed against either party hereto.
18. BOARD APPROVAL. The Company represents and warrants to the Employee
that this Agreement, the Note and the Pledge have been approved by the Board.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
---------------------------- -------------------------------------
Witness George Michael Cassity
STATE COMMUNICATIONS, INC.
By:
---------------------------- ----------------------------------
Witness Name: Charles S. Houser
--------------------------------
Title: Chief Executive Officer
-------------------------------
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EXHIBIT A
PROMISSORY NOTE
$749,997.50 March 10, 2000
For value received, George Michael Cassity ("Promisor") promises to pay
to the order of State Communications, Inc., a South Carolina corporation (the
"Company"), the aggregate principal sum of $749,997.50. This Note was issued
pursuant to and is subject to the terms of the Employment Agreement, dated as of
the date hereof, between the Company and Promisor (the "Employment Agreement").
Unless otherwise indicated herein, capitalized terms used in this Note have the
meaning set forth in the Employment Agreement.
Interest shall accrue on a daily basis on the outstanding principal
amount of this Note at a rate equal to the lesser of (i) 8.12% per annum,
compounded annually, computed on the basis of a 360 day year and the actual
number of days elapsed or (ii) the highest rate permitted by applicable law, and
shall be payable annually in arrears.
Payments of principal of, and accrued and unpaid interest under, this
Note shall be due and payable on the earlier of (i) the third anniversary of the
date hereof or (ii) sixty (60) days after the effective date of the termination
of Promisor's employment with the Company pursuant to the Employment Agreement
(the "Maturity Date"); provided however, that the Company may extend the
Maturity Date one or more times in its sole discretion by a period of one year
by providing written notice to the Promisor of such extension no later than 10
days prior to the then-existing Maturity Date.
Payments of principal of, and accrued and unpaid interest under, this
Note shall be due and payable upon Promisor's receipt of proceeds from the
transfer, from time to time, of any Pledged Shares (as defined in the Pledge
Agreement between Promisor and the Company of even date herewith) in the full
amount of such proceeds (net of costs of sale and any taxes attributable
thereto) or such lesser amount as is necessary to pay the full amount of
outstanding principal of and accrued interest under this Note and for Promisor
to otherwise fully and finally discharge its obligations under this Note.
Promisor may, at his option, pay all or any portion of the principal of, and
accrued and unpaid interest under, this Note at any time and from time to time
prior to the maturity hereof without penalty or premium. Promisor may, at his
option, pay all or any portion of amounts due under this Note by from time to
time surrendering to the Company a portion of the Pledged Shares having a Fair
Market Value (as defined below) equal to the amount of such payment. Any payment
hereunder shall be applied first to pay accrued and unpaid interest under this
Note and second to reduce the outstanding principal amount of this Note.
"Fair Market Value" means, with respect to the Pledged Shares, the
average of the closing prices of the sales of the Company's Series C Preferred
Stock, or any other security of the Company or any other entity which the
aforesaid Series C Preferred Stock is convertible into or exchanged for (the
"Stock") on all securities exchanges on which the Stock may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the Stock is not so listed, the average of
the representative bid and asked prices quoted in the NASDAQ System as of 4:00
p.m., New York time, or, if on any day the Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which the Fair
Market Value is being determined and the 20 consecutive business days
immediately prior to such day. If at any time the Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the Fair Market
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Value shall be the fair value of such shares determined in good faith by the
Board of Directors of the Company.
The amounts due under this Note are secured by a pledge of the Pledged
Shares. Any cash dividends declared and paid with respect to the Pledged Shares
shall be payable directly to the Company and shall be applied to reduce the
outstanding principal amount (and any interest thereon) of this Note and any
cash dividends paid to Promisor with respect to the Pledged Shares will be
promptly remitted to the Company and shall be applied to reduce the outstanding
principal amount (and any interest thereon) of this Note.
In the event Promisor fails to pay any amounts due hereunder when due,
Promisor shall pay to the holder hereof, in addition to such amounts due, all
costs of collection, including reasonable attorneys fees.
Promisor, or his successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note (other than notice of default with respect to matters
other than the non-payment of interest and/or principal), and expressly agrees
that this Note, or any payment hereunder, may be extended from time to time and
that the holder hereof may accept security for this Note or release security for
this Note, all without in any way affecting the liability of Promisor hereunder.
The Company may not assign (by operation of law, change in control or
otherwise) any of its obligations or rights hereunder without the prior written
consent of the Promisor except in connection with any merger or transfer of all
or any substantial part of the business of the Company.
Any failure by the Company to exercise any right hereunder shall not be
construed as a waiver of its right to exercise the same or any other right
hereunder at any other time.
This Note and all rights hereunder shall be governed by the internal
laws, and not the laws of conflicts, of the State of South Carolina.
IN WITNESS WHEREOF, this Promissory Note has been executed as of the
date first written above.
STATE COMMUNICATIONS, INC.
By:
----------------------------------
Name: Charles S. Houser
--------------------------------
Title: Chief Executive Officer
-------------------------------
-------------------------------------
George Michael Cassity
19
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EXHIBIT B
THIS CONTRACT IS SUBJECT TO ARBITRATION PURSUANT TO S.C. CODE SS. 15-48-10(2)
STOCK PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of March 10, 2000, between George
Michael Cassity ("Pledgor"), and State Communications, Inc., a South Carolina
corporation (the "Company").
The Company and Pledgor are parties to an Employment Agreement of even
date herewith, pursuant to which Pledgor acquired and purchased 176,470 shares
of the Company's Series C Preferred Stock (the "Pledged Shares"), for an
aggregate purchase price of $749,997.50. The Company has allowed Pledgor to
purchase the Pledged Shares by delivery to the Company of a promissory note of
even date herewith (the "Note") in the aggregate principal amount of
$749,997.50. This Pledge Agreement provides the terms and conditions upon which
the Note is secured by a pledge to the Company of the Pledged Shares.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Company to accept the Note as
payment for the Pledged Shares, Pledgor and the Company hereby agree as follows:
1. Pledge. Pledgor hereby pledges to the Company, and grants to the
Company a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of and interest on the
Note and full payment and performance of the obligations and liabilities of
Pledgor hereunder.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
Agreement, Pledgor shall deliver to the Company the certificate(s) representing
the Pledged Shares, together with duly executed forms of assignment sufficient
to transfer title thereto to the Company.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
contrary contained herein, during the term of this Pledge Agreement until such
time as there exists a default in the payment of principal or interest on the
Note or any other default under the Note or hereunder, Pledgor shall be entitled
to all voting rights with respect to the Pledged Shares. Upon the occurrence of
and during the continuance of any such default, Pledgor shall no longer be able
to vote the Pledged Shares. During the term of this Pledge Agreement, all cash
dividends paid in respect of the Pledged Shares shall be paid to the Company and
applied by the Company to the outstanding principal amount of the Note and any
interest thereon.
4. Stock Dividends; Distributions, etc. If, while this Pledge Agreement
is in effect, Pledgor becomes entitled to receive or receives any securities or
other property as an addition to, in substitution of, or in exchange for any of
the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), Pledgor shall accept such securities or other property on behalf of
and for the benefit of the Company as additional security for Pledgor's
obligations under the Note and shall promptly deliver such additional security
to the Company together with duly executed forms of assignment, and such
additional security shall be deemed to be part of the Pledged Shares hereunder.
- --------------------
(2) UNLESS THE UNITED STATES ARBITRATION ACT APPLIES.
20
<PAGE> 21
5. Default. If Pledgor defaults in the payment of the principal or
interest under the Note when it becomes due (whether upon demand, acceleration
or otherwise) or any other event of default under the Note or this Pledge
Agreement occurs, the Company may exercise any and all the rights, powers and
remedies of any owner of the Pledged Shares (including the right to vote the
shares and receive dividends and distributions with respect to such shares) and
shall have and may exercise without demand (other than notice of default with
respect to matters other than payment of interest and/or principal) any and all
the rights and remedies granted to a secured party upon default under the
Uniform Commercial Code of the State of South Carolina or otherwise available to
the Company under applicable law. Without limiting the foregoing, the Company is
authorized to sell, assign and deliver at its discretion, from time to time, all
or any part of the Pledged Shares at any private sale or public auction, on not
less than ten days written notice to Pledgor, at such price or prices and upon
such terms as the Company may deem advisable. Pledgor shall have no right to
redeem the Pledged Shares after any such sale or assignment. At any such sale or
auction, the Company may bid for, and become the purchaser of, the whole or any
part of the Pledged Shares offered for sale. In case of any such sale, after
deducting the costs, attorneys' fees and other expenses of sale and delivery,
the remaining proceeds of such sale shall be applied to the principal of and
accrued interest on the Note; provided that after payment in full of the
indebtedness evidenced by the Note, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Shares remaining in the hands of the Company. Pledgor
shall be liable for any amount of the outstanding principal and accrued interest
on the Note for any deficiency if the remaining proceeds are insufficient to pay
the indebtedness under the Note in full, including the fees of any attorneys
employed by the Company to collect such deficiency.
6. Costs and Attorneys' Fees. All costs and expenses (including
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Shares hereunder.
7. Payment of Indebtedness and Release of Pledged Shares. Upon payment
in full of the indebtedness evidenced by the Note, the Company shall surrender
the Pledged Shares and any additional security to Pledgor together with all
forms of assignment.
8. No Other Liens; No Sales or Transfers. Pledgor hereby represents and
warrants that he has good and valid title to all of the Pledge Shares, free and
clear of all liens, security interests and other encumbrances (except as
contemplated herein and except as otherwise for the benefit of the Company), and
Pledgor hereby covenants that, until such time as all of the outstanding
principal of and interest on the Note has been repaid, Pledgor shall not (i)
create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Shares or Pledgor's
rights as a holder thereof, other than pursuant to this Agreement, or (ii) sell
or otherwise transfer any Pledged Shares or any interest therein, provided that,
notwithstanding the foregoing, (a) the Pledgor shall be entitled to surrender
any portion of the Pledged Shares to the Company as payment on the Note, as
described in the Note, and (b) the Pledgor shall be entitled, from time to time,
to sell or otherwise transfer any portion of the Pledged Shares so long as the
Pledgor ensures that the proceeds from any such sale are delivered to the
Company as payment on the Note, as described in the Note.
9. Further Assurances. Pledgor agrees that at any time and from time to
time upon the written request of the Company, Pledgor shall execute and deliver
such further documents (including UCC financing statements) and do such further
acts and things as the Company may reasonably request in order to effect the
purposes of this Pledge Agreement.
10. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
21
<PAGE> 22
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
11. No Waiver; Cumulative Remedies. The Company shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
the Company, and then only to the extent therein set forth. A waiver by the
Company of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Company would otherwise have
on any future occasion. No failure to exercise nor any delay in exercising on
the part of the Company, any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights or
remedies provided by law.
12. Waivers, Amendments; Applicable Law. None of the terms or
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the parties hereunder shall together with the
rights and remedies of the parties hereunder, be binding upon and inure to the
benefit of the parties hereto and their respective heirs, beneficiaries,
successors and assigns, provided that no party hereto may assign (by operation
of law, change in control or otherwise) any of its rights or obligations
hereunder without the prior written consent of the other party hereto, except in
connection with any merger or transfer of the Company or of all or any
substantial part of the business of the Company. This Pledge Agreement shall be
governed by, and be construed to interpreted in accordance with, the laws of the
State of South Carolina.
13. No Construction Against Either Party. In the event that there is
any dispute regarding the interpretation or construction of the provisions of
this Pledge Agreement, there shall be no presumption that any provision of this
Pledge Agreement is to be construed against either party hereto.
14. Release of Pledged Shares. Upon each payment of any principal of
the Note, there shall be released from the terms of this Pledge Agreement the
number of shares of the Pledged Shares held by the Company pursuant to this
Pledge Agreement in excess of the number of shares of the Pledged Shares held by
the Company pursuant to this Pledge Agreement at that time equal to the
outstanding principal balance of the Note at that time divided by the Fair
Market Value (as defined in the Note). As such shares of the Pledged Shares are
released, the Company shall promptly surrender to the Pledgor, without recourse
or warranty, all certificates evidencing and stock powers in respect of such
released shares of the Pledged Shares.
IN WITNESS WHEREOF, this Pledge Agreement has been executed as
of the date first written above.
STATE COMMUNICATIONS, INC.
By:
----------------------------------
Name: Charles S. Houser
--------------------------------
Title: Chief Executive Officer
-------------------------------
-------------------------------------
George Michael Cassity
22
<PAGE> 23
EXHIBIT C
Representations and Warranties of Employee
In Connection with Acquisition of Common Stock
and Series C Preferred Stock
In connection with the acquisition of Common Stock and Series C
Preferred Stock from the Company by the Employee contemplated in this Agreement,
the Employee hereby represents and warrants to the Company that:
(1) Common Stock and Series C Preferred Stock to be acquired by
Employee pursuant to this Agreement shall be acquired for the Employee's own
account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act, or any applicable state securities laws, and
the Employee shall not dispose of any shares of Common Stock and Series C
Preferred Stock in contravention of the Securities Act, the Exchange Act or any
applicable state securities laws.
(2) Employee has had access to all material information about an
investment in the Common Stock and Series C Preferred Stock, is sophisticated in
financial matters and is able to evaluate the risks and benefits of an
investment in the Common Stock and Series C Preferred Stock.
(3) Employee is able to bear the economic risk of his investment in
the Common Stock and Series C Preferred Stock for an indefinite period of time.
Employee understands that no shares of Common Stock and Series C Preferred Stock
have been registered under the Securities Act or any applicable state securities
laws and, therefore, cannot be sold unless subsequently registered under the
Securities Act and any applicable state securities laws or an exemption from
such registration is available.
(4) Employee has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of Common Stock and
Series C Preferred Stock to the Employee and has had full access to (A) such
other information concerning the Company and the offering of Common Stock and
Series C Preferred Stock to Employee hereunder as he or she has requested and
(B) such other information which Employee deemed necessary and desirable to make
an informed investment decision regarding the purchase of Common Stock and
Series C Preferred Stock hereunder.
(5) Employee is an "accredited investor" as defined under the
Securities Act and rules and regulations promulgated thereunder.
(6) These representations and warranties constitute the legal, valid
and binding obligation of Employee, enforceable in accordance with its terms,
and the execution, delivery and performance of this Agreement by Employee does
not and shall not conflict with, violate or cause a breach of any agreement,
contract or instrument to which Employee is a party or any judgment, order or
decree to which Employee is subject.
23
<PAGE> 1
EXHIBIT 10.9.3
THIS CONTRACT IS SUBJECT TO ARBITRATION PURSUANT TO S.C. CODE SS. 15-48-10*
STATE OF SOUTH CAROLINA )
) EMPLOYMENT AGREEMENT
COUNTY OF GREENVILLE )
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
effective as of the 15th day of March, 2000 (the "Effective Date") by and
between Riley M. Murphy, an individual (the "Employee"), and TriVergent
Communications, Inc., a South Carolina corporation headquartered in Greenville,
South Carolina (the "Company"). As used herein, the term "Company" shall include
the Company and any and all of its subsidiaries where the context so applies.
W I T N E S S E T H
WHEREAS, the Company desires to enter into an employment relationship
with Employee on certain terms and conditions as set forth herein; and
WHEREAS, Employee has agreed to accept such employment upon the terms
and conditions as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Position. Subject to the terms and conditions of this Agreement, the Company
hereby employs the Employee and Employee hereby accepts such employment as
General Counsel of the Company reporting to the Chief Executive Officer. As soon
as practicable, the Company will seek the approval of the Company's Board of
Directors to designate Employee as Senior Vice President of Law, and Secretary.
2. Definitions. For purposes of this Agreement, the following terms shall have
the meanings specified below.
"Change in Control" shall mean:
(i) the acquisition, directly or indirectly, by any Person
(other than (A) any employee plan established by the Company, (B) the
Company or any of its affiliates (as defined in Rule 12b-2 promulgated
under the Exchange Act), (C) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (D) a
corporation owned, directly or indirectly, by stockholders of the
Company in substantially the same proportions as their ownership of the
Company), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company) representing an
aggregate of 20% or more of the combined voting power of the Company's
then
- --------------------
* UNLESS THE UNITED STATES ARBITRATION ACT APPLIES.
Page 1 of 12
<PAGE> 2
outstanding voting securities;
(ii) during any period of up to two consecutive years
individuals who, at the beginning of such period, constitute the Board
cease for any reason to constitute at least a majority thereof,
provided that any person who becomes a director subsequent to the
beginning of such period and whose nomination for election is approved
by at least two-thirds of the directors then still in office who either
were directors at the beginning of such period or whose election or
nomination for election was previously so approved (other than a
director (A) whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election of
the directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act, or (B) who was designated by a
Person who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii) or (iv) hereof) shall be
deemed a director as of the beginning of such period;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than (A)
a merger or consolidation that would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of any Company, at
least 51% of the combined voting power of the voting securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (B) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
beneficial owner (as defined in clause (i) above), directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company) representing 25% or more of the combined
voting power of the Company's then outstanding voting securities; or
(C) a plan of complete liquidation of the Company or an agreement for
the sale or disposition of the Company of all or substantially all of
the Company's assets; or
(iv) the occurrence of any other event or circumstance which
is not covered by (i) through (iii) above which the Board determines
affects control of the Company and, in order to implement the purposes
of this Agreement as set forth above, adopts a resolution that such
event or circumstance constitutes a Change in Control for the purposes
of this Agreement.
"Cause" shall mean:
(i) in the absence of a Change in Control: (a) fraud; or (b)
embezzlement; or (c) conviction of the Employee of any felony; or (d) a
material breach of, or the willful failure or refusal by the Employee
to perform and discharge the Employee's duties, responsibilities and
obligations under, this Agreement, as determined by the Board in its
reasonable judgment, or the repeated failure of the Employee to follow
reasonable directives and performance standards established by the
Board, but only if (1) the Employee has been provided with written
notice of any assertion that there is a basis for termination for cause
which notice shall specify in reasonable detail specific facts
regarding any such assertion, (2) such written notice is provided to
the Employee a reasonable time before the Board meets to consider any
possible termination for cause, (3) at or prior to the meeting of the
Board to consider the matters described in the written notice, an
opportunity is provided to the Employee and her counsel to be heard
before the Board with respect to the matters described in the written
notice, (4) any resolution or other Board action held with respect to
any deliberation regarding or decision to terminate the Employee for
cause is duly adopted by a vote of a majority of the entire Board of
the Company at a meeting of the Board
Page 2 of 12
<PAGE> 3
called and held and (5) the Employee is promptly provided with a copy
of the resolution or other corporate action taken with respect to such
termination. No act or failure to act by the Employee shall be
considered willful unless done or omitted to be done by her not in good
faith and without reasonable belief that her action or omission was in
the best interests of the Company; or (e) any act of moral turpitude or
willful misconduct by the Employee which is intended to result in
personal enrichment of the Employee at the expense of the Company, or
any of its affiliates, or which has a material adverse impact on the
business or reputation of the Company or any of its affiliates (such
determination to be made by the Board in its reasonable judgment); or
(f) intentional material damage to the property or business of the
Company; or (g) gross negligence; or (h) the ineligibility of the
Employee to perform her duties because of a ruling, directive or other
action by any agency of the United States or any state of the United
States having regulatory authority over the Company.
(ii) after a Change in Control: (a) fraud; (b) embezzlement;
(c) conviction of the Employee of any felony; (d) the willful and
continued failure of the Employee substantially to perform her duties
with the Company (other than any failure due to physical or mental
incapacity) or the willful misconduct materially and demonstrably
injurious to the Company, in each case, as determined in the reasonable
discretion of the Board, but only if (1) the Employee has been provided
with written notice of any assertion that there is a basis for
termination for cause which notice shall specify in reasonable detail
specific facts regarding any such assertion, (2) such written notice is
provided to the Employee a reasonable time before the Board meets to
consider any possible termination for cause, (3) at or prior to the
meeting of the Board to consider the matters described in the written
notice, an opportunity is provided to the Employee and her counsel to
be heard before the Board with respect to the matters described in the
written notice, (4) any resolution or other Board action held with
respect to any deliberation regarding or decision to terminate the
Employee for cause is duly adopted by a vote of a majority of the
entire Board of the Company at a meeting of the Board called and held
and (5) the Employee is promptly provided with a copy of the resolution
or other corporate action taken with respect to such termination;. No
act or failure to act by the Employee shall be considered willful
unless done or omitted to be done by her not in good faith and without
reasonable belief that her action or omission was in the best interests
of the Company. The unwillingness of the Employee to accept any or all
of a change in the nature or scope of her position, authorities or
duties, a reduction in her total compensation or benefits, a relocation
that she deems unreasonable in light of her personal circumstances, or
other action by or request of the Company in respect of her position,
authority, or responsibility that she reasonably deems to be contrary
to this Agreement, may not be considered by the Board to be a failure
to perform or misconduct by the Employee.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute, rule or regulation of similar effect.
"Disability" or "Disabled" shall mean the Employee's inability as a
result of physical or mental incapacity to substantially perform her
duties for the Company on a full-time basis for a period of six (6)
months.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Involuntary Termination" shall mean the termination of Employee's
employment by the Employee which is due to (i) a significant and
material change of the Employee's responsibilities, position
Page 3 of 12
<PAGE> 4
authority or duties; or (ii) a significant and material change in the
terms or status of this Agreement; or (iii) a significant and material
reduction in the Employee's compensation or benefits.
"Person" shall mean any individual, corporation, bank, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or other entity.
3. Duties. During the term hereof, the Employee shall have such duties and
authority as are typical of someone in her position with a company such as the
Company, including, without limitation, those specified in the Company's bylaws
or those reasonably set forth by the Board. Employee agrees that during the Term
hereof, she will devote her full time, attention and energies to the diligent
performance of her duties. Employee shall not, without the prior written consent
of the Company, at any time during the Term hereof (i) accept employment with,
or render services of a business, professional or commercial nature to, any
Person other than the Company, (ii) engage in any venture or activity which the
Company may in good faith consider to be competitive with or adverse to the
business of the Company or of any affiliate of the Company, whether alone, as a
partner, or as an officer, director, employee or shareholder or otherwise,
except that the ownership of not more than 5% of the stock or other equity
interest of any publicly traded corporation or other entity shall not be deemed
a violation of this Section, or (iii) engage in any venture or activity which
the Board may in good faith consider to interfere with Employee's performance of
her duties hereunder. The Company agrees that Employee may serve on the board of
and/or participate in industry and trade associations, so long as such
activities do not interfere with the discharge of her duties at the Company.
4. Term. Unless earlier terminated as provided herein, the Employee's employment
hereunder shall be for a rolling term of two years (the "Term") commencing on
the Effective Date hereof. This Agreement shall be deemed to extend each day for
an additional day automatically and without any action on behalf of either party
hereto.
4.1 Upon Employee's death or Disability, the Company shall have the
right to terminate this Agreement immediately. Upon such termination, the
Employee (or her estate) shall be entitled to receive from the Company as
severance upon such termination, the compensation and benefits, as provided in
Section 5, remaining in the Term.
4.2 At any time, the Company shall have the right to terminate
Employee's employment immediately for Cause, after which the Company's
obligation hereunder shall cease as of the date of the termination.
4.3 At any time, after March 24, 2001, for any or no reason, the
Company, by written notice to Employee, may cause this Agreement to cease to
extend automatically and, upon such notice, the Term of this Agreement shall be
the one year following the date of such notice, and this Agreement shall
terminate automatically upon the expiration of such Term, after which the
Company's obligation hereunder shall cease.
4.3.1 If the Company terminates the Agreement prior to a
Change in Control for any reason other than for Cause after it fixes the Term
pursuant to this section 4.3, the Employee shall be entitled to receive as
severance upon such termination, the compensation and benefits, as provided in
Section 5, remaining in the Term.
4.3.2 If the Company fixes the Term pursuant to this section
4.3 after a Change in Control, the Employee shall be entitled to receive as
severance upon such termination, twenty-four (24) months of her annual
compensation and benefits being paid at the time of termination, as provided in
Section 5.
Page 4 of 12
<PAGE> 5
4.4 Employee shall have the right to terminate her employment hereunder
if (i) the Company materially breaches this Agreement and such breach is not
cured within 30 days after written notice of such breach is given by Employee to
the Company; (ii) there is an Involuntary Termination; or (iii) for no reason.
4.4.1 If Employee terminates her employment other than
pursuant to clauses (i) or (ii) of this Section 4.4, the Company's obligations
under this Agreement shall cease as of the date of such termination.
4.4.2 If Employee terminates her employment hereunder pursuant
to either clause (i) or clause (ii) of this Section 4.4, Employee shall be
entitled to receive twelve (12) months of her annual compensation and benefits
being paid at the time of termination, as provided in Section 5.
4.5 In the event of termination pursuant to Sections 4.3.1 or 4.3.2 or
Section 4.4.2:
4.5.1 the Employee shall be deemed to be credited with service
with the Company for such remaining Term for the purposes of the Company's
benefit plans; and
4.5.2 the Employee shall be deemed to have retired from the
Company and shall be entitled as of the termination date, or at such later time
as she may elect to commence receiving the total combined qualified and
non-qualified retirement benefit to which she is entitled hereunder, or her
total non-qualified retirement benefit hereunder if under the terms of the
Company's qualified retirement plan for salaried employees, she is not entitled
to a qualified benefit.
If any provision of this Section 4.5 cannot, in whole or in part, be
implemented and carried out under the terms of the applicable compensation,
benefit, or other plan or arrangement of the Company because the Employee has
ceased to be an actual employee of the Company, because the Employee has
insufficient or reduced credited service based upon her actual employment by the
Company, because the plan or arrangement has been terminated or amended after
the effective date of this Agreement, or because of any other reason, the
Company itself shall pay or otherwise provide the equivalent of such rights,
benefits and credits for such benefits to Employee, her dependents,
beneficiaries and estate.
4.6 Following a Change in Control, in addition to any other termination
payment contained in this Section 4 (the "Termination Payments"), the Employee
shall also be entitled to receive an additional payment in an amount equal to
all taxes (including any interest or penalties imposed with respect to such
taxes) owed by the Employee on these payments, including, without limitation,
any income taxes or excise taxes (including, without limitation, any tax imposed
by Section 4999 of the Code) and any interest and penalties imposed with respect
thereto.
4.7 Any Termination Payment shall be made immediately in a lump sum
payment.
5. Compensation And Benefits. In consideration of Employee's services and
covenants hereunder, Company shall pay to Employee the compensation and benefits
described below (which compensation shall be paid in accordance with the normal
compensation practices of the Company and shall be subject to such deductions
and withholdings as are required by law or policies of the Company in effect
from time to time):
5.1 Annual Salary. During the Term hereof, the Company shall pay to
Employee a base salary of $150,000. Thereafter, Employee's salary shall be
reviewed by the Compensation Committee of the Board at the beginning of each of
its fiscal years and, in its sole discretion, may be increased for such year.
5.2 Cash Bonus. In addition to the above salary, Employee shall receive
a guaranteed bonus of $50,000 in her first year, payable no later than December
31, 2000. Thereafter, Employee shall be
Page 5 of 12
<PAGE> 6
eligible to receive an annual bonus of not less than $50,000 based upon the
achievement of certain performance goals for the Company as determined each year
by the Compensation Committee of the Board of Directors.
5.3 Benefits. Employee shall be entitled to share in any employee
benefits generally provided by the Company to its most highly ranking Employees
and officers for so long as the Company provides such benefits and to any other
benefits given to Employee in the sole discretion of the Board.
5.4 Sign-on Bonus. Employee shall receive a one-time sign-on bonus of
$150,000 payable on or before March 15, 2000.
5.5 Business expenses.
5.5.1 The Company shall reimburse Employee for all
reasonable business and professional expenses
incurred by Employee in connection with her
employment within thirty (30) days of the Company's
receipt of vouchers, receipts, or other appropriate
documentation.
5.5.2 The Company shall reimburse Employee up to $2000 per
month for living expenses and up to $2000 per month
for travel expenses incurred in connection with her
commute from Virginia to South Carolina, if such
expenses are expended and documented, through
September 15, 2000. Subsequent to September 15, 2000,
Company and Employee will evaluate whether
continuation of such reimbursement is warranted in
light of her overall compensation package and
relocation to South Carolina.
5.5.3 The Company shall reimburse Employee for all
reasonable and documented costs that Employee incurs
for relocating to Greenville, South Carolina, such as
seller's broker's commission, closing costs, and
moving expenses.
5.5.4 The Company shall reimburse Employee up to $25,000
per year for discretionary expenses.
5.6 Vacation. Employee shall be entitled to an annual vacation of not
more than three (3) weeks. Scheduling of such vacation shall be with the
reasonable consent of the Company.
5.7 Stock Purchase and Loan. The Company shall use its best efforts to
allow Employee to purchase up to 35,000 shares of Series C Convertible Preferred
Stock in the Company's current offering of up to 4,214,703 shares of Series C
Convertible Preferred Stock (expected to be consummated in March 2000), such
purchase to be at a price of $4.25 per share and on the same terms and
conditions applicable to other purchasers in such offering. To this end, Company
shall extend a loan to Employee on March 15, 2000 in the amount of $148,750
(evidenced by a Promissory Note in the form attached hereto). Such loan bears
simple interest at the rate of 10% per year, and the principal and interest on
such loan shall be due and payable on March 15, 2003. Employee shall pay
interest only on each anniversary of the Promissory Note until maturity.
5.8 Stock Options. Simultaneous to the execution of this Agreement, the
Company shall grant to Employee options to purchase 250,000 shares pursuant to
the Stock Option Agreement attached hereto.
6. Gross-Up of Payments. It is the intention of the parties that:
(i) the net amount of all Termination Payments retained by the
Employee after deduction for and payment of all applicable federal, state and
local taxes (the "Withholding Taxes") payable by or on behalf of the Employee
shall be equal to the gross amount of the Termination Payments without regard to
any such deductions or payments (the "Net Termination Payments") and
(ii) the net amount of all other payments or benefits received or to be
received by the Employee
Page 6 of 12
<PAGE> 7
from the Company or one of its benefit plans as a direct or indirect result of
or in connection with a Change in Control or in connection with Termination
within one year of a Change in Control, from whatever source other than a
Termination Payment (the "Other Payments"), that are or become subject to the
tax (the "Excise Tax") imposed by Section 4999 of the Code, shall be equal to
the gross amount of the Other Payments without regard to deduction or payment or
any such Excise Tax.
Accordingly, the Termination Payments otherwise payable hereunder shall
be increased by an amount of cash (the "Withholding Gross-Up Payment") equal to
all Withholding Taxes payable by or on behalf of the Employee in respect of the
Termination Payments, including any Withholding Taxes as may be due in respect
of such additional amounts to be paid pursuant to this sentence as will result
in the Employee actually retaining an amount equal to the Net Termination
Payments. In addition, if the sum of the Termination Payments, the Withholding
Gross-Up Payment and the Other Payments (the "Total Payments") are or become
subject to the Excise Tax, the Company shall pay the Employee within 30 days of
the termination date an additional cash amount (the "Excise Gross-Up Payment")
such that the net amount actually retained by the Employee, after deduction for
or payment of any Excise Tax on the Total Payments and the sum of any
Withholding Taxes upon the payment provided by this sentence shall be equal to
the Total Payments (the "Net Total Payments"). For the purposes of determining
whether any of the Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, the following shall apply:
6.1 All "excess parachute payments" within the meaning of Section
280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, in
the opinion of tax counsel selected by the Company's independent auditors and
acceptable to the Employee, such other payments or benefits (in whole or in
part) described in clause (a) above do not constitute parachute payments or such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280(G)(b)(4) of the Code;
6.2 the amount of the Termination Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of:
(i) the total amount of the Termination Payments; and
(ii) the amount of excess parachute payments within the
meaning of Sections 280G(b)(1) and (4) (after applying Sections 6.1 and
6.2 above)
6.3 the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code; and
6.4 the Employee shall be deemed to pay federal income taxes, and state
and local income taxes in the state and locality of the Employee's residence on
the date of Termination, at the highest marginal rate of income taxation in
effect in the calendar year in which the Gross-Up Payment is to be made, net of
the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local income taxes.
Provided, that in the event the Excise Tax or Withholding Taxes are
subsequently determined to be less than the amounts taken into account hereunder
at the time of the payment of the Withholding Gross-Up Payments or the Excise
Tax Gross-Up Payment, the Employee shall repay the Company the portion of such
payments attributable to such reduction, or in the event that the Excise Tax or
the Withholding Taxes are subsequently determined to exceed the amount taken
into account hereunder at the time of the
Page 7 of 12
<PAGE> 8
payment of the Withholding Gross-Up Payment or the Excise Tax Gross-Up Payment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of such payments), the Company shall make an additional
Gross-Up Payment in respect of such excess, in each case, payment to be made
within 30 days after the final determination of the amount of the reduction or
excess, as the case may be, together with interest thereon at the rate provided
in Section 1274(b)(2)(B) of the Code.
7. Confidential Information. Employee acknowledges that the proprietary
information, observations and data obtained by Employee while employed by the
Company concerning the business or affairs of the Company or any affiliate or
subsidiary thereof ("Confidential Information") is the property of the Company.
Therefore, Employee agrees not to disclose to any unauthorized person or use for
the Employee's account any Confidential Information without the prior written
consent of the Company. Upon request, Employee shall deliver to the Company at
the termination of this Employment Agreement, or at any other time the Company
may request, all memoranda, notes, plans, records, reports and other documents
(and copies thereof) relating to the Confidential Information or the business of
the Company, subject to the provisions of paragraph 7 hereof. The provisions of
this paragraph 7 shall not apply to the following:
a. information that is part, or becomes part, of the public domain,
through no act or omission of Employee;
b. information that was already known to Employee at the time of its
disclosure hereunder, including without limitation information gained
by virtue of Employee's past experience and know-how, but excluding
information gained as a result of his past representation of the
Company as one of its outside attorneys;
c. information that, subsequent to its disclosure hereunder, is
obtained by Employee from a third party who rightfully possesses such
information and has no obligation to maintain its confidentiality; and
d. information that is developed through the independent research of
Employee, without any reliance upon or use of information disclosed
hereunder.
The obligation not to disclose Confidential Information, as set forth
herein, is not intended to, nor shall it prohibit, Employee, consistent with the
Code of Professional Responsibility, from disclosing Confidential Information,
or parts thereof, pursuant to a lawfully issued subpoena, court order, statute
or regulations compelling such divulgence, provided that Employee gives
reasonable notice to the Company in advance of such divulgence so that the
Company may seek to quash the subpoena, obtain a protective order, or take other
appropriate measures under such circumstances and the Employee discloses only
the minimum necessary to comply with such subpoena, court order, statute or
regulation.
8. Assignment. The parties acknowledge that this Agreement has been entered into
due to, among other things, the special skills of Employee, and agree that
Employee may not assign any of her rights or delegate any of her duties or
obligations under this Agreement. The rights and obligations of Company under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company.
9. Notices. All notices, requests, demands, and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered or seven days after mailing
Page 8 of 12
<PAGE> 9
if mailed, first class, certified or registered mail, postage prepaid:
To the Company: TriVergent Communications, Inc.
200 N. Main Street
Suite 303
Greenville, SC 29601
Fax No. 864-271-7810
To Employee: Riley M. Murphy
9008 Potomac Forest Drive
Great Falls, VA 22066
Fax No. 703-757-9476
Any party may change the address to which notices, requests,
demands, and other communications shall be delivered or mailed
by giving notice thereof to the other party in the same manner
provided herein.
10. Provisions Severable. If any provision or covenant, or any part thereof, of
this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
11. Dispute Resolution.
11.1 Mediation. If a dispute arises out of or in any way relates to
this Agreement or Employee's employment, and if the dispute cannot be settled
through negotiation, the parties agree first to try in good faith to settle the
dispute by mediation before resorting to arbitration, litigation, or some other
formal dispute resolution procedure. Any such dispute shall be submitted to a
mediator selected by mutual agreement of the parties. Unless the parties agree
to an alternative arrangement, the mediator's fee and expenses shall be equally
divided between the parties.
11.2 Arbitration. Should any dispute arising out of or in any way
relating to this Agreement or Employee's employment or the termination of
Employee's employment not be resolved by negotiation or mediation, the parties
agree to waive their right to a jury trial and agree to submit the dispute to
arbitration. Unless otherwise provided herein, the arbitration shall be
conducted by a single arbitrator in accordance with the National Rules for the
Resolution of Employment Disputes published by the American Arbitration
Association. The arbitration shall be conducted in Greenville County, South
Carolina. The arbitrator shall be selected by mutual agreement of the parties.
If the parties cannot agree on an arbitrator within thirty (30) days after
written request for arbitration is made by one party to the controversy, a
neutral arbitrator shall be appointed according to the procedures set forth in
the American Arbitration Association National Rules for the Resolution of
Employment Disputes. In rendering the award, the arbitrator shall have the
authority to resolve only the legal dispute between the parties, shall not have
the authority to abridge or enlarge substantive rights or remedies available
under existing law, and shall determine the rights and obligations of the
parties according to the substantive and procedural laws of South Carolina. In
addition, the arbitrator's decision and award shall be in writing and signed by
the arbitrator, and accompanied by a written concise explanation of the basis of
the award. The award rendered by the arbitrator shall be final and binding, and
judgment on the award may be entered in any court having
Page 9 of 12
<PAGE> 10
jurisdiction thereof. The arbitrator is authorized to award any party a sum
deemed proper for the time, expense, and trouble of arbitration, including
arbitration fees and attorneys' fees.
11.3 Types of Claims. All legal claims brought by Employee against
Company related to this Agreement, the employment relationship, terms and
conditions of employment, and/or termination from employment are subject to this
dispute resolution procedure. These include, by way of example and without
limitation, any legal claims based on alleged discrimination or retaliation on
the basis of race, sex, religion, national origin, age or disability, whether
based on state or federal law; workers' compensation retaliation; defamation;
invasion of privacy; infliction of emotional distress and/or breach of an
express or implied contract. The above terms notwithstanding, any legal claim
brought by Employee or Company for or relating to workers' compensation,
unemployment compensation benefits, breach, violation or misappropriation of
Company's trade secrets, provisions of any confidentiality agreements or
noncompete agreements, and claims alleging status or membership with regard to
any employment benefit plan are not subject to this dispute resolution
procedure.
12. Waiver. Failure of either party to insist, in one or more instances, on
performance by the other in strict accordance with the terms and conditions of
this Agreement shall not be deemed a waiver or relinquishment of any right
granted in this Agreement or of the future performance of any such term or
condition. No waiver shall be valid unless in writing signed by the party sought
to be bound.
13. Company and Employee Representations. Employee represents and warrants to
Company that other than her expired agreement with her former employer, she is
subject to no agreement or obligation, which includes any non-competition or
confidentiality agreement. Employee agrees to hold Company and its officers,
directors, employees, managers, members, shareholders and agents harmless from
any claim (and the expenses associated therewith) arising from a breach of this
warranty and representation.
14. Amendments and Modifications. This Agreement may be amended or modified only
by a writing signed by other parties hereto. The parties hereby agree that this
Agreement contains the entire agreement and understanding by and between the
parties with respect to Employee's employment, and no representations, promises,
agreements, or understandings, written or oral, relating to the employment of
the Employee by the Company not contained herein shall be of any force or
effect.
15. Assignment of Intellectual Property. Employee agrees to promptly disclose to
Company, in writing, all inventions, discoveries and improvements devised by
Employee as part of her employment duties with Company, and hereby transfers and
assigns to Company all rights, title and interest, domestic and foreign, to such
inventions, etc. At the request of Company, Employee will execute, either during
or after her employment with Company, any documents, including applications for
patents and assignments, necessary or desired by Company. Employee will
cooperate with the filing and prosecution of any such patent applications
whenever Company so requests without further compensation. Employee attaches
hereto a complete list of all inventions that Employee made or conceived prior
to her employment by Company, if any exist, and Company agrees that these
inventions shall be excluded from this Agreement.
16. Governing Law. The validity and effect of this Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of South
Carolina, without giving effect to South Carolina's rules of conflicts law, and
regardless of the place or places of its physical execution or performance.
Page 10 of 12
<PAGE> 11
17. Captions. The captions contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
18. Counterparts. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one instrument.
[signatures to follow]
Page 11 of 12
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Witness Employee
_______________________________ _______________________________
Riley M. Murphy
TRIVERGENT COMMUNICATIONS, INC.
_______________________________ By:____________________________
Its: __________________________
Page 12 of 12
<PAGE> 1
EXHIBIT 10.10
FORM OF NON-DISCLOSURE & NONCOMPETITION AGREEMENT
Set forth below is the form of non-disclosure and non-competition
agreement entered into by and between TriVergent (f/k/a State Communications,
Inc.) and each of Charles S. Houser, Shaler P. Houser, Russell W. Powell, Clark
H. Mizell and Daniel E.H. Sterling. Except for the names of the employees
parties to the agreements, there are no differences between the agreements.
NON-DISCLOSURE AND NON-COMPETITION AGREEMENT
This NON-DISCLOSURE AND NON-COMPETITION AGREEMENT (this "Agreement") is
made and entered into this 28th day of October, 1998, by and among STATE
COMMUNICATIONS, INC., a South Carolina corporation (the "Company"),
________________ (the "Founder"), RICHLAND VENTURES II, L.P., a Delaware limited
partnership, and First Union Capital Partners, INC., a Virginia corporation
(collectively, the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company and the Purchasers have entered into that certain
Preferred Stock Purchase Agreement, dated the date hereof (the "Stock Purchase
Agreement"), whereby the Company has agreed to sell and the Purchasers have
agreed to purchase 4,166,668 shares of Series A Convertible Preferred Stock (the
"Preferred Stock");
WHEREAS, the Founder is a significant shareholder of the Company and,
as such, will materially benefits from the transactions contemplated by the
Stock Purchase Agreement; and
WHEREAS, given the material adverse affect to the value of the
Preferred Stock if the Founder were to compete with the Company, to induce the
Purchasers to enter into the Stock Purchase Agreement and consummate the
transactions contemplated thereby the parties hereto have agreed to enter into
this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, the parties agree as follows:
1. Term. Founder covenants and agrees that for so long as the Founder
is employed by the Company and a period of two (2) years thereafter, he will
not, directly or indirectly, engage in any activity prohibited pursuant to the
terms of this Agreement.
2. Non-Competition and Non-Disclosure.
(a) Non-Competition. Founder agrees that for the term of this
Agreement, he will not, without the prior written consent of Purchasers',
directly or indirectly, (i) own, manage, operate, control or participate in, or
be associated with as a director, officer, shareholder, partner, joint
<PAGE> 2
venturer, employee, consultant or otherwise, any business providing
telecommunications services including, but not limited to, local exchange or
long distance telecommunications services which competes, directly or
indirectly, with the Company within any metropolitan statistical service area in
which the Company provides such services on the date of termination of Founder's
employment (the "Prohibited Business"); (ii) become financially interested in
any person or entity engaged in any such Prohibited Business, other than as a
passive investor owning, directly or indirectly, not more than 5% of the equity
securities of a public corporation; (iii) solicit or attempt to solicit any
employee of the Company either to work for the Founder personally or on behalf
of any other person or entity whether or not engaged in a Prohibited Business;
or (iv) solicit or attempt to solicit, for the purpose of providing the services
identified in subpart (i) above, any customer of the Company with which the
Founder had material contact during the twelve-month period immediately prior to
the Founder's departure from the Company. Founder's present activities with, and
ownership interest in, Rhinos International, Ltd. and N Plus 1 Software
Development Corporation shall not be deemed to be in violation of this
Agreement.
(b) Non-Disclosure of Confidential Information. As used in this
Agreement, the term "Confidential Information" shall mean any information which
(i) is not generally available to the public; and (ii) pertains to or relates in
any way to the Company or its businesses, proprietary techniques, know-how,
independent interpretations of market information, strategic plans and
organizational approaches, activities, products or services including, without
limitation, financial information, analyses, intellectual property rights,
employee compensation information, reports, pricing methods or other trade
secrets. Founder acknowledges that he may come into possession of certain
Confidential Information of the Company, the Purchasers or their respective
affiliates, and agrees that all such Confidential Information is the sole and
exclusive property of the Company or the Purchasers, as the case may be. During
the term of this Agreement, Founder shall not disclose any such Confidential
Information, directly or indirectly, nor use it in any way, either during the
term of this Agreement or at any time thereafter, except as required by law or
by any court or governmental agency or body. All files, records, documents,
pricing and other information, data and similar items in any medium whatsoever
relating to the business, assets or prospects of the Company, the Purchasers or
their respective affiliates, whether prepared by Founder or otherwise coming
into his possession, shall remain the exclusive property of the Company and
shall not be copied or removed from the premises of the Company without the
prior written consent of Purchasers. The terms of this subparagraph (b) are not
intended to limit any definitions, protections or remedies available to the
Company or the Purchasers under any local, state or federal law applicable to
trade secrets or confidential information.
(c) Remedies. Founder acknowledges that any violation of this Agreement
will cause irreparable harm to the Company and Purchasers and that damages are
not an adequate remedy. Founder therefore agrees that the Company and Purchasers
shall be entitled to injunctive relief enjoining, prohibiting and restraining
Founder from the continuance of any such violation, in addition to any monetary
damages which might occur by reason of a violation of this Agreement or any
other remedies at law or in equity, including, without limitation, specific
performance.
-2-
<PAGE> 3
(d) Independent Covenants. The covenants set forth in this Agreement
are and shall be deemed and construed as separate and independent covenants.
Should any part or provision of such covenants be held invalid, void or
unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall not render invalid, void or unenforceable any other part
or provision thereof. Specifically, and without limiting the generality of the
foregoing, if any portion of this Agreement is found to be invalid by a court of
competent jurisdiction because its duration, the territory and/or the restricted
activities are invalid or unreasonable in scope, such duration, territory and/or
restricted activity, as the case may be, shall be redefined by consideration of
the reasonable concerns and needs of the Company and Purchasers' investment
interests such that the intent of Purchasers, in consummating the transactions
contemplated by the Agreement will not be impaired and shall be enforceable to
the fullest extent permissible under applicable laws.
3. Developments. (a) If at any time or times during the Founder's
employment, he shall (either alone or with others) make, conceive, create,
discover or reduce to practice any invention, modification, discovery, design,
development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright, trademark or similar statutes or subject to
analogous protection) (the "Developments") that (i) relates to the business of
the Company or any customer of or supplier to the Company or any of the products
or services being developed or sold by the Company or which may be used in
relation therewith, (ii) results from responsibilities undertaken by the Founder
on behalf of the Company, or (iii) results from the use of premises or personal
property (whether tangible or intangible) owned, leased or contracted for by the
Company, such Developments and the benefits thereof are and shall immediately
become the sole and absolute property of the Company and its assigns, and the
Founder shall promptly disclose to the Company (or any persons designated by it)
each such Development and, as may be necessary to ensure the Company's ownership
of such Developments, Founder hereby assigns any rights including, but not
limited to, any copyrights and trademarks) he may have or acquire in the
Developments and benefits and/or rights resulting therefrom to the Company and
its assigns without further compensation and shall communicate, without cost or
delay, and without disclosing to others the same, all available information
relating thereto (with all necessary plans and models) to the Company.
(b) Upon disclosure of each Development to the Company, the Founder
agrees to, during his employment and at any time thereafter, at the request and
cost of the Company, sign, execute, make and do all such deeds, documents, acts
and things as the Company and its duly authorized agents may reasonably require:
(i) to apply for, obtain, register and vest in the name of
the Company alone (unless the Company otherwise directs)
letters patent, copyrights, trademarks or other
analogous protection in any country throughout the world
and when so obtained or vested to renew and restore the
same; and
-3-
<PAGE> 4
(ii) to defend any opposition or other administrative
proceedings in respect of such applications and any
opposition proceedings or petitions or applications for
cancellation or revocation of such letters patent,
copyright or other analogous protection.
(c) In the event the Company is unable, after reasonable effort, to
secure Founder's signature on any letters patent, copyright or trademark
registration applications or other documents regarding any legal protection
relating to a Development, whether because of Founder's physical or mental
incapacity or for any other reason whatsoever, Founder hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as his agent and attorney-in-fact, to act for and in his behalf and stead to
execute and file any such application or applications or other documents and to
do all other lawfully permitted acts to further the prosecution and issuance of
letters patent, copyright or trademark registrations or other legal protection
thereof with the same legal force and effect as if executed by the Founder.
4. Assignment. The rights and obligations of Founder under this
Agreement are personal and are not assignable.
5. Notices. All notices, demands or other communications required to be
or otherwise given or made hereunder shall be in writing and shall be deemed
given if delivered personally or received by facsimile transmission, or mailed
by overnight delivery service or by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to Founder: ____________________________
State Communications, Inc.
200 North Main Street
Suite 303
Greenville, South Carolina 29601
With a copy to: Hamilton Russell III, Esq.
200 North Main Street
Suite 303
Greenville, South Carolina 29601
If to the Purchasers: Mr. John Chadwick
Richland Ventures
200 31st Avenue North
Suite 200
Nashville, Tennessee 37203
With a copy to: R. Gregory Brophy, Esq.
Alston & Bird LLP
-4-
<PAGE> 5
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
All such notices shall be deemed given on the date personally delivered or
received.
6. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of South Carolina.
7. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid, but if any one
or more of the provisions contained in this Agreement shall be invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability or any such provisions in every other respect and of the
remaining provisions of this Agreement shall not be in any way impaired.
8. Entire Agreement. This Agreement contains the entire agreement of
the parties hereto with respect to the subject matter contained herein. This
Agreement supersedes all prior agreements between the parties with respect to
the subject matter hereof. This Agreement may not be amended or modified except
pursuant to a writing executed by all parties plus the holders of a majority of
the outstanding shares of Preferred Stock.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Non-Disclosure
and Non-Competition Agreement on the day and year first above written.
RICHLAND VENTURES II, L.P.
By: Richland Partners II, L.P., General Partner
By:
--------------------------------------------
General Partner
FIRST UNION CAPITAL PARTNERS, INC.
By:
--------------------------------------------
Title:
-----------------------------------------
STATE COMMUNICATIONS, INC.
-5-
<PAGE> 6
By:
--------------------------------------------
Title:
-----------------------------------------
FOUNDER:
(SEAL)
------------------------------------------
-6-
<PAGE> 1
EXHIBIT 10.12
OFFICE LEASE
THIS LEASE made as of the 19th day of December, 1999 between Landlord and
Tenant, both as hereinafter defined.
WITNESSETH:
In consideration of the rent to be paid, the mutual covenants and
agreements herein contained, and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the Landlord hereby demises and rents unto Tenant, and Tenant hereby leases from
Landlord, the Premises in Landlord's building hereinafter described, upon the
terms, covenants and conditions hereinafter contained.
1. FUNDAMENTAL LEASE PROVISIONS AND DEFINITIONS. As used herein the
following terms shall have the following meanings:
(a) Landlord: ALAN B. KAHN AND WINDSOR CITY
PARTNERSHIP, TENANTS IN COMMON
c/o Grubb & Ellis/The Furman Co.
Address: PO Box 2487
Greenville, SC 29602
(b) Tenant: TriVergent Communications
Address: Before Lease Commencement Date:
200 North Main Street, Suite 303
Greenville, SC 29601
ATTN: Hamilton E. Russell, III
Following Lease Commencement Date:
301 North Main Street, 5th Floor
Greenville, SC 29601
Hamilton E. Russell, III
(c) Building: The Building containing approximately 369,811 square
feet, known as The Landmark Building located at 301 North Main Street,
Greenville, SC 29601.
(d) Tenant's Prorata Share: 20.51 percent.
Landlord_____ Tenant_____
1
<PAGE> 2
(e) Premises: The portion of the Building identified or shown on the
attached Exhibit "A" containing approximately 75,839 square feet. The Premises
are stipulated for all purposes to contain the square footage of rentable area
set forth herein.
(f) Lease Duration: Ten (10) years with two (2) five (5) year options.
Tenant must exercise said options at least 270 days (9 months) prior to the
expiration of the existing term.
(g) Lease Commencement Date: One hundred (100) days from issuance of
Building Permits, or completion of improvements, or the date Tenant receives a
Certificate of Occupancy Landlord and Tenant agree to execute a Commencement
Letter after Building Permits have been issued.
Number Monthly Annual
(h) Rent: Months Rent Rent
------ ------- ------
1-2 31,599.58 379,195.00
3-36 92,270.78 1,107,249.40
37-72 97,832.31 1,173,987.72
73-108 103,709.83 1,244,517.99
109-122 109,903.35 1,318,840.21
The rental rate for the option periods shall be 90% of market at the
beginning of each option period (said rate not to be lower than the rate paid by
Tenant in years 10 and 15), then escalating 3% per year in the ensuing years.
(i) Security Deposit: $ 0.00 .
(j) Rental Payment Place: Grubb & Ellis/The Furman Co.
P. O. Box 2487
Greenville, SC 29602
(k) Expense Stop: The Tenant shall pay Landlord as Additional Rent
hereunder Tenant's Prorata Share of the amount by which the Basic Costs of the
applicable calendar year exceed the previous calendar year. The expense stop for
the Basic Costs shall be the expenses incurred during the calendar year 2000.
(l) Property: The Building, including without limitation, the Premises,
Service Areas and Common Areas together with the Exterior Common Areas, or any
parts or combination thereof:
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(m) Common Areas: The areas of the Building devoted to corridors,
elevator foyers, restrooms, mechanical rooms, janitorial closets, electrical and
telephone closets, vending areas and other similar facilities provided for the
common use or benefit of tenants generally or of the public. Common Areas shall
be measured from and to the inside finished surface of exterior Building wall,
and from and to the center of any partition walls which separate Common Areas
from tenant spaces, including the Premises, and from Service Areas.
(n) Service Areas: The areas within the Building outside walls used for
elevators, building stairs, fire towers, elevator shafts, flues, vents, stacks,
pipe shafts and vertical ducts (but shall not include any areas provided or
reserved for the exclusive use of a particular tenant). Service areas shall be
measured from and to the inside finished surface of exterior Building walls, and
from and to the center of any partition walls which separate Service Areas from
tenant spaces, including the Premises, and from Common Areas.
(o) Exterior Common Areas: All areas not located within the Building
provided and maintained for the common use and benefit of Landlord and tenants
of the Building (or multi-building project) generally, and the employees,
invitees and licensees of Landlord and such tenants, including, without
limitation, parking areas whether enclosed or not, streets, sidewalks, and
landscaped areas.
(p) Basic Costs: All expenses, costs and disbursements (but not
repayment of debt or replacement of capital investment items, nor specific costs
especially billed to and paid by other tenants of the Building) of every kind
and nature which Landlord shall pay or become obligated to pay because of, or in
connection with, the ownership and operation of the Property including but not
limited to the following: (i) Wages and salaries, including payroll taxes,
workers' compensation, insurance premiums, and all other employment costs to
Landlord of all employees engaged in operating and maintaining the Property and
that part of central accounting costs which are applicable to the Property; (ii)
cost of all supplies and materials used in operation and maintenance of the
Property; (iii) cost of all utilities for the Property including the cost of
water, sewer, gas, oil and electric and other power; (iv) cost of all
maintenance and service agreements for the Property and the equipment therein,
including, but not limited to security service, window cleaning, janitorial
service, elevator maintenance, maintenance of heating, ventilation and
air-conditioning equipment, plumbing, controls, locks, alarms and all other
parts of the Building; (v) cost of all insurance relating to the Property or
rents therefrom including, but not limited to, the cost of casualty and
liability insurance applicable to the Property and to Landlord's personal
property used in connection with the Property; (vi) charges, including business
license charges whether federal, state, county or municipal, and whether they be
by taxing districts, or taxes, and assessments,
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attributable to the Property, its operation, or any tax in the nature of a gross
receipts tax imposed on rentals; (vii) cost of repairs and general maintenance
(excluding repairs and general maintenance paid by proceeds of insurance or by
Tenant or other third parties, and alteration attributable solely to tenants of
the Building other than Tenant); (viii) amortization of the cost of installation
of capital investments items which are primarily for the purpose of reducing
operating costs or which may be required by government authority, as reasonably
amortized by Landlord, with interest at prime plus 2% per annum on the amount
unamortized from time to time; and (ix) management fees. The Basic Costs of the
Property shall be computed on the accrual basis and shall be all Basic Costs
incurred by Landlord to maintain all facilities of the Property in operation
during all or part of the applicable calendar year, together with such
additional or substitute facilities in subsequent years as may be determined by
Landlord as necessary.
(q) Building Standard Improvements: Those improvements to the Premises
described on the attached Exhibit "B" which shall be incorporated herein by
reference. "Building Standard" shall mean the type, brand and/or quality of
materials Landlord designates from time to time to be the minimum quality used
in the Building or the exclusive type, grade or quality of material to be used
in the Building, as the context indicates.
2. LEASE TERM: The term of the Lease shall commence on the earlier of
(a) the Lease Commencement Date set forth in Paragraph 1 (g), as may be extended
as hereinafter set forth, or (b) the date on which Tenant occupies the Premises.
The Lease shall continue until the expiration of a period equal of the Lease
Duration after the end of the month in which the Lease Term commences (except
that if the Lease Term commences on the first day of a month, the Lease Term
shall end after the expiration of a period equal to the Lease Duration after
such commencement). The fractional month, if any, between the commencement of
the Lease Term and the end of the month in which the Lease Term begins is called
the "Fractional Month".
If Landlord is unable to deliver possession of the Premises to the
Tenant by the Lease Commencement Date because of the retention of possession
thereof by a prior occupant, or the inability of Landlord to complete the
preparation of the Premises for the Tenant, this Lease shall not terminate,
however, the Lease Commencement Date shall be extended to the date on which
Landlord delivers possession of the Premises to the Tenant. For each day's delay
in the delivery of possession to Tenant, Landlord shall give Tenant two day's
credit against rental payments. If Landlord fails to deliver possession of the
Premises to the Tenant within THIRTY (30) DAYS following the Lease Commencement
Date, the Tenant may immediately terminate this Lease
3. USE. The Premises shall be used for office purposes and for the
provisioning and sale of telecommunications services and for no other purpose.
Tenant agrees not to
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use, or permit the use of, the Premises for any purpose which is illegal, or
which constitutes or creates a nuisance, or which would increase the cost of
insurance coverage with respect to the Building, or which tends to reduce the
value of the Building or Property or reduce the attractiveness of the Building
or Property to other tenants.
4. RENT. Tenant shall pay the Rent to the Landlord without demand,
deduction or set off, at the Rental Payment Place, or such other address for the
Rental Payment Place as Landlord by written notice to Tenant may direct. Rent
shall be due and payable in advance on the first day of each month during the
Lease Term in the amount set forth in Paragraph 1(h). The Rent for the
Fractional Month shall be apportioned on a per diem basis, calculated on the
basis of a thirty-day month, and shall be payable on the commencement of the
Lease Term. All installments of Rent not paid when due shall bear interest at
the rate of eighteen percent (18%) per annum or the maximum rate permitted by
law, whichever is lower.
4A. PARTIAL PAYMENTS. Tenant shall make all rental payments in full.
Payment or receipt of a rental payment of less than the amount stated in the
Lease Agreement shall be deemed to be nothing more than partial payment on that
month's account. Under no circumstances shall Landlord's acceptance of a partial
payment constitute accord and satisfaction. Nor will Landlord's acceptance of a
partial payment forfeit Landlord's right to collect the balance due on the
account, despite any endorsement, stipulation or other statement on any check.
Any modification to this Lease Agreement must be made in a letter signed by
Landlord, in which the Landlord states and agrees to the modification. The
Landlord may accept any partial payment check with any conditional endorsement
without prejudice to his/her right to recover the balance remaining due, or to
pursue any other remedy available under this Lease Agreement.
5. ADDITIONAL RENT. The Tenant shall pay Additional Rent determined in
accordance with Paragraph 1(k). The Landlord shall have the right to make a good
faith estimate of the Additional Rent for each calendar year and upon thirty
(30) days notice require the monthly payment by Tenant of an amount equal to
1/12 of such estimate. By April 1 of each year, or as soon thereafter as
practical, Landlord shall furnish to Tenant a statement of Landlord's
computation of the Additional Rent applicable to the preceding calendar year
which statement shall show the Basic Costs for such year, and the amount by
which the Tenant has either underpaid or overpaid for such calendar year. If
Tenant has underpaid for such calendar year it shall pay Landlord within thirty
(30) days of written notification the amount of Additional Rent less estimated
payments made by Tenant; and, if Tenant has overpaid, then Landlord, at
Landlord's option shall refund to Tenant any such overpayment or apply such
amount against rentals due or to become due under this Lease.
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6. SERVICES TO BE FURNISHED BY LANDLORD. Landlord agrees to furnish
Tenant the following services, subject to any limitations which may be imposed
thereon from time to time by any governmental authority:
(a) Hot and cold water at those points of supply provided for general
use of other tenants in the Building, and heating and air-conditioning in season
at such temperatures as are deemed standard by Landlord from time to time during
normal business hours which are hereby defined as 7:00 AM to 6:00 PM Monday
through Friday and 8:00 AM to 1:00 PM on Saturday, but exclusive of normal
business holidays; however, electrical and heating and air-conditioning services
at times other than for normal business hours for the 5th and 7th floors tower
area of the Premises of the Building shall be furnished upon request of Tenant
delivered to Landlord at least ONE (1) DAY in advance of the date such usage is
requested. Tenant shall bear the entire cost of such requested additional
service. Landlord agrees to use his best efforts to separately meter or submeter
the 5th floor annex and to submeter the 5th floor and 7th floor area of the
tower to monitor Tenant's electrical and HVAC usage. If, in the 5th floor annex
area , Tenant desires HVAC or electrical usage after normal business hours as
defined herein, Tenant may use such service without notifying Landlord and such
usage will be calculated on a monthly basis to determine if Tenant's usage is
over or under the stated electrical allowance ("Allowance") which for this Lease
is calculated at $1.00 per rentable square foot. If Tenant's usage exceeds the
Allowance, Tenant will be billed for such additional usage, which will be due
and payable thirty (30) days after receipt of Invoice. If Tenant's usage is
under the Allowance, Tenant will receive a credit towards the following month's
usage. Landlord and Tenant acknowledge that the Allowance may be adjusted up or
down as needed , and both parties agree to act in good faith to monitor the
Allowance.
(b) Routine maintenance and electric lighting service for all Common
Areas and Service Areas of the Building in the manner and to the extent deemed
by Landlord to be standard.
(c) Reasonable janitorial service, Monday through Friday, but exclusive
of normal business holidays. A copy of janitorial specifications are attached to
this Lease as EXHIBIT D and incorporated herein by reference.
(d) Subject to the provisions of Paragraph 10 and Paragraph 6 (a)
Building Standard facilities, (which shall be agreed upon by both Landlord and
Tenant), to provide electrical current sufficient to illuminate the Premises and
for the operation of small office machines by Tenant in its use and occupancy of
the Premises.
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(e) All Building Standard fluorescent bulb replacement in the Premises
and fluorescent and incandescent bulb replacement in the Common Areas and
Service Areas.
(f) Access to the Building may be regulated during other than normal
business hours in such manner as Landlord deems appropriate. Landlord, however,
shall have no liability to Tenant, its employees, agents, invitees or licensees
for losses due to theft or burglary, or for damages or injuries done by
unauthorized persons on the Premises, unless such lossess or damages are the
result of the negligence or misconduct of Landlord, its agents, contractors, or
employees Tenant shall cooperate fully in Landlord's efforts to regulate access
to the Building.
The failure by Landlord to any extent to furnish, or the interruption
or termination of, the above-described services in whole or part resulting from
causes beyond the reasonable control of Landlord shall not render Landlord
liable in any respect, nor be construed as an eviction of Tenant, nor work an
abatement of Rent, nor relieve Tenant from the obligation to fulfill any
covenant or agreement thereof. Should any of the equipment or machinery used in
the provision of such services for any cause cease to function properly, Tenant
shall have no claim for offset or abatement of Rent or damages on account of an
interruption in service occasioned thereby or resulting therefrom, unless such
lossess or damages are the result of the negligence or misconduct of Landlord,
its agents, contractors, or employees.
7. GRAPHICS. Landlord shall provide and install all letters or numerals
on doors in the Premises. All such letters and numerals shall be in the standard
graphics for the Building and no others shall be used or permitted on the
Premises without Landlord's prior written consent. Landlord acknowledges
Tenant's desire for signage on the two (2) elevators which service the 5th floor
only, and in the lobby area of the 5th floor. Tenant after receiving Landlord's
approval, may place signage in both areas at Tenant's expense.
8. CARE OF PREMISES BY TENANT. Tenant agrees not to commit or allow any
waste to be committed on any portion of the Premises, and at the termination of
this Lease to deliver the Premises to Landlord in as good condition as at the
commencement of the Lease Term, ordinary wear and tear accepted.
9. REPAIRS AND ALTERATIONS BY TENANT. Tenant covenants and agrees with
Landlord, at Tenant's own cost and expense, to repair or replace any damage done
to the Property, or any part thereof, caused by Tenant or Tenant's agents,
employees, or contractors, and such repairs shall restore the Property to as
good a condition as it was in prior to such damage, and shall be effected in
compliance with all applicable laws; provided, however, that if Tenant fails to
make such repairs or replacements promptly, then Landlord may, at its option,
make repairs, or replacements,
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and Tenant shall pay the cost thereof to the Landlord on demand as Additional
Rent. The Tenant agrees with Landlord not to make or allow to be made any
alterations to the Premises except those that cost less than $5,000 and do not
affect the structure or usability of the Building, without first obtaining the
written consent of Landlord in each such instance, which consent may be given on
such conditions as Landlord may elect. Any and all alterations to the Premises
shall become the property of Landlord upon the expiration or earlier termination
of this Lease (but not for movable equipment, trade fixtures or furniture owned
by Tenant), and any and all equipment associated with the provisioning, sales,
and service of telecommunications services), but Landlord may, nonetheless,
require Tenant to remove any and all fixtures, equipment and other improvements
installed by Tenant on the Premises upon the expiration or earlier termination
of this Lease and restore the Premises to prior condition, ordinary wear and
tear excepted. In the event that Landlord so elects, and Tenant fails to remove
such improvements, Landlord may remove such improvements at Tenant's cost, and
Tenant shall pay Landlord on demand the cost of restoring the Premises to
Building Standard.
10. USE OF ELECTRICAL SERVICES BY TENANT. Tenant's use of electrical
services furnished by Landlord shall not exceed, either in voltage, rated
capacity or overall load that which Landlord deems to be Building Standard.
Building Standard does not include electricity used to operate any item of
electrical equipment which singly consumes more than 0.25 kilowatts at rated
capacity or which requires a voltage other than 120 volts in a single phase. In
the event Tenant shall request that it be allowed to consume electrical services
in excess of that deemed by Landlord to be Building Standard, Landlord may
refuse to consent to such usage or may consent upon such conditions as Landlord
elects, including the requirement that submeters be installed at Tenant's
expense, that Tenant pay the cost of the excess electricity used, and, if the
operation of such equipment requires additional air conditioning capacity above
that provided by the Building Standard System, then the additional air
conditioning installation and operation costs shall be paid by Tenant.
11. LAWS AND REGULATIONS. Tenant agrees to comply with all applicable
laws, ordinances, rules, and regulations of any governmental entity or agency
having jurisdiction of the Premises.
12. BUILDING RULES. Tenant will comply with the rules of the Building
as adopted and amended by Landlord from time to time, and will cause all of its
agents, employees, and contractors to do so.
13. ENTRY BY LANDLORD. Tenant agrees to permit Landlord or its agents
or representatives to enter into and upon any part of the Premises at all
reasonable hours (and in emergencies at all times) to inspect the same, or to
show the Premises to
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prospective purchasers, mortgagees, tenants or insurers, to clean or make
repairs, alterations, or additions thereto, and Tenant shall not be entitled to
any abatement or reduction of rent by reason thereof.
14. ASSIGNMENT AND SUBLETTING.
(a) Tenant covenants that it will not assign, sublease, transfer or
encumber this Lease or any interest therein or space covered thereby without the
prior written consent of Landlord. However, Landlord's consent shall not be
required in the event of any transfer by Tenant to an affiliate of Tenant which
is at least as creditworthy as Tenant as of the date of transfer and provided
that Tenant delivers to Landlord certifications of such creditworthiness of such
affiliate.
(b) All cash or other proceeds or any assignment, sale or sublease of
Tenant's interest in this Lease, whether consented to by Landlord or not, shall
be paid to Landlord notwithstanding the fact that such proceeds exceed the
rentals called for hereunder, unless Landlord agrees to the contrary in writing,
and Tenant hereby assigns all rights it might have or ever acquire in any such
proceeds to Landlord.
15. MECHANIC'S LIEN. Tenant covenants that it will not permit any
mechanic's lien or liens to be placed upon the Premises, the Building or the
Property. Nothing in this Lease shall be deemed or construed in any way as
constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any person for the performance of any labor or the
furnishings of any materials to the Premises, or any part thereof, nor as giving
Tenant any right, power, or authority to contract for or permit the rendering of
any services or the furnishing of any materials that would give rise to any
mechanic's or other liens against the Premises, the Building or the Property. In
the event any such lien is attached to the Premises, the Building or the
Property then, in addition to any other right or remedy of Landlord, Landlord
may, but shall not be obligated to, discharge the same. Any amount paid by
Landlord for any of the aforesaid purposes shall be paid by Tenant to Landlord
on demand as Additional Rent.
16. PROPERTY INSURANCE. Landlord shall maintain fire and extended
coverage insurance on the Building in such amounts as Landlord shall determine.
Such insurance shall be maintained at the expense of Landlord (as a part of the
Basic Costs,) and payments for losses thereunder shall be made solely to
Landlord or the mortgagees of Landlord as their interest shall appear. Tenant
shall maintain at its expense, in an amount equal to full replacement cost, fire
and extended coverage insurance on all of its personal property, including
removable trade fixtures, located in the Premises, in such additional amounts as
are required to meet Tenant's obligations pursuant to the insurance and
indemnity provisions of this Lease. Tenant shall, at Landlord's request from
time to time, provide Landlord with current certificates of insurance evidencing
Tenant's compliance
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with the insurance provisions of this Lease. Tenant shall obtain the agreement
of Tenant's insurers to notify Landlord that all policies shall contain waiver
of subrogation clauses as to the other party. Tenant shall name Landlord as
additional insured under all insurance policies.
17. LIABILITY INSURANCE. Tenant and Landlord shall, each at its own
expense, maintain a policy or policies of comprehensive general liability
insurance with regard to the respective activities of each in the Building, and
the Exterior Common Areas (or within the project if the Building is located in a
multi-building project) with the premiums thereto fully paid on or before due
date, issued by and binding upon some insurance company approved by Landlord,
such insurance to afford minimum protection of not less than $3,000,000.00
combined single limit coverage for death or bodily injury, and property damage.
18. INDEMNITY. Landlord and Tenant shall not be liable to the other, or
to each other's agents, servants, employees, customers, or invitees for any
injury to person or damage to property caused by any act, omission, or neglect
of the other party, its agents, servants or employees, invitees, licensees or
any other person entering the Building under the invitation of the other party
or arising out of the use of the Property by the other party. Landlord and
Tenant hereby indemnify and agree to hold each other harmless from all liability
and claims for any such damage or injury including attorneys fees and costs.
19. WAIVER OF SUBROGATION RIGHTS. Anything in this Lease to the
contrary notwithstanding, Landlord and Tenant each hereby waives any and all
rights of recovery, claim, action or cause of action, against the other, its
agents, officers, or employees, for any loss or damage that may occur to the
Premises, or any improvements thereto, or the Building of which the Premises are
a part, or any improvements thereto, or any personal property of such party
therein, by reason of fire, the elements, or any other cause(s) which are
insured against under the terms of the standard fire and extended coverage
insurance policies referred to herein, regardless of cause or origin, including
negligence of the other party hereto, its agents, officers, or employees.
20. CASUALTY DAMAGE. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be so damaged that substantial
alteration or reconstruction of the Building shall in Landlord's sole opinion,
be required (whether or not the Premises shall have been damaged by such
casualty) or in the event any mortgagee of Landlord should require that the
insurance proceeds payable as a result of a casualty be applied to the payment
of the mortgage debt, or in the event of any material uninsured loss to the
Building, Landlord may, at its option, terminate this Lease by
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notifying Tenant in writing of such termination within FORTY-FIVE (45) DAYS
after the date of such damage.
If Landlord does not thus elect to terminate this Lease, Landlord shall
commence and proceed with reasonable diligence to restore the Building to
substantially the same condition in which it was immediately prior to the
happening of the casualty, except that Landlord's obligation to restore shall
not exceed the scope of work required to be done by Landlord in originally
constructing the Building and installing shell improvements in the Premises, nor
shall Landlord be required to spend for such work an amount in excess of the
insurance proceeds actually received by Landlord as a result of the casualty.
When the Shell Improvements have been restored by Landlord, Tenant shall
complete the restoration of the Premises to Building Standard and the
restoration of Tenant's furniture and equipment. Landlord shall provide Tenant
with an allowance (hereinafter referred to as the "Reconstruction Allowance") to
pay for reconstruction of the Premises to Building Standard, such Reconstruction
Allowance to be in dollar amount equal to the actual original cost to Landlord
of providing the Allowance Items provided by Landlord. Except for reconstruction
of Shell Improvements by Landlord and the Reconstruction Allowance, all cost and
expense of reconstructing the Premises to Building Standard shall be borne by
Tenant.
Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from such damage
or the repair thereof, unless such losses or damages are the result of the
negligence or misconduct of Landlord, its agents, contractors, or employees.
Landlord shall allow Tenant a fair diminution of Rent [the calculation directly
related to the percentage usable following casualty event] during the time and
to the extent the Premises are unfit for occupancy. If the Premises or any other
portion of the Building be damaged by fire or other casualty resulting from the
fault or negligence of Tenant or any of Tenant's agents, employees, or invitees,
the Rent hereunder shall not be diminished during the repair of such damage and
Tenant shall be liable to Landlord for the cost of the repair and restoration of
the Building caused thereby to the extent such cost and expense is not covered
by insurance proceeds.
21. CONDEMNATION. If the whole or substantially the whole of the
Building or the Premises should be taken for any public or quasi-public use, by
right of eminent domain or otherwise or should be sold in lieu of condemnation,
then this Lease shall terminate as of the date when physical possession of the
Building or the Premises is taken by the condemning authority. If less than the
whole or substantially the whole of the Building or the Premises is thus taken
or sold, Landlord (whether or not the Premises are affected thereby) may
terminate this Lease by giving written notice thereof to Tenant; in which event
this Lease shall terminate as of the date when physical possession of such
portion of the Building and the Premises is taken by the condemning authority.
If this
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Lease is not so terminated upon any such taking or sale, the Rent shall be
diminished by an equitable amount, and Landlord shall, to the extent Landlord
deems feasible, restore the Building and the Premises to substantially their
former condition, but such work shall not exceed the scope of the work done by
Landlord in originally constructing the Building and installing Building
Standard Improvements in the Premises, nor shall Landlord in any event be
required to spend for such work an amount in excess of the amount received by
Landlord as compensation for such damage. All amounts awarded upon a taking of
any part or all of the Building or the Premises shall belong to Landlord, and
Tenant shall not be entitled to and expressly waives all claims to any such
compensation.
22. DAMAGES FROM CERTAIN CAUSES. Landlord shall not be liable to Tenant
for any loss or damage to any property or person occasioned by theft, fire, act
of God, public enemy, injunction, riot, strike, insurrection, war, casualty,
water damage of whatsoever nature, vandalism, court order, requisition, or order
of governmental body or authority or by any other cause beyond the control of
Landlord, nor shall Landlord be liable for any damage or inconvenience which may
arise through repair or alteration of any part of the Property unless such
losses or damages are the result of the negligence or misconduct of Landlord,
its agents, contractors, or employees.
23. EVENTS OF DEFAULT/REMEDIES.
(a) The following events shall be deemed to be events of default by
Tenant under this Lease: (i) Tenant shall fail to promptly pay any rent or other
sum of money due hereunder; (ii) Tenant shall fail to comply with any provisions
of this Lease or any other agreement between Landlord and Tenant including the
Work Letter all of which terms, provisions and covenants shall be deemed
material; (iii) the leasehold hereunder demised shall be taken on execution or
other process of law in any action against Tenant; (iv) Tenant shall fail to
promptly move into and take possession of the Premises when the Premises are
ready for occupancy, or shall cease to do business in or abandon any substantial
portion of the Premises; (v) Tenant shall become insolvent or unable to pay its
debts as they become due, or Tenant notifies Landlord that it anticipates either
condition; (vi) Tenant takes any action to, or notifies Landlord that Tenant
intends to file a petition under any section or chapter of the National
Bankruptcy Act, as amended, or under any similar law or statute of the United
States or any State thereof; or a petition will be filed or Tenant notifies
Landlord that it expects such a petition to be filed; or (vii) a receiver or
trustee shall be appointed for Tenant's leasehold interest in the Premises or
for all or a substantial part of the assets of Tenant. If Landlord shall not be
permitted to terminate this Lease as hereinabove provided because of the
provisions of Title II, of the United States Code relating to Bankruptcy as
amended ("Bankruptcy Code"), then Tenant or any trustee for Tenant agrees
promptly, within no more than fifteen (15) days upon
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request by Landlord to the Bankruptcy Court, to assume or reject this Lease and
Tenant agrees not to seek or request any extension or adjournment of any
application to assume or reject this Lease by Landlord with such Court. In such
event, Tenant or any trustee of Tenant may assume this Lease only if it (i)
cures or provides adequate assurance that the trustee will promptly cure any
default hereunder, and (ii) compensates or provides adequate assurance that
Tenant will promptly compensate Landlord for any actual pecuniary loss to
Landlord resulting from Tenant's default. In the event of a filing of a petition
under the Bankruptcy Code, Landlord shall have no obligation to provide Tenant
with heating, ventilating and air conditioning services, or utilities,
janitorial, maintenance or security services, if any, unless Tenant shall have
paid and be current in all payments of rents due hereunder.
(b) Grace Period. Not withstanding anything hereinabove stated,
Landlord will not exercise any available right or seek any available remedies
because of any default of Tenant, unless Landlord shall have first given ten
(10) days written notice thereof to Tenant, and the Tenant shall have failed to
cure the default within such period; provided, however, that: (i) Landlord shall
not be required to give such notice more than two (2) times during any twelve
(12) month period; (ii) if the default consists of something other than the
failure to pay money which cannot reasonably be cured within ten (10) days,
Landlord will not exercise any right if the defaulting party begins to cure the
default within ten (10) days and continues actively and diligently in good faith
to completely cure said default.
(c) Upon the occurrence of any event or events of default by Tenant,
whether enumerated in this Paragraph or not, Landlord shall have the option to
pursue any one or more of the following remedies without being deemed to have
made an election of remedies: (i) terminate this Lease in which Tenant shall
immediately surrender the Premises to Landlord; (ii) terminate Tenant's right to
occupy the Premises (without terminating this Lease); (iii) enter upon the
Premises and do whatever Tenant is obligated to do under the terms of this
Lease; and Tenants agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in effecting compliance with Tenant's obligations under this
Lease including attorneys fees and cost, and Tenant further agrees that Landlord
shall not be liable for any damages resulting to the Tenant from such action;
and (iv) exercise all other remedies available to Landlord at law or in equity,
including, without limitation, injunctive relief of all varieties, and recovery
of attorneys fees and costs.
In the event Landlord elects to re-enter or take possession of the
Premises after Tenant's default. Landlord may, without prejudice to any other
remedy which he may have for possession or arrearages in Rent, expel or remove
Tenant and any other person who may be occupying said Premises or any part
thereof. All Landlord's remedies shall
Landlord_____ Tenant_____
13
<PAGE> 14
be cumulative and not exclusive. Forbearance by Landlord to enforce one or more
of the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default, or of any future defaults or
to limit Landlord's right to require strict compliance by Tenant with the
provisions of this Lease.
(c) If this Lease is terminated by Landlord pursuant to the provisions
hereof, Tenant shall pay to Landlord as damages, the unamortized cost of all
work performed on the Premises by Landlord in preparing the Premises for
occupancy by Tenant and at the election of Landlord, either:
(1) a sum which represents the then excess, if any, of (i) the
aggregate amount of the rental due and reserved hereunder from the date of
Tenant's default to the expiration date of the fully stated term hereof over
(ii) the aggregate rental value of the Premises for the same period as reduced
by the estimated cost of reletting the Premises, including attorney's fees,
commissions, alterations and repair costs; or
(2) sums equal to the Rent which would have been payable by
Tenant had this Lease not been so terminated, or had Landlord not so re-entered
the Premises, payable upon the due dates therefor specified herein, provided,
however, that if Landlord shall relet the Premises during said period, Landlord
shall credit Tenant with the net rents received by Landlord from such reletting,
such net rents to be determined by first deducting from the gross rents as and
when received by Landlord from such reletting the expenses incurred or paid by
Landlord in terminating this Lease and/or in re-entering the Premises and in
securing possession thereof, as well as the expenses of reletting, including,
without limitation, altering and preparing the Premises for new tenants,
brokers' commissions, legal fees, and all other expenses properly chargeable
against the Premises and the rental therefrom, it being understood that any such
reletting may be for a period shorter or longer than the remaining term of this
Lease; but in no event shall Tenant be entitled to a credit for any net rents
from a reletting, except to the extent set forth hereinabove.
Landlord shall not be liable in any way whatsoever for its failure or
refusal to relet the Premises or any part thereof, or if the Premises are relet,
for its failure to collect the rent under such reletting, and no such refusal or
failure to collect rent shall release or affect Tenant's liability for damages
or otherwise under this Lease.
24. PEACEFUL ENJOYMENT AND RELOCATION. Tenant shall, and may peacefully
have, hold, and enjoy the Premises, subject to the other terms thereof, provided
that Tenant pays the Rent and other sums herein recited to be paid by Tenant and
performs all of Tenant's covenants and agreements herein contained. This
covenant and any and all other covenants of Landlord shall be binding upon
Landlord and its
Landlord_____ Tenant_____
14
<PAGE> 15
successors only with respect to breaches occurring during its or their
respective period of ownership of the Building. If the Premises comprise an area
less than 2,500 square feet, Landlord shall be entitled to cause Tenant to
relocate from the Premises to a space of approximately equal area (hereinafter
referred to as a "Relocating Space") within the Building (or within the project
if the Building is located in a multi-building project) at any time after
written notice of at least ninety (90) days is given to Tenant of Landlord's
election to so relocate Tenant. Any such relocation shall be entirely at the
expense of the Landlord or the third party replacing Tenant in the Premises.
Such relocation shall not terminate or otherwise affect or modify this Lease
except that from and after the date of such relocation, "Premises" shall refer
to the Relocation Space into which Tenant has moved, rather than the original
Premises as herein defined. Tenant shall surrender the original Premises as
required in the relocation notice and shall cooperate fully with Landlord with
respect to said relocation.
25. SURRENDER OF PREMISES. Upon termination of this Lease for any
reason whatsoever, Tenant shall surrender the Premises and keys thereof to
Landlord in the same condition as at commencement of the term, normal wear and
tear only excepted. Should Tenant refuse or fail to surrender the Premises upon
the expiration of the lease term or earlier termination thereof, Tenant shall be
a tenant at sufferance and shall pay to Landlord on demand each month a sum
equal to double the Rent due hereunder during such holdover period; provided
that there shall be no renewal of this Lease by operation of law.
If Tenant remains in possession after the expiration of the term hereof
with Landlord's acquiescence and without any distinct agreement of parties,
Tenant shall be a tenant at will, and there shall be a tenant at will, and there
shall be no renewal of this Lease, by operation of law. Notwithstanding any
notice provisions of applicable law to the contrary, such tenancy at will may be
terminated upon thirty (30) days notice from Landlord.
26. SUBORDINATION, ESTOPPEL, ATTORNMENT. This Lease shall be subject
and subordinate to any mortgage, or other lien presently existing or hereafter
arising upon the Premises, or upon the Building, or the Exterior Common Areas,
and to any renewals, refinancing and extensions thereof. At the request of any
successor to the title or interests of Landlord, Tenant shall attorn to such
successor. The provisions of this paragraph shall be self operational with
respect to subordination and attornment, provided, however, that Tenant shall
upon demand execute such further instruments subordinating this lease or
attorning to any such successor as Landlord may request. The terms of this Lease
are subject to approval of Landlord's lender(s), and such approval is a
condition precedent to Landlord's obligations hereunder. In the event that
Tenant should fail to execute any subordination or other agreement required by
this Paragraph, promptly
Landlord_____ Tenant_____
15
<PAGE> 16
as requested, Tenant hereby irrevocably constitutes Landlord as its
attorney-in-fact to execute such instrument in Tenant's name, place and stead,
it being agreed that such power is one coupled with an interest. Tenant agrees
that it will from time to time upon request by Landlord execute and deliver to
such persons as Landlord shall request a statement certifying that this Lease is
unmodified and in full force and effect (or if there have been modification,
that the same is in full force and effect as so modified), stating the dates to
which Rent and other charges payable under this Lease have been paid, stating
that Landlord is not in default hereunder (or if Tenant alleges a default
stating the nature of such alleged default) and further stating such other
matters as Landlord shall reasonably require.
27. NO IMPLIED WAIVER. The failure of either party to insist at any
time upon the strict performance of any covenant or agreement or to exercise any
option, right, power or remedy contained in this Lease shall not be construed as
a waiver or a relinquishment thereof for the future. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly installment of Rent due
under this Lease shall be deemed to be other than on account of the earliest
Rent due hereunder, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or pursue any other remedy
in this Lease provided.
28. SECURITY DEPOSIT. INTENTIONALLY DELETED.
29. NOTICE. Any notice in this Lease provided for must be in writing,
and may be given or be served either by depositing the same in the United States
mail, postpaid, and certified and addressed to the party to be notified, with
return receipt requested, or by actually delivering the same addressed to the
party to be notified at the address set forth in Paragraph 1 or at such other
address as may from time to time be designated by the addressee by notice given
in accordance herewith. Notice deposited in the mail as hereinabove described
shall be deemed given upon delivery, receipt or attachment to the door of the
main entrance to the Premises, as the case may be. In the event delivery by mail
cannot be made or is refused, the date of mailing shall be deemed to be the date
of notice.
(a) LANDLORD: ALAN B. KAHN AND WINDSOR CITY PARTNERSHIP,
TENANTS IN COMMON
c/o Grubb & Ellis/The Furman Co.
Address: PO Box 2487
Greenville, SC 29602
With a copy to: Alan B. Kahn
Kahn Development
PO Box 1608
Columbia, SC 29202
Landlord_____ Tenant_____
16
<PAGE> 17
(b) TENANT: TRIVERGENT COMMUNICATIONS
Address: Before Lease Commencement Date:
200 North Main Street, Suite 303
Greenville, SC 29601
ATTN: Hamilton E. Russell, III
Following Lease Commencement Date:
301 North Main Street, 5th Floor
Greenville, SC 29601
Hamilton E. Russell, III
30. SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
31. GOVERNING LAW. This Lease and the rights and obligations of the
parties hereto shall be interpreted, construed, and enforced in accordance with
the laws of the State of South Carolina.
32. FORCE MAJEURE. Whenever a period of time is herein prescribed for
the taking of any action by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the computation of such period
of time, any delays due to strikes, riots, fire, acts of God, shortages of labor
or materials, war, governmental laws, regulations or restrictions, or any other
cause whatsoever beyond the control of Landlord.
33. TIME OF THE ESSENCE. Time is of the essence of this Lease.
34. TRANSFERS BY LANDLORD. Landlord shall have the right to transfer
and assign, in whole or in part, all its rights and obligations hereunder and in
the Building and Property referred to herein, and in such event and upon such
transfer Landlord shall be released from any further obligations hereunder, and
Tenant agrees to look solely to such successor in interest of Landlord for the
performance of such obligations.
Landlord_____ Tenant_____
17
<PAGE> 18
35. COMMISSIONS. Landlord and Tenant hereby indemnify and hold each
other harmless against any loss, claim, expense or liability with respect to any
commissions or brokerage fees claimed on account of the execution and/or renewal
of this Lease due to any action of the indemnifying party. Landlord agrees to
pay Grubb & Ellis/The Furman Co., agent for Landlord, a commission equal to
three (3%) percent of the aggregate rental due for years 1-5, and two (2%)
percent of the aggregate rental due for years 6-10. Landlord also agrees to pay
Coldwell Banker Caine Real Estate, agent for Tenant, three (3%) percent of the
aggregate rental due for years 1-10.
36. LIABILITY. Landlord shall have no personal liability with respect
to any of the provisions of this Lease, and if Landlord is in default with
respect to its obligations under this Lease, Tenant shall look solely to
Landlord's equity in the Building and Exterior Common Areas and/or, subject to
Paragraph 19, casualty, liability, and/or fire and extended coverage insurance
applicable to the building for satisfaction of Tenant's remedies subject to
Paragraph 19. In no event shall Landlord's liability exceed such equity.
37. RECIPROCAL COVENANT ON NOTIFICATION OF ADA VIOLATIONS. Within ten
(10) days after receipt, Landlord and Tenant shall notify the other party in
writing, and provide the other with copies of (as applicable), any notices
alleging violations of the Americans With Disabilities Act of 1990 relating to
any portion of the Property or of the Premises; any claims made or threatened in
writing regarding non-compliance with the ADA and relating to any portion of the
Property or of the Premises; or any governmental or regulatory actions or
investigations instituted or threatened regarding non-compliance with the ADA
and relating to any portion of the Property or the Premises.
38. LANDLORD CONTROLS SELECTION. Landlord has advised Tenant that
presently Duke Energy Co. ("Electric Service Provider") is the utility company
selected by Landlord to provide electric service for the premises. Not
withstanding the foregoing, if permitted by Law, Landlord shall have the right
at any time and from time to time during the lease term to either contract for
service from a different company or companies providing electric service (each
such company shall hereafter be referred to as "Alternate Service Provider") or
continue to contract for services from the Electric Service Provider.
39. TENANT SHALL GIVE LANDLORD ACCESS. Tenant shall cooperate with
Landlord, the Electric Service Provider, and any Alternate Service Provider at
all times and, as reasonably necessary, shall allow Landlord, Electric Service
Provider, and any Alternate Service Provider reasonable access to the premises,
electric lines, feeders, risers, wiring and any other machinery within the
premises.
Landlord_____ Tenant_____
18
<PAGE> 19
40. LANDLORD NOT RESPONSIBLE FOR INTERRUPTION OF SERVICE. Landlord
shall in no way be liable or responsible for any loss, damage or expense the
Tenant may sustain or incur by reason of any change, failure, interruption,
disruption, or defect in the supply or character of the electric energy
furnished to the premises, or if the quantity or character of the electric
energy supplied by the Electric Service Provider or any Alternate Service
Provider is no longer available or suitable for Tenant's requirements, and no
such change, failure, defect, unavailability, or unsuitability shall constitute
an actual or constructive eviction, in whole or in part, or entitle Tenant to
any abatement or diminution of rent, or relieve Tenant from any of its
obligations under the Lease, unless such losses, damages, or expense are the
result of the negligence or misconduct of Landlord, its agents, contractors, or
employees.
41. SPECIAL STIPULATIONS. In the event that the following conflicts
with the foregoing provisions of this Lease, the following shall control:
a) Right of First Refusal - Subject to existing leases, and
provided Tenant is not in default under any of the terms and
conditions of this Lease, Tenant shall have a Right of First
Refusal on the 8th and 10th floors of the Building. If
Landlord receives a bonafide offer to lease space on either
floor, Landlord will notify Tenant of the terms and conditions
of the offer, as provided in Paragraph 29 of this Lease, and
Tenant shall have TEN (10) DAYS from receipt of said notice to
either accept Landlord's offer or reject it. If Tenant rejects
Landlord's offer, then Landlord is free to lease to the
bonafide prospect. If Landlord does not lease to the bonafide
prospect, then Tenant's Right of First Refusal shall remain.
b) Tenant Occupancy - Landlord shall have one hundred (100) days
from permitting to build out the Premises according to the
plans and specifications shown on Exhibit "B" and attached
hereto.
c) Parking - During the entire term of this Lease and following
an audit conducted at expense of Landlord, Landlord shall
provide Tenant with 300 parking spaces free of charge in the
following manner: 100 spaces or more in The Landmark Building
and 200 spaces or less in the Hyatt Garage. Prior to the
Bellsouth Garage being completed and ready for occupancy,
Landlord shall provide Tenant up to 80 % of the total spaces
available in The Landmark Building Garage until needed by
Landlord to lease to other new tenants. All of the spaces that
Landlord takes back will be relocated to the Hyatt Garage,
subject to availability, or in the alternative to the Mall 200
Garage. Landlord also agrees to provide Tenant 100 additional
spaces in parking lots controlled by Landlord at Tenant's
expense.
Landlord_____ Tenant_____
19
<PAGE> 20
d) Generator - Landlord shall provide Tenant secure space in the
old gas station behind the Building to locate its' generator,
said generator to be the sole expense of Tenant.
e) Elevators - Landlord agrees to restrict access to the two (2)
elevators on the fifth floor for Tenant's use only.
f) Signage - Landlord and Tenant acknowledge that BB& T Bank has
exclusive signage rights on the Building, and that Landlord
will work diligently to seek the bank's approval for Tenant's
desired building signage. All signage desired by Tenant shall
be at Tenant's sole cost and expense. Landlord needs to use
best efforts to secure 1a, 1b (both locations) and 2 (the
monument sign in the plaza as outlined on EXHIBIT C; if no
approval for 1 b and 2 (monument sign) within SEVEN (7)
BUSINESS DAYS of execution of this Lease Agreement then Tenant
has the right to rescind this Lease and declare this Lease
null and void at Tenant's option without liability whatsoever,
by giving Landlord written notice within nine (9) business
days of the execution of this Lease Agreement.
g) Cancellation.-- Tenant entered into a Lease Agreement dated
August 19, 1999 with Greenville American Limited Partnership
("GALP"), as Landlord, with respect to certain premises
located in The American Federal Building located at 300 East
McBee Avenue, Greenville, South Carolina (the "Greenville
American Lease"). On December 13, 1999, Tenant delivered a
letter to GALP terminating the Greenville American Lease.
However, after said letter was delivered, Tenant's attorney
was informed that GALP filed a Chapter 11 bankruptcy petition
on December 10, 1999, and GALP's attorney asserted that the
automatic stay of the bankruptcy court bars Tenant's
Termination of the Greenville American Lease. If Tenant's
Lease termination was not valid or in the event a bankruptcy
court having jurisdiction over this matter does not approve
Tenant's request authorizing the termination of the Greenville
American Lease, Tenant shall have the right to terminate this
Lease by sending Landlord notice that Tenant was unable to
terminate the Greenville American Lease. Landlord's 100 days
to complete the construction, as described in Paragraph 1(g)
and 41(b), shall not begin until Tenant waives this right to
terminate. Should Tenant not obtain resolution of its' former
lease in its sole satisfaction on or before March 1, 2000,
then this Lease shall terminate and neither party shall have
any claim against the other.
h) Counterparts.-- This Lease shall be legally binding with
signatures in counterpart.
Landlord_____ Tenant_____
20
<PAGE> 21
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the date and
year first above written.
WITNESS: LANDLORD: Alan B. Kahn and
Windsor City Partnership, Tenants in Common
_______________________ By: ______________________________
Title: ___________________________
WITNESS: TENANT: TriVergent Communications, Inc.
_______________________ By: ______________________________
Title: ___________________________
21
<PAGE> 22
RULES AND REGULATIONS
1. No sign, picture, advertisement, or notice shall be displayed by Tenant on
any part of the Premises or the Building unless the same is first approved by
Landlord. Any such sign, picture, advertisement, or notice approved by Landlord
shall be painted or installed for Tenant by Landlord at Tenant's expense. No
awnings, curtains, blinds, shades, or screens shall be attached to or hung in,
or used in connection with, any window or door of the Premises without the prior
written consent of the Landlord, including approval by the Landlord of the
quality, design, color, and manner attached.
2. Tenant shall not do or permit to be done in or about the Premises or the
Building any act which obstructs or interferes with the rights of other tenants
of Landlord, or annoys them in any way, including, but not limited to, making
loud or unseemly noises. Tenant shall not use the Premises for sleeping,
lodging, at any time except with Landlord's written permission. Tenant may use
for its own employees within its Premises a conventional coffee-maker,
microwave, and dishwasher and other traditional kitchen appliances, but Tenant
shall be responsible for shutting off the forementioned kitchen appliances at
the close of each business day.
3. No vending machines of any kind will be installed, permitted or used by
Tenant on any part of the Premises without Landlord's written permission. No
part of the Building shall be used for gambling, immoral, or unlawful purposes.
No intoxicating beverage shall be sold or consumed in the Building without the
prior written consent of Landlord. No area outside of the Premises shall be used
by Tenant for storage purposes at any time. No bicycles, vehicles, or animals of
any kind shall be brought into the Building by Tenant or kept in or about the
Premises.
4. The sidewalks, entrances, passages, corridors, halls, elevators, and
stairways shall not be obstructed by Tenant or used for any purpose other than
those for which same were intended as ingress and egress. No window shall be
covered or obstructed by Tenant. Toilets, wash basins, and sinks shall not be
used for any purposes other than those for which they were constructed, and no
sweeping, rubbish, coffee grounds, or other obstructing substances shall be
thrown therein.
5. No additional lock, latch, or bolt of any kind shall be placed upon any door
or any changes be made in existing locks or mechanism thereof by Tenant without
the consent of Landlord, and such consent of Landlord shall be requested by
Tenant in writing. Upon commencement of this Lease, Landlord shall provide, at
no expense to Tenant, two entrance door keys for the demised Premises. The cost
of providing additional keys to Tenant shall be borne by Tenant. At the
termination of this Lease, Tenant shall return to Landlord all keys furnished to
Tenant by Landlord and those keys otherwise procured by Tenant.
Landlord_____ Tenant_____
22
<PAGE> 23
6. Tenant shall not cause or permit any unusual or objectionable odors to be
produced upon or issue from the Premises, and no flammable, combustible or
explosive fluid, chemical or substance shall be brought into the Building by
Tenant.
7. Tenant shall be responsible for locking all entrance doors to the Premises
upon the conclusion of the business day.
8. No safes, major furniture, large boxes or parcels, or other kind of freight
shall be taken to or from the Premises by Tenant or allowed in any elevator,
hall, or corridor at any time except by permission of, and at times allowed by,
Landlord. The persons employed to move Tenant's articles must be approved by
Landlord.
9. The Building shall be open to Tenant, its employees, and business visitors
during such business hours as are deemed standard by Landlord from time to time.
At all other times every person, including Tenant, its employees and visitors
entering and leaving the Building may be questioned by a watchman as to that
person's business therein, and may be required to sign such persons name on a
form provided by Landlord for registering such person.
10. Tenant shall not employ any person other than Landlord's contractor or
employees for the purpose of cleaning and taking care of the Premises.
11. All decorations of the Premises, including design, color selection, and
finish work of the Premises which is visible from any corridor, elevator or
other such Common Area, shall be made only with specific written approval from
Landlord, and in the absence of such approval Landlord may require Tenant to
remove undesirable decoration and restore the Premises to its former condition.
12. Landlord will provide one listing in the Building Directory to Tenant at
Landlord's expense. Other listings and signs must be first approved by Landlord
and obtained at Tenant's expense.
13. The driveways and loading zones must be kept free of parked automobiles.
Cars must be parked in designated areas only. When parking is under the
jurisdiction of a governmental authority, the rules and regulations of that
authority shall be observed.
14. The Landlord reserves the right at any time to rescind any one or more of
these rules and regulations, or to make such other and further reasonable rules
and regulations as in the Landlord's judgment may from time to time be necessary
for the safety, care and cleanliness of the Premises, and for the preservation
of order herein.
Landlord_____ Tenant_____
23
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF STATE COMMUNICATIONS, INC.
(TO BE RENAMED TRIVERGENT CORPORATION)
1. TriVergent Communications, Inc. (South Carolina)
TriVergent Communications, Inc. has the following subsidiaries:
1.1. TriVergent Leasing, LLC (South Carolina)
1.2. Carolina Online, Inc. (South Carolina)
Carolina Online, Inc. does business under the name "TriVergent
Communications, Inc."
2. TriVergent Communications South, Inc. (Delaware):
TriVergent Communications South, Inc. has the following subsidiaries:
2.1. TriVergent Leasing South, LLC (Delaware)
2.2. ISAAC Acquisition Corp. (South Carolina)
ISAAC Acquisition Corp. does business under the name
"TriVergent Communications, Inc."
2.3. Teleco Acquisition Corp. (South Carolina)
Teleco Acquisition Corp. does business under the name
"TriVergent Communications, Inc."
3. TriVergent Communications West, Inc. (Delaware)
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TriVergent Corporation:
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Summary Consolidated Financial Data", "Selected
Consolidated Financial and Operating Data" and "Experts" in the prospectus.
Greenville, South Carolina
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION OBTAINED FROM THE
TRIVERGENT CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF
AND FOR THE YEAR ENDED DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,237
<SECURITIES> 2,691
<RECEIVABLES> 1,503
<ALLOWANCES> 186
<INVENTORY> 0
<CURRENT-ASSETS> 19,940
<PP&E> 45,363
<DEPRECIATION> 1,306
<TOTAL-ASSETS> 67,277
<CURRENT-LIABILITIES> 14,455
<BONDS> 18,200
65,780
0
<COMMON> 11
<OTHER-SE> (31,147)
<TOTAL-LIABILITY-AND-EQUITY> 67,277
<SALES> 25,037
<TOTAL-REVENUES> 25,037
<CGS> 17,704
<TOTAL-COSTS> 24,841
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,286
<INTEREST-EXPENSE> 1,469
<INCOME-PRETAX> (25,446)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,446)
<DISCONTINUED> 0
<EXTRAORDINARY> 218
<CHANGES> 0
<NET-INCOME> (25,664)
<EPS-BASIC> (2.60)
<EPS-DILUTED> (2.60)
</TABLE>
