SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 28, 1997
GST Telecommunications, Inc.
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(Exact name of registrant as specified in its charter)
Canada 1-12866 N/A
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4317 N.E. Thurston Way, Vancouver, Washington 98662
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (360) 254-4700
N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On February 28, 1997, GST Telecommunications, Inc. (the "Company")
consummated a private placement (the "Princes Gate Investment") of $50 million
of Series A Convertible Preference Shares (the "Redeemable Preferred Shares")
with Ocean Horizon S.R.L., an affiliate of Princes Gate Investors II, L.P.
("Princes Gate"). Princes Gate is a limited partnership consisting of an
affiliate of Morgan Stanley & Co. Incorporated and certain private equity
investors. The Redeemable Preferred Shares, which are convertible into common
shares, without par value (the "Common Shares"), at any time after February 28,
2000 at an imputed conversion price of $11.375 per share, will not pay
dividends, except to the extent cash dividends are paid on Common Shares. In
addition, the liquidation and redemption prices of the Redeemable Preferred
Shares will accrete at a semi-annual rate of 117/8%.
The Company is required to redeem the Redeemable Preferred Shares in
cash on February 28, 2004 (the "Mandatory Redemption"); PROVIDED that to the
extent the Company is prohibited from paying such redemption price in cash, the
holders of Redeemable Preferred Shares have the option to convert each
Redeemable Preferred Share into Common Shares valued at 95% of the then market
price. In the event the Company is prevented from paying the redemption price
for Redeemable Preferred Shares in cash and any holder of Redeemable Preferred
Shares does not exercise such conversion option, the Company has the option of
extending the Mandatory Redemption Date to August 28, 2007. The Company has the
option of redeeming the Redeemable Preferred Shares at any time after February
28, 2000 in cash at a redemption price per Redeemable Preferred Share equal to
the number of Common Shares into which such Redeemable Preferred Share is then
convertible multiplied by the price at which such Redeemable Preferred Share
would become subject to mandatory conversion. Under the terms of the Redeemable
Preferred Shares, the holders are entitled to elect one person to the Board of
Directors of the Company.
Redeemable Preferred Shares are convertible at the option of the
holders into Common Shares at any time after February 28, 2000 or earlier upon a
change of control of the Company. The holders of Redeemable Preferred Shares
have the right to request the Company to repurchase their shares of cash upon a
change of control of GST after February 28, 2002; prior to that time, such
repurchase would be valued in Common Shares valued at 95% of the then market
price. Further, the Redeemable Preferred Shares are subject to mandatory
conversion by the Company after February 20, 2000 to Common Shares if the market
price of Common Shares exceeds $15.925 per share.
The Registrant received U.S. $48,750,000, constituting the net purchase
price of the Redeemable Preferred Shares. The Company will utilize the net
proceeds of the financing to build out the Company's fiber optic networks and
for general corporate purposes.
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(c) Exhibits.
4.1 Securities Purchase Agreement, dated as of February 28,
1997, between the Registrant and Ocean Horizon SRL.
4.2 Securityholders Agreement, dated as of February 28, 1997,
between the Registrant and Ocean Horizon SRL.
4.3 Articles of Amendment, as amended, Exhibit A to the
Securities Purchase Agreement
99.1 Press Release of the Registrant, dated March 3, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GST TELECOMMUNICATIONS, INC.
Dated: March 14, 1997 By: /s/ Clifford V. Sander
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Clifford V. Sander
Senior Vice President
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SECURITYHOLDERS AGREEMENT
dated as of February 28, 1997
between
GST TELECOMMUNICATIONS, INC.
and
OCEAN HORIZON SRL
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TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.................................................1
ARTICLE II
RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER
SECTION 2.1 Restrictive Legend..........................................5
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 Demand Registration.........................................5
SECTION 3.2 Piggy-Back Registration.....................................6
SECTION 3.3 Reduction of Offering.......................................6
SECTION 3.4 Registration Procedures.....................................7
SECTION 3.5 Shelf Registration.........................................10
SECTION 3.6 Registration Expenses......................................10
SECTION 3.7 Indemnification by the Issuer..............................10
SECTION 3.8 Indemnification by Selling Holders.........................11
SECTION 3.9 Conduct of Indemnification Proceedings.....................11
SECTION 3.10 Contribution...............................................12
SECTION 3.11 Participation in Underwritten Registrations................13
SECTION 3.12 Rule 144...................................................14
SECTION 3.13 Holdback Agreements........................................14
SECTION 3.14 Transfer of Registration Rights............................15
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ARTICLE IV
COVENANTS
SECTION 4.1 Information................................................15
SECTION 4.2 Prohibited Issuance of Additional Series A
Preference Shares......................................16
SECTION 4.3 Director Nomination........................................16
SECTION 4.4 Indemnity..................................................16
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Headings...................................................20
SECTION 5.2 No Inconsistent Agreements.................................20
SECTION 5.3 Frustration of Purpose.....................................20
SECTION 5.4 Entire Agreement...........................................20
SECTION 5.5 Notices....................................................21
SECTION 5.6 Applicable Law.............................................21
SECTION 5.7 Severability...............................................21
SECTION 5.8 Termination................................................21
SECTION 5.9 Successors, Assigns, Transferees...........................21
SECTION 5.10 Amendments; Waivers........................................22
SECTION 5.11 Counterparts; Effectiveness................................22
SECTION 5.12 Recapitalization, etc......................................22
SECTION 5.13 Remedies...................................................22
SECTION 5.14 Certain Transactions.......................................22
SECTION 5.15 Consent to Jurisdiction....................................23
EXHIBIT A - Form of Management Reporting Package
ii
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SECURITYHOLDERS AGREEMENT
SECURITYHOLDERS AGREEMENT dated as of February 28, 1997 between GST
Telecommunications, Inc., a federally chartered Canadian corporation ("ISSUER"),
and Ocean Horizon SRL, a society with restricted liability formed under the laws
of Barbados (the "PURCHASER").
WHEREAS, the Issuer and the Purchaser have entered into the Securities
Purchase Agreement (as defined below) pursuant to which the Purchaser has agreed
to purchase Series A Preference Shares (as defined below) in accordance with the
terms thereof.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. (a) The following terms, as used herein, have
the following meanings:
"AFFILIATE", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meaning, the terms "controlling", "controlled by" and "under common control
with"), means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"ARTICLES" means the Articles of Incorporation of the Issuer in the
form attached as Exhibit D to the Securities Purchase Agreement as amended by
the Amendment to Articles in the form attached as Exhibit E to the Securities
Purchase Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the Issuer.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"CLOSING DATE" means the date of the closing of the purchase of Series
A Preference Shares pursuant to the Securities Purchase Agreement.
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"COMMISSION" means the Securities and Exchange Commission and any
successor agency having similar powers.
"COMMON SHARES" means the Common Shares, no par value, of the Issuer.
"EQUITY SECURITIES" means the Series A Preference Shares and the Series
A Common Shares.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"HOLDER" means any registered holder of Equity Securities.
"PERSON" means an individual, partnership, corporation, trust, joint
shares company, association, joint venture, society with restricted liability or
any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"PURCHASER" has the meaning set forth in the first paragraph of this
Agreement.
"REGISTRABLE SECURITIES" means any Series A Common Shares whether or
not such shares have been issued at the time a registration request is made
under Section 3.1, 3.2 or 3.5; PROVIDED that such securities shall cease to be
Registrable Securities when a registration statement relating to such securities
shall have been declared effective by the Commission and such securities shall
have been disposed of pursuant to such effective registration statement.
"REGISTRATION EXPENSES" means all (i) registration and filing fees,
(ii) fees and expenses of compliance with all state or provincial securities or
blue sky laws (including reasonable fees and disbursements of a qualified
independent underwriter, if any, counsel in connection therewith and the
reasonable fees and disbursements of counsel in connection with such
qualifications of the Registrable Securities), (iii) printing expenses, (iv)
internal expenses of the Issuer (including, without limitation, all salaries and
expenses of officers and employees performing legal or accounting duties), (v)
fees and disbursements of counsel for the Issuer, (vi) customary fees and
expenses for independent certified public accountants retained by the Issuer
(including the expenses of any comfort letters or costs associated with the
delivery by independent certified public accountants of a comfort letter or
comfort letters), (vii) fees and expenses of any special experts retained by the
Issuer in connection with such registration, (viii) fees and expenses of listing
the Registrable Securities on all securities exchanges on which the shares of
Common Shares are listed or on the NASDAQ National Market System, (ix)
reasonable fees and expenses
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of the Underwriter (excluding discounts or commissions relating to the
distribution of the Registrable Securities) and (x) out-of-pocket expenses of
the Issuer.
"RULE 144" means Rule 144 under the Securities Act, as such rule may be
amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement
dated as of the date hereof by and among the Issuer and the Purchaser.
"SELLING HOLDER" means a Holder who proposes to Transfer Registrable
Securities pursuant to Article III.
"SERIES A COMMON SHARES" means the Common Shares issued or issuable
upon conversion of the Series A Preference Shares, any Common Shares issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
in exchange for, or in replacement of, such Common Shares and any other interest
in the Issuer that has been or may be acquired upon the conversion of the Series
A Preference Shares and Common Shares issuable pursuant to Section 4.4 hereof.
"SERIES A PREFERENCE SHARES" means the Series A Preference Shares, no
par value, of the Issuer, having the rights and privileges set forth in the
Articles.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which a majority of the shares or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"TRANSFER" means any transfer, in whole or in part, by sale, pledge,
assignment, grant or other means.
"UNDERWRITER" means a securities dealer who purchases any Registrable
Securities as a principal in connection with a distribution of such Registrable
Securities and not as part of such dealer's market-making activities.
"VOTING SECURITIES" means any class or series of shares and any bond,
debenture or other obligation of the Issuer having the right to vote generally
on matters voted on by the shareholders of the Issuer.
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(b) Each of the following terms is defined in the Section opposite such
term:
TERM SECTION
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Demand Registrant 3.1
Demand Registration 3.1
Effective Date 6.12
Indemnified Party 3.8
Indemnifying Party 3.8
Piggy-Back Registration 3.2
Princes Gate Nominee 4.1
Registration Request 3.1
Shelf Registration 3.5
ARTICLE II
RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER
SECTION 2.1. RESTRICTIVE LEGEND. (a) For so long as this Agreement
remains in effect, each certificate representing an Equity Security (other than
the Series A Common Shares) owned by any Holder or a subsequent transferee shall
(unless otherwise permitted by the provisions of Section 2.1(b) or required by
the Articles) include a legend in substantially the following form:
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE ACT, THE RULES AND
REGULATIONS PROMULGATED THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
THE SECURITY REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO A
SECURITYHOLDERS AGREEMENT DATED AS OF FEBRUARY 28, 1997 THAT FIXES
CERTAIN RIGHTS AND OBLIGATIONS OF THE COMPANY AND THE HOLDER OF THIS
SECURITY. A COPY OF THE AGREEMENT IS ON FILE AT THE COMPANY'S PRINCIPAL
OFFICE.
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(b) Any Holder or transferee of an Equity Security may, upon providing
evidence reasonably satisfactory to the Issuer that such Equity Security either
is not a "restricted security" (as defined in Rule 144) or may be sold pursuant
to Rule 144(k), exchange the certificate representing such Equity Security for a
new certificate that does not bear the legend set forth in Section 2.1(a).
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1. DEMAND REGISTRATION. (a) REQUEST FOR REGISTRATION. At any
time after the date hereof for so long as any Holder owns or has a right to
acquire any Registrable Securities, the holders of a majority of the outstanding
Registrable Securities (determined on a fully diluted basis assuming the
conversion of all the Series A Preference Shares then outstanding)
(collectively, the "HOLDERS") may make a written request (the "REGISTRATION
REQUEST") for registration (a "DEMAND REGISTRATION") under the Securities Act of
Registrable Securities; provided that a Registration Request made solely to
register Registrable Securities to be received upon an anticipated Mandatory
Conversion, may only be made on or after the date which is 90 (ninety) days
prior to the third anniversary of the Issue Date. The Registration Request will
specify the number and class of Registrable Securities proposed to be sold and
will also specify the intended method of disposition thereof; PROVIDED that each
Registration Request must be for an offering of at least 1,000,000 shares (or,
if less, the number of Registrable Securities of all Holders) or where the gross
proceeds of the proposed offering are expected to be at least $10,000,000,
PROVIDED FURTHER that the Issuer shall not be obligated to effect more than one
Demand Registration in any six-month period.
(b) EFFECTIVE REGISTRATION. A registration requested pursuant to this
Section 3.1 shall not be deemed to be effected (i) if a registration statement
with respect thereto shall not have become effective, (ii) if, after it has
become effective, such registration is interfered with for any reason by any
stop order, injunction or other order or requirement of the Commission or any
other governmental agency or any court, and the result of such interference is
to prevent the Holder from disposing of the Registrable Securities to be sold
thereunder in accordance with the intended methods of disposition or (iii) if
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with any underwritten registration shall
not be satisfied or waived with the consent of the Issuer, the Holder or the
Underwriter, as applicable.
(c) UNDERWRITING. If the Demand Registrant so elects, the offering of
Registrable Securities pursuant to a Demand Registration shall be in the form of
an underwritten offering. The Demand Registrant shall select the book-running
lead
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Underwriter and any additional investment bankers and managers in connection
with the offering, each of which shall be reasonably satisfactory to the Issuer.
SECTION 3.2. PIGGY-BACK REGISTRATION. If the Issuer proposes to file a
registration statement under the Securities Act with respect to an offering of
its equity securities (i) for its own account (other than a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
Commission)) or (ii) for the account of any holders of its securities, then the
Issuer shall give written notice of such proposed filing to the Holders as soon
as practicable (but in any event not less than 20 days before the anticipated
filing date), and such notice shall offer the Holders the opportunity to
register such number of shares of Registrable Securities that are then eligible
for registration. If any Holder wishes to register securities of the same class
or series as the Issuer or such holder, such registration shall be on the same
terms and conditions as the registration of the Issuer or such holders'
securities (a "PIGGY-BACK REGISTRATION"). If the Piggy Back Registration is of a
different class, then the Issuer shall have the option of effecting a concurrent
registration statement.
SECTION 3.3. REDUCTION OF OFFERING. Notwithstanding anything contained
in any other Section herein, if the lead Underwriter of an offering described in
Section 3.1 or 3.2 delivers a written opinion to the Issuer that the success of
such offering would be materially and adversely affected by inclusion of all the
securities of each class requested to be included, then the Issuer may, upon
written notice to the Holders, reduce (if and to the extent stated by such
Underwriter to be necessary to eliminate such effect) the number of the
securities of each class requested to be registered so that the resultant
aggregate number of the securities of each class requested to be registered that
will be included in such registration shall be equal to the numbers of the
securities of each class stated in such Underwriter's letter; PROVIDED, HOWEVER,
that (i) priority in a registration initiated by a holder exercising a
contractual right to demand such registration shall be (a) first securities
offered for the account of such holder, and (b) second, pro rata among any other
securities of the Issuer requested to be registered pursuant to a contractual
right of registration and securities offered for the account of the Issuer and
(ii) priority in a registration initiated pursuant to Section 3.2 hereof shall
be (a) first, securities offered for the account of the Issuer, and (b) second,
pro rata among other securities of the Issuer requested to be registered
pursuant to a contractual right of registration.
SECTION 3.4. REGISTRATION PROCEDURES. Whenever the Issuer is required
to effect the registration of Registrable Securities pursuant to Section 3.1
hereof, the Issuer will use its best efforts to effect the registration and the
sale of such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any such
Registration Request or a registration request pursuant to Section 3.5:
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(a) The Issuer will as expeditiously as possible prepare and
file with the Commission a registration statement on any form for which
the Issuer then qualifies or which counsel for the Issuer shall deem
appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with
the intended method of distribution thereof, and use its best efforts
to cause such filed registration statement to become and remain
effective for a period of not less than 180 days; PROVIDED that if the
Issuer shall furnish to the Demand Registrant a certificate signed by
either its Chairman, President, or Vice-President within 5 (five) days
of Issuer's receipt of a Registration Request stating that in his good
faith judgment it would materially adversely affect the Issuer or its
shareholders for such a registration statement to be filed as
expeditiously as possible, the Issuer shall have a period of not more
than 90 days within which to file such registration statement measured
from the date of receipt of the Registration Request in accordance with
Section 3.1.
(b) The Issuer will, if requested, prior to filing a
registration statement or prospectus or any amendment or supplement
thereto, furnish to the Demand Registrant and each Underwriter, if any,
such number of copies of such registration statement, each amendment
and supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein), the prospectus included
in such registration statement (including each preliminary prospectus)
and such other documents as the Demand Registrant or such Underwriter
may reasonably request in order to facilitate the sale of the
Registrable Securities.
(c) After the filing of the registration statement, the Issuer
will promptly notify the Demand Registrant of any stop order issued or
threatened by the Commission and take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered.
(d) The Issuer will use its best efforts to (i) register or
qualify the Registrable Securities under such other securities or blue
sky laws of such jurisdictions in the United States as the Demand
Registrant reasonably requests, to keep such registration or
qualification in effect for so long as such registration statement
remains in effect, and to take any other action which may be reasonably
necessary or advisable to enable the Demand Registrant to consummate
the disposition in such jurisdictions of the securities owned by the
Demand Registrant and (ii) cause such Registrable Securities to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Issuer, to enable the Demand Registrant to consummate
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the disposition of such Registrable Securities; PROVIDED, that the
Issuer will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction other than taxation arising with respect to the
registration of securities or (iii) consent to general service of
process in any such jurisdiction.
(e) The Issuer will use its best efforts to qualify the
Registrable Securities for distribution to the public under such
securities laws of the provinces of Canada as the Demand Registrant
reasonably requests, to keep such qualification in effect for so long
as such registration statement remains in effect, and to take any other
action which may be reasonably necessary (including preparation of a
prospectus meeting applicable provincial securities requirements
("PROVINCIAL SECURITIES LAWS") or advisable or required by law to
enable the Demand Registrant to consummate the distribution of the
Registerable Securities in such provinces; PROVIDED, that the Issuer
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this paragraph (e), (ii) subject itself to taxation in any such
jurisdiction other than taxation arising with respect to the
registration of securities or (iii) consent to general service of
process in any such jurisdiction.
(f) At any time when a prospectus relating to the sale of
Registrable Securities is required to be delivered under the Securities
Act or Provincial Securities Laws, the Issuer will immediately notify
the Demand Registrant of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the Purchaser of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and promptly
make available to the Demand Registrant and the Underwriters any such
supplement or amendment. The Demand Registrant agrees that, upon
receipt of any notice from the Issuer of the happening of any event of
the kind described in the preceding sentence, the Demand Registrant
will forthwith discontinue the offer and sale of Registrable Securities
pursuant to the registration statement covering such Registrable
Securities until receipt of the copies of such supplemented or amended
prospectus and, if so directed by the Issuer, the Demand Registrant
will deliver to the Issuer all copies, other than permanent file copies
then in the possession of the Demand Registrant, of the most recent
prospectus covering such Registrable Securities at the time of receipt
of such notice. In the event the Issuer shall give such notice, the
Issuer shall extend the period during which such registration statement
or qualification, as the case may be, shall be
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maintained effective as provided in Sections 3.4(a) or (c) hereof by
the number of days during the period from and including the date of the
giving of such notice to the date when the Issuer shall make available
to the Demand Registrant such supplemented or amended prospectus.
(g) At any time when a prospectus relating to the sale of
Registrable Securities is required to be delivered pursuant to the
federal or provincial securities laws of Canada, the Issuer shall
prepare a prospectus which complies with the securities laws of each
Canadian province in which Registrable Securities are to be offered for
sale, and as delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(h) The Issuer will enter into customary agreements (including
an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities.
(i) The Issuer will furnish to the Demand Registrant and to
each Underwriter, if any, a signed counterpart, addressed to the Demand
Registrant or such Underwriter, of (i) an opinion or opinions of
counsel to the Issuer and (ii) a comfort letter or comfort letters from
the Issuer's independent public accountants, each in customary form and
covering such matters as are customarily covered by opinions and
comfort letters, as the Demand Registrant or the lead Underwriter
therefor reasonably requests.
(j) The Issuer will otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its securityholders, as soon as reasonably practicable, an
earnings statement covering a period of 12 months, beginning within
three months after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act.
(k) The Issuer will provide and cause to be maintained a
transfer agent and registrar for all Registrable Securities covered by
such registration statement from and after a date not later than the
effective date of such registration statement.
(l) The Issuer will use its best efforts (i) to cause all such
Registrable Securities covered by such registration statement to be
listed on any national securities exchange (if such Registrable
Securities are not already listed), and on each other securities
exchange in the United States and Canada, on which similar
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securities issued by the Issuer are then listed, if the listing of such
Registrable Securities is then permitted under the rules of such
exchange; or (ii) to secure the designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national
market system security" within the meaning of Rule 11Aa2-1 of the
Commission or, failing that, to secure NASDAQ authorization for such
Registrable Securities, in each case if the Registrable Securities so
qualify, and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register as such with respect
to such Registrable Securities with the National Association of
Securities Dealers, in the case of each action referred to in this
clause (ii) if requested by the Holder or by the lead Underwriter.
(m) Without limiting the foregoing, if and whenever the Issuer
is required to use its best efforts to effect the registration of any
Registrable Securities pursuant to Section 3.1 or 3.5, the Issuer will
be required to provide all customary and reasonably necessary
assistance in connection with the Underwriter's due diligence
investigation and the registration and marketing of such Registrable
Securities, including making its management available to assist in the
preparation of marketing materials and for roadshow presentations.
SECTION 3.5. SHELF REGISTRATION. Upon the request of any Holder at any
time after the date hereof, the Issuer will use its best efforts to file a
"shelf" registration statement (the "SHELF REGISTRATION") with respect to the
Registrable Securities on an appropriate form pursuant to Rule 415 (or any
similar provision that may be adopted by the Commission) under the Securities
Act and to cause such Shelf Registration to become effective and to keep such
Shelf Registration in effect until the Holders shall no longer hold any
Registrable Securities; PROVIDED THAT each such request must be for at least
1,000,000 shares (or, if less, the number of Registrable Securities of all
Holders) or where the gross proceeds of an offering would be expected to be at
least $10,000,000. Any offer or sale of Registrable Securities pursuant to the
Shelf Registration in an underwritten public offering shall be deemed to be a
Demand Registration subject to the provisions of Sections 3.1, 3.3 and 3.13
hereof.
SECTION 3.6. REGISTRATION EXPENSES. Registration Expenses incurred in
connection with any registration made or requested to be made pursuant to this
Article III will be borne by the Issuer, whether or not any such registration
statement becomes effective, to the extent permitted by applicable law.
SECTION 3.7. INDEMNIFICATION BY THE ISSUER. To the extent permitted by
applicable law, the Issuer agrees to indemnify and hold harmless each Selling
Holder, its officers, directors and agents, and each Person, if any, who
controls each such Selling Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, liabilities and
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expenses caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities (as amended or supplemented if the Issuer shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information furnished in writing to the Issuer
by or on behalf of any such Selling Holder expressly for use therein. The Issuer
also agrees, to the extent permitted by applicable law, to indemnify any
Underwriters of the Registrable Securities, their officers and directors and
each Person who controls such underwriters on substantially the same basis as
that of the indemnification of the Selling Holders provided in this Section 3.7.
SECTION 3.8. INDEMNIFICATION BY SELLING HOLDERS. To the extent
permitted by applicable law, each Selling Holder agrees, severally but not
jointly, to indemnify and hold harmless the Issuer, its officers, directors and
agents and each Person, if any, who controls the Issuer within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, to
the same extent as the foregoing indemnity from the Issuer to such Selling
Holder, but only with reference to information related to such Selling Holder
furnished in writing by or on behalf of such Selling Holder expressly for use in
any registration statement or prospectus relating to the Registrable Securities,
or any amendment or supplement thereto, or any preliminary prospectus. Each
Selling Holder also agrees, to the extent permitted by applicable law, to
indemnify and hold harmless Underwriters of the Registrable Securities, their
officers and directors and each Person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Issuer
provided in this Section 3.8.
SECTION 3.9. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 3.7 or 3.8, such Person (the "INDEMNIFIED PARTY") shall promptly notify
the Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY")
in writing and the Indemnifying Party upon request of the Indemnified Party
shall retain counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such counsel related to the proceeding. In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnified Party
and the Indemnifying Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential
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differing interests between them. It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Party shall have requested an Indemnifying Party to reimburse the Indemnified
Party for fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 Business Days after receipt by such
Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement (x) includes an unconditional release
of such Indemnified Party from all liability arising out of such proceeding and
(y) provides that such Indemnified Party does not admit any fault or guilt with
respect to the subject matter of such proceeding.
SECTION 3.10. CONTRIBUTION. (a) If the indemnification provided for
herein is for any reason unavailable to the Indemnified Parties in respect of
any losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, to the extent permitted by applicable law, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) as between the Issuer and any Selling Holder on the one hand and
the Underwriters on the other, in such proportion as is appropriate to reflect
the relative benefits received by the Issuer and such Selling Holder on the one
hand and the Underwriters on the other from the offering of the securities, or
if such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Issuer and such Selling Holder on the one hand and of the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Issuer on the one hand
and any Selling Holder on the other, in such proportion as is appropriate to
reflect the relative fault of the Issuer and of such Selling Holder in
connection with such statements or omissions, as well as any other relevant
equitable considerations. The relative benefits received by
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the Issuer and any Selling Holder on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Issuer and such Selling Holder bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the prospectus. The relative
fault of the Issuer and any Selling Holder on the one hand and of the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuer and such Selling Holder or by the Underwriters. The
relative fault of the Issuer on the one hand and any Selling Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(b) The Issuer and each Selling Holder agree that it would not be just
and equitable if contribution pursuant to this Section 3.10 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3.10, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public (less underwriters' discounts and commissions) exceeds the
amount of any damages which such Selling Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
SECTION 3.11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements
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and (b) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and these registration rights.
SECTION 3.12. RULE 144. The Issuer covenants that it will file any
reports required to be filed by it under the Securities Act and the Exchange Act
and will take such further action as the Selling Holders shall reasonably
request, all to the extent required from time to time to enable the Selling
Holders to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule is amended from time to time, or (b) any similar
rule or regulation hereafter adopted by the Commission. Upon the request of the
Agent, the Issuer will deliver to the Agent a written statement as to whether it
has complied with such requirements.
SECTION 3.13. HOLDBACK AGREEMENTS. (a) RESTRICTIONS ON PUBLIC SALE BY
HOLDER OF REGISTRABLE SECURITIES. If and to the extent requested by the Issuer,
in the case of a non-underwritten public offering, and if and to the extent
requested by the lead Underwriter or Underwriters, in the case of an
underwritten public offering, the Holders agree not to effect, except as part of
such registration or a concurrent registration, any public sale or distribution
of the issue being registered or a similar security of the Issuer, or any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144, during the 10 days prior to, and during
such period that the Issuer (in the case of a non-underwritten public offering)
or the lead Underwriter (in the case of an underwritten public offering) may
reasonably request, but in no event longer than 90 days, beginning on, the
effective date of such registration statement.
(b) RESTRICTIONS ON PUBLIC SALE BY THE ISSUER. The Issuer agrees (i)
not to effect any public sale or distribution of any securities similar to those
being registered in accordance with Section 3.1 or Section 3.2 hereof, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 10 days prior to, and during such period as the lead Underwriter may
reasonably request, but in no event longer than 90 days, beginning on, the
effective date of any registration statement (except as part of such
registration statement and except pursuant to registrations on Form S-4 or S-8
or any successor or similar form thereto or pursuant to an unregistered offering
to employees of the Issuer or its Subsidiaries pursuant to an employee benefit
plan as defined in Rule 405 of Regulation C of the Securities Act) or the
commencement of a public distribution of Registrable Securities, (ii) that any
agreement entered into after the date of this Agreement pursuant to which the
Issuer issues or agrees to issue any privately placed securities shall contain a
provision under which holders of such securities agree not to effect any public
sale or distribution of any such securities during the periods described in (i)
above, in each case including a sale pursuant to Rule 144 (except as part of any
such registration, if permitted); PROVIDED, however, that the provisions of this
paragraph (b)
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shall not prevent the exercise, conversion or exchange of any securities
pursuant to their terms into or for other securities, (iii) the Issuer will
enforce such "holdback" or "lock-up" agreements described in (ii) above and any
other "holdback" or "lock-up" agreements the Issuer is party to from time to
time in connection with an underwritten offering under Section 3.1 or 3.2 and
(iv) to use its commercially reasonable best efforts to obtain "holdback" or
"lock-up" agreements from other holders of the Issuer's common shares to the
extent reasonably requested by the holders requesting such underwritten
offering; PROVIDED THAT the Issuer shall have no obligation to pay any amount to
obtain such agreements.
SECTION 3.14. TRANSFER OF REGISTRATION RIGHTS. The rights of each
Holder under this Article III are transferable to each transferee of such Holder
to whom the transferor assigns its rights.
ARTICLE IV
COVENANTS
SECTION 4.1. INFORMATION. So long as any of the Series A Preference
Shares remain outstanding, the Issuer shall deliver to the Purchaser (PROVIDED
that the Purchaser agrees not to distribute such information to other Persons
other than by way of a summary thereof, without the consent of the Issuer, such
consent not to be unreasonably withheld or delayed):
(a) as soon as practicable and in any event no later than thirty (30)
days after the end of each fiscal month of the Issuer, the GST
Telecommunications, Inc. Management Reporting Package, substantially in the form
set forth in Exhibit A hereto.
(b) promptly upon receipt thereof, copies of all reports submitted to
the Issuer by independent public accountants in connection with each annual,
interim or special audit of the Issuer's financial statements made by such
accountant, including, without limitation, the comment letter submitted by such
accountants to management in connection with their annual audit;
(c) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Issuer to its securityholders or by any Subsidiary of the
Issuer to its securityholders other than the Issuer or another Subsidiary, of
all regular and periodic reports and all registration statements and
prospectuses, if any, filed by the Issuer or any of its Subsidiaries with any
securities exchange or with the Commission or any governmental authority
succeeding to any of its functions, and of all press releases and other written
statements made available generally by the Issuer or any Subsidiary to the
public concerning material developments in the business of the Issuer and its
Subsidiaries;
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(d) within thirty (30) days after the last day of each fiscal year, a
certificate signed by the Issuer's Chief Financial Officer certifying that the
Issuer is in compliance in all material respects with the terms and conditions
of the Securities;
(e) all information provided in writing to the members of the Board of
Directors of the Issuer other than immaterial information which is provided to
only a portion of the Board of Directors; and
(f) from time to time such additional information regarding the
financial position, operations or business of the Issuer and its Subsidiaries as
the Agent may reasonably request.
If the Issuer determines that it has become a passive foreign
investment company ("PFIC"), within the meaning of Section 1296 of the Internal
Revenue Code of 1986, as amended (the "Code"), within two months after the end
of each year it will supply the PFIC annual information statement necessary for
holders of Series A Preference Shares or Common Shares to make the qualified
election under Section 1295 of the Code for each year to PGI at the end of such
year. The Agent shall also be entitled to receive notice of and to attend in
person any equity analysts meetings at which the Issuer or any of its
Subsidiaries will be presenting information on its business or financial
affairs. The Issuer shall pay the reasonable out-of-pocket expenses of the
Preferred Director incurred in observing or attending Board meetings and the
Agent incurred in attending such equity analyst meetings.
SECTION 4.2. PROHIBITED ISSUANCE OF ADDITIONAL SERIES A PREFERENCE
SHARES. As long as any Series A Preference Shares remain outstanding, the Issuer
shall not issue any additional Series A Preference Shares.
SECTION 4.3. DIRECTOR NOMINATION. At the time that no Series A
Preference Shares remain outstanding, the Issuer agrees to (x) nominate for
election as a director at annual meetings for election of directors a person
chosen by the holders of a majority of the Series A Common Shares then held by
the parties hereto, other than the Issuer, (y) include such person on the slate
of directors proposed by the Issuer for election at such meetings and (z)
appoint such person as a director until the annual meeting next to occur;
PROVIDED that the rights under this Section 4.3 shall expire at the time the
parties hereto, other than the Issuer, hold fewer than 5% of the aggregate
Series A Common Shares.
SECTION 4.4. INDEMNITY. (a) If any Holder or Specified Member of such
Holder incurs any Canadian Taxes (whether such Taxes are to be paid directly by
such Holder or Specified Member, are to be paid by the Issuer, are to be
withheld or deducted by the Issuer from an amount payable or in respect of the
value of any property deliverable to such Holder or Specified Member, or are to
be otherwise incurred, and
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whether or not such Canadian Taxes are correctly or validly assessed), in
relation to the Series A Preference Shares held or previously held by such
Holder (including, without limitation, any Canadian Taxes, howsoever levied or
collected, as contemplated above, incurred as a result of or in relation to the
issuance, ownership, possession, sale, conversion, redemption, or cancellation
of such Series A Preference Shares, the receipt of investment return on or
return of capital of such Series A Preference Shares, the receipt, crediting,
accrual or payment of a deemed or actual dividend on such Series A Preference
Shares or of interest with respect to any amount owed pursuant to the terms of
such Series A Preference Shares, or the winding-up, liquidation, merger,
consolidation, sale of assets or reincorporation of the Issuer), other than
Canadian Taxes incurred by such Holder or Specified Member, as the case may be,
to the extent that such Person was resident in Canada for purposes of Canadian
federal income tax law, or was carrying on business in Canada in respect of the
Series A Preference Shares, at the time of the event giving rise to the Canadian
Taxes (Canadian Taxes satisfying the aforementioned conditions being hereinafter
referred to as "Covered Taxes"), the Issuer shall indemnify and hold the Holder
or Specified Member harmless with respect to such Covered Taxes and shall pay to
such Holder or Specified Member, as the case may be, an amount (an "Additional
Amount") hereunder which, after subtraction of all Taxes that have been or are
expected to be incurred by such Holder or any Specified Member of such Holder in
connection with the receipt or accrual of such Additional Amount (whether such
Taxes are to be paid directly by such Holder or any such Specified Member, are
to be paid by the Issuer, are to be withheld or deducted by the Issuer from an
amount payable or in respect of the value of any property deliverable to such
Holder or Specified Member, or are otherwise incurred), shall be equal to the
amount of the Covered Taxes incurred by such Holder or Specified Member. For
purposes of this Section 4.4, any reference to Taxes (or Canadian Taxes) being
incurred by a particular Person shall be deemed to include, without limitation,
circumstances where such Taxes are imposed upon such Person or where such Person
directly or indirectly sustains any cost, loss or liability for or in respect of
such Taxes.
(b) Where the Issuer is required to withhold or deduct any Canadian
Taxes from an amount paid or payable, or in respect of the value of any property
delivered or deliverable, to a Holder or a Specified Member in respect of the
Series A Preference Shares (and does so withhold or deduct such Canadian Taxes),
the Issuer shall (i) promptly notify the applicable Holder or Specified Member
of such requirement, (ii) pay the amount so required to be deducted or withheld
to the applicable taxing authority on a timely basis, (iii) furnish promptly to
the Holder or Specified Member in respect of which such deduction or withholding
is made all available official receipts and such other documentation requested
by such Holder or Specified Member evidencing the payment to the relevant taxing
authority, and (iv) immediately pay to the Holder or Specified Member the
Additional Amount required by paragraph (a) with respect to the Canadian Taxes
so deducted or withheld.
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(c) The Issuer shall make any payment required by paragraph (a) of this
Section 4.4 (other than any payment which must be made immediately pursuant to
item (iv) of paragraph (b)) within 30 calendar days from the date the relevant
Holder or Specified Member makes written demand therefor, setting forth in
reasonable detail a description of the Taxes that give rise to such demand,
which demand shall be conclusive as to the amount that must be paid to the
Holder or Specified Member whether or not the Taxes that give rise to such
demand were correctly or validly assessed.
(d) To the extent that the Issuer is prohibited from paying any
Additional Amount in cash, a Holder or a Specified Member, as the case may be,
may elect to have the Issuer, within the time periods specified in paragraphs
(b) and (c), issue to the Holder or Specified Member, as the case may be, a
number of Common Shares equal to such Additional Amount which is prohibited from
being paid in cash divided by the product of the Fair Market Value of a Common
Share on the date such shares are issued and 95%. In the event and to the extent
that the Company is prohibited from paying any such Additional Amount in cash
due to restrictions contained in instruments of indebtedness to which it is a
party ("DEBT INSTRUMENTS") and in the event and to the extent the person to whom
such amount is owed does not exercise the option to receive such amount in
Common Shares as set forth above, then, the following shall apply (but only to
the Additional Amounts or portions thereof which were not so paid in cash or by
way of the issuance of Common Shares):
(A) The Company shall have a continuing obligation to, as soon
as possible, pay such amount (or portions, thereof as
permitted by the Debt Instruments from time to time) in cash,
provided that the Company shall only be obligated to satisfy
such obligation to the extent it is not prohibited from doing
so under the terms of its Debt Instruments; and
(B) The person to whom such amount is owed shall have the
right, at any time, and from time to time, at such person's
option, to require the Company to pay such amount by issuing
to such person a number of fully-paid and non-assessable
Common Shares equal to such amount or any portion thereof
divided by the product of the Fair Market Value (as defined in
the Amendment to Articles) of a Common Share at the time it is
issued and 95%.
(e) To the extent that the Issuer wishes to contest any Holder's or any
Specified Member of such Holder's liability to any taxing authority for any
Covered Taxes, the Holder shall make reasonable efforts, at the sole expense of
the Issuer, to provide information relevant to such contest to the Issuer, it
being understood that neither such Holder, nor any of its Specified Members,
shall be under any obligation to contest or be a party to the contesting of its
liability for any Covered Taxes or to assume any financial or other cost, risk,
or liability with respect to the contesting of such Covered
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Taxes by the Issuer. Provided the Issuer has satisfied its indemnity obligation
under this Section 4.4 in full, any Covered Taxes recovered from a Canadian
Taxing Authority, pursuant to a contest thereof by the Issuer, shall be the
property of and shall be paid to the Issuer.
(f) Notwithstanding paragraph (e), in no event shall any Holder or
Specified Member be required to submit any of its tax returns or any part
thereof to the Issuer or any other Person or to prepare its tax returns other
than as such Holder or Specified Member in its sole discretion shall determine.
Nothing herein shall require any Holder or Specified Member to disclose to the
Issuer any information regarding its tax affairs or tax computations, or to
arrange its tax affairs so as to take advantage of any deductions, tax credits,
or other relief that may be available.
(g) The indemnity provided in this Section 4.4 shall apply to every
Holder and to every Person who is, at any time, a Specified Member of such a
Holder, as well as to any subsequent Holder or Specified Member thereof. The
application of the indemnity provided in this Section 4.4 to subsequent Holders
and Specified Members thereof shall in no way diminish the rights and benefits
of the initial Holders and Specified Members of such initial holders.
(h) The right of any Person to receive payments pursuant to this
Section 4.4 shall survive the sale, exchange, redemption, conversion or other
disposition of any Series A Preference Shares.
(i) Each Holder has the right to enforce the provisions hereof with
respect to, or for the benefit of, any of its Specified Members or with respect
to Additional Amounts due in respect of, or to, such Specified Members,
irrespective of whether such Specified Members would have the right to enforce
the provisions hereof under applicable law.
"TAXES" means all domestic and foreign federal, provincial, state,
municipal, territorial or other taxes, imposts, duties, rates, deductions,
levies, assessments, fees, charges, dues or withholdings of any nature lawfully
levied, assessed or imposed, including, without limitation, all income, capital
gains, sales and use, property, capital, value added, stamp, registration,
documentation and withholding taxes, and all excise taxes, customs and import
duties, together with all interest, fines, penalties and expenses with respect
thereto.
"CANADIAN TAXES" means any Taxes levied, assessed or imposed by a
Canadian Taxing Authority; but does not include (i) any Taxes imposed by a
Canadian Taxing Authority solely under Paragraph 2(3)(c) and 115(1)(b) of the
Income Tax Act (Canada) on any "capital gain", as defined in such Act, realized
by, and taxed as such to, a Holder or a Specified Member upon the sale to a
Person other than the Issuer of
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Series A Preference Shares and (ii) any corporate level Taxes imposed by a
Canadian Taxing Authority on, and for which the sole liability rests with, the
Issuer. For greater certainty and notwithstanding (i), Taxes imposed by a
Canadian Taxing Authority as a result of the conversion, redemption, or
cancellation of the Series A Preference Shares, as a result of the winding-up,
liquidation, merger, consolidation, reorganization, recapitalization or
reincorporation of the Issuer, or as a result of any other similar transaction
or change in capital structure of the Issuer, constitute Canadian Taxes for the
purpose of this Agreement.
"CANADIAN TAXING AUTHORITY" means any Canadian jurisdiction or taxing
authority, including, without limitation, the Canadian federal government or the
government of any Canadian province or territory.
"HOLDER" means, for purposes of this Section 4.4, any holder or former
holder of a Series A Preference Share.
"SPECIFIED MEMBER" means any Person who is or was a member of, a
quotaholder of, a partner in, or a beneficiary of a Holder, or any person who
otherwise holds or held a direct or indirect interest (whether through one or
more intermediary Persons) in a Holder or in the Series A Preference Shares of a
Holder.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
SECTION 5.2. NO INCONSISTENT AGREEMENTS. The Issuer will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with, or otherwise grant registration rights superior to, the rights granted to
the Holders under this Agreement. Except as disclosed on Schedule 3.04(h) of the
Securities Purchase Agreement, each of the Issuer and the Holders represents
that it is not and agrees that it will not become a party to any other agreement
relating to the voting or transfer of Voting Securities, or the management of
the Issuer, or granting any registration rights to any Person with respect to
any of the Issuer's equity securities. The Issuer agrees that it will not amend
or modify the foregoing Agreements, or any "registration rights" agreement it is
currently party to, in any way that would be material and adverse to the Holders
without the prior consent of the Holders.
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SECTION 5.3. FRUSTRATION OF PURPOSE. Neither the Issuer nor any Holder
may do directly or indirectly that which is prohibited by this Agreement.
SECTION 5.4. ENTIRE AGREEMENT. This Agreement, the Securities Purchase
Agreement, the Series A Preference Shares and the Articles constitute the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein, and there are no restrictions, promises,
representations, warranties, covenants, or undertakings with respect to the
subject matter hereof, other than those expressly set forth or referred to
herein or therein. This Agreement and such other agreements and instruments
supersede all prior agreements and understandings between the parties hereto
with respect to the subject matter hereof.
SECTION 5.5. NOTICES. Any notice, request, instruction or other
document to be given hereunder by any party hereto to another party hereto shall
be in writing (including telex, telecopier or similar writing) and shall be
given to such party at its address, telex or telecopier number set forth on its
signature page or to such other address as the party to whom notice is to be
given may provide in a written notice to the party giving such notice, a copy of
which written notice shall be on file with the Secretary of the Issuer. Each
such notice, request or other communication shall be effective (i) if given by
telex or telecopy, when such telex or telecopy is transmitted to the telex or
telecopy number specified in its signature page and the appropriate answerback
or confirmation, as the case may be, is received, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section 5.5.
SECTION 5.6. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5.7. SEVERABILITY. The invalidity or unenforceability of any
provisions of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
SECTION 5.8. TERMINATION. This Agreement shall terminate and be of no
further force or effect with respect to each Holder when such Holder no longer
owns any Equity Securities (except as to matters preceding the Holder's
disposition of Equity Securities); PROVIDED that the provisions of Sections 3.6,
3.7, 3.8, 3.9, 3.10, 4.4, 5.1, 5.3 through 5.13 and 5.15 shall survive any such
termination.
SECTION 5.9. SUCCESSORS, ASSIGNS, TRANSFEREES. The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto,
the
21
<PAGE>
Holders and Specified Members described in Section 4.4 and their respective
heirs, successors and permitted assigns. Neither this Agreement nor any
provision hereof shall be construed so as to confer any right or benefit upon
any Person other than the parties to this Agreement, such Persons described in
Section 4.4 and their respective successors and permitted assigns, except that
the Holders and Specified Members referred to in Section 4.4 shall be third
party beneficiaries of the rights set forth in Section 4.4 and shall be entitled
to enforce the provisions thereof.
SECTION 5.10. AMENDMENTS; WAIVERS. (a) No failure or delay on the part
of any party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
(b) Neither this Agreement nor any term or provision hereof may be
amended or waived except by an instrument in writing signed, in the case of an
amendment, by the parties thereto or, in the case of a waiver, by the party
against whom the enforcement of such waiver is sought.
SECTION 5.11. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in any number of counterparts, each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other party hereto, or by the
Agent on behalf of any of the Purchaser, and the closings under the Securities
Purchase Agreement shall have occurred (the "EFFECTIVE DATE").
SECTION 5.12. RECAPITALIZATION, ETC. If any capital shares or other
securities are issued in respect of, or in exchange or substitution for, any
Equity Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
shareholders or combination of the Common Shares or any other change in capital
structure of the Issuer, appropriate adjustments shall be made with respect to
the relevant provisions of this Agreement so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.
SECTION 5.13. REMEDIES. The parties hereby acknowledge that money
damages would not be adequate compensation for the damages that a party would
suffer by reason of a failure of any other party to perform any of the
obligations under this Agreement. Therefore, each party hereto agrees that
specific performance is the only
22
<PAGE>
appropriate remedy under this Agreement and hereby waives the claim or defense
that any other party has an adequate remedy at law.
SECTION 5.14. CERTAIN TRANSACTIONS. The Issuer agrees that it will not
merge or consolidate with any other Person or sell, assign, transfer, lease or
convey all or substantially all of its assets to any Person, unless and until
the Issuer has delivered to the Holders of Series A Preference Shares an opinion
of counsel in form and substance satisfactory to the Holders of a majority of
such shares stating that the Holders of the Series A Preference Shares (and each
of their respective Specified Members) will not recognize income, gain or loss
for US federal income tax purposes as a result of such merger, consolidation or
sale, assignment, transfer, lease or conveyance of assets and will be subject to
US federal income tax on the same amount and in the same manner and at the same
times as would have been the case if any of such merger, consolidation or sale,
assignment, transfer, lease or conveyance of assets had not occurred.
SECTION 5.15. CONSENT TO JURISDICTION. Each Holder and the Issuer
irrevocably submit to the exclusive jurisdiction of any United States Federal
Court sitting in the Borough of Manhattan, the City of New York over any suit,
action or proceeding arising out of or relating to this Agreement, the
Securities Purchase Agreement, the Series A Preference Shares or the Series A
Common Shares. Each of the Holders hereby irrevocably appoints the Person listed
in Exhibit B hereto and the Issuer hereby irrevocably appoints GST USA, Inc. as
its authorized agent to accept and acknowledge on its behalf service of any and
all process which may be served in any such suit, action or proceeding in any
such court and represents and warrants that such agent has accepted such
appointment. Each Holder and the Issuer consents to process being served in any
such suit, action or proceeding by serving a copy thereof upon its agent for
service of process referred to above, provided that to the extent lawful and
possible, written notice of such service shall also be mailed to such Holder and
the Issuer. Each Holder and the Issuer agrees that such service shall be deemed
in every respect effective service of process upon such Holder and the Issuer in
any such suit, action or proceeding and shall be taken and held to be valid
personal service upon and personal delivery to such Holder and the Issuer.
Nothing in this paragraph shall affect or limit any right to serve process in
any manner permitted by law or to enforce in any lawful manner a judgment
obtained in one jurisdiction in any other jurisdiction.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GST TELECOMMUNICATIONS, INC.
By /s/ John Warta
----------------------------
Name: John Warta
Title: Chief Executive Officer
By /s/ Stephen Irwin
-----------------------------
Name: Stephen Irwin
Title: Vice Chairman
Address: 4317 N.E. Thurston Way
Vancouver, Washington 98662
Telephone: (360) 254-4700
Telecopier: (360) 944-4578
OCEAN HORIZON SRL
By /s/ Hafiz Khan
-----------------------------------
Name: Hafiz Khan
Title: Manager
Address: P.O. Box 261
Bay Street
Bridgetown, Barbados
Telephone: (246) 430-3800
Telecopier: (246) 435-2079
SECURITIES PURCHASE AGREEMENT
dated as of
February 28, 1997
between
GST TELECOMMUNICATIONS, INC.
and
OCEAN HORIZON SRL
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS....................................................1
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.01. COMMITMENT TO PURCHASE.........................................5
SECTION 2.02. THE CLOSING....................................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE ISSUER
SECTION 3.01. ORGANIZATION, STANDING; PERMITS, ETC...........................5
SECTION 3.02. AUTHORIZATION; NON-CONTRAVENTION...............................6
SECTION 3.03. BINDING EFFECT.................................................7
SECTION 3.04. CAPITALIZATION AND VOTING RIGHTS...............................7
SECTION 3.05. SUBSIDIARIES...................................................9
SECTION 3.06. RELATED PARTY TRANSACTIONS.....................................9
SECTION 3.07. REGISTRATION RIGHTS...........................................10
SECTION 3.08. LITIGATION, PROCEEDINGS; NO DEFAULTS..........................10
SECTION 3.09. RETURNS AND COMPLAINTS........................................11
SECTION 3.10. DISCLOSURE....................................................11
SECTION 3.11. FINANCIAL STATEMENTS..........................................12
SECTION 3.12. COMPLIANCE WITH ERISA.........................................12
SECTION 3.13. OFFERING......................................................14
SECTION 3.14. INVESTMENT COMPANY; PUHCA.....................................14
SECTION 3.15. GOVERNMENTAL REGULATION.......................................14
SECTION 3.16. SOLICITATION; ACCESS TO INFORMATION...........................14
SECTION 3.17. TAXES.........................................................14
SECTION 3.18. ABSENCE OF CERTAIN CHANGES....................................15
SECTION 3.19. PROPERTIES....................................................16
SECTION 3.20. EMPLOYEES; EMPLOYEE COMPENSATION..............................16
SECTION 3.21. NO UNDISCLOSED MATERIAL LIABILITIES...........................17
SECTION 3.22. MATERIAL CONTRACTS............................................17
SECTION 3.23. CERTAIN AGREEMENTS............................................18
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SECTION 3.24. ENVIRONMENTAL COMPLIANCE......................................18
SECTION 3.25. INSURANCE.....................................................18
SECTION 3.26. COMPLIANCE WITH LAWS..........................................19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. ORGANIZATION..................................................19
SECTION 4.02. AUTHORITY; NO OTHER ACTION....................................19
SECTION 4.03. NON-CONTRAVENTION.............................................19
SECTION 4.04. BINDING EFFECT................................................20
SECTION 4.05. NO DEFAULTS...................................................20
SECTION 4.06. PRIVATE PLACEMENT.............................................20
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. CONDITIONS TO THE PURCHASER'S OBLIGATIONS.....................21
SECTION 5.02. CONDITIONS TO ISSUER'S OBLIGATIONS............................22
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES.......................................................23
SECTION 6.02. NO WAIVERS; AMENDMENTS........................................23
SECTION 6.03. INDEMNIFICATION...............................................23
SECTION 6.04. SURVIVAL OF PROVISIONS........................................24
SECTION 6.05. EXPENSES; DOCUMENTARY TAXES...................................24
SECTION 6.06. SUCCESSORS AND ASSIGNS........................................25
SECTION 6.07. NEW YORK LAW..................................................25
SECTION 6.08. COUNTERPARTS; EFFECTIVENESS...................................25
SECTION 6.09. ENTIRE AGREEMENT..............................................25
SECTION 6.10. AMENDMENT OF SERIES A PREFERRED SHARES........................25
ii
<PAGE>
SCHEDULES
Schedule 3.04(a) Voting Agreements
Schedule 3.04(b) Voting Agreements
Schedule 3.05(a) Subsidiaries
Schedule 3.05(c) Subsidiaries
Schedule 3.05(d) Subsidiaries
Schedule 3.06 Related Party Transactions
Schedule 3.07 Registration Rights
Schedule 3.09 Returns and Complaints
Schedule 3.18(f)
Schedule 3.19 Liens
Schedule 3.20 Employees; Employee Compensation
Schedule 3.23 Certain Agreements
EXHIBITS
Exhibit A - Form of Series A Preference Shares
Exhibit B - Form of Securityholders Agreement
Exhibit C-1 - Form of Opinion of Issuer's Canadian Counsel
Exhibit C-2 - Form of Opinion of Issuer's U.S. Counsel
Exhibit C-3 - Form of Opinion of Issuer's General Counsel
Exhibit D - Articles
Exhibit E - Amendment to the Articles
Exhibit F - Bylaws
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
AGREEMENT dated as of February 28, 1997 between GST Telecommunications,
Inc., a Canadian corporation (the "ISSUER"), and OCEAN HORIZON SRL, a society
with restricted liability formed under the laws of Barbados (the "PURCHASER").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. (a) The following terms, as used herein,
have the following meanings:
"AFFILIATE" has the meaning given it in the Amendment to the Articles.
"AMENDMENT TO THE ARTICLES" means the amendment to the Articles
creating the Series A Preference Shares in the form attached as Exhibit E
hereto.
"ARTICLES" means the Articles of Incorporation of the Issuer in the
form attached as Exhibit D hereto as amended by the Amendment to the Articles in
the form attached as Exhibit E hereto.
"BALANCE SHEET" means the consolidated balance sheet of the Issuer and
its Consolidated Subsidiaries as of September 30, 1996 referred to in Section
3.11.
"BALANCE SHEET DATE" means September 30, 1996.
"BYLAWS" means the Bylaws of the Issuer in the form attached as Exhibit
F hereto.
"CHANGE OF CONTROL" means a "Change of Control" as defined in the
Amendment to the Articles.
"COMMON SHARES" means the Common Shares, no par value, of the Issuer.
<PAGE>
"CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Issuer in
its consolidated financial statements if such statements were prepared as of
such date.
"CONVERTIBLE NOTES" means the 13 7/8% Convertible Senior Subordinated
Discount Notes due 2005 issued by GST USA, Inc., a wholly owned subsidiary of
the Issuer, and guaranteed by the Issuer.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute.
"HOLDER" means any registered holder of Series A Preference Shares or
Series A Common Shares.
"INDEBTEDNESS" has the meaning given it in Article I, Section 1.01 of
the Indenture.
"INDENTURE" means that certain Indenture dated as of December 19, 1995
among the Issuer, as guarantor, GST USA, Inc., a Delaware corporation and a
wholly owned subsidiary of the Issuer, as issuer, and United States Trust
Company of New York, as trustee, as in effect on the Closing Date, pursuant to
which GST USA, Inc. issued its 137/8% Senior Discount Notes due 2005, guaranteed
by the Issuer.
"ISSUER 10-K" means the Issuer's annual report on Form 10-K for the
fiscal year ended September 30, 1996, as filed with the Securities and Exchange
Commission pursuant to the Exchange Act.
"ISSUER 10-Q" means the Issuer's quarterly report on Form 10-Q for the
quarter ended December 31, 1996, as filed with the Securities and Exchange
Commission pursuant to the Exchange Act.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, any Person shall be deemed to own subject to
any Lien any asset that it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"MATERIAL ADVERSE CHANGE" means a material adverse change in the
business, assets, financial condition, results of operations or prospects of the
Issuer and its Subsidiaries taken as a whole.
2
<PAGE>
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition, business, assets, results of operations of the Issuer and
its Subsidiaries taken as a whole.
"PERMITTED LIENS" means any Lien permitted by Section 4.09 of the
Indenture.
"PERSON" means an individual, general partnership, limited partnership,
corporation, trust, joint stock company, association, joint venture or any other
entity or organization, whether or not legal entities, including a government or
political subdivision or an agency or instrumentality thereof.
"REGULATION D" means Regulation D under the Securities Act, as amended.
"SECURITIES" means the Series A Preference Shares to be issued by the
Issuer to the Purchaser on the Closing Date.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time or any successor statute.
"SECURITYHOLDERS AGREEMENT" means the Securityholders Agreement to be
entered into among the Issuer and the Purchaser on or prior to the Closing Date,
substantially in the form attached as Exhibit B hereto.
"SERIES A COMMON SHARES" means the Common Shares issued or issuable
upon conversion of the Series A Preference Shares, any Common Shares issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
in exchange for, or in replacement of, such Common Shares and any other interest
in the Issuer that has been or may be acquired upon the conversion of the Series
A Preference Shares and Common Shares issuable pursuant to Section 4.4 of the
Securityholders Agreement.
"SERIES A PREFERENCE SHARES" means the Issuer's Series A Preference
Shares, no par value, having the rights and privileges set forth in the
Amendment to the Articles.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
3
<PAGE>
"TAX" (and with correlative meaning, "TAXES") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, value added, transfer, franchise, profits, license, withholding on
amounts paid to or by the Issuer or any of its Subsidiaries, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount due from, or in
respect of the Issuer or any of its Subsidiaries, as the case may be, imposed by
any governmental authority (a "TAXING AUTHORITY") responsible for the imposition
of any such tax (domestic or foreign), (ii) liability of the Issuer or any of
its Subsidiaries for the payment of any amounts of the type described in (i) as
a result of being a member of an affiliated, consolidated, combined or unitary
group, or being a party to any agreement or arrangement whereby liability of the
Issuer or any of its Subsidiaries for payment of such amounts was determined or
taken into account with reference to the liability of any other person for any
Pre-Closing Tax Period, and (iii) liability of the Issuer or any of its
Subsidiaries for the payments of any amounts as a result of being party to any
tax sharing agreement or with respect to the payment of any amounts of the type
described in (i) or (ii) as a result of any express or implied obligation to
indemnify any other Person.
"TRANSFER" means any transfer, in whole or in party, by sale, pledge
assignment or other means.
(b) Each of the following terms is defined in the Section opposite such
term:
TERM SECTION
Benefit Arrangement 3.16
Closing 2.02
Closing Date 2.02
Code 3.16
Damages 7.03
ERISA 3.16
ERISA Group 3.16
Hazardous Substance 3.24
Indemnified Person 7.03
Issuer Indemnified Person 7.03
Multiemployer Plan 3.16
Plan 3.16
Pre-Closing Tax Period 3.17
Purchase Price 2.01
Returns 3.17
4
<PAGE>
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.01. COMMITMENT TO PURCHASE. Subject to the terms and
conditions hereinafter stated, upon the basis of the representations and
warranties herein contained of the Purchaser, the Issuer agrees to issue and
sell to the Purchaser and, upon the basis of the representations and warranties
herein contained of the Issuer, the Purchaser agrees, severally but not jointly,
to purchase from the Issuer, the Securities specified below the name of the
Purchaser on the signature pages hereof for an amount, in immediately available
funds, equal to the aggregate purchase price (the "PURCHASE PRICE") specified
below the name of the Purchaser on the signature pages hereof.
SECTION 2.02. THE CLOSING. (a) The purchase and sale of the Securities
(the "CLOSING") shall take place at the offices of Davis Polk & Wardwell at
10:00 a.m. on the date hereof or on such other date and at such other location
as the Issuer and the Purchaser shall agree. The date and time of closing are
referred to herein as the "CLOSING DATE".
(b) At the Closing, the Purchaser shall deliver to the Issuer, by wire
transfer (of immediately available funds in U.S. dollars) to an account
designated by the Issuer, the Purchase Price.
(c) At the Closing, the Issuer shall deliver to the Purchaser, against
payment of the Purchase Price, certificates evidencing the Securities in
definitive form and registered in the name of the Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE ISSUER
The Issuer represents and warrants to the Purchaser as follows as of
the Closing Date:
SECTION 3.01. ORGANIZATION, STANDING; PERMITS, ETC. (a) The Issuer is a
corporation duly incorporated, validly existing and in good standing under the
laws of Canada and has all corporate powers and all material governmental
licenses, authorizations, consents, approvals and permits ("ISSUER PERMITS")
required to carry on its business as conducted to date. The Articles and Bylaws
are true and complete copies of the Articles of Incorporation and bylaws of the
Issuer that will be in effect immediately following the Closing.
5
<PAGE>
(b) Each of the Issuer's Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals ("SUBSIDIARY
PERMITS") required to carry on its business as now conducted.
(c) All of the Issuer Permits and Subsidiary Permits (collectively,
"PERMITS") are valid and in full force and effect, and none of the Permits will
be terminated or impaired or become terminable, in whole or in part, as a result
of the transactions contemplated by this Agreement, the Securityholders
Agreement or the Securities, and there has been no notification to the Issuer or
any Subsidiary that any party to, or issuer of, any such Permit intends to
cancel or not renew such Permit beyond its expiration date as in effect on the
date hereof.
SECTION 3.02. AUTHORIZATION; NON-CONTRAVENTION. (a) The execution,
delivery and performance by the Issuer of each of this Agreement and the
Securityholders Agreement and the issuance, delivery and performance by the
Issuer of the Securities are within the Issuer's corporate powers, have been
duly authorized by all necessary corporate (including shareholder) action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (other than the filing of the Amendment to the Articles with
the Director, Corporations Branch, Industry Canada) and do not (i) contravene or
constitute a default under or violation of any provision of any applicable law
or regulation, judgment, injunction, order or decree binding upon or applicable
to the Issuer or any of its Subsidiaries, (ii) contravene or constitute a
default under the Articles or Bylaws or the Articles or bylaws of any Subsidiary
of the Issuer, (iii) require any consent, approval or other action by any other
Person or constitute a default under or violation of or give rise to any right
of termination, cancellation or acceleration of any right or obligation of the
Issuer or any Subsidiary or to a loss of any benefit to which the Issuer or any
Subsidiary is entitled under any material agreement or other instrument binding
upon the Issuer or any of its Subsidiaries or (iv) result in the creation or
imposition of any Lien on any asset of the Issuer or any of its Subsidiaries.
Neither the Issuer nor any of its Subsidiaries is party to any agreement or
subject to any law or regulation, judgment, injunction, order or decree which
limits the ability of the Issuer to issue and sell its shares or to use the
proceeds of such sales and sales of shares of Subsidiaries (to the extent that
the sale of shares of such Subsidiaries is not prohibited) to redeem the Series
A Preference Shares.
(b) The Vancouver Stock Exchange ("VSE") has agreed to list 15,000,000
of the Series A Common Shares, subject to official notice of issuance and that
the balance of the Series A Common Shares will be listed upon the requst of the
Issuer upon payment of the applicable fee and filing of an application without a
requirement for a shareholder vote. As of the date hereof, the American Stock
Exchange ("AMEX") has agreed to list
6
<PAGE>
4,234,208 of the Series A Common Shares. A simple majority vote of all holders
of Common Shares then outstanding is the only vote required to approve the
issuance of the Series A Common Shares to obtain the listing of such shares on
the AMEX.
SECTION 3.03. BINDING EFFECT. Each of this Agreement and the
Securityholders Agreement constitutes a valid and binding agreement of the
Issuer, and the Securities, when issued and delivered by the Issuer in
accordance with this Agreement, shall constitute a valid and binding obligation
of the Issuer.
SECTION 3.04. CAPITALIZATION AND VOTING RIGHTS. (a) As of the Closing
Date and giving effect to the purchase of the Securities, the authorized capital
shares of the Issuer will consist of (i) an unlimited number of Common Shares,
of which 25,550,815 shares will be issued and outstanding and (ii) 10,000,000
Preference Shares, no par value, per share, of which 500 shares designated
pursuant to the Amendment to the Articles as the Series A Preference Shares will
be issued and outstanding. Of the 25,550,815 Common Shares issued and
outstanding, (i) 750,000 Common Shares are held in escrow pursuant to an escrow
agreement with the Vancouver Stock Exchange, (ii) 130,000 Common Shares are held
in escrow for the former shareholders of Call America Business Communications
Corporation pursuant to the Agreement and Plan of Merger dated September 26,
1996, and amended by Amendment No. 1 dated as of December 26, 1996 and (iii)
80,232 Common Shares are held in escrow for the former shareholders of TotalNet
Communications, Inc., pursuant to the Agreement and Plan of Merger dated
September 27, 1996. As of the Closing Date, all of such issued and outstanding
capital shares of the Issuer will be duly authorized, validly issued, fully paid
and nonassessable, and will not be subject to any preemptive or other similar
rights.
As of the Closing Date and giving effect to the purchase of the
Securities, there will be issued and outstanding (i) warrants to purchase
296,155 Common Shares granted to Tomen America, Inc., 125,000 of which shall
expire on April 26, 1997 and 171,155 of which shall expire on May 23, 1998, (ii)
warrants to purchase 50,000 Common Shares granted to Dillon, Read & Co. Inc.
expiring on April 29, 1999, (iii) warrants to purchase 300,000 Common Shares
granted to Stephen Irwin expiring on September 30, 2000, (iv) 500 Series A
Preference Shares convertible into a maximum of 14,759,197 Common Shares in
accordance with Section 5(a) of the Amendment to the Articles, (v)
U.S.$39,056,000 aggregate principal amount of Convertible Notes convertible into
3,098,109 Common Shares, (vi) 1,000,000 warrants to purchase 1,000,000 Common
Shares issued to holders of the Special Warrants issued on Septemer 23, 1996 and
(vii) 3,013,400 options to purchase Common Shares issued to employees and
directors pursuant to the following share incentive plans: general issuances not
pursuant to a plan (387,775), 1995 Stock Option Plan (1,154,077), 1996 Stock
Option Plan (178,548), Senior Operating Officer Plan (693,000) and Senior
executive Officer Plan (600,000) (collectively, "RIGHTS TO PURCHASE COMMON
SHARES").
7
<PAGE>
As of the Closing Date, the Issuer will be committed to issue (i) a
maximum of 114,489 Common Shares to former shareholders of Call America Business
Communications Corporation, a California corporation on July 5, 1997, pursuant
to the Agreement and Plan of Merger dated September 26, 1996 and amended by
Amendment No. 1 dated December 26, 1996, (ii) Common Shares having the value of
$1,500,000 to Cable & Wireless Holdings, Inc. on October 1, 1999, pursuant to
the Stockholders Agreement dated December 12, 1996, (iii) a minimum of 174,906
shares and a maximum of 458,459 Common Shares to former shareholders of TotalNet
Communications, Inc., pursuant to the Agreement and Plan of Merger dated
September 27, 1996, (iv) Common Shares having the value of $1,813,000 to the
former shareholders of Tri-Star Residential Communications Corp., a Washington
Corporation, pursuant to the Stock Purchase Agreement dated September 4, 1996,
and (v) 22,000 Common Shares to former shareholders and employees of
Reservations Inc. d/b/a Hawaii on Line pursuant to the Purchase Agreement and
Plan of Reorganization dated February 29, 1996 (collectively, "COMMITMENTS TO
ISSUE COMMON SHARES").
As of the Closing Date and giving effect to the purchase of the
Securities, (i) 21,016,861 Common Shares will be reserved for issuance pursuant
to the Rights to Purchase Common Shares and Commitments to Issue Common Shares,
including, 14,759,197 Common Shares reserved for issuance pursuant to conversion
of the Series A Preference Shares and (ii) 3,013,400 Common Shares will be
reserved for issuance pursuant to the exercise of options or other rights
granted or to be granted to employees and other non-employees associated with
the Issuer's business under the terms of the Issuer's stock incentive plans.
The issuance of the Securities will not cause an adjustment to the
number of Common Shares which are issuable pursuant to any outstanding warrant,
right, option or commitment to issue Common Shares or any security convertible
into or exchangeable for Common Shares.
All Common Shares to be issued pursuant to the Rights to Purchase
Common Shares and Commitments to Issue Common Shares, including shares issuable
upon conversion of the Series A Preference Shares, will be duly authorized, and
upon issuance of such shares in accordance with the terms of such securities or
agreements, as applicable, will be validly issued, fully paid and nonassessable
and will not be subject to any preemptive or other similar rights.
Except as set forth in this Section 3.04(a), on the Closing Date and
after giving effect to the purchase of the Securities, there will be outstanding
no security of the Issuer and no security convertible into or exchangeable for,
or options, warrants or other rights to acquire from the Issuer, or other
obligations of the Issuer to issue, directly or indirectly any capital shares of
the Issuer.
8
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(b) Except as set forth in Schedule 3.04(b), the Issuer is not a party
or subject to any agreement or understanding that affects or relates to the
voting or giving of written consents with respect to any security or the voting
by any director of the Issuer.
(c) The outstanding Common Shares, have been issued, and all
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), convertible securities or agreements for the
purchase or acquisition from the Issuer of any Common Shares have been granted,
in accordance with the registration or qualification provisions of the
Securities Act and in accordance with all applicable provincial securities
legislation and any relevant state or provincial securities laws or pursuant to
valid exemptions therefrom.
SECTION 3.05. SUBSIDIARIES. (a) Set forth on Schedule 3.05(a) hereto is
a complete and accurate list of all Subsidiaries of the Issuer, showing (as to
each such Subsidiary) the legal name thereof, the jurisdiction of its
incorporation, the number of shares of each class of capital shares authorized,
and the number outstanding, on such date and the percentage of the outstanding
shares of each such class owned, directly or indirectly, by the Issuer and the
number of shares covered by all outstanding options, warrants, rights of
conversion or purchase and similar rights as of such date. Except as set forth
on Schedule 3.05(a), on the Closing Date and after giving effect to the purchase
of the Securities, there will be outstanding no security of the Issuer or any
Subsidiary and no security convertible into or exchangeable for, or options,
warrants or other rights to acquire from the Issuer or any Subsidiary, or other
obligations of the Issuer or any Subsidiary to issue, directly or indirectly any
shares of capital shares of any Subsidiary of the Issuer.
(b) All of the outstanding shares of share capital of each Subsidiary
have been validly issued, are fully paid and nonassessable and are owned by the
Issuer and/or one or more of its Subsidiaries free and clear of all Liens.
(c) Except as set forth on Schedule 3.05(c), no Subsidiary is a party,
or otherwise is subject to any legal restriction or any agreement restricting
the ability of such Subsidiary to pay dividends out of profits or make any other
similar distributions of profits to the Issuer or any of its Subsidiaries that
owns outstanding capital shares of (or other ownership or profit interests in)
such Subsidiary.
(d) Except for the Subsidiaries identified in Schedule 3.05(a) and as
set forth in Schedule 3.05(d), the Issuer does not own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity, and the Issuer is not a participant in any joint venture,
partnership, or similar arrangement.
SECTION 3.06. RELATED PARTY TRANSACTIONS. Except as disclosed in the
Issuer 10-K, (i) no Affiliate of the Issuer is indebted to the Issuer, nor is
the Issuer
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indebted (or committed to make loans or extend or guarantee credit) to any of
them; (ii) to the best of the Issuer's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which the
Issuer is affiliated or with which the Issuer has a business relationship, or
any firm or corporation that competes with the Issuer, except that one or more
of such persons, individually or with others, may own up to five percent (5%) of
the publicly traded stock of companies that may compete with the Issuer; (iii)
to the best of the Issuer's knowledge, no Affiliate is, directly or indirectly,
interested in any contract with the Issuer and (iv) neither the Issuer nor any
of its Subsidiaries is party to any transaction with any Affiliate of any of
them (other than transactions between the Issuer and its Subsidiaries or between
Subsidiaries) other than as permitted by clauses (i) through (iii). Schedule
3.06 is a true and complete list of all agreements, arrangements or
understandings between the Issuer and its Subsidiaries and any Affiliate of the
Issuer or any of its Subsidiaries, except for agreements, arrangements or
understandings the Issuer filed as Exhibits to the Issuer 10-K or Proxy
Statement for the 1997 Annual General Meeting.
SECTION 3.07. REGISTRATION RIGHTS. Except as set forth in Schedule
3.07, the Issuer is not obligated to register under the Securities Act or
Canadian Securities Act any of its currently outstanding securities or any of
its securities that may be issued after the date hereof.
SECTION 3.08. LITIGATION, PROCEEDINGS; NO DEFAULTS. (a) There is no
action, suit or proceeding pending or, to the best knowledge of the Issuer,
threatened against or affecting the Issuer or any of its Subsidiaries before any
court or arbitrator or any governmental body, agency or official in which there
is a reasonable likelihood of an adverse decision that could (individually or in
the aggregate) result in a Material Adverse Effect or result in any material
change in the current equity ownership of the Issuer, or which in any manner
draws into question the validity of this Agreement, the Securityholders
Agreement, the Securities or any of the transactions contemplated hereby or
thereby. The foregoing includes, without limitation, any such action, suit,
proceeding, or investigation pending or currently threatened involving the prior
employment of any of the Issuer's employees, such employees' use in connection
with the Issuer's business of any information or techniques allegedly
proprietary to any of such employees' former employers, the obligations of any
of the Issuer's employees under any agreements with the prior employers of such
employees, or negotiations by the Issuer with potential backers of, or investors
in, the Issuer or its proposed business.
(b) The Issuer is not in violation of its Articles or Bylaws nor in
violation of, or in default under, any provision of applicable law or regulation
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon it, which violation or default (i) would affect the validity of
this Agreement, the Securityholders Agreement, the Securities, (ii) would
(individually or in the aggregate) impair the ability of the Issuer to perform
its obligations under this Agreement, the Securityholders Agreement or the
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Securities or (iii) could have, or could reasonably be expected to have, a
Material Adverse Effect.
SECTION 3.09. RETURNS AND COMPLAINTS. Except as set forth in Schedule
3.09, the Issuer has received no complaints from any customer which accounted
for over $250,000 of revenues for the fiscal year ended September 30, 1996,
concerning alleged defects in its products or services (or the design thereof),
and there has been no notification that such customers intend to discontinue or
materially decrease their use or purchase of such products and services.
SECTION 3.10. DISCLOSURE. (a) The Issuer has provided the Purchaser
with access to all the information reasonably available to it that the Purchaser
has requested for determining whether to purchase the Securities. Neither this
Agreement nor any other written statements or certificates made or delivered by
the Issuer to the Purchaser in connection herewith contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements herein and therein not misleading. The consolidated projections and
1997 Annual Budget of the Issuer and its Subsidiaries previously delivered to
the Purchaser were prepared in good faith on the basis of the assumptions stated
therein, which assumptions management believed in good faith to be reasonable in
light of the conditions existing at the time of delivery of such projections and
budget, and represented, at the time of delivery, the Issuer's best estimate of
its future financial performance and expenditures, although the actual results
and expenditures during the period or periods covered by such projections and
budget may differ from the projected results and expenditures.
(b) The copy of the minute books of the Issuer provided to the
Purchaser's counsel prior to the Closing Date contains minutes of all meetings
of directors and shareholders and all actions by written consent without a
meeting by the directors and shareholders from January 1, 1994 to the date
hereof (except for minutes of the meetings of the directors since January 1,
1997 which are in draft form, and subject to the directors approval at its next
meeting) and accurately reflects in all respects all actions by the directors
(and any committee of directors) and shareholders with respect to all
transactions referred to in such minutes.
(c) The Issuer has delivered to the Purchaser (i) the annual reports on
Form 20-F for its fiscal years ended September 30, 1994 and 1995 and the annual
report on Form 10-K for its fiscal year ended September 30, 1996, (ii) its
quarterly report on Form 10-Q for the fiscal quarter ended December 31, 1996,
(iii) its proxy and information statements relating to meetings of, or actions
taken without a meeting by, the shareholders of the Issuer held since January 1,
1994, and (iv) all of its other reports, statements, schedules prospectuses and
registration statements filed with the U.S. Securities and Exchange Commission
(the "COMMISSION") or any of the Canadian provincial securities commissions (the
"CANADIAN COMMISSIONS") since January 1, 1996.
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(d) As of its filing date, each such report or statement and all other
reports, statements, schedules prospectuses and registration statements filed
with the Commission or any of the Canadian Commissions since January 1, 1994 but
before January 1, 1996 ("OTHER FILINGS") filed pursuant to the Exchange Act or
the applicable provincial securities laws did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
(e) Each such report or statement, and all Other Filings as amended or
supplemented, if applicable, filed pursuant to the Securities Act or applicable
provincial securities laws as of the date such statement or amendment became
effective did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
SECTION 3.11. FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the Issuer
included in its annual reports on Forms 20-F and 10-K and the quarterly report
on Form 10-Q referred to in Section 3.10(c) fairly present, with respect to the
annual report on Form 20-F for the fiscal year ended September 30, 1994, in
conformity with Canadian generally accepted accounting principles as reconciled
with United States generally accepted accounting principles, and with respect to
the annual reports on Forms 20-F and 10-K for the fiscal years ended September
30, 1995 and 1996, respectively and the quarterly report on Form 10-Q, in
conformity with U.S. generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto) the
consolidated financial position of the Issuer and its consolidated subsidiaries
as of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements).
SECTION 3.12. COMPLIANCE WITH ERISA. (a) For the purposes of this
Section 3.12, the following terms shall have the following meanings:
"BENEFIT ARRANGEMENT" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or
a Multiemployer Plan and which is maintained or otherwise contributed
to by any member of the ERISA Group.
"ERISA GROUP" means the Issuer and all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Issuer, are
treated as a single employer under Section 414 of the Code.
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"INTERNATIONAL PLAN" means any employment, severance or
similar contract or arrangement (whether or not written) or any plan,
policy, fund, program or arrangement or contract providing for that (i)
is not a Plan or a Benefit Arrangement and (ii) is maintained, or
contributed to, by any member of the ERISA Group.
"MULTIEMPLOYER PLAN" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which
any member of the ERISA Group is then making or accruing an obligation
to make contributions or has within the preceding five plan years made
contributions, including for these purposes any Person that ceased to
be a member of the ERISA Group during such five-year period.
"PLAN" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the
Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii)
has at any time within the preceding five years been maintained, or
contributed to, by any Person which was at such time a member of the
ERISA Group for employees of any Person which was at such time a member
of the ERISA Group.
(b) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of the Employee Retirement Income Security Act of
1974, as amended from time to time ("ERISA") and the Internal Revenue Code (the
"CODE") or their foreign equivalent with respect to each Plan and International
Plan, as applicable, and is in compliance with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the Pension Benefit Guaranty
Corporation (or any entity succeeding to any or all of its functions under
ERISA) for premiums under Section 4007 of ERISA. Neither the Issuer nor any of
its Subsidiaries has made any contributions to a Multiemployer Plan or a Plan.
No member or former member of the ERISA Group has within the last five years
engaged in, or is a successor or parent corporation to an entity that has
engaged in, a transaction described in Section 4069 of ERISA. Each Benefit
Arrangement that is intended to qualify under Section 401(a) of the Code is so
qualified and has been so qualified during the period since its adoption. Each
Benefit Arrangement and International Plan has been maintained in compliance
with its
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terms and with the requirements prescribed by any and all applicable U.S. and
non-U.S. statutes, orders, rules and regulations, including, but not limited to,
ERISA and the Code.
SECTION 3.13. OFFERING. Assuming the accuracy of the representations
set forth in Article IV hereof, the offer, sale and issuance of the Securities
to the Purchaser at the Closing as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act and the prospectus
requirements of all applicable provincial securities laws.
SECTION 3.14. INVESTMENT COMPANY; PUHCA. (a) The Issuer is not, and
after giving effect to the sale and issuance of the Securities, will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(b) Neither the Issuer nor any of its Subsidiaries is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company" (each
within the meaning of the Public Utility Holding Company Act of 1935, as
amended).
SECTION 3.15. GOVERNMENTAL REGULATION. Except as required pursuant to
the Securities Act, the Exchange Act and state or Canadian provincial securities
laws, the Issuer is not subject to any U.S. federal, Canadian federal, state or
provincial law or regulation limiting its ability to issue and perform its
obligations under the terms of the Securities.
SECTION 3.16. SOLICITATION; ACCESS TO INFORMATION. No form of general
solicitation or general advertising was used by the Issuer or, to the best of
its knowledge, any other Person acting on its behalf, in respect of the
Securities or in connection with the offer and sale of the Securities. Neither
the Issuer nor any Person acting on behalf of the Issuer has, either directly or
indirectly, sold or offered for sale to any Person any of the Securities or any
other similar security of the Issuer except as contemplated by this Agreement.
SECTION 3.17. TAXES. (a) The Issuer and each of its Subsidiaries: (i)
has filed or will file, in accordance with all applicable laws, all Tax (as
defined below) returns, statements, reports and forms (collectively, the
"RETURNS") required to be filed with any Taxing Authority (as defined below) on
or before the Closing Date (taking into account any extension of a required
filing date) with respect to any Tax period ending on or before the Closing Date
("PRE-CLOSING TAX PERIOD"); (ii) will file all other Returns required to be
filed when due (taking into account any extension of a required filing date);
(iii) has timely paid all Taxes shown as due and payable on the Returns that
have been filed; (iv) has not been a member of an affiliated, consolidated,
combined or unitary group other than one of which the Issuer was the common
parent; and (v) is not currently under
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any contractual obligation to pay any amounts of the type described in clause
(ii) or (iii) of the definition of "Tax". The Issuer represents further that (x)
the charges, accruals and reserves for Taxes reflected on its Balance Sheet
(excluding any provision for deferred income taxes) are adequate to cover the
Tax liabilities accruing through the date thereof; and (y) there is no action,
suit, proceeding, investigation, audit or claim pending or, to the knowledge of
the Issuer, threatened against or with respect to it in respect of any Tax.
(b) The Issuer does not have any accumulated or current earnings and
profits within the meaning of U.S. federal income tax principles.
(c) The Issuer is not, and after giving effect to the sale and issuance
of the Securities, will not be, a passive foreign investment company within the
meaning of Section 1296 of the Internal Revenue Code of 1986, as amended.
SECTION 3.18. ABSENCE OF CERTAIN CHANGES. Except as expressly
contemplated in this Agreement, since the Balance Sheet Date, the Issuer and its
Subsidiaries have conducted their businesses in the ordinary course consistent
with past practices and there has not been:
(a) any event, occurrence, development or state of
circumstances or facts which has resulted in or could reasonably be
expected to result in a Material Adverse Change provided that an
operating loss not in excess of $28,000,000 through the date hereof
shall not be deemed to be a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital shares of
the Issuer, or any repurchase, redemption or other acquisition by the
Issuer or any of its Subsidiaries of any outstanding shares of capital
shares or other securities of (including options to purchase capital
shares), or other ownership interests in, the Issuer or any of its
Subsidiaries;
(c) any amendment of any term of any outstanding security of
the Issuer or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Issuer or
any of its Subsidiaries of any Indebtedness, net of Indebtedness repaid
during such period, in excess of $35,000,000;
(e) any creation or assumption by the Issuer or any of its
Subsidiaries of any Lien on any asset other than in the ordinary course
of business consistent with past practices and other than Permitted
Liens;
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(f) other than temporary investments of cash in the ordinary
course of business, any making by the Issuer or any of its Subsidiaries
of any loan, advance or capital contributions to or investment in any
Person, including those Persons listed on Schedule 3.18(f) hereto,
other than the Issuer or any of its wholly-owned Subsidiaries.
(g) any material damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or assets
of the Issuer or any of its Subsidiaries;
(h) any material transaction or commitment made, or any
contract or agreement entered into, by the Issuer or any of its
Subsidiaries relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by the
Issuer or any of its Subsidiaries of any contract or other right, other
than in the ordinary course of business;
(i) any change in any method of accounting or accounting
practice by the Issuer or any of its Subsidiaries;
(j) any cancellation of any material licenses, sublicenses,
franchises, permits or agreements to which the Issuer or any Subsidiary
is a party, or any notification to the Issuer or any Subsidiary that
any party to any such material arrangements intends to cancel or not
renew such arrangements beyond its expiration date as in effect on the
date hereof; or
(k) except for entering into the agreements listed on Schedule
3.18(k) hereto and the prepayment for services from those persons
listed on Schedule 3.18(f) hereto for the purchase price described
therein, any transaction, agreement, arrangement or understanding
entered into, or payment made to, those persons listed on Schedule
3.18(f) hereto.
SECTION 3.19. PROPERTIES. The Issuer and its Subsidiaries have good and
marketable title to, or in the case of leased property have valid leasehold
interests in, all material property and assets (whether real or personal,
tangible or intangible) reflected on the Balance Sheet or acquired after the
Balance Sheet Date, except for inventory sold since the Balance Sheet Date in
the ordinary course of business consistent with past practices. None of such
material properties or assets is subject to any Liens, except (i) Liens
disclosed or provided for on the Balance Sheet, (ii) Liens in existence on the
date hereof and listed in Schedule 3.19 hereto or (iii) Permitted Liens.
SECTION 3.20. EMPLOYEES; EMPLOYEE COMPENSATION. Except as set forth in
Schedule 3.20, to the best of the Issuer's knowledge, (i) there is no strike or
labor dispute or union organization activities pending or threatened between it
and its
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employees; (ii) none of the Issuer's employees belongs to any union or
collective bargaining unit; (iii) the Issuer has complied with all applicable
U.S. federal, Canadian federal, state and provincial equal opportunity and other
laws related to employment; (iv) no employee of the Issuer is or will be in
violation of any judgment, decree, or order, or any term of any employment
contract, patent disclosure agreement, or other contract or agreement relating
to the relationship of any such employee with the Issuer or any other party
because of the nature of the business conducted or to be conducted by the Issuer
or to the use by the employee of his best efforts with respect to such business;
and (v) no officer or key employee, or any group of key employees, intends to
terminate their employment with the Issuer, nor does the Issuer have a present
intention to terminate the employment of any of the foregoing. Except as
disclosed in its filings filed with the Commission or set forth in Schedule
3.20, the Issuer is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement. Subject to general principles related to wrongful termination of
employees, the employment of each officer and employee of the Issuer not covered
by an employment contract is terminable at the will of the Issuer.
SECTION 3.21. NO UNDISCLOSED MATERIAL LIABILITIES. There is no
liability of the Issuer or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
could reasonably be expected to result in such a liability, other than (i)
liabilities disclosed or provided for in the Balance Sheet, and (ii) liabilities
incurred in the ordinary course of business consistent with past practice since
the Balance Sheet Date which in the aggregate would not have a Material Adverse
Effect.
SECTION 3.22. MATERIAL CONTRACTS. (a) Except for agreements, contracts,
plans, leases, arrangements or commitments included as exhibits to the Issuer
l0-K, neither the Issuer nor any of its Subsidiaries is a party to or subject to
any agreements, contracts, plans, leases, arrangements or commitments that (i)
are material to its business, assets, financial condition or operations, (ii)
provide for the purchase of materials, supplies, goods, services, equipment or
other assets other than in the ordinary course of business, (iii) involve any
partnership, joint venture or other similar arrangement or (iv) restrict the
Issuer or any Subsidiary from engaging in or competing in any line of business
or with any Person or in any geographic area.
(b) Each agreement, contract, plan, lease, arrangement and commitment
disclosed or required to be disclosed pursuant to clause (a) above is a valid
and binding agreement of the Issuer or a Subsidiary of the Issuer and is in full
force and effect, and neither the Issuer, any of its Subsidiaries nor, to the
knowledge of the Issuer, any other party thereto is in default in any material
respect under the terms of any such agreement, contract, plan, lease,
arrangement or commitment.
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SECTION 3.23. CERTAIN AGREEMENTS. Attached hereto as Schedule 3.23 are
complete and accurate copies of all agreements, arrangements and understandings
the Issuer has with, or relating to, those Persons listed on Schedule 3.18(f)
hereto. None of such agreements, arrangements or understandings require the
Issuer or any of its Subsidiaries to pay any amount (in cash or other property)
to, to loan or advance any amount to, make any investment in or capital
contribution to, or pay or guarantee any obligation of, such Persons.
SECTION 3.24. ENVIRONMENTAL COMPLIANCE. (a) No notice, demand, order or
request for information has been issued, no complaint has been filed, no penalty
has been assessed and no investigation, claim, action, suit, proceeding or
review is pending, or to the Issuer's knowledge, threatened by any governmental
or other entity with respect to (i) any alleged violation of, or liability
under, any U.S. federal, Canadian federal, state, provincial or local law,
treaty, regulation, judicial decision, rule, order or any governmental
restriction relating to human health and safety, the environment or to
pollutants, contamination, wastes or chemicals or any Hazardous Substance (as
defined below) ("ENVIRONMENTAL LAWS") relating to the Issuer or any of its
Subsidiaries or (ii) any alleged failure by the Issuer or any of its
Subsidiaries to have any permit, license or approval required by any
Environmental Law in connection with the conduct of their businesses.
(b) (i) Other than in compliance with all applicable Environmental
Laws, neither the Issuer nor any of its Subsidiaries nor any former subsidiaries
nor any entity which is a predecessor of any of the foregoing has generated,
treated, stored, recycled, sold, disposed of or transported any pollutant or
contaminant or any toxic, radioactive, corrosive, reactive or otherwise
hazardous substance, material or waste, including petroleum, its derivatives,
by-products and other hydrocarbons, whether or not regulated under any
Environmental Law ("HAZARDOUS SUBSTANCE") and (ii) no generation, treatment,
storage, recycling, transportation, disposal or Release (as defined in 42 U.S.C.
ss. 9601(22)) of any Hazardous Substance has occurred at or on any property now
or, to the knowledge of the Issuer, previously owned, operated or leased by the
Issuer or any of its Subsidiaries or any former subsidiaries or any entity which
is a predecessor of any of the foregoing.
(c) (i) each of the Issuer and its Subsidiaries is in compliance in all
material respects with all Environmental Laws and (ii) there is no material
liability of or relating to the Issuer, any of its Subsidiaries, any former
subsidiaries or any entity which is a predecessor of any of the foregoing,
whether vested or unvested, contingent or fixed, actual or potential, known or
unknown, which arise under or relate to matters covered by Environmental Laws.
SECTION 3.25. INSURANCE. The Issuer has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to
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reasonable deductibles) in the Issuer's opinion to allow it to replace any of
its material properties that might be damaged or destroyed. The Issuer has in
full force and effect products liability, business interruption and errors and
omissions insurance in amounts that to its best knowledge are customary for
companies similarly situated.
SECTION 3.26. COMPLIANCE WITH LAWS. Neither the Issuer nor any
Subsidiary nor any person acting on its or their behalf (a) has directly or
indirectly used any corporate funds for any unlawful payment to any foreign or
domestic governmental or judicial officials or employees, (b) made any unlawful
payment (including any bribe, rebate, pay-off, kickback or influence payment) to
any person or entity, private or public, whether in the form of cash, property,
services or otherwise, (c) established or maintained any fund of monies or other
assets for the purposes specified in clause (a) or (b) above or made any false
or fictitious entry on the books or records of the Issuer or any of its
affiliates relating to any payment referred to in clause (a) or (b) above, or
(d) is in violation of, or has violated, any applicable provisions of any laws,
statutes, ordinances, orders, decrees or regulations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Issuer as follows:
SECTION 4.01. ORGANIZATION. The Purchaser is duly organized and
existing under the laws of Barbados.
SECTION 4.02. AUTHORITY; NO OTHER ACTION. (a) The execution, delivery
and performance of this Agreement and the Securityholders Agreement are within
the Purchaser's powers and have been duly authorized on its part by all
requisite society action.
(b) No action by or in respect of, or filing with, any governmental
authority, agency or official is required for the execution, delivery and
performance by the Purchaser of this Agreement and the Securityholders
Agreement, except for those which have been obtained or made.
SECTION 4.03. NON-CONTRAVENTION. The execution, delivery and
performance by the Purchaser of this Agreement and the Securityholders Agreement
and the consummation of the transactions contemplated hereby and thereby do not
and will not (i) violate its agreement of formation or (ii) violate any
applicable law, rule, regulation, judgment, injunction, order or decree, which
violation would (a) affect the validity of this
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Agreement or the Securityholders Agreement or (b) individually or in the
aggregate impair the ability of the Purchaser to perform the obligations which
it has under this Agreement or the Securityholders Agreement.
SECTION 4.04. BINDING EFFECT. This Agreement and the Securityholders
Agreement have been duly executed by the Purchaser and constitute valid and
binding agreements of the Purchaser.
SECTION 4.05. NO DEFAULTS. The Purchaser is not in violation of its
agreement of formation or in default under any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or other
instrument binding upon it, which violation or default (i) would affect the
validity of this Agreement or the Securityholders Agreement or (ii) would
(individually or in the aggregate) impair the ability of the Purchaser to
perform the obligations which it has under this Agreement or the Securityholders
Agreement.
SECTION 4.06. PRIVATE PLACEMENT. (a) The Purchaser understands that the
offering and sale of the Securities is intended to be exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act.
(b) The Securities to be acquired by the Purchaser pursuant to this
Agreement are being acquired for the Purchaser's own account and without a view
to the public distribution of such Securities or any interest therein.
(c) The Purchaser is an "Accredited Investor" as such term is defined
in Regulation D.
(d) The Purchaser has sufficient knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and the Purchaser is capable of bearing the
economic risks of such investment, including a complete loss of its investment
in the Securities.
(e) The Purchaser has been furnished with and has carefully read a copy
of the Issuer 10-K and the Issuer 10-Q and the Exhibits and Schedules to this
Agreement and has been given the opportunity to ask questions of, and receive
answers from, the Issuer concerning the terms and conditions of the Securities
and other related matters. The Purchaser further represents and warrants to the
Issuer that the Issuer has made available to the Purchaser or its agents all
documents and information relating to an investment in the Securities requested
by or on behalf of the Purchaser. In evaluating the suitability of an investment
in the Securities, the Purchaser has not relied upon any other representations
or other information (whether oral or written) made by or on behalf of the
Issuer other than as set forth in this Agreement, the Exhibits and Schedules
hereto or as contemplated by the two preceding sentences. The foregoing
provisions of this Section
20
<PAGE>
4.04(e) shall not limit or modify the representations and warranties of the
Issuer contained in this Agreement or the right of the Purchaser to rely
thereon.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.01. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The obligation
of the Purchaser to purchase the Securities to be purchased by it hereunder is
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions:
(a) the representations and warranties of the Issuer contained
herein shall be true and correct on and as of the Closing Date;
(b) the Issuer shall have performed and complied with all
covenants and agreements required by this Agreement to be performed or
complied with by it on or prior to the Closing Date;
(c) the Securityholders Agreement shall have been executed and
delivered by the parties thereto other than the Purchaser, the
conditions to effectiveness of the Securityholders Agreement of each of
the parties thereto other than the Purchaser shall have been satisfied
and, assuming due execution and delivery by the Purchaser, the
Securityholders Agreement shall be in full force and effect;
(d) the Purchaser shall have received a certificate dated the
Closing Date signed by an executive officer of the Issuer to the effect
set forth in subsections (a), (b), (e) and (g) of this Section 5.01;
(e) the Issuer shall have obtained any and all consents,
waivers or Permits necessary for the consummation of the transactions
contemplated hereby;
(f) the Purchaser's purchase of and payment for the Securities
shall not be prohibited by any applicable law, court order or
governmental regulation or any contract, agreement, document or other
instrument by which the Purchaser is bound;
(g) as of the date of the Closing, there shall not have
occurred and be continuing a Change of Control;
21
<PAGE>
(h) the Purchaser shall have received duly executed
certificates representing the Securities being purchased by the
Purchaser pursuant hereto;
(i) the Purchaser shall have received opinions from O'Neill &
Issuer, Canadian counsel to the Issuer, Olshan, Grundman Frome &
Rosenzweig LLP, special U.S. counsel to the Issuer and the general
counsel of the Issuer dated the Closing Date and substantially in the
forms of Exhibits C-1, C-2 and C-3, respectively, hereto;
(j) the Amendment to the Articles shall have been duly adopted
and filed with the Director under the Canada Business Corporations Act
and shall be in full force and effect; and
(k) the Purchaser shall have received all documents and legal
opinions reasonably requested by its counsel relating to the existence
of the Issuer, the corporate authority for entering into, and the
validity of, this Agreement and any other matters relevant hereto and
thereto, all in form and substance reasonably satisfactory to such
counsel.
SECTION 5.02. CONDITIONS TO ISSUER'S OBLIGATIONS. The obligations of
the Issuer to issue and sell the Securities to the Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) the representations and warranties of the Purchaser
contained herein shall be true and correct on and as of the Closing
Date;
(b) the Purchaser shall have performed and complied with all
agreements required by this Agreement to be performed or complied with
by the Purchaser on or prior to the Closing Date; and
(c) the Purchaser's purchase of and payment for the Securities
shall not be prohibited by any applicable law, court order or
governmental regulation or contract, agreement, document or other
instrument by which the Purchaser is bound.
22
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address or telecopier number
set forth on the signature page hereof, or such other address or telecopier
number as such party may hereinafter specify for the purpose to the party giving
such notice. Each such notice, request or other communication shall be effective
(i) if given by telecopy, when such telecopy is transmitted to the telecopy
number specified in this Section and the appropriate electronic confirmation is
received or, (ii) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or, (iii) if given by any other means, when delivered at the address specified
in this Section 6.01.
SECTION 6.02. NO WAIVERS; AMENDMENTS. (a) No failure or delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by all parties
hereto.
SECTION 6.03. INDEMNIFICATION. (a) The Issuer hereby agrees to
indemnify and hold harmless the Purchaser, Morgan Stanley Group, Inc. and its
Subsidiaries, and each Person, if any, who controls any of them within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, and their respective directors, officers, agents and employees (each, an
"INDEMNIFIED PERSON") from and against and to pay any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) ("DAMAGES") to which
such Indemnified Person may become subject as the result of any
misrepresentation, breach of warranty or covenant made or to be performed on the
part of the Issuer under this Agreement, the Securityholders Agreement, the
Securities or otherwise resulting from any claim or proceeding arising out of
the matters or transactions which are the subject of or contemplated by this
Agreement or any instrument or agreement referred to herein (including, without
limitation, (i) the execution, delivery and performance of this Agreement, the
Securityholders Agreement and the Securities and (ii) any use made or proposed
to be made by the Issuer of the proceeds from the sale of the Securities) and
will reimburse any Indemnified Person for all expenses (including reasonable
counsel and expert fees) as they are incurred by any such Indemnified Person in
connection with any
23
<PAGE>
such misrepresentation or breach of warranty or covenant or investigating,
preparing or defending any such action or proceeding, whether pending or
threatened, and whether or not such Indemnified Person is a party hereto.
(b) The Purchaser hereby agrees to indemnify and hold harmless the
Issuer, its Subsidiaries and each Person, if any, who controls the Issuer within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, and their respective directors, officers, agents and employees
(each, an "ISSUER INDEMNIFIED PERSON") from any and all Damages incurred or
suffered by an Issuer Indemnified Person arising out of any misrepresentation or
breach of warranty, covenant or agreement made or to be performed by the
Purchaser pursuant to this Agreement or the Securityholders Agreement.
(c) The party seeking indemnification under paragraph (a) or (b) above
(the "INDEMNIFIED PARTY") agrees to give prompt notice to the party against whom
indemnity is sought (the "INDEMNIFYING PARTY") of the assertion of any claim, or
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought under such Section. The Indemnifying Party may at the request of
the Indemnified Party participate in and control the defense of any such suit,
action or proceeding at its own expense. The Indemnifying Party shall not be
liable under Section (a) or (b) for any settlement effected without its consent
of any claim, litigation or proceeding in respect of which indemnity may be
sought hereunder.
SECTION 6.04. SURVIVAL OF PROVISIONS. The representations and
warranties, covenants and agreements contained in this Agreement shall survive
so long as any of the Securities remain outstanding.
SECTION 6.05. EXPENSES; DOCUMENTARY TAXES. The Issuer shall pay all
reasonable out-of-pocket expenses of the Purchaser, including reasonable fees
and disbursements of the Purchaser's United States, Canadian and Barbadian
counsel and consultants, in connection with the preparation of this Agreement,
the Securityholders Agreement, the Securities, any amendments thereto and the
transactions contemplated hereby and all matters related thereto (including any
subsequent restructuring or reorganization of the Issuer or any of its
Subsidiaries or any of the Securities). In addition, the Issuer shall pay any
and all stamp, transfer and other similar taxes payable or determined to be
payable in connection with the execution and delivery of this Agreement, the
Securityholders Agreement, or the issuance of the Securities or Common Shares
issuable upon the conversion of the Series A Preference Shares (other than any
such taxes payable in connection with the transfer of any outstanding securities
and the issuance by the Issuer of new certificates representing such securities
in the name of the transferee at the request of the transferor).
24
<PAGE>
SECTION 6.06. SUCCESSORS AND ASSIGNS. The Purchaser may assign its
rights and obligations hereunder with the prior written consent of the Issuer.
This Agreement shall be binding upon the Issuer and the Purchaser and their
respective permitted successors and assigns.
SECTION 6.07. NEW YORK LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York.
SECTION 6.08. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in any number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other hereto.
SECTION 6.09. ENTIRE AGREEMENT. This Agreement, the Securityholders
Agreement (including the Consent to Jurisdiction provision contained in Section
6.14 of such Agreement), the Securities and the Articles constitute the entire
agreement and understanding among the parties hereto and supersede any and all
prior agreements and understandings, written or oral, relating to the subject
matter hereof.
SECTION 6.10. AMENDMENT OF SERIES A PREFERRED SHARES. The parties agree
that as soon as possible after the Closing they will take all actions necessary
to amend the terms of the Series A Preference Shares by inserting the language
"the third Business Day after" after the first three words of Section 8(f)(i) of
the terms of the Series A Preference Shares.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
GST TELECOMMUNICATIONS, INC.
By /s/ John Warta
---------------------------
Name: John Warta
Title: Chief Executive Officer
By /s/ Stephen Irwin
---------------------------
Name: Stephen Irwin
Title: Vice Chairman
Address: 4317 N.E. Thurston Way
Vancouver, Washington 98662
Telephone: (360) 254-4700
Telecopier:(360) 944-4578
OCEAN HORIZON SRL
By /s/ Hafiz Khan
---------------------------
Name: Hafiz Khan
Title: Manager
Address: P.O. Box 261,
Bay Street
Bridgetown, Barbados
Telephone: (246) 430-3800
Telecopier:(246) 435-2079
Aggregate
Purchase
Securities Price
- ---------- ----------
500 Series A $48,750,000
Preference Shares
$50,000,000 Face Amount
26
<PAGE>
EXHIBIT C-1
-----------
[Form of Canadian counsel opinion]
1. The Issuer is a corporation duly incorporated, validly existing and in
good standing under the laws of Canada and has all corporate powers and
all governmental licenses, authorizations, consents, approvals and
permits required to carry on its business as conducted to date and as
proposed to be conducted. Each of the Issuer's Subsidiaries
incorporated under the laws of Canada or a province thereof, is a
corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all
corporate power required to carry on its business as conducted to date
and as proposed to be conducted. Each of the Issuer's Subsidiaries has
all material governmental licenses, authorizations, consents, approvals
and permits, in each case, required to carry on its business as
conducted to date and as proposed to be conducted. All of the foregoing
licenses, authorizations, consents, approvals and permits of the Issuer
and its Subsidiaries ("PERMITS") are valid and in full force and
effect, and none of the Permits will be terminated or impaired or
become terminable, in whole or in part, as a result of the transactions
contemplated by the Purchase Agreement, the Securityholders Agreement
or the Securities, and there has been no notification to the Issuer or
any Subsidiary that any party to, or issuer of, any such Permit intends
to cancel or not renew such Permit beyond its expiration date as in
effect on the date hereof.
2. The execution, delivery and performance by the Issuer of each of the
Purchase Agreement and the Securityholders Agreement and the issuance,
delivery and performance by the Issuer of the Securities are within the
Issuer's corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official (other than the filing
of the Amendment to the Articles pursuant to the Canada Business
Corporations Act) and do not (a) contravene or constitute a default
under or violation of any provision of applicable law or regulation,
judgment, injunction, order or decree binding upon or applicable to the
Issuer or any of its Subsidiaries, (b) contravene or constitute a
default under the Articles or Bylaws or the Articles or bylaws of any
Subsidiary of the Issuer, (c) require any consent, approval or other
action by any other Person or constitute a default under or violation
of or give rise to any right of termination, cancellation or
acceleration of any right or obligation of the Issuer or any Subsidiary
or to a loss of any benefit to which the Issuer or any Subsidiary is
entitled under any material agreement or other instrument binding upon
the Issuer or any of its Subsidiaries or (iv) result in the creation or
imposition of any Lien on any asset of the Issuer or any of its
Subsidiaries. Neither the Issuer nor any of its Subsidiaries is party
to any agreement or subject to any law or regulation, judgment,
injunction, order or decree which limits the ability of the Issuer to
issue and sell its capital shares or to use the proceeds of such sales
and sales of capital shares of Subsidiaries (to the extent that
<PAGE>
the sale of capital shares of such Subsidiaries is not prohibited) to
redeem the Series A Preference Shares. The issuance of the Securities
will not cause an adjustment to the number of Common Shares which are
issuable pursuant to any outstanding warrant, right, option or
commitment to issue Common Shares or any security convertible into or
exchangeable for Common Shares.
3. The Purchase Agreement, the Securityholders Agreement and the
Securities have been executed and delivered by the Issuer and
constitute valid and binding obligations of the Issuer, enforceable in
accordance with their respective terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization and other
similar laws of general applicability affecting creditors' rights and
(b) as to the remedy of specific performance and injunctive and other
forms of equitable relief, whether sought in a court of law or in
equity, certain equitable defenses and the discretion of the court
before which they are being brought, and except that we express no
opinion of the enforceability of the indemnification and contribution
provisions contained in the Securityholders Agreement.
4. The Common Shares outstanding on the date hereof have been duly
authorized and validly issued, are fully paid and non-assessable and
are not subject to any preemptive or similar rights. The Common Shares
to be issued upon conversion of the Series A Preference Shares have
been duly authorized and reserved for issuance.
5. The Series A Preference Shares purchased by the Purchaser under the
Purchase Agreement are, and the Common Shares to be issued upon the
conversion of such Series A Preference Shares, when issued, sold and
delivered in accordance with the terms thereof will be, duly authorized
and validly issued, fully paid and non-assessable and free and clear of
any pre-emptive or similar rights.
6. There is no action, suit or proceeding pending or, to the best of my
knowledge, threatened against or affecting the Issuer or any of its
Subsidiaries before any court or arbitrator or any governmental body,
agency or official in which there is a reasonable likelihood of an
adverse decision that could (individually or in aggregate) result in a
Material Adverse Effect or result in any material change in the current
equity ownership of the Issuer, or which in any manner draws into
question the validity of the Purchase Agreement, the Securityholders
Agreement, the Securities or any of the transactions contemplated
thereby.
7. The Issuer is not in violation of its Articles or Bylaws nor in default
under any provision of applicable law or regulation or of any
agreement, judgment, injunction, order, decree or other instrument
binding upon it, which violation or default (a) would affect the
validity of the Purchase Agreement, the Securityholders Agreement or
the Securities, (b) would (individually or in the aggregate) impair the
ability of the Issuer to perform in any material respect its
obligations which it has under the Purchase
2
<PAGE>
Agreement, the Securityholders Agreement or the Securities, or (c)
could have, or could reasonably be expected to have, a Material Adverse
Effect. The Issuer is not subject to any law or regulation limiting its
ability to issue and perform its obligations under the terms of the
Securities.
8. Assuming the accuracy of the representations set forth in Article IV of
the Purchase Agreement, the offer, sale and issuance of the Series A
Preference Shares to the Purchaser at the Closing are not in breach of
any securities laws of the provinces of Canada; PROVIDED that we
express no opinion with respect to any securities laws of the United
States, securities or Blue Sky laws of the various states of the United
States or the securities laws of any jurisdiction other than Canada.
All of the Series A Common Shares have been admitted to listing on the
Vancouver Stock Exchange, subject to official notice of issuance.
3
<PAGE>
EXHIBIT C-2
-----------
[Form of US counsel opinion]
1. Each of the Issuer's Subsidiaries incorporated under the laws of a
state of the United States is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Issuer's Subsidiaries incorporated under the
laws of a state of the United States has all corporate powers.
2. The execution, delivery and performance by the Issuer of each of the
Purchase Agreement and the Securityholders Agreement and the issuance,
delivery and performance by the Issuer of the Securities, require no
action by or in respect of, or filing with, any governmental body,
agency or official (other than the filing of the Amendment to the
Articles with the Director, Corporations Branch, Industry Canada and do
not (a) contravene or constitute a default under or violation of any
provision of applicable law or regulation, judgment, injunction, order
or decree binding upon or applicable to the Issuer or any of its
Subsidiaries, (b) contravene or constitute a default under the Articles
or Bylaws or the Articles or bylaws of any Subsidiary of the Issuer,
(c) require any consent, approval or other action by any other Person
or constitute a default under or violation of or give rise to any right
of termination, cancellation or acceleration of any right or obligation
of the Issuer or any Subsidiary or to a loss of any benefit to which
the Issuer or any Subsidiary is entitled under any material agreement
or other instrument binding upon the Issuer or any of its Subsidiaries
or (d) result in the creation or imposition of any Lien on any asset of
the Issuer or any of its Subsidiaries. Neither the Issuer nor any of
its Subsidiaries is party to any agreement or subject to any law or
regulation, judgment, injunction, order or decree which limits the
ability of the Issuer to issue and sell shares of its capital shares or
to use the proceeds of such sales and sales of capital shares of
Subsidiaries (to the extent that the sale of capital shares of such
Subsidiaries is not prohibited) to redeem the Series A Preference
Shares. The issuance of the Securities will not cause an adjustment to
the number of Common Shares which are issuable pursuant to any
outstanding warrant, right, option or commitment to issue Common Shares
or any security convertible into or exchangeable for Common Shares.
3. The Purchase Agreement, the Securityholders Agreement and the
Securities have been executed and delivered by the Issuer and
constitute valid and binding obligations of the Issuer, enforceable in
accordance with their respective terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization and other
similar laws of general applicability affecting creditors' rights and
(b) as to the remedy of specific performance and injunctive and other
forms of equitable relief, whether sought in a court of law or in
equity, certain equitable defenses and the discretion of the court
before which they are being brought, and except that we express no
opinion
<PAGE>
of the enforceability of the indemnification and contribution
provisions contained in the Securityholders Agreement.
4. To our knowledge, after due inquiry, there is no action, suit or
proceeding pending or, threatened against or affecting the Issuer or
any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
likelihood of an adverse decision that could (individually or in
aggregate) result in a Material Adverse Effect or result in any
material change in the current equity ownership of the Issuer, or which
in any manner draws into question the validity of the Purchase
Agreement, the Securityholders Agreement, the Securities or any of the
transactions contemplated thereby.
5. The Issuer is not in default under any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or
other instrument binding upon it, which violation or default (a) would
affect the validity of the Purchase Agreement, the Securityholders
Agreement or the Securities, (b) would (individually or in the
aggregate) impair the ability of the Issuer to perform in any material
respect its obligations which it has under the Purchase Agreement, the
Securityholders Agreement or the Securities, or (c) could have, or
could reasonably be expected to have, a Material Adverse Effect. The
Issuer is not subject to any law or regulation limiting its ability to
issue and perform its obligations under the terms of the Securities.
6. The Issuer is not, and after giving effect to the issuance and sale of
Securities pursuant to the Agreement will not be, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended. Neither the Issuer nor any of its Subsidiaries is a "holding
company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company" (each within the meaning of the Public Utility
Holding Company Act of 1935, as amended).
7. Assuming the accuracy of the representations set forth in Article IV of
the Purchase Agreement, the offer, sale and issuance of the Series A
Preference Shares to the Purchaser at the Closing are exempt from the
registration requirements of the Securities Act; PROVIDED that we
express no opinion with respect to any securities laws -------- of
Canada or the provinces thereof, securities or Blue Sky laws of the
various states of the United States or the securities laws of any
jurisdiction other than the United States. A total of 4,234,208 of the
Series A Common Shares have been admitted to listing on the American
Stock Exchange, subject to official notice of issuance.
2
<PAGE>
EXHIBIT C-3
-----------
[Form of Opinion of Issuer's General Counsel]
1. The Issuer has all material governmental licenses, authorizations,
consents, approvals and permits required to carry on its business as
conducted to date and as proposed to be conducted. Each of the Issuer's
Subsidiaries has all material governmental licenses, authorizations,
consents, approvals and permits, in each case, required to carry on its
business as conducted to date and as proposed to be conducted. All of
the foregoing licenses, authorizations, consents, approvals and
permits, of the Issuer and its Subsidiaries (the "PERMITS") are valid
and in full force and effect, and none of the Permits will be
terminated or impaired or become terminable, in whole or in part, as a
result of the transactions contemplated by the Purchase Agreement, the
Securityholders Agreement or the Securities, and there has been no
notification to the Issuer or any Subsidiary that any party to, or
issuer of, any such Permit intends to cancel or not renew such Permit
beyond its expiration date as in effect on the date hereof.
3
EXHIBIT A
ARTICLES OF AMENDMENT
1. NUMBER AND DESIGNATION; RANK; PAYMENTS. (a) Of the 10,000,000
authorized Preference Shares ("PREFERENCE SHARES"), no par value, of GST
Telecommunications, Inc., a federally chartered Canadian corporation (the
"CORPORATION"), 500 (five hundred) shares are hereby designated as Series A
Preference Shares (the "SERIES A PREFERENCE SHARES") having the rights,
privileges, restrictions and conditions set forth herein.
(b) The Preference Shares (including, for purposes of this paragraph
(b), the Series A Preference Shares) shall, with respect to dividend rights and
rights on liquidation, dissolution and winding up, rank prior to all classes or
series of common shares of the Company, including the Corporation's Common
Shares, no par value ("COMMON SHARES") and each other class of shares of the
Corporation, the terms of which provide that such class shall rank junior to the
Preference Shares or the terms of which do not specify any rank relative to the
Preference Shares. All equity securities of the Corporation to which the
Preference Shares ranks prior (whether with respect to dividends or upon
liquidation, dissolution, winding up or otherwise), including the Common Shares,
are collectively referred to herein as the "JUNIOR SECURITIES." All equity
securities of the Corporation with which the Preference Shares ranks on a parity
(whether with respect to dividends or upon liquidation, dissolution, winding up
or otherwise) are collectively referred to herein as the "PARITY SECURITIES."
All equity securities of the Corporation to which the Preference Shares rank
junior (whether with respect to dividends or upon liquidation, dissolution,
winding up or otherwise) are collectively referred to herein as the "SENIOR
SECURITIES." The respective definitions of Senior Securities, Junior Securities
and Parity Securities shall also include any rights or options exercisable for,
or securities convertible into or exchangeable for, any of the Senior
Securities, Junior Securities and Parity Securities, as the case may be. The
Series A Preference Shares shall be subject to the creation of Senior Securities
and Parity Securities only to the extent provided in Section 4(c)(i).
(c) No dividends or other distribution (other than dividends payable in
Common Shares), and no redemption, purchase or other acquisition for value
(other than redemptions, purchases or acquisitions payable in Common Shares)
shall be declared or made directly or indirectly by the Corporation or any of
its Subsidiaries with respect to any Junior Securities or Parity Securities.
A-1
<PAGE>
(d) All payments in respect of the Series A Preference Shares shall be
paid in U.S. dollars, and all calculations hereunder shall be made in U.S.
dollars. In the event that any amount expressed in Canadian dollars is to be
converted into U.S. dollars, the spot exchange rate announced by Citibank, N.A.
on the Business Day preceding the date such conversion is necessary shall be
used to convert such amount into U.S. dollars.
(e) Except as provided in Section 4, the Corporation will not, by
amendment of the Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions hereof and in the taking of all such action as may be
necessary or appropriate in order to protect the dividend, liquidation,
redemption, conversion and other rights of the holders of the Series A
Preference Shares against impairment.
Section 2. DIVIDENDS. The holders of the Series A Preference Shares
shall not be entitled to receive any dividends thereon, except that in the event
the Corporation declares or pays a dividend on or makes a distribution on the
Common Shares, the Corporation will declare or pay or make a distribution on
each Series A Preference Share equal to the product of such dividend or
distribution and the number of Common Shares which such share is convertible
into (provided that prior to February 28, 2000 such number of shares shall be
equal to the Conversion Ratio in effect on February 28, 2000).
Section 3. LIQUIDATION PREFERENCE. (a) In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series A Preference Shares shall be entitled to receive,
prior and in preference to any distribution of any of the assets or funds of the
Corporation to the holders of any Junior Securities, the liquidation preference
amount per share (the "LIQUIDATION PREFERENCE") set forth in the table below
opposite the time period during which the date of the final distribution to the
holders of Series A Preference Shares in respect of such liquidation,
dissolution or winding up occurs:
PER SHARE LIQUIDATION AGGREGATE LIQUIDATION
FINAL DISTRIBUTION PREFERENCE PREFERENCE
- ----------------------- --------------------- ---------------------------
February 28, 1997 100,000.00 50,000,000
May 31, 1997 105,937.50 52,968,750
November 30, 1997 112,227.54 56,113,770
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PER SHARE LIQUIDATION AGGREGATE LIQUIDATION
FINAL DISTRIBUTION PREFERENCE PREFERENCE
- ----------------------- --------------------- ---------------------------
May 31, 1998 118,891.05 59,445,525
November 30, 1998 125,950.21 62,975,103
May 31, 1999 133,428.50 66,714,249
November 30, 1999 141,350.82 70,675,408
May 31, 2000 149,743.52 74,871,760
November 30, 2000 158,634.54 79,317,271
May 31, 2001 168,053.47 84,026,734
November 30, 2001 178,031.64 89,015,821
May 31, 2002 188,602.27 94,301,136
November 30, 2002 199,800.53 99,900,266
May 31, 2003 211,663.69 105,831,844
November 30, 2003 224,231.22 112,115,610
May 31, 2004 237,544.95 118,772,474
November 30, 2004 251,649.18 125,824,590
May 31, 2005 266,590.85 133,295,425
November 30, 2005 282,419.68 141,209,840
May 31, 2006 299,188.35 149,594,175
November 30, 2006 316,952.66 158,476,329
May 31, 2007 335,771.72 167,885,861
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the Series A Preference Shares shall be insufficient to pay
in full the preferential amount aforesaid and liquidating payments on any Parity
Securities, then such assets, or the proceeds thereof, shall be distributed
among the holders of Series A Preference Shares and any such other Parity
Securities ratably in accordance with the respective amounts that would be
payable on such Series A Preference Shares and any such Parity Securities if all
amounts payable thereon were paid in full. Subject to the rights of holders of
any Parity Securities, after payment has been made to the holders of the Series
A Preference Shares of the full amounts to which they are entitled, no further
amounts shall be paid with respect to the Series A Preference Shares and the
remaining assets of the Corporation shall be distributed among the holders of
all Junior Securities in accordance with the Articles of Incorporation and
applicable law.
(c) For purposes of this Section 3, (i) a merger or consolidation of
the Corporation with or into any other corporation or corporations in which the
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Corporation is not the surviving corporation, (ii) any transaction or series of
transactions solely for the purpose of reincorporation of the Corporation in
another jurisdiction, or (iii) a voluntary sale of all or substantially all of
the assets of the Corporation, shall not be treated as a liquidation,
dissolution or winding up of the Corporation (unless in connection therewith,
the liquidation, dissolution or winding up of the Corporation is specifically
approved).
Section 4. VOTING RIGHTS. (a) Except as otherwise provided herein or in
the Articles of Incorporation or as Canadian federal law otherwise expressly
requires, the holders of Series A Preference Shares shall not be entitled by
virtue thereof to any voting rights as shareholders of the Corporation.
(b) The holders of Series A Preference Shares shall be entitled to
receive notice of and shall be entitled to attend in person or by proxy any
meeting of the shareholders of the Corporation. Notices of meetings shall be
given to the holders of Series A Preference Shares in the manner to be given to
shareholders entitled to vote at any such meeting, unless waived in writing
before or after the meeting by the holders of a majority of the outstanding
Series A Preference Shares. Nothing in this Section shall limit the ability of
shareholders of the Corporation to act by written consent. The Corporation shall
give written notice of any action taken by written consent to the holders of the
Series A Preference Shares within 3 Business Days after the effective date of
such written consent, with said notice to describe in reasonable detail the
nature and substance of such action. "BUSINESS DAY" means any day except a
Saturday, Sunday or other day on which commercial banks in the City of New York
are authorized or required by law to close.
(c) In addition to such other vote, if any, as may be required
hereunder or by Canadian federal law or the Articles of Incorporation, the
affirmative vote of the holders of at least a majority of the Series A
Preference Shares then outstanding, voting together as a single class and series
(or acting by written consent), shall be necessary to: (i) authorize, increase
the number of authorized shares of, or issue any Parity Securities (including
additional series of Preference Shares), Senior Securities or additional Series
A Preference Shares or any Junior Securities having mandatory or optional
redemption dates (other than as to redemptions that are at the option of the
Corporation) earlier than the one year anniversary of the Extended Redemption
Date of the Series A Preference Shares; (ii) authorize an amendment or
alteration of the Articles of Incorporation (x) decreasing the Liquidation
Preference of the Series A Preference Shares, (y) granting holders of bonds,
debentures or other obligations, voting rights, or (z) otherwise adversely
affecting the preferences, rights or powers of the Series A Preference Shares;
or (iii) effect a voluntary liquidation, dissolution or winding up of the
Corporation, the sale of all or substantially all the assets of the Corporation,
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or the merger, consolidation or recapitalization of the Corporation, unless (A)
the corporation surviving such merger or consolidation or to which such assets,
property or business are sold, assigned, transferred, leased, conveyed or
otherwise disposed of (the "SUCCESSOR CORPORATION") is a corporation organized
under the laws of Canada or a province thereof or a state of the United States
or the District of Columbia; (B) the Series A Preference Shares shall be
converted into, or exchanged for, and shall become shares of the Successor
Corporation having the same powers, preferences, and relative privileges, rights
and qualifications that the Series A Preference Shares had immediately prior to
such transaction; and (C) such transaction complies with Section 9(c) hereof.
(d) (i) Subject to Section 4(e), so long as any Series A Preference
Shares remain outstanding, commencing on the date the Series A Preference Shares
are first issued (the "ISSUE DATE"), the holders of Series A Preference Shares
shall be entitled to elect and dismiss from time to time by vote of holders of a
majority of the Series A Preference Shares, voting separately from all other
classes and series, one director (the "PREFERRED DIRECTOR") to serve on the
Board of Directors until the earlier of (x) three years (at which time such
director may be replaced or reelected) or (y) replacement or removal by vote of
such holders. Such vote may be taken at a special meeting of the holders of
Series A Preference Shares or by written consent of the holders of all of such
shares.
(ii) The right of the holders of the Series A Preference Shares to
elect the Preferred Director as provided in this Subsection (d)(i) above shall
continue until such time as there are no outstanding Series A Preference Shares.
The term of office of any Preferred Director then in office elected by the
holders of Series A Preference Shares pursuant to Subsection (d) shall terminate
simultaneously with the termination of the right of the holders of Series A
Preference Shares to elect directors.
(iii) At any time when the voting right of the holders of Series A
Preference Shares provided in this Subsection (d) is in effect, within ten (10)
days after the Corporation's receipt of a written request by the holders of a
majority of the Series A Preference Shares then outstanding addressed to the
Secretary of the Corporation, a proper officer of the Corporation shall call a
special meeting of the holders of Series A Preference Shares for the election or
dismissal of the Preferred Director, to be held on not less than twenty-one (21)
but not more than thirty (30) days' notice to such shareholders. If such notice
of meeting is not given within the twenty-one (21) days required above, the
holders of Series A Preference Shares requesting such meeting also may call such
meeting and for such purposes shall have access to the stock books and records
of the Corporation. At any meeting so called, the holders of the majority of the
Series A Preference Shares present, in
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person or by proxy, shall be sufficient to constitute a quorum for the election
or removal of the Preferred Director.
(iv) In the case of any vacancy in the office of the Preferred
Director, the vacancy shall be filled by the affirmative vote of the holders of
the majority of the Series A Preference Shares then outstanding, voting together
as a single class, given either at a special meeting of such shareholders duly
called for that purpose or pursuant to a written consent of all of the holders
of Series A Preference Shares. Any Preferred Director may be removed during the
term of office to which each was elected, either with or without cause, by and
only by the affirmative vote of the holders of a majority of the Series A
Preference Shares, given either at a special meeting of such shareholders duly
called for that purpose or pursuant to a written consent of all of such
shareholders, and any vacancy thereby created may be filled only by the holders
of Series A Preference Shares represented at such meeting or pursuant to such
written consent.
(e) All Series A Preference Shares currently owned and held by the
Purchaser (as defined in the Securityholders Agreement (as defined in Section
8(e) hereof)) will not be entitled to be voted by any such entity for the
election or removal of the Preferred Director at any time unless, and except to
the extent that, at such time such entity would be able to acquire and vote such
shares owned and held by it without violation of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"); PROVIDED, HOWEVER, that
the foregoing shall not limit the right of any other party to acquire or vote
any Series A Preference Shares or Common Shares. Notwithstanding the foregoing,
this paragraph (e) shall have no force and effect with respect to the Purchaser
from the date which is 45 days after the date the Purchaser shall have filed a
Pre Merger Notification and Report Form with respect to its ownership of Series
A Preference Shares under the HSR Act.
(f) In the event that the right of the holders of Series A Preference
Shares to elect the Preferred Director is suspended pursuant to Section 4(e),
the Corporation shall (x) nominate for election as a director at the annual
meetings for election of directors a person chosen by the holders of a majority
of the Series A Preference Shares, (y) include such person on the slate of
directors proposed by the Corporation to be elected at each such meeting and (z)
cause such person to be appointed by the Board of Directors as a director until
the annual meeting next held after the annual meeting held on March 17, 1997,
such appointment to be effected no later than March 31, 1997.
Section 5. CONVERSION. (a) OPTIONAL CONVERSION. Subject to the
provisions of this Section 5, the holders of the Series A Preference Shares
shall have the right, at any time, and from time to time, on or after the third
anniversary of the Issue
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Date, at such holder's option, to convert, in whole or in part, (including
fractional shares) the Series A Preference Shares into the number of fully paid
and non-assessable Common Shares set forth in the table below opposite the
period during which the Conversion Date (as defined below) for each share which
is so converted occurs (provided that, each holder may delay the exercisability
of the option to convert (but not the Mandatory Conversion right of the
Corporation referred to below) at any time, and from time to time, for all or
any part of the Series A Preference Shares owned by such holder):
CONVERSION PER SHARE NUMBER OF AGGREGATE NUMBER
- ----------------------- ------------------------- ----------------------
February 28, 2000 12,426.45 6,213,223
May 31, 2000 13,164.27 6,582,133
November 30, 2000 13,945.89 6,972,947
May 31, 2001 14,773.93 7,386,966
November 30, 2001 15,651.13 7,825,567
May 31, 2002 16,580.42 8,290,210
November 30, 2002 17,564.88 8,782,441
May 31, 2003 18,607.80 9,303,898
November 30, 2003 19,712.63 9,856,317
May 31, 2004 20,883.07 10,441,536
November 30, 2004 22,123.00 11,061,502
May 31, 2005 23,436.56 11,718,279
November 30, 2005 24,828.10 12,414,052
May 31, 2006 26,302.27 13,151,136
November 30, 2006 27,863.97 13,931,985
May 31, 2007 29,518.39 14,759,197
The number of Common Shares deliverable upon conversion of a Series A
Preference Share as set forth above and in the table in Section 8(d)(i) during
each of the above periods and the periods set forth in the table in Section
8(d)(i) (each, a "CONVERSION PERIOD"), adjusted as hereinafter provided, is
referred to herein as a "CONVERSION RATIO." Notwithstanding any call for
redemption pursuant to Section 8, the right to convert Series A Preference
Shares so called for redemption shall terminate at the close of business on the
Business Day immediately preceding the date fixed for such redemption, unless
the Corporation shall default in making payment of the amount payable upon such
redemption.
(b) MANDATORY CONVERSION. If as of any date on or after the third
anniversary of the Issue Date, the closing prices of the Issuer's Common Shares
as reported on the American Stock Exchange, the New York Stock Exchange or the
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NASDAQ National Market System for the 30 consecutive trading days preceding each
such date is greater than the Automatic Conversion Level then in effect, then
each and every Preference Share shall be automatically converted at the close of
business on such date (the "AUTOMATIC CONVERSION DATE") into the number of
shares equal to the Conversion Ratio set forth in the table in Section 5(a)
above which would apply if such shares were converted at the option of the
holder on such date. The closing price for each day shall be the last sale price
on such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices on such date, in each case as officially reported
on the principal national securities exchange or national market system on which
such shares are then listed, admitted to trading or traded, excluding any trades
which are not bona fide, arm's-length transactions. "AUTOMATIC CONVERSION LEVEL"
means US$15.925, as adjusted from time to time as provided in Section 6(i).
Notwithstanding the foregoing, the Series A Preference Shares shall not be
automatically converted into Common Shares unless all Series A Common Shares (as
defined in the Securities Purchase Agreement (as defined in Section 8(e))) have
been admitted to listing on the American Stock Exchange, subject only to
official notice of issuance.
(c) MECHANICS OF CONVERSION. (i) In order to exercise the conversion
right (or receive certificates for Common Shares upon an automatic conversion),
the holder of the Series A Preference Shares to be converted (or which have been
automatically converted) shall surrender the certificate representing such
shares at the office of the Corporation, with a written notice ("CONVERSION
NOTICE") of election to convert completed and signed, specifying the number of
shares to be converted (unless such shares have been automatically converted).
Unless the shares issuable on conversion are to be issued in the same name as
the name in which such Series A Preference Shares are registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or the
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax.
(ii) As promptly as practicable after (but in no event in excess of
three Business Days after) the surrender by the holder of the certificates for
Series A Preference Shares as aforesaid, the Corporation shall issue and shall
deliver to such holder, or on the holder's written order to the holder's
transferee, a certificate or certificates for the whole number of Common Shares
(and, if applicable, fractions thereof) issuable upon the conversion of such
shares in accordance with the provisions of this Section 5.
(iii) Each conversion shall be deemed to have been effected (x)
immediately prior to the close of business on the date (the "CONVERSION DATE")
on which the certificates for Series A Preference Shares shall have been
surrendered
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(or an agreement referred to in Section 8(h) if such certificate has been lost)
and the Conversion Notice received by the Corporation as aforesaid or (y) in the
case of an automatic conversion, the close of business on the Automatic
Conversion Date, and the person in whose name or names any certificate or
certificates for Common Shares shall be issuable upon such conversion shall be
deemed to have become the holder of record of the Common Shares represented
thereby at such time on such date and such conversion shall be into a number of
Common Shares equal to the product of the number of Series A Preference Shares
surrendered multiplied by the Conversion Ratio in effect at such time on such
date. Upon the conversion of Series A Preference Shares, such shares shall no
longer be deemed to be outstanding and all rights of a holder with respect to
such shares shall immediately terminate, except the right to receive the Common
Shares and other amounts payable pursuant to this Section 5 or Section 8(i) upon
conversion.
(d) TERMINATION OF REDEMPTION RIGHT. Upon an automatic conversion or
delivery to the Corporation by a holder of Series A Preference Shares of a
Conversion Notice, the right of the Corporation to redeem such Series A
Preference Shares shall terminate, regardless of whether a notice of redemption
has been mailed or delivered as provided in Section 8.
Section 6. ANTI-DILUTION PROVISIONS. So long as any Series A Preference
Shares are outstanding, each Conversion Ratio shall be subject to change or
adjustment as follows:
(a) COMMON SHARE DIVIDENDS, SUBDIVISIONS, COMBINATIONS. In case the
Corporation shall (i) pay or make a dividend or other distribution to all
holders of its Common Shares in Common Shares, (ii) subdivide, split or
reclassify the outstanding Common Shares into a larger number of shares or (iii)
combine or reclassify the outstanding Common Shares into a smaller number of
shares, then in each such case each Conversion Ratio shall be adjusted to equal
the number of such shares to which the holder of each share would have been
entitled upon the occurrence of such event had such share been converted
immediately prior to the happening of such event or, in the case of a share
dividend or other distribution, prior to the record date for determination of
shareholders entitled thereto. An adjustment made pursuant to this Section 6(a)
shall become effective immediately after such record date in the case of a
dividend or distribution and immediately after the effective date in the case of
a subdivision, split, combination or reclassification.
(b) REORGANIZATION OR RECLASSIFICATION. In case of any capital
reorganization or any reclassification of the Common Shares of the Corporation
(whether pursuant to a merger or consolidation or otherwise), each Series A
Preference Share shall thereafter during each Conversion Period be convertible
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into the number of Common Shares or other securities or property receivable upon
such capital reorganization or reclassification of the Common Shares, as the
case may be, by a holder of the number of Common Shares into which each Series A
Preference Share was convertible during each such Conversion Period; and, in any
such case, appropriate adjustment shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holder of each Series A Preference Share to the end that the provisions
set forth herein shall thereafter be applicable, as nearly as reasonably may be,
in relation to any Common Shares or other securities or property thereafter
deliverable upon conversion of each Series A Preference Share.
(c) DISTRIBUTIONS OF ASSETS OR SECURITIES OTHER THAN COMMON SHARES. In
case the Corporation shall, by dividend or otherwise, distribute to all holders
of its Common Shares of any of its capital shares (other than Common Shares),
rights or warrants to purchase any of its securities (other than those referred
to in Section 6(d) below), cash, other assets or evidences of its indebtedness,
then in each such case each Conversion Ratio shall be adjusted by multiplying
each Conversion Ratio immediately prior to the date of such dividend or
distribution by a fraction, of which the numerator shall be the Fair Market
Value per Common Share at the record date for determining shareholders entitled
to such dividend or distribution, and of which the denominator shall be such
Fair Market Value per share less the fair market value (as determined in good
faith by the Board of Directors of the Corporation) of the portion of the
securities, cash, assets or evidences of indebtedness so distributed applicable
to one Common Share.
(d) BELOW MARKET DISTRIBUTIONS OR ISSUANCES OF COMMON SHARES. In case
the Corporation shall issue Common Shares (or options, rights, warrants or other
securities convertible into or exchangeable or exercisable for Common Shares) at
a price per share (or having an effective exercise, exchange or conversion price
per share together with the purchase price thereof) less than the Fair Market
Value per Common Share on the date such Common Shares (or options, rights,
warrants or other securities convertible into or exchangeable or exercisable for
Common Shares) are sold or issued (provided that (A) no sale of securities
pursuant to an underwritten public offering shall be deemed to be for less than
Fair Market Value and (B) no sale of securities in an arms-length transaction to
a group of financial institutions which are not Affiliates of the Corporation
shall be deemed to be for less than Fair Market Value), then in each such case
each Conversion Ratio shall thereafter be adjusted by multiplying each
Conversion Ratio immediately prior to the date of issuance of such Common Shares
(or options, rights, warrants or other securities) by a fraction, the numerator
of which shall be (x) the sum of (i) the number of Common Share Equivalents
represented by all securities outstanding immediately prior to such issuance and
(ii) the number of additional Common Share Equivalents represented by all
securities so issued
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multiplied by (y) the Fair Market Value of a Common Share immediately prior to
the date of such issuance, and the denominator of which shall be (x) the product
of (a) the Fair Market Value of a Common Share immediately prior to the date of
such issuance and (B) the number of Common Share Equivalents represented by all
securities outstanding immediately prior to such issuance plus (y) the aggregate
consideration received by the Corporation for the total number of securities so
issued plus, (z) in the case of options, rights, warrants or other securities
convertible into or exchangeable or exercisable for Common Shares, the
additional consideration required to be received by the Corporation upon the
exercise, exchange or conversion of such securities; provided, however, that in
the event that such rights, options or warrants are not so issued or expire
unexercised, or in the event of a change in the number of Common Shares to which
the holders of such rights, options or warrants are entitled, each Conversion
Ratio shall again be adjusted to be the Conversion Ratio which would then be in
effect if such rights, options or warrants had never been issued, in the former
event, or the Conversion Ratio which would then be in effect if such holder had
initially been entitled to such changed number of Common Shares, in the latter
event. An adjustment made pursuant to this Section 6(d) shall become effective
immediately after the date such Common Shares or other security are sold or
issued. For purposes of this Section 6(d), in the case of an issuance in the
ordinary course of business consistent with past practice of any options,
rights, warrants or other securities or any Common Shares (whether treasury
shares or newly issued shares) pursuant to any employee (including consultants
and directors), distributor or similar benefit or share option or purchase plan
or program or written arrangement of the Corporation, the Fair Market Value of
such Common Shares (or of the Common Shares issuable upon the exercise, exchange
or conversion of such options, rights, warrants or other securities) at the time
such Common Shares (or options, rights, warrants or other securities) are issued
shall be deemed to be equal to the fair market value of such securities as
determined pursuant to the provisions of such plan or program or written
arrangement. Notwithstanding anything herein to the contrary, (1) no further
adjustment to the Conversion Ratios shall be made upon the issuance or sale of
Common Shares pursuant to (x) the exercise of any options, rights or warrants,
(y) the conversion or exchange of any convertible securities, if in each case
the adjustment in the Conversion Ratios were made as required hereby upon the
issuance or sale of such options, rights, warrants or securities or no
adjustment was required hereby at the time such option, right, warrant or
convertible security was issued or (z) upon the issuance of Common Shares or
warrants to purchase Common Shares or the exercise of such warrants issued to
Tomen America, Inc. pursuant to the agreement referred to in Schedule 3.04(b) of
the Securities Purchase Agreement as in effect on February 21, 1997 and (2) no
adjustment to the Conversion Ratios shall be made upon the issuance or sale of
Common Shares (x) upon the conversion of any of the Corporation's Series A
Preference Shares, or Convertible Notes (as defined in the Securities Purchase
Agreement) or (y) upon
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the exercise of any warrants or options existing on the Issue Date, without
regard to the exercise price thereof. For purposes of this Section 6(d), if the
Corporation issues Common Shares (or options, rights, warrants or other
securities convertible into or exchangeable or exercisable for Common Shares)
for consideration wholly or partially other than cash, including services
rendered, the fair market value of such consideration and of such Common Shares
(or options, rights, warrants or other securities, convertible into or
exchangeable or exercisable for Common Shares) issued in connection therewith
shall be determined by the Board of Directors of the Corporation in the
reasonable and good faith exercise of its business judgment.
"COMMON SHARE EQUIVALENT" means, with respect to any security of the
Corporation and as of a given date, a number which is, (i) in the case of a
Common Share, one, (ii) in the case of all or a portion of any right, warrant or
other security which may be exercised for one or more Common Shares, the number
of Common Shares receivable upon exercise of such security (or such portion of
such security) and (iii) in the case of any security convertible or exchangeable
into one or more Common Shares, the number of Common Shares that would be
received if such security were converted or exchanged on such date. The number
of Common Share Equivalents represented by the Series A Preference Shares shall
be computed separately for each Conversion Ratio and such numbers shall be used
in applying the provisions of Sections 6(d), (e), (f) and (g) to adjust each
such Conversion Ratio.
(e) BELOW MARKET DISTRIBUTIONS OR ISSUANCES OF PREFERENCE SHARES OR
OTHER SECURITIES. In case the Corporation shall issue nonconvertible and
nonexchangeable preference shares (or other securities of the Corporation other
than Common Shares or options, rights, warrants or other securities convertible
into or exchangeable or exercisable for Common Shares) at a price per share (or
other similar unit) less than the Fair Market Value per share (or other similar
unit) of such preference shares (or other security) on the date such preference
shares (or other security) is sold (provided that (A) no sale of preference
shares or other security pursuant to an underwritten public offering shall be
deemed to be for less than its fair market value and (B) no sale of securities
in an arms length transaction to a group of financial institutions which are not
Affiliates of the Corporation shall be deemed to be for less than Fair Market
Value), then in each such case each Conversion Ratio shall thereafter be
adjusted by multiplying each Conversion Ratio immediately prior to the date of
issuance of such preference shares (or other security) by a fraction, the
numerator of which shall be the product of (i) the number of Common Share
Equivalents represented by all securities outstanding immediately prior to such
issuance and (ii) the Fair Market Value of a Common Share immediately prior to
the date of such issuance and the denominator of which shall be (x) the product
of (A) the number of Common Share Equivalents
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represented by all securities outstanding immediately prior to such issuance and
(B) the Fair Market Value of a Common Share immediately prior to the date of
such issuance minus (y) the difference between (I) the aggregate Fair Market
Value of such preference shares (or other security) and (II) the aggregate
consideration received by the Corporation for such preference shares (or other
security). An adjustment made pursuant to this Section 6(e) shall become
effective immediately after the date such preference shares (or other security)
are sold.
(f) ABOVE MARKET REPURCHASES OF COMMON SHARES. If at any time or from
time to time the Corporation or any Subsidiary thereof shall repurchase, by
self-tender offer or otherwise, any Common Shares of the Corporation (or any
security convertible into or exercisable or exchangeable for Common Shares) at a
weighted average purchase price in excess of the Fair Market Value thereof, on
the Business Day immediately prior to the earliest of (i) the date of such
repurchase, (ii) the commencement of an offer to repurchase or (iii) the public
announcement of either (such date being referred to as the "DETERMINATION
DATE"), each Conversion Ratio shall be adjusted by multiplying each Conversion
Ratio immediately prior to such Determination Date by a fraction, the numerator
of which shall be the product of (1) the number of Common Share Equivalents
represented by all securities outstanding immediately prior to such
Determination Date minus the number of Common Share Equivalents represented by
the securities repurchased or to be purchased by the Corporation or any
Subsidiary thereof in such repurchase and (2) the Fair Market Value of a Common
Share immediately prior to such Determination Date, and the denominator of which
shall be (x) the product of (A) the number of Common Share Equivalents
represented by all securities outstanding immediately prior to the Determination
Date and (B) the Fair Market Value of a Common Share immediately prior to such
Determination Date minus (y) the sum of (I) the aggregate consideration paid by
the Corporation in connection with such repurchase and (II) in the case of
options, rights, warrants or other securities convertible into or exchangeable
or exercisable for Common Shares, the additional consideration required to be
received by the Corporation upon the exercise, exchange or conversion of such
securities. An adjustment made pursuant to this Section 6(f) shall become
effective immediately after the effective date of such repurchase.
(g) ABOVE MARKET REPURCHASES OF PREFERENCE SHARES OR OTHER SECURITIES.
If at any time or from time to time the Corporation or any Subsidiary thereof
shall repurchase, by self-tender offer or otherwise, any shares of
nonconvertible and nonexchangeable preference shares (or other securities of the
Corporation other than Common Shares or options, rights, warrants or other
securities convertible into or exchangeable or exercisable for Common Shares),
other than the repurchase of Series A Preference Shares (which repurchase shall
not entitle the holders to any adjustment pursuant to this Section 6(g)) at a
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weighted average purchase price in excess of the Fair Market Value thereof, on
the Business Day immediately prior to the Determination Date, each Conversion
Ratio shall be adjusted by multiplying each Conversion Ratio immediately prior
to the Determination Date by a fraction, the numerator of which shall be the
product of (i) the number of Common Share Equivalents represented by all
securities outstanding immediately prior to such Determination Date and (ii) the
Fair Market Value of a Common Share immediately prior to such Determination
Date, and the denominator of which shall be (x) the product of (A) the number of
Common Share Equivalents represented by all securities outstanding immediately
prior to such Determination Date and (B) the Fair Market Value of a Common Share
immediately prior to such Determination Date minus (y) the difference between
(I) the aggregate consideration paid by the Corporation in connection with such
repurchase and (II) an aggregate Fair Market Value of such preference shares (or
other security). An adjustment made pursuant to this Section 6(g) shall become
effective immediately after the effective date of such repurchase.
(h) DEFINITION OF FAIR MARKET VALUE. (x) As used herein, the "FAIR
MARKET VALUE" of a Common Share shall be equal to, on any date:
(i) if Common Shares are then listed or admitted to trading on any
national securities exchange located in the United States or traded on
any national market system located in the United States, the average of
the daily closing prices for the thirty (30) trading days before such
date, excluding any trades which are not bona fide, arm's-length
transactions. The closing price for each day shall be the last sale
price on such date or, if no such sale takes place on such date, the
average of the closing bid and asked prices on such date, in each case
as officially reported on the principal national securities exchange or
national market system on which such shares are then listed, admitted
to trading or traded;
(ii) if paragraph (i) does not apply then, if Common Shares are then
listed or admitted to trading on any national securities exchange
located in Canada or traded on any national market system located in
Canada, the average of the daily closing prices for the thirty (30)
trading days before such date, excluding any trades which are not bona
fide, arm's- length transactions. The closing price for each day shall
be the last sale price on such date or, if no such sale takes place on
such date, the average of the closing bid and asked prices on such
date, in each case as officially reported on the principal national
securities exchange or national market system on which such shares are
then listed, admitted to trading or traded;
(iii) if neither paragraph (i) or (ii) applies then, the average of
the reported closing bid and asked prices thereof on such date, in the
over-the-
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counter market as shown by the National Association of Securities
Dealers automated quotation system or, if such shares are not then
quoted in such system, as published by the National Quotation Bureau,
Incorporated or any similar successor organization, and in either case
as reported by any member firm of the New York Stock Exchange selected
(in the Conversion Notice) by the holders affected by such
determination; and
(iv) if none of paragraphs (i), (ii) or (iii) applies then, the Fair
Market Value of a Common Share shall be as mutually agreed by the
Corporation and the holders affected by such determination. If the
Corporation and such holders are unable to agree, then the Corporation
and such holders shall, within five (5) days from the date that either
party determines that they cannot agree and so notifies the other party
in writing, jointly retain an investment banking firm, nationally
recognized accounting firm or other firm providing similar valuation
services (any of the foregoing, a "VALUATION FIRM"), satisfactory to
each of them. If the Corporation and such holders are unable to agree
on the selection of such a Valuation Firm within such five (5) day
period, the Corporation and such holders shall, within twenty (20) days
after the expiration of such five (5) day period, each retain a
separate Valuation Firm (which Valuation Firm, in either case, shall
not be the investment banking firm or accounting firm regularly
retained by the Corporation or such holders). If either the Corporation
or such holders fail to retain a Valuation Firm during such twenty (20)
day period, then the Valuation Firm retained by the holders or the
Corporation, as the case may be, shall alone take the actions described
below. If the Corporation and such holders each selects a Valuation
Firm, then those two Valuation Firms shall select a third Valuation
Firm (which Valuation Firm shall not be the investment banking firm or
accounting firm regularly retained by the Corporation or such holders)
and the Valuation Firm so selected shall determine within thirty (30)
days of being retained the Fair Market Value of a Common Share and
deliver its opinion in writing to the Corporation and to such holders
as to such Fair Market Value. The determination so made shall be
conclusive and binding on the Corporation and such holders. The fees
and expenses all Valuation Firms incur in performing the services
contemplated by this Section 6(h)(x)(iv) shall be paid by the
Corporation. In the determination of the Fair Market Value of a Common
Share, there shall not be taken into consideration any premium for
shares representing control of the Corporation or any discount related
to shares representing a minority interest therein or related to any
illiquidity or lack of marketability of shares arising from contractual
restrictions on the transfer of Common Shares or restrictions on
transfer under applicable laws. Determinations under this clause (iv)
by the holders
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affected by such determination shall be made by the vote or consent of
a majority in interest of all such holders.
(y) As used herein, the "FAIR MARKET VALUE" of a preference share or
other security other than Common Shares shall mean such fair market
value as determined by a Valuation Firm in accordance with the
procedures set forth in clause (h)(x)(iv) above; provided that in the
event of any repurchase or redemption of preference shares, the Fair
Market Value shall not be less than the stated value thereof plus any
accrued and unpaid dividends as of the date of such repurchase or
redemption or other amount payable upon repurchase or redemption.
(i) ADJUSTMENT OF AUTOMATIC CONVERSION LEVEL. Whenever the Conversion
Ratios are adjusted, as provided in this Section 6 or in Section 7, the
Automatic Conversion Level shall be adjusted (calculated to the nearest
US$.0001) so that it shall equal the amount determined by multiplying such
Automatic Conversion Level immediately prior to such adjustment by a fraction
the numerator of which shall be the number of shares then receivable (or if such
adjustment is made prior to the third anniversary of the Issue Date, the number
of Common Shares receivable on such third anniversary) upon the conversion of
each Series A Preference Share immediately prior to such adjustment and the
denominator of which shall be the number of shares so receivable immediately
thereafter.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Ratios and the Automatic Conversion
Level pursuant to this Section 6 or Section 7, the Corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to the holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of the holder, furnish or cause to be furnished to holder a
like certificate setting forth (x) such adjustments and readjustments, (y) the
number of Common Shares and the amount, if any, of other property which at the
time would be received upon the conversion of each Series A Preference Share and
(z) the Automatic Conversion Level then in effect. The computations of all
amounts under this Section 6 shall be made assuming all other anti-dilution or
similar adjustments to be made to the terms of all other securities resulting
from the transaction causing an adjustment pursuant to this Section 6 have
previously been made so as to maintain the relative economic interest of the
Series A Preference Shares VIS A VIS all other securities issued by the
Corporation.
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(k) NOTICES.
(i) In the event that the Corporation shall propose at any time to
effect any transaction of the type described in Sections 6(a) through
6(g) hereof or to take any similar extraordinary corporate action
affecting the Corporation's share capital, then, in connection with
each such event, the Corporation shall send to the holder at least 10
days prior to (x) in the case of a dividend or other distribution, the
applicable record date, a notice specifying the record date for
purposes of such dividend or distribution and the date on which such
dividend or other distribution is to be made, and (y) in any other
case, the date on which such event is to become effective or the first
date on which the Corporation intends to effect any such transaction,
as the case may be, in each case specifying in reasonable detail what
the transaction or event consists of and, if applicable, the aggregate
amount or value of any cash or property proposed to be distributed,
paid, purchased or received by the Corporation in connection therewith.
(ii) In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall
send to the holder written notice thereof at least (i) 30 days' prior
to the proposed consummation of such dissolution, winding up or
liquidation or (ii) 15 days before the record date therefor, whichever
is earlier.
(iii) Unless notice is otherwise required pursuant to paragraph (i)
above, the Corporation shall send written notice to the holder
immediately upon any public announcement with respect to an open market
repurchase program for, any self-tender offer for and any other
repurchase of Common Shares or other securities.
(l) SPECIAL ADJUSTMENT. At every annual or special meeting of
shareholders held after the 1997 Annual General Meeting until the approval
referred to below is obtained, the Board of Directors will propose a resolution
to be approved by the holders of Common Shares approving the terms of the Series
A Preference Shares and the issuance of the Series A Common Shares in accordance
with the terms hereof and Section 4.4 of the Securityholders Agreement and
recommend that such shareholders vote in favor of approval of such resolution so
as to permit the Series A Common Shares to be listed on the American Stock
Exchange or the New York Stock Exchange or the NASDAQ National Market System, if
the Common Shares are then listed or quoted thereon, and the Corporation will
use its best efforts to cause such resolution to be so approved and such listing
so effected. In the event the Board of Directors of the Corporation fails the
take the foregoing actions or the Corporation fails to use its best efforts, in
addition to any other remedy the holders may have, each
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Conversion Ratio shall each be adjusted by multiplying it by 1.10 at the time
that the first such failure occurs.
Section 7. CONSOLIDATION, MERGER OR SALE OF ASSETS. In case of any
consolidation of the Corporation with, or merger of the Corporation into, any
other Person, any merger of another Person into the Corporation (other than a
merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding Common Shares) or any sale or transfer of all or
substantially all of the assets of the Corporation to the Person formed by such
consolidation or resulting from such merger or which acquires such assets, as
the case may be, the holder shall have the right thereafter during each
Conversion Period to convert each Series A Preference Share into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (assuming, if applicable, such holder
elected to receive the consideration received by the holders of the largest
number of Common Shares in such transaction) by a holder of the number of Common
Shares into which each Series A Preference Share was convertible during each
such Conversion Period. Adjustments for events subsequent to the effective date
of such a consolidation, merger, sale or transfer of assets shall be as nearly
equivalent as may be practicable to the adjustments provided for herein. In any
such event, effective provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any contract of
sale, conveyance, lease, transfer or otherwise so that the provisions set forth
herein for the protection of the rights of the holder shall thereafter continue
to be applicable; and any such resulting or surviving corporation shall
expressly assume the obligation to deliver, upon exercise, such shares of stock,
other securities, cash and property. The provisions of this Section 7 shall
similarly apply to successive consolidations, mergers, sales, leases or
transfers. "PERSON" means an individual, partnership, corporation, trust, joint
stock company, association, joint venture, or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
Section 8. (a) MANDATORY REDEMPTION. On the seventh anniversary of the
Issue Date (the "FINAL REDEMPTION DATE") the Corporation shall redeem in cash
all Series A Preference Shares then outstanding, at a redemption price of
US$224,231.22 per share (the "FINAL REDEMPTION AMOUNT"); provided that, to the
extent the Corporation is prohibited from paying such redemption price in cash,
the holders may convert each Series A Preference Share into a number of Common
Shares equal to the Final Redemption Amount divided by the product of the Fair
Market Value of a Common Share as of the Final Redemption Date and 95%, so long
as the Fair Market Value can be determined pursuant to paragraph (i), (ii) or
(iii) of the definition thereof. In the event and to the extent that the
Corporation is prohibited from paying the aggregate Final Redemption Amount in
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cash due to restrictions contained in instruments of indebtedness to which it is
a party ("Debt Instruments") and in the event and to the extent the holders of
the Series A Preference Shares do not exercise their option to convert such
shares into Common Shares as set forth above, then, at the Corporation's option
by written notice delivered to the holders no later than two Business Days after
the Final Redemption Date, the provisions of Section 8(c) shall apply, but only
to the Series A Preference Shares or portions thereof which were not redeemed or
converted pursuant to this Paragraph (a).
(b) MECHANICS OF MANDATORY REDEMPTION.
(i) At least 15 days, but not more than 60 days, prior to the Final
Redemption Date, the Corporation shall send a written notice (the
"SERIES A REDEMPTION NOTICE") to each holder of Series A Preference
Shares to be redeemed on such date (the "SERIES A REDEMPTION SHARES")
stating: (A) the total number of Series A Redemption Shares; (B) the
number of Series A Redemption Shares held by such holder; (C) the Final
Redemption Date; (D) the redemption amount per share; (E) whether, and
the extent to which, the Corporation will be prohibited from paying the
aggregate redemption amount in cash; and (F) the manner in which and
the place at which such holder is to surrender to the Corporation the
certificate or certificates representing its Series A Redemption
Shares.
(ii) In the event that the Corporation is prohibited from paying
the full redemption price for all shares in cash, each holder may, in
addition to any other rights they may have, by notice to the
Corporation delivered at least two Business Days prior to the Final
Redemption Date elect to (x) receive only the portion of the redemption
price which is payable in cash and retain the unredeemed balance of
their shares or (y) receive such cash amount, if any, and convert any
portion of the balance into Common Shares as provided in Section 8(a)
above and retain any unredeemed balance of their shares.
(iii) On or prior to the Final Redemption Date, the Corporation
shall have the option to deposit the aggregate redemption amount for
all Series A Redemption Shares (other than Series A Redemption Shares
surrendered for conversion prior to such date) in a bank or trust
company (designated in the Series A Redemption Notice) doing business
in the Borough of Manhattan, the City and State of New York, having
aggregate capital and surplus in excess of US$300,000,000, as a trust
fund for the benefit of the respective holders of Series A Redemption
Shares with irrevocable instructions and authority to the bank or trust
company to pay the appropriate redemption amounts to the holders of
Series A Redemption
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Shares upon receipt of notification from the Corporation that the
respective holder has surrendered the certificate or certificates
representing such shares to the Corporation. Such instructions shall
also provide that any such moneys remaining unclaimed at the expiration
of one year following the Final Redemption Date shall thereafter be
returned to the Corporation upon its request as expressed in a
resolution of its Board of Directors. The holder of any Series A
Redemption Shares in respect of which such deposit has been returned to
the Corporation pursuant to the preceding sentence shall have a claim
as an unsecured creditor against the Corporation for the redemption
amount in respect thereof, without interest.
(iv) Provided that the Corporation has on or prior to the Final
Redemption Date either paid or made available (as described in Section
8(b)(iii)) the aggregate redemption amount to the holders of Series A
Redemption Shares, all Series A Redemption Shares shall be deemed to
have been redeemed as of the close of business of the Corporation on
the Final Redemption Date. Thereafter, the holder of such shares shall
no longer be treated for any purposes as the record holder of such
Series A Preference Shares, regardless of whether the certificate or
certificates representing such shares are surrendered to the
Corporation or its transfer agent, except with respect to the right of
the holder to receive the appropriate redemption amount, without
interest, upon such surrender. Such shares so redeemed shall not be
transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(c) DELAYED FINAL REDEMPTION.
(i) In the event that the Corporation shall have elected that this
Section 8(c) shall apply, then on September 1, 2007 (the "EXTENDED
REDEMPTION DATE") the Corporation shall redeem in cash all Series A
Preference Shares then outstanding, at a redemption price of
US$335,771.72 per share (the "EXTENDED REDEMPTION AMOUNT"); provided
that, to the extent the Corporation is prohibited from paying such
redemption price in cash, the holders may convert each Series A
Preference Share into a number of Common Shares equal to the Extended
Redemption Amount divided by the product of the Fair Market Value of a
Common Share as of the Extended Redemption Date and 95%, so long as the
Fair Market Value can be determined pursuant to paragraph (h)(x) (i),
(ii) or (iii) of the definition thereof. The provisions of Section 8(b)
shall apply to such redemption with the Extended Redemption Date being
substituted for the Final Redemption Date and the Extended Redemption
Amount being substituted for the Final Redemption Amount.
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(ii) If the provisions of this Section 8(c) apply, the Corporation
shall have a continuing obligation to, as soon as possible, redeem in
cash all (or such amount as may be permitted under the Debt Instruments
from time to time) Series A Preference Shares then outstanding, at a
redemption price per share equal to the per share Liquidation
Preference at the time of such redemption, provided that the
Corporation shall only be obligated to satisfy such obligation to the
extent it is not prohibited from doing so under the terms of its Debt
Instruments. The provisions of Section 8(b) shall apply to any such
redemption with the date of redemption and applicable redemption amount
being those specified in the notice required by Section 8(b).
(iii) If the provisions of this Section 8(c) apply, then the
holders of Series A Preference Shares, in addition to their conversion
rights under Section 5, shall have the right, at any time, and from
time to time, at such holder's option, to convert each Series A
Preference Share into the number of fully paid and non-assessable
Common Shares equal to the Liquidation Preference on the Conversion
Date for such share divided by the product of the Fair Market Value of
a Common Share as of the Conversion Date and 95%. The provisions of
Section 5(c) shall apply to any conversion under this Section
8(c)(iii).
(d) CHANGE OF CONTROL.
(i) If there shall occur a Change of Control (as defined below), on
or prior to the fifth anniversary of the Issue Date, the holders of the
Series A Preference Shares shall have the right, at their option to
convert, in whole only, each Series A Preference Share (including
fractional shares) into the number of fully paid and non-assessable
Common Shares equal to the greater of: (i) the number set out in the
table below opposite the period during which the Change of Control
Payment Date occurs (as such numbers are adjusted from time to time
pursuant to Sections 6 and 7); and (ii) the number of Common Shares
equal to the Liquidation Preference in effect on the Change of Control
Payment Date divided by the product of the Change of Control Value of
the Common Shares and 95%. "CHANGE OF CONTROL VALUE" means the (x) the
amount per share being received in the Change of Control transaction if
such transaction is being consummated pursuant to an agreement with the
Corporation (such amount to be determined in good faith by the Board of
Directors of the Corporation; PROVIDED that if the holders of a
majority of the share of Series A Preference Shares in their discretion
do not agree with such determination, such amount shall be determined
by a nationally recognized firm of investment bankers reasonably
acceptable to the Corporation and the
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holders of the Series A Preference Shares, whose fees shall be paid by
the Corporation) or (y) if clause (x) does not apply, the Fair Market
Value calculated for the 30 trading days preceding the date the Change
of Control occurs.
CHANGE OF CONTROL PER SHARE NUMBER OF AGGREGATE NUMBER OF
----------------------- ----------------------- --------------------------
February 28, 1997 8,791.21 4,395,604
May 31, 1997 9,313.19 4,656,593
November 30, 1997 9,866.16 4,933,079
May 31, 1998 10,451.96 5,225,980
November 30, 1998 11,072.55 5,536,273
May 31, 1999 11,729.98 5,864,989
November 30, 1999 12,426.45 6,213,223
May 31, 2000 13,164.27 6,582,133
November 30, 2000 13,945.89 6,972,947
May 31, 2001 14,773.93 7,386,966
November 30, 2001 15,651.13 7,825,567
May 31, 2002 16,580.42 8,290,210
(ii) If there shall occur a Change of Control after the fifth
anniversary of the Issue Date, the Series A Preference Shares shall be
redeemable in cash at the option of the holders, in whole only, at 101%
of the per share Liquidation Preference in effect on the Change of
Control Payment Date; provided that, to the extent the Corporation is
prohibited from paying such redemption price in cash, the holders may
convert each Series A Preference Share into a number of Common Shares
equal to such amount divided by the product of the Change of Control
Value of a Common Share on the date the Change of Control occurs and
95%. In the event and to the extent that the Corporation is prohibited
from paying such aggregate redemption amount in cash due to
restrictions contained in its Debt Instruments and in the event and to
the extent the holders of the Series A Preference Shares do not
exercise their option to convert such shares into Common Shares as set
forth above, then, the following shall apply (but only to the Series A
Preference Shares or portions thereof which were not redeemed or
converted pursuant to this Paragraph (ii)):
(A) The Corporation shall have a continuing obligation to, as soon
as possible, redeem in cash all (or such amount as may be permitted
under the Debt Instruments from time to time) Series A Preference
Shares
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then outstanding, at a redemption price per share equal to 101% of the
per share Liquidation Preference at the time of such redemption,
provided that the Corporation shall only be obligated to satisfy such
obligation to the extent it is not prohibited from doing so under the
terms of its Debt Instruments. The provisions of Section 8(b) shall
apply to any such redemption with the date of redemption and applicable
redemption amount being those specified in the notice required by
Section 8(b); and
(B) The holders of Series A Preference Shares, in addition to
their conversion rights under Section 5, shall have the right, at any
time, and from time to time, at such holder's option, to convert each
Series A Preference Share into the number of fully paid and
non-assessable Common Shares equal to 101% of the Liquidation
Preference on the Conversion Date for such share divided by the product
of lesser of the Fair Market Value of a Common Share as of the
Conversion Date and the Change of Control Value and 95%. The provisions
of Section 5(c) shall apply to any conversion under this paragraph (B).
(iii) "CHANGE OF CONTROL" means such time as: (a) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended), other than the holders of
the Series A Preference Shares, has become the beneficial owner (within
such meaning), by way of purchase, merger, consolidation or otherwise,
of 30% or more of the voting power of all classes of voting securities
of the Corporation (excluding the Series A Preference Shares); or (b) a
sale or transfer of all or substantially all of the assets of the
Corporation to any person or group has been consummated; or (c) during
any period of two consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Corporation
(together with any new directors whose election was approved by a vote
of a majority of the directors then still in office, who either were
directors at the beginning of such period or whose election or
nomination for the election was previously so approved) cease for any
reason to constitute a majority of the directors of the Corporation, as
the case may be, then in office.
(iv) PROCEDURE. (1) The Corporation shall provide notice to the
holders of Series A Preference Shares within five (5) days after the
occurrence of any event giving rise to a right of conversion pursuant
to Section 8(d)(i) or a right of redemption pursuant to Section
8(d)(ii). Such notice shall advise holders of their right to elect
conversion or redemption under this Section 8(d) and, if applicable,
whether, and to what extent, the Corporation will be prohibited from
paying such redemption price in cash. The failure of the Corporation to
provide such notice shall not prejudice
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the right of the holders to elect conversion or redemption under this
Section 8(d).
(2) If the right of conversion is applicable, such
election may be exercised by the holders of a majority of the
Series A Preference Shares then outstanding and shall be
binding on the holders of all Series A Preference Shares to
convert all Series A Preference Shares into the number of
shares provided in paragraph (i) above by complying with the
procedures set forth in Section 5(c) within fifteen (15) days
of receipt of the notice from the Corporation, and the CHANGE
OF CONTROL PAYMENT DATE shall be the fifth Business Day after
the notice is mailed by the Corporation.
(3) If the right of redemption is applicable, such
election may be exercised by the holders of a majority of the
Series A Preference Shares then outstanding, and shall be
binding on the holders of all Series A Preference Shares by
providing notice (a "NOTICE OF ELECTION TO REDEEM") to the
Corporation within fifteen (15) days of the receipt of notice
from the Corporation, with the holders' notice specifying a
date (not less than fifteen (15) days and more than twenty
(20) days from the date of such notice) for the Corporation to
redeem the Series A Preference Shares of all holders as
provided in Section 8(d)(ii) and such date shall be the CHANGE
OF CONTROL PAYMENT DATE. The Notice of Election to Redeem
(which shall be irrevocable) shall set forth (w) the name of
each holder, (x) the number of shares (and certificate numbers
thereof) such holders desire to have redeemed, (y) in the
event that the Corporation is prohibited from paying the full
redemption price for such shares in cash, whether such holders
wish to elect to receive only the cash portion of the
redemption price or to receive the maximum amount in cash and
convert the balance into Common Shares as provided in Section
8(d)(ii) and (z) a statement that an election under Section
8(d)(ii) is being made thereby.
(4) To the extent, if any, that the Corporation is
prohibited from paying the redemption price in cash, the
holders may elect (which election shall be set forth in the
Notice of Election to Redeem) to (x) receive only the portion
of the redemption price which is payable in cash and retain
the unredeemed balance of their shares or (y) to receive such
cash amount, if any, and the balance by way of conversion into
a number of Common Shares computed as provided in Section
8(d)(ii).
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(5) On the date so fixed for redemption, the holders of
Series A Preference Shares so electing redemption shall
surrender the certificates for the shares to be redeemed to
the Corporation at its principal office (or such other office
or agency as may be designated by the Corporation by notice in
writing to the holders of Series A Preference Shares), duly
endorsed in blank or accompanied by proper instruments for
transfer to the Corporation.
(v) In the event a Change of Control occurs prior to the date that
all Series A Common Shares have been admitted to listing on the
American Stock Exchange and the Corporation enters into an agreement
with one or more Persons who are acquiring Common Shares in connection
with such Change of Control, the Corporation shall cause such person or
persons to offer to enter into an agreement with the holders whereby,
such person or persons agree to acquire all of the Common Shares
issuable upon conversion of the Series A Preference Shares in
connection with such Change of Control at the highest price (and for
the same form of consideration) being paid by such person or persons
for Common Shares being acquired in connection with the Change of
Control.
(e) (i) So long as any Series A Preference Shares remain outstanding,
upon the occurrence of any Event of Default (as defined below) which continues
uncured for thirty (30) days, the final day of such period being the "DEFAULT
DATE", then the holders of a majority of the Series A Preference Shares shall
thereafter have the right to require the Corporation to redeem in cash all
Series A Preference Shares then outstanding, at a redemption price per share
equal to the Liquidation Preference on the Default Redemption Date unless and
until such Event of Default is cured; provided that, (x) on or prior to the
fifth anniversary of the Issue Date the holder shall only have the right to, and
(y) after the fifth anniversary of the Issue Date, to the extent the Corporation
is prohibited from paying such redemption price in cash, the holders may require
the Corporation to, convert each Series A Preference Share into a number of
Common Shares equal to such Liquidation Preference divided by the product of the
Fair Market Value of a Common Share on the Default Redemption Date and 95%. In
the event and to the extent that the Corporation is prohibited from paying such
aggregate redemption amount in cash (if required to be paid in cash) due to
restrictions contained in its Debt Instruments and in the event and to the
extent the holders of the Series A Preference Shares do not exercise their
option to convert such shares into Common Shares as set forth above, then, the
following shall apply (but only to the Series A Preference Shares or portions
thereof which were not redeemed or converted pursuant to this Paragraph (i)):
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(A) The Corporation shall have a continuing obligation to, as
soon as possible, redeem in cash all (or such amount as may be
permitted under the Debt Instruments from time to time) Series A
Preference Shares then outstanding, at a redemption price per share
equal to the per share Liquidation Preference at the time of such
redemption, provided that the Corporation shall only be obligated to
satisfy such obligation to the extent it is not prohibited from doing
so under the terms of its Debt Instruments. The provisions of Section
8(b) shall apply to any such redemption with the date of redemption and
applicable redemption amount being those specified in the notice
required by Section 8(b); and
(B) The holders of Series A Preference Shares, in addition to
their conversion rights under Section 5, shall have the right, at any
time, and from time to time, at such holder's option, to convert each
Series A Preference Share into the number of fully paid and
non-assessable Common Shares equal to the Liquidation Preference on the
Conversion Date for such share divided by the product of the Fair
Market Value of a Common Share as of the Conversion Date and 95%. The
provisions of Section 5(c) shall apply to any conversion under this
paragraph (B).
(ii) (1) To exercise such redemption right, the holders of a
majority of the Series A Preference Shares then outstanding, shall provide
notice (a "DEFAULT REDEMPTION NOTICE") to the Corporation, with such notice
specifying a date (not less than fifteen (15) days and more than thirty (30)
days from the date of such notice, such date, the "DEFAULT REDEMPTION DATE") for
the Corporation to redeem the Series A Preference Shares of such holders as
provided in Section 8(e)(i) which notice shall be binding on the holders of all
Series A Preference Shares. The Default Redemption Notice (which shall be
irrevocable) shall set forth (w) the name of each holder, (x) the number of
shares (and certificate numbers thereof) such holders desire to have redeemed,
(y) in the event that the Corporation is prohibited from paying the full
redemption price for such shares in cash, whether such holders elect to receive
only the cash portion of the redemption price or to receive the maximum amount
in cash and the balance by way of conversion into Common Shares as provided in
Section 8(e)(i) and (z) a statement that an election under Section 8(e)(i) is
being made thereby.
(2) If the Corporation is obligated to pay the redemption price in
cash, to the extent, if any, that the Corporation is prohibited from paying the
redemption price in cash, the holders may elect (which election shall be set
forth in the Default Redemption Notice) to (x) receive only the portion of the
redemption price which is payable in cash and retain the unredeemed balance of
their shares or (y) to receive such cash amount, if any, and the balance by way
of conversion into a number of Common Shares computed as provided in Section
8(e)(i).
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(3) On the date so fixed for redemption, the holders of Series A
Preference Shares shall surrender the certificates for the shares to be redeemed
to the Corporation at its principal office (or such other office or agency as
may be designated by the Corporation by notice in writing to the holders of
Series A Preference Shares), duly endorsed in blank or accompanied by proper
instruments for transfer to the Corporation.
An "EVENT OF DEFAULT" means:
(A) the Corporation becomes aware of or is notified by written
notice that it has violated any material covenant or agreement
contained or incorporated by reference herein or contained in the
Securityholders Agreement or Securities Purchase Agreement;
(B) the Corporation shall take any of the actions described in
Section 4 without obtaining the affirmative vote or written consent of
the holders of a majority of the outstanding Series A Preference
Shares; or
(C) failure by the Corporation to pay when due any Indebtedness (as
defined in the Indenture) of $5,000,000 or more.
The "SECURITYHOLDERS AGREEMENT" means the Securityholders Agreement
dated February 28, 1997 entered into among the Corporation and the Purchaser (as
defined therein, the "PURCHASER").
The "SECURITIES PURCHASE AGREEMENT" means the Securities Purchase
Agreement dated February 28, 1997 entered into among the Corporation and the
Purchaser.
(f) (i) OPTIONAL REDEMPTION. On or after the Third Business Day after
the third anniversary of the Issue Date, the Corporation may by notice to the
holders mailed no less than thirty and no more than sixty days prior to the
Optional Redemption Date (as defined below) redeem all, but not less than all,
of the Series A Preference Shares for an amount in cash per share equal to the
product of the number of Common Shares which such Series A Preference Share
would be convertible into on the Optional Redemption Date if it were the
Conversion Date for such share and the Automatic Conversion Level in effect on
the Optional Redemption Date. Notwithstanding the foregoing, the Corporation,
may not exercise the redemption right set forth in the preceding sentence (x)
unless and until all of the Series A Common Shares have been admitted to listing
on the American Stock Exchange, the New York Stock Exchange or the NASDAQ
National Market System or (y) at any time when the Corporation is considering,
discussing or is on notice of a transaction or event which if it occurred would
constitute a Change of Control.
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(ii) MECHANICS OF OPTIONAL REDEMPTION. (x) At least 30 days, but not
more than 60 days, prior to the Optional Redemption Date, the Corporation shall
send a written notice (the "OPTIONAL REDEMPTION NOTICE") to each holder of
Series A Preference Shares (the "OPTIONAL REDEMPTION SHARES") stating: (A) the
total number of Optional Redemption Shares; (B) the number of Optional
Redemption Shares held by such holder; (C) the date the redemption is to occur
(the "OPTIONAL REDEMPTION DATE"); (D) the redemption amount per share; (E) that
the Corporation has cash on hand or available credit lines sufficient to pay the
aggregate optional redemption amount in cash on the Optional Redemption Date and
that the Corporation will not be prohibited from paying the aggregate optional
redemption amount in cash; and (F) the manner in which and the place at which
such holder is to surrender to the Corporation the certificate or certificates
representing its Optional Redemption Shares.
(y) Five Business Days prior to the Optional Redemption Date, the
Corporation shall deposit the aggregate optional redemption amount for
all Optional Redemption Shares (other than Optional Redemption Shares
surrendered for conversion prior to such date) in a bank or trust
company (designated in the Optional Redemption Notice) doing business
in the Borough of Manhattan, the City and State of New York, having
aggregate capital and surplus in excess of US$300,000,000, as a trust
fund for the benefit of the respective holders of Optional Redemption
Shares with irrevocable instructions and authority to the bank or trust
Corporation to pay the appropriate redemption amounts to the holders of
Optional Redemption Shares upon receipt of notification from the
Corporation that the respective holder has surrendered the certificate
or certificates representing such shares to the Corporation. Such
instructions shall also provide that any such moneys remaining
unclaimed at the expiration of one year following the Optional
Redemption Date (or deposited in respect of shares which are thereafter
converted into Common Shares) shall be returned to the Corporation upon
its request as expressed in a resolution of its Board of Directors. The
holder of any Optional Redemption Shares (which were not converted into
Common Shares) in respect of which such deposit has been returned to
the Corporation pursuant to the preceding sentence shall have a claim
as an unsecured creditor against the Corporation for the optional
redemption amount in respect thereof, without interest.
(z) Provided that the Corporation has on or prior to the fifth
Business Day prior to the Optional Redemption Date made available (as
described in Section 8(f)(ii)(y)) the aggregate optional redemption
amount to the holders of Optional Redemption Shares, all Optional
Redemption Shares (other than those converted into Common Shares) shall
be deemed
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to have been redeemed as of the close of business of the Corporation on
the Optional Redemption Date. Thereafter, the holder of such shares
shall no longer be treated for any purposes as the record holder of
such Series A Preference Shares, regardless of whether the certificate
or certificates representing such shares are surrendered to the
Corporation or its transfer agent, except with respect to the right of
the holder to receive the appropriate optional redemption amount,
without interest, upon such surrender. Such shares so redeemed shall
not be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(g) PAYMENT OF REDEMPTION AMOUNT. Upon surrender to the Corporation, in
the manner and at the place designated, of a certificate or certificates
representing Series A Preference Shares to be redeemed, the redemption amount
for such shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof. All such surrendered
certificates shall be canceled. Upon redemption of only a portion of such shares
represented by a certificate surrendered for redemption, the Corporation shall,
within three Business Days, issue and deliver to or upon the written order of
the holder of the certificate so surrendered, at the expense of the Corporation
(except for expenses relating to the issuance of such shares to a person other
than the record holder of such shares), a new certificate representing the
unredeemed Series A Preference Shares represented by the certificate so
surrendered.
(h) DELIVERY OF REDEEMED SHARES. The Corporation shall not be obligated
to pay the redemption amount to any holder of Series A Preference Shares unless
the certificate or certificates evidencing such shares are either delivered to
the Corporation or its transfer agent, or the holder notifies the Corporation or
its transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement (including, if requested, the posting of an indemnity
bond) satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates.
(i) FRACTIONAL SHARES. No fractional Common Shares shall be issued upon
conversion of the Series A Preference Shares unless the Corporation is
prohibited from paying cash in lieu of such fractional shares, in which case
such fractional shares shall be issued. Except as provided in the preceding
sentence, in lieu of any fractional shares to which any holder of Series A
Preference Shares would otherwise be entitled in connection with a conversion,
the Corporation shall, after aggregation of all fractional share interests held
by each holder, pay cash equal to such remaining fractional interest multiplied
by the Fair Market Value of a Common Share on the date immediately preceding the
date such payment is due.
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(j) RIGHT TO RECEIVE DIVIDENDS ON COMMON SHARES. From the date of
delivery by a holder of Series A Preference Shares of a Conversion Notice, a
Notice of Election to Redeem, a Default Redemption Notice, the Final Redemption
Date, or the Extended Redemption Date if in any such case Common Shares are
being issued, such holder shall participate equally and ratably with the holders
of Common Shares in all dividends paid on the Common Shares as if such Series A
Preference Shares had been converted into Common Shares at such time.
(k) RESERVATION OF SHARES. The Corporation hereby agrees at all times
to keep reserved for issuance and delivery, upon conversion pursuant to Section
5 (and, if requested by holders of a majority of the Series A Preference Shares,
a number of shares reasonably estimated to be deliverable upon conversion upon a
Change of Control, a Default Redemption or a Mandatory Redemption Obligation) of
the Series A Preference Shares, such number of its authorized but unissued (or
treasury shares) of Common Shares or other securities of the Corporation from
time to time issuable upon conversion of the Series A Preference Shares as will
be sufficient to permit the conversion in full of the Series A Preference
Shares. All such shares shall be duly authorized and, when issued upon such
conversion, shall be validly issued, fully paid and non-assessable, free and
clear of all liens, security interests, charges and other encumbrances or
restrictions on sale (except to the extent set forth in the Securityholders
Agreement) and free and clear of all preemptive rights.
(l) CERTAIN ACTIONS. If the issuance of any Common Shares required to
be reserved for purposes of the conversion of any Series A Preference Shares
requires the registration with, or approval of, any governmental authority or
requires listing on any national securities exchange or national market system
before such shares may be so issued, the Corporation shall at its expense cause
such shares to be duly registered, approved or listed, as the case may be, so
that such shares may be issued in accordance with the terms hereof. Without
limiting the generality of the foregoing, the Corporation will make any filings
required of it under the HSR Act as promptly as practicable, and in any event
within 10 Business Days after a written request by the majority of the holders
of Series A Preference Shares to do so. The Corporation will pay its and the
holders HSR Act filing fees in connection with any filings made by it or the
holders under the HSR Act.
(m) FAILURE TO REDEEM. If the Corporation is unable or shall fail to
discharge its obligation to redeem Series A Preference Shares when required by
Section 8(a) or, if applicable, 8(c) (each, a "MANDATORY REDEMPTION
OBLIGATION"), such Mandatory Redemption Obligation shall be discharged as soon
as the Corporation is able to discharge such Mandatory Redemption Obligation. If
and so long as any Mandatory Redemption Obligation with respect to the Series A
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Preference Shares shall not be fully discharged, the amount which the
Corporation would have otherwise paid to the holder shall bear interest of the
rate of 11 7/8% per annum compounded semi-annually, until paid. This provision
is in furtherance of and not in limitation of any other rights the holder may
have to enforce the provisions hereof, including any Mandatory Redemption
Obligation.
Section 9. CERTAIN COVENANTS. (a) After the date hereof, neither the
Corporation nor any of its Subsidiaries shall directly or indirectly make any
investment (whether by purchase of capital stock or other securities, or by way
of loan, advance, capital contribution or guarantee of obligations) in, enter
into any agreement arrangement or understanding with, or make any payment
(whether in cash or other property) to or purchase any equity securities of the
Persons listed on Schedule 3.18(f) to the Securities Purchase Agreement or any
successors thereto.
(b) The Corporation will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into, renew or extend any
transaction or any series of related transactions or agreement relating thereto
(including, without limitation, the purchase, sale, lease or exchange of any
property or assets, the rendering of any service or the making of any
investments, loans or advances) with or for the benefit of any holder (or any
Affiliate of such holder) of 5% or more of any class of shares of the
Corporation (any such Person, a "5% Holder") or with or for the benefit of an
Affiliate of the Corporation (each, an "AFFILIATE TRANSACTION") unless such
transaction is on arms-length terms no less favorable to the Corporation or such
subsidiary than those that could be obtained in a similar transaction with an
unrelated party and such transaction is approved by a majority of the
Independent Directors.
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with, such other
Person, and includes all officers and directors of and consultants to the
Corporation, and the immediate family members of all officers and directors of
and consultants to the Corporation, including spouses and children, the parents
of spouses, the spouses of children, siblings and their spouses and children.
For the purposes of this definition, "control" when used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"INDEPENDENT DIRECTOR" means any member of the Board of Directors who
is not an officer or employee of the Corporation, is not a member of the
immediate family of an officer or employee of the Corporation and is not an
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Affiliate of any Person or entity (other than the Corporation or any of its
Subsidiaries) who is a party to the Affiliate Transaction in question.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
(c) So long as any Series A Preference Shares are outstanding and
whether or not any Notes remain outstanding or the Indenture remains in effect,
the Corporation will comply with all of the obligations contained in Sections
4.03 to 4.07, 4.09 to 4.12 and 5.01 ("COVENANTS") of the Indenture ("INDENTURE")
dated as of December 19, 1995 among the Corporation, as guarantor, GST USA,
Inc., a Delaware corporation and a wholly owned subsidiary of the Corporation
and United States Trust Company of New York, as trustee, as amended from time to
time (provided that such amendment is not made in connection with a transaction
where holders of Notes vote in favor of such amendment prior to having their
Notes repurchased or redeemed) pursuant to which GST USA, Inc. issued its 137/8%
Senior Discount Notes due 2005 (the "NOTES"); provided that in the event such
Notes are refinanced with an issuance of securities under another indenture such
indenture shall become the "Indenture" for purposes hereof and the covenants
contained therein intended to protect the creditworthiness of the Corporation
and its subsidiaries (including covenants corresponding to the foregoing
covenants) shall became the "Covenants" for purposes hereof.
Section 10. TRANSFER AND LEGENDING OF SHARES. No transfer of the Series
A Preference Shares shall be effective until such transfer is registered on the
books of the Corporation. To the extent required by law, as determined by the
Board of Directors of the Corporation on the advice of counsel, any shares so
transferred must bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT AND COMPLIANCE
WITH ALL APPLICABLE STATE SECURITIES LAWS, OR UNLESS
THE Corporation HAS RECEIVED AN OPINION OF COUNSEL,
SATISFACTORY TO THE
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Corporation AND ITS COUNSEL, THAT SUCH REGISTRATION
AND COMPLIANCE IS NOT REQUIRED.
The Corporation shall refuse to register any attempted transfer of Series A
Preference Shares not in compliance with this Section 10. Any holder of a Series
A Preference Share may, upon providing evidence reasonably satisfactory to the
Corporation that such share is not a "restricted security" (as defined in Rule
144 under the Securities Act) or may be sold pursuant to Rule 144(k) under the
Securities Act, exchange the certificate representing such share for a new
certificate that does not bear the legend set forth in this Section.
Section 11. STATUS OF CONVERTED AND REDEEMED SHARES. If the Series A
Preference Shares are converted pursuant to Section 5 or 8 hereof or redeemed
pursuant to Section 8 hereof, the shares so converted or redeemed shall assume
the status of authorized but unissued shares of undesignated Preference Shares
of the Corporation.
Section 12. NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand or when sent by telex or telecopier (with
receipt electronically confirmed), provided a copy is also sent by express
(overnight, if possible) courier, addressed (i) in the case of a holder of the
Series A Preference Shares, to such holder's address of record, and (ii) in the
case of the Corporation, to the Corporation's principal executive offices to the
attention of the Corporation's Chief Executive Officer.
Section 13. AMENDMENTS AND WAIVERS. Any right, preference, privilege or
power of, or restriction provided for the benefit of, the Series A Preference
Shares set forth herein or in the Articles of Incorporation may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) with the written consent of
the Corporation and the affirmative vote or written consent of the holders of a
majority of the Series A Preference Shares then outstanding, and any amendment
or waiver so effected shall be binding upon the Corporation and all holders of
the Series A Preference Shares.
Section 14. OTHER REDEMPTIONS OR ACQUISITIONS PROHIBITED. Neither the
Corporation nor any of its Subsidiaries shall, directly or indirectly, redeem or
otherwise acquire any Series A Preference Shares, except as expressly authorized
herein.
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Section 15. FRACTIONS OF SERIES A PREFERENCE SHARES. The Series A
Preference Shares shall be issuable in whole or as fractional shares in any
fractional amount and all references herein to a Series A Preference Share or
Series A Preference Shares include fractions of a Series A Preference Share and
any action or election permitted to be made or taken hereunder may be taken or
made with respect to any whole or fractional Series A Preference Share.
A-34
AMEX "GST" March 4, 1997
NEWS RELEASE
GST TELECOMMUNICATIONS ANNOUNCES $50 MILLION EQUITY INVESTMENT BY
AFFILIATE OF MORGAN STANLEY & CO. INCORPORATED
(VANCOUVER, Wash.) - GST Telecommunications, Inc. (AMEX:GST) today announced
that the Company has concluded a transaction with an affiliate of Princes Gate
Investors II, L.P., a private association of prominent international and
domestic investors managed by Morgan Stanley & Co., Incorporated. Ocean Horizon
S.R.L. purchased $50,000,000 of Convertible Preference Shares, which are
convertible at any time after February 28, 2000 at an imputed conversion price
of $11.375 per share. The Convertible Preference Shares do not pay dividends,
but the liquidation and redemption prices accrete at a semi-annual rate
equivalent of 11 7/8%.
GST Telecommunications will utilize the net proceeds of the financing, along
with funds from Siemen Stromberg- Carlson and NTFC, to build out the Company's
fiber optic networks and for general corporate purposes.
John Warta, President and CEO of GST Telecommunications stated, "We are
delighted to complete this transaction and are confident that the affiliation
with this sophisticated investor will serve GST's best interests in the coming
years. We firmly believe this transaction reinforces our commitment to our
long-term strategy and it further highlights our ability to obtain growth
financing from a variety of sources in order to facilitate the build out of our
network infrastructure."
Hartley Rogers, head of Morgan Stanley's Private Investment Department, which
manages Princes Gate, said, "With all of the pieces in place to provide
significant shareholder value, we are very pleased to make this investment in
GST. We believe that GST's strong management team, its long-term strategy of
providing customers with a full range of telecommunications services, its high
quality networks and its regional focus, provide GST with a strong competitive
advantage in the emerging telecommunications industry.
Stephen Irwin, Vice Chairman of the Board of Directors for GST, stated, "GST is
particularly pleased to have formed an alliance with a savvy investor that also
has an impressive track record. This clearly illustrates the high level of
confidence the investment community places in GST.
Princes Gate is an $850 million private equity fund designed to make equity
investments in or alongside clients of Morgan Stanley. Notable investments by
Princes Gate in the telecommunications industry include Millicom Holdings and
Econophone; and in other industries include Barnes & Noble, Cannondale, and
General Medical.
GST Telecommunications, Inc., headquartered in Vancouver, Washington, currently
operates networks throughout the western United States and Hawaii. The company
provides a broad range of integrated telecommunications products and services
through the development and operation of competitive access and other
telecommunications networks. GST's strategy is to cluster several cities in each
state that it enters in order to achieve synergy and maximum opportunity within
each service territory. In addition, the company manufactures telecommunications
switching equipment and provides network management and billing systems through
its subsidiary, NACT Telecommunications, Inc., of Orem, Utah.
For further information please contact:
Rob Blankstein (800) 667-4366
John Warta (360) 254-4700
Please visit out web site at www.gstcorp.com
