Exhibit 10.1.7
INVESTMENT AGREEMENT
for a
$35,200,000 EQUIPMENT LEASE
by
CMB CAPITAL, LLC
to
Z-TEL COMMUNICATIONS, INC.
and for a
WARRANT FOR 474,393 SHARES
issued by
Z-TEL TECHNOLOGIES, INC.
to
CMB CAPITAL, LLC
Dated this 15th day of March, 1999
TABLE OF CONTENTS
Page No.
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ARTICLE I
LEASE OF EQUIPMENT
1.1 Sale-Leaseback ...................................................... 1
1.2 Additional Equipment Leases ......................................... 1
1.3 Commitment .......................................................... 1
1.4 Rental Rate ......................................................... 2
1.5 Lease Term .......................................................... 2
1.6 Expenses ............................................................ 2
1.7 Commitment Fee ...................................................... 2
1.8 Additional Collateral ............................................... 2
ARTICLE II
ISSUANCE OF WARRANT
2.1 Issuance of Warrant ................................................. 3
2.2 Adjustment of Shares Issuable under the Warrant .................... 3
2.3 Definition of Securities ....................... .................... 3
ARTICLE III
THE CLOSING
ARTICLE IV
CONDITIONS OF CLOSING
4.1 Conditions of Closing ............................................... 3
4.2 Conditions to Each Lease of Additional Equipment .................... 5
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Existence and Rights ................................................ 6
5.2 Agreement Authorized ................................................ 6
5.3 Capitalization ...................................................... 7
5.4 Subsidiaries, Other Investments ..................................... 8
5.5 Litigation .......................................................... 8
5.6 Financial Statements ................................................ 8
5.7 Title and Related Matters ........................................... 8
5.8 Real Estate ......................................................... 9
5.9 Intellectual Property ............................................... 9
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5.10 Absence of Changes .................................................. 11
5.11 No Materially Adverse or Other Contracts, Etc. ...................... 12
5.12 Compliance with Laws, Instruments, Etc. ............................. 12
5.13 Securities Laws ..................................................... 12
5.14 Brokers ............................................................. 13
5.15 Taxes ............................................................... 13
5.16 Insurance ........................................................... 13
5.17 Related Transactions ................................................ 14
5.18 Minute Books and Stock Record Books ................................. 14
5.19 Labor Matters ....................................................... 14
5.20 Profit Payments ..................................................... 15
5.21 Survival of Representations and Warranties: Full Disclosure ......... 15
5.22 Disclosure .......................................................... 15
ARTICLE VI
AFFIRMATIVE COVENANTS
6.1 Compliance with Lease ............................................... 16
6.2 Taxes ............................................................... 16
6.3 Maintain Corporate Rights and Facilities ............................ 16
6.4 Financial Statements ................................................ 16
6.5 Financial Covenant .................................................. 16
6.6 Insurance ........................................................... 17
6.7 Inspection .......................................................... 17
6.8 Maintain Properties ................................................. 17
6.9 Divisibility of Warrant ............................................. 17
6.10 Notices Concerning Governmental Authorities; Responses to
Threatened Litigation ............................................... 17
6.11 Compliance with Instruments, Laws, Etc. ............................. 18
6.12 Disclosure of Offers ................................................ 18
6.13 Maintenance of Business ............................................. 18
6.14 Landlord's Waivers .................................................. 18
6.15 Source Code ......................................................... 18
ARTICLE VII
COMPANY'S NEGATIVE COVENANTS
7.1 Stock Redemption .... ............................................... 19
7.2 Investments, Loans and Advances ..................................... 19
7.3 Acquisition or Sale of Business: Merger or Consolidation ............ 19
7.4 Change Capital Structure ............................................ 19
7.5 Officers' Salaries and Loans ........................................ 20
7.6 Amend, Violate Charter, Etc. ........................................ 20
7.7 Dealings with Insiders .............................................. 20
7.8 Dividends ........................................................... 20
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7.9 Management .......................................................... 21
7.10 Pension and Profit Sharing Plan or Arrangements ..................... 21
7.11 Permitted Indebtedness .............................................. 21
7.12 Liens ............................................................... 21
7.13 Capital Expenditures ................................................ 22
ARTICLE VIII
TRANSFERABILITY
8.1 Transferability ..................................................... 22
8.2 Restrictive Legends ................................................. 22
8.3 Restriction on Transfer ............................................. 23
ARTICLE IX
REGISTRATION RIGHTS
ARTICLE X
ADDITIONAL PROVISIONS
10.1 Expenses; Indemnity.................................................. 23
10.2 Successors and Assigns .............................................. 24
10.3 Notices ............................................................. 24
10.4 No Waiver, Remedies Cumulative ...................................... 25
10.5 Amendments and Waivers .............................................. 25
10.6 Integration ......................................................... 25
10.7 Separability ........................................................ 25
10.8 Headings ............................................................ 26
10.9 Governing Law........................................................ 27
Exhibits
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A Master Lease Agreement
B Lease Order
C Security Agreement
D Warrant
E Xxxx of Sale
F Perfection Certificate
G Equipment Disclaimer
H Registration Rights
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Schedules
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Schedule 1.1 Leaseback Equipment
Schedule 5.5 Litigation or Other Proceedings
Schedule 5.9 Relevant Intellectual Property
Schedule 5.10 Absence of Changes
Schedule 5.11 Contracts or Agreements
Schedule 5.12 Compliance With Laws
Schedule 5.15 Taxes
Schedule 5.16 Insurance
Schedule 5.17 Related Transactions
Schedule 5.20 Profit Payments
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INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT is made and entered into as of this 15th day of
March, 1999, by and among Z-TEL TECHNOLOGIES, INC., a Delaware corporation (the
"Company") Z-TEL COMMUNICATIONS, INC., a Delaware corporation ("Subsidiary") and
CMB CAPITAL, LLC, a Florida limited liability company ("Investor").
RECITALS
WHEREAS, the Investor has agreed to purchase from and lease to Subsidiary
certain equipment in a sale-lease back transaction and to purchase for and lease
to Subsidiary certain other equipment from time to time, subject to the terms
and conditions set forth in this Agreement; and
WHEREAS, in order to induce Investor to lease such equipment to Subsidiary,
the Company has agreed to issue to Investor a warrant to purchase 474,393
shares of the Company's common stock, subject to the terms and conditions set
forth in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties hereto agree as follows:
ARTICLE I
LEASE OF EQUIPMENT
1.1 Sale-Leaseback. On the Closing Date (as hereinafter defined), Subsidiary
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shall sell to Investor, and Investor shall purchase from Subsidiary, the
equipment listed on Schedule 1.1 to this Agreement (the "Leaseback Equipment").
Simultaneously therewith, Investor shall lease to Subsidiary, and Subsidiary
shall lease from Investor, the Leaseback Equipment, on the terms and conditions
set forth in the Master Lease Agreement attached hereto as Exhibit A (the
"Lease").
1.2 Additional Equipment Leases. From time to time during the period that is
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twenty-four months from the Closing Date, after receipt of a Lease Order in the
form of Exhibit B to this Agreement (a "Lease Order") for one or more of the
items of equipment (the "Additional Equipment"), Investor shall purchase the
Additional Equipment specified in the Lease Order from its vendor and
simultaneously lease such Additional Equipment to Subsidiary. All leases of
Additional Equipment under this Section 1.2 shall be pursuant to the terms and
conditions of the Lease. Schedule 1.2 sets forth the dates on which the purchase
and lease of Additional Equipment shall occur and the name of the vendor of the
Additional Equipment.
1.3 Commitment. Investor shall have no obligation to purchase and lease
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Additional Equipment under Section 1.2 if the Acquisition Cost (as defined in
Section 1.4 hereof) of the aggregate amount of Additional Equipment leased to
Subsidiary under the
Lease, including the Additional Equipment which is the subject of a Lease Order,
would exceed $25,200,000. Investor shall have no obligation to purchase and
lease Additional Equipment in advance of the applicable dates set forth in
Schedule 1.2 or after March 15 2001.
1.4 Rental Rate. As consideration for the lease of the Leaseback Equipment
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and the Additional Equipment, Subsidiary shall pay to Investor monthly rental
payments ("Rent") as set forth in each applicable Lease Order, calculated on
the basis of a lease rate factor equal to 0.02556 and based on the Acquisition
Cost of such leased equipment. For purposes hereof, "Acquisition Cost" shall
mean, as to any item(s) of equipment, an amount equal to the sum of (i) the
purchase price of such item of equipment to be paid by Investor, plus (ii) any
excise, sales and use taxes on or with respect to such item(s) of equipment,
plus (iii) any reasonable costs, expenses and fees paid or incurred by Investor
in obtaining or delivering such item(s) of equipment to Subsidiary and any
expenses of installation of such item(s) of equipment paid by Investor.
1.5 Lease Term. The term of each Lease as to the Leaseback Equipment and any
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Additional Equipment shall commence on the Installation Date (as defined in the
Lease) for each item of such equipment and shall continue for an initial period
ending forty-eight (48) months from the Commencement Date (as defined in the
Lease) for such item of equipment.
1.6 Expenses. Subsidiary shall reimburse Investor for the costs and expenses
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incurred by Investor in connection with the transactions contemplated by this
Agreement, including without limitation costs relating to lien searches, the
recordation of liens and preparation of loan documentation, including reasonable
attorneys' fees. Notwithstanding the foregoing, the costs and expenses to be
reimbursed by Subsidiary under this Section 1.6 shall not exceed $20,000.
1.7 Commitment Fee. At the Closing, Subsidiary shall pay Lessor a commitment
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fee in the amount of $704,000 (the "Commitment Fee") which shall be deemed fully
earned upon payment by Subsidiary and non-refundable. Notwithstanding the
foregoing, in the event that Subsidiary is not in default under the Lease or any
other document executed in connection with the transactions contemplated by this
Agreement, and Investor fails to make any purchase and lease of Additional
Equipment as contemplated by this Agreement, the Commitment Fee shall be reduced
pro rata by the amount by which the scheduled cost of such Additional Equipment
which is not purchased and leased bears to $35,200,000, and Investor shall pay
to Subsidiary the difference between the Commitment Fee paid by Subsidiary and
the reduced Commitment Fee.
1.8 Additional Collateral. As additional security for the performance of
Subsidiary's obligations under the Lease each Lease Order and this Investment
Agreement, Subsidiary shall grant to Investor a security interest in all of
Subsidiary's assets, including wihtout limitation accounts receivable,
inventory, general intangibles, equipment, cash and
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cash equivalents and instruments, all as more fully described in the Security
Agreement attached as Exhibit C to this Agreement.
ARTICLE II
ISSUANCE OF WARRANT
2.1 Issuance of Warrant. Subject to the terms and conditions of this
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Agreement, on the Closing Date, the Company shall issue to the Investor an
immediately exercisable warrant to purchase 474,393 shares of the common stock
of the Company (the "Warrant") at an exercise price of $3.71 per share. The
Warrant shall be in the form and subject to the terms and conditions of the
Warrant attached hereto as Exhibit D to this Agreement.
2.2 Adjustment of Shares Issuable under the Warrant. If the investor fails to
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comply with its obligation to purchase and lease the Additional Equipment after
receipt of a Lease Order from Subsidiary as set forth herein, and Subsidiary is
not in default under the Lease or any other document executed in connection with
the transactions contemplated by this Agreement, the number of shares issuable
under the Warrant shall be reduced pro rata by the amount by which the scheduled
cost of such Additional Equipment which is not purchased and leased under this
Agreement bears to $35,200,000. Notwithstanding the foregoing, if the failure of
the Investor to purchase and lease any Additional Equipment is a result of an
increase in the cost of such Additional Equipment over the cost set forth in
Schedule 1.2, the number of shares issuable under the Warrant shall not be
adjusted.
2.3 Definition of Securities. The term "Securities" as used in this Agreement
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shall mean both the Warrant and the shares of Common Stock issued under the
Warrant.
ARTICLE III
THE CLOSING
Subject to the conditions hereof, the transactions described herein will be
closed (the "Closing") on March 15, 1999 at 10:00 A.M. at Xxxxx 0000, Xxxxx
Xxxxx, 0000 Xxxxxxxxx Xxxx, X.X., Xxxxxxx, Xxxxxxx 00000, or at such other time
and place, and on such date (the "Closing Date") as all the parties hereto may
agree.
ARTICLE IV
CONDITIONS TO CLOSING
4.1 Conditions to Closing. All of the obligations of the Investor to purchase
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and lease the Leaseback Equipment and the Additional Equipment and to purchase
the Warrant as provided in this Investment Agreement are subject to the accuracy
in all material respects, on the Closing Date, of all the representations and
warranties by the Company and Subsidiary contained herein and to the performance
by the Company and the Subsidiary of all the terms, covenants and conditions on
their part to be performed hereunder on or prior to the Closing Date and to the
satisfaction of the following additional conditions precedent.
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(a) Xxxx of Sale. Subsidiary shall have executed and delivered to
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Investor a Xxxx of Sale in the form of Exhibit E to this Agreement transferring
to Investor the Leaseback Equipment free and clear of all liens, charges, claims
and encumbrances of any nature whatsoever.
(b) Master Lease and Lease Order. Subsidiary shall have executed and
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delivered to Investor the Lease and a Lease Order for the Leaseback Equipment.
(c) Security Agreement. Subsidiary shall have executed and delivered a
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Security Agreement in the form attached hereto as Exhibit C.
(d) Issuance of Securities. The Company shall have issued the Warrant.
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(e) Due Diligence. Investor shall have completed its due diligence
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review of the Company, Subsidiary and their respective financial conditions and
concluded in Investor's sole discretion to enter into the transactions
contemplated by this Agreement.
(f) Certificate of Incorporation, Bylaws and Good Standing. Each of the
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Company and Subsidiary shall have delivered to Investor copies of its
Certificate of Incorporation certified by the Delaware Secretary of State, its
Bylaws certified by the Secretary of the Company and Subsidiary, respectively,
and a good standing certificates issued by the Delaware Secretary of State and
the Florida Secretary of State.
(g) Corporate Resolutions. Incumbency certificate and certified copies
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of the resolutions adopted by the Company's and Subsidiary's Boards of Directors
authorizing and approving (i) the execution, performance and delivery of this
Investment Agreement, (ii) the issuance of the Securities to be issued
hereunder, and (iii) the other transactions contemplated hereby, shall have been
delivered to the Investor.
(h) Officer's Certificate. Each of the Company and Subsidiary shall have
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delivered to the Investor a Certificate signed by its respective CEO, to the
following effect: that all of the representations and warranties of the Company
and Subsidiary contained in this Investment Agreement are true, correct and
complete in all material respects as of the Closing Date; (ii) that the Company
and Subsidiary have complied with and performed all of the terms, covenants and
agreements contained in the Investment Agreement which are to be complied with
or performed by the Company and Subsidiary on or before the Closing Date; and
(iii) that, to the knowledge of the Company and Subsidiary there does not exist
any state of facts which would constitute non-compliance under this Investment
Agreement or, with notice or lapse of time as provided herein, or both, would
constitute non-compliance.
(i) UCC Searches. Each of the Company and Subsidiary shall have
delivered to Investor UCC-11 searches and other Lien searches showing no
existing security interests in or Liens on the assets of the Company and
Subsidiary other than Permitted Liens.
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(j) Perfection Certificate. Each of the Company and Subsidiary shall
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have delivered to Investor a Perfection Certificate in the form of Exhibit F
hereto.
(k) Evidence of Insurance. Each of the Company and Subsidiary shall have
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delivered to Investor satisfactory evidence of insurance meeting the
requirements of Section 6.6.
(l) Landlord's Waivers. Subsidiary shall have delivered to Investor
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evidence reasonably satisfactory to Investor and its counsel that Subsidiary has
prepaid all amounts due for the six month period following the Closing Date
under each of its collocation agreements or similar agreements for all of the
locations at which any of the Leaseback Equipment, the Additional Equipment or
any equipment of Subsidiary constituting part of the additional collateral
described in Section 1,8 hereof is located.
(m) Opinion of Counsel. The Investor shall have received from Xxxxxxx X.
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Alba, Esq., Chief Legal Officer for the Company and Subsidiary, a favorable
opinion, dated the date hereof, addressed to the Investor, in a form acceptable
to Investor.
(n) Proceedings and Documents. All proceedings taken or to be taken in
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connection with the transactions contemplated by this Investment Agreement to be
consummated at, or prior to, the execution and Closing hereof and all other
documents, schedules, exhibits, opinions and certificates in connection
therewith shall each be satisfactory in form and substance to the Investor, and
the Investor shall have received copies of all such documents and all other
documents which the Investor has requested in connection with said transactions
and of all corporate proceedings in connection therewith, in form and substance
satisfactory to the Investor.
(o) Perfection of Liens. UCC-1 financing statements executed by
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Subsidiary covering all of the assets of Subsidiary shall have been duly
recorded or filed in the manner and places required by law to establish,
preserve, protect and perfect the interests and rights created or intended to be
created by the Security Agreement; and all taxes, fees and other charges in
connection with the execution, delivery and filing of the Security Agreement and
the financing statements shall duly have been paid.
(p) Additional Documents. Each of the Company and Subsidiary shall have
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delivered to Investor all additional opinions, documents, certificates and other
assurances that Investor or its counsel may reasonably require.
4.2 Conditions to Each Lease of Additional Equipment. The following
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conditions, in addition to any other requirements set forth in this Agreement or
the Lease, shall have been met or performed by the Company and Subsidiary prior
to each purchase and lease of Additional Equipment hereunder:
(a) Lease Order. Subsidiary shall have executed and delivered to Investor
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a Lease Order for such item of Additional Equipment.
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(b) No Default. No Event of Default (as defined in the Lease) shall have
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occurred and be continuing or could occur upon the lease of the Additional
Equipment in question.
(c) Correctness of Representations. All representations and warranties
------------------------------
made by the Company and Subsidiary herein or otherwise in writing in connection
herewith shall be true and correct in all material respects with the same effect
as though the representations and warranties had been made on and as of the
proposed Installation Date.
(d) Limitations Not Exceeded. The proposed lease of such Additional
------------------------
Equipment shall not cause the aggregate Acquisition Cost of all leases of
Additional Equipment hereunder to exceed $25,200,000.
(e) Additional Equipment Documents. Subsidiary shall have delivered to
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Investor the documents referenced in Sections 4(h), 4(k), 4(1) and 4(p) with
respect to the Additional Equipment and all additional opinions, documents,
certificates and other assurances that Investor or its counsel may require.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Investor to purchase and lease the Leaseback
Equipment and the Additional Equipment and to purchase the Securiities and
notwithstanding any investigation made by or on behalf of the Investor, the
Company and Subsidiary, jointly and severally, make the following
representations and warranties, each of which is independently material and
relied upon by Investor:
5.1 Existence and Rights. Each of the Company and Subsidiary is a
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corporation duly organized and validly existing under the laws of the State of
Delaware. Each of the Company and Subsidiary has delivered to the Investor a
true, complete and correct copy of its Certificate of Incorporation and Bylaws,
including all amendments thereto, in effect or to be in effect as of the
Closing. The Company and Subsidiary each has all corporate power and adequate
authority, rights, licenses and franchises to own and operate its properties and
assets and carry on its business as now conducted and as proposed to be
conducted. Each of the Company and Subsidiary is duly qualified and in good
standing in the state of Florida and in each other state or other jurisdiction
where failure to so qualify would have a material impact on the conduct of its
business. Each of the Company and Subsidiary has the corporate power and
adequate authority to enter into and perform the transactions contemplated by
this Agreement.
5.2 Agreement Authorized. The execution and delivery of this Investment
--------------------
Agreement and the performance of each of the terms, covenants and agreements of
the Company and Subsidiary contained or referred to herein is not in
contravention of, or in conflict with, any law, ordinance or regulation known to
the Company or Subsidiary or any term or provision of the Company's or
Subsidiary's Certificate of Incorporation or Xxxxxx,
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and the execution and performance of this Investment Agreement is duly
authorized and does not require the consent or approval of any governmental body
or other regulatory authority. All action on the part of the Company and
Subsidiary, and all necessary or appropriate approvals and consents for the due
execution, delivery and performance of this Investment Agreement, including the
Lease and the creation, issuance and sale of the Securities, have been duly and
validly obtained or taken. No right of the Company or Subsidiary is impaired or
infringed upon by the execution and/or performance of this Investment Agreement.
This Investment Agreement and the Securities and all other documents,
instruments and agreements of the Company and Subsidiary in connection therewith
constitute, and on the Closing Date will constitute, the valid and binding
obligations of the Company and Subsidiary enforceable against the Company and
Subsidiary in accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, moratorium and similar laws of general
application affecting creditors' rights, and except as enforcement may be
limited by general equitable principles.
5.3 Capitalization.
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(a) Following issuance to the Investor of the Securities and
immediately after the Closing: (i) the entire authorized capital stock of the
Company will consist of 30,000,000 shares of common stock, par value $0.01
("Common Stock"), 20,000,000 shares of preferred stock, par value $0.01 per
share, 5,930,749 shares of which have been designated as Series A Convertible
Preferred Stock and 1,338,208 shares of which have been designated as Series B
Convertible Preferred Stock; and (ii) the Company's issued and outstanding
capital stock will consist solely of 13,179,000 shares of Common Stock,
2,695,795 shares of Series A Convertible Preferred Stock and 1,338,208 shares of
Series B Convertible Preferred Stock, options to purchase 3,836,000 shares of
Common Stock and the Warrant. An additional 925,000 shares are reserved for
issuance under the Company's Equity Participation Plan for employees
(b) Except for the Warrant, the options described in Section 5.3
(a) and the rights existing under the Stock Purchase Agreement (as defined
herein), the Company does not have, and on the Closing Date will not have, any
outstanding subscriptions, options, warrants or other rights for the issuance or
purchase of any stock or other securities, nor any securities convertible or
exchangeable for any stock or other securities, or any understandings or
commitments of any kind for the issuance of stock or securities convertible into
stock or other securities.
Upon Closing, the Company will not be a party to any shareholder
agreement, voting trust agreement or other agreement affecting the ownership,
transfer, or voting of the Common Stock or preferred stock, or management of the
Company, except as is provided in this Investment Agreement and except as
provided in the Stockholders' Agreement dated as of November 4,1998, by and
among the Company, D. Xxxxxxx Xxxxx, Xxxxxxx X. Xxxx, Xxxxx X. Kitchen, Xxxxxxx
X. XxXxxxxxx, J. Xxxxx Xxxxxxx, NationsBanc Capital Corporation and Sewanee
Partners II, L.P. (the "Stockholders' Agreement") and the Stock Purchase
Agreement dated as of November 4, 1998 between the Company and
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NationsBanc Capital Corporation and Sewanee Partners II, L.P. (the "Stock
Purchase Agreement").
(c) Assuming the payment by the Investor of the consideration for
the shares of Common Stock to be issued to it pursuant to the Warrant, the
shares of Common Stock issued upon exercise of the Warrant will be, when issued,
duly and validly issued, fully paid and nonassessable.
5.4 Subsidiaries, Other Investments. The Company has no subsidiaries, or
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other investment in any other business or corporation other than the Subsidiary,
Z-Tel Business Networks, Inc., Z-Tel Network Services, Inc., Z-Tel Holdings,
Inc., Z-Tel Communications of Virginia and Z-Tel, Inc. For the purpose of this
Investment Agreement the term "subsidiary" or "subsidiaries" means any
corporation or other entity of which the securities having a majority of the
voting power in electing the Board of Directors are owned by the Company either
directly or by another subsidiary.
The Company owns all of the outstanding capital stock of Subsidiary
free and clear of all liens, charges, encumbrances or claims of any kind by
others and Subsidiary does not have any outstanding subscriptions, options,
warrants or other rights for the issuance or purchase of any stock or other
securities, nor any securities convertible or exchangeable for any stock or
other securities, or any understandings or commitments of any kind for the
issuance of stock or securities convertible into stock or other securities.
5.5 Litigation. Except as described in Schedule 5.5, there is no
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litigation or other proceeding (including administrative or government
proceedings or investigation) pending or, to the knowledge of the Company or
Subsidiary, threatened against or affecting the Company or Subsidiary or their
respective assets, (i) as to which the Company or Subsidiary is not likely to
prevail, and (ii) which if determined adversely, would have a material adverse
effect on the financial condition or business of the Company or Subsidiary and
neither the Company nor Subsidiary is in default with respect to any order,
writ, injunction, decree or demand of any court or other governmental or
regulatory authority. To the Company's knowledge there is no basis for any of
the foregoing.
5.6 Financial Statements. The Company has previously delivered complete
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and correct copy of the unaudited consolidated balance sheet, statement of
operations and statement of cash flow of the Company and Subsidiary as of and
for the fiscal year ending December 31, 1998; such financial statements were
prepared in accordance with generally accepted accounting principles
consistently applied from prior periods, and fairly and accurately present the
financial condition and results of operation of the Company as of the date
thereof and for the periods then ended. The balance sheet as of December 31,
1998 is referred to as the "Balance Sheet."
5.7 Title and Related Matters.
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(a) Each of the Company and Subsidiary has good title to all of the
properties and assets owned or used by it or In its possession free and clear of
all
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mortgages, liens, pledges, charges or encumbrances of any kind or character. The
Company has not violated, and is not in violation of, any zoning, building,
health or safety laws, statutes, ordinances or regulations relating to such
properties or assets. All properties and assets material to the operations of
the Company are reflected in the Balance Sheet in the manner and to the extent
required by generally accepted accounting principles, applied on a consistent
basis with prior periods.
(b) All of the tangible properties and assets owned by the Company and
Subsidiary or used in their respective business, or in which the Company or
Subsidiary has an interest, are in good operating condition and repair, normal
wear and tear excepted, free from defects (except such minor defects as do not
interfere with the continued use thereof in the conduct of normal operations),
are sufficient to carry on its business as conducted during the preceding twelve
(12) months and as contemplated to be conducted following the Closing, and
conform with all applicable governmental regulations, including, without
limitation, those governing the discharge of materials into the environment or
the storage or disposition of hazardous or toxic wastes.
5.8 Real Estate. Neither the Company nor Subsidiary owns or holds title to
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any real property. All facilities located on the real property leased or
otherwise used by the Company or Subsidiary or in their respective operations
are suitable for the purpose for which they are being used.
There have been no acts or omissions occurring on or with respect to any
real estate leased or otherwise used by the Company or Subsidiary which violate
or have violated federal, state and local environmental laws, including but not
limited to, the Clean Water Act, the Toxic Substances Control Act, the
Comprehensive Environmental Response, Compensation and Liability Act and their
state and local law counterparts, all rules and regulations promulgated
thereunder and all other legal requirements in connection with the ownership and
use of real estate and real estate interests.
5.9 Intellectual Property.
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(a) For the purposes of this section, the term "Technology" shall
include processes, formulae, manufacturing techniques, machines, devices,
compositions of matter, computer software and programs, data and information
(irrespective of whether in human or machine readable form), designs, drawings,
inventions (whether or not patentable), works of authorship, printed circuits,
mask works, and products.
(b) For the purposes of this section, the term "Intellectual Property"
shall include trade secrets and confidential business information; know-how;
proprietary processes; patents and patent applications; copyrights, copyright
registrations and applications therefor; trademarks, service marks, brand names
and trade names, the goodwill associated therewith, and registrations and
applications for registrations thereof; design registrations; franchises; and
licenses of the foregoing.
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(c) For the purposes of this section, the term "Relevant Intellectual
Property" means Intellectual Property owned, licensed or used by the Company or
Subsidiary.
(d) Schedule 5.9 sets forth all Relevant Intellectual Property (other
than trade secrets and confidential business information) and there is no other
Intellectual Property (other than trade secrets and confidential information)
owned, licensed or used by the Company or Subsidiary. Expiration dates, if
applicable, are also set forth in Schedule 5.9.
(e) The Relevant Intellectual Property is free of any liens or
encumbrances. All patents and trademark, copyright and mask work registrations
comprising Relevant Intellectual Property have been maintained and are in force.
(f) Except as set forth in Schedule 5.9, neither the Company nor
Subsidiary has granted any licenses or sublicenses respecting Relevant
Intellectual Property.
(g) There are no others infringing any Intellectual Property right of
the Company or Subsidiary.
(h) No proceedings have been instituted, are pending or threatened which
challenge the Company's or Subsidiary's rights in Relevant Intellectual Property
or the validity thereof except as described in Schedule 5.5.
(i) Neither the Company nor Subsidiary has received notice of any
interference or opposition proceeding respecting Relevant Intellectual Property.
(j) Neither the Company nor Subsidiary is infringing or otherwise
violating the Intellectual Property rights of others.
(k) Each of the Company and Subsidiary has the right to use all
Technology and Intellectual Property which it uses in the conduct of its
business, and owns and possesses all Intellectual Property rights with respect
to (or is expressly or impliedly licensed to use) all such Technology and
Intellectual Property. The Company's and Subsidiary's rights in such Technology
and Intellectual Property are adequate for the conduct of their respective
business.
(l) No director, officer or employee of the Company owns, directly or
indirectly, in whole or in part, any Intellectual Property rights which the
Company or Subsidiary has used or the use of which is necessary for the business
of the Company or Subsidiary as now conducted, or which relate to Technology
which the Company or Subsidiary has used or the use of which is necessary for
the business of the Company or Subsidiary as now conducted.
10
(m) Except as set forth in Schedule 5.9, there are no agreements
relating to or affecting Relevant Intellectual Property or the use or ownership
of Technology or Intellectual Property by the Company or Subsidiary, including,
for example, confidentiality and non-disclosure agreements, assignments or
agreements to assign, development agreements, settlement agreements, and the
like.
5.10 Absence of Changes. Except as set forth on Schedule 5.10, since the date
------------------
of the Balance Sheet, each of the Company and Subsidiary has been developed and
operated in the ordinary course thereof consistent with past practices, and
there has not been:
(a) Any material adverse change in the assets of the Company or
Subsidiary, the condition (financial or otherwise) of the Company or Subsidiary
or their respective business, or, to the best of the Company's knowledge, the
prospects of the Company, Subsidiary or their respective business;
(b) Any material damage, destruction or loss (whether or not covered by
insurance) affecting the business or assets of the Company or Subsidiary;
(c) Any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due), including any account payable,
incurred in connection with the Company or Subsidiary, other than those incurred
in the ordinary course of business and consistent with past practices;
(d) Any payment, discharge or satisfaction of any claim, lien,
encumbrance or liability of the Company or Subsidiary (whether absolute,
accrued, contingent or otherwise and whether due or to become due), other than
in the ordinary course of business and consistent with past practices;
(e) Any declaration, setting aside or payment of any dividend or other
distribution in respect of any equity security of the Company or Subsidiary, or
any direct or indirect redemption, purchase or other acquisition of any equity
security of the Company or Subsidiary;
(f) Any statute, rule or regulation adopted which materially and
adversely affects the business or assets of the Company or Subsidiary;
(g) Any sale, transfer, pledge, mortgage, or other disposition of any
material tangible or intangible asset of the Company or Subsidiary, nor has the
Company or Subsidiary subjected any such asset to any lien, security interest,
charge or encumbrance;
(h) Any increase in the compensation paid or payable to any officer,
employee, consultant or agent of the Company or Subsidiary (including, without
limitation, any increase pursuant to any bonus, pension, profit sharing or other
plan or commitment);
(i) Any material capital expenditure or commitment for additions to
property, plant or equipment,
11
(j) Any forward purchase commitments;
(k) Any change in the accounting methods or practices followed by the
Company or Subsidiary, or any change in depreciation, cost recovery or
amortization policies or rates theretofore adopted;
(l) Any agreement, whether in writing or otherwise, to take any of the
actions specified above in subsections (a) through (k) above.
5.11 No Materially Adverse or Other Contracts, Etc. Neither the Company nor
---------------------------------------------
Subsidiary is obligated under any contract or agreement not disclosed on
Schedule 5.11 or under any law, regulation, or decree or subject to any
restriction in the Company's or Subsidiary's Certificate of Incorporation or
Bylaws, which materially and adversely affects the assets, condition (financial
or otherwise) or prospects of the Company or Subsidiary. Neither the execution
nor the delivery of this Investment Agreement, nor the consummation of the
transactions contemplated hereby, nor the fulfillment of the terms hereof, will
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, either the Certificate of Incorporation or Bylaws
of the Company or Subsidiary, any law or governmental regulation applicable to
the Company or Subsidiary, or of any agreement, instrument, lien, charge or
encumbrance under which the Company or Subsidiary or any of their respective
properties is bound or obligated except as disclosed an Schedule 5.11.
5.12 Compliance with Laws, Instruments, Etc. Except as set forth an
--------------------------------------
Schedule 5.12, neither the Company nor Subsidiary is in violation of its Article
of Incorporation or Bylaws, as amended, or any applicable law, statute or
regulation of any federal, state, municipal or other governmental or quasi-
governmental agency, board, bureau or body relating to the maintenance,
operation or use of the assets of the Company or Subsidiary, or in violation or
default in any material respect with respect to any order, license, regulation
or demand of any governmental agency, or in default in any material respect
under any indenture, mortgage, lease, agreement or other instrument under which
it is bound. Each of the Company and Subsidiary has complied with and performed
each and every material obligation required to be complied with and performed
pursuant to each contract, lease, license, mortgage, indenture, instrument and
other agreement to which it is bound or obligated, and there is no material
default under any such contract, lease, license, mortgage, indenture, instrument
or other agreement now existing or which would come into existence with the
passage of time, the giving of notice, or both, except only for such defaults,
if any, which would not result in the cancellation of any such contract, lease,
license, mortgage, indenture, Instrument or other agreement, or permit the
acceleration of any obligation owed by the Company or Subsidiary, and otherwise
not have a material adverse effect on the assets, condition (financial or
otherwise) or prospects of the Company or Subsidiary.
5.13 Securities Laws. The sale and delivery of the Securities issued to the
Investor are exempt from the requirement of registration under the Securities
Act of 1933, as
12
amended ("Securities Act") and applicable state "Blue Sky" laws, and such
Securities Act and "Blue Sky" laws were not violated by the original issuance of
the Company's capital stock to its existing shareholders and will not be
violated by the execution of this Investment Agreement or the consummation of
the transactions contemplated hereby.
5.14 Brokers. The Company has not incurred any liability for any finders'
-------
fees, brokerage fees or similar fees or expenses in connection with entering
into this transaction with the Investor.
5.15 Taxes. Each of the Company and Subsidiary has timely filed, or
-----
obtained valid extensions of time for filing (which extensions have not
expired), all federal, state, local and other tax returns and reports required
to be filed by the Company and Subsidiary, respectively. All such tax returns
are true and correct. No claim has been made by any taxing authority in any
jurisdiction where the Company or Subsidiary did not file tax returns that the
Company or Subsidiary is or may be subject to taxation by that jurisdiction.
Except as disclosed in Schedule 5.15:
(a) Each of the Company and Subsidiary has paid all taxes (including
all deficiency assessments, additions to taxes, penalties and interest, of which
notice has been received) to the extent that such amounts have become due or are
claimed to be due from any federal, state, local or foreign taxing authorities.
(b) Adequate provisions have been made in the Balance Sheet for the
payment of all then accrued and unpaid federal, state, local and other taxes,
whether or not then due and payable and whether or not disputed.
(c) There are no tax liens (other than liens for taxes which are not
yet due and payable) on any property of the Company or Subsidiary.
(d) There are no pending or threatened tax return examinations against
the Company or Subsidiary.
(e) There are no tax deficiencies asserted by any jurisdiction against
the Company or Subsidiary.
(f) Neither the Company nor Subsidiary has granted any extensions of
limitation periods applicable to tax claims.
5.16 Insurance. The insurance carried by either the Company and/or
---------
Subsidiary is reasonably adequate in kind and amount to cover insurable risks
normally insured against by companies similarly situated, is subject to the
deductibles disclosed on Schedule 5.16, and all premiums thereon have been paid
as and when due. All such policies are in full force and effect. No notice of
cancellation or termination has been received with respect to any such policy.
Such policies are valid, outstanding and enforceable policies and will not in
any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Investment Agreement or the Lease. 'The insurance policies
to which
13
either the Company and/or Subsidiary is a party are sufficient for compliance
with all material requirements of law and of all material agreements to which
either the Company or Subsidiary is a party and provide adequate insurance
coverage for the assets and operations of the Company.
5.17 Related Transactions. Except as set forth on Schedule 5.17 or as
--------------------
described in notes to the Balance Sheet, and except for compensation to current
employees, no current or former director, officer, managerial employee or
shareholder of the Company or Subsidiary (or any person actually or
constructively related to such director, officer, managerial employee or
shareholder within the meaning of Section 267(a) of the Internal Revenue Code),
is presently, or during the last fiscal year has been:
(a) A party to any material transaction with the Company or
Subsidiary (including, but not limited to, any contract, agreement or other
arrangement providing for the furnishing of services by, or rental of real or
personal property from, or otherwise requiring payments to, any such director,
officer, employee or shareholder or such associate);
(b) The direct or indirect owner of any interest in any corporation,
firm, association or business organization which is a competitor or a potential
competitor or supplier of the Company or Subsidiary; or
(c) The recipient of income from any source other than the Company or
Subsidiary which relates to its business or which should properly accrue to the
Company or Subsidiary.
5.18 Minute Books and Stock Record Books. The minute books of the Company
-----------------------------------
and Subsidiary contain true, complete and correct records of all meetings and
other actions of the Company's and Subsidiary's shareholders and Board of
Directors. The stock record books of the Company and Subsidiary contain true,
complete and correct records of all transactions involving the Company's and
Subsidiary's stock.
5.19 Labor Matters.
-------------
(a) No employees of the Company or Subsidiary are currently
represented by any labor union, neither the Company nor Subsidiary is a party to
any collective bargaining agreement, and there is no organizational effort
presently being made or threatened by or on behalf of any labor unions with
respect to employees of the Company or Subsidiary;
(b) Each of the Company and Subsidiary is in compliance with the
Occupational Safety and Health Act, the regulations promulgated thereunder, and
all other applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and neither the Company nor
Subsidiary is engaged in any unfair labor practice;
14
(c) There is no unfair labor practice complaint against the Company
or Subsidiary pending before the National Labor Relations Board;
(d) There is no labor strike, dispute, slowdown, representation
campaign or work stoppage actually pending or threatened against or affecting
the Company or Subsidiary; and
(e) No grievance or arbitration proceeding is pending and no claim
therefor has been asserted against the Company or Subsidiary.
5.20 Profit Payments. Except as set forth in Schedule 5.20 hereto, neither
---------------
the Company nor Subsidiary is a party to any agreement (other than agreements
with salespersons-employees who are paid sales commissions and sales
representative agreements entered into in the ordinary course of business, which
sales representative agreements are described in Schedule 5.20) involving
payments to any person or entity based on the profits or gross revenues or sales
of the Company or Subsidiary.
5.21 Survival of Representations and Warranties: Full -Disclosure. All
------------------------------------------------------------
representations and warranties contained herein or made by or on behalf of the
Company or Subsidiary in writing in connection with the transactions
contemplated herein shall be true and correct as of the Closing and shall
survive the consummation of the transactions contemplated hereby for so long as
the Investor (or any of its transferees) hold the Warrant or Common Stock
acquired upon exercise of the Warrant. All statements contained in any
schedule, exhibit, certificate or other instrument attached hereto or required
to be delivered to the Investor pursuant hereto shall constitute representations
and warranties by the Company and Subsidiary hereunder. Information contained in
any schedule hereto is responsive only to the Section of this Agreement
referring to such schedule, and such information shall not be deemed to
have been disclosed with respect to any other section or for any other purpose.
5.22 Disclosure. Neither this Agreement nor any of the schedules,
----------
attachments, written statements, documents, certificates or other items required
hereby contain any untrue statement of a material fact or omit a material fact
necessary to make each such statement contained herein or therein not
misleading. There is no fact which the Company has not disclosed to the Investor
in writing and of which any of its officers, directors or executive employees is
aware, which could reasonably be anticipated to have a material adverse effect
upon the existing or expected financial condition, operating results, assets,
customer relations, employee relations or business prospects of the Company or
Subsidiary.
ARTICLE VI
AFFIRMATIVE COVENANTS
From and after the Closing Date and so long as any obligations of the Company
or Subsidiary to the Investor (or any of its transferees) under the Lease or any
Lease Order
15
remain outstanding or the Investor has any commitment to lease Additional
Equipment to Subsidiary hereunder, the Company and Subsidiary shall comply with
each of the following actions unless the Investor waives such action in writing:
6.1 Compliance With Lease. Subsidiary shall duly comply with all of the terms
---------------------
and conditions of the Lease.
6.2 Taxes. The Company and Subsidiary shall accurately prepare all tax
-----
returns required by law to be filed. The Company and Subsidiary shall promptly
pay and discharge all taxes, assessments and governmental charges or levies
imposed by applicable law upon it or upon its income or profit, or upon its
properties, real, personal or mixed; provided, however, that the Company and
Subsidiary shall not be required to pay or cause to be paid any such tax,
assessment, charge or levy if the same shall not at the time be due and payable
or if the validity thereof shall be contested in good faith by appropriate
proceedings, if any, and it has established adequate reserves on its books with
respect to such tax, assessment, charge or levy; provided further, however, that
the Company and Subsidiary will pay all such taxes, assessments, charges or
levies forthwith whenever, as the result of proceedings to foreclose any lien
which attached as security therefor, foreclosure on such lien appears imminent,
or will obtain a surety bond or take such other steps as will prevent such
foreclosure.
6.3 Maintain Corporate Rights and Facilities. The Company and Subsidiary
----------------------------------------
shall maintain and preserve their respective corporate existence and all its
rights, franchises and qualifications adequate for the conduct of their
respective business and the ownership of their respective properties.
6.4 Financial Statements. Subsidiary shall furnish to Investor the financial
--------------------
and other information required to be furnished to NationsBanc Capital
Corporation and Sewanee Partners II, L.P. pursuant to Section 4.1 of the Stock
Purchase Agreement, in the same manner and at the same time as such information
is required to be furnished thereunder. The obligation to furnish such
information is incorporated herein by reference and shall survive the
termination of the Stock Purchase Agreement.
6.5 Financial Covenant. On and after January 1, 2000, Subsidiary shall
------------------
maintain at all times an aggregate amount of cash and Eligible Accounts equal to
or greater than 20% of the aggregate Acquisition Cost of all Leaseback Equipment
and Additional Equipment leased to Subsidiary under the Lease. Subsidiary shall
provide Investor each quarter, together with the financial statements required
to be provided to Investor pursuant to Section 6.4, a schedule of such cash and
Eligible Accounts certified by Subsidiary's chief financial officer. For
purposes of the foregoing, "Eligible Accounts" shall mean all accounts
receivable (valued net of any sales tax included in the invoiced amount, the
maximum amount of any discounts or other reductions) of Subsidiary payable not
more than 45 days after the date of invoice and as to which the Investor has a
first priority perfected security interest subject only to Permitted Liens,
excluding (A) accounts receivable outstanding for ninety days or more from the
date of invoice; (b) accounts receivable owing from any
16
affiliate of Subsidiary; (c) accounts receivable which are in dispute or subject
to any counterclaim, contra-account or offset, (d) accounts receivable owing by
any account debtor which is insolvent or generally unable to pay its debts as
they become due; (e) accounts receivable owed by an account debtor outside the
United States; (f) accounts receivable evidenced by a note or other instrument,
or chattel paper or reduced to judgement; and (g) accounts receivable which, by
contract, subrogation, mechanic's lien laws or otherwise, are subject to claims
by Subsidiary's creditors or other third parties.
6.6 Insurance. The Company and Subsidiary shall maintain insurance against
---------
all such liabilities, hazards and risks (including without limitation product
liability claims), and in at least such amounts (which, in the case of property
casualty insurance, shall be at least replacement cost), as are usually carried
by persons engaged in the same or a similar business. All such insurance shall
be effected under valid and enforceable policies issued by insurers of
recognized responsibility, except that the Company and Subsidiary may effect
workmen's compensation or similar insurance in respect of operations in any
state or other jurisdiction through an insurance fund operated by such state or
other jurisdiction .
6.7 Inspection. The Investor shall have the right to visit and inspect any
----------
of the properties, books and records of the Company and Subsidiary (and to make
copies and take extracts therefrom) and to discuss the Company's and
Subsidiary's affairs, finances and accounts with, and be advised of the same by,
the directors, officers and independent accountants of the Company and
Subsidiary at such reasonable times and intervals, subject to reasonable notice
to the Company and Subsidiary, as the Investor may desire.
6.8 Maintain Properties. The Company and Subsidiary shall keep its
-------------------
properties in reasonable repair, working order and condition, ordinary wear and
tear excepted, and from time to time make all prudent, needful or proper
repairs, replacements, extensions, additional betterments and improvements
thereto, so that the business carried on by the Company and Subsidiary may be
properly conducted at all times in accordance with sound business management.
6.9 Divisibility of Warrant. The Warrant may be divided into multiple
-----------------------
warrants in such denominations as the Investor may request, upon surrender at
the principal office of the Company.
6.10 Notices Concerning Governmental Authorities; Responses to Threatened
---------------------------------------------------------------------
Litigation. At the time any notice, report, inquiry, answer, response or other
----------
communication or document, relating in any material way to the Company or
Subsidiary, is received by the Company or Subsidiary from any governmental or
regulatory authority or agency which relates to any material adverse
determination, investigation or proceeding, the Company promptly shall send a
copy thereof to the Investor. At the time the Company or Subsidiary receives
notice of, or becomes aware that, any material suit, action, proceeding or
investigation has been filed, instituted or threatened against the Company or
Subsidiary, the Company promptly shall notify the Investor concerning all
material details thereof and shall keep Investor informed with respect to such
matter.
17
6.11 Compliance with Instruments, Laws, Etc. The Company and Subsidiary each
--------------------------------------
shall comply with the terms, requirements, restrictions and limitations
contained in this Investment Agreement and in its respective Certificate of
Incorporation and Bylaws, as amended, and the requirements, restrictions and
limitations of any applicable law, statute or regulation of any federal, state,
municipal or other governmental or quasi-governmental agency, board, bureau or
body materially relating to the conduct of its business and maintenance and
operation of its respective properties, to the extent non-compliance could have
a material adverse affect on the Company, Subsidiary or their respective
business, and shall further comply with and perform the terms, conditions and
covenants contained in any material contract, lease, license, mortgage,
indenture, instrument or other agreement under which the Company or Subsidiary
is obligated.
6.12 Disclosure of Offers. The Company shall disclose to the Investor all
--------------------
bona fide written offers or proposals of whatever kind (whether written or oral)
which it receives from any person concerning the possible sale of more than 50%
of the voting securities of the Company or Subsidiary, or more than 50% of the
assets of the Company or Subsidiary, merger of the Company or Subsidiary, or any
other acquisition of a material portion of the Company's or Subsidiary's
respective businesses. Promptly after any officer or director of the Company and
Subsidiary each becomes aware of any such offer or proposal made to any of its
shareholders, the Company shall advise the Investor of the same.
6.13 Maintenance of Business. The Company shall maintain its executive
-----------------------
offices and its principal place of business within the State of Florida.
6.14 Landlord's Waivers. Not later than 6 months after the Closing Date,
------------------
Subsidiary shall provide Investor with a release and waiver executed by each of
WorldCom Network Services, Inc. and R.E. Xxxxxxxx (and any other landlord
licensors under collocate agreements with Subsidiary or Parent) of all liens and
claims whatsoever in the Leaseback Equipment, the Additional Equipment or any
other equipment which constitutes part of the additional collateral described in
Section 1.8 hereof. Such release and waiver shall be substantially in the form
of the Equipment Disclaimers attached as Exhibit G hereto.
6.15 Source Code. If requested by Investor, Subsidiary and Parent shall
-----------
deliver to Investor the source code for any computer software owned by
Subsidiary or Parent and used in Subsidiary's business under a customary escrow
arrangement reasonably satisfactory to Investor, Subsidiary and Parent.
ARTICLE VII
COMPANY'S NEGATIVE COVENANTS
From and after the Closing Date and so long as any obligations of the
Company or Subsidiary to the Investor (or any of its transferees) under the
Lease or any Lease Order remain outstanding or the Investor has any commitment
to lease Additional Equipment to Subsidiary hereunder, neither the Company nor
Subsidiary will do or take any of the following actions without the prior
written consent of the Investor ("Investor Approval"):
18
7.1 Stock Redemption. Purchase or otherwise acquire, redeem or retire any
----------------
Common Stock or preferred stock or other securities of the Company or agree or
commit to do any of the foregoing except for purchases of up to $250,000 of such
securities in any fiscal year pursuant to the terms of the Company's Equity
Participation Plan for its employees as in effect on the date hereof.
7.2 Investments, Loans and Advances. Make or have outstanding any loans or
-------------------------------
advances to, or investments in (through the acquisition of securities or stock
or otherwise), any other person, firm, or corporation, except:
(a) Advances in the ordinary course of business to suppliers in
respect to the purchase of supplies or equipment;
(b) By endorsement of negotiable instruments for deposit or collection
in the ordinary course of business;
(c) Travel and other advances to employees in the ordinary course of;
business; or
(d) Bank deposits in federally insured financial institutions,
investments in direct government obligations of the United States of America and
commercial paper of a domestic issuer rated A-1 or better or P-1 by Standard
and Poor's Corporation or Xxxxx'x Investors Services, Inc., respectively,
maturing not more than three months from the date of acquisition.
7.3 Acquisition or Sale of Business: Merger or Consolidation. Purchase or
--------------------------------------------------------
otherwise acquire the stock, shares, or other securities, or the assets or
business, of any person or other entity; or liquidate, dissolve, merge,
consolidate, reorganize, recapitalize or otherwise alter its legal status or
commence any proceedings therefor; or sell, lease, transfer, or dispose of, in
any way, any personal or real property assets, except assets sold or leased in
the ordinary and normal course of the Company's or Subsidiary's business; or
assign or transfer any substantial part of its intangible business rights
necessary for the continuance of its business as now conducted or planned.
7.4 Change Capital Structure. Increase or decrease the number of its
------------------------
authorized shares, or vary or alter the terms, par value or rights of shares of
any class or type of stock, or issue or agree to issue any stock or other
securities of the Company or Subsidiary, or any options, warrants or other
rights to acquire such stock or other equity securities, or securities
convertible into stock or other equity securities of the Company or Subsidiary
except shares to be issued pursuant to existing obligations or existing stock
option plans; or, create any new class of stock of the Company or Subsidiary.
Notwithstanding the foregoing, an Investor Approval shall be required hereunder
only if such change in capital structure may be deemed to have a material
adverse impact on (i) Investsor's rights as Lessor under the Lease or any Lease
Order executed in connection therewith (ii) the condition, financial or
otherwise, of the Company or Subsidiary or (iii) either of the Company's or
Subsidiary's respective operations, assets, business or prospects.
19
7.5 Officers' Salaries and Loans. Increase compensation to any of its
----------------------------
officers or directors in an amount which is in excess of an amount which is
usual and customary in the industry. The term "compensation," for proposes of
this Section, shall include all remuneration for services rendered, whether such
payment be called salary, bonus, drawing account, profit sharing, withdrawals or
other form of recompense (but shall not include fringe benefits, such as health
and life insurance generally available to all salaried employees). No loans or
advances, either direct or indirect, shall be made by the Company or Subsidiary
to any officer, consultant, managerial employee, director or shareholder, or to
any person actually or constructively related to any of the foregoing within the
meaning of section 267(a) of the Internal Revenue Code; provided, however, that
the Company and Subsidiary may make reasonable advances to employees for
reimbursable travel and entertainment expenses to be incurred with respect to
business of the Company or Subsidiary.
7.6 Amend, Violate Charter, Etc, Amend or change its Certificate of
----------------------------
Incorporation or Bylaws, or violate or breach any of the provisions thereof.
Notwithstanding the foregoing, an Investor Approval shall be required hereunder
only if such amendment or change may be deemed to have a material adverse impact
on (i) Investor's rights as Lessee under the Lease or any Lease Order executed
in connection therewith (ii) the condition, financial or otherwise, of the
Company or Subsidiary or (iii) either of the Company's or Subsidiary's
respective operations, assets, business or prospects.
7.7 Dealings with Insiders. Allow or permit any director, officer,
----------------------
managerial employee, consultant or shareholder (other than the Investor), or
persons actually or constructively related to such director, officer, employee,
consultant or shareholder (within the meaning of section 267(c) of the Internal
Revenue Code) to have either directly or indirectly an interest in any
corporation, partnership, proprietorship, association or other person or entity
which furnishes or sells services or products to the Company or Subsidiary or in
any corporation, partnership, proprietorship, association or other person or
entity to which services or products are furnished or sold by the Company or
Subsidiary. For the purposes of this Section, there shall be disregarded any
interest which arises solely from the ownership of less than a five percent (5%)
equity interest in any corporation whose stock is regularly traded on any
national securities exchange or in the over-the-counter market and in which such
person has no management role.
7.8 Dividends. Declare or pay any dividends, or make other distributions, in
---------
cash, property or stock, with respect to the Common Stock or other equity
security of the Company; provided, however, in the event the Company elects to
be treated as a Subchapter S corporation for income tax purposes, the Company
May make distributions to its shareholders in an amount not greater than the
shareholders' personal income tax liability directly related to the Company's
status as a Subchapter S corporation. Notwithstanding the foregoing, no Investor
Approval shall be required for cash dividends paid solely out of retained
earnings provided that after payment of any such dividend neither Subsidiary nor
the Company will be in default under any covenant contained In this is
Agreement.
20
7.9 Management. After the Company or Subsidiary has obtained knowledge
----------
thereof, fail to use its best efforts to preclude any management personnel of
the Company from organizing or becoming engaged in any business activity that is
in competition with the business of the Company or Subsidiary.
7.10 Pension and Profit Sharing Plan or Arrangements. Establish or make any
-----------------------------------------------
contribution to any employee pension benefit plan, or other pension or profit
sharing plan or arrangement, whereby the Company or Subsidiary is required to
make contributions on behalf of any of its employees or whereby any part of the
profits or earnings of the Company or Subsidiary is shared with any person, firm
or corporation.
7.11 Permitted Indebtedness. Create, incur, assume or suffer to exist any
----------------------
indebtedness, liability, guaranty or indemnity of any kind, whether accrued,
absolute, contingent or otherwise, except (i) current trade payables and
expenses incurred in the ordinary course of business; (ii) wages or other
compensation due to employees and agents of the Company or Subsidiary for
services actually performed; (iii) liabilities for customer deposits in
reasonable amounts obtained in the ordinary course of business; (iv) liabilities
for taxes not yet due; (v) purchase money indebtedness for capital expenditures
allowed by Section 7.13, provided any security therefor complies with section
7.12(c); and (vi) indebtedness fully subordinated to the Subsidiary's
obligations to Investor if the holder of such subordinated has executed and
delivered a subordination agreement in a form reasonably acceptable to Investor
and such other documents to evidence such subordination as Investor or its legal
counsel may reasonably request.
7.12 Liens. Create or suffer to exist, any claim, assessment, pledge,
-----
security interest, mortgage, encumbrance or other lien in favor of any person,
including the lien of a conditional seller, upon any of its properties or
assets, now owned or hereafter acquired, including treasury shares; provided,
however, that this restriction shall not be applicable to nor prevent the
following:
(a) Liens for taxes, assessments or governmental charges not delinquent
or being contested in good faith; undetermined liens and charges incident to
construction and not resulting from any delinquent obligation for the payment of
money on account of such construction; the lessor's rights in leasehold
property, and easements, restrictions, minor title irregularities and similar
matters which have no adverse effect as a practical matter upon the ownership
and use of the properties;
(b) Liens or deposits in connection with workmen's compensation or
other insurance or to secure customs duties, public or statutory obligations or
mechanics or materialmen's claims not delinquent; or to secure performance of
contracts or bids (other than contracts for the payment of money borrowed), or
deposits required by law or governmental regulations or by a court order,
decree, judgment or rule as a condition to the transaction of business or the
exercise of any right, privilege or license or other liens of a like nature made
in the ordinary course of business;
21
(c) Purchase money mortgages or liens on any property acquired after
the date hereof to be used by the Company in the normal course of its business
and created or incurred simultaneously with the acquisition of such property, if
such mortgage or lien is limited to the property so acquired and (subject to the
limits of Section 7.13) the indebtedness secured by such mortgage or lien does
not exceed the lesser of $1,000,000 or ninety percent (90%) of the purchase
price of such property; and
(d) Liens in favor of the Investor.
7.13 Capital Expenditures. Make any expenditures for acquisition of fixed
--------------------
assets (including acquisitions under lease obligations required to be
capitalized under generally accepted accounting principles but excluding the
Leaseback Equipment and the Additional Equipment) in excess of $1,000,000 in the
aggregate within any twelve (12) month period.
ARTICLE VIII
TRANSFERABILITY
8.1 Transferability. Transfer of the Warrant and Common Stock acquired upon
---------------
exercise of the Warrant shall be made only an the books of the Company by the
holders of record thereof or by their legal representatives who shall furnish
proper evidence of authority to transfer, or by their attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the Company, subject to the restrictions set forth in Sections 8.2 and 8.3
hereof. The holder(s) in whose name the Securities stand on the books of the
Company shall be deemed by the Company to be owner(s) thereof for all purposes.
8.2 Restrictive Legends. Unless and until otherwise permitted by this
-------------------
Section, each instrument evidencing Securities issued or to be issued under this
Agreement shall contain or otherwise be imprinted with a suitable legend in
substantially the following form:
This security has not been registered under the Securities Act of 1933
or any state securities act, and has been acquired for investment and
not with view to, or for sale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933, as amended.
This security may be transferred only pursuant to an Investment
Agreement dated as of March 15, 1999 (the "Investment Agreement").
Notwithstanding any other provisions contained herein, no transfer of
this security shall be made unless the conditions specified in Article
IX of said Investment Agreement have been fulfilled. A copy of the
Investment Agreement is on file and available for inspection at the
principal offices of the Company.
22
Each instrument evidencing Securities issued or to be issued under this
Agreement shall also contain the legend set forth in Section 10 of the
Stockholders' Agreement unless such Agreement has terminated in accordance with
its terms. The Company is hereby authorized to place "stop transfer"
instructions on its records or to instruct any transfer agent to prevent the
transfer of Securities except in conformity with this Investment Agreement.
8.3 Restriction on Transfer. No holder shall transfer any Securities until
-----------------------
it has first given written notice to the Company describing briefly the manner
of any such proposed transfer and until (i) the transferee has executed and
delivered to the Company the Stockholders' Agreement and (ii)(x) the Company has
received from the holder's counsel an opinion (reasonably satisfactory in form
and substance to the Company's counsel) that such transfer can be made without
compliance with the registration provisions of the Securities Act or any state
securities act and without the necessity of perfection of an exemption pursuant
to Regulation A adopted pursuant to said Securities Act, (y) the Company and the
holder shall have complied with Rule 144 (or comparable successor provisions)
promulgated under the said Securities Act (and in this connection, the Company
shall so comply, as hereinafter provided, upon request of the holder) and
applicable state securities act requirements, or (z) a registration statement
filed by the Company is declared effective by the SEC and governing state
securities act authorities or steps necessary to perfect exemptions from such
registration are completed.
ARTICLE IX
REGISTRATION RIGHTS
Investor shall have the rights described in Exhibit H to require the Company
to register, under the Securities Act of 1933, as amended, and relevant state
securities laws, Common Stock held by the Investor.
ARTICLE X
ADDITIONAL PROVISIONS
10.1 Expenses; Indemnity. The Company and Subsidiary, jointly and severally
-------------------
agree to indemnify the Investor against any and all losses, claims, damages,
liabilities and expenses, (including, without limitation, reasonable attorneys'
fees and expenses) incurred by the Investor arising out of, in any way connected
with, or as a result of (i) the negotiation, preparation, execution, delivery,
administration, and enforcement of this Investment Agreement, the Lease, any
Lease Order, and any other document required hereunder or thereunder, including
without limitation any amendment, supplement, modification or waiver of or to
any of the foregoing or the consummation or failure to consummate the
transactions contemplated hereby or thereby or the performance by the parties of
their obligations hereunder or thereunder, (ii) any and all recording and filing
fees and any and all stamp, excise, intangibles and other taxes, if any, other
than taxes levied upon the net income of the Investor by the federal government
or the State of Florida, which may be payable or determined to be payable in
connection with the
23
negotiation, preparation, execution, delivery, administration or enforcement of
this Investment Agreement, the Lease, any Lease Order or any other document
required hereunder or thereunder or any amendment, supplement, modification or
waiver of or to any of the foregoing, or consummation of any of the transactions
contemplated hereby or thereby, including all costs and expenses incurred in
contesting the imposition of any such tax, and any and all liability with
respect to or resulting from any delay in paying the same, whether such taxes
are levied upon the Investor, the Company or otherwise, (iii) any claim,
litigation, investigation or proceedings related to any of the foregoing,
whether or not the Investor is a party thereto; provided, however, that such
indemnity shall not apply to any such losses, claims, damages, liabilities or
related expenses arising from (A) any unexcused breach by the Investor of its
obligations under this Investment Agreement or (B) any commitment made by the
Investor to a person other than the Company or Subsidiary which would be
breached by the performance of the Investor's obligations under this Investment
Agreement. Notwithstanding the foregoing, the indemnification obligation of the
Company and Subsidiary to the Investor for its attorneys' fees in connection
with the negotiation, preparation, execution and delivery of this Investment
Agreement, the Lease, the Lease Order and other documentation required hereunder
or thereunder shall be limited to $20,000 unless otherwise agreed by the Company
and Subsidiary.
(b) The foregoing agreements and indemnities shall remain operative and
in full force and effect regardless of termination of this Investment Agreement,
the consummation of or failure to consummate either the transactions
contemplated by this Investment Agreement or any amendment, supplement,
modification or waiver, the repayment of any loans made hereunder, the
invalidity or unenforceability of any term or provision of this Investment
Agreement or the Lease, or any other document required hereunder or thereunder,
any investigation made by or on behalf of the Investor, Subsidiary or the
Company or the content or accuracy of any representation or warranty made under
this Investment Agreement or any other document required hereunder or
thereunder.
10.2 Successors and Assigns. This Investment Agreement shall be binding upon
----------------------
and inure to the benefit of the Investor, the Company, Subsidiary and their
respective successors and assigns, and any subsequent holder of any Securities
issued hereunder.
10.3 Notices. All notices, demands, and communications provided for herein
-------
or made hereunder shall be delivered, or mailed first class with postage
prepaid, or telegraphed, addressed in each case as follows, until some other
address shall have been designated in a written notice given in like manner,
and shall be deemed to have been given or made when so delivered or mailed or
telegraphed:
24
(a) if to the Company Z-Tel Communications, Inc.
or Subsidiary: Suite 220
000 X. Xxxxxxx Xxxxxx Xxxx.
Xxxxx, XX 00000
Attn: Xxxxxxx X. Xxxx, Esq.
Senior Vice President -
Business Development
(b) if to Investor: CMB Capital, LLC
0000 Xxxxxxxxxxx Xxxxx
Xxxx Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxx
Chairman & C.E.O.
with a copy to: Xxxxx & Xxxxxxx
X.X. Xxx 000
Xxxxxxxxxxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxxxxx
10.4 No Waiver, Remedies Cumulative. No delay on the part of the Investor in
------------------------------
exercising any right, power or privilege under this Investment Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude other or further
exercise thereof, or the exercise of any other right, power or privilege. The
rights and remedies provided in this Investment Agreement are cumulative and are
in addition to all rights or remedies which the Investor and such other holders
otherwise may have in law or in equity or by statute or otherwise. Without
limiting the generality of the foregoing, nothing in this Investment Agreement
shall be deemed to preclude or be in lieu of any right or remedy which the
Investor may have in law or in equity or by statute or otherwise against the
Company, Subsidiary or any other person based upon any fraud.
10.5 Amendments and Waivers. This Investment Agreement may not be changed or
----------------------
amended orally, and no waiver hereunder may be oral, but any change or amendment
hereto or any waiver hereunder must be in writing and signed by the party or
parties against whom such change, amendment or waiver is sought to be enforced.
10.6 Integration. This Investment Agreement, the appendices and exhibits
-----------
annexed hereto and documents, schedules and certificates referred to herein
contain the entire agreement between the Company, Subsidiary and the Investor
with respect to the transactions contemplated herein; and none of the parties
shall be bound by nor shall be deemed to have made any representations and/or
warranties except those contained herein and therein.
25
10.7 Separability. If any provision of this Investment Agreement is
------------
held for any reason to be unenforceable by a court of competent jurisdiction,
the remainder of this Investment Agreement shall, nevertheless, remain in full
force and effect in such jurisdiction.
10.8 Headings. The headings in this Investment Agreement are intended
--------
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
10.9 Governing Law. This Investment Agreement is made in the State of
-------------
Florida and shall be governed by and construed in accordance with the internal
laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the date first above written.
Z-TEL TECHNOLOGIES, INC.
By /s/ Xxxxxxx X. Xxxx
------------------------------------------
Xxxxxxx X. Xxxx, Senior Vice President
("Company")
Z-TEL COMMUNICATIONS, INC.
By /s/ Xxxxxxx X. Xxxx
------------------------------------------
Xxxxxxx X. Xxxx, Senior Vice President
("Subsidiary")
26
CMB CAPITAL, INC.
By /s/ Xxxx X. Xxxxxxxxx, Chairman and CEO
("Investor")
STATE OF GEORGIA
COUNTY OF XXXXXX
The foregoing instrument was acknowledged before me this 15th day of March,
1999, by Xxxxxxx X. Xxxx, the Senior Vice President of Z-Tel Technologies, Inc.,
a Delaware corporation, who acknowledged that he executed the foregoing
instrument in Xxxxxx County, Georgia, on behalf of the corporation.
/s/
----------------------------------
Signature of Notary
[Notary seal must be affixed]
Xxxxxx X. Xxxxxx
----------------------------------
Name of Notary [typed, printed or stamped]
My Commission Expires: Feb. 05, 2002
27
STATE OF GEORGIA
COUNTY OF XXXXXX
The foregoing instrument was acknowledged before me this 15th day of March,
1999, by Xxxxxxx X. Xxxx, the Senior Vice President of Z-Tel Communications,
Inc., a Delaware corporation, who acknowledged that he executed the foregoing
instrument in Xxxxxx County, Georgia, on behalf of the corporation.
/s/ Xxxxxx X. Xxxxxx
----------------------------------
Signature of Notary
[Notary seal must be affixed]
Xxxxxx X. Xxxxxx
----------------------------------
Name of Notary [typed, printed or stamped]
My Commission Expires: Feb. 05, 2002
STATE OF GEORGIA
COUNTY OF XXXXXX
The foregoing instrument was acknowledged before me this 15th day of March,
1999, by Xxxx X. Xxxxxxxxx, the Chairman and Chief Executive Officer of CMB
CAPITAL, LLC, a Florida limited liability company, who acknowledged that he
executed the foregoing instrument in Xxxxxx County, Georgia, on behalf of the
corporation.
/s/ Xxxxxx X. Xxxxxx
----------------------------------
Signature of Notary
[Notary seal must be affixed]
Xxxxxx X. Xxxxxx
----------------------------------
Name of Notary [typed, printed or stamped]
My Commission Expires: Feb. 05, 2002
28
