UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
WORLD ACCESS, INC.
------------------
(Name of Issuer)
Common Stock
------------
(Title of Class of Securities)
98141A101
---------
(CUSIP Number)
LAWRENCE C. TUCKER
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York
(212) 483-1818
---------------------------------------
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
April 21, 1999
---------------------------------------
(Date of Event which Requires Filing of
this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
2
CUSIP No. 98141A101
1 NAME OF REPORTING PERSON
THE 1818 FUND III, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
DELAWARE
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 6,086,957
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH REPORTING -0-
PERSON WITH 10 SHARED DISPOSITIVE POWER
6,086,957
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,086,957 (assuming exercise of the option in full and conversion of
Preferred Stock)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.95% (assuming exercise of the option in full and conversion of
Preferred Stock)
14 TYPE OF REPORTING PERSON
PN
<PAGE>
3
CUSIP No. 98141A101
1 NAME OF REPORTING PERSON
BROWN BROTHERS HARRIMAN & CO.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
NEW YORK
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 6,086,957
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH REPORTING -0-
PERSON WITH 10 SHARED DISPOSITIVE POWER
6,086,957
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,086,957 (assuming exercise of the option in full and conversion of
Preferred Stock)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.95% (assuming exercise of the option in full and conversion of
Preferred Stock)
14 TYPE OF REPORTING PERSON
PN
<PAGE>
4
CUSIP No. 98141A101
1 NAME OF REPORTING PERSON
T. MICHAEL LONG
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
UNITED STATES
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 6,086,957
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH REPORTING -0-
PERSON WITH 10 SHARED DISPOSITIVE POWER
6,086,957
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,086,957 (assuming exercise of the option in full and conversion of
Preferred Stock)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.95% (assuming exercise of the option in full and conversion of
Preferred Stock)
14 TYPE OF REPORTING PERSON
IN
<PAGE>
5
CUSIP No. 98141A101
1 NAME OF REPORTING PERSON
LAWRENCE C. TUCKER
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
UNITED STATES
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES 8 SHARED VOTING POWER
BENEFICIALLY 6,086,957
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH REPORTING -0-
PERSON WITH 10 SHARED DISPOSITIVE POWER
6,086,957
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,086,957 (assuming exercise of the option in full and conversion of
Preferred Stock)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.95% (assuming exercise of the option in full and conversion of
Preferred Stock)
14 TYPE OF REPORTING PERSON
IN
<PAGE>
6
Item 1. Security and Issuer.
This Statement on Schedule 13D relates to the common stock, par value
$.01 per share (the "Common Stock"), of World Access, Inc., a Delaware
corporation (the "Company"), whose principal executive office is located at
Suite 2240, 945 East Paces Ferry Road, Atlanta, Georgia 30326. Although no
person identified in Item 2 has acquired any shares of Common Stock, such
persons may be deemed to be beneficial owners of shares of Common Stock reported
in Item 5 by virtue of their acquisition of shares of preferred stock and an
option to acquire shares of preferred stock described in Items 3 and 5.
Item 2. Identity and Background.
(a), (b), (c) and (f). This Statement on Schedule 13D is being filed by
The 1818 Fund III, L.P., a Delaware limited partnership (the "Fund"), Brown
Brothers Harriman & Co., a New York limited partnership and general partner of
the Fund ("BBH&Co."), T. Michael Long ("Long") and Lawrence C. Tucker ("Tucker")
(the Fund, BBH&Co., Long and Tucker are referred to collectively herein as the
"Reporting Persons").
The Fund was formed to provide a vehicle for institutional and
substantial corporate investors to acquire significant equity interests in
medium-sized publicly owned United States corporations. BBH&Co. is a private
bank. Pursuant to a resolution adopted by the partners of BBH&Co., BBH&Co. has
designated and
<PAGE>
7
appointed Long and Tucker, or either of them, the sole and exclusive partners of
BBH&Co. having voting power (including the power to vote or to direct the
voting) and investment power (including the power to dispose or to direct the
disposition) with respect to the Common Stock.
The address of the principal business and principal offices of the Fund
and BBH&Co. is 59 Wall Street, New York, New York 10005.
The business address of each of Long and Tucker is 59 Wall Street, New
York, New York 10005. The present principal occupation or employment of each of
Long and Tucker is as a general partner of BBH&Co. Long and Tucker are citizens
of the United States.
The name, business address, present principal occupation or employment
(and the name, principal business and address of any corporation or other
organization in which such employment is conducted) and the citizenship of each
general partner of BBH&Co. is set forth on Schedule I hereto and is incorporated
herein by reference.
(d) and (e). During the last five years, neither any Reporting Person
nor, to the best knowledge of each Reporting Person, any person identified on
Schedule I has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
which any such person was or is subject to a judgement, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws.
<PAGE>
8
Item 3. Source and Amount of Funds or Other Consideration.
Pursuant to a Stock Purchase Agreement, dated April 19, 1999 (the
"Stock Purchase Agreement"), between the Company and the Fund, (i) the Company
issued, and the Fund acquired from the Company, 50,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"), of the Company (the
"Initial Preferred Shares") for an aggregate purchase price of $50,000,000, and
(ii) the Company granted, and the Fund received from the Company, the option to
acquire, in multiples of 5,000 shares, up to 20,000 additional shares of
Preferred Stock (the "Additional Shares") for $1,000 per share. A copy of the
Stock Purchase Agreement is attached hereto as Exhibit 1 and is hereby
incorporated by reference. The Initial Preferred Shares are, and the Additional
Shares when acquired will be, convertible at the holder's option into a number
of shares of Common Stock equal to $1,000 per share of Preferred Stock divided
by the Conversion Price, set at $11.50, but subject to antidilution adjustments
set forth in the Certificate of Designation of the Preferred Stock. A copy of
the Certificate of Designation of the Preferred Stock is attached hereto as
Exhibit 2 and is hereby incorporated by reference.
The Fund has also entered into a Registration Rights Agreement, dated
April 21, 1999 (the "Registration Rights Agreement"), between the Company and
the Fund, pursuant to which the Company has agreed, under the terms and
conditions set forth therein, to register under the Securities Act of 1933, as
amended, the Common Stock issuable upon the conversion of the shares of
Preferred Stock held by the Fund and all other shares of Common Stock held by
the Fund. A copy of the Registration
<PAGE>
9
Rights Agreement is attached hereto as Exhibit 3 and is hereby incorporated by
reference.
The consideration paid by the Fund for the Initial Preferred Shares
consisted of $50,000,000 in cash, which was obtained by the Fund from capital
contributions made by its partners pursuant to pre-existing capital commitments.
Any purchase by the Fund of the Additional Shares would be funded in the same
manner.
Item 4. Purpose of Transaction.
The Fund has acquired the securities of the Company for investment
purposes only. The Stock Purchase Agreement contains, among other things,
certain provisions that relate to (i) the Fund's acquisition of additional
securities of the Company, and (ii) the disposition of securities of the
Company.
Under the Stock Purchase Agreement, the Fund invested $50,000,000 and
has the option to purchase up to an additional $20,000,000 of Preferred Stock.
Pursuant to the terms of the Stock Purchase Agreement, the Fund shall have the
right to designate one individual to the Board of Directors for so long as it
holds 20% of the shares of Common Stock issued or issuable upon conversion of
the Preferred Stock (whether or not the Preferred Stock has been converted).
The Reporting Persons may from time to time acquire additional shares
of Common Stock in the open market or in privately negotiated transactions,
subject to the availability of shares of Common Stock at prices deemed
favorable, the Company's business or financial condition and to other factors
and conditions the Reporting Persons deem appropriate. Alternatively, the
Reporting Persons may sell
<PAGE>
10
all or a portion of the shares of Common Stock or Preferred Stock in open market
or in privately negotiated transactions, subject to the factors and conditions
referred to above, the Stock Purchase Agreement, and compliance with applicable
laws.
Except as described in the Registration Rights Agreement and as set
forth above in this Item 4, no Reporting Person has any present plans or
proposals which relate to or would result in: (a) the acquisition by any person
of additional securities of the issuer, or the disposition of securities of the
issuer; (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its subsidiaries;
(c) a sale or transfer of a material amount of assets of the Company or of any
of its subsidiaries; (d) any change in the present board of directors or
management of the Company, including any plans or proposals to change the number
or term of directors or to fill any existing vacancies on the board; (e) any
material change in the present capitalization or dividend policy of the Company;
(f) any other material change in the Company's business or corporate structure;
(g) changes in the Company's charter, bylaws or instruments corresponding
thereto or other actions which may impede the acquisition of control of the
Company by any person; (h) causing a class of securities of the Company to be
delisted from a national securities exchange or to cease to be authorized to be
quoted in an inter-dealer quotation system of a registered national securities
association; (i) a class of equity securities of the Company becoming eligible
for termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934; or (j) any action similar to any of those enumerated
above.
<PAGE>
11
Item 5. Interest in Securities of the Issuer.
(a) through (c). As set forth above, in connection with the closing
under the Stock Purchase Agreement, the Fund acquired the 50,000 Initial
Preferred Shares and the option to acquire up to 20,000 Additional Shares.
Accordingly, as of April 21, 1999, assuming the purchase of 20,000 Additional
Shares and the subsequent conversion of the shares of Preferred Stock held by
the Fund into shares of Common Stock as of such date, the Fund may be deemed to
own 6,086,957 shares of Common Stock, which, based on calculations made in
accordance with Rule 13-d3(d) promulgated under the Securities Exchange Act of
1934, as amended, and there being 44,866,395 shares of Common Stock outstanding
on April 21, 1999 (as represented to the Fund by the Company), represents 11.95%
of the outstanding shares of Common Stock.
By virtue of BBH&Co.'s relationship with the Fund, BBH&Co. may be
deemed to beneficially own 6,086,957 shares of Common Stock, representing
approximately 11.95% of the outstanding shares of Common Stock (based on the
number of shares of Common Stock outstanding on April 21, 1999 as represented by
the Company to the Fund). By virtue of the resolution adopted by BBH&Co.
designating Long and Tucker, or either of them, as the sole and exclusive
partners of BBH&Co. having voting power (including the power to vote or to
direct the voting) and investment power (including the power to dispose or to
direct the disposition) with respect to the securities of the Company, each of
Long and Tucker may be deemed to beneficially own 6,086,957 shares of Common
Stock, representing approximately 11.95% of the outstanding shares of Common
Stock (based on the
<PAGE>
12
number of shares of Common Stock outstanding on April 21, 1999 as represented by
the Company to the Fund).
Except as set forth above, no Reporting Person nor, to the best
knowledge of each Reporting Person, any person identified on Schedule I,
beneficially owns any shares of Common Stock or has effected any transaction in
shares of Common Stock during the proceeding 60 days.
Paragraphs (d) and (e) of Item 5 of Schedule 13D are not applicable to
this filing.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to the Common Stock of the Issuer.
The Company and the Fund are parties to the Registration Rights
Agreement which gives the Fund, among other things, the right, on the terms and
conditions set forth therein, to require the Company to register for sale to the
public the shares of Common Stock issued upon the conversion of the Preferred
Stock and any shares of Common stock held by the Fund.
Pursuant to the Stock Purchase Agreement, so long as the Reporting
Persons continue to hold collectively at least 5% of the total number of shares
of Common Stock issued or issuable upon conversion of the Preferred Stock, if
John D. Phillips ("Phillips") at any time or from time to time proposes or
agrees to sell or transfer to a Person (as defined in the Stock Purchase
Agreement) or a group of Persons, in any transaction or series of transactions,
35% or more of the shares of
<PAGE>
13
Common Stock held by him as of the closing of the Stock Purchase Agreement,
Phillips is required to give written notice of such proposed sale to the
Reporting Persons within 15 Business Days (as defined in the Stock Purchase
Agreement) prior to the date of such sale. Such notice must state the price and
other terms of the proposed transaction, as well as the number of shares
proposed to be sold. The Reporting Persons may, upon notice to Phillips,
participate in such sale on the same terms and conditions as those offered by
Phillips to such third party. This provision does not apply to certain transfers
by Phillips to his spouse, lineal descendants or entities for their benefit or
controlled by Phillips.
Except as described elsewhere in this Statement and as set forth in the
Stock Purchase Agreement and the Registration Rights Agreement, to the best
knowledge of the Reporting Persons, there exist no contracts, arrangements,
understandings or relationships (legal or otherwise) among the persons named in
Item 2 and between such persons and any person with respect to any securities of
the Company, including but not limited to transfer or voting of any securities
of the Company, finder's fees, joint ventures, loan or option arrangements, puts
or calls, guarantees of profits, division of profits or loss, or the giving or
withholding of proxies.
Item 7. Material To Be Filed as Exhibits.
1. Stock Purchase Agreement, dated April 19, 1999, between Company and
the Fund.
2. Certificate of Designation of the Preferred Stock.
3. Registration Rights Agreement, dated April 21, 1999, between the
Company and the Fund.
<PAGE>
14
SIGNATURE
After reasonable inquiry and to the best of its knowledge and
belief, each of the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: May 6, 1999
THE 1818 FUND III, L.P.
By: Brown Brothers Harriman & Co.,
General Partner
By: /s/ Lawrence C. Tucker
----------------------
Name: Lawrence C. Tucker
Title: Partner
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Lawrence C. Tucker
----------------------
Name: Lawrence C. Tucker
Title: Partner
/s/ T. Michael Long
-------------------
T. Michael Long
/s/ Lawrence C. Tucker
----------------------
Lawrence C. Tucker
<PAGE>
15
SCHEDULE I
----------
Set forth below are the names and positions of all of the general
partners of BBH & Co. The principal occupation or employment of each person
listed below is private banker, and, unless otherwise indicated, the business
address of each person is 59 Wall Street, New York, New York 10005. Unless
otherwise indicated, each person listed below is a citizen of the United States.
Business Address
(if other than as
Name indicated above)
- ---- ----------------
J. William Anderson
Peter B. Bartlett
Brian A. Berris
Taylor S. Bodman 40 Water Street
Boston, Massachusetts 02109
John J. Borland
Walter H. Brown
Douglas A. Donahue, Jr. 40 Water Street
Boston, Massachusetts 02109
Anthony T. Enders
Alexander T. Ercklentz
Terrence M. Farley
John A. Gehret 525 Washington Boulevard
Jersey City, New Jersey 07310-1692
Elbridge T. Gerry, Jr.
Kristen F. Giarrusso
Robert R. Gould
<PAGE>
16
Business Address
(if other than as
Name indicated above)
- ---- ----------------
Kyosuke Hashimoto 8-14 Nihonbashi 30-Chome Chuo-ku
(citizen of Japan) Tokyo 103, Japan
Radford W. Klotz
Ronald J. Hill
Landon Hilliard
Michael Kraynak, Jr.
Susan C. Livington 40 Water Street
Boston, Massachusetts 02109
T. Michael Long
Hampton S. Lynch, Jr.
Michael W. McConnell
William H. Moore III
Donald B. Murphy
John A. Nielsen
Eugene C. Rainis
A. Heaton Robertson 40 Water Street
Boston, Massachusetts 02109
Jeffrey A. Schoenfeld 40 Water Street
Boston, Massachusetts 02109
Stokley P. Towles 40 Water Street
Boston, Massachusetts 02109
Andrew J.F. Tucker
Lawrence C. Tucker
Maarten van Hengel
Douglas C. Walker 1531 Walnut Street
Philadelphia, Pennsylvania 19102
Laurence F. Whittemore
<PAGE>
17
Business Address
(if other than as
Name indicated above)
- ---- ----------------
Richard H. Witmer, Jr.
<PAGE>
18
INDEX TO EXHIBITS
Page
Exhibit Description Number
- ------- ----------- ------
1 Stock Purchase Agreement, dated
April 19, 1999, between the Company
and the Fund
2 Certificate of Designation of the
Preferred Stock
3 Registration Rights Agreement, dated
April 21, 1999, between the Company
and the Fund
================================================================================
STOCK PURCHASE AGREEMENT
By and Between
WORLD ACCESS, INC.
And
THE 1818 FUND III, L.P.
------------------------
Dated April 19, 1999
------------------------
================================================================================
<PAGE>
Table of Contents
-----------------
Page
----
ARTICLE 1 DEFINITIONS.............................................1
1.1 Definitions.............................................1
1.2 Accounting Terms; Financial Covenants...................9
ARTICLE 2 PURCHASE AND SALE OF PREFERRED STOCK...................10
2.1 Purchase and Sale of Preferred Stock...................10
2.2 Certificate of Designation.............................11
2.3 Fees...................................................11
2.4 Closing................................................11
ARTICLE 3 CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE..............................11
3.1 Representations and Warranties True....................11
3.2 Compliance with this Agreement.........................12
3.3 Officer's Certificate..................................12
3.4 Secretary's Certificate................................12
3.5 Documents..............................................12
3.6 Purchase Permitted by Applicable Laws; Legal
Investment.............................................12
3.7 Filing of Certificate of Designation...................12
3.8 Opinion of Counsel.....................................12
3.9 Approval of Counsel to the Purchaser...................12
3.10 Consents and Approvals.................................13
3.11 No Material Adverse Change.............................13
3.12 Due Diligence..........................................13
3.13 Conduct of Business....................................13
3.14 Registration Rights Agreement..........................13
3.15 Charter and By-Laws of the Company.....................13
3.16 Market Conditions......................................13
3.17 No Litigation..........................................14
3.18 No Default or Breach...................................14
3.19 Commission Documents...................................14
3.20 Amendment to the Credit Agreement......................14
ARTICLE 4 CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE................................14
4.1 Representations and Warranties True....................14
4.2 Compliance with this Agreement.........................14
4.3 Issuance Permitted by Applicable Laws..................15
4.4 Approval of Counsel to the Company.....................15
4.5 Consents and Approvals.................................15
4.6 Amendment to the Credit Agreement......................15
i
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----
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........15
5.1 Corporate Existence and Power..........................15
5.2 Corporate Authorization; No Contravention..............16
5.3 Governmental Authorization; Third Party Consents.......16
5.4 Binding Effect.........................................16
5.5 No Legal Bar...........................................17
5.6 Litigation.............................................17
5.7 No Default or Breach...................................17
5.8 Title to Properties....................................18
5.9 Taxes..................................................18
5.10 Financial Condition....................................18
5.11 No Material Adverse Change.............................18
5.12 Commission Documents...................................18
5.13 Environmental and Other Matters........................19
5.14 Investment Company.....................................20
5.15 Subsidiaries...........................................20
5.16 Capitalization.........................................21
5.17 Solvency...............................................21
5.18 Private Offering.......................................21
5.19 Broker's, Finder's or Similar Fees.....................21
5.20 No Defaults............................................21
5.21 Full Disclosure........................................22
5.22 Year 2000 Compliance...................................22
5.23 Regulatory Compliance..................................22
5.24 Registration Rights Agreement..........................23
5.25 Trade Relations........................................23
5.26 Material Contracts.....................................23
5.27 Business Plan..........................................23
5.28 No Undisclosed Financial Liabilities...................24
ARTICLE 6 REPRESENTATIONS AND WARRANTIES
AND COVENANTS OF THE PURCHASER.........................24
6.1 Existence and Power....................................24
6.2 Authorization; No Contravention........................24
6.3 Binding Effect.........................................25
6.4 No Legal Bar...........................................25
6.5 Purchase for Own Account...............................25
6.6 Broker's, Finder's or Similar Fees.....................26
6.7 Investment Knowledge...................................26
6.8 HSR Act................................................26
ii
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----
ARTICLE 7 INDEMNIFICATION........................................26
7.1 Indemnification by the Company.........................26
7.2 Notification...........................................27
7.3 Registration Rights Agreement..........................28
ARTICLE 8 AFFIRMATIVE COVENANTS..................................28
8.1 Financial Statements...................................28
8.2 Certificates; Other Information........................29
8.3 Preservation of Corporate Existence....................29
8.4 Payment of Obligations.................................30
8.5 Compliance with Laws...................................30
8.6 Notices................................................30
8.7 Issue Taxes............................................31
8.8 Reservation of Shares..................................31
8.9 Inspection.............................................31
8.10 Board Representation...................................32
8.11 Registration and Listing...............................33
8.12 HSR Act Filing.........................................34
8.13 Private Offering.......................................34
8.14 Additional Registration Rights.........................34
ARTICLE 9 NEGATIVE COVENANTS.....................................35
9.1 Consolidated Net Worth.................................35
9.2 Consolidations and Mergers.............................35
9.3 Transactions with Affiliates...........................36
9.4 No Inconsistent Agreements.............................36
9.5 Issuance of Preferred Stock............................36
ARTICLE 10 DISPOSITIONS...........................................36
10.1 Dispositions by Phillips...............................36
10.2 Dispositions by the Purchaser..........................38
ARTICLE 11 MISCELLANEOUS..........................................39
11.1 Survival of Provisions.................................39
11.2 Notices................................................39
11.3 Successors and Assigns.................................40
11.4 Amendment and Waiver...................................41
11.5 Counterparts...........................................41
11.6 Headings...............................................41
11.7 Determinations.........................................41
11.8 Governing Law..........................................41
11.9 Jurisdiction...........................................41
11.10 Severability...........................................42
11.11 Rules of Construction..................................42
11.12 Remedies...............................................42
11.13 Entire Agreement.......................................42
11.14 Attorneys' Fees........................................42
iii
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Page
----
11.15 Publicity.................................................43
11.16 Expenses..................................................43
iv
<PAGE>
Page
----
EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Registration Rights Agreement
SCHEDULES
Schedule 5.3 Governmental Authorizations: Third Party Consents
Schedule 5.6 Litigation
Schedule 5.11 No Material Adverse Change
Schedule 5.15 Subsidiaries
Schedule 5.16 Capitalization
Schedule 5.22 Year 2000 Compliance
Schedule 5.23 Regulatory Compliance
Schedule 5.24 Registration Rights Agreements
Schedule 5.26 Material Contracts
Schedule 5.28 Financial Liabilities
v
<PAGE>
STOCK PURCHASE AGREEMENT, dated April 19, 1999, by and between World
Access, Inc., a corporation organized under the laws of Delaware (the
"Company"), and The 1818 Fund III, L.P., a Delaware limited partnership (the
"Purchaser").
The Company proposes that the Company issue to the Purchaser, and the
Purchaser purchase, up to 70,000 shares of the Company's 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock, Series A, par value $.01 per share, upon
the terms and subject to the conditions set forth in this Agreement.
In consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Additional Closing" has the meaning assigned that term in Section
2.1(b).
"Additional Closing Date" has the meaning assigned that term in Section
2.1(b).
"Additional Purchase Price" has the meaning assigned that term in
Section 2.1(b).
"Additional Shares has the meaning assigned to that term in Section
2.1(b).
"Affiliate" has the meaning ascribed to such term in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act; provided that for purposes
of this Agreement the Purchaser shall not be deemed an Affiliate of the Company.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the City of New York, New York or Atlanta, Georgia
are authorized or required by law or executive order to close.
<PAGE>
2
"Business Plan" has the meaning assigned to that term in Section 5.27.
"Certificate of Designation" means the Certificate of Designation with
respect to the Preferred Stock (the form of which is attached hereto as Exhibit
A) to be adopted by the Board of Directors of the Company and filed with the
Secretary of State of the State of Delaware.
"Change of Control" of the Corporation shall mean such times as:
(i) Any Person or "group" (within the meaning of Section 13(d)(3) of
the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
outstanding shares of stock of the Corporation entitling such Person or Persons
to exercise 50% or more of the total votes (excluding the Preferred Stock)
entitled to be cast at a regular or special meeting, or by action by written
consent, of shareholders of the Corporation (the term "beneficial owner" shall
be determined in accordance with Rule 13d-3, promulgated by the Commission under
the Exchange Act);
(ii) A majority of the Board of Directors of the Corporation shall
consist of Persons other than Continuing Directors. The term "Continuing
Director" shall mean any member of the Board of Directors on the Closing Date
(as defined in the Stock Purchase Agreement) and any other member of the Board
of Directors who shall be recommended or elected to succeed or become a
Continuing Director by a majority of Continuing Directors who are then members
of the Board of Directors.
(iii) The shareholders of the Corporation shall have approved a
recapitalization, reorganization, merger, consolidation or similar transaction,
in each case with respect to which all or substantially all the Persons who were
the respective beneficial owners, directly or indirectly, of the outstanding
shares of capital stock of the Corporation immediately prior to such
recapitalization, reorganization, merger, consolidation or similar transaction,
will own less than 50% of the combined voting power of the then outstanding
shares of capital stock of the Corporation resulting from such recapitalization,
reorganization, merger, consolidation or similar transaction; provided that any
such recapitalization shall not be considered a Change of Control if the holders
of Preferred Stock have the right to participate on at least a pari passu basis.
(iv) The shareholders of the Corporation shall have approved of the
sale or other disposition of all or substantially all the assets of the
Corporation in one transaction or in a series of related transactions;
<PAGE>
3
(v) Any transaction occurs (other than one described in (iii) above or
(vi) below), the result of which is that the Common Stock is not required to be
registered under Section 12 of the Exchange Act and that the holders of Common
Stock do not receive common stock of the Person surviving such transaction which
is required to be registered under Section 12 of the Exchange Act; or
(vi) Immediately after any merger, consolidation, recapitalization or
similar transaction, Phillips or a "group" (within the meaning of Section
13(d)(3) of the Exchange Act) shall be the beneficial owners, directly or
indirectly, of outstanding shares of capital stock of the Company (or any Person
surviving such transaction) entitling them collectively to exercise 50% or more
of the total voting power of shares of capital stock of the Company (or the
surviving Person in such transaction) and in connection with or as a result of
such transaction, the Company (or such surviving Person) shall have incurred or
issued additional indebtedness such that the total indebtedness so incurred or
issued equals at least 50% of the consideration payable in such transaction;
provided that any such transactions shall not be considered a Change of Control
if the holders of Preferred Stock have the right to participate on at least a
pari passu basis.
"Claim" has the meaning assigned to that term in Section 5.13.
"Closing" has the meaning assigned to that term in Section 2.4.
"Closing Date" means the date specified in Section 2.4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Commission Documents" means all registration statements, proxy
statements, reports and other documents (and all amendments thereto), required
to be filed by the Company since January 1, 1997 under the Securities Act or the
Exchange Act.
"Common Stock" shall mean the common stock, par value $.01 per share,
and each other class of capital stock of the Company into which such stock is
reclassified or reconstituted.
"Company" means World Access, Inc., a Delaware corporation.
"Condition of the Company" means the assets, business, properties or
financial condition of the Company and its Subsidiaries taken as a whole.
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4
"Consolidated Net Worth" means, as of the date of determination with
respect to any Person, the consolidated stockholders' equity (which, in the case
of the Company, shall include the Preferred Stock) of such Person and its
Subsidiaries, determined in accordance with GAAP.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (the "primary
obligation") of another Person (the "primary obligor"), including, without
limitation, any obligation of such first-mentioned Person, whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security therefor,
or (b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation, or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the beneficiary of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the beneficiary of any such primary
obligation against loss in respect thereof. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by the Company in good faith.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Credit Agreement" means the Credit Agreement dated December 30, 1998,
among Telco Systems, Inc. and World Access Holdings, Inc., the Lenders from time
to time party thereto, and NationsBank, N.A., Fleet National Bank and Bank
Austria Creditanstalt Finance, Inc., as amended.
"DTC" means the Depositary Trust Company.
"Environmental Claims" means any notification, whether formal or
informal, written or oral, pursuant to Environmental Laws or principles of
common law relating to pollution, or protection of the environment that any of
the current or past operations of the Company or any of its Subsidiaries, or any
by- product thereof, or any of the property currently or formerly owned, leased
or operated by the Company or any of its Subsidiaries, or the operations or
property of any predecessor of the Company or any of its Subsidiaries, is or may
be implicated in or subject to any Claim by any Governmental Authority or any
other Person.
<PAGE>
5
"Environmental Compliance Costs" means any expenditures, costs,
assessments or expenses (including any expenditures, costs, assessments or
expenses in connection with the conduct of any Remedial Action, as well as
reasonable fees, disbursements and expenses of attorneys, experts, personnel and
consultants), necessary to bring the operations, real property, assets,
equipment or facilities owned, leased, operated or used by the Company or any of
its Subsidiaries from noncompliance into compliance with any and all
requirements of Environmental Laws, principles of common law concerning
pollution or protection of the environment, or Permits issued pursuant to
Environmental Laws; provided, however, that Environmental Compliance Costs do
not include expenditures, costs, assessments or expenses necessary in connection
with normal maintenance of such real property, assets, equipment or facilities
or the replacement of equipment in the normal course of events due to ordinary
wear and tear.
"Environmental Laws" means any applicable federal, state, territorial,
provincial or local law, common law doctrine, rule, order, decree, judgment,
injunction, license, permit or regulation in effect as of the Closing Date and
each Additional Closing Date, relating to environmental matters, including those
pertaining to air, soil, surface water, ground water (including the protection,
cleanup, removal, remediation or damage thereof), or any other environmental
matter, together with any other laws (federal, state, territorial, provincial or
local) relating to emissions, discharges, releases or threatened releases of any
contaminant including, without limitation, medical, biological, biohazardous or
radioactive waste and materials, into ambient air, land, surface water,
groundwater, personal property or structures, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss. 9601 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water Pollution Control
Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss. 136 et seq.),
and the Oil Pollution Act of 1990 (33 U.S.C. ss. 2701 et seq.).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"FCC" means the Federal Communications Commission.
<PAGE>
6
"GAAP" means generally accepted accounting principles with respect to
Preferred Shares or Common Stock or Subordinated Notes issued upon conversion or
exchange of the Preferred Shares in the United States in effect from time to
time.
"Governmental Authority" means the government of any nation, state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Hazardous Materials" means those substances that are regulated by or
form the basis of liability under any Environmental Laws.
"Hazardous Substance" means any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste, industrial
substance or waste, petroleum or petroleum-derived substance or waste,
radioactive substance or waste, or any constituent of any such substance or
waste, or any other substance regulated under or defined by any Environmental
Law.
"Holder", with respect to Preferred Shares or Common Stock or
Subordinated Notes issued upon conversion or exchange of the Preferred Shares,
means the Purchaser and any subsequent direct or indirect transferee of such
security; provided that the term Holder shall not include any Person who owns
such security if it has been registered under the Securities Act or if it has
been transferred to such Person after such security has been the subject of a
distribution to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act or otherwise distributed under circumstances not
requiring a legend.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations of the Federal Trade Commission
thereunder.
"Indebtedness" means as to any Person, without duplication, (a) all
obligations of such Person for borrowed money (including, without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured), (b) all obligations
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations to pay the deferred purchase price of property or services, except
trade accounts payable and accrued liabilities arising in the ordinary course of
business, (d) all interest rate and currency swaps and similar agreements under
which payments are obligated to be made, whether periodically or upon the
happening of a contingency, (e) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (f) all obligations under leases which have
<PAGE>
7
been or should be, in accordance with GAAP, recorded as capital leases, (g) all
indebtedness secured by any Lien (other than Liens in favor of lessors under
leases other than leases included in clause (f)) on any property or asset owned
or held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of that
Person, (h) all obligations of such Person to reimburse or prepay any bank or
other Person in respect of amounts paid under a letter of credit, banker's
acceptance or similar instrument, (i) all capital stock issued by such Person
subject to mandatory redemption that is not contingent upon future events or
circumstances, and (j) any Contingent Obligation.
"Indemnified party" has the meaning assigned to that term in Section
7.1.
"Indenture" means the indenture dated October 1, 1997 by the Company
and First Union National Bank, as trustee, with respect to certain notes, as
amended by the First Supplemental Indenture dated October 28, 1998 among the
Company, WA Telecom Products Co., Inc. and First Union National Bank.
"Initial Preferred Shares" has the meaning assigned to that term in
Section 2.1(a).
"Initial Purchase Price" has the meaning assigned to that term in
Section 2.1(a).
"Liability" has the meaning assigned to that term in Section 7.1.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority or
other security interest or preferential arrangement of any kind or nature
whatsoever (including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capitalized lease obligation, or any financing
lease having substantially the same economic effect as any of the foregoing).
"NASDAQ" means the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotations System.
"1998 Audited Financials" has the meaning assigned to that term in
Section 5.10.
"1998 Interim Financials" has the meaning assigned to that term in
Section 5.10.
"1997 Audited Financials" has the meaning assigned to that term in
Section 5.10.
<PAGE>
8
"NYSE" means the New York Stock Exchange, Inc.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Phillips" has the meaning assigned to that term in Section 10.1(a).
"PORTAL" means Private Offerings, Resales and Trading through Automated
Linkages.
"Preferred Shares" means the Initial Preferred Shares and the
Additional Shares.
"Preferred Stock" means the 4.25% Cumulative Senior Perpetual
Convertible Preferred Stock, Series A, par value $.01 per share, of the Company.
"Purchase Price" means the Initial Purchase Price and the Additional
Purchase Price.
"Purchaser" means The 1818 Fund III, L.P., a Delaware limited
partnership.
"Registration Rights Agreement" means the Registration Rights Agreement
in the form attached hereto as Exhibit B.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
or through the environment, including the movement of Hazardous Substances
through or in the air, soil, surface water, ground water or property.
"Remedial Action" means all actions, whether voluntary or involuntary,
reasonably necessary to comply with, or discharge any obligation under,
Environmental Laws to (i) clean up, remove, treat, cover or in any other way
remediate Hazardous Substances in the indoor or outdoor environment; (ii)
prevent or control the Release of Hazardous Substances so that they do not
migrate or endanger or threaten to endanger public health or welfare or the
environment; or (iii) perform remedial studies, investigations, restoration and
post-remedial studies, investigations and monitoring on, about or in any real
property.
"Requirements of Law" means as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a
<PAGE>
9
court or other Governmental Authority, in each case applicable or binding upon
such Person or any of its property or to which such Person or any of its
property is subject.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Solvent" means, with respect to any Person, that the fair saleable
value on a going concern basis of the assets and property of such Person is, on
the date of determination, greater than the total amount of liabilities
(including contingent and unliquidated liabilities) of such Person as of such
date and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature. In computing the amount of contingent or
liquidated liabilities at any time, such liabilities will be computed as the
amount which, in light of all the facts and circumstances existing at such time,
represents the amount that is probable to become an actual or matured liability.
"Subordinated Notes" means the subordinated notes of the Company which
may be issued in exchange for the Preferred Shares as set forth in the
Certificate of Designation.
"Subsidiary" means, with respect to any Person, another Person of which
50% or more of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such first-mentioned Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.
"USTs" means any underground storage tanks or related piping or
dispensers.
"Year 2000 Compliance" has the meaning assigned that term in Section
5.22.
1.2 Accounting Terms; Financial Covenants. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent accountants regularly retained by the Company,
conforms at the time to GAAP applied on a consistent basis except for changes
with which such accountants concur. If any changes in accounting principles are
hereafter occasioned by promulgation of rules, regulations, pronouncements or
opinions by or are otherwise required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions), and any of such changes results in
a change in the method of calculation of, or affects the results of such
calculation of, any of the financial covenants, standards or terms found herein,
then the parties hereto agree to enter into
<PAGE>
10
and diligently pursue negotiations in order to amend such financial covenants,
standards or terms so as to reflect fairly and equitably such changes, with the
desired result that the criteria for evaluating the Company's financial
condition and results of operations shall be the same after such changes as if
such changes had not been made.
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK
2.1 Purchase and Sale of Preferred Stock.
(a) Subject to the terms and conditions herein set forth, the
Company agrees that it will issue to the Purchaser, and the Purchaser agrees
that it will acquire from the Company, at the Closing, 50,000 shares of
Preferred Stock (the "Initial Preferred Shares") for an aggregate purchase price
of $50,000,000 (the "Initial Purchase Price"), in cash, by wire transfer of
immediately available funds to an account designated by the Company in a notice
delivered to the Purchaser one day prior to the Closing Date.
(b) The Purchaser (or an Affiliate) has the option of
acquiring from time to time (in multiples of $5,000,000 of Liquidation
Preference) before June 30, 2000 up to 20,000 additional shares of Preferred
Stock (the "Additional Shares") at a price of $1,000 per share. Purchaser shall
give the Company written notice of its election to purchase Additional Shares on
a date specified (which date shall be a Business Day occurring at least 10
Business Days after the date of such notice and which date shall be extended, as
necessary, to permit the Company and the Purchaser or its Affiliates to obtain
any consents of Governmental Authorities or make any filings necessary to issue
the Additional Shares or to comply with all Requirements of Law including the
Securities Act, the Exchange Act and the HSR Act ). Such notice shall specify
the number of Preferred Shares to be purchased and the name or names (with
address) in which a certificate or certificates for the Additional Shares are to
be issued. Purchase of the Additional Shares shall occur on the date specified
in such notice (each, an "Additional Closing Date"). On each Additional Closing
Date, the Company will issue to the Purchaser (or its Affiliate) the number of
shares of Preferred Shares to be purchased on such date and the Purchaser shall
deliver the purchase price therefore (the "Additional Purchase Price") in cash,
by wire transfer of immediately available funds to an account designated by the
Company in a notice delivered to the Purchaser at least one day prior to the
Additional Closing Date. On each Additional Closing Date, the Purchaser shall
deliver to the Company a certificate signed by a General Partner stating that
the representations and warranties contained in Section 6 are true and correct
as if made as of such Additional Closing Date and the President or a Vice
President of the Company shall deliver to the Purchaser a certificate stating
that the representations and warranties contained in Section 5 are true and
correct in all material respects as of such Additional Closing Date as if made
as of such date (or, if any representation or warranty is not true and correct
as of such Date, providing
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11
information as to its accuracy in such representation or warranty) and the
Company is in compliance with its obligations in Article 8 or 9. If such
representations and warranties are not true in all material respects on any
Additional Closing Date, Purchaser (or its Affiliates) shall have no obligation
to purchase any Additional Shares on such Additional Closing Date.
2.2 Certificate of Designation. The Preferred Shares shall have the
rights and preferences set forth in the Certificate of Designation.
2.3 Fees. The Company agrees it will pay to the Purchaser or its
designee at the Closing, a facility fee of $2,000,000 in cash, by wire transfer
of immediately available funds to an account or accounts designated by the
Purchaser in a notice delivered to the Company at least one day prior to the
Closing, provided that if prior to the Closing, at the Company's request, the
Purchaser executes and delivers a commitment letter, and upon such execution and
delivery the Company has paid the Purchaser $500,000, then the amount of the
facility fee due under this Section 2.3 at the Closing shall be $1,500,000.
2.4 Closing. Subject to Articles 3 and 4, the purchase and issuance of
the Initial Preferred Shares shall take place at the closing (the "Closing") to
be held at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue
of the Americas, New York, New York 10019-6064 on April 21, 1999, or such later
date on or prior to April 30, 1999 as the parties may agree (the "Closing
Date"), at 10:00 a.m., New York City time. The location and time of each
purchase and issuance of Additional Shares (each an "Additional Closing") shall
be set forth in the written notice from the Purchaser referred to in Section
2.1(b). At the Closing and each Additional Closing, subject to the terms and
conditions set forth herein, the Company shall sell the Preferred Shares to the
Purchaser by delivering to the Purchaser Preferred Shares registered in the name
of the Purchaser or its designees, with appropriate issue stamps, if any,
affixed at the expense of the Company, free and clear of any Lien, and the
Purchaser shall purchase the Preferred Shares in accordance with the provisions
of ss. 2.1.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Initial Preferred
Shares, to pay the Purchase Price at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction or waiver of the following
conditions on or before the Closing Date:
3.1 Representations and Warranties True. The representations and
warranties of the Company contained in Section 5 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of such date.
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12
3.2 Compliance with this Agreement. The Company shall have performed
and complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Company on or
before the Closing Date.
3.3 Officer's Certificate. The Purchaser shall have received a
certificate, dated the Closing Date and signed by the President or a
Vice-President of the Company, certifying that the conditions set forth in
Sections 3.1 and 3.2 hereof have been satisfied on and as of such date.
3.4 Secretary's Certificate. The Purchaser shall have received a
certificate, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying the truth and correctness of attached
copies of the Certificate of Incorporation and By-laws of the Company and
resolutions of the Board of Directors of the Company approving this Agreement
and the transactions contemplated hereby.
3.5 Documents. The Purchaser shall have received copies of such
documents as it reasonably may request in connection with the sale of the
Initial Preferred Shares and the transactions contemplated hereby, all in form
and substance reasonably satisfactory to the Purchaser.
3.6 Purchase Permitted by Applicable Laws; Legal Investment. The
acquisition of and payment for the Initial Preferred Shares to be acquired by
the Purchaser hereunder and the consummation of the transactions contemplated
hereby (a) shall not be prohibited by any applicable law or governmental
regulation and (b) shall not subject the Purchaser to any penalty or, in its
reasonable judgment, other onerous condition under or pursuant to any applicable
law or governmental regulation.
3.7 Filing of Certificate of Designation. The Certificate of
Designation shall have been duly filed by the Company with the Secretary of
State of the State of Delaware.
3.8 Opinion of Counsel. The Purchaser shall have received the opinion
of Long, Aldridge & Norman, LLP counsel to the Company, and Richard Heidecke,
counsel to the Company, each dated the Closing Date, in form satisfactory to the
Purchaser.
3.9 Approval of Counsel to the Purchaser. All actions and proceedings
hereunder and all documents required to be delivered by the Company hereunder or
in connection with the consummation of the transactions contemplated hereby, and
all other related matters, shall have been reasonably acceptable to Paul, Weiss,
Rifkind, Wharton & Garrison, counsel to the Purchaser, as to their form and
substance.
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13
3.10 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons, including, with respect to Contractual Obligations of the
Company, those consents noted on Schedule 5.3, necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the payment of dividends on the Preferred Stock and the issuance of
Common Stock or Subordinated Notes upon the conversion or exchange of the
Preferred Stock) by the Company or enforcement against the Company of this
Agreement, the Preferred Shares or the Registration Rights Agreement shall have
been obtained and be in full force and effect, and the Purchaser shall have been
furnished with appropriate evidence thereof.
3.11 No Material Adverse Change. Since December 31, 1998, there shall
have been no material adverse change, nor shall any such change be threatened,
in the Condition of the Company since that date.
3.12 Due Diligence. The Purchaser shall have completed its due
diligence review of the assets, business, properties, pending litigations,
prospects, operations and financial and other condition of the Company and its
Subsidiaries, and shall be reasonably satisfied with the results of such review.
3.13 Conduct of Business. The Company shall have conducted its business
in the ordinary course from the date hereof to the Closing Date, and no
transaction not in the ordinary course of business shall have occurred without
the Purchaser's consent.
3.14 Registration Rights Agreement. The Company shall have duly
executed and delivered to the Purchaser the Registration Rights Agreement.
3.15 Charter and By-Laws of the Company. Except for the Certificate of
Designation, no amendments to the Certificate of Incorporation or By-Laws of the
Company as in effect on the date hereof shall have been effected.
3.16 Market Conditions. Between the date of this Agreement and the
Closing Date, (a) trading in the Common Stock shall not have been suspended by
the Commission or by the NASDAQ, (b) trading in securities generally on the NYSE
or NASDAQ shall not have been suspended or limited or minimum or maximum prices
shall not have been generally established on such exchange, or additional
material governmental restrictions, not in force on the date of this Agreement,
shall not have been imposed upon trading in securities generally by such
exchange or by order of the Commission or any court or other Governmental
Authority, (c) a general banking moratorium shall not have been declared by
either Federal or New York State authorities and (d) any material adverse change
in the financial or securities markets in the United States or in political,
financial or economic conditions in the United States or any outbreak or
material escalation of hostilities or declaration by the United
<PAGE>
14
States of a national emergency or war or other calamity or crisis shall not have
occurred.
3.17 No Litigation. No action, suit, proceeding, claim or dispute shall
have been brought or otherwise arisen at law, in equity, in arbitration or
before any Governmental Authority against the Company or any of its Subsidiaries
which would, if adversely determined, (i) have a material adverse effect on the
Condition of the Company or (ii) have a material adverse effect on the ability
of the Company to perform its obligations under this Agreement, the Preferred
Shares or the Registration Rights Agreement.
3.18 No Default or Breach. Neither the Company nor any of its
Subsidiaries shall have been in default under or with respect to any Contractual
Obligation in any respect, which, individually or together with all such
defaults, would be materially adverse to the Condition of the Company or which
could materially adversely affect the ability of the Company to perform its
obligations under this Agreement, the Preferred Shares or the Registration
Rights Agreement.
3.19 Commission Documents. The Company shall have filed its Form 10-K
for the year ended December 31, 1998 and provided a copy to the Purchaser.
3.20 Amendment to the Credit Agreement. The Purchaser shall have
received a copy of an amendment to the Credit Agreement permitting the issuance
of the Preferred Stock and payment of dividends on the Preferred Stock.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Initial Preferred
Shares, and to consummate the transactions contemplated herein on the Closing
Date, shall be subject to the satisfaction or waiver of the following conditions
on or before the Closing Date:
4.1 Representations and Warranties True. The representations and
warranties of the Purchaser contained in Section 6 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of such date.
4.2 Compliance with this Agreement. The Purchaser shall have performed
and complied with all of its agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Purchaser on or
before the Closing Date.
<PAGE>
15
4.3 Issuance Permitted by Applicable Laws. The issuance of the
Preferred Shares and the consummation of the transactions contemplated hereby by
the Company (a) shall not be prohibited by any applicable law or governmental
regulation, (b) shall not subject the Company to any penalty or, in its
reasonable judgment, other onerous condition under or pursuant to any applicable
law or governmental regulation and (c) shall be permitted by the laws and
regulations of the jurisdictions in which is it subject.
4.4 Approval of Counsel to the Company. All actions and proceedings
hereunder and all documents required to be delivered by the Purchaser hereunder
or in connection with the consummation of the transactions contemplated hereby,
and all other related matters, shall have been reasonably acceptable to Long,
Aldridge & Norman LLP, counsel to the Company, as to their form and substance.
4.5 Consents and Approvals. All consents, exemptions, authorizations,
or other actions by, or notices to, or filings with, Governmental Authorities
and other Persons necessary or required in connection with the execution,
delivery or performance by the Purchaser or enforcement against the Purchaser of
this Agreement shall have been obtained and be in full force and effect, and the
Company shall have been furnished with appropriate evidence thereof.
4.6 Amendment to the Credit Agreement. The Company shall have received
a copy of an amendment to the Credit Agreement permitting the issuance of the
Preferred Stock and payment of dividends on the Preferred Stock.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
5.1 Corporate Existence and Power. The Company and each of its
Subsidiaries:
(a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization;
(b) has (i) full corporate (or other organizational) power and
authority and (ii) all governmental licenses, authorizations, consents and
approvals to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged;
<PAGE>
16
(c) is duly qualified as a foreign person, licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification; and
(d) is in compliance with all Requirements of Law;
except, in the case of (b)(ii), (c) or (d) of this Section 5.1, to the extent
that the failure to do so would not have a material adverse effect on the
Condition of the Company.
5.2 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Company of this Agreement, the Registration Rights
Agreement and the transactions contemplated hereby and thereby, including
without limitation the issuance of the Preferred Shares and the Common Stock and
Subordinated Notes issuable upon the conversion or exchange of the Preferred
Shares:
(a) is within the Company's corporate power and authority and
has been duly authorized by all necessary corporate action; and
(b) subject to obtaining the consent set forth on Schedule
5.3, will not violate, conflict with or result in any breach or contravention of
or the creation of any Lien under, any Contractual Obligation of the Company or
any of its Subsidiaries (including, without limitation, those listed on Schedule
5.26 but excluding Contractual Obligations which are not material to the
Condition of the Company), or any order or decree directly relating to the
Company or any of its Subsidiaries.
5.3 Governmental Authorization; Third Party Consents. Except as set
forth on Schedule 5.3 and for any filings under the HSR Act with respect to any
Additional Closing, no approval, consent, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or any other
Person, is necessary or required in connection with the execution, delivery or
performance by the Company or enforcement against the Company of this Agreement,
the Preferred Shares, the Registration Rights Agreement or the transactions
contemplated hereby or thereby. The issuance of and payment of dividends on the
Preferred Stock are not prohibited by the terms of the Credit Agreement or the
Indenture and the Company does not reasonably anticipate that any such term is
likely to be breached during the term of the Credit Agreement or Indenture as a
result of such issuance or payment as of the Closing Date. As of the Closing
Date, the consents listed on Schedule 5.3 will have been obtained and be in full
force and effect.
5.4 Binding Effect. This Agreement has been duly executed and delivered
by the Company, and at the Closing the Registration Rights Agreement and the
Initial Preferred Shares will be duly executed and delivered by the Company.
This Agreement constitutes the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, except as
enforcement
<PAGE>
17
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles
relating to enforceability. At the Closing, the Registration Rights Agreement
and the Preferred Shares will constitute the legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
5.5 No Legal Bar. Subject to the expiration of the waiting period under
the HSR Act with respect to any Additional Closing, neither the execution,
delivery or performance of this Agreement or the Registration Rights Agreement
nor the issuance or performance of the terms of the Preferred Shares will
violate any Requirement of Law or any rule or regulation of NASDAQ.
5.6 Litigation.
(a) Except as set forth on Schedule 5.6, there are no actions,
suits, proceedings, claims or disputes pending, or to the knowledge of the
Company, threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company or any of its Subsidiaries:
(i) with respect to this Agreement, the Preferred
Shares or the Registration Rights Agreement or any of the transactions
contemplated hereby or thereby; or
(ii) which would, if adversely determined, (i) have a
material adverse effect on the Condition of the Company or (ii) have a material
adverse effect on the ability of the Company to perform its obligations under
this Agreement, the Preferred Shares or the Registration Rights Agreement.
(b) No injunction, writ, temporary restraining order, decree
or any order of any nature has been issued by any court or other Governmental
Authority purporting to enjoin or restrain the execution, delivery and
performance of this Agreement, the Preferred Shares or the Registration Rights
Agreement.
5.7 No Default or Breach. No event has occurred and is continuing which
constitutes a default under or breach of any of the provisions of Article 8 or
9. No event which constitutes a default under or breach of any of the provisions
of Article 8 or 9 is likely to result from the incurring of obligations by the
Company under this Agreement, or the Registration Rights Agreement or from the
issuance of the Preferred Shares. Neither the Company nor any of its
Subsidiaries is in default under or with respect to any Contractual Obligation
in any respect, which, individually or together with all such defaults, would
have a material adverse effect on the Condition of the Company or on the ability
of the Company to perform its
<PAGE>
18
obligations under this Agreement, the Preferred Shares or the Registration
Rights Agreement.
5.8 Title to Properties. The Company and each of its Subsidiaries have
good and defensible title to, or hold leases in full force and effect in all
their real property, except for such defects in title as could not, individually
or in the aggregate, have a material adverse effect on the Condition of the
Company or the ability of the Company to perform its obligations under this
Agreement, the Preferred Shares or the Registration Rights Agreement.
5.9 Taxes. The Company and its Subsidiaries have filed or caused to be
filed, or have properly filed extensions for, all income tax returns which are
required to be filed and have paid or caused to be paid all taxes as shown on
said returns and on all assessments received by it to the extent that such taxes
have become due, except taxes the validity or amount of which is being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves have been set aside. The Company and its Subsidiaries have paid or
caused to be paid, or have established reserves that the Company reasonably
believes to be adequate for all income tax liabilities applicable to the Company
and its Subsidiaries for all fiscal years which have not been examined and
reported on by the taxing authorities (or closed by applicable statutes).
5.10 Financial Condition. The Company heretofore has delivered to the
Purchaser true and correct copies of audited consolidated financial statements
of the Company and its Subsidiaries dated as of December 31, 1997 (the "1997
Audited Financials), December 31, 1998 (the "1998 Audited Financials") and the
unaudited consolidated financial statements of the Company and its Subsidiaries
dated as of March 31, 1998, June 30, 1998 and September 30, 1998 (the "1998
Interim Financials"). The 1997 Audited Financials, 1998 Audited Financials and
the 1998 Interim Financials have been prepared in accordance with GAAP applied
consistently and present fairly in all material respects the consolidated
financial condition of the Company as of the dates thereof and the consolidated
results of operations of the Company for the period, or portion thereof, then
ended (except in the case of the 1998 Interim Financials, for normal year-end
adjustment and the absence of footnotes).
5.11 No Material Adverse Change. Except as set forth on Schedule 5.11,
since December 31, 1998, there has not been any material adverse change, nor to
the knowledge of the Company is any such change threatened, in the Condition of
the Company.
5.12 Commission Documents. The Company, NACT Telecommunications, Inc.
and Telco Systems, Inc. have filed all registration statements, proxy
statements, reports and other documents required to be filed by them under the
Securities Act or the Exchange Act, and all amendments thereto. The Company has
furnished or made available to the Purchaser copies of all Commission
<PAGE>
19
Documents, each as filed with the Commission. Each Commission Document when
filed with the Commission was true and accurate in all material respects and in
compliance in all material respects with the requirements of its respective
report form.
5.13 Environmental and Other Matters.
(a) Neither the Company nor any of its Subsidiaries is or has
been in violation of any applicable Environmental Law or other Requirement of
Law, except to the extent that any such violation would not have a material
adverse effect on the Condition of the Company.
(b) The Company and its Subsidiaries have all Permits required
pursuant to Environmental Laws that are material to the conduct of the business
of the Company or any of its Subsidiaries, all such Permits are in full force
and effect, no action, cause of action, suit, claim, complaint, demand,
litigation or legal, administrative or arbitral proceeding or investigation
(collectively, "Claims") to revoke, limit or modify any of such Permits is
pending and the Company and each of its Subsidiaries is in compliance in all
material respects with all terms and conditions thereof.
(c) Neither the Company nor any of its Subsidiaries has
received, or will receive pursuant to any environmental property transfer law
due to the consummation of this transaction, any Environmental Claim.
(d) The Company and its Subsidiaries have filed all notices
required under Environmental Laws indicating the past or present Release,
generation, treatment, storage or disposal of Hazardous Substances.
(e) Neither the Company nor any of its Subsidiaries has
entered into any written agreement with any Governmental Body or any other
Person by which the Company or any of the Subsidiaries has assumed
responsibility, either directly or as a guarantor or surety, for the remediation
of any condition arising from or relating to a Release or threatened Release of
Hazardous Substances into the environment.
(f) To the knowledge of the Company or any of its
Subsidiaries, there is not now and has not been at any time in the past a
Release or threatened Release of Hazardous Substances for which the Company or
any of its Subsidiaries reasonably expects to be subject to an Environmental
Claim in an amount in excess of $50,000.
(g) Except in cases that are not reasonably expected to give
rise to any liability for the Company or any of its Subsidiaries under any
Environmental Law in excess of $50,000, there is not now and has not been at, on
or in any of the real properties owned, leased or operated by the Company or any
of its Subsidiaries during the time of the Company's or its Subsidiaries'
ownership, lease or
<PAGE>
20
operation of such real properties, and, to the knowledge of the Company or any
of its Subsidiaries, there was not at, on or in any real property previously
owned, leased or operated by the Company or any of its Subsidiaries or any
predecessor: (i) any generation, use, handling, Release, treatment, recycling,
storage or disposal of any Hazardous Substances; (ii) any UST, surface
impoundment, lagoon, landfill, solid waste disposal area, or other containment
facility (past or present) for the temporary or permanent storage, treatment or
disposal of Hazardous Substances; (iii) any asbestos-containing material; (iv)
any polychlorinated biphenyls (PCBs) used in hydraulic oils, electrical
transformers or other equipment; (v) any Release or threatened Release, or any
visible signs of Releases or threatened Releases, of a Hazardous Substance in
form or quantity requiring Remedial Action under Environmental Laws; or (vi) any
Hazardous Substances present at such property, excepting such quantities as are
handled in accordance with applicable manufacturer's instructions and
Environmental Laws and in proper storage containers, and as are necessary for
the operations of the Company and its Subsidiaries.
(h) To the knowledge of the Company or any of its
Subsidiaries, there is no basis or reasonably anticipated basis, individually or
in the aggregate, for any Environmental Claim or Environmental Compliance Costs
to be asserted against or required of the Company or any of its Subsidiaries in
excess of $50,000.
(i) Neither the Company nor any of its Subsidiaries has
transported, stored, treated or disposed, nor has it allowed or arranged for any
third persons to transport, store, treat or dispose, any Hazardous Substance to
or at: (i) any location other than a site lawfully permitted to receive such
substances for such purposes, or (ii) any location designated for Remedial
Action pursuant to Environmental Laws where such Remedial Action is reasonably
expected to result in liability for the Company or any of its Subsidiaries in
excess of $50,000; nor has it performed, arranged for or allowed by any method
or procedure such transportation or disposal in contravention of any
Environmental Laws or in any other manner that may result in Environmental
Compliance Costs or in an Environmental Claim for or against the Company or any
of its Subsidiaries.
(j) The Company and each of its Subsidiaries is in material
compliance with the upgrade requirements for USTs in effect as of December 31,
1998 pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901
et seq.
5.14 Investment Company. Neither the Company nor any Person controlling
the Company is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
5.15 Subsidiaries. Schedule 5.15 sets forth a complete and accurate
list of all of the Subsidiaries of the Company together with their respective
<PAGE>
21
jurisdictions of incorporation or organization. Except as set forth on Schedule
5.15, each such Subsidiary is directly or indirectly wholly owned by the
Company.
5.16 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 150,000,000 shares of Common Stock, par value
$.0l per share, and 10,000,000 shares of preferred stock, par value $.01 per
share, of which as of the date hereof, 44,866,395 shares of Common Stock and no
shares of preferred stock are issued and outstanding. Except as set forth on
Schedule 5.16, there are no shares of capital stock of the Company reserved for
issuance. All of the outstanding shares of capital stock of the Company have
been duly authorized and are fully paid and non-assessable. The Preferred Shares
when issued upon payment of the Purchase Price, and the shares of Common Stock
when issued upon conversion or exchange of the Preferred Shares, will be duly
authorized, and, in each case, validly issued, fully paid and nonassessable. The
Subordinated Notes, when issued upon exchange for the Preferred Shares, will be
duly authorized and validly issued. Except as set forth on Schedule 5.16 or in
the Certificate of Designation, there are no options, warrants or other rights
to any Person to purchase shares of capital stock or other securities of the
Company, and the Company is not obligated in any manner to issue shares of its
capital stock or other securities. Except as contemplated hereby and for
relevant state and federal securities laws, there are no restrictions on the
transfer of shares of capital stock of the Company.
5.17 Solvency. On and as of the Closing Date, after giving effect to
the transactions contemplated in this Agreement, the Company will be Solvent.
5.18 Private Offering. No form of general solicitation or general
advertising was used by the Company or, to its knowledge, its representatives in
connection with the offer or sale of the Preferred Shares. No registration of
the Preferred Shares pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws will be required by the offer, sale or
issuance of the Preferred Shares pursuant to this Agreement. The Company agrees
that neither it, nor anyone acting on its behalf, will offer or sell the
Preferred Shares or any other security so as to require the registration of the
Preferred Shares pursuant to the provisions of the Securities Act or any state
securities or "blue sky" laws, unless such Preferred Shares are so registered.
5.19 Broker's, Finder's or Similar Fees. Except as set forth herein,
there are no brokerage commissions, finder's fees or similar fees or commissions
payable in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with the Company or any of its
Subsidiaries, or any action taken by any such entity.
5.20 No Defaults. After giving effect to the issuance of the Preferred
Shares, and the conversion or exchange of the Preferred Stock into Common Stock,
neither the Company nor any of its Subsidiaries would be in default under or
with respect to any covenant in the Indenture or Credit Agreement.
<PAGE>
22
5.21 Full Disclosure. No statement by the Company contained in (i) this
Agreement or (ii) any certificates delivered to the Purchaser in connection with
the purchase and sale of the Preferred Shares at or prior to the Closing
contains (or will contain) an untrue statement of a material fact or omits (or
will omit) to state a material fact required to be stated therein or necessary
to make the statements made, in the light of the circumstances in which made,
not materially false or misleading.
5.22 Year 2000 Compliance. The Company and its Subsidiaries have taken
reasonable steps to determine whether the failure of any third parties
(including any third party providers of computer hardware and software) to
achieve Year 2000 Compliance would have a material adverse effect on the
Condition of the Company. Year 2000 Compliance shall mean all computer hardware
and software in question (including all computer hardware and software contained
in embedded systems) is designed or is being modified to be used, prior to,
during and after the calendar year 2000, and such hardware and software will
continue to operate during such time period to accurately process date data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, including leap year
calculations. Except as disclosed on Schedule 5.22, all computer hardware and
software (including all computer hardware and software contained in embedded
systems) (collectively, the "Technology Systems") that the Company identified as
critical (whether such Technology Systems are owned by the Company and its
Subsidiaries or licensed from third parties) are Year 2000 Compliant, provided
that all third party Technology Systems (other than Technology Systems
incorporated in the products of the Company or its Subsidiaries) with which such
Technology Systems of the Company and its Subsidiaries come into contact
properly exchanges date data with it. The occurrence of the calendar year 2000
and its effect on the Technology Systems of the Company and its Subsidiaries
will not have a material adverse effect on the Condition of the Company. Except
as set forth on Schedule 5.22, all transport and network access products have
been determined either to be Year 2000 Compliant, or may be upgraded at no
charge. Software required for upgrades is presently available and may be
downloaded from the Internet. Except as set forth on Schedule 5.22, all
switching products have been determined to be Year 2000 Compliant, or may be
upgraded at no charge.
5.23 Regulatory Compliance. The Company and its Subsidiaries, in their
ownership, management and operation of their business, as now conducted and as
contemplated to be conducted in the future, are not operating any communications
facilities or services for which any authorization is required from the FCC or
any similar regulatory body in any country in which the Company or its
Subsidiaries operate, other than the communications facilities or services for
which an appropriate regulatory authorization has been obtained and is in
effect. Schedule 5.23 sets forth all such authorizations held by the Company and
its Subsidiaries, issued by the FCC or similar regulatory body.
<PAGE>
23
5.24 Registration Rights Agreement. Schedule 5.24 sets forth all
agreements to which the Company or any Subsidiary is a party or by which it is
bound relating to the registration of its securities or, in the case of a
Subsidiary, the securities of the Company. None of the agreements listed on
Schedule 5.24 grants any registration rights to any Person which are
inconsistent with the rights to be granted to the Purchaser in the Registration
Rights Agreement.
5.25 Trade Relations. To the knowledge of the Company, there exists no
actual or threatened termination, cancellation or limitation of, or any material
adverse modification or material change in, the business relationship or
business of the Company and its Subsidiaries taken as a whole or their business
with any customer or any group of customers which is individually or in the
aggregate material to the business of the Company and its Subsidiaries taken as
a whole, or with any supplier, which is material to the business of the Company
and its Subsidiaries, taken as a whole.
5.26 Material Contracts. Neither the Company nor any of its
Subsidiaries is a party to any Contractual Obligation and is not subject to any
charge, corporate restriction, judgment, injunction, decree or Requirement of
Law which is likely to have a material adverse affect on the Condition of the
Company. Schedule 5.26 lists all contracts, agreements and commitments of the
Company and any Subsidiary, whether written or oral, for (i) sales of
telecommunications switching equipment and related products and services in
excess of $200,000, which are subject to vendor financing; (ii) sales of
telecommunications access and transport equipment and related products and
services with the ten largest customers in fiscal year 1998; (iii) purchases of
international telecommunications services with the five largest suppliers in
fiscal year 1998; (iv) sales of international telecommunications services with
the five largest purchasers in fiscal year 1998; and (v) all contracts with
MCI/WorldCom and (vi) all other contracts material to the Condition of the
Company, other than (a) this Agreement and the Registration Rights Agreement and
(b) purchase orders in the ordinary course of the Company's and any Subsidiary's
business. All of the contracts, agreements and commitments of the Company and
its Subsidiaries listed in Schedule 5.26 are in full force and effect and
binding upon the parties thereto in accordance with their terms. Neither the
Company nor any of its Subsidiaries, nor, to the knowledge of the Company or any
of its Subsidiaries, any other party to the contracts, agreements and
commitments listed on Schedule 5.26, is in default thereunder, and no condition
exists that with notice or lapse of time, or both would constitute a default
thereunder, in each case other than defaults that individually or in the
aggregate are not material to the Condition of the Company. Neither the Company
nor any of its Subsidiaries has any knowledge of any proposed, pending, or
likely cancellation or termination of any such contract, agreement or
commitment.
5.27 Business Plan. Prior to the date hereof, the Company delivered to
the Purchaser its business plans for fiscal year 1999 (the "Business Plan"). The
assumptions used in preparation of the Business Plan were reasonable when made
and
<PAGE>
24
continue to be reasonable as of the Closing Date. The Business Plan has been
prepared in good faith and the Business Plan gives effect to the transactions
contemplated by this Agreement. The Purchaser acknowledges that the Business
Plan contain assumptions about future events and that actual results during the
period or periods covered may differ from the data and results contained in such
Business Plan.
5.28 No Undisclosed Financial Liabilities. Except as set forth on
Schedule 5.28, the Company and its Subsidiaries, after giving effect to the
transactions contemplated hereby, will not have any material direct or indirect
indebtedness, liability (including, without limitation, product liability or
warranty claim), obligation, whether known or unknown, fixed or unfixed,
contingent or otherwise, and whether or not of a kind required by GAAP to be set
forth on a financial statement, other than (i) Liabilities fully and adequately
reflected on the 1998 Audited Financials, (ii) those incurred since December 31,
1998 in the ordinary course of business, (iii) Liabilities incurred pursuant to
this Agreement and (iv) Liabilities which individually or in the aggregate would
not have a material adverse effect on the Condition of the Company.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
AND COVENANTS OF THE PURCHASER
The Purchaser represents and warrants to, and covenants and agrees
with, the Company as follows:
6.1 Existence and Power. The Purchaser:
(a) is duly organized and validly existing under the laws of
the jurisdiction of its organization; and
(b) has the power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed to be, engaged.
6.2 Authorization; No Contravention. The execution, delivery and
performance by the Purchaser of this Agreement:
(a) is within the Purchaser's power and authority and has been
duly authorized by all necessary action;
(b) does not contravene the terms of the Purchaser's Agreement
of Limited Partnership, or any amendment thereof;
<PAGE>
25
(c) will not violate, conflict with or result in any breach or
contravention of or the creation of any Lien under, any Contractual Obligation
of the Purchaser, or any order or decree directly relating to the Purchaser, and
(d) does not require approval, consent, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person, except for any filing required under the HSR Act
with respect to any Additional Closing and the expiration of the waiting period
related thereto.
6.3 Binding Effect. This Agreement and, when executed by the Company on
the Closing Date, the Registration Rights Agreement has been duly executed and
delivered by the Purchaser, constitutes the legal, valid and binding obligation
of the Purchaser enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.4 No Legal Bar. The execution, delivery and performance of this
Agreement will not violate any Requirement of Law or any Contractual Obligation
of the Purchaser.
6.5 Purchase for Own Account. The Preferred Shares (including, for
purposes of this Section 6.5, the Common Shares and Subordinated Notes issuable
upon conversion or exchange of the Preferred Shares) to be acquired by the
Purchaser pursuant to this Agreement are being acquired for its own account and
with no intention of distributing or reselling such securities or any part
thereof in any transaction that would be in violation of the securities laws of
the United States of America, or any state, without prejudice, however, to the
rights of such Purchaser at all times to sell or otherwise dispose of all or any
part of the Preferred Shares under an effective registration statement under the
Securities Act, or under an exemption from such registration available under the
Securities Act, or pursuant to Article 10 hereof, and subject, nevertheless, to
the disposition of the Purchaser's property being at all times within its
control. If the Purchaser should in the future decide to dispose of any of the
Preferred Shares, the Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state securities laws, as then
in effect, and that stop-transfer instructions to that effect, where applicable,
will be in effect with respect to the Preferred Shares. If the Purchaser should
decide to dispose of the Preferred Shares, other than pursuant to the provisions
of the Registration Rights Agreement or Article 10 hereof, the Purchaser, if
requested by the Company, will have the obligation in connection with such
disposition, at the Purchaser's expense, of delivering an opinion of counsel of
recognized standing in securities law, in connection with such disposition to
the effect that the proposed disposition of the Preferred Shares would not be in
violation of the Securities Act or any applicable state securities laws and,
assuming such opinion is required and is otherwise appropriate in form and
substance under the circumstances, the Company
<PAGE>
26
will accept, and will recommend to any applicable transfer agent or trustee for
any of the Preferred Shares that it accept, such opinion. The Purchaser agrees
to the imprinting, so long as required by law, of a legend on certificates
representing all of the Preferred Shares and the shares of Common Stock and
Subordinated Notes issued on conversion or exchange thereof to the following
effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
6.6 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Purchaser or any action taken by the Purchaser.
6.7 Investment Knowledge. The Purchaser is an "accredited investor"
within the meaning of Rule 501 promulgated under the Securities Act.
6.8 HSR Act. Neither the Purchaser, nor any Person that is an "ultimate
parent entity" of the Purchaser (as defined in Rule 801.1 promulgated by the
Federal Trade Commission under the HSR Act) has total assets or annual net sales
(as determined pursuant to the regulations promulgated under the HSR Act) of ten
million dollars ($10,000,000) or more.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by the Company. In addition to all other sums due
hereunder or provided for in this Agreement, the Company agrees to indemnify and
hold harmless the Purchaser and its Affiliates (including, without limitation,
Brown Brothers Harriman & Co.) and their respective officers, directors, agents,
employees, subsidiaries, partners and controlling persons (each, an "indemnified
party") to the fullest extent permitted by law from and against any and all
losses, claims, damages, expenses (including reasonable fees, disbursements and
other charges of counsel) or other liabilities ("Liabilities") resulting from
any breach of any covenant, agreement, representation or warranty of the Company
in this Agreement or any legal, administrative or other actions (including
actions brought by the Company or any equity holders of the Company or
derivative actions brought by any Person claiming through the Company or in the
Company's name), proceedings or investigations (whether formal or informal), or
written threats thereof, based upon, relating to or arising out of this
Agreement, the Preferred Shares, the Registration
<PAGE>
27
Rights Agreement, the transactions contemplated hereby or thereby, or
any indemnified person's role therein or in the transactions contemplated hereby
or thereby; provided, however, that the Company shall not be liable under this
Section 7.1: (a) for any amount paid in settlement of claims without the
Company's consent (which consent shall not be unreasonably withheld), (b) with
respect to Liabilities arising solely out of actions brought by the partners of
the Purchaser against an indemnified party or by one indemnified party against
another, or (c) to the extent that it is finally judicially determined that such
Liabilities resulted primarily from (i) the willful misconduct, bad faith or
gross negligence of such indemnified party or (ii) a breach of the Purchaser's
representations in Article 6 or any breach of the Purchaser's obligations under
this Agreement or the Registration Rights Agreements, or (d) any Liabilities
arising solely from the transfer of the Preferred Stock by the Purchaser to any
Person; provided, further, that if and to the extent that such indemnification
is unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of such indemnified liability which shall be
permissible under applicable laws. In connection with the obligation of the
Company to indemnify for expenses as set forth above, the Company further agrees
to reimburse each indemnified party for all such expenses (including reasonable
fees, disbursements and other charges of counsel) as they are incurred by such
indemnified party; provided, however, that if an indemnified party is reimbursed
hereunder for any expenses, such reimbursement of expenses shall be refunded to
the extent it is finally judicially determined that the Liabilities in question
resulted primarily from the willful misconduct, bad faith or gross negligence of
such indemnified party.
7.2 Notification. Each indemnified party under this Article 7 will,
promptly after the receipt of notice of the commencement of any action or other
proceeding against such indemnified party in respect of which indemnity may be
sought from the Company under this Article 7, notify the Company in writing of
the commencement thereof. The omission of any indemnified party so to notify the
Company of any such action shall not relieve the Company from any liability
which it may have to such indemnified party (i) other than pursuant to this
Article 7 or (ii) under this Article 7 unless, and only to the extent that, such
omission results in the Company's forfeiture of substantive rights or defenses.
In case any such action or other proceeding shall be brought against any
indemnified party and it shall promptly notify the Company of the commencement
thereof, the Company shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that any indemnified
party may, at its own expense, retain separate counsel to participate in such
defense. Notwithstanding the foregoing, in any action or proceeding in which
both the Company and an indemnified party is, or is reasonably likely to become,
a party, such indemnified party shall have the right to employ separate counsel
at the Company's expense and to control its own defense of such action or
proceeding if, in the reasonable opinion of counsel to such indemnified party,
(a) there are or may be legal defenses available to such indemnified party or to
other indemnified parties that are different from or additional to those
available to the
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28
Company or (b) any conflict or potential conflict exists between the Company and
such indemnified party that would make such separate representation advisable;
provided, however, that in no event shall the Company be required to pay
unreasonable fees or expenses or fees and expenses under this Section 7 for more
than one firm of attorneys in any jurisdiction in any one legal action or group
of related legal actions. The Company agrees that the Company will not, without
the prior written consent of the Purchaser, settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated hereby (if any indemnified party is a party
thereto or has been actually threatened to be made a party thereto) unless such
settlement, compromise or consent includes an unconditional release of the
Purchaser and each other indemnified party from all liability arising or that
may arise out of such claim, action or proceeding. The rights accorded to
indemnified parties hereunder shall be in addition to any rights that any
indemnified party may have at common law, by separate agreement or otherwise.
7.3 Registration Rights Agreement. Notwithstanding anything to the
contrary in this Article 7, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
ARTICLE 8
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Purchaser and any
Affiliate of the Purchaser, so long as the Purchaser or such Affiliate holds any
Registrable Securities or Preferred Shares, Subordinated Notes, or shares of
Common Stock issued or issuable upon conversion or exchange of the Preferred
Stock:
8.1 Financial Statements. The Company shall deliver to the Purchaser
and any of its Affiliates that are Holders:
(a) as soon as available, but not later than one hundred (100)
days after the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such year and the related consolidated statements of income and cash flows for
such fiscal year, setting forth in each case in comparative form the figures for
the previous year, all in reasonable detail and accompanied by a management
discussion and analysis of the operations of the Company and its Subsidiaries
for such fiscal year and by the opinion of Ernst & Young (or any successor
thereto) or another nationally recognized independent public accounting firm
which report shall state that such consolidated financial statements present
fairly in all material respects the financial position for the periods indicated
in conformity with GAAP applied on a basis consistent with prior years (except
for changes with respect to which such accounting firm concurs);
<PAGE>
29
provided, however, that the delivery of a copy of the Company's Annual Report on
Form 10-K shall satisfy the requirements of this Section 8.1(a);
(b) commencing with the fiscal period ending on June 30, 1999,
as soon as available, but in any event not later than forty-five (45) days after
the end of each of the first three fiscal quarters of each year, the unaudited
consolidated balance sheet of the Company and its Subsidiaries, and the related
consolidated statements of income and cash flow for such quarter and for the
period commencing on the first day of the fiscal year and ending on the last day
of such quarter, all certified by an appropriate officer of the Company;
provided, however, that the delivery of a copy of the Company's Quarterly Report
on Form 10-Q shall satisfy the requirements of this Section 8.1(b);
(c) annual budgets and such other financial and operating data
of the Company and its Subsidiaries, as the Purchaser reasonably may request, to
the extent that such information is formally prepared for the Company's
Chairman, President, Board of Directors and/or banks or other lenders;
(d) at any time when it is not subject to Section 13 or 15(d)
of the Exchange Act, upon request, to the Purchaser and prospective purchasers
of the Preferred Shares, information of the type that would satisfy the
requirement of subsection (d)(4)(i) of Rule 144A (or any similar successor
provision) under the Securities Act; and
(e) except as otherwise provided in Sections 8.1(a) and (b),
promptly after the same are filed, copies of all Commission Documents.
8.2 Certificates; Other Information. The Company shall furnish to the
Purchaser and to any Affiliate of the Purchaser that is a Holder:
(a) concurrently with the delivery of the financial statements
referred to in Section 8.1(a), a certificate of the Company's Chief Financial
Officer stating that to the knowledge of such officer there is no default under
or breach of Articles 8 and 9, except as specified in such certificates; and
(b) concurrently with the delivery of the financial statements
referred to in Sections 8.1(a) and (b), a certificate of an officer of the
Company including calculations set forth in reasonable detail showing the
Company's compliance with the financial covenants contained herein.
8.3 Preservation of Corporate Existence. The Company shall, and shall
cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect its
corporate or organizational existence and good standing under the laws of its
jurisdiction of incorporation or organization except as permitted by Section
9.2;
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30
(b) preserve and maintain in full force and effect all
material rights, privileges, qualifications, licenses and franchises necessary
in the normal conduct of its business; and
(c) use its reasonable efforts to preserve its business
organization.
8.4 Payment of Obligations. The Company shall, and shall cause its
Subsidiaries to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including without limitation:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which the Company and each of its
Subsidiaries is obligated to pay, which are due and which, if unpaid, might by
law become a Lien upon its property (other than Liens which individually or in
the aggregate would not have a material adverse effect on the Condition of the
Company), unless the same are being contested in good faith by appropriate
proceedings and adequate reserves in accordance with GAAP are being maintained
by the Company or such Subsidiary; and
(c) all payments of principal of and interest on Indebtedness
when due (giving effect to any grace periods relating thereto).
8.5 Compliance with Laws. The Company shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
and with the directions of any Governmental Authority having jurisdiction over
it or its business, except such as to which such failure to comply would not
have a material adverse effect on the Condition of the Company.
8.6 Notices. Upon knowledge of the Chief Executive Officer, the
President or the Chief Financial Officer of the Company of the events described
below, the Company shall give written notice within 10 days to the Purchaser of:
(a) the occurrence of any default under, or breach of, any
provision of Article 8 or 9 accompanied by a certificate specifying the nature
of such default or breach, the period of existence thereof and the action that
the Company has taken or proposes to take with respect thereto; and
(b) any (i) material default or event of default under any
material Contractual Obligation, including the Credit Agreement and Indenture,
of the Company or any of its Subsidiaries, or (ii) material dispute, litigation,
investigation,
<PAGE>
31
proceeding or suspension which may exist at any time between the Company or any
of its Subsidiaries and any Governmental Authority;
each accompanied by a statement setting forth details of the occurrence referred
to therein and stating what action the Company proposes to take with respect
thereto.
8.7 Issue Taxes. The Company shall pay, or cause to be paid, all
documentary and similar taxes levied under the laws of any applicable
jurisdiction in connection with the issuance of the Preferred Shares and the
execution and delivery of the other agreements and documents contemplated hereby
and any modification of the Preferred Shares or such other agreements and
documents and will hold the Purchaser harmless, without limitation as to time,
against any and all Liabilities with respect to all such taxes.
8.8 Reservation of Shares.
(a) The Company shall reserve and keep available until June
30, 2000 out of its authorized Preferred Stock, solely for the purpose of sale
to the Purchaser of the Additional Shares, 20,000 Preferred Shares. The
Additional Shares shall be duly and validly issued and, upon payment of the
Additional Purchase Price, be fully paid and non-assessable.
(b) The Company shall at all times reserve and keep available
out of its authorized Common Stock, solely for the purpose of issue or delivery
upon conversion or exchange of the Preferred Shares as provided in the
Certificate of Designation, such number of shares of Common Stock as shall then
be issuable or deliverable upon the conversion or exchange of all outstanding
Preferred Shares. Such shares of Common Stock shall, when issued or delivered in
accordance with the Certificate of Designation, be duly and validly issued and
fully paid and non-assessable. The Company shall issue the Common Stock into
which the Preferred Shares are convertible or exchangeable upon the proper
surrender of the Preferred Shares in accordance with the provisions of the
Certificate of Designation and shall otherwise comply with the terms thereof.
8.9 Inspection.
(a) The Company will permit, and will cause each of its
Subsidiaries to permit, representatives of the Purchaser to visit and inspect
any of its properties, to examine its corporate, financial and operating records
and make copies thereof or abstracts therefrom, and to discuss its affairs,
finances and accounts with their respective officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested, upon reasonable advance notice to the
Company.
(b) The Purchaser and any Holder which is an Affiliate of the
Purchaser agrees that any confidential information relating to the Company and
its
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32
Subsidiaries obtained (i) in negotiation and execution of this Agreement, (ii)
during any inspection pursuant to Section 8.9, (iii) pursuant to Section 8.1(c)
or 8.10 or (iv) from the Company or any of its Subsidiaries or representatives
thereof which is clearly marked "Confidential" on the first or cover page
thereof (collectively, the "Information") shall be kept confidential by the
Purchaser and such Affiliate, and that they shall use their best efforts to
cause any person designated pursuant to Section 8.10 to attend meetings of the
Board of Directors to keep all Information confidential.
The term "Information" shall not include any information which (i) at
the time of disclosure or thereafter is generally available to or known by the
public (other than as a result of its disclosure by the Purchaser or such
Affiliate), (ii) was available to the Purchaser or such Affiliate on a
non-confidential basis prior to disclosure to the Purchaser or such Affiliate by
the Company, (iii) becomes available to the Purchaser or such Affiliate on a
non-confidential basis from a Person who is not to the Purchaser's or such
Affiliate's knowledge otherwise bound by a confidentiality agreement with the
Company, or (iv) has been independently developed by the Purchaser or its
Affiliates.
Notwithstanding the foregoing, the Purchaser and its Affiliates may
disclose Information to: (i) their advisors, representatives, agents, partners
or employees and (ii) any prospective transferee of the Preferred Stock or of an
interest in the Purchaser or in a successor fund sponsored by Brown Brothers
Harriman & Co. if such transferee enters into a confidentiality agreement having
substantially the same terms as this Section 8.9(b).
8.10 Board Representation.
(a) The Company shall, within 30 days after the Closing Date,
promptly cause one vacancy to be created on its Board of Directors (by
increasing the number of members of the Board of Directors or otherwise) and at
such time shall cause one person designated by the Purchaser (unless, after
customary investigation of such Person's qualifications, the Board of Directors
reasonably determines in good faith that such Person is not qualified or
acceptable under standards applied fairly and equally to all nominees) to be
selected to fill such vacancy. Such designee shall serve until the next
succeeding annual meeting of stockholders of the Company to be held after such
election.
(b) Commencing with such next succeeding annual meeting of
stockholders of the Company referred to in Section 8.10(a), so long as the
Purchaser holds 20% of the shares of Common Stock issued or issuable upon
conversion of the Preferred Shares (whether or not the Preferred Shares have
been converted) the Purchaser shall be entitled to designate (in addition to any
rights granted to the holders of Preferred Stock as set forth in the Certificate
of Designation) one director to the Company's Board of Directors and, at
relevant future annual meetings of the stockholders of the Company, a successor
to replace such director
<PAGE>
33
upon expiration of his or her term. The Company shall cause such designee of the
Purchaser (unless, after customary investigation of such Person's
qualifications, the Board of Directors reasonably determines in good faith that
such Person is not qualified or acceptable under standards applied fairly and
equally to all nominees) be included in the slate of nominees recommended by the
Board to the Company's stock holders for election as directors, and the Company
shall use its reasonable best efforts to cause the election of such designee,
including voting all shares for which the Company holds proxies (unless
otherwise directed by the stockholder submitting such proxy) or is otherwise
entitled to vote, in favor of the election of such person. Notwithstanding the
foregoing, if the Purchaser has not designated a person pursuant to Section
8.10(a), or if the Purchaser is entitled to designate a director to the
Company's Board of Directors by virtue of the first sentence of this Section
8.10(b) and the Purchaser does not designate one director to the Company's Board
of Directors, the Purchaser shall be entitled to receive all notices and
materials distributed to the members of the Board of Directors of the Company,
and to designate one person who shall be entitled to attend all meetings of the
Board of Directors and committees thereof and to receive minutes of all such
meetings upon preparation thereof.
(c) In the event such designee of the Purchaser shall cease to
serve as a director for any reason, other than by reason of the Purchaser not
being entitled to designate a designee as provided in Section 8.10(a) or
8.10(b), the Company shall use its reasonable best efforts to cause the vacancy
resulting thereby to be filled by a designee of the Purchaser.
(d) For so long as the Purchaser shall have the rights granted
pursuant to Sections 8.10(a), (b) and (c) above, the Purchaser shall have the
right (in addition to such other rights) to have a representative attend all
regular and special meetings of the Board of Directors of the Company. These
visitation rights shall include the right to receive the same notice and
materials provided to Board and committee members.
8.11 Registration and Listing. If any shares of Common Stock required
to be reserved for purposes of conversion or exchange of the Preferred Shares as
provided in the Certificate of Designation require registration with or approval
of any Governmental Authority under any Federal or state or other applicable law
before such Common Stock may be issued or delivered upon conversion or exchange,
the Company will endeavor in good faith and as expeditiously as possible to
cause such Common Stock to be duly registered or approved, as the case may be,
unless such registration or approval is required solely because of a breach of
the Purchaser's representation contained in Section 6.5. So long as the Common
Stock is quoted on the NASDAQ or listed on any national securities exchange, the
Company, if permitted by the rules of such system or exchange, will quote or
list and keep quoted or listed on such system or exchange, upon official notice
of issuance, all Common Stock issuable or deliverable upon conversion or
exchange of the Preferred Shares. In addition, at the request of the
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34
Purchaser, the Company will endeavor in good faith and as expeditiously as
practicable to obtain private placement numbers for the Preferred Shares and the
Common Stock or Subordinated Notes issued upon conversion or exchange of the
Preferred Shares, assigned by the CUSIP Service Bureau of Standard & Poors'
ratings group and make such securities PORTAL and DTC eligible.
8.12 HSR Act Filing. In connection with the first Additional Closing,
the Company shall prepare and file, and cooperate with the Purchaser so that it
may prepare and file, within five Business Days of a request by the Purchaser,
notification and report forms in compliance with the HSR Act, and shall
otherwise fully comply with the requirements of the HSR Act. The Company shall
prepare and file and use its reasonable best efforts to obtain, all other
governmental consents necessary to allow the Purchaser or its Affiliates to
purchase Additional Shares. The Company shall bear all of its own expenses and
all out-of-pocket expenses (including filing fees and reasonable attorneys'
fees, charges and expenses) of the Purchaser in connection with any such
preparation and filing.
8.13 Private Offering. In the event the Company proposes to sell Common
Stock in an offering not required to be registered under the Securities Act, it
will give the Purchaser at least 20 Business Days prior notice. If the Purchaser
elects by written notice to the Company within 15 Business Days after receipt of
such notice, it may participate in the sale (under the same terms and conditions
as set out in such offering), by including in such sale in place of an equal
number of shares of Common Stock to be sold by the Company, such aggregate
number of shares of Common Stock as is equal to the product obtained by
multiplying (i) the number of shares of Common Stock proposed to be sold by the
Company by (ii) a fraction (A) the numerator of which is the number of shares of
Common Stock into which the Preferred Shares held by the Purchaser have
heretofore been or may be converted and (B) the denominator of which is the sum
of (x) the amount of such numerator and (y) the total number of shares of Common
Stock outstanding at such time. The provisions of this Section 8.13 shall not
apply to issuances of Common Stock in connection with: (1) acquisitions by the
Company, (2) the exercise of options or conversion of convertible securities and
(3) services rendered to the Company.
8.14 Additional Registration Rights. The Company shall not provide any
registration rights with respect to its securities which are superior or
inconsistent with those granted under the Registration Rights Agreement.
<PAGE>
35
ARTICLE 9
NEGATIVE COVENANTS
The Company hereby covenants and agrees with the Purchaser and any
Affiliate of the Purchaser so long as such Person holds any shares of Preferred
Stock or Subordinated Notes, that without the prior consent of such Person in
accordance with Section 11.4:
9.1 Consolidated Net Worth. The Company's Consolidated Net Worth shall
not be less than the sum of (a) $300 million (excluding reductions caused by
pooling of interest mergers), and (b) 100% of the proceeds of the issuance of
any capital stock (excluding the Preferred Shares) by the Company or any of its
Subsidiaries to any Person from the Closing Date to the date such Consolidated
Net Worth is determined.
9.2 Consolidations and Mergers. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), except the Company may consolidate or
merge with or into, or sell all or substantially all of its assets to, any
Person if:
(a) The corporation or partnership formed by such
consolidation or surviving such merger or the Person which acquires all or
substantially all of the assets of the Company shall be (after giving effect to
such transaction) a Solvent corporation or partnership organized or formed, as
the case may be, and existing under, the laws of the United States, any state
thereof, or the District of Columbia and shall expressly assume in writing all
of the obligations of the Company under this Agreement, the Preferred Shares and
the Registration Rights Agreement;
(b) immediately after giving effect to such transaction, no
default under, or breach of, provisions of Article 8 and 9 exists;
(c) the corporation or partnership formed by or surviving any
such transaction or the Person which acquires all or substantially all of the
assets of the Company shall have a Consolidated Net Worth at least equal to the
Consolidated Net Worth of the Company immediately prior to such transaction; and
(d) the Company shall have furnished to the Holders (i) an
opinion of counsel satisfactory to a majority in interest of the Holders
addressing the matters (other than Solvency) set forth in clause (a) above and
(ii) the certificate of the Chief Financial Officer of the Company to the effect
that such transaction has been consummated in compliance with the foregoing
requirements; provided that nothing in this Section 9.2 shall affect the rights
of any Holder under this Agreement, the Preferred Shares or the Registration
Rights Agreement.
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36
9.3 Transactions with Affiliates. The Company shall not, and shall not
permit any of its Subsidiaries to, enter into any transaction with any Affiliate
of the Company or of any such Subsidiary, except on terms no less favorable to
the Company or such Subsidiary than those the Company or such Subsidiary would
obtain in a comparable arm's-length transaction with a Person not an Affiliate
of the Company or such subsidiary; provided that any transaction approved by a
majority of the independent directors of the Company shall be conclusively
deemed to be on such terms.
9.4 No Inconsistent Agreements. Neither the Company nor any of its
Subsidiaries shall enter into any loan or other agreement, or enter into any
amendment or other modification to any currently existing agreement, which by
its terms restricts or prohibits the ability of the Company to pay dividends on
the Preferred Stock, to issue Common Stock upon conversion or exchange of the
Preferred Stock in accordance with the Certificate of Designation and this
Agreement; provided, however, that the foregoing shall not prevent the Company
from entering into loan or other agreements that contain restrictions on the
ability of the company to pay dividends on the Preferred Stock either (i) during
the existence of an event of default under such agreements or (ii) if such
payment or repurchase would, although not in itself a breach of any covenant in
any such agreement, result in the occurrence of a default or event of default
arising from a breach by the Company of one or more covenants regarding the
financial condition of the Company so long as, on the date such agreement is
entered into, (x) the terms of any such covenants would not prohibit such
payment on such date and (y) the Company does not reasonably anticipate that any
of the terms of such covenants is likely to be breached during the term of such
agreement as a result of such payment of dividend.
9.5 Issuance of Preferred Stock. The Company shall not issue any
Preferred Stock except pursuant to this Agreement. If the Purchaser does not
purchase all the Additional Shares by June 30, 2000, the Company will amend the
Certificate of Designation to reduce the number of authorized Preferred Shares
to equal that amount outstanding on the date of such amendment.
ARTICLE 10
DISPOSITIONS
10.1 Dispositions by Phillips.
(a) If John D. Phillips ("Phillips") at any time or from time
to time proposes or agrees to sell or transfer to a Person or a "group" (within
the meaning of Section 13(d)(3) of the Exchange Act) of Persons, any shares of
Common Stock held by him, and so long as the Purchaser and all Holders that are
Affiliates of the Purchaser hold collectively at least five percent of the
Common Stock issued or issuable upon conversion of the Preferred Stock, Phillips
shall give written notice of such proposed sale to the Purchaser within 15
Business Days prior to the date of such
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37
sale, which notice shall state the price and other terms of the proposed
transaction and shall state the number of shares proposed to be sold; provided,
however, that the provisions of this Section 10.1(a) shall not apply to the sale
or transfer of any shares of Common Stock held by Phillips unless the sum of
such shares plus all other shares of Common Stock sold or transferred by
Phillips during the period from the Closing Date to the date of the proposed
sale or transfer of such share shall be equal to or greater than 35% of the
number of shares of Common Stock held by Phillips on the date hereof (assuming
the exercise of all options held by Phillips). So long as the Purchaser and all
Holders that are Affiliates of the Purchaser hold collectively at least five
percent of the Common Stock issued or issuable upon conversion of the Preferred
Stock the Purchaser and each such Holder may, upon giving written notice thereof
to Phillips within ten Business Days after receipt of the notice provided for in
the first sentence of this Section 10.1, participate in such sale on the same
terms and conditions as those offered by Phillips to such third party or
parties, by including in such sale in place of an equal number of shares of
Common Stock held by Phillips (excluding any shares with respect to which the
provisions of this Section 10.1(a) shall not apply in accordance with the
preceding sentence hereof) such aggregate number of shares of Common Stock as is
equal to the product obtained by multiplying (i) the number of shares of Common
Stock proposed to by sold by Phillips by (ii) a fraction (A) the numerator of
which is the number of shares of Common Stock into which the Preferred Shares
held by the Purchaser and each such Holder have theretofore been converted or
exchanged or may be converted and (B) the denominator of which is the sum of (x)
the amount of such numerator and (y) 1,542,340 (which number shall be adjusted
appropriately for any subdivision, combination, reclassification or similar
event with respect to the Common Stock).
(b) Notwithstanding anything to the contrary in this
Agreement, including, without limitation, Section 10.1(a) hereof, the provisions
of this Section 10.1 shall not apply to any sale or transfer by Phillips of any
part of his shares of Common Stock (i) to (A) a spouse, (B) any of his lineal
descendants, (C) a partnership or trust set up for the benefit of one or more of
such persons or (D) any entity controlled by Phillips; provided, however, that
any proposed sale or transfer by any of such transferees shall be deemed to be a
sale or transfer by Phillips for purposes of this Section 10.1, or (ii) pursuant
to a transaction intended to be a charitable contribution.
(c) The provisions of this Section 10.1 shall terminate upon
the death or disability of Phillips or if Phillips is no longer either an
officer or director of the Company. The term "disability" shall mean, with
respect to Phillips, that due to physical or mental infirmity, whether total or
partial, Phillips is permanently unable to perform his usual duties for the
Company.
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38
10.2 Dispositions by the Purchaser.
(a) Except as set forth below, until the earlier to occur of
(i) the second anniversary of the Closing Date, (ii) the date on which the
Purchaser and all Holders that are Affiliates of the Purchaser collectively
cease to own at least five percent of the Common Stock issued or issuable upon
conversion of the Preferred Stock, (iii) the occurrence of a Change of Control
and (iv) the occurrence of a breach with respect to any of the covenants set
forth in Sections 8.8, 8.9, 8.10, 8.11, 8.13 and 8.14 and Article 9 ,which
breach remains uncured ten Business Days after written notice is provided to the
Company (the "Transfer Restriction Period"), the Purchaser shall not transfer
its Common Stock or Preferred Shares.
(b) During the Transfer Restriction Period, if the Purchaser
shall desire to sell or otherwise transfer more than 50% of its Common Stock or
Preferred Shares pursuant to the provisions of Rule 144A (or any successor rule
promulgated under the Securities Act) or in any other transaction, other than
pursuant to the provisions of Rule 144 (or any successor rule promulgated under
the Securities Act), not constituting a public offering, the Purchaser shall
give the Company written notice of its desire to sell such securities,
specifying the number of such securities the Purchaser desires to sell and the
price at, and the terms and conditions on, which the Purchaser desires to sell
such securities, and offering to sell such securities to the Company at such
price and on such terms and conditions. If, within ten Business Days of
receiving such notice, the Company does not accept such offer in writing, the
Purchaser shall be free for a period of 40 Business Days to sell such securities
to any Person at a price not less than 95% of the price offered to the Company,
and on terms and conditions substantially equivalent to those offered to the
Company. If the Purchaser does not sell such securities subject to such notice
within such 40 Business Day period, the Purchaser may not thereafter sell or
transfer such securities without again complying with the provisions of the
first sentence of this Section 10.2(b). If the Company accepts such offer within
the time period specified in the preceding sentence, then the Company shall
purchase the securities specified in such notice as promptly as is reasonably
practicable, but in no event later than 20 Business Days following such
acceptance. If after such acceptance the Company for whatever reason fails to
purchase securities on or prior to the date specified in the preceding sentence,
the Purchaser may, among other remedies available to it, sell such securities to
any Person at any price and on any terms.
(c) Notwithstanding anything in this Section 10.2 to the
contrary, the Purchaser may, at any time and from time to time, sell or
otherwise transfer Common Stock or Preferred Shares (i) pursuant to an exchange
offer or a tender offer not opposed by a majority of the Company's Board of
Directors, (ii) pursuant to any all cash tender offer made by any Person for all
of the issued and outstanding Common Stock, (iii) pursuant to the Registration
Rights Agreement, or (iv) to any of the Purchaser's Affiliates, or (v) to the
Purchaser's limited partners pursuant to a pro rata distribution; provided,
however, that any Affiliates (or limited
<PAGE>
39
partners) of the Purchaser to which such securities are transferred shall agree
to be bound by all of the transfer restrictions set forth in this Section 10.2.
(d) Except as otherwise provided in Section 10.2(c), any
securities transferred by the Purchaser shall not thereafter be subject to the
provisions of this Section 10.2.
ARTICLE 11
MISCELLANEOUS
11.1 Survival of Provisions. All warranties, representations and
covenants made by the Company in or under this Agreement shall be considered to
have been relied upon by the Purchaser and shall survive the execution and
delivery of this Agreement and the issuance to the Purchaser of the Preferred
Shares, regardless of any investigation made by the Purchaser or on its behalf.
All warranties, representations and covenants made by the Purchaser or on its
behalf shall survive the execution and delivery of this Agreement and the
issuance to the Purchaser of the Preferred Shares. Except as otherwise set forth
in Article 8 or 9, all of the representations and warranties made herein and
each of the provisions of Articles 5, 6, 7 and 11 shall survive the execution
and delivery of this Agreement, any investigation by or on behalf of the
Purchaser or any Affiliate, acceptance of the Preferred Shares and payment
therefor, payment or prepayment of the Preferred Shares upon redemption or
otherwise, conversion or exchange of the Preferred Shares or termination of this
Agreement; provided that the representations and warranties set forth in
Articles 5 and 6 shall expire and terminate upon the conversion or exchange of
all of the Preferred Stock into or for Common Stock.
11.2 Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to the Purchaser at the following address:
The 1818 Fund III, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Telecopier No.: (212) 493-8429
Attention: Lawrence C. Tucker
<PAGE>
40
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Marilyn Sobel, Esq.
(b) if to the Company at the following address:
World Access, Inc.
Suite 2240
945 East Paces Ferry Road
Atlanta, Georgia 30326
Telecopier No.: (404) 233-2280
Attention: John D. Phillips
with a copy to:
Long, Aldridge & Norman, LLP
One Peachtree Center, Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Telecopier No.: (404) 527-4198
Attention: H. Franklin Layson, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
11.3 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the parties
hereto. The Purchaser may assign any of its rights under this Agreement only to
any of its Affiliates; provided that any such Affiliate (including any limited
partner) agrees to be bound by the provisions in this Agreement. The Company may
not assign any of its rights under this Agreement without the written consent of
the Purchaser. Except as provided in Article 7, no Person other than the parties
hereto is intended to be a beneficiary of this Agreement, the Preferred Shares
or the Registration Rights Agreement. Nothing in this Section 11.3 shall
prohibit the Purchaser from transferring its Common Stock, Preferred Stock or
Subordinated Notes to any person nor shall anything in this Section affect any
Holder's rights under the Registration Rights Agreement.
<PAGE>
41
11.4 Amendment and Waiver. No failure or delay on the part of the
Company or the Purchaser in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Purchaser at law, in equity or otherwise. Any
amendment, supplement, modification or termination of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company from the terms of any provision of this
Agreement, shall be effective only in the specific instance and for the specific
purpose for which made or given and shall be effective only when signed in
writing by or on behalf of holders of at least 50% of the Common Stock issued
and issuable upon conversion of the Preferred Shares (whether or not converted)
(it being understood that the terms of this Agreement may be waived or amended
with the written consent of holders of at least 50% of the Common Stock issued
and issuable upon conversion of the Preferred Shares (whether or not converted).
Except where notice is specifically required by this Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
11.5 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.
11.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
11.7 Determinations. Except where any provision expressly requires that
a determination be reasonable or a consent not be unreasonably withheld, or be
subject to qualifications to similar effect, all determinations to be made by
the Company, the Purchaser or any Holder hereunder in its opinion or judgment or
with its approval or otherwise shall be made by it in its sole discretion.
11.8 Governing Law. This Agreement has been negotiated, executed and
delivered in the State of New York and shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
11.9 Jurisdiction. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby shall be brought
only in the courts of the State of New York located in New York City or of the
United States of America for the Southern District of New York and hereby
expressly submits to the personal jurisdiction and venue of such courts for the
purposes thereof and expressly waives any claim of improper venue and any claim
that such courts are an
<PAGE>
42
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 11.2, such service to
become effective 10 days after such mailing.
11.10 Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
11.11 Rules of Construction. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
11.12 Remedies. If a breach of this Agreement or the Certificate of
Designation by the Company occurs and is continuing, any Holder may pursue any
available remedy by proceeding at law or in equity to enforce the performance
(including, without limitation, the specific performance) of any provision of
this Agreement or the Certificate of Designation. A Holder may maintain a
proceeding even if it does not possess any of the Preferred Shares or does not
produce any of them in the proceeding. Except as otherwise provided by law, a
delay or omission by any Holder in exercising any right or remedy accruing upon
any such breach shall not impair the right or remedy or constitute a waiver of
or acquiescence in any such breach. No remedy is exclusive of any other remedy.
All available remedies are cumulative.
11.13 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, the Certificate of Designation and the Registration Rights
Agreement, is intended by the parties as a final expression of their agreement
and 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. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits and schedules hereto, the Certificate of
Designation, the Registration Rights Agreement supersede all prior agreements
and understandings between the parties with respect to such subject matter.
11.14 Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, the Certificate of Designation or the
Registration Rights Agreement or any other document or instrument contemplated
hereby or thereby, or where any provision hereof or thereof is validly asserted
as a defense, the
<PAGE>
43
successful party shall be entitled to recover reasonable attorneys' fees,
charges and disbursements in addition to any other available remedy.
11.15 Publicity. Except as may be required by applicable law, neither
party hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval by the other party hereto. If any announcement is
required by law to be made by either party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
party and shall give the other party an opportunity to comment thereon.
11.16 Expenses. The company acknowledges and agrees that whether or not
the transactions contemplated hereby are consummated, the Company shall
reimburse the Purchaser for all (i) reasonable out-of-pocket expenses and all
consulting and legal fees and expenses and other charges of the Purchaser in
connection with the negotiation, execution and delivery of this Agreement, the
Preferred Shares and the Registration Rights Agreement (including, without
limitation, all fees, disbursements and related charges of Paul, Weiss, Rifkind,
Wharton & Garrison) and (ii) reasonable out-of pocket expenses for attendance at
meetings of the Board of Directors of the Company by the Purchaser's Director
and any representative. The Company agrees that it will make such reimbursements
as such fees and expenses are incurred, upon request from the Purchaser.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective representatives hereunto duly
authorized as of the date first above written.
WORLD ACCESS, INC.
By: _________________________
Name: John D. Phillips
Title: CEO
THE 1818 FUND III, L.P.
By: Brown Brothers Harriman & Co.,
General Partner
By: _________________________
Name: Lawrence C. Tucker
Title: Partner
<PAGE>
44
The undersigned hereby agrees to be
bound by and perform in accordance
with Section 10.1 of this Agreement.
_________________________
John D. Phillips
WORLD ACCESS, INC.
CERTIFICATE OF DESIGNATION OF
4.25% CUMULATIVE SENIOR PERPETUAL CONVERTIBLE
PREFERRED STOCK, SERIES A, SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS OF SUCH SERIES OF PREFERRED STOCK
Pursuant to Section 151 of the Delaware General Corporation Law, World
Access, Inc., a Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Corporation by the Certificate of Incorporation of the Corporation (the
"Charter"), the Board of Directors of the Corporation on April 16, 1999 duly
adopted the following resolution creating a series of Preferred Stock designated
as 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A, and
such resolution has not been modified and is in full force and effect on the
date hereof:
RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the Charter, a
series of the class of authorized Preferred Stock, par value $0.01 per share, of
the Corporation is hereby created and that the designation and number of shares
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof are as follows:
Section 1. Designation and Number.
(a) The shares of such series shall be designated as 4.25% Cumulative
Senior Perpetual Convertible Preferred Stock, Series A (the "Preferred Stock").
The number of shares initially constituting the Preferred Stock shall be 70,000,
which number may be decreased (but not increased) by the Board of Directors
without a vote of stockholders; provided, however, that such number may not be
decreased below the number of then outstanding shares of Preferred Stock or
shares of Preferred Stock which may be issued pursuant to the Stock Purchase
Agreement.
(b) The Preferred Stock shall, with respect to dividend rights and
rights on liquidation, dissolution or winding up, rank prior to all other
classes and series of Junior Stock (as defined below) of the Corporation now or
hereafter authorized including, without limitation, the Common Stock.
(c) Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in Section 12 below.
<PAGE>
2
Section 2. Dividends and Distributions.
(a) The holders of shares of Preferred Stock, in preference to the
holders of shares of Common Stock and of any shares of other Junior Stock of the
Corporation, shall be entitled to receive, when, as and if declared by the Board
of Directors, out of the assets of the Corporation legally available therefor,
cumulative cash dividends at an annual rate on the Liquidation Preference
thereof equal to (x) 4.25% or (y) if a Change of Control occurs on or prior to
April 21, 2001, then upon such Change of Control and at all times thereafter,
15% ("Higher Dividend Rate"), in each case, calculated on the basis of a 360-day
year consisting of twelve 30-day months, accruing and payable in equal quarterly
payments, in immediately available funds, on the last day of March, June,
September and December or, if any such day is not a Business Day, the next
succeeding Business Day, in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date"), commencing June 30, 1999; provided,
however, that with respect to such first Quarterly Dividend Payment Date, the
holders of shares of Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors, out of the assets of the Corporation
legally available therefor, a cumulative cash dividend in respect of each share
of Preferred Stock in the amount of (i) $10.625, multiplied by (ii) a fraction
equal to (A) the number of days from (and including) the Issue Date to (but
excluding) such Quarterly Dividend Payment Date divided by (B) 90; and provided
further that the Higher Dividend Rate shall not be applied if, as of the date
the Change of Control occurs, the Purchaser's internal rate of return ("IRR")
(calculated as set forth below) as of such date (assuming for this purpose that
the Change of Control has been completed) equals or exceeds 25% per annum.
The Purchaser's IRR shall be calculated using the Microsoft Excel
"XIRR" function (or, if that is not available, a similar computer program
selected by the Purchaser). Such IRR shall take into account the timing and
amount of all cash or non-cash items received by the Purchaser with respect to
dividends or other distributions on shares of the Preferred Stock and the Per
Share Equity Value of the Common Stock held by the Purchaser (assuming that all
of the Purchaser's shares of Preferred Stock are converted into Common Stock and
the Change of Control is simultaneously occurring). The amount of non-cash items
shall be the Fair Market Value of such items, as determined by a nationally
recognized investment banking firm chosen by the holders of at least 51% of the
outstanding shares of Preferred Stock and the Corporation (at the Corporation's
expense).
(b) If as of any Quarterly Dividend Payment Date there is a Dividend
Arrearage (as hereinafter defined), an additional dividend (the "Additional
Dividend") shall accrue on each share of the Preferred Stock for the period from
such Quarterly Dividend Payment Date through the earlier of (x) the date on
which such Dividend Arrearage is paid in full and (y) the next succeeding
Quarterly Dividend Date, in an amount equal to the product of (i) the dividend
rate (calculated for such period in accordance with Section 2(a)) and (ii) the
amount of such Dividend
<PAGE>
3
Arrearage as of such Quarterly Dividend Payment Date. For purposes of this
Section 2(b), "Dividend Arrearage" shall mean, with respect to each share of
Preferred Stock, as of any Quarterly Dividend Payment Date, the excess, if any
of (i) the sum of all dividends theretofore accrued on such share in accordance
with Section 2(a) (including those accrued as of and including such Quarterly
Dividend Date) plus all Additional Dividends, if any, theretofore accrued on
such share in accordance with this Section 2(b) (including those accrued as of
and including such Quarterly Dividend Date), over (ii) all dividends actually
paid with respect to such share on or before such Quarterly Dividend Payment
Date. Except as provided in this Section 2(b) no dividend shall accrue and no
other sums shall be payable with respect to any Dividend Arrearage.
(c) Dividends payable pursuant to Section 2(a) shall begin to accrue
and be cumulative from the Issue Date, and shall accrue on a daily basis, in
each case whether or not declared. Dividends paid on the shares of Preferred
Stock in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares of Preferred Stock at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Preferred Stock entitled to receive payment of a
dividend declared thereon, which record date shall be no more than 60 days or
less than 10 days prior to the date fixed for the payment thereof. Accumulated
but unpaid dividends for any past quarterly dividend periods may be declared and
paid at any time, without reference to any regular Quarterly Dividend Payment
Date, to holders of record on such date, not more than 60 nor less than 10 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(d) In addition to the dividends or distributions on the Preferred
Stock described in Section 2(a), in the event that the Corporation shall declare
a dividend or make any other distribution (including, without limitation, in
cash, in capital stock (which shall include, without limitation, any options,
warrants or other rights to acquire capital stock) of the Corporation, whether
or not pursuant to a shareholder rights plan, "poison pill" or similar
arrangement, or other property or assets) to holders of Common Stock, then the
Board of Directors shall declare, and the holder of each share of Preferred
Stock shall be entitled to receive, a dividend or distribution in an amount
equal to the amount of such dividend or distribution received by a holder of the
number of shares of Common Stock for which such share of Preferred Stock is
convertible on the record date for such dividend or distribution. Any such
amount shall be paid to the holders of shares of Preferred Stock at the same
time such dividend or distribution is made to holders of Common Stock.
(e) The holders of shares of Preferred Stock shall not be entitled to
receive any dividends or other distributions except as provided herein.
<PAGE>
4
Section 3. Voting Rights.
In addition to any voting rights provided by law, the holders of shares
of Preferred Stock shall have the following voting rights:
(a) So long as the Preferred Stock is outstanding, each share of
Preferred Stock shall entitle the holder thereof to vote, in person or by proxy,
at a special or annual meeting of stockholders, on all matters voted on by
holders of Common Stock voting together as a single class with other shares
entitled to vote thereon. With respect to any such vote, each share of Preferred
Stock shall entitle the holder thereof to cast that number of votes per share as
is equal to the number of votes that such holder would be entitled to cast had
such holder converted his shares of Preferred Stock into Common Stock on the
record date for determining the stockholders of the Corporation eligible to vote
on any such matters.
(b) Unless the consent or approval of a greater number of shares shall
then be required by law, the affirmative vote of the holders of at least 66-2/3%
of the outstanding shares of Preferred Stock, voting separately as a single
class, in person or by proxy, at a special or annual meeting of stockholders
called for the purpose, shall be necessary to:
(i) authorize, increase the authorized number of shares of, or
issue (including on conversion or exchange of any convertible or exchangeable
securities or by reclassification), any shares of any class or classes of Senior
Stock or Parity Stock;
(ii) authorize, increase the authorized number of shares of,
or issue any shares of any class of capital stock of the Corporation having an
optional or mandatory redemption date earlier than April 21, 2004 or amend the
terms of any class of capital stock of the Corporation to provide that such
class of capital stock has an optional or mandatory redemption date earlier than
April 21, 2004;
(iii) authorize, adopt or approve an amendment to the Charter
that would increase or decrease the par value of the shares of Preferred Stock,
or alter or change the powers, preferences or special rights of the shares of
Preferred Stock, other Parity Stock or Senior Stock;
(iv) amend or alter the Charter so as to affect the shares of
Preferred Stock adversely, including, without limitation, by granting any voting
right to any holder of notes, bonds, debentures or other debt obligations of the
Corporation or by reclassifying any capital stock into Senior Stock or Parity
Stock;
(v) authorize or issue any security convertible into,
exchangeable for or evidencing the right to purchase or otherwise receive any
shares of any class or classes of Senior Stock or Parity Stock; and
<PAGE>
5
(vi) effect the voluntary liquidation, dissolution, winding
up, recapitalization or reorganization of the Corporation, or the consolidation
or merger of the Corporation with or into any other Person (except a
wholly-owned subsidiary of the Corporation), or the sale or other distribution
to another Person of all or substantially all of the assets of the Corporation;
provided, however, that no separate vote of the holders of the Preferred Stock
as a class shall be required in the case of a recapitalization, reorganization,
consolidation or merger of the Corporation if:
(A) the resulting or surviving corporation will have
after such recapitalization, reorganization, consolidation or merger no Senior
Stock or Parity Stock either authorized or outstanding (except such Senior Stock
or Parity Stock of the Corporation as may have been authorized or outstanding
immediately preceding such consolidation or merger, or such stock of the
resulting or surviving corporation (having the same powers, preferences and
special rights of any such Senior Stock or Parity Stock) as may be issued in
exchange therefor),
(B) each holder of shares of Preferred Stock
immediately preceding such recapitalization, reorganization, consolidation or
merger will receive in exchange therefor the same number of shares of stock,
with the same preferences, rights and powers, of the resulting or surviving
corporation, and
(C) after such recapitalization, reorganization,
consolidation or merger the resulting or surviving corporation shall not be in
breach of any of the terms hereof or of Section 8.8, 8.9, 8.10, 8.11, 8.13 or
8.14, or Article 9 of the Stock Purchase Agreement.
(c) If on any date (i) the Corporation shall have failed to declare, or
shall have failed to pay, the full amount of dividends payable on the Preferred
Stock pursuant to Section 2(a) hereof for two quarterly dividend periods
(whether consecutive or not), or (ii) the Corporation shall have failed to
satisfy its obligation to convert or exchange shares of Preferred Stock pursuant
to Section 8, 10 or 11 or (iii) a breach of any of Section 8.8, 8.9, 8.10, 8.11,
8.13 or 8.14 or Article 9 of the Stock Purchase Agreement shall have occurred
and been continuing for a period of at least 30 days after written notice of
such breach has been delivered to the Corporation by any Holder of shares of
Preferred Stock, then the number of directors constituting the Board of
Directors shall, without further action, be increased by one and the holders of
shares of Preferred Stock shall have, in addition to the other voting rights set
forth herein, the exclusive right, voting separately as a single class, to elect
a director of the Corporation to fill such newly created directorship, by
written consent as provided herein, or at a special meeting of such holders
called as provided herein. Any such additional director shall continue as a
director (subject to reelection or removal as provided in Section 3(d)(ii)) and
the holders of Preferred Stock shall have such additional voting rights until
such time as (A) dividends then payable on the Preferred Stock shall have been
declared and paid in full or (B) any conversion or exchange obligation provided
in Section 8, 10 or 11 that has become due shall have
<PAGE>
6
been satisfied or all necessary funds have been set aside for payment or there
shall exist no breach of any of Section 8.8, 8.9, 8.10, 8.11, 8.13 or 8.14 or
Article 9 of the Stock Purchase Agreement, as the case may be, at which time
such additional director shall cease to be a director and such additional voting
rights of the holders of Preferred Stock shall terminate subject to revesting in
the event of each and every subsequent event of the character indicated above.
(d) (i) The foregoing right of holders of shares of Preferred Stock to
take any action as provided in Section 3(c) may be exercised at any annual
meeting of stockholders or at a special meeting of holders of shares of
Preferred Stock held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary of
the Corporation, of the holders of the minimum number of shares required to take
such action.
So long as such right to vote continues (and unless such right
has been exercised by written consent of the minimum number of shares required
to take such action), the President of the Corporation may call, and upon the
written request of holders of record of at least 5% of the outstanding shares of
Preferred Stock, addressed to the Secretary of the Corporation at the principal
office of the Corporation, shall call, a special meeting of the holders of
shares entitled to vote as provided herein. Such meeting shall be held within 30
days after delivery of such request to the Secretary, at the place and upon the
notice provided by law and in the by-laws of the Corporation for the holding of
meetings of stockholders.
(ii) At each meeting of stockholders at which the holders of
shares of Preferred Stock shall have the right, voting separately as a single
class, to elect one director of the Corporation as provided in Section 3(c) or
to take any other action, the presence in person or by proxy of the holders of
record of one-third of the total number of shares of Preferred Stock then
outstanding and entitled to vote on the matter shall be necessary and sufficient
to constitute a quorum of such holders. At any such meeting or at any
adjournment thereof:
(A) the absence of a quorum of the holders of shares
of Preferred Stock shall not prevent the election of directors other than those
to be elected by the holders of shares of Preferred Stock (voting separately as
a single class), and the absence of a quorum of the holders of shares of any
other class or series of capital stock shall not prevent the election of
directors to be elected by the holders of shares of Preferred Stock, or the
taking of any action as provided in this Section 3; and
(B) in the absence of a quorum of the holders of
shares of Preferred Stock, a majority of the holders of such shares present in
person or by proxy shall have the power to adjourn the meeting as to the actions
to be taken by the holders of shares of Preferred Stock from time to time and
place to place
<PAGE>
7
without notice other than announcement at the meeting until a quorum shall be
present.
For taking of any action as provided in Section 3(b) or Section 3(c) by
the holders of shares of Preferred Stock, each such holder shall have one vote
for each share of such stock standing in his name on the transfer books of the
Corporation as of any record date fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice is waived, at the close of business on the
Business Day next preceding the day on which the meeting is held; provided,
however, that shares of Preferred Stock held by the Corporation or any Affiliate
of the Corporation shall not be deemed to be outstanding for purposes of taking
any action as provided in this Section 3.
Each director elected by the holders of shares of Preferred Stock as
provided in Section 3(c) shall, unless his term shall expire earlier in
accordance with the provisions thereof, hold office until the annual meeting of
stockholders next succeeding his election or until his successor, if any, is
elected and qualified.
If any director so elected by the holders of Preferred Stock shall
cease to serve as a director before his term shall expire (except by reason of
the termination of the voting rights accorded to the holders of Preferred Stock
in accordance with Section 3(c)), the holders of the Preferred Stock then
outstanding and entitled to vote for such director may, by written consent as
provided herein, or at a special meeting of such holders called as provided
herein, elect a successor to hold office for the unexpired term of the director
whose place shall be vacant.
Any director elected by the holders of shares of Preferred Stock voting
separately as a single class may be removed from office with or without cause by
the vote or written consent of the holders of at least a majority of the
outstanding shares of Preferred Stock, at the time of removal. A special meeting
of the holders of shares of Preferred Stock may be called in accordance with the
procedures set forth in Section 3(d)(i).
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends payable on shares of Preferred Stock
as provided in Section 2 are not paid in full, at such time and thereafter until
all unpaid dividends payable, whether or not declared, on the outstanding shares
of Preferred Stock shall have been paid in full or declared and set apart for
payment, or whenever the Corporation shall not have converted or exchanged
shares of Preferred Stock at a time required by Section 8, 10 or 11, at such
time and thereafter until all conversion and exchange obligations provided in
Section 8, 10 or 11 that have come due shall have been satisfied or all
necessary funds have been set apart for payment, the Corporation shall not: (A)
declare or pay dividends, or make any other distribu-
<PAGE>
8
tions, on any shares of Junior Stock or (B) declare or pay dividends, or make
any other distributions, on any shares of Parity Stock, except dividends or
distributions paid ratably on the Preferred Stock and all Parity Stock on which
dividends are payable or in arrears, in proportion to the total amounts to which
the holders of all shares of the Preferred Stock and such Parity Stock are then
entitled.
(b) Whenever dividends payable on shares of Preferred Stock as provided
in Section 2(a) are not paid in full, at such time and thereafter until all
unpaid dividends payable, whether or not declared, on the outstanding shares of
Preferred Stock shall have been paid in full or declared and set apart for
payment, or whenever the Corporation shall not have converted or exchanged
shares of Preferred Stock at a time required by Section 8, 10 or 11, at such
time and thereafter until all conversion and exchange obligations provided in
Section 8, 10 or 11 that have come due shall have been satisfied or all
necessary funds have been set apart for payment, the Corporation shall not
redeem, purchase or otherwise acquire for consideration any shares of Junior
Stock or Parity Stock; provided, however, that (A) the Corporation may accept
shares of any Senior Stock, Parity Stock or Junior Stock for conversion into
Junior Stock and (B) the Corporation may at any time redeem, purchase or
otherwise acquire shares of any Parity Stock pursuant to any mandatory
redemption, put, sinking fund or other similar obligation contained in such
Parity Stock, pro rata with the Preferred Stock in proportion to the total
amount then required to be applied by the Corporation to redeem, repurchase,
convert, exchange or otherwise acquire shares of Preferred Stock and shares of
such Parity Stock.
(c) The Corporation shall not permit any Subsidiary of the Corporation,
or cause any other Person, to purchase or otherwise acquire for consideration
any shares of capital stock of the Corporation unless the Corporation could,
pursuant to Section 4(b), purchase such shares at such time and in such manner.
Section 5. Redemption.
(a) Except as otherwise set forth in this Section 5, the Corporation
shall not have any right to redeem any shares of Preferred Stock prior to April
21, 2003. On and after April 21, 2003, or in connection with any Change in
Control, which occurs on or before April 21, 2001, the Corporation shall have
the right, at its sole option and election, to redeem the shares of Preferred
Stock, in whole but not in part, on not less than 30 days notice of the date of
redemption (any such date an "Optional Redemption Date") at a price per share
(the "Optional Redemption Price") equal to (A) the Liquidation Preference plus
(B) an amount per share equal to all accrued and unpaid dividends thereon,
whether or not declared or payable, to the applicable Optional Redemption Date,
in immediately available funds, provided, however, that, notwithstanding the
foregoing provisions, in the event of any redemption upon such Change of
Control, the Optional Redemption Price per share shall be equal to (A) 125% of
the Liquidation Preference plus (B) an amount per
<PAGE>
9
share equal to all accrued and unpaid dividends thereon, whether or not declared
or payable, to the applicable Optional Redemption Date, in immediately available
funds.
(b) Notice of any redemption of shares of Preferred Stock pursuant to
Section 5(a) shall be given by publication in a newspaper of general circulation
in the Borough of Manhattan, The City of New York (if such publication shall be
required by applicable law, rule, regulation or securities exchange
requirement), not less than 30, nor more than 60, days prior to the date fixed
for redemption. In any case, a similar notice shall be mailed at least 30, but
not more than 60, days prior to the date fixed for redemption to each holder of
shares of Preferred Stock to be redeemed, at such holder's address as it appears
on the transfer books of the Corporation. In order to facilitate the redemption
of shares of Preferred Stock, the Board of Directors may fix a record date for
the determination of shares of Preferred Stock to be redeemed, or may cause the
transfer books of the Corporation for the Preferred Stock to be closed, not more
than 60 days or less than 30 days prior to the date fixed for such redemption.
(c) At any time after a notice of redemption shall have been mailed and
before the Optional Redemption Date, the Corporation shall deposit for the
benefit of the holders of shares of Preferred Stock to be redeemed the funds
necessary for such redemption with a bank or trust company in the Borough of
Manhattan. The City of New York, having a capital and surplus of at least
$500,000,000. Any moneys so deposited by the Corporation and unclaimed at the
end of two years from the date designated for such redemption shall revert to
the general funds of the Corporation. After such reversion, any such bank or
trust company, upon demand, shall pay over to the Corporation such unclaimed
amounts and thereupon such bank or trust company shall be relieved of all
responsibility in respect thereof and any holder of shares of Preferred Stock to
be redeemed shall look only to the Corporation for the payment of the Optional
Redemption Price. In the event that moneys are deposited pursuant to this
Section 5(c) in respect of shares of Preferred Stock that are converted in
accordance with the provisions of Section 8, such moneys shall, upon such
conversion, revert to the general funds of the Corporation and, upon demand,
such bank or trust company shall pay over to the Corporation such moneys and
shall be relieved of all responsibilities to the holders of such converted
shares in respect thereof. Any interest accrued on funds deposited pursuant to
this Section 5(c) shall be paid from time to time to the Corporation for its own
account.
(d) Notice of redemption having been given as aforesaid, upon the
deposit of funds pursuant to Section 5(c) in respect of shares of Preferred
Stock to be redeemed pursuant to Section 5(a), notwithstanding that any
certificates for such shares shall not have been surrendered for cancellation,
from and after the date of redemption designated in the notice of redemption (i)
the shares represented thereby shall no longer be deemed outstanding, (ii) the
rights to receive dividends thereon shall cease to accrue and (iii) all rights
of the holders of shares of Preferred Stock to be redeemed shall cease and
terminate, excepting only the right to receive the
<PAGE>
10
Optional Redemption Price therefor and the right to convert such shares into
shares of Common Stock until the close of business on the date of redemption, in
accordance with Section 8; provided, however, that if the Corporation shall
default in the pay ment of the Optional Redemption Price, the shares of
Preferred Stock that were to be redeemed shall thereafter be deemed to be
outstanding and the holders thereof shall have all of the rights of a holder of
Preferred Stock until such time as such default shall no longer be continuing or
shall have been waived by holders of at least 66-2/3% of the then outstanding
shares of Preferred Stock.
Section 6. Reacquired Shares.
Any shares of Preferred Stock converted, exchanged, redeemed, purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares of
Preferred Stock shall upon their cancellation become authorized but unissued
shares of preferred stock, par value $.01 per share, of the Corporation and,
upon the filing of an appropriate Certificate of Designation with the Secretary
of State of the State of Delaware, may be reissued as part of another series of
preferred stock, par value $.01 per share, of the Corporation subject to the
conditions or restrictions on issuance set forth therein, but in any event may
not be reissued as shares of Preferred Stock or other Parity Stock unless all
shares of the Preferred Stock issued on the Issue Date shall have already been
redeemed, converted or exchanged.
Section 7. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary case under the United
States bankruptcy laws or any applicable bankruptcy, insolvency or similar law
of any other country, or consent to the entry of an order for relief in an
involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due (any such event, a
"Voluntary Liquidation Event"), or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of any
such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, no distribution
shall be made:
(i) to the holders of shares of Junior Stock unless, prior
thereto, the holders of shares of Preferred Stock, subject to Section 8, shall
have received (A) if a Voluntary Liquidation Event shall have occurred, the
Optional
<PAGE>
11
Redemption Price with respect to each share and (B) if a Voluntary Liquidation
Event shall not have occurred, the Liquidation Preference, plus all accrued and
unpaid dividends, whether or not declared or currently payable, to the date of
distribution, with respect to each share, or
(ii) to the holders of shares of Parity Stock, except
distributions made ratably on the Preferred Stock and all other Parity Stock in
propor tion to the total amounts to which the Holders of all shares of the
Preferred Stock and other Parity Stock are entitled upon such liquidation,
dissolution or winding up.
Nothing in this section shall affect the rights of Holders of shares of
Preferred Stock under Section 3 with respect to a Voluntary Liquidation Event.
(b) Neither the consolidation or merger of the Corporation with or into
any other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation, in each
case when permitted by Section 3(b), shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Section 7.
Section 8. Voluntary Conversion.
(a) Any holder of Preferred Stock shall have the right, at its option,
at any time and from time to time, to convert, subject to the terms and
provisions of this Section 8, any or all of such holder's shares of Preferred
Stock into such number of fully paid and non-assessable shares of Common Stock
as is equal, subject to Section 8(g), to the product of the number of shares of
Preferred Stock being so converted multiplied by the quotient of (i) the
Liquidation Preference divided by (ii) the Conversion Price (as defined below)
then in effect, except that with respect to any shares which shall be called for
exchange or redemption, such right shall terminate at the close of business on
the date of exchange or redemption for such shares, unless in any such case the
Corporation shall default in performance or payment due upon exchange or
redemption thereof. The Conversion Price shall be $11.50, subject to adjustment
as set forth in Section 8(d). Such conversion right shall be exercised by the
surrender of the shares to be converted to the Corporation at any time during
usual business hours at its principal place of business to be maintained by it,
accompanied by written notice that the holder elects to convert such Shares and,
subject to Section 8(k), specifying the name or names (with address) in which a
certificate or certificates for shares of Common Stock are to be issued and (if
so required by the Corporation) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Corporation duly executed by the
holder or its duly authorized legal representative and transfer tax stamps or
funds therefor, if required pursuant to Section 8(k). All shares of Preferred
Stock surrendered for conversion shall be delivered to the Corporation for
cancellation and canceled by it and no shares of Preferred Stock shall be issued
in lieu thereof.
<PAGE>
12
(b) As promptly as practicable after the surrender, as herein provided,
of any shares of Preferred Stock for conversion pursuant to Section 8(a), the
Corporation shall deliver to or upon the written order of the holder of such
shares so surrendered a certificate or certificates representing the number of
fully paid and non-assessable shares of Common Stock into which such shares of
Preferred Stock have been converted in accordance with the provisions of this
Section 8. Subject to the following provisions of this paragraph and of Section
8(d), such conversion shall be deemed to have been made immediately prior to the
close of business on the date that such shares of Preferred Stock shall have
been surrendered in satisfactory form for conversion, and the Person or Persons
entitled to receive the Common Stock deliverable upon conversion of such shares
of Preferred Stock shall be treated for all purposes as having become the record
holder or holders of such Common Stock at such time, and such conversion shall
be at the Conversion Price in effect at such time; provided, however, that no
surrender shall be effective to constitute the Person or Persons entitled to
receive the Common Stock deliverable upon such conversion as the record holder
or holders of such Common Stock while the share transfer books of the
Corporation shall be closed (but not for any period in excess of five days), but
such surrender shall be effective to constitute the Person or Persons entitled
to receive such Common Stock as the record holder or holders thereof for all
purposes immediately prior to the close of business on the next succeeding day
on which such share transfer books are open, and such conversion shall be deemed
to have been made at, and shall be made at the Conversion Price in effect at,
such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Preferred Stock are
converted, all dividends accrued and unpaid (whether or not declared or
currently payable) on the Preferred Stock so converted to the date of conversion
shall be immediately due and payable and must accompany the shares of Common
Stock issued upon such conversion.
(d) The Conversion Price (and the price at which a share of Common
Stock is valued pursuant to Section 10(a) or Section 11) shall be subject to
adjustment as follows:
(i) In case the Corporation shall at any time or from time to
time (A) pay a dividend or make a distribution (other than a dividend or
distribution paid or made to holders of shares of Preferred Stock in the manner
provided in Section 2(d)) on the outstanding shares of Common Stock in capital
stock (which, for purposes of this Section 8(d) shall include, without
limitation, any options, warrants or other rights to acquire capital stock) of
the Corporation, (B) subdivide the outstanding shares of Common Stock into a
larger number of shares, (C) combine the outstanding shares of Common Stock into
a smaller number of shares, (D) issue any shares of its capital stock in a
reclassification of the Common Stock or (E) pay a dividend or make a
distribution (other than a dividend or distribution paid or made to holders of
shares of Preferred Stock in the manner provided in Section 2(d)) on the
<PAGE>
13
outstanding shares of Common Stock in securities of the Corporation pursuant to
a shareholder rights plan, "poison pill" or similar arrangement,
then, and in each such case, the Conversion Price in effect immediately prior to
such event shall be adjusted (and any other appropriate actions shall be taken
by the Corporation) so that the holder of any share of Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other securities of the Corporation that such holder
would have owned or would have been entitled to receive upon or by reason of any
of the events described above, had such share of Preferred Stock been converted
immediately prior to the occurrence of such event. An adjustment made pursuant
to this Section 8(d)(i) shall become effective retroactively (A) in the case of
any such dividend or distribution, to a date immediately following the close of
business on the record date for the determination of holders of Common Stock
entitled to receive such dividend or distribution or (B) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
(ii) In case the Corporation shall at any time or from time to
time issue shares of Common Stock (or securities convertible into or
exchangeable for Common Stock, or any options, warrants or other rights to
acquire shares of Common Stock) for a consideration per share less than the
Conversion Price or the Current Market Price per share of Common Stock then in
effect at the record date or issuance date, as the case may be (the "Date"),
referred to in the following sentence (treating the price per share of any
security convertible or exchangeable or exercisable into Common Stock as equal
to (A) the sum of the price for such security convertible, exchangeable or
exercisable into Common Stock plus any additional consideration payable (without
regard to any anti-dilution adjustments) upon the conversion, exchange or
exercise of such security into Common Stock divided by (B) the number of shares
of Common Stock initially underlying such convertible, exchangeable or
exercisable security),
then, and in each such case, the Conversion Price then in effect shall be
adjusted by dividing the Conversion Price in effect on the day immediately prior
to the Date by a fraction (x) the numerator of which shall be the sum of the
number of shares of Common Stock outstanding on the Date plus the number of
additional shares of Common Stock issued or to be issued (or the maximum number
into which such convertible or exchangeable securities initially may convert or
exchange or for which such options, warrants or other rights initially may be
exercised) and (y) the denominator of which shall be the sum of the number of
shares of Common Stock outstanding on the Date plus the number of shares of
Common Stock which the aggregate consideration for the total number of such
additional shares of Common Stock so issued or to be issued upon the conversion,
exchange or exercise of such convertible or exchangeable securities or options,
warrants or other rights (plus the aggregate amount of any additional
consideration initially payable upon such conversion, exchange or exercise of
such security) would purchase at the Conversion
<PAGE>
14
Price or Current Market Price per share of Common Stock on the Date, as the case
may be; provided, however, that any shares of Common Stock or securities
convertible or exchangeable into Common Stock issued in connection with
settlement or other resolution of suits alleging class action violations of
federal securities laws by the Corporation and/or any of its officers and
directors, shall be deemed to be issued for no consideration per share.
Such adjustment shall be made whenever such shares, securities, options,
warrants or other rights are issued, and shall become effective retroactively to
a date immediately following the close of business (1) in the case of issuance
to stockholders of the Corporation, as such, on the record date for the
determination of stockholders entitled to receive such shares, securities,
options, warrants or other rights and (2) in all other cases, on the date
("issuance date") of such issuance; provided that:
(A) the determination as to whether an adjustment is
required to be made pursuant to this Section 8(d)(ii) shall be made upon the
issuance of such shares or such convertible or exchangeable securities, options,
warrants or other rights;
(B) if any convertible or exchangeable securities,
options, warrants or other rights (or any portions thereof) which shall have
given rise to an adjustment pursuant to this Section 8(d)(ii) shall have expired
or terminated without the exercise thereof and/or if by reason of the terms of
such convertible or exchangeable securities, options, warrants or other rights
there shall have been an increase or increases, with the passage of time or
otherwise, in the price payable upon the exercise or conversion thereof, then
the Conversion Price hereunder shall be readjusted (but to no greater extent
than originally adjusted) on the basis of (x) eliminating from the computation
any additional shares of Common Stock corresponding to such convertible or
exchangeable securities, options, warrants or other rights as shall have expired
or terminated, (y) treating the additional shares of Common Stock, if any,
actually issued or issuable pursuant to the previous exercise of such
convertible or exchangeable securities, options, warrants or other rights as
having been issued for the consideration actually received and receivable
therefor and (z) treating any of such convertible or exchangeable securities,
options, warrants or other rights which remain outstanding as being subject to
exercise or conversion on the basis of such exercise or conversion price as
shall be in effect at this time; and
(C) no adjustment in the Conversion Price shall be
made pursuant to this Section 8(d)(ii) as a result of any issuance of securities
by the Corporation in respect of which an adjustment to the Conversion Price is
made pursuant to Section 8(d)(i).
(iii) In case the Corporation shall at any time or from time
to time distribute to all holders of shares of its Common Stock (including any
such distribution made in connection with a consolidation or merger in which the
<PAGE>
15
Corporation is the resulting or surviving corporation and the Common Stock is
not changed or exchanged) cash, evidences of indebtedness of the Corporation or
another issuer, securities of the Corporation or another issuer or other assets
(excluding (A) dividends or distributions paid or made to holders of shares of
Preferred Stock in the manner provided in Section 2(d), and (B) dividends
payable in shares of Common Stock for which adjustment is made under Section
8(d)(i)) or rights or warrants to subscribe for or purchase securities of the
Corporation (excluding those referred to in Section 8(d)(ii) or those in respect
of which an adjustment in the Conversion Price is made pursuant to Section
8(d)(i) or (ii)), then, and in each such case, the Conversion Price then in
effect shall be adjusted by dividing the Conversion Price in effect immediately
prior to the date of such distribution by a fraction (x) the numerator of which
shall be the Market Price of the Common Stock on the record date referred to
below and (y) the denominator of which shall be such Market Price of the Common
Stock less the then Fair Market Value (as determined by the Board of Directors
of the Corporation) of the portion of the cash, evidences of indebtedness,
securities or other assets so distributed or of such subscription rights or
warrants applicable to one share of Common Stock (but such denominator not to be
less than one). Such adjustment shall be made whenever any such distribution is
made and shall become effective retroactively to a date immediately following
the close of business on the record date for the determination of stockholders
entitled to receive such distribution.
(iv) In the case the Corporation, at any time or from time to
time, shall take any action affecting its Common Stock similar to or having an
effect similar to any of the actions described in any of Section 8(d)(i) through
Section 8(d)(iii), inclusive, or Section 8(h) (but not including any action
described in any such Section) and the Board of Directors of the Corporation in
good faith determines that it would be equitable in the circumstances to adjust
the Conversion Price as a result of such action, then, and in each such case,
the Conversion Price shall be adjusted in such manner and at such time as the
Board of Directors of the Corporation in good faith determines would be
equitable in the circumstances (such determination to be evidenced in a
resolution, a certified copy of which shall be mailed to the holders of the
Preferred Stock).
(v) Notwithstanding anything herein to the contrary, no
adjustment under this Section 8(d) need be made to the Conversion Price unless
such adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect. Any lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least 1% of such
Conversion Price. Any adjustment to the Conversion Price carried forward and not
theretofore made shall be made immediately prior to the conversion of any shares
of Preferred Stock pursuant hereto.
(vi) Notwithstanding anything herein to the contrary, no
adjustment under this Section 8(d) shall be made upon (A) the grant of options
to
<PAGE>
16
acquire up to 2,000,000 shares of Common Stock (subject to increase equal to the
number of shares represented by options exercisable below the Conversion Price
that are canceled) to employees or directors of the Corporation pursuant to
benefit plans approved by the Board of Directors of the Corporation or upon the
issuance of shares of Common Stock upon exercise of such options, (B) the grant
to Clifford Rees upon his employment by the Corporation of options to acquire up
to 400,000 shares of Common Stock, (C) the issuance of any Common Stock (or
securities convertible into or exchangeable for capital stock or options,
warrants or other rights to acquire capital stock) in exchange for professional
or other services rendered to the Corporation up to a maximum of 500,000 shares
of Common Stock per annum, but no more than 1,000,000 shares of Common Stock in
the aggregate, (D) the issuance of any Common Stock or Subordinated Notes
pursuant to this Certificate, or (E) the sale of Common Stock by the Corporation
in an underwritten public offering at a price above the Conversion Price in
effect on the date of such sale.
(e) If the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Conversion Price then in
effect shall be required by reason of the taking of such record.
(f) Upon any increase or decrease in the Conversion Price, then, and in
each such case, the Corporation promptly shall deliver to each registered holder
of Preferred Stock at least 5 Business Days prior to effecting any of the
foregoing transactions a certificate, signed by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, setting forth in reasonable detail
the event requiring the adjustment and specifying, to the extent feasible, (x)
the method by which such adjustment was calculated and (y) the increased or
decreased Conversion Price then in effect following such adjustment.
(g) No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of any shares of Preferred Stock. If more than one
share of Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate Liquidation Preference
of the shares of Preferred Stock so surrendered. If the conversion of any share
or shares of Preferred Stock results in a fraction, an amount equal to such
fraction multiplied by the Current Market Price of the Common Stock on the
Business Day preceding the day of conversion shall be paid to such holder in
cash by the Corporation.
(h) In case of any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value), or in
case of any
<PAGE>
17
consolidation or merger of the Corporation with or into another Person (other
than a consolidation or merger in which the Corporation is the resulting or
surviving Person and which does not result in any reclassification or change of
outstanding Common Stock) (any of the foregoing, a "Transaction"), the
Corporation, or such successor or purchasing Person, as the case may be, shall
execute and deliver to each holder of Preferred Stock at least 10 Business Days
prior to effecting any of the foregoing Transactions a certificate that the
holder of each share of Preferred Stock then outstanding shall have the right
thereafter to convert such share of Preferred Stock into the kind and amount of
shares of stock or other securities (of the Corporation or another issuer) or
property or cash receivable upon such Transaction by a holder of the number of
shares of Common Stock into which such share of Preferred Stock could have been
converted immediately prior to such Transaction. Such certificate shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. If, in the case of any such
Transaction, the stock, other securities, cash or property receivable thereupon
by a holder of Common Stock includes shares of stock or other securities of a
Person other than the successor or purchasing Person and other than the
Corporation, which controls or is controlled by the successor or purchasing
Person or which, in connection with such Transaction, issues stock, securities,
other property or cash to holders of Common Stock, then such certificate also
shall be executed by such Person, and such Person shall, in such certificate,
specifically acknowledge the obligations of such successor or purchasing Person
and acknowledge its obligations to issue such stock, securities, other property
or cash to the holders of Preferred Stock upon conversion of the shares of
Preferred Stock as provided above. The provisions of this Section 8(h) and any
equivalent thereof in any such certificate similarly shall apply to successive
Transactions.
(i) In case at any time or from time to time:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock;
(ii) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(iii) there shall be any reclassification of the Common Stock,
or any consolidation or merger to which the Corporation is a party and for which
approval of any shareholders of the Corporation is required, or any sale or
other disposition of all or substantially all of the assets of the Corporation;
or
(iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
<PAGE>
18
then the Corporation shall mail to each holder of shares of Preferred Stock at
such holder's address as it appears on the transfer books of the Corporation, as
promptly as possible but in any event at least 10 days prior to the applicable
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution or rights or warrants
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution or rights are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding up is expected to
become effective. Such notice also shall specify the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for shares of stock or other securities or property or cash
deliverable upon such reclassification, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up.
(j) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Preferred Stock pursuant to Section 8(a),
10(a) or 11(a), such number of its authorized but unissued shares of Common
Stock as will from time to time be sufficient to permit the conversion of all
outstanding shares of Preferred Stock, and shall take all action required to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of
Preferred Stock.
(k) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Preferred Stock pursuant to Section 8(a), 10(a) or 11(a)
shall be made without charge to the converting holder of shares of Preferred
Stock for such certificates or for any tax in respect of the issuance or
delivery of such certificates or the securities represented thereby, and such
certificates shall be issued or delivered in the respective names of, or
(subject to compliance with the applicable provisions of federal and state
securities laws) in such names as may be directed by, the holders of the shares
of Preferred Stock converted; provided, however, that the Corporation shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate in a name other
than that of the holder of the shares of Preferred Stock converted, and the
Corporation shall not be required to issue or deliver such certificate unless or
until the Person or Persons requesting the issuance or delivery thereof shall
have paid to the Corporation the amount of such tax or shall have established to
the reasonable satisfaction of the Corporation that such tax has been paid.
Section 9. Certain Remedies.
Any registered holder of Preferred Stock shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Certificate of Designation and to enforce specifically the terms and provisions
of this Certificate of Designation in any court of the United States or any
state thereof having jurisdiction,
<PAGE>
19
this being in addition to any other remedy to which such holder may be entitled
at law or in equity.
Section 10. Mandatory Exchange.
(a) If at any time on or after the fifth anniversary of the Issue Date
to and including the tenth anniversary of the Issue Date, the holders of 50% or
more of the shares of Preferred Stock shall deliver to the Corporation a notice
demanding that the Corporation exchange the shares of Preferred Stock pursuant
to this Section 10, then the Corporation shall exchange all (but not less than
all) of the outstanding shares of Preferred Stock for shares of Common Stock or
Subordinated Notes (as defined below) at any time, or from time to time, during
the period from the fortieth day following the date of such notice (the "Demand
Notice Date") to the third anniversary of the Demand Notice Date, in integral
multiples of $5,000,000, on 30 days notice of each date of exchange (any such
date, a "Mandatory Exchange Date"), at a price per share equal (subject to
Section 8(g)) to (i) the Liquidation Preference per share plus (ii) an amount
per share equal to all accrued and unpaid dividends thereon, whether or not
declared or currently payable, to the applicable Mandatory Exchange Date. Any
shares of Common Stock to be issued pursuant to this Section 10(a) shall be
valued for such purpose at 95% of the average Market Price as of the ten Trading
Days immediately preceding the applicable Mandatory Exchange Date. Any
Subordinated Notes to be issued pursuant to this Section 10(a) shall be valued
for such purpose at their principal amount; provided that for all exchanges:
(I) the Corporation shall effect one such exchange on the
fortieth day following the Demand Notice Date and, if any shares of Preferred
Stock shall be outstanding, shall effect a second such exchange on or before the
first anniversary of the Demand Notice Date and, if any shares of Preferred
Stock shall be outstanding on the third anniversary of the Demand Notice Date,
shall effect on or before such third anniversary a final such exchange for all
such shares; provided that if any such date is not a Business Day, then the
Mandatory Exchange date shall be the next succeeding Business Day;
(II) any shares of Common Stock to be exchanged shall in no
event be valued at more than the Conversion Price then in effect;
(III) if less than all shares of Preferred Stock outstanding
on a Mandatory Exchange Date are to be exchanged, the shares to be exchanged
shall be determined pro rata or, if the shares of Preferred Stock are then
publicly held, by lot;
(IV) the Corporation shall not issue any Subordinated Notes in
exchange for Preferred Stock if such issuance would, with or without notice or
the lapse of time or both, result in or constitute a default under or with
respect to any indebtedness of the Corporation or any of its Subsidiaries; and
<PAGE>
20
(V) that the Corporation shall not issue any Subordinated
Notes in exchange for Preferred Stock unless such issuance would result in a
"substantially disproportionate" redemption of such Preferred Stock for Federal
income tax purposes under Section 302(b)(2) of the Internal Revenue Code of
1986, as amended, assuming for this purpose that the holders of shares of
Preferred Stock do not own any shares of Common Stock other than those issued or
issuable upon conversion or exchange of the Preferred Stock.
(b) "Subordinated Notes" shall mean subordinated nonconvertible notes
of the Corporation having (i) a floating interest rate, (ii) a final maturity
date the same as that of all other such Subordinated Notes but in any event no
later than five years from the first Mandatory Exchange Date and (iii) such
other terms and conditions as shall result in a determination (in the manner
provided in Section 10(e)) that such Subordinated Notes have a Fair Market Value
at least equal to their principal amount as of the date of their proposed
issuance.
(c) Nothing in this Section 10 shall restrict or limit (i) the
Corporation's right to redeem shares of Preferred Stock pursuant to Section 5(a)
or convert such shares pursuant to Section 11 or (ii) the holders' right to
convert shares of the Preferred Stock pursuant to Section 8(a) at any time prior
to any Mandatory Exchange Date under this Section 10.
(d) Notice of an exchange of shares of Preferred Stock pursuant to
Section 10(a) shall be given by publication in a newspaper of general
circulation in the Borough of Manhattan, The City of New York (if such
publication shall be required by applicable law, rule, regulation or securities
exchange requirement), 30 days prior to the date fixed for exchange, and a
similar notice shall be mailed 30 days prior to the date fixed for exchange to
each holder at such holder's address as it appears on the transfer books of the
Corporation. In order to facilitate the exchange of shares of Preferred Stock
hereunder the Board of Directors may fix a record date for the determination of
shares of Preferred Stock to be exchanged, or may cause the transfer books of
the Corporation for the Preferred Stock to be closed, 30 days prior to the date
fixed for exchange.
(e) If the Corporation proposes to issue Subordinated Notes in exchange
for some or all of the Preferred Stock to be exchanged on the applicable
Mandatory Exchange Date, the notice referred to in Section 10(d) shall include a
form of the Subordinated Notes that the Corporation proposes to issue in
exchange for the Preferred Stock, and shall identify a nationally recognized
investment banking firm selected by the Corporation to represent the Corporation
in appraising the Fair Market Value of the Subordinated Notes. The holders of a
majority of the shares of the Preferred Stock shall have the right to retain, at
the Corporation's expense, a second nationally recognized investment banking
firm, to represent the holders of the Preferred Stock in appraising the Fair
Market Value of the Subordinated Notes. A determination by the two investment
banking firms that the Subordinated Notes have
<PAGE>
21
as of the date of exchange a Fair Market Value at least equal to the principal
amount of the Subordinated Notes shall be binding on the Corporation and all
holders of shares of Preferred Stock and the form of Subordinated Notes shall be
in accordance with such determination and otherwise as agreed by the Corporation
and the Holders of 51% of the outstanding shares of Preferred Stock. If such
investment banking firms so agree on such a determination, the Subordinated
Notes may be used by the Corporation in the exchange, valued at their principal
amount. If the two investment banking firms do not agree on such a
determination, they shall select a third nationally recognized investment
banking firm, at the Corporation's expense, to appraise the Fair Market Value of
the Subordinated Notes, and the determination of such third investment banking
firm shall be binding on the Corporation and all holders of shares of Preferred
Stock. If the third investment banking firm determines that the Subordinated
Notes have as of the proposed date of exchange a Fair Market Value at least
equal to their principal amount, the Subordinated Notes may be used by the
Corporation in the exchange, valued at their principal amount and the form of
Subordinated Notes shall be in accordance with such determination and otherwise
as agreed by the Corporation and the Holders of 51% of the outstanding shares of
Preferred Stock. If such investment banking firm determines that the
Subordinated Notes do not at such time have such value, and the Corporation is
not willing to alter the terms of the Subordinated Notes so that such investment
banking firm determines that the Subordinated Notes have at such time such
value, the Subordinated Notes may not be used in the exchange and shares of
Common Stock must be used instead.
(f) Unless otherwise agreed, on any Mandatory Exchange Date, the
Corporation shall deposit for the benefit of the holders of shares of Preferred
Stock to be exchanged the shares of Common Stock or Subordinated Notes necessary
for such exchange with a bank or trust company in the Borough of Manhattan, The
City of New York, having a capital and surplus of at least $500,000,000. Any
shares of Common Stock or Subordinated Notes so deposited by the Corporation and
unclaimed at the end of two years from such Mandatory Exchange Date shall revert
to the Corporation. After such reversion, any such bank or trust company shall,
upon demand, return to the Corporation such unclaimed shares of Common Stock or
Subordinated Notes and thereupon such bank or trust company shall be relieved of
all responsibility in respect thereof and any holder of shares of Preferred
Stock to be exchanged shall look only to the Corporation for the delivery of the
shares of Common Stock or Subordinated Notes. In the event that shares of Common
Stock or Subordinated Notes are deposited pursuant to this Section 10(f) in
respect of shares of Preferred Stock that are converted in accordance with the
provisions of Section 8, such shares of Common Stock or Subordinated Notes
shall, upon such conversion, revert to the Corporation and, upon demand, such
bank or trust company shall return to the Corporation such shares of Common
Stock or Subordinated Notes and shall be relieved of all responsibilities to the
holders of such converted shares in respect thereof. Any dividends accrued on
shares of Common Stock or interest in the Subordinated Notes deposited pursuant
to this Section 10(f) shall accrue for the
<PAGE>
22
accounts of, and be payable to, the holders of shares of Preferred Stock to be
exchanged therefor.
(g) Notice of mandatory exchange having been given as aforesaid, upon
the deposit of shares of Common Stock or Subordinated Notes pursuant to Section
10(f) in respect of shares of Preferred Stock to be exchanged pursuant to
Section 10(a), notwithstanding that any certificates for such shares shall not
have been surrendered for cancellation, from and after the Mandatory Exchange
Date (i) the shares represented thereby shall no longer be deemed outstanding,
(ii) the rights to receive dividends thereon shall cease to accrue and (iii) all
rights of the holders of shares of Preferred Stock to be exchanged shall cease
and terminate, excepting only the right to receive the shares of Common Stock or
the Subordinated Notes and the right to convert such Preferred Stock into shares
of Common Stock until the close of business on the Mandatory Exchange Date, in
accordance with Section 8; provided, however, that if the Corporation shall
default in the execution and delivery of the shares of Common Stock or the
Subordinated Notes, the shares of Preferred Stock that were to be exchanged
shall thereafter be deemed to be outstanding and the holders thereof shall have
all of the rights of a holder of Preferred Stock until such time as such default
shall no longer be continuing or shall have been waived by holders of at least
66-2/3% of the then outstanding shares of Preferred Stock.
Section 11. Mandatory Conversion.
(a) If for 45 consecutive Trading Days the Market Price of the Common
Stock at the end of each such Trading Day during such period exceeds 261% of the
Conversion Price in effect on each such Trading Day, then on the Business Day
next succeeding such 45-day period (the "Mandatory Conversion Date"), the
outstanding shares of Preferred Stock shall automatically be converted into such
number of fully paid and non-assessable shares of Common Stock as is equal,
subject to Section 8(g), to the product of the number of shares of Preferred
Stock being so converted multiplied by the quotient of (i) the Liquidation
Preference divided by (ii) the Conversion Price in effect on the Mandatory
Conversion Date.
(b) Within 10 Business Days of the Mandatory Conversion Date, the
Corporation shall deliver to each Holder of Preferred Stock being converted (i)
an officer's certificate attesting to the satisfaction of the condition
precedent to mandatory conversion and (ii) a certificate or certificates
representing the number of fully paid and non-assessable shares of Common Stock
into which such shares of Preferred Stock have been converted in accordance with
this Section 11. Such conversion shall be deemed to have been made immediately
prior to the close of business on the Mandatory Conversion Date, and the Person
or Persons entitled to receive the Common Stock deliverable upon conversion of
such shares of Preferred Stock shall be treated for all purposes as having
become the record holder or holders of such Common Stock at such time, and such
conversion shall be at the Conversion Price in effect at such time.
<PAGE>
23
(c) To the extent permitted by law, when shares of Preferred Stock are
converted, all dividends accrued and unpaid (whether or not declared or
currently payable) on the Preferred Stock so converted to the date of conversion
shall be immediately due and payable and must accompany the shares of Common
Stock issued upon such conversion.
(d) Notice of a conversion of shares of Preferred Stock pursuant to
Section 11(a) shall be given by publication in a newspaper of general
circulation in the Borough of Manhattan, The City of New York (if such
publication shall be required by applicable law, regulation or securities
exchange requirement).
(e) Notwithstanding that any certificates for such shares shall not
have been surrendered for cancellation, from and after the Mandatory Conversion
Date (i) the shares represented thereby shall no longer be deemed outstanding,
(ii) the rights to receive dividends thereon shall cease to accrue, and (iii)
all rights of the holders of shares of Preferred Stock to be converted shall
cease and terminate, excepting only the right to receive the shares of Common
Stock and Dividends; provided, however, that if the Corporation shall default in
the execution and delivery of the shares of Common Stock or Dividends, the
shares of Preferred Stock that were to be converted shall thereafter be deemed
to be outstanding and the holders thereof shall have all of the rights of a
holder of Preferred Stock until such time as such default shall no longer be
continuing or shall have been waived by holders of at least 66-2/3% of the then
outstanding shares of Preferred Stock.
Section 12. Definitions.
For the purposes of this Certificate of Designation of Preferred Stock,
the following terms shall have the meanings indicated:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act; provided that for
purposes of this Certificate, the Purchaser shall not be considered an Affiliate
of the Corporation.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York, New York or City of
Atlanta, Georgia are authorized or required by law or executive order to close.
A "Change of Control" of the Corporation shall mean such times as:
(i) Any Person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of outstanding shares of stock of the Corporation entitling such
Person or Persons to exercise 50% or more of the total votes (excluding the
Preferred Stock) entitled to be cast at a regular or special meeting, or by
action by written consent, of
<PAGE>
24
shareholders of the Corporation (the term "beneficial owner" shall be determined
in accordance with Rule 13d-3, promulgated by the Commission under the Exchange
Act);
(ii) A majority of the Board of Directors of the Corporation
shall consist of Persons other than Continuing Directors. The term "Continuing
Director" shall mean any member of the Board of Directors on the Closing Date
(as defined in the Stock Purchase Agreement) and any other member of the Board
of Directors who shall be recommended or elected to succeed or become a
Continuing Director by a majority of Continuing Directors who are then members
of the Board of Directors.
(iii) The shareholders of the Corporation shall have approved
a recapitalization, reorganization, merger, consolidation or similar
transaction, in each case with respect to which all or substantially all the
Persons who were the respective beneficial owners, directly or indirectly, of
the outstanding shares of capital stock of the Corporation immediately prior to
such recapitalization, reorganization, merger, consolidation or similar
transaction, will own less than 50% of the combined voting power of the then
outstanding shares of capital stock of the Corporation resulting from such
recapitalization, reorganization, merger, consolidation or similar transaction;
provided that any such recapitalization shall not be considered a Change of
Control if the holders of Preferred Stock have the right to participate on at
least a pari passu basis.
(iv) The shareholders of the Corporation shall have approved
of the sale or other disposition of all or substantially all the assets of the
Corporation in one transaction or in a series of related transactions;
(v) Any transaction occurs (other than one described in (iii)
above or (vi) below), the result of which is that the Common Stock is not
required to be registered under Section 12 of the Exchange Act and that the
holders of Common Stock do not receive common stock of the Person surviving such
transaction which is required to be registered under Section 12 of the Exchange
Act; or
(vi) Immediately after any merger, consolidation,
recapitalization or similar transaction, Jack Phillips or a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) shall be the beneficial owners,
directly or indirectly, of outstanding shares of capital stock of the
Corporation (or any Person surviving such transaction) entitling them
collectively to exercise 50% or more of the total voting power of shares of
capital stock of the Corporation (or the surviving Person in such transaction)
and in connection with or as a result of such transaction, the Corporation (or
such surviving Person) shall have incurred or issued additional indebtedness
such that the total indebtedness so incurred or issued equals at least 50% of
the consideration payable in such transaction; provided that any such
transactions
<PAGE>
25
shall not be considered a Change of Control if the holders of Preferred Stock
have the right to participate on at least a pari passu basis.
"Common Stock" shall mean the common stock, par value $.01 per share,
and each other class of capital stock of the Corporation into which such stock
is reclassified or reconstituted.
"Current Market Price" per share shall mean, on any date specified
herein for the determination thereof, (a) the average daily Market Price of the
Common Stock for those days during the period of 20 days, ending on such date,
which are Trading Days, and (b) if the Common Stock is not then listed or
admitted to trading on any national securities exchange or quoted in the
over-the-counter market, the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder.
"Fair Market Value" shall mean the amount which a willing buyer, under
no compulsion to buy, would pay a willing seller, under no compulsion to sell,
in an arm's-length transaction (assuming that the Common Stock is valued "as if
fully distributed" so that, among other things, there is no consideration given
for minority investment discounts or discounts related to illiquidity or
restrictions on transferability).
"Issue Date" shall mean the original date of issuance of shares of
Preferred Stock to the holders pursuant to the Stock Purchase Agreement.
"Junior Stock" shall mean any capital stock of the corporation ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Preferred Stock including, without limitation, the Common Stock.
"Liquidation Preference" with respect to a share of Preferred Stock
shall mean $1,000.00.
"Market Price" shall mean, per share of Common Stock on any date
specified herein: (a) the closing price per share of the Common Stock on such
date published in The Wall Street Journal or, if no such closing price on such
date is published in The Wall Street Journal, the average of the closing bid and
asked prices on such date, as officially reported on the principal national
securities exchange on which the Common Stock is then listed or admitted to
trading; (b) if the Common Stock is not then listed or admitted to trading on
any national securities exchange but is designated as a national market system
security, the last trading price of the Common Stock on such date; or (c) if
there shall have been no trading on such date or if the Common Stock is not so
designated, the average of the reported closing bid
<PAGE>
26
and asked prices of the Common Stock on such date as shown by NASDAQ and
reported by any member firm of the NYSE, selected by the Corporation. If neither
(a), (b) or (c) is applicable, Market Price shall mean the Fair Market Value per
share determined in good faith by the Board of Directors of the Corporation
which shall be deemed to be Fair Market Value unless holders of at least 15% of
the outstanding shares of Preferred Stock request that the Corporation obtain an
opinion of a nationally recognized investment banking firm chosen by such
holders and the Corporation (at the Corporation's expense), in which event Fair
Market Value shall be as determined by such investment banking firm.
"NASDAQ" shall mean the National Market System of the NASDAQ Stock
Market.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Parity Stock" shall mean any capital stock of the corporation,
including the Preferred Stock, ranking on a par (either as to dividends or upon
liquidation, dissolution or winding up) with the Preferred Stock.
"Per Share Equity Value" of a share of Common Stock shall mean the
quotient obtained by dividing (a) the "as if fully distributed value" (so that,
among other things, there is no consideration given for any minority investment
discounts or discounts related to illiquidity or restrictions on
transferability) of all the Corporation's outstanding shares of Common Stock (on
a fully diluted basis), by (b) the number of outstanding shares of Common Stock
on a fully diluted basis.
"Person" shall mean any individual, firm, corporation, partnership,
limited liability company trust, incorporated or unincorporated association,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind, and shall any successor (by
merger) of such entity.
"Senior Stock" shall mean any capital stock of the Corporation ranking
senior (either as to dividends or upon liquidation, dissolution or winding up)
to the Preferred Stock.
"Stock Purchase Agreement" shall mean the Stock Purchase Agreement,
dated April 19, 1999 between the Corporation and The 1818 Fund III, L.P., as the
same may be amended from time to time.
"Subsidiary" shall mean, with respect to any Person, a corporation or
other entity of which 50% or more of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
<PAGE>
27
"Trading Days" shall mean a day on which the national securities
exchanges are open for trading.
Section 13. Modification or Amendment.
Except as specifically set forth herein, modifications or amendments to
this Certificate of Designation may be made by the Corporation with the consent
of the holders of at least 50% of the outstanding shares of Preferred Stock.
IN WITNESS WHEREOF, World Access, Inc. has caused this Certificate to
be duly executed in its corporate name on this 19th day of April, 1999.
WORLD ACCESS, INC.
By: _________________________
Name: John D. Phillips
Title: CEO
REGISTRATION RIGHTS AGREEMENT
between
WORLD ACCESS, INC.
and
THE 1818 FUND III, L.P.
---------------------------------------
Dated April 21, 1999
---------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Background................................................................1
2. Registration Under Securities Act, etc....................................1
2.1 Registration on Request..............................................1
2.2 Piggyback Registration...............................................4
2.3 Shelf Registration...................................................5
2.4 Registration Procedures..............................................6
2.5 Underwritten Offerings...............................................9
2.6 Preparation; Reasonable Investigation...............................10
2.7 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants........................................11
2.8 Indemnification.....................................................11
3. Definitions..............................................................15
4. Rule 144 and Rule 144A...................................................16
5. Amendments and Waivers...................................................16
6. Nominees for Beneficial Owners...........................................17
7. Notices..................................................................17
8. Assignment...............................................................17
9. Calculation of Percentage Interests in Registrable Securities............18
10. No Inconsistent Agreements...............................................18
11. Remedies.................................................................18
12. Certain Distributions....................................................18
13. Severability.............................................................19
14. Entire Agreement.........................................................19
15. Headings.................................................................19
16. Govering Law.............................................................19
17. Counterparts.............................................................19
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of April 21, 1999, between
WORLD ACCESS, INC., a Delaware corporation (the "Company"), and THE 1818 FUND
III, L.P., a Delaware limited partnership (the "Purchaser").
1. Background. Pursuant to a Stock Purchase Agreement, dated April 19,
1999, by and between the Company and the Purchaser (the "Stock Purchase
Agreement"), (i) the Purchaser has agreed to purchase from the Company, and the
Company has agreed to issue to the Purchaser, 50,000 shares of 4.25% Cumulative
Senior Perpetual Convertible Preferred Stock, Series A, $.01 par value per share
(the "Preferred Stock") for an aggregate purchase price of $50,000,000, and (ii)
the Purchaser has the option to purchase, from time to time before June 30,
2000, from the Company, and the Company has agreed to issue to the Purchaser
upon the Purchaser's exercise of such option, up to 20,000 additional shares of
Preferred Stock at a price of $1,000 per share. The Preferred Stock is
convertible, at the option of the Purchaser, into Common Stock or may be
exchanged or converted by the Company, at its option, into Common Stock or
Subordinated (Nonconvertible) Notes (the "Subordinated Notes"). Capitalized
terms used herein but not otherwise defined shall have the meanings given them
in the Stock Purchase Agreement or in Section 3.
2. Registration Under Securities Act, etc.
2.1 Registration on Request.
(a) Request. At any time, or from time to time
following the date of this Agreement, one or more holders (the "Initiating
Holders") of 25% or more of the total number of shares of Common Stock issued or
issuable upon conversion or issued upon exchange of the Preferred Stock or of
25% of the outstanding principal amount of the Subordinated Notes, may, upon
written request, require the Company to effect the registration under the
Securities Act of any Registrable Securities held by such Initiating Holders.
The Company promptly will give written notice of such requested registration to
all other holders of Registrable Securities who may join in such registration.
The Company will use its reasonable best efforts to effect, at the earliest
possible date, the registration under the Securities Act, including by means of
an shelf registration on Form S-3 (or any successor form) pursuant to Rule 415
under the Securities Act if so requested in such request (but only if the
Company is then eligible to use such a shelf registration and if Form S-3 (or
such successor form) is then available to the Company), of
(i) the Registrable Securities that the
Company has been so requested to register by such Initiating Holders,
and
(ii) all other Registrable Securities that
the Company has been requested to register by the holders thereof (such
holders together with the Initiating Holders hereinafter are referred
to as the "Selling Holders") by written request given to the Company
within 30 days after the giving of such written notice by the Company
of such registration, all to the
<PAGE>
2
extent requisite to permit the disposition of the Registrable
Securities so to be registered.
(b) Registration of Other Securities. Whenever the
Company shall effect a registration pursuant to this Section 2.1, no securities
other than Registrable Securities shall be included among the securities covered
by such registration unless the Selling Holders of not less than 51% of all
Registrable Securities to be covered by such registration shall have consented
in writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under
this Section 2.1 shall be on such appropriate registration form of the
Commission as shall be reasonably selected by the Company.
(d) Effective Registration Statement. A registration
requested pursuant to this Section 2.1 shall not be deemed to have been
effected:
(i) unless a registration statement with
respect thereto has become effective and remained effective in
compliance with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by such
registration statement until the earlier of (x) such time as all of
such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof
set forth in such registration statement and (y) 180 days after the
effective date of such registration statement, except with respect to
any registration statement filed pursuant to Rule 415 under the
Securities Act, in which case the Company shall use its best efforts to
keep such registration statement effective until such time as all of
the Registrable Securities cease to be Registrable Securities,
(ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or
court for any reason not attributable to the Selling Holders and has
not thereafter become effective, or
(iii) if the conditions to closing specified
in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of
a failure on the part of the Selling Holders.
(e) Selection of Underwriters. The underwriter or
underwriters of each underwritten offering of the Registrable Securities so to
be registered pursuant to this Section 2.1 shall be selected by the Selling
Holders of more than 50% of each class of Registrable Securities to be included
in such registration and shall be reasonably acceptable to the Company.
<PAGE>
3
(f) Priority in Requested Registration. If the
managing underwriter of any underwritten offering shall advise the Company in
writing (and the Company shall so advise each Selling Holder of Registrable
Securities requesting registration of such advice) that, in its opinion, the
number of securities requested to be included in such registration exceeds the
number that can be sold in such offering within a price range acceptable to the
Selling Holders of 66-2/3% of the Registrable Securities requested to be
included in such registration, the Company, except as provided in the following
sentence, will include in such registration, to the extent of the number and
type that the Company is so advised can be sold in such offering, Registrable
Securities requested to be included in such registration, pro rata among the
Selling Holders requesting such registration on the basis of the estimated gross
proceeds from the sale thereof. If the total number of Registrable Securities
requested to be included in such registration cannot be included as provided in
the preceding sentence, holders of Registrable Securities requesting
registration thereof pursuant to Section 2.1, representing not less than 33-1/3%
of the Registrable Securities with respect to which registration has been
requested and constituting not less than 66-2/3% of the Initiating Holders,
shall have the right to withdraw the request for registration by giving written
notice to the Company within 20 days after receipt of such notice by the Company
and, in the event of such withdrawal, such request shall be counted for purposes
of the requests for registration to which holders of Registrable Securities are
entitled pursuant to Section 2.1 hereof, unless the Selling Holders pay the
expenses of such registration. In connection with any such registration to which
this Section 2.1(f) is applicable, no securities other than Registrable
Securities shall be covered by such registration.
(g) Limitations on Registration on Request.
Notwithstanding anything in this Section 2.1 to the contrary, in no event will
the Company be required to (i) effect, in the aggregate, more than four
registrations pursuant to this Section 2.1 or (ii) effect more than one
registration pursuant to this Section 2.1 within the twelve-month period
occurring immediately subsequent to the effectiveness (within the meaning of
Section 2.1(d)) of a registration statement filed pursuant to this Section 2.1.
(h) Listing. The Company shall list the Registrable
Securities subject to Section 2.1(a) on the NASDAQ or another of the national
securities exchanges or automated quotation system.
(i) Redesignation. In the case of Registrable
Securities which are not Common Stock, upon the request of holders of 51% of all
such Registrable Securities to be covered by such registration or if advised by
the managing underwriter of such offering, the Company shall reissue the
Registrable Securities in denominations suitable for public trading (by
depositary share arrangements or otherwise).
<PAGE>
4
(j) Expenses. The Company will pay all Registration
Expenses (except for any underwriting commissions or discounts) in connection
with the first and second registrations requested pursuant to this Section 2.1.
Each Holder of Registrable Securities whose Registrable Securities are included
in registrations in connection with the third and fourth registrations requested
pursuant to this Section 2.1 shall pay its proportionate share of the
Registration Expenses (including any underwriting commissions or discounts) on
the basis of such holder's share of the gross proceeds from the sale of its
Registrable Securities under such registrations.
2.2 Piggyback Registration.
(a) Right to Include Registrable Securities. If the
Company at any time proposes to register any shares of Common Stock or any
securities convertible into Common Stock under the Securities Act by
registration on any form other than Forms S-4 or S-8, whether or not for sale
for its own account, it will each such time give prompt written notice to all
holders of Registrable Securities (other than Holders of Subordinated Notes) of
its intention to do so and of such Holders' rights under this Section 2.2. Upon
the written request of any such holder (a "Requesting Holder") made as promptly
as practicable and in any event within 30 days after the receipt of any such
notice, the Company will use its reasonable best efforts to effect the
registration under the Securities Act of all Registrable Securities that the
Company has been so requested to register by the Requesting Holders thereof;
provided, however, that prior to the effective date of the registration
statement filed in connection with such registration, immediately upon
notification to the Company from the managing underwriter of the price at which
such securities are to be sold, if such price is below the price that any
Requesting Holder shall have indicated to be acceptable to such Requesting
Holder, the Company shall so advise such Requesting Holder of such price, and
such Requesting Holder shall then have the right to withdraw its request to have
its Registrable Securities included in such registration statement; provided
further, that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Requesting Holder of Registrable Securities and (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from any obligation of the Company to pay the Registration Expenses in
connection therewith), without prejudice, however, to the rights of any Holder
or Holders of Registrable Securities entitled to do so to cause such
registration to be effected as a registration under Section 2.1, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this Section
2.2 shall relieve the Company of its obligation to effect any registration upon
request under Section 2.1.
<PAGE>
5
(b) Priority in Piggyback Registrations. If the
managing underwriter of any underwritten offering shall inform the Company by
letter of its opinion that the number or type of Registrable Securities
requested to be included in such registration would materially adversely affect
such offering, and the Company has so advised the Requesting Holders in writing,
then the Company will include in such registration, to the extent of the number
and type that the Company is so advised can be sold in (or during the time of)
such offering, first, all securities proposed by the Company to be sold for its
own account, second such Registrable Securities requested to be included in such
registration pursuant to this Agreement, among such Requesting Holders and
securities of other Persons who have the right pursuant to agreements with the
Company to require that their securities be included in such registration, pro
rata on the basis of the estimated proceeds from the sale thereof and third, all
other securities proposed to be registered.
(c) Expenses. The Company will pay all Registration
Expenses in connection with any registration effected pursuant to this Section
2.2.
2.3 Shelf Registration
(a) Filing and Effectiveness of Shelf Registration.
At the request of Holders of 51% of the Registrable Securities, if the Company
is eligible to use Form S-3 (or such successor form) the Company shall file an
"evergreen" shelf registration statement solely with respect to the Registrable
Securities and pursuant to Rule 415 under the Securities Act (the "Shelf
Registration") on Form S-3 (or any successor form). The Company shall use its
reasonable best efforts to have the Shelf Registration declared effective as
soon as practicable after such filing, and shall use its reasonable best efforts
to keep the Shelf Registration effective and updated, from the date such Shelf
Registration is declared effective until such time as all of the Registrable
Securities shall cease to be Registrable Securities.
(b) Supplements and Amendments; Expenses. The Company
shall supplement or amend, if necessary, the Shelf Registration, as required by
the instructions applicable to such registration form or by the Securities Act
or as reasonably required by the Holders of (or any underwriter for) more than
50% of the Registrable Securities and the Company shall furnish to the Holders
of the Registrable Securities to which the Shelf Registration relates copies of
any such supplement or amendment prior to its being used and/or filed with the
Commission. The Company shall pay all Registration Expenses in connection with
the Shelf Registration, whether or not it becomes effective, and whether all,
none or some of the Registrable Securities are sold pursuant to the Shelf
Registration. In no event shall the Shelf Registration include securities other
than Registrable Securities, unless the Holders of more than 66-2/3% of the
Registrable Securities consent to such inclusion.
(c) Effective Shelf Registration Statement. A Shelf
Registration pursuant to this Section 2.3 shall not be deemed to have been
effected
<PAGE>
6
(i) unless a Shelf Registration has become effective and remained effective in
compliance with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities and until such time as all of such
Registrable Securities have been disposed of under the Shelf Registration or
(ii) if after it has become effective, the Shelf Registration is interfered with
by any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court and has not thereafter become effective.
2.4 Registration Procedures. If and whenever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 2.1, 2.2, and 2.3, the Company will, as
expeditiously as possible:
(i) prepare and (within 90 days after the end of the
period within which requests for registration may be given to the
Company or in any event as soon thereafter as practicable) file with
the Commission the requisite registration statement to effect such
registration and thereafter use its reasonable best efforts to cause
such registration statement to become effective; provided, however,
that the Company may discontinue any registration of its securities
that are not Registrable Securities (and, under the circumstances
specified in Section 2.2(a), its securities that are Registrable
Securities) at any time prior to the effective date of the registration
statement relating thereto;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all
Registrable Securities covered by such registration statement until the
earlier of (a) such time as all of such Registrable Securities have
been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such registration
statement and (b) 180 days after the effective date of such
registration statement, except with respect to any registration
statement filed pursuant to Rule 415 under the Securities Act if the
Company is eligible to file a registration statement on Form S-3, in
which case the Company shall use its best efforts to keep the
registration statement effective and updated, from the date such
registration statement is declared effective until such time as all of
the Registrable Securities cease to be Registrable Securities;
(iii) furnish to each seller of Registrable
Securities covered by such registration statement, such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the
<PAGE>
7
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request;
(iv) use its reasonable best efforts (x) to register
or qualify all Registrable Securities and other securities covered by
such registration statement under such other securities or blue sky
laws of such States of the United States of America where an exemption
is not available and as the sellers of Registrable Securities covered
by such registration statement shall reasonably request, (y) to keep
such registration or qualification in effect for so long as such
registration statement remains in effect and (z) to take any other
action that may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the Company shall
not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to
be so qualified or to consent to general service of process in any such
jurisdiction;
(v) use its reasonable best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other federal or state governmental
agencies or authorities as may be necessary in the opinion of counsel
to the Company and counsel to the seller or sellers of Registrable
Securities to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) in the case of an underwritten or "best efforts"
offering, furnish at the effective date of such registration statement
to each seller of Registrable Securities, and each such seller's
underwriters, if any, a signed counterpart of:
(x) an opinion of counsel for the Company,
dated the effective date of such registration statement and,
if applicable, the date of the closing under the underwriting
agreement, and
(y) a "comfort" letter signed by the
independent public accountants who have certified the
Company's financial statements included or incorporated by
reference in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' comfort letter, with respect to events
subsequent to the date of
<PAGE>
8
such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' comfort letters delivered to the
underwriters in underwritten public offerings of securities and, in the
case of the accountants' comfort letter, such other financial matters,
and, in the case of the legal opinion, such other legal matters, as the
underwriters may reasonably request;
(vii) cause representatives of the Company to
participate in any "road show" or "road shows" reasonably requested by
any underwriter of an underwritten or "best efforts" offering of any
Registrable Securities;
(viii) notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event (including
those events referred to in Section 2.7) as a result of which, the
prospectus included in such registration statement, as then in effect,
includes 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 the light of the circumstances
under which they were made, and at the request of any such seller,
subject to the provisions of Section 2.7, promptly prepare and furnish
to it a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered
to the purchasers of such securities, such prospectus shall not include
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 the light of the circumstances under which
they were made;
(ix) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and, if
required, make available to its security Holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the
first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder, and promptly furnish to each such seller of Registrable
Securities a copy of any amendment or supplement to such registration
statement or prospectus;
(x) provide and cause to be maintained a transfer
agent and registrar (which, in each case, may be the Company) for all
Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration;
and
<PAGE>
9
(xi) use its reasonable best efforts to list all
Registrable Securities covered by such registration statement on the
NASDAQ or any national securities exchange on which Registrable
Securities of the same class covered by such registration statement are
then listed and, if no such Registrable Securities are so listed, on
the NASDAQ or any national securities exchange on which the Common
Stock is then listed.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to promptly furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing; provided, that any such
information or questionnaires shall be given or made by a seller of Registrable
Securities without representation or warranty of any kind whatsoever except
representations with respect to the identity of such seller, such seller's
Registrable Securities and such seller's intended method of distribution or any
other representations required by applicable law.
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 subdivision (viii) of this
Section 2.4, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.4 and Section 2.7 and, if so directed by the Company, will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice.
2.5 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by
the underwriters for any underwritten offering by Holders of Registrable
Securities pursuant to a registration requested under Section 2.1, the Company
will use its reasonable best efforts to enter into an underwriting agreement
with such underwriters for such offering, such agreement to be reasonably
satisfactory in substance and form to each such holder and the underwriters and
to contain such representations and warranties by the Company and such other
terms as are generally prevailing in agreements of that type, including, without
limitation, indemnities to the effect and to the extent provided in Section 2.8.
The Holders of the Registrable Securities proposed to be sold by such
underwriters will reasonably cooperate with the Company in the negotiation of
the underwriting agreement. Such Holders of Registrable Securities to be sold by
such underwriters shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the
<PAGE>
10
benefit of such underwriters shall also be made to and for the benefit of such
Holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of such Holders of
Registrable Securities. No holder of Registrable Securities shall be required to
make any representations or warranties to, or agreements with, the Company other
than representations, warranties or agreements regarding the identity of such
holder, such holder's Registrable Securities and such holder's intended method
of distribution or any other representations required by applicable law.
(b) Piggyback Underwritten Offerings. If the Company
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities, use its reasonable best efforts to
arrange for such underwriters to include all the Registrable Securities to be
offered and sold by such Requesting Holder among the securities of the Company
to be distributed by such underwriters, subject to the provisions of Section
2.2(b). The Holders of Registrable Securities to be distributed by such
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such Holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Holders of Registrable Securities. No holder of Registrable Securities shall be
required to make any representations or warranties to, or agreements with, the
Company or the underwriters other than representations, warranties or agreements
regarding the identity of such holder, such holder's Registrable Securities and
such holder's intended method of distribution or any other representations
required by applicable law.
(c) Underwriting Discounts and Commission. The
Holders of Registrable Securities sold in any offering pursuant to Section
2.5(a) or Section 2.5(b) shall pay all underwriting discounts and commissions of
the underwriter or underwriters with respect to the Registrable Securities sold
thereby.
2.6 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the Holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each of them such reasonable access to its books and records and such
opportunities to discuss the
<PAGE>
11
business of the Company with its officers and the independent public accountants
who have certified its financial statements as shall be necessary, in the
opinion of such Holders' and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
2.7 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants. Anything in this Agreement to the contrary
notwithstanding, it is understood and agreed that the Company shall not be
required to file a Registration Statement, amendment or post-effective amendment
thereto or prospectus supplement or to supplement or amend any Registration
Statement if the Company is then involved in discussions concerning, or
otherwise engaged in, an acquisition, disposition, financing or other material
transaction if the Company determines in good faith that the making of such a
filing, supplement or amendment at such time would materially adversely effect
or interfere with such transaction so long as the Company shall, as soon as
practicable thereafter (but in no event more than 90 days thereafter) make such
filing, supplement or amendment. The Company shall promptly give the Holders of
Registrable Securities written notice of such postponement, containing a general
statement of the reasons for such postponement and an approximation of the
anticipated delay Upon receipt by a Holder of notice of an event of the kind
described in this Section 2.7, such Holder shall forthwith discontinue such
Holder's disposition of Registrable Securities until such Holder's receipt of
notice from the Company that such disposition may continue and of any
supplemented or amended prospectus indicated in such notice. If the Company
postpones the filing of a registration statement, Holders of Registrable
Securities requesting registration thereof pursuant to Section 2.1, representing
not less than 33 1/3% of the Registrable Securities with respect to which
registration has been requested and constituting not less than 66 2/3% of the
Initiating Holders, shall have the right to withdraw the request for
registration by giving written notice to the Company within 30 days after
receipt of notice of postponement and, in the event of such withdrawal, such
request shall not be counted for purposes of the requests for registration to
which Holders of Registrable Securities are entitled pursuant to Section 2.1.
2.8 Indemnification.
(a) Indemnification by the Company. The Company will,
and hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 2.1, 2.2 or 2.3, each seller of any
Registrable Securities covered by such registration statement and each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, and their respective
directors, officers, partners, members, agents and affiliates against any
losses, claims, damages or liabilities, joint or several, to which such seller
or underwriter or any such director, officer, partner, member, agent, affiliate
or controlling person may become subject under the Securities Act or
<PAGE>
12
otherwise, including, without limitation, the reasonable fees and expenses of
legal counsel (including those incurred in connection with any claim for
indemnity hereunder), insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, 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
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading,
and the Company will reimburse such seller or underwriter and each such
director, officer, partner, member, agent, affiliate and controlling Person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such seller or underwriter, as the case may be, specifically stating that it is
for use in the preparation thereof; and provided further, that the Company shall
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may have been supplemented or
amended, to the Person asserting an untrue statement or alleged untrue statement
or omission or alleged omission at or prior to the written confirmation of the
sale of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, partner, member, agent or controlling person and
shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a condition to
including any Registrable Securities in any registration statement, the Company
shall have received an undertaking satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 2.8(a)) the Company
and its respective directors, officers, partners, members, agents and affiliates
and each other Person, if any, who participates as an underwriter in the
offering or sale of such securities and each other Person who controls the
Company or any such underwriter within the meaning of the Securities Act with
respect to any statement or alleged statement in or omission or
<PAGE>
13
alleged omission from such registration statement, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such seller specifically stating that it
is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement;
provided, however, that the liability of such indemnifying party under this
Section 2.8(b) shall be limited to the amount of the net proceeds received by
such indemnifying party in the offering giving rise to such liability. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by
an indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 2.8(a) or (b), such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.8, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably satis factory to
such indemnified party; provided, however, that any indemnified party may, at
its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action or proceeding in which both the
Company and an indemnified party is, or is reasonably likely to become, a party,
such indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, (a) there
are or may be legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to those available to
the Company or (b) any conflict or potential conflict exists between the Company
and such indemnified party that would make such separate representation
advisable; provided, however, that in no event shall the Company be required to
pay fees and expenses under this Section 2.8 for more than one firm of attorneys
in any jurisdiction in any one legal action or group of related legal actions.
No indemnifying party shall be liable for any settle ment of any action or
proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that 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
<PAGE>
14
to such claim or litigation or which requires action other than the payment of
money by the indemnifying party.
(d) Contribution. If the indemnification provided for
in this Section 2.8 shall for any reason be held by a court to be unavailable to
an indemnified party under Section 2.8(a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 2.8(a) or (b), the indemnified party
and the indemnifying party under Section 2.8(a) or (b) shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same,
including those incurred in connection with any claim for indemnity hereunder),
(i) in such proportion as is appropriate to reflect the relative fault of the
Company and the prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claim, damage or liability,
or action or proceeding in respect thereof, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action or
proceeding in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and such prospective
sellers from the offering of the securities covered by such registration
statement; provided, however, that for purposes of this clause (ii), the
relative benefits received by the prospective sellers shall be deemed not to
exceed the amount of proceeds received by such prospective sellers. 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. Such prospective sellers'
obligations to contribute as provided in this Section 2.8(d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and
contribution similar to that specified in the preceding subdivisions of this
Section 2.8 (with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required registration
or other qualification of securities under any federal or state law or
regulation of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 2.8 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.
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15
3. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock, par value $.01 per share,
and each other class of capital stock of the Company into which such stock is
reclassified or reconstituted.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any other similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934, as amended,
shall include a reference to the comparable section, if any, of any such similar
Federal statute.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind, and shall include any successor (by merger
or otherwise) of any such entity.
"Registrable Securities" means (i) any shares of Common Stock issued or
issuable upon conversion or exchange of the Preferred Stock, (ii) any
Subordinated Notes, (iii) any Related Registrable Securities, and (iv) any
shares of Common Stock owned by the Purchaser. As to any particular Registrable
Securities, once issued, such securities shall cease to be Registrable
Securities when (a) 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 in accordance with such registration
statement, (b) they shall have been sold as permitted by Rule 144 (or any
successor provision) under the Securities Act and the purchaser thereof does not
receive "restricted securities" as defined in Rule 144, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not, in the opinion of counsel for
the Holders, require registration of them under the Securities Act or (d) they
shall have ceased to be outstanding. All references to percentages of
Registrable Securities shall be calculated pursuant to Section 9.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration and filing fees, all fees of the NYSE, NASDAQ, other national
securities exchanges or the National Association of Securities Dealers, Inc.,
all fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and
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16
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of "cold comfort" letters required by or
incident to such performance and compliance, any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities (excluding any
underwriting discounts or commissions with respect to the Registrable
Securities) and the reasonable fees and expenses of one counsel to the Selling
Holders (selected by Selling Holders representing at least 50% of the
Registrable Securities covered by such registration) up to a maximum amount of
$50,000. Notwithstanding the foregoing, in the event the Company shall
determine, in accordance with Section 2.2(a) or Section 2.7, not to register any
securities with respect to which it had given written notice of its intention to
so register to Holders of Registrable Securities, all of the costs of the type
(and subject to any limitation to the extent) set forth in this definition and
incurred by Requesting Holders in connection with such registration on or prior
to the date the Company notifies the Requesting Holders of such determination
shall be deemed Registration Expenses.
"Related Registrable Securities" means, with respect to shares of
Common Stock issuable upon conversion or exchange of the Preferred Stock, any
securities of the Company issued or issuable with respect to such shares of
Common Stock by way of a dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"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. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
4. Rule 144 and Rule 144A. The Company shall take all actions
reasonably necessary to enable Holders of Registrable Securities to sell such
securities without registration under the Securities Act within the limitation
of the provisions of (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, (b) Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or (c) any similar rules or regulations
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
5. Amendments and Waivers. This Agreement may be amended with the
written consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holder or Holders of at least 50% of the
Registrable Securities affected by such amendment, action or omission to act.
Each holder of any Registrable Securities at the time or thereafter outstanding
shall be bound by any
<PAGE>
17
consent authorized by this Section 5, whether or not such Registrable Securities
shall have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or Holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or Holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
7. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Purchaser, addressed to it in the manner set
forth in the Stock Purchase Agreement, or at such other address as it shall have
furnished to the Company in writing in the manner set forth herein;
(ii) if to any other holder of Registrable Securities, at the
address that such holder shall have furnished to the Company in writing in the
manner set forth herein, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company; or
(iii) if to the Company, addressed to it in the manner set
forth in the Stock Purchase Agreement, or at such other address as the Company
shall have furnished to each holder of Registrable Securities at the time
outstanding in the manner set forth herein.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered to a
courier, if delivered by overnight courier service; five Business Days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and, with respect to the
Company, its respective successors and permitted assigns and, with respect to
the Purchaser, any holder of any Registrable Securities, subject to the
provisions respecting the minimum numbers of percentages of shares of
Registrable Securities
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18
required in order to be entitled to certain rights, or take certain actions,
contained herein. Except by operation of law, this Agreement may not be assigned
by the Company without the prior written consent of the Holders of a majority in
interest of the Registrable Securities outstanding at the time such consent is
requested.
9. Calculation of Percentage Interests in Registrable Securities. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated: (i) for the Common Stock to be registered, based
upon the number of shares of Registrable Securities constituting Common Stock
outstanding at the time such calculation is made, assuming the conversion or, in
the case of a calculation made after April 21, 2004, the exchange of all
Preferred Stock into shares of Common Stock, and (ii) for the Subordinated Notes
to be registered, based upon the outstanding principal amount of the
Subordinated Notes at the time the calculation is made. In the event there are
Registrable Securities outstanding which include both Common Stock and
Subordinated Notes, each reference to a percentage of the Registrable Securities
shall mean such percentage of Registrable Securities constituting Common Stock
and such percentage of Registrable Securities constituting Subordinated Notes.
10. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement.
Without limiting the generality of the foregoing, the Company will not hereafter
enter into any agreement with respect to its securities that grants, or modify
any existing agreement with respect to its securities to grant, to the holder of
its securities in connection with an incidental registration of such securities
higher priority to the rights granted to the Purchasers under Section 2.2(b).
11. Remedies. Each holder of Registrable Securities, in addition to
being entitled to exercise all rights 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 the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
12. Certain Distributions. The Company shall not at any time make a
distribution on or with respect to the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and such Registrable
Securities are not changed or exchanged) of securities of another issuer if
Holders of Registrable Securities are entitled to receive such securities in
such distribution as Holders of Registrable Securities and any of the securities
so distributed are registered under the Securities Act, unless the securities to
be distributed to the Holders of Registrable Securities are also registered
under the Securities Act.
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19
13. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the
Purchaser shall be enforceable to the fullest extent permitted by law.
14. Entire Agreement. This Agreement, together with the Stock Purchase
Agreement (including the exhibits and schedules thereto) and the Certificate of
Designation, is intended by the parties as a final expression of their agreement
and 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. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement, the Stock Purchase Agreement (including the exhibits and schedules
thereto) and the Certificate of Designation supersede all prior agreements and
understandings between the parties with respect to such subject matter.
15. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
17. Counterparts. This Agreement may be executed in multiple
counterparts, each of which when so executed shall be deemed an original and all
of which taken together shall constitute one and the same instrument.
<PAGE>
20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective representatives hereunto duly
authorized as of the date first above written.
WORLD ACCESS, INC.
By:_________________________________
Name: John D. Phillips
Title: CEO
THE 1818 FUND III, L.P.
By: Brown Brothers Harriman & Co.,
General Partner
By:___________________________
Name: Lawrence C. Tucker
Title: Partner
